Reports from the Knowledge Labs about our recent findings, research topics, and interviews with lifestyle leaders who are creating their own futures.
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How to stimulate your own powers of foresight. Consider the following thought provokers. Ask yourself, in these categories what are the brand new trends and forces? Which are the ones growing in importance? Which current forces are loosing their steam? Which have peaked or are reversing themselves? Which are the "wildcards" about to disrupt us in the future? POLITICAL AND TECHNICAL thought for food: Electronics, Materials, Energy, Fossil, Nuclear, Alternative, Other, Manufacturing (techniques), Agriculture, Machinery and Equipment, Distribution, Transportation (Urban, Mass, Personal, Surface, Sea, Subsurface, Space), Communication (Printed, Spoken, Interactive, Media), Computers (Information, Knowledge, Storage & Retrieval, Design, Network Resources), Post-Cold War, Third World, Conflict (Local, Regional, Global), Arms Limitation, Undeclared Wars, Terrorism, Nuclear Proliferation, Weapons of Mass Destruction, Governments (More/Less Power and Larger or Smaller Scale), Taxes, Isms: Nationalism, Regionalism, Protectionism, Populism, Cartels, Multinational Corporations, Balance of Trade, Third Party Payments, Regulations (OSHA, etc.) Environmental Impact, U.S. Prestige Abroad. SOCIAL AND ECONOMIC Food for thought:
Labor Movements, Unemployment / Employment Cycles, Recession, Employment Patterns, Work Hours / Schedules, Fringe Benefits, Management Approaches, Accounting Policies, Productivity, Energy Costs, Balance of Payments, Inflation, Taxes, Rates of Real Growth, Distribution of Wealth, Capital Availability and Costs, Reliability of Forecasts, Raw Materials, Availability and Costs, Global versus National Economy, Market versus Planned Economies, Generations: Y, X, Boomers, Elderly, Urban vs. Rural Lifestyles, Affluent vs. Poor, Neighborhoods and Communities, Planned or Organic Growth.
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The Journal of 2020 Foresight
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Wednesday, May 28, 2003
From Matrix to Network: Expand Horizons and Drive for Differentiation
Chapter Two: The Ridge
By Steve Howard, CKO
The Knowledge Labs
Table of Contents
Chapter One: Basecamp
Chapter Two: The Ridge
Chapter Three: The Outpost
Chapter Four: The Tribal Territories
"Although second phase rules work well in a stable environment, when organizations encounter a third phase environment, they naturally resist change that involves doing things differently. They will resist change regardless of obvious need or changed conditions. The result is that unpredictable modes of failure regularly occur, often where least expected. The organization will not be able to make the vital changes needed for survival and growth. The second phase traps often are so insidious that they are almost invisible."
George Land and Beth Jarman
Journal of 2020 Foresight: Last time you described the evolutionary and then revolutionary periods in the late maturity and declining organization.
Trailblazer: That's right. The pattern goes like this: An overextension of COORDINATION triggers a RED TAPE nightmare that demands COLLABORATION for growth in the next stage.
J2020F: In that phase, if the organization doesn't make it through the red-tape turning point it may go out of business. Why is that?
TB: Well, there are at least 9 reasons.
J2020F: What is the first?
TB: Think of these reasons as unspoken, almost invisible traps. The first is "Measurement Become the Mission." A linear, logical, empirical style of thinking becomes the ruling paradigm. Standard measures provide feedback on performance, so much so that they actually become the mission.
J2020F: What happens to the original entrepreneurial vision?
TB: The founder's focus on meeting a critical need doesn't survive the spreadsheet frenzy. People lose their focus on why they are there, and quality -- solving a customer's problem in a superior way -- suffers.
J2020F: So the original motivation of providing a product or service needed by customers is replaced by short-term bottom line results?
TB: While the core foundational story gets lost, it's ironic that the second reason -- past assumptions go unquestioned -- isn't forgotten.
J2020F: You also mentioned problems with embedded investments earlier.
TB: Right. That's the third trap leading to increased red tape. Over time letting go of the knowledge and expertise that contributed to past success is extremely difficult.
J2020F: Didn't that happen to an entire industry -- the steel industry?
TB: It sure did. That's a great example. They were so mired in their procedures, basic technologies, and past market success -- together with the pressure to make their quarterly numbers -- that they didn't see the consequences of new technologies, foreign competition, or even the rapidly growing demand for new and highly specialized products.
J2020F: By the time they opened their eyes, they didn't have the time or resources to make the change.
TB: The next one, blaming others, blinds organizations to real problems and challenges they need to address. It's much easier to blame the government, the exchange rate, or unfair practices than to look internally to changes they need to make.
J2020F: You started off with measurements as the mission, what about maximizing profits?
TB: That trap, moving away from being product- or service-driven, typically causes the misuse of resources and long-term disaster.
J2020F: What's the sixth trap?
TB: Information filtering. This is like groupthink.
J2020F: How so?
TB: Because repetition of success derived from building on likeness leads to the unconscious selection of like-minded people with similar backgrounds and education.
J2020F: Like the Academic quadrants?
TB: Yes. The ACADEMIC-Agents are hired and promoted. Of course, at this stage, they work several layers removed from operations and direct customer contact. Expertise becomes highly specialized. Research and development functions don't benefit from market feedback and customer requirements.
J2020F: I can see as their experience and body of knowledge grows, they would tend to feel threatened by internal or external challenges.
TB: Which leads to selective attention taking over. Perceptual screens filter out information and ideas that could interfere with rote pattern repetition.
J2020F: So people in the system can't see the changes that are happening in their environment?
TB: Right. This is so insidious that frequently the data that they ignore have to do with factors that could literally drive them out of business.
J2020F: How ironic. These are the specialists who rely on data and analytical thinking.
TB: Especially when you consider the other talent sub-quadrant, the AGENT-Academics. They pursue their own research and development as a think tank based upon original theories and multiple disciplines.
J2020F: Aren't they typically resident in a campus setting at a great distance from the core business?
TB: And, that's a big part of the problem. They become so far removed from the industry, market, and customer base that they don't study the forces threatening the very survival of their organization.
