Looking before you leap: Assessing the jump to teams in knowledge-based work

Looking Before You Leap: Assessing the Jump to Teams in Knowledge-based Work

Rob Cross

W e live in exciting but unsettling times. In an economy in which knowledge is becoming more and more central

to wealth, effective management practices can yield success more rapidly than at any other time in history. Yet although this environment offers many opportunities, it also poses great challenges to traditional organizational principles dating to Max Weber and Frederick Taylor. Rigid bureau- cracies impede the flow of information across functional and hierarchical boundaries. Excessive specialization fragments work processes, making it difficult to integrate expert knowledge and respond nimbly to environmental demands. As a result, many companies have turned to team- based structures to improve collaboration across departmental boundaries, integrate specialized functional and technical knowledge, and increase responsiveness to demanding stakeholders.

With minimal fixed asset O r geographic con- straints in knowledge-based work, team-based designs often seem a natural and easy solution for improving collaboration and productivity. However, experience has proven the transition to teams a difficult one, requiring infrastructure realignment and the development of appropriate cultural values and leadership skills. Drains on productivity and employee morale can occur if the design is inconsistent with a firm's strategy, information and performance management systems, leadership style, or employee skill base. Moreover, altering any of these elements to support the design usually requires great time and cost to develop, implement, and administer.

Many management texts and consultants begin with the assumption that teams are impera- tive. But we believe executives should consider alternative means of enhancing collaboration if

the net benefit of switching to teams is minimal. Organizational design mechanisms such as cross- department performance measures and integration roles can effectively unite disparate specialties in core work processes when teams would be too costly. And several concur- rent technological advancements in connectivity, video, and groupware are rapidly making electronic com- munication media sufficiently interactive and contextually based to support dispersed collaboration of specialists. Executives making the jump to team-based designs too soon may find they have invested significant resources to estab- lish technologies, control systems, incentive schemes, and reporting structures that do not offer an optimal way of organizing.

There are important benefits and costs that executives must analyze in the decision to switch to teams. Experience has shown this to be an important analysis for two reasons. First, depending on a firm's operating model and infrastructure, the costs often exceed the anticipated benefits. Alternative technical and organizational design mechanisms can facilitate necessary collaboration more efficiently than a full transition to teams. Second, when teams a r e viable, analysis helps ensure that the firm is maximizing their value and targeting important "barriers" in implementing them. Defining the anticipated benefits and obstacles of a team-based structure can provide critical guidance to intervention and design decisions emerging in the turmoil of implementation. This ensures strategic alignment rather than piecemeal solutions as problems emerge.


THE POTENTIAL VALUE OF TEAMS

W ill a team structure really work for you? Can it follow through on its potential to improve your firm's

collaboration, knowledge integration, and responsiveness? The framework in F igure 1 out- lines several questions managers can use in sort- ing out the benefits and costs of teams to their organizations. We begin with the benefits.

Do customers value a breadth of expertise in their transactions with a company?

Cross-functional teams can both enhance revenue and create switching costs by expanding the breadth of products and services offered to a customer. Two regional banks the author has worked with are finding that a team-based approach allows greater coordination of marketing efforts and more efficient use of employees who bring highly specialized industry and product knowledge to bear on their customers' problems. For example, each has found that corporate lending teams with leasing or cash management experience can be highly effective in marketing a breadth of specialized products to a client. Unit- ing these specialists to provide an integrated solution to a customer's problems often reveals otherwise missed opportunities and helps estab- lish the banks as full-service financial advisors. Though this had been a stated goal of both insti- tutions for years, it was not until they reorganized into industry-focused teams and gave the specialists responsibility for greater account penetration that integrated financial solutions emerged.

Figure 1 Questions Informing the Decision to Adopt Teams

Value Propositions of Teams • Does the market value a breadth of expertise at

the customer interface? • Does the market value innovation spurred by

integrating cross-functional perspectives? • Do customers value responsiveness and flexibility? • Can teams yield efficiencies in important work

processes?

Costa- of Teams • Will teams diffuse important strategic capabilities? • How extensive will infrastructure realignment be? • Will teams be able to perform activities previously

conducted by support departments? • Will leaders embrace the team concept and alter

styles appropriately? • How difficult will it be to develop teams' problem-

solving capabilities?

