Today’s Organizations Are Outward Bound

THE TERM “outward bound” was originally used to describe ships departing their home port for foreign destinations. Later, it came to be associated with a nonprofit that provides youth with adventures in nature. Now it needs a third use, for organizations.

For much of the last century, the most prominent strategies of large corporations were vertical integration and diversification, pursued within their traditional boundaries, or inward bound. Vertical integration extended their chain of operations, bringing inside their boundaries suppliers at one end (“upstream”) and customers at the other (“downstream”). An automobile company might have bought a supplier of its batteries, or created its own dealerships.

When a company diversified, it bought companies in other businesses, or else developed new businesses internally, to sell additional products or services, as with Honda, which has exploited its expertise in motors to produce a variety of other vehicles — outboard motors, lawnmowers, ATVs, and so on.

Whether vertically integrated or diversified, the boundaries of these organizations remained sharp, with the new activities reporting through the established hierarchy. How this has changed.

Now organizations employ strategies to take them outward bound utilizing any of six different arrangements.

1. Networking outward

Networking is hardly new. Organizations have always done so to facilitate communication, externally as well as internally. What’s changed in recent times, thanks to social media, is the reach of networking externally. Now, connecting with associates across the world can sometimes be easier than connecting with colleagues in the next office. At the end of their shift, a team of software engineers in Boston can transfer the work where they left off (“asynchronically”) to another team in Bangalore, within or outside their own company, which continues the work until, at the end of their shift, they transfer it back — all with remarkable seamlessness.

Networking need not be based on any formal structural arrangement; sometimes it just happens. In contrast, the other five arrangements of outward bound organizations are somewhat formally structured, two making use of contracts, another of rules, the last two of designated membership.

2. Contracting to outsource

An organization’s boundaries begin to blur when it engages in outsourcing — the opposite of vertically integration — as some activities previously done in-house are contracted to outside organizations or individuals. Some outsourcing has been around for a long time. For example, organizations use some services on contract — legal services, for example. And contractors in the construction industry have long used an extensive form of outsourcing. As their name indicates, they secure the contract to construct a building, and then subcontract the activities.

Key here is to figure out what are the core competencies of the organization — those that can’t be let go without it ceasing to be a viable enterprise. In construction companies, for example, this would seem to be the capacity to secure contracts and choose the right subcontractors. Sometimes, however, an organization discover a core competence after it has outsourced it. Air Canada developed a highly successful point program called Aeroplan, then spun it into a separate division, later sold it, and finally — perhaps realizing it was core — bought it back in.

Outsourcing has long been prominent in government, if not by that name. With so many public services to provide, it always used outside suppliers where possible. But the outsourcing of public services can likewise be carried to excess, as, perhaps, in states that have outsourced prison services to private companies.

3. Partnering to venture jointly

Here the borders blur further, as independent organizations partner to design, develop, and/or market particular products and services. They venture jointly, the implication being that the relationship is temporary.

The Smart Car was an interesting example of this in the automobile industry, resulting from a joint venture of Mercedes and Swatch. And the vaccine breakthrough in the COVID pandemic came from a joint venture of Pfizer with the husband and wife team of a small company.

The label “joint venture” may be used mainly in business, but that of “PPP” (public-private partnership) is commonly used for such ventures across the sectors. In fact, many that go by this label are actually public-plural partnerships — that is, governments partnering with community associations in the plural sector. And not uncommon are public-plural-private partnerships (not yet called PPPPs), as when local governments, NGOs, and private companies combine their efforts to, say, reduce pollution in their city.

4. Offering a platform for others

The opposite of outsourcing is a kind of insourcing: an organization sets itself up as a platform for the particular use of outsiders. This is how we use Wikipedia, an archetypical example of the platform organization, as is Open-source Software (OSS), where, to use the words of Wikipedia, “the copyright holder grants users the right to use, study, change, and distribute the software and a source code to anyone and for any purpose.”

We’re not employees of Wikipedia, not even members (it has no members). We’re thus not inside Wikipedia. Yet neither are we outside of it. We can go in whenever we wish, and not only to puruse. Wikipedia has no owner — it’s neither private property nor public property, but, in a sense, common property, available to us all. It funds itself by soliciting donations from its users. Facebook, on the other hand, is the private property of its shareholders, as are many other platform organizations. Yet its influence on our social discourse has caused it to be treated like common property. Twitter even more so, as Elon Musk found out.

5. Affiliating for common purpose

Affiliating can be seen as inserving (in contrast to outsourcing): a group of organizations, or individuals, get together to provide themselves with a common function. Thus, the businesses in a city — hotels, restaurants, theatres — might affiliate to promote local tourism.

Affiliating is similar to creating a platform, except that here the users do so for themselves. For example, some hospitals affiliate to negotiate with suppliers for better prices. They affiliate, but they don’t integrate, since each member maintains its independence.

6. Associating around a table

Associating is looser than contracting, venturing, creating a platform, and even affiliating, but is still an outward-bound arrangement. This means that organizations associate for common concerns, compared with affiliating for specific functions. Associates may meet periodically (sit around table) to discuss interests they share in common. In diplomacy, for example, the G7 and G20 are associations, whereas NATO is an affiliation, with a military function.

Popular terms, such as consortium, chamber, alliance, and assembly describe these associations, although these terms are sometimes used for affiliations as well. Do the trade associations in industries or the chambers of commerce in cities exist to discuss common concerns, or to lobby for common causes? Often, both. And when large competitors meet together, is this a simple association — “Just to communicate” — or does it turn out to be an affiliation, in the form of a cartel?

A good deal of the contemporary structuring of organizations has been moving outward bound, which has blurred their once clear borders with the benefit of opening themselves up to being more agile.

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Henry Mintzberg is Cleghorn Professor of Management Studies at McGill University in Montreal, the winner of awards from the most prestigious academic and practitioner institutions in management (Harvard Business Review, Academy of Management, Association of Management Consulting Firms, and others), and the recipient of 21 honorary degrees from around the world. He is the author or coauthor of 21 books. His latest book is Understanding Organizations…Finally! – Structuring in Sevens. Learn more at mintzberg.org, or check out Minutes with Mintzberg on YouTube.

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