J2020F: So this is a frame-blindness problem imbedded in too many layers of organization, even in a matrix structure?
TB: Yes. It's as if the whole organization shares the same set of mental barriers that shield them from information that does not fit the pattern they have come to know and expect.
J2020F: What's the next trap?
TB: Fear of losing control. Nobody in the organization wants uncertainty, ambiguity, unpredictability or surprises. The pressure for bottom line results creates the search for more certainty and more predictability.
J2020F: So fear, tighter controls, adds to the insular nature of large bureaucracies?
TB: Yes, and the eighth trap compounds the effect.
J2020F: How so?
TB: Internal competition contributes to productivity loss. Separate departments jockey for independent recognition and more resources.
J2020F: What do you mean?
TB: Take that research group. They may come up with a new discovery capable of significant savings. But, if they feel they are in competition with manufacturing or the production department, they won't share it.
J2020F: So, unless they get the credit and the bonuses they feel should accrue to them based on the implementation of their discovery, it won't see the light of day?
TB: Internal competition leads to drops in productivity, while vendor competition shortchanges the organization in terms of higher value and higher margin opportunities.
J2020F: You mean getting suppliers to compete to lower their unit costs?
TB: That's right. Part of Wal-Mart's past success was due to its collaborative relationship with key vendors.
J2020F: How does that help them?
TB: Together they collaborated in product development, packaging, and merchandising. That partnership allowed Wal-Mart to move from merely providing the lowest price to providing superior value.
J2020F: So what you are saying, is when the company's market changes or the primary service/product has matured past its peak, the organizations enters the next phase. If the company has not adapted quickly enough to maintain a level of mature cash flow, then downsizing and delayering result.
TB: In short, decisions please the bureaucracy instead of what's best for customers and company.
J2020F: What if the organization realizes in time what changes are needed to survive the turning point? What is the next management practice to achieve growth?
TB: We return to loose control, COLLABORATION, and an evolved matrix to a network structure.
J2020F: Describe the people dimension
TB: The organization emphasizes strong interpersonal collaboration in an attempt to overcome the red-tape crisis. So there's a real push for participation and involvement for everyone. Problem solving and innovation programs proliferate. Social control and self-discipline replace formal control systems.
J2020F: Is this the time when teamwork is reintroduced?
TB: Right. Actions teams focus on solving problems quickly. They focus process improvement efforts on simplifying formal systems.
J2020F: Earlier you said in two of the organizational stages, organizations should stay away from conventional wisdom that turns out to be counter productive or in some ways delays or hinders progress. Does that hold true for process improvement efforts at this stage?
TB: Yes, it certainly does. So far we?ve described two themes, "Build the Foundation" and "Tighten and Leverage Operations." In this stage the theme is "Expand Horizons and Drive for Differentiation." The practices to STAY AWAY FROM are:
Increase participation in department improvement teams;
Focus your technology on production processes;
Increase hours of training in general-knowledge topics; and
Make education and championing a primary role for the business improvement function.
J2020F: So while most improvement practices produce results that are accumulative, in this stage the organization must adopt new and different practices to advance any further, right?
TB: That's especially true. This is the time to become the "Best of the Best." It's not so much that the old practices hurt, but rather they no longer help the organization move forward. They've outlived their usefulness.
J2020F: What is the focus, then for immediate impact in the first year?
TB: We usually customize a solution based on just under a dozen initiatives to chose from:
Provide customer-relationship training when new employees are first hire;
Emphasize improvement and teamwork when assessing senior management;
Encourage widespread participation in improvement meetings among non-management employees;
Use world-class benchmarking information to identify new products and services;
Increase process simplification and cycle time analysis;
Benchmark marketing and service delivery;
Communicate your customers and suppliers;
Conduct after-sales service to build customer loyalty and to differentiate yourself from your competitors;
Emphasize competitor-comparison measures and customer-satisfaction measures when setting plans;
Emphasize improvement, reliability, and responsiveness as key to your reputation; and
Expand geographically.
J2020F: Now, what about the next set of priorities to sustain impact over 36 months?
TB: Here we're extending our drive for differentiation by:
Empowering employees who interact with customers;
Using supplier suggestions and customer complaint systems to identify new products;
Increasing emphasis on technology capabilities in supplier selection;
Identifying new products from external sources;
Forming strategic partnerships with vendors;
Focusing innovation efforts on ancillary services and products;
Emphasizing performance and adaptability in your product and service base; and
Emphasizing accessibility in performance and adaptability in ancillary services.
J2020F: What about lowering resistance to these new practices? Is it encouraged or discouraged?
TB: Definitely encouraged. Although, as you can imagine, this period is extremely painful and difficult for those experts who created the old systems. Old school line managers feel adrift now, when the formal methods they got used to aren't followed anymore.
J2020F: What happens to the headquarters staff?
TB: They're downsized, reassigned and combined in interdisciplinary teams to consult with, but not to direct field units.
J2020F: So the power shifts to the field units?
TB: Really to a matrix of teams, combined across functions. A matrix and network structure assembles the right teams to address novel problems. Real-time information systems and knowledge bases get integrated into daily decision-making.
J2020F: But, what happens to the rewards and incentive programs?
TB: They focus on team performance above and beyond individual achievement.
J2020F: But, what about setting individual objectives?
TB: That's achieved through mutual goal setting. Educational programs help train managers in behavioral skills for achieving better teamwork and resolving conflict. Key talent groups come together in videoconferences and online forums to address major problem issues.
J2020F: So, next let's talk about the options open to a maturing organization trending rapidly toward decline.
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Copyright ©2002 - 2006 Aarnaes Howard Associates. All rights reserved worldwide.