Expanding a relationship with an existing customer is almost always more profitable than marketing to new clients. Executives often firmly believe that additional products or services can be sold to existing customers. However, customers are often reticent to expand relationships with one specific f irm--offering strategic, political, efficiency, or quality arguments for their actions. Though difficult to quantify, a company anticipating additional revenue from the transition to teams should critically evaluate the potential of such a windfall. Does the firm have the reputa- tion and client contacts to make additional offerings viable? What strategic, economic, and political reasons might preclude customers from expanding a relationship with the firm? What is the profitability of these additional offerings in various bundles? Researching such questions helps ground the value from expanded client relationships that a specific team configuration can yield.

Do customers value innovation spurred by integrating cross-functional perspectives?

Innovation is crucial to success in today's dynamic business environment. The growing complexity of problems, the proliferation of formally edu- cated specialties, and the pace at which knowledge becomes obsolete often requires innovation efforts to span disciplinary boundaries. Teams can be effective mechanisms for collecting information and analyzing decisions from several different perspectives when developing integrated services or products. As a result, more and more permanent teams are responsible for new product development and continued product exten-

sions in areas ranging from ap- plied R&D to software development to professional services.

One global consulting firm establishes accountability for innovation by forming cross-disciplinary teams of strategy, information technology (IT), and organizational design specialists. On a quarterly basis, the teams report to an advisory board on the integration of external best practices and internal client projects into cross-disciplinary systems.

Of course, innovation generally does not come free. It requires specific incentive schemes to motivate creativity, as well as organizational investments to screen and bring new ideas to market. Executives anticipating more innovation from teams should critically examine the form of innovation desired and

30 Business Horizons / September-October 2000

its alignment with strategic objectives. For instance, a specific operating model will likely place more emphasis on innovation in either product/service offerings or process efficiencies. Once important forms of innovation are identi- fied, market research or process analysis can help define the value teams may offer via greater innovation. Though such an analysis will not yield pinpoint accuracy, it can help ground potential team value better than considering innovation abstractly as an unquestionable reason to adopt a team-based structure.

Do customers value responsiveness and flexibility?

Switching to a team-based design often improves decision making by uniting relevant knowledge specialists from important points in a company's core work process. Teams can be appropriate when specific expertise is commonly sought to resolve client issues. Alternatively, they may also be appropriate when specific relationships are profitable enough to warrant the potential inefficiencies of uniting cross-disciplinary functions. Ideally, teams in these situations apply better- informed and timely decision making to important but ill-defined customer problems.

A company pursuing teams to enhance such flexibility and responsiveness should actively assess its customer base in order to understand the strategic and economic value teams can provide. In many situations, team flexibility and responsiveness yield quantifiable benefits of customer loyalty that go unrecognized. In such time- sensitive environments as investment banking, responsiveness can give customers value that techniques such as conjoint analysis can help quantify. However, such "loyalty" and pricing benefits will likely not be capitalized on unless specifically targeted and then supported with relevant performance metrics and technology.

Can teams yie ld e f f lc ienc ies in c o r e w o r k processes?

Teaming can also remove functional barriers from core work processes. One national mortgage provider recently switched to a team-based structure to minimize inefficiencies from cross-functional hand-offs. Over the years, this firm had evolved into a functional structure with large staffs specializing in origination, processing, and underwriting housed in separate buildings in various parts of the country. High-level process maps of work activities and estimates of time spent on each task were used to determine non- value-added costs and other collateral expenses resulting from these departmental boundaries. An in-depth analysis pointed out that cycle times and

costs could be saved by establishing regional centers with teams composed of mortgage origi- nators, processors, and underwriters.

Non-value-added activities can be reduced in a team-based structure if fewer cross-functional hand-offs are involved in the work flow. Team structures capitalizing on this form of value can often be found in repetitive work environments requiring ongoing, smooth integration of various knowledge specialists--areas such as insurance claim processing, retail lending, and patient care teams in hospitals. Mapping these processes can help determine whether the benefits of organizing around the work flow" outweigh those of maintaining functional specialization. A rough estimate of efficiencies gained by a team-based design can then be calculated by multiplying total compensation by the non-value-added time that would be eliminated.

