The boundaries of the firm is an organizational concept to define the value created within the company, and what is outsourced to suppliers/partners.
With the advent of modern communication technologies, the boundaries of a firm are becoming increasingly fluid. With the rise of flexible organization options like part-timers, contract workers, consultants, crowdsourcing, wiki-collaboration, outsourced operations – the firm is becoming increasingly like a ringmaster rather than a full circus.
When is it useful?
In a strategy diagnostic of an existing business, you can use this concept to challenge the existing boundary. You can identify:
- Opportunities for outsourcing, improving performance and simplifying your company
- Opportunities to take activities in-house, building a competitive advantage
When you have crafted a new strategy, you can use this concept to identify how the boundary of your organisation will need to change under the new strategy.
P&G extended the boundary of their product development organisation through their “Connect and Develop” initiative.
Between 2001 and 2008 they increase the proportion of their new product development initiatives involving external innovation partnerships from 10% to over 50%. They used a variety of approaches, including working with inventors, suppliers, Universities, competitors, JVs and new venture start-ups to achieve this.
How do you do the analysis?
Doing a complete job of setting the boundary of an organisation is a major mapping exercise. The best units of analysis are organisational processes – e.g. the product development process. Start with the processes that are most important.
- Map the process, starting at a high level and diving into steadily more detail.
- Identify which parts of the process are most important to your organisation’s competitive advantage. A detailed Activity map or Core/context analysis can help with this. Flag areas which may become more important in the future – understanding the dynamics of value migration may help this.
- Highlight which parts of the process are internal, and which are conducted by external partners, thus mapping all the key organisational interfaces.
- Compare these two to identify two different opportunities:
- Activities important to your competitive advantage now or in the future that are being conducted outside your organisation. How can you lock these in? Can you sign an exclusive partnership to keep them proprietary, or should you be trying to in-source this activity?
- Activities that your organisation is devoting time and energy to that do not contribute to your advantage. Are there innovative ways to reduce the load?
I want to know more
Recommended for follow-up are the classic organisational thinkers: Mintzberg; Handy; Drucker
An understanding of Geoffrey Moore’s Core/Context distinction will also help from his “Dealing with Darwin” book