8:00 AM
Tuesday, May 27, 2003
Yin and Yang Turning Points: Divergent or Convergent Industry Indicators
Chapter Two: The Ridge
By Steve Howard, CKO
The Knowledge Labs
Table of Contents
Chapter One: Basecamp
Chapter Two: The Ridge
Chapter Three: The Outpost
Chapter Four: The Tribal Territories
"Managers in the East often interpret cycles as part of Tao, a process of continual flow and change. Its principal characteristic is ceaseless cyclical motion, the ultimate essence of reality in Chinese philosophy. The yin and the yang are two phases or states that set the limits for the cycles of change in the Tao: 'The yang having reached its climax retreats in favor of the yin; the yin having reached its climax retreats in favor of the yang.' Although there are many interpretations, the yin can be seen as cooperative, supportive, partial to collective effort. The yang is competitive, aggressive, more individualistic. According to the ancient Book of Changes, all of reality including business is in a constant state of tension, reflecting a dynamic interplay between these polar opposites."
Paul Strebel, Breakpoints
Journal of 2020 Foresight: A while back you told us at the foundation of all of these 180-degree swings back and forth during the turbulent times, lies the need for either innovation or efficiency.
Trailblazer: Yes, for survival and growth. Paul Strebel says innovation is needed to cope with value competition in the environment. It is the process companies use to create a variety of possibilities and choices for adaptation to a shifting environment.
J2020F: A shifting environment refers to the expansion and contraction phases of the economic cycle.
TB: All you have to do is to figure out if the organization's industry is currently in a divergent (loosening) or convergent (tightening) period, and then plan for the next cycle.
J2020F: Kind of a turning point Yin and Yang.
TB: Exactly. If the leading indicators of industry convergence describe your current state, you can expect the next turning point to be about innovation, diversification, decentralization, expansion and loosening organization structures.
J2020F: And, if the current leading indicators line up as a period of industry divergence?
TB: Then expect the turning point to be about efficiency -- cuts in total resource costs, optimization, productivity, and an improved competitive position.
J2020F: Efficiency turning points translate into consolidation, centralization, contraction, and tightening organization structures, right?
TB: That's right. When an organization survives the turning point ending the late growth and early maturity phase, it turns to the efficiency solution.
J2020F: How do you summarize this evolutionary period that ends in another revolutionary period?
TB: An overextension of COORDINATION triggers a RED TAPE nightmare that demands COLLABORATION for growth in the next stage.
J2020F: If the extreme Agents and extreme Athletes haven?t already bolted, this is probably the time.
TB: That's right. The predominantly ACADEMIC-Associates and ACADEMIC-Academics -- the extreme Academic cluster -- take center stage.
J2020F: In what ways?
TB: The ACADEMIC-Associates are adept at developing complex systems through analytical thinking and methods. They personally identify with a department function in a staff role. Their career track remains bounded within a professional discipline.
J2020F: And the ACADEMIC-Academics?
TB: They provide expert analysis and problem solving services to other parts of the organization. They're particularly well suited for developing sophisticated policies and procedures to embody knowledge that the organization has amassed over the years.
J2020F: At this stage of the game we're describing a highly complex organization, right?
TB: Exactly. This is when tightening control translates into new coordination systems. The systems prove useful for achieving growth through more efficient allocation of a company?s limited resources in a slow-growth industry and markets.
J2020F: At the same time the leadership has to prompt field and division managers to look beyond the needs of their local and regional units on behalf of the common good.
TB: You just described what the turning point crisis was all about. While field managers retain a lot of decision-making responsibility, in this stage, they learn to justify their actions more carefully to a "watchdog" audience at headquarters.
J2020F: And that just has to transfer into more and more staff hired into and located at headquarters, right?
TB: You've seen this movie before, right? More Academic talent is needed to initiate company-wide programs of control and review for their line managers.
J2020F: Yup. This is the period of coordination through restriction and limitations using systems that build on similarity and likeness. Anything that might disturb the basic pattern is eliminated or discarded.
TB: You've been there and done that, it seems. Like fast food chains and high transaction businesses the organization at this stage has to specialize in limited products, services or segments -- take McDonald's, Domino's Pizza or UPS and Federal Express.
J2020F: I know Academics favor data and information. Is this the phase where the organization relies primarily on quantitative measurements to judge the health of the overall system?
TB: Yes. The coordination systems installed provide feedback to management procedures, processes and controls geared to maintain order and predictability.
J2020F: What does that mean in terms of reward systems?
TB: Reward systems, for example, motivate employees to preserve and expand past investments and routines. The organization standardizes compensation according to market competition studies.
J2020F: By this time the organization's structure is highly specialized, isn't it?
TB: And, that means the connections between people throughout the enterprise are narrow and specialized. Typically people know very little about what is happening outside of their own areas.
J2020F: Doesn't that make them somewhat myopic?
TB: That might be the understatement of the year. Problems aren't seen as being relevant if they originate outside of a persons own department.
J2020F: Doesn't that further complicate matters when internal priorities, resource allocation, and political problems take precedence?
TB: You bet. As this phase evolves closer to the phase-ending turning point, the complications you mentioned turn into an unspoken agreement to "not rock the boat." So novel solutions to problems and experiments with potential innovations don't get very far. They're viewed as disturbances.
J2020F: What happens when the business environment changes -- say unexpected customer or competitive shifts?
TB: As you can imagine, they go largely unnoticed.
J2020F: How about strategy and structure in this stage?
TB: Remember this is a period of consolidation. Decentralized units merge into product groups. Top management introduces formal planning procedures. They review those plans intensively.
J2020F: I take it, like in the last phase, the sales force sells to sophisticated buyers. But, they don't offer much in the way of product differentiation, right?
TB: Part of the reason is because the competition exits the industry. With fewer competitors, falling prices, low profits and margins, substantial over capacity in mass-produced manufacturing centers cost control is the key.
J2020F: So a complex structure of line staff and product groups evolves into a matrix structure? How does the organization address shifting changes in the industry?
TB: Top management initiates and administers new coordination systems. So, certain technical functions, like information technology and human resources, are centralized at headquarters. But, the daily operating systems remain decentralized.
J2020F: So some autonomy remains?
TB: Well each product group is treated as an investment center where return-on-invested capital is an important criterion used in allocating funds. Stock options and company-wide profit sharing are used to encourage identity with the firm as a whole.