POTENTIAL COSTS OF TEAMS

A fter considering the benefits of switching to a team-based design, executives should conduct a candid evaluation of

the potential costs such a transition would entail. A series of fairly straightforward questions can help identify both the hard-dollar investments and the productivity losses likely to accompany a team-based structure.

Will t eams di f fuse important organizational capabil i t ies?

A transition to teams can have a critical yet often unrecognized side effect over t ime-- the loss of key capabilities developed in the functional environment. One commercial lending institution learned this lesson painfully. After switching to a team-based structure, the bank enjoyed greater collaboration between lending, analysis, and servicing functions that seemed to yield both internal efficiencies and greater depth and breadth of client relationships. Yet two years into the process senior managers became concerned with mounting credit losses. Their conclusion was that the depth of functional skills in analyzing increasingly complex transactions had dissipated after the transition to teams. Further, information systems had been switched to support the needs of the teams, distracting attention from overall portfolio concentrations.

In changing to teams, dilution of organizational capabilities can happen in at least two unique ways. First, technical specialization, the hallmark of the functional firm, can be lost in the transition. In the above bank example, a critical capability that dissipated in the new team-based environment was risk management. This decline in credit quality was not noticed immediately but


over a longer p e r i o d of t ime, s u d d e n l y manifest- ing itself in high credi t losses for the institution.

Second, infrastructure such as informat ion or p e r f o r m a n c e m a n a g e m e n t sys tems m a y shift over t ime to suppor t t eam ope ra t ions and distract a c o m p a n y from its core business . As p e r f o r m a n c e metr ics b e c o m e more and more cus tomized to the un ique ope ra t ions of teams, a firm's p r imary bus iness p ropos i t i on can b e c o m e diluted. Manag- ers cons ider ing teams shou ld e i ther be comfort - ab le wi th these costs over t ime or be aware of the addi t iona l infrastructure inves tments necessary to avo id di lut ing impor tan t capabil i t ies .

How extensive will infrastructure real ignment be?

Many change efforts falter b e c a u s e of p o o r imple- men ta t ion or a lack of fit b e t w e e n a firm's social and technical archi tecture. D e p e n d i n g on the exist ing infrastructure, a t e a m - b a s e d des ign m a y require a fundamenta l r ea l ignment of the firm's

structure, informat ion, and pe r fo rmance manage - men t systems. W h e n a firm mus t al ter itself to suppo r t teams, assoc ia ted costs arise.

First is the cost of d e v e l o p i n g and adminis ter - ing n e w p e r f o r m a n c e managemen t , informat ion, and h u m a n resource s y s t e m s - - e s p e c i a l l y if they must be ma in ta ined in paral le l wi th systems of areas that are re ta ining a funct ional structure. Second is the cost of confus ion dur ing transit ion. T e a m - b a s e d firms d e m a n d fundamenta l ly different behav io rs f rom both e m p l o y e e s and m a n a g e - men t on such critical issues as dec i s ion making, in te rpersona l relat ions, and goal setting. Estab- l ishing effective pe r fo rmance metrics, incent ive plans, and informat ion sys tems to suppor t n e w ways of w o r k i n g is more difficult than execut ives of ten realize. This results in a g o o d bit of confu- sion; fo rward p rogres s ion m o v e s in fits and starts.

In one successful t ransi t ion to a t e a m - b a s e d structure, a sof tware d e v e l o p m e n t firm had the luxury o f bo th t ime and f inancial resources to i m p l e m e n t a holist ic r edes ign over a o n e - y e a r

Figure 2 Shift in Infrastructure to Ensure Strategic Al ignment

Strategic planning process

Structure

• Primarily a convergent strategy process; executive team responsible for strategic decisions

• Functional structure without specific customer focus

• Coordination of interdepartmental issues handled largely at executive level

Primarily divergent process; teams charged with crafting strategic plans to serve unique markets

Cross-functional team structure with skills to serve specific markets Coordination largely handled in individual team; specific integration roles created to coordinate among teams

Process • Little standardization of content or scope of " • Increased standardization of content and scope documentation of documentation

Performance Management

• Financially based statements providing budget- ary information to functional heads

• Functionally oriented goals based largely on financial budget information

• Goals set by functional heads providing a targeted volume goal to individual employees

