This article sets forth Arthur D. Little's our current understanding, based on more than a century of work with leading organizations around the world, of the concepts, philosophy, mindset, tools, and methodologies that support effective change and learning in organizations.

Editor's Note: contains some excellent insights...

In our view, too many companies are still designing organization structures on the basis of principles that are no longer appropriate. Companies today must operate in complex and fast-changing environments - particularly if they want to compete on a global scale. In this article, we outline a new way of organizing people for effective performance in just such environments.

The redesign of organizations to become more capable of change and innovation while improving operating efficiencies has become an urgent priority for leaders of companies all over the world. So, where do we turn for help? As we have searched the business world for examples of a new form of organization suited to the rapidly emerging, new context, we have realized what should have been obvious at the outset. There can be very few, if any, examples of this new form, precisely because the old forms were the right forms for the world in which businesses have operated so far. We have to find the new principles for the 21st-century organization, as well as the tools and skills to create it. And it may be a while before we can hope to find many complete examples to "benchmark."

In this article, we elaborate a new set of principles intended to meet the needs of organizations living "on the edge" of innovation and efficiency. These principles build from concepts found in biology, ecology, and complexity.

As part of our ongoing research, Arthur D. Little has explored many of the key barriers, enablers, and drivers for innovation management in a wide variety of companies and industries. The firm has also examined many of the key dimensions of the next-generation enterprise, from cross-functional teams and global networks to external sourcing and partnering.

The key findings can be clustered around six critical pathways to accelerated and sustainable high-value innovation and product/technology leadership.
1. Infusing the passion and mindset for sustainable innovation across the extended enterprise
2. Building an integrated strategic portfolio of projects, programs, platforms, competencies, sources, and partners that is well aligned with the ambition-driven strategic intent of the enterprise
3. Energizing a seamless innovation process from concept to market - deriving its energy from both high-value product pipelines and robust technology pipelines
4. Implementing a highly leveraged resource-deployment and investment system within the current budgeting process - accessing and deploying people, money, and intellectual capital from the extended enterprise worldwide
5. Developing a highly charged yet fluid and networked organization - harnessing, driving, and nurturing the inherent ambiguity and complexity of innovation
6. Creating the motivators and metrics to stretch the organization beyond continuous improvement to sustainable innovation - particularly in the areas of leadership, value creation and capture, return on assets, and innovation behavior

The principal strategic challenge for global companies is the reconciliation of seemingly conflicting goals: thinking long-term while delivering short-term results, developing global scale while being locally responsive, and investing in innovation while increasing operational efficiency. In each aspect of this challenge there is a tension between two necessary but apparently opposing goals, which needs resolution.

The solution to both kinds of tension is to convert the "either-or" dilemma into a "both-and" proposition by looking at the issue in a different way. What would such organizations look like, and how would they function? We don't have all the answers yet, but we are beginning to understand the questions we should be addressing. Our experience suggests that companies that want to be both innovative and efficient at the same time need to adopt a new and different approach to organizing work and people: an approach we call a "fluid-network organization."

While our concept of the fluid-network organization is still evolving, we have begun to envision its general outlines in terms of five organization-design variables:
• The "glue" used to bind the organization
• The approach to defining "decision-rights" and "boundaries"
• The choice of "measures"
• The "means of influencing behavior"
• The new "competencies" required of potential leaders