J2020F: But, the only talent cluster left with high affiliation needs is the Associates. The Academic talent clusters by and large identify with their professional specialty. That makes it easier for them to change jobs when something better comes along.
TB: And, that happens at the end of this stage, if not before. This turning point is triggered by a red-tape crisis.
J2020F: How does it play out?
TB: Typically, the lack of confidence between groups intensifies. Wedges proliferate between line and staff groups and between headquarters and the field.
J2020F: How does that lead to a red-tape crisis?
TB: The proliferation of systems and programs generated by all the specialized Academic departments to maximize their own priorities begins to exceed its utility.
J2020F: So by optimizing finance, HR, IT and the like, the organization ends up becoming sub-optimized.
TB: Right. Line managers increasingly resent heavy staff direction from those who are not familiar with local conditions.
J2020F: And, I know staff people complain about uncooperative and uninformed line managers, as well.
TB: Sure. Ironically, both groups criticize the bureaucratic system that has evolved -- they continue to blame each other for it.
J2020F: I imagine the tension grows as each party clings to their own priorities.
TB: Yes, and so you have a crisis on your hands. The chaos intensifies until procedures don't take precedence over problem solving, and innovation isn't dampened any longer.
J2020F: So, until it can make it through the turning point, the organization has become too large and complex to be managed through the proliferation of formal programs and rigid systems.
TB: And after it solves the turning point issues, Yin turns into Yang -- efficiency turns into innovation and divergence.
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Copyright ©2002 - 2006 Aarnaes Howard Associates. All rights reserved worldwide.
10:01 AM
Monday, May 26, 2003
Late Growth, Divisional Associates, Tighten & Leverage Organizational Brand
Chapter Two: The Ridge
By Steve Howard, CKO
The Knowledge Labs
Table of Contents
Chapter One: Basecamp
Chapter Two: The Ridge
Chapter Three: The Outpost
Chapter Four: The Tribal Territories
"The overlapping of goals for the two brands (internal - employer and external - corporate) and the interest in asserting the company brand to employees reflect executives' awareness that mergers, acquisitions, spin-offs, and other forces of change increasingly blur company identity, with adverse impact on the effectiveness of the workforce. Just as the disappearance or transformation of established company names makes customers wonder whom they are buying from, it can lead employees to wonder whom they are working for and why."
The Conference Board, "Engaging Employees Through Your Brand" Preliminary Findings
Journal of 2020 Foresight: What happens in late growth and early maturity stage?
Trailblazer: Having weathered the challenges of rapid growth, the organization plateaus with significant advantages: size, financial resources, well-developed systems, and an experienced, competent staff.
J2020F: They've weathered the crisis during which time top managers find it extremely difficult to switch from directing to delegating and waiting. But, once the crisis is resolved, this phase is about loosening, you said.
TB: Yes, the 180-degree different practice favors innovation, divergence, and adaptability.
J2020F: But, that shift in organizational structure, taken to an extreme, sets up its own unique crisis ending this chapter in the company's lifespan, right?
TB: You're catching on. Too much DELEGATION begets a crisis of CONTROL that ushers in COORDINATION as a growth solution for the next phase. But, for our purposes here, the early maturity phase is about AUTONOMY and DELEGATION.
J2020F: Right, let's not get too far ahead of ourselves. Contrast this stage to the others we've described in terms of People, Process and Organization Structure.
TB: This is the time for two talent clusters to shine, both Associates. The first, the extreme Associate --the ASSOCIATE-Associate -- takes on the responsibility for sustaining growth and innovation so the organization can survive.
J2020F: Isn't this the time when the organization builds a product brand into an overarching organization brand through multiple products and services?
TB: Yes. Extreme associates are particularly suited to build a culture based upon trust. Reputation matches external brand and is maintained through community-based values and informal knowledge sharing processes.
J2020F: And at lower levels in the organization, delegation expands the feelings of autonomy and ushers in newfound motivation?
TB: That's right. Top executives at headquarters restrain their impulse to direct everything. They practice management by exception, based on periodic reports from the field.
J2020F: What about communication?
TB: Communication from the top is infrequent. Usually the medium is through e-mail correspondence, telephone, or brief visits to field locations.
J2020F: Brief visits to the field means a shift in strategy and structure, right?
TB: Yes. In this stage of growth a divisional structure run by managers decentralized from the headquarters satisfies the need for delegation and autonomy.
J2020F: What about their incentives?
TB: They're given the responsibility and authority to penetrate larger markets. They're able to respond faster to shifting customer preferences, and they've got the green light to develop new products.
J2020F: So the top leaders manage by exception. What else do they concentrate on?
TB: They focus on making new acquisitions that can be lined up beside other decentralized units. They want to expand their markets. In doing so, they come to rely on the ASSOCIATE-Academics to provide analytical specialties, develop proprietary best practices and access external benchmark research.
J2020F: In this stage growth evolves from the successful application of a decentralized organization structure, right?
TB: Yes. The ASSOCIATE-Academics, themselves, grow through externally offered training and development for their functional departments. They follow professional standards, but remain loyal to the organization, as they lower costs with the use of technical tools.
J2020F: What happens in terms of customers and new products?
TB: By this time the organization no longer competes solely on the basis of product leadership. This is the mass market with a high degree of repeat buying. As such, customers have become sophisticated and purchase based upon brands.
J2020F: So the value discipline becomes more heavily weighted in the organizational excellence discipline.
TB: That's right. Superior quality is critical, product differentiation is less important. Standardization increases. That means less rapid product changes.
J2020F: So a slower pace equates into higher predictability and stability.
TB: Yes, in terms of manufacturing and distribution processes, they are fully optimized or over capacity.
J2020: How does the process improvement effort in this phase differ than the previous?
TB: Well, the strategy is to tighten and leverage operations instead of building on basics. But, as in the last phase our two-step approach is the same.
J2020F: You mean the implementation priorities equate into immediate impact and sustained impact?
TB: But, before I tell you those, like in the last stage there are traps to STAY AWAY from, such as:
Emphasize individual performance when assessing senior management;
Select suppliers based upon their general reputation as a vendor;
Consolidate by offering fewer services;
Increase hours of training in general knowledge topics;
Shift primary responsibility for assuring compliance to improvement standards away from the business improvement unit; and
Focus on cost reduction in making decisions about acquiring technology.