• Individual performance assessment based ex- clusively on superior's assessment of individual performance

• Team-based P&Ls and balance sheets with con- ventions unique to each team

• Balanced performance measures monitored at the team level

• Team goals negotiated between teams and senior management; individual goals a function of team goal distribution

• Individual performance assessment based on team leader and 360 ° evaluations

Incentives * Incentive schemes based largely on attainment • Incentive pools funded based on team perfor- of individual goals mance and distributed based on attainment of

balanced scorecard goals

Development • Development goals focused on building a • Cross-training rewarded as part of balanced depth of skills around functional needs scorecard goals

• No focus on interpersonal skills • Development goals focused on acquisition of interpersonal skills

Technology • Functional departments rely heavily on unique ° Team-based design emphasizes collaborative technologies to perform duties technologies (Groupware)


period. The effort met the market, operational, and efficiency goals set out by senior management; yet, as outlined in F igure 2, it required significant changes to almost all aspects of the firm's operations. Understandably, many companies lack the resources or executive support for such holistic efforts. However, at least two structural changes are critical to support teams (and thus entail development and implementation costs contingent on existing infrastructure).

First, ensuring that teams have the appropriate information to make decisions is critical but too often overlooked. To plan for both short-term and long-term success, teams often need different forms of information than firms have traditionally provided. However, switching GAAP and operational information systems from a functional to a team-based focus is difficult and time-consuming. Performance management systems must move from departmental budgets to some form of team- based financial and operational measures relevant for each team's unique stakeholders. Designing and implementing these systems often requires considerable time and effort from newly formed teams, support departments such as accounting and IT, and executive decision makers. As a re- suit, both hard and soft costs are incurred contingent on the firm's existing information systems and the skills of its support departments.

Second, switching effectively to a team-based structure requires that performance management systems regard teamwork and contribution to the team as more important than in most individually focused appraisal systems. Often this results in a transition from a tenure or grade-based system to a salary scheme that rewards for skills or knowledge contributed to the team as a unit. In addi- tion to base pay schemes, team-based organizations often use bonuses that focus on team performance. Again, both hard and soft costs accompany this transition. The time and money con- sumed in redesigning performance management systems often far exceed expectations. Moreover, enormous drains on productivity frequently result as employees comfortable with an individualistic reward system suddenly find a portion of their pay "at risk" based on the performance of others.

WHI leaders embrace the team concept and alter styles appropriately?

Many leaders have developed an authoritarian notion of leadership that is inconsistent with a team environment. Executives often struggle with a weakened ability to lead by mandate in the team-based structure. One senior manager cap- tured these thoughts in the following statement:

I struggled to find my niche in the team structure. At first I thought it was going

to be great because the teams would be making so many of the tactical decisions that I didn't enjoy or sometimes even feel were appropriate for me to make. How- ever, I quickly came to realize that decision making constituted the bulk of my job in the old structure and it was tough to let go of. I can personally recount several situations early on when I was more authoritative than I should have been with the teams largely because I did not know how else to contribute.

Effective leaders in team-based structures help teams become self-sustaining and self-moni- toring units. They must be able to articulate a goal and motivate employees toward it, yet often remain neutral on the means of attaining that goal. Such skills develop slowly and with effort on the part of executives. Training can facilitate this process, but there will be some who suffer through the transition and cling to traditional leadership styles. Depending on the prevalence and position of these people, huge productivity drains can occur as former functional leaders and newly formed teams battle for influence.

Senior management often discounts this problem by claiming that all employees will have to get "on board" with the team philosophy or leave. However, particularly in today's job market, it is often a very difficult proposition to replace a skilled but authoritarian leader. Underground power struggles may freeze firms in the transition to teams such that they cannot leverage either the efficiency or depth of expertise in a functional structure or the flexibility and improved decision making anticipated from the team-based design. Though impossible to quantify precisely, it is important for executives considering teams to be aware of the kind and extent of productivity loss they may face given their existing personnel.

Can teams perform activities previously performed by support departments?

