Why Companies Must Embrace Microservices and Modular Thinking

Organizations can reduce coordination complexity with modular thinking, microservices, and APIs.

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Companies that embrace remote work — which is here to stay — can also drastically reduce their coordination costs through modular organization. Spotify announced earlier this year that it would completely shift to remote work. Salesforce expects its workers to be in the office just one to three days a week. Last fall, Apple CEO Tim Cook said he believed the company would not return to the way people worked pre-pandemic, saying, “There are some things that actually work really well virtually.” Ping An — China’s largest insurer — took its remote work one step further: It developed a suite of tools that lets its 1.4 million employees and agents work remotely. It’s now offering those same tools to other financial service companies.

These companies have one thing in common: They are all moving toward or have already achieved a modular setup. Whereas modular organizations were challenging to implement in the past, they are becoming commonplace today thanks to microservices and application programming interfaces (APIs).

The concept of modular organization is not new. What’s new today is the ability to achieve such architectures with relative ease. APIs help codify interactions among departments, which in turn reduces ad hoc communication and minimizes coordination complexity. As a result, traditional business processes — whether financial, legal, or HR-related — can turn into microservices. That’s how a monolithic, highly interdependent organization turns into a modular one.

Note that the converse is also true: A lack of microservices can prevent a company from achieving a modular architecture and keep it stuck in widespread complexity. These types of organizations face no choice but to order their headquarters staff to return to their physical offices.

Our findings are based on a research program at IMD Business School that aims to understand how organizations become future-ready. We have conducted extensive interviews with dozens of forward-looking organizations and have built a database that tracks over 40 ecosystems. We’ve also ranked companies’ readiness based on publicly available information. Our executive education programs essentially serve as a laboratory, allowing us to test out hypotheses with senior executives.

Organizational Complexity Demands Constant Coordination

Consider a task that depends on the input of others.

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