J2020F: What SHOULD YOU FOCUS on to deliver immediate impact in the first year?
TB: You should select from the following list:
Promote department-level improvement teams;
Use process simplification frequently;
Train in problem solving and other specialized topics;
Listen to supplier suggestions about new products and services;
Select suppliers through a combination of certification and competitive bidding;
Emphasize the enforcement role of the business process improvement unit;
Make regular and consistent measurements of progress;
Provide information to mid-management about the business consequences of business process performance;
Emphasize the creation of more products in expansion plans; and
Promote business process improvement as a key to your reputation.
J2020F: To hold the gains and get more return on the investment in the first step, what do you focus on in step two to realize gains over 3 years?
TB: Here, you implement up to a half dozen initiatives:
Emphasize team and business process improvement in mid-management evaluations;
Empower after-sales service people;
Use cycle time analysis regularly;
Emphasize customer requests and internal market research to identify new products;
Measure process improvements; and
Emphasize reliability and responsiveness as key to your reputation.
J2020F: I imagine the number of Agentsand the influence of Athletes drops in general in this phase.
TB: That's right. Although, Athletes might hang on until the end of the phase.
J2020F: Why?
TB: If they reside in the management ranks, they've been given much greater responsibility to run operational units and market territories. Profit centers and bonuses are used to stimulate motivation, as well as individual bonuses to appeal to their individual competitive natures.
J2020F: So, with stable manufacturing processes, lower labor skills, and long production runs what happens to distribution?
TB: Organizations in this phase pare down distribution channels to improve margins.
J2020F: How are margins and profits impacted?
TB: This is the stage of falling prices. Commodity priced products force down both profits and margins.
J2020F: So the price competition leads to shakeouts in the industry, then?
TB: That's right. With competitive cost the key, it is a lousy acquisition climate. It's just plain tough to sell off companies or divisions.
J2020F: Which brings us to another crisis point for the organization, right?
TB: Eventually in this business climate, serious problems arise when top management realizes they are losing control over a highly diversified field operation.
J2020F: Losing control? In what ways?
TB: The autonomous field managers and division leaders get used to running their own show without coordinating their plans and decisions about revenue, technology, hiring and developing with the rest of the organization.
J2020F: Too much of a good thing turns out to be bad for the whole?
TB: The Associate talent clusters, known for their high need for organizational affiliation, develop strong, local bonds to the divisional culture.
J2020F: And the crisis hits high gear, when what happens?
TB: The crisis gets triggered as soon as top management, back at headquarters, seeks to regain control over the sprawling, total company.
J2020F: Do they succeed in re-centralizing operations?
TB: No, the vast scope of operations makes a return to centralization impractical. Instead, they have to find new systems of coordination. And that sets the theme for the next 180-degree change in practice.
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Copyright ©2002 - 2006 Aarnaes Howard Associates. All rights reserved worldwide.
8:35 AM
Sunday, May 25, 2003
Early Growth Athletes, Bowling Pin Strategy, and Incremental Do's and Don'ts
Chapter Two: The Ridge
By Steve Howard, CKO
The Knowledge Labs
Table of Contents
Chapter One: Basecamp
Chapter Two: The Ridge
Chapter Three: The Outpost
Chapter Four: The Tribal Territories
"The purpose of the bowling pin model is to approach niche market expansion in as leveraged a way as possible, to bowl toward the tornado. Each niche, you will recall, requires its own whole product to be fully complete before it can adopt the new paradigm. At the same time, it finds it much easier to buy in if vendors can supply references from an 'adjacent niche,' one within which it already has established word-of-mouth relationships."
Geoffrey Moore, "Inside the Tornado"
Journal of 2020 Foresight: In our last discussion of the start-up phase we said that the founders hate to step aside during this turning point, even though they don?t have the temperament to be managers.
Trailblazer: That's right. If they don?t, they prolong the inevitable.
J2020F: And you said in the next stage the directive management style required to bridge the gap between start-up and early growth actually plants the seeds for a new crisis at the end of that emerging growth stage.
TB: That's also true. A solution to a previous crisis taken to an extreme in an evolutionary phase becomes a weakness and triggers a new crisis. That crisis forces an urgent new solution.
J2020F: So in this case, how does the 180-degree shift play out?
TB: We'll explore this phase in more detail by looking at the People, Process and Organization Structure changes, but in general it goes like this: Too much DIRECTION causes a crisis of AUTONOMY which forces DELEGATION in the next phase.
J2020F: Earlier we distinguished between loosening and tightening and between innovation and efficiency. The early growth phase is about tightening and efficiency in the evolutionary part of the lifecycle, right?
TB: Right. In terms of People, we see the addition of extreme ATHLETES, the so-called ATHLETE-Athletes .
J2020F: How do they fit in?
TB: They form resilient project teams to accelerate new business formation. Initially, they convert their learning from experience -- the emerging knowledge about each new product -- into repeatable processes and a practical business formula. They become the experts at rapid product introduction. They form the foundation for stability.
J2020F: Earlier we said you called the extreme Agents "Paradoxy-morons" who belonged to the 1% club. Their strength with the help of the AGENT-Athletes and ATHLETE-Agents got their disruptive innovation to the breakout threshold, before they hit the wall.
TB: Yes. In this phase, accelerating growth requires the organization to extend, improve, and modify a formula discovered in the previous phase by trial-and-error. The primary objective at this point is to set up methods to improve those things that work and to discard those things that don't.
J2020F: So, is it fair to say in general the product leadership value proposition begins to combine with the operationally excellent value proposition?
TB: That's right. In the previous stage visionaries and early adopters sponsored applications of the disruptive innovation. But, nobody really understood how the market niche would grow rapidly.
J2020F: So, in this phase more of the pragmatists show up to purchase solutions the visionaries funded. But, this isn?t the introduction into the mass-market acceptance.