To be accountable, a team must be as self-con- tained as possible to control the factors affecting its ability to deliver results. Often this requires a methodical, months-long transfer of responsibilities in tandem with a plan to ensure that appropriate skills are in place to handle the new duties. A common problem is overburdening teams with too many, often novel, tasks. Newly formed teams often find that coordination and planning work previously handled at the executive level migrates lower, while new tasks emerge, such as role defi- nition and budget analysis. Leaders often do not recognize the magnitude of this work and thus overestimate the ability of teams to take on new forms of work as they become self-managing.

Looking Before You Leap: Assessing the Jump to Teams in Knowledge-based Work 33

Specific tasks and a transition plan should be established early to ensure that no responsibilities slip through the cracks and the team is not un- duly burdened. For instance, who will handle recruiting for the team? If it is to handle recruit evaluations, it must be skilled in the firm's specific interviewing techniques in order to ensure some level of consistency among employees. Shifting such duties consumes time and resources from the team, support functions, and senior management. More important, the balance of power is shifted away from both leadership and support areas. Political problems in such transi- tions can make this an arduous process, depending on the influence of affected stakeholders.

How difficult wil l it be to develop teams' problem-solving capabilities?

In most knowledge-intensive firms, a team is only as effective as its ability to jointly share relevant data and opinions and then converge on a plan of action. Essential dialogue skills of active listening, inquiry, and advocacy often need to be intro- duced and practiced before they are used effectively in group settings. Core teamwork skills such as dialogue and active listening--hardly new con- cep t s~ take on added importance in team-based firms, where cross-functional groups make increasingly important decisions. Groups with different backgrounds and experiences can produce better overall solutions, but only if the problem- solving sessions are constructive and do not re- vert to defensive routines that inhibit learning.

Problem solving also faces challenges stem- ming from educational or career specialization and preferred cognitive styles. Specialization leads to expertise based on prior success, which molds a certain mindset for looking at the world and approaching problems. Product development and brand management teams often encounter this problem. Each functional specialty comes with its own interests and tools (market segmentation, discounted cash flows, capacity planning) and tends to push its own approach without considering others' viewpoints. It is important in such a scenario to help team members consider problems outside the mindset of the specific tool they may bring. However, although easy to diagnose, remedying such a problem is often time-consuming, involving training and interventions in team development, group problem-solving techniques, and meeting facilitation.

SUPPORTING IMPORTANT COLLABORATION

E xecutives should consider alternative means of enhancing collaboration if the net benefit of a transition to teams is

minimal. One alternative structure attracting the

attention of practitioners today is the community ofpractice--an informal group of people who interact with one another regularly on work- related issues and challenges. Though generally not visible on any organization chart, communities of practice often play a critical role in sharing knowledge and solving problems. They aid collaboration in such diverse settings as professional services, R&D, and manufacturing. In many cases, they comprise effective forums for people with specialized knowledge to collaborate and learn from one another. At other times, they provide the means of developing strategic capabilities or technologies and facilitating change.

Communities of practice differ notably from conventional organization units, such as teams or task forces. The latter have a task orientation, are often launched for a specific purpose, have for- real requirements for membership, and are usually responsible for some type of final deliverable. The former, on the other hand, are usually more fluid in their membership. Participation can range from highly dedicated, committed individuals to more peripheral players who tap into community activities on an as-needed basis. By easing the transfer of relevant practices, reusing explicit knowledge assets, and refreshing knowledge bases, communities can have an impact on efficiency, effectiveness, and the ability to innovate.

Communities of practice can be foundational to a firm's strategy. The World Bank has developed and supported them for some time now, on both a technical and organizational front. It cur- rently has over 100 such communities and a con- tinually rising rate of participation in them. As the Bank supplements its emphasis on lending money with providing development expertise, these communities will contribute more and more to its strategic direction. And they are very effective vehicles for collaboration and knowledge transfer in helping participants solve problems quickly. At Buckman Labs, members of communities of practice from around the world routinely respond to inquiries within a 24-hour time frame. It is common to hear of stories in which people posed questions on critical business issues to a community and received responses from all over the world in time to solve a critical operational problem or win a specific piece of business.

These critical collaborations do not require physical collocation. Many firms have recently begun to leverage on-line communities of practice to allow people to engage relevant experts with a problem. At Sun Microsystems, the popular Java software product has been widely adopted for World Wide Web applications and has made major inroads into corporate computing. Sun's Java Center Organization is a professional service group that works with customers on the design and implementation of Java application systems.