TB: Since the business can't expand too fast at this stage ahead of the demand small numbers of ATHLETE-Associates come on board
J2020F: What is their specialty within the Athlete cluster?
TB: They precede the hiring ramp-up and re-organization into functional specialties. During the variable demand period, they lead core business teams and select independent contractors to develop multiple specialty niche products. And, they focus on building high growth, high volume ramp-ups for initial products.
J2020F: So this is the period of time when a smaller group gets to wear as many hats as there are fires to put out and products to ship?
TB: And, they're keeping their collective eyes on potential employees, should the potential high-demand materialize.
J2020F: So they're busy developing emerging best practices in market niches accelerating from 10% to 50% market acceptance.
TB: Yes, and they become experts at rapid response based upon just-in-time after-action reviews. As the hiring ramp-up comes the focus shifts slightly to ASSOCIATE-Athletes:
J2020F: Who are they?
TB: They're motivated by joining an organization they can call theirs, but they still favor the moderately fast pace that the market demands.
J2020F: So these are hyper-teams or teams made up of functional specialists from former niche companies to provide exceptional product introductions -- basically doing whatever it takes?
TB: They typically hit the ground running, since they?ve been there and done that. They display high morale and bond to the team under the stress of fast pace. That's the good news. But, the organization is vulnerable to this core set of team members following a leader who leaves the organization.
J2020F: As the blend in value propositions tilts to favor operational excellence, what happens to the freewheeling, ingenious inventiveness of the previous stage?
TB: Creativity doesn?t entirely disappear. But, it is focused on incremental improvements.
J2020F: And, so the emphasis in terms of process is to build upon a foundation -- get the basics in place while communicating directly with the customer?
TB: Yes. You have to be careful here not to jump ahead of yourself. A lot of the conventional wisdom proves to be counterproductive at this stage.
J2020F: You are talking about practices that hinder and delay success? Like what?
TB: What you want to STAY AWAY from are more mature process practices such as:
Assessing senior management's role in emphasizing business process improvement;
Using world-class benchmarking data and methods;
Relying too frequently on business partners for sources of process technology;
Open planning that encourages widespread input;
Actively encouraging widespread participation in improvement meetings;
Identifying new product and service offerings based solely on competitive or technological threats and opportunities;
Soliciting customer feedback indirectly through surveys;
Developing process technology internally only; or
Using geographical expansion as a strategy for growth.
J2020F: OK. Now WHAT SHOULD YOU do?
TB: Well, here we use a two-step method. The first generates immediate impact within 12 months, while the second method builds upon the first and sustains gains over 3 years.
J2020F: Let's take them in order.
TB: For immediate impact:
Emphasize cost reduction benefits and applications when acquiring new technology;
Make heavy use of process value analysis, but source process technology from the public domain;
Emphasize teams, both departmental and cross-functional;
Provide continuous training in customer relationships;
Promote participation in problem-solving training and suggestion and improvement idea systems;
Increase training on both general and specific topics for all levels of employees;
Use cross-functional teams that include customers to develop design specifications for new products and services;
Visit customers to identify new products and services;
Use internal customer complaint systems for new product and service ideas;
Make heavy use of customer satisfaction measures in strategic planning; and
Focus business process efforts on both building quality in and inspecting quality in.
J2020F: Once the foundation is set, what do you do in step two to sustain the improvements?
TB: Basically 5 things:
Emphasize team performance and quality when assessing non-management employees;
Empower employees responsible for after-sales problem resolution;
Emphasize face-to-face visits with customers to get their feedback and then follow-up;
Use public domain as the source for product and service support technologies; and
Emphasize designing it in as your business process strategy.
J2020F: I've notice that the far ranging creativity significant to the previous lifecycle stage is discouraged, so that a focus based on limit and control can be realized in this phase, right?
TB: Yes. Remember, the emerging to high growth organization regulates its internal processes, supplies, manufacturing, product lines and selling methods and continually seeks to improve and extend its product features and benefits to meet a growing number of market niches.
J2020F: The so-called bowling pin strategy?
TB: That's right. Geoffrey Moore advocated a niche-by-niche advance into the heart of hyper-growth with a leveraged strategy. If organizations go after niches at random, driven solely by sales opportunity, there is no such leverage at all. Each whole product must be built from scratch, and it is only chance if some prior customer is reference-able.
J2020F: So, with growth come more people. New specialties and new functions in the organization appear.
TB: Jobs become more interrelated, levels in management hierarchy multiply and communication becomes more formal and impersonal as the hierarchy of titles and positions build.
J2020F: In terms of strategy and structure, how do they get realigned in this stage?
TB: The new leader and his key supervisors take on most of the responsibility for giving direction to the talent pool. In terms of customers, as the demand accelerates and their customer base expands, the organization will be able to get buy initially with uneven quality levels.
J2020F: What about in terms of product offerings and changes?
TB: In this stage the organization's products differentiate on the basis of technical performance. With more complex products, reliability becomes the issue. Improvements need to be competitive with good quality yields.
J2020F: And, how about manufacturing and distribution?
TB: The organization operates at under capacity levels and attempts to shift to a mass production operations strategy. They scramble to tie up distributors who can give them access to mass channels.
J2020F: What does that mean in terms of margins and profits, then?
TB: There's good news in both high margins and high profits. During this stage the organization can command fairly high prices and realize high price per earnings. This is the type of organization that remains fairly recession resistant, although the industry favors an acquisition climate.
J2020F: What about competition and the overall strategy?
TB: Because of the shear number of new entries and competitors on top of frequent merger and acquisition activity, the key function is marketing.
J2020F: Why marketing and not quality?
TB: The market doesn't demand quality differentiation yet. And, image and brand help take advantage of market turmoil. It?s also a good time to change price.
J2020F: So the best structural alignment is what?
TB: Remember, this is a tightening period initially with a strong centralized and functional organization -- especially in the separation of manufacturing from marketing activities. But, lower-level supervisors are treated as functional specialists rather than as autonomous decision-making managers.
J2020F: So they begin to voice their frustration.
TB: Incentives, budgets, and work standards become more formal -- salary with merit increases for example, and the efficiency of operations gets rewarded, not to mention new accounting systems for inventory and purchasing -- the structure creates a new crisis.
J2020F: I remember, the solution to the start-up crisis was a more directive approach. What goes wrong?
TB: In the beginning it worked to channel employee creativity and energy into efficient methods more conducive to growth, but the practice begins to backfire. It becomes almost impossible to control a larger and more complex organization.
J2020F: What's wrong with the hierarchy?
TB: Lower level employees find themselves overly restricted by a cumbersome and centralize hierarchy, when it becomes obvious that they possess more direct knowledge about markets and operations than do the leaders at the top.
J2020F: So they're torn between being good corporate citizens and following procedures versus taking initiative on their own?
TB: As the stress and frustration grows, a crisis grows from demands by lower-level managers for greater autonomy.
J2020F: If this evolutionary period is long and the management team successful, it must be tough for them to consider any other way of conducting business.
TB: You bet. The solution to the crisis and the successful bridge to the next stage is delegation. Top managers find it extremely difficult to switch from directing to delegating and waiting.
J2020F: I bet the lower level managers love it, though.
TB: Actually, it is just as hard for lower-level managers not accustomed to making decisions for themselves. They don?t know how.
J2020F: How long does the delegation crisis last?
TB: Well, the period of floundering lasts as long as the company adheres to the centralized methods. Consequently, the top talent who demand more autonomy become disenchanted and leave the organization. If they lead a loyal high performing team, the loss can be significant.
J2020F: But, once the crisis is resolved, the next phase is about loosening?
TB: Yes, the 180-degree different practice favors innovation, divergence, and adaptability, as we will see.
Got Knowledge?
Copyright ©2002 - 2003 Aarnaes Howard Associates. All rights reserved worldwide.
1:10 PM
Wednesday, May 21, 2003
Start-ups: Paradoxy-Morons and the One Percent Solution Gang
Chapter Two: The Ridge
By Steve Howard, CKO
The Knowledge Labs
Table of Contents
Chapter One: Basecamp
Chapter Two: The Ridge
Chapter Three: The Outpost
Chapter Four: The Tribal Territories
"Albert Einstein used his extraordinary imagination to envision himself riding through the universe on a single beam traveling at the speed of light. Try to envision yourself, as he would, as a "passenger riding on the edge of a tiny particle of sand. At this minute, your piece of sand, also known as silicon or quartz, is subjected to immense heat inside a volcano. The temperature rises so much that your grain of sand becomes liquefied. You're surrounded by confusion, turmoil, and chaos as other atoms hurl past in every direction. All is tumult and disorder. Slowly the heat dissipates, and as it does your tiny atom of sand begins to settle into a comfortable relationship with other silicon atoms. Slowly gathering together, the atoms form layers, fitting snugly into a tiny quartz seed crystal. As more and more atoms join the group, the world around you changes radically. The wild ride has settled down. Your trip has moved from disorder to order. You just passed through a natural Breakpoint!"
George Land & Beth Jarman, “Breakpoint and Beyond”
Journal of 2020 Foresight: Taken together, the 8 scenarios ( 4 Lifework and 4 Worklife) help us figure out which organizations make the most sense for us to target as a potential employer, customer or client.
Trailblazer: That’s right. We can figure out which might be the the best fit for our current stage in our own lifespan. And by knowing the unique challenges to the potential organization based upon its state in its lifespan , we can propose several ways that we can contribute to the best of our abilities.
J2020F: Talk more about the start-up phase, since there is no other previous stage.
TB: OK. Let’s examine the start-up, and each succeeding phase by identifying their requirements in terms of people, processes, and organization structure.
J2020F: Those represent the key areas the HR executives focused on, right?
TB: Yes. In terms of people, we look at differences in three areas: Vision, Mission, and Core Values; Leadership and Culture; and Talent.
J2020F: Define what you mean by vision, mission and core values.
TB: OK. How are the purpose, preferred future, and type of business communicated to the rank and file? What is the core foundational story – the story that provides significant meaning or guiding principles that everyone subscribes to, regardless of individual differences?
J2020F: And leadership and culture?
TB: Here we describe how top talent and key managers behave when they achieve their organization’s top goals, strategies and objectives. We have them articulate, as much as possible, both the informal and written rules. Those behaviors and norms that make the organization unique must also attract top talent it wishes to retain.
J2020F: And Talent?
TB: Within the context of the current and next growth stage, we want to describe the distinctive capabilities necessary for success. We want to validate a profile of expertise, competencies, and orientation common to those top 20% who produce 80% of the results.
J2020F: Oh, the management profile for succession planning?
TB: No, some managers, but the “go to” people at all levels and across the enterprise in all functions.
J2020F: So, these would refer to the talent clusters – Agent, Athlete, Associate, and Academic profiles ?
TB: That’s right.
J2020F: How about the Structure?
TB: Here we’re identifying gaps in alignment between the strategy and the structure necessary for implementation.
J2020F: So strategy in terms of what?
TB: A definition of the organizations competitive posture. What is its unique value proposition or combination of value propositions at this stage and for the next? Does it succeed in providing a framework everyone can use to focus on what’s important for making decisions? Can it be referenced to decide how to marshal resources, especially during turbulent times?
J2020F: In turbulent times?
TB: Yes, does the strategy prevent FUD?
J2020F: FUD?
TB: Fear, uncertainty and doubt. Has Human Resources communicated the strategy in such a way that everyone is able to assimilate shifting business environments, new threats and emerging opportunities in a confidence building context?
J2020F: And, the alignment issues?
TB: Essentially, this refers to the tightening and loosening structures. How do the organization structure pieces fit together in the most efficient or innovative manner to meet current and future customer requirements? Do the roles and relationships synchronize in the everyday operations in clearly understood ways?
J2020F: So that’s people and structure. What do you mean by process?
TB: Here we focus on incremental improvements or radically, fundamental process innovations needed in the core proprietary business systems. Selecting the right combination depends upon the pace of change required, the scope of implementation, and the degree of resistance present.