Because Java is so new, and because of the rapid pace of development in the software industry in general, people working on advanced Java applications have a great need to share knowledge and code in solving problems efficiently. Because the Java Center Organization is a global community spanning 24 time zones that needs virtual tools to promote collaboration, it has turned to on-line community-building as a critical piece of its business strategy. It consists of about 150 core members and more than 1,000 others who either work with the Java Center or take advantage of their solutions and knowledge. Mailing lists are used for announcements, news, and requests for information. Web sites on SunWeb, the company intranet, are used for information of more endur- ing interest and to highlight or whiteboard during conference calls and e-mail discussions.

Identifying points at which collaboration among specialists in a firm yields benefits can often be done simply by mapping key knowledge processes such as strategy formulation, new product development, or core work processes. Despite the complexity and specialization of knowledge work, at a high level the work processes can usually be boiled down to a series of activities entailing information collection, analysis, collaborative decision making, and dissemina- tion. Mapping specific knowledge processes in detail allows management to identify essential activities in the value chain where improving collaboration can yield efficiency and customer service benefits without necessarily incurring the costs of a team-based design. Product development teams often use functional specialists early on to define specifications, then periodically for design reviews (key points in the development process), rather than have them become permanent team members. The important point is to assess critically what forms of collaboration need to occur, then consider suitable means of promot- ing this collaboration if teams are ineffective.

Very often, structural and technical means can be used to enhance collaboration among parties without physically housing them together. From a technical perspective, the use of groupware, video conferencing, a bulletin board, or Internet access can facilitate interactive information sharing and collaboration on new' marketing prospects, product development, or knowledge base mainte- nance. One major petroleum company has begun to reap unanticipated benefits from its investment in video-conferencing. The technology was ini- tially put in place to virtually bring engineering expertise to remote problems such as deep sea drilling platforms. However, perhaps a more important side benefit is the working relationships that geographically dispersed employees are forming. Executives have indicated that employees are more likely to leverage expertise outside

their local office--a welcome event in this engineering culture that once had a significant "not invented here" value system.

Providing a technical foundation, however, does not necessarily guarantee that employees will use it (at least not as intended). It is equally important to find ways of measuring both individuals and teams on their contributions to the firm's overall intellectual capacity. One software development company created knowledge centers around certain technologies on which indb viduals or groups were held accountable for keeping the company up to date. Consulting firms and some law firms are adopting similar approaches to managing and disseminating knowledge in key strategic competencies.

Human resource policies can also enhance collaboration through innovative performance and career management systems focused on managing organizational knowledge. The goal is to develop employees with T-shaped skill sets--a deep technical understanding of a specialty com- bined with an understanding of upstream and downstream activities in a core process. Not only can these people network effectively throughout a firra to make things happen, they are also better equipped to be part of cross-functional problem-solving teams or future general managers. Says Leonard-Barton (1995), they can "shape their knowledge to fit the problem at hand rather than insist that the problem appear in a particular recognizable form."

a s we move further into a knowledge- based economy, traditional organizational principles are growing ineffec-

tive. Many executives, grasping for solutions to improve collaboration and innovation, often reach for team-based organizational structures as a natural cure for all ills. To be sure, cross-functional teams can be effective in bridging functional and hierarchical boundaries and integrating specialized sources of knowledge. Far too often, however, executives seem to base these important decisions on sports or civic metaphors more reflective of an appealing notion of teamwork than on a keen understanding of the potential benefits and costs.

Teams should not be adopted based on a belief that enhanced collaboration and teamwork will necessarily ensue with little effort or cost. Rather, it is important to assess such a transition objectively both to make sure it is an appropriate organizational solution and to guide intervention and organizational design efforts in implementing the teams. An ill-informed decision to make the switch can be costly as well as surprising to resource-constrained executives who, in abandon- ing efforts they should not have undertaken, end up causing more harm than good. Ul


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Rob Cm~ is a research manager at IBM's Institute for Knowledge Manage- ment in Cambridge, Massachusetts, and a lecturer in the Organizational Behavior Department, School of Man- agement, Boston University. A previous version of this article was presented at the 1999 International Conference on Work Teams, where it was selected for a Best Paper award.


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Looking before you leap: Assessing the jump to teams in knowledge-based work