J2020F: If I follow you, continuous incremental improvement matches the need for efficiency and consolidation, while radical innovative improvement matches turning point transition periods, right?
TB: That’s correct. A slower, wide-scale implementation in a highly resistant culture requires continuous incremental improvement. For an organization in the midst of a revitalization re-alignment – an initiative that requires emerging knowledge and a more fundamental innovation – the choice is business process innovation, because resistance remains low.
J2020F: What if the change in process is more localized to a function or two?
TB: If resistance remains low, as part of a renewal effort, then focused process improvement that is more incremental in pace makes the most sense. Here the time frame is more intermediate, than long-term and progress unfolds in a step-wise fashion.
J2020F: But, what if the resistance remains high and the pressure to change is significant?
TB: Restructuring initiatives favor focused re-engineering – fast and disruptive, but not requiring whole scale immediate shifts in behavior. Re-engineering complements abrupt shifts in strategy and structure.
J2020F: How do you choose which process approach to take.
TB: We track how information and knowledge flows throughout the organizations in formal and informal networks. We consider the degree of resistance and the pressure to change. And then, we select the best approach to address gaps in business alignment.
J2020F: So in terms of people, in the Start-up, we begin with a disruptive innovation – the creation of a business by finding an adequate customer base to stay in business – by an AGENT-Agent?
TB: In terms of the 4 worklife scenarios according to the HR executives, yes. This is the maniac with a mission. In the first phase energy is spent on experimentation. This period is very ingenious and unpredictable, a time of trial and error, of success and failure, of untold frustration and great triumphs.
J2020F: We’re referring to an AGENT-Agent’s disruptive innovation – a radically new science, innovation, and technology or business model.
TB: Yes. This period certainly isn't a period to merely survive, but to find, in the most creative and inventive way, how to operate and structure the enterprise in order to connect with the larger environment.
J2020F: But, in high tech organizations populated with a small core of AGENT-agents the "paradigm shock” associated with their disruptive innovation is so high and the benefit is so low, typically because applications for the new technology have yet to be fielded.
TB: Sure. It is the realm of pure science and prototypes. At this stage, only technology enthusiasts are interested. Slowly the early market emerges built up around one or more visionaries seeing the potential for the new technology and funding the first application breakthroughs.
J2020F: These early application breakthroughs, then generate the dramatic competitive advantage that visionaries seek, thereby warranting the pain of displacing the paradigm shock?
TB: But, that doesn’t mean the start-up organization run by AGENT-Agents is home free by any means.
J2020F: Why?
TB: If you come up with a discontinuous technology whose sole benefit is to lower cost and improve productivity within a well-worn application arena, you have an essentially unmarketable opportunity.
J2020F: Why?
TB: The reason is that conservatives simply will not tolerate paradigm shock, nor will they invest in helping vendors reduce that shock over time.
J2020F: What’s a start-up to do?
TB: It needs to attract more AGENT-Athletes.
J2020F: Why is that?
TB: It’s the trickle down theory. The conservatives only buy in to a new technology after the pragmatists, who in turn only buy new technology when it can give them significant breakthroughs in workflows, have vetted it.
J2020F: That’s where the AGENT-Athletes come in?
TB: Not yet.
J2020F: Why?
TB: It takes visionaries to sponsor the early demonstrations of those workflow breakthroughs. AGENT-Athletes specialize in commercial applications, licensing intellectual property, joint R&D alliances, and the rapid prototyping necessary to appeal to the visionaries.
J2020F: So clearly the start-up runs up against a set of challenges unique to its stage – developing a viable product or service; generating enough cash to fund the business; marshalling enough resources for survival; and creating a market niche while satisfying the earliest customers – right?
TB: And ATHLETE-Agents to provide a marketing roadmap while setting up a kind of commercial incubator – the physical space, technology support, and basic business procedures. To survive and stabilize the start-up needs to set and meet sales and marketing break-even volumes. So the sales and distribution channels grow in importance.
J2020F: The longer it takes to convert visionary influence into early pragmatist orders tests the start-ups capacity for survival. It has to generate enough cash initially, and then stabilize its business by eliminating cash flow problems – typically not the strong suit of the Agent talent cluster.
TB: The Agent start-up business is so vulnerable to shifting business environmental threats and changes, as well as internally to the Peter Principle of its early managers.
J2020F: Peter Principle?
TB: You remember. People rise to their level of incompetence. The shift from the freewheeling, ingenious inventiveness of the entrepreneur to the narrow limits of management is a massive leap.
J2020F: You’re talking about the 180-degree shift, right?
TB: Yes. Second phase success factors conform to orderly, established routines with predictability and control. If these management practices don't take over from the entrepreneurial style, the enterprise will fail.
J2020F: On the People dimension, then, individualistic and creative talents who share a technical and entrepreneurial orientation gravitate towards the loosely controlled, and organically structured start-up?
TB: That’s true. The whole Agent cluster distains management activities because of their technical core identity. They practice a product leadership approach to creating a market niche, and then making and selling the product.
J2020F: Product Leadership?
TB: Remember when we discussed value propositions? A product leader operates in much the same way Edison did when he ran a laboratory to discover all the commercial uses for electricity.
J2020F: You’re referring to the shear amount of trail and error required to find a breakthrough product?
TB: Yes. The discovery process follows a disorderly probing and exploring of the whole environment. The purpose is to discover what exists in the environment, how individual pieces might be rearranged into a new pattern, and finally how that pattern can extend into and organize the larger environment.
J2020F: If I understand what you are saying, as in Edison’s case, an extreme AGENT-Agent isn’t focusing on product extensions or alternative products at all?
TB: No. All discontinuous innovators only focus on alternative breakthrough possibilities. To them, there are no alternative products against which to compete in the marketplace.
J2020F: So, that means their initial customers – the visionaries and early influencers – want to gain some sort of dramatic advantage by doing something outside of the norm?
TB: That’s true. Successful product leaders consistently strive to provide that market with leading edge products. For an extreme Agent to remain a product leader once he has survived and stabilized, he has to push the rate of diffusion beyond the traditional rate of demand.
J2020F: How do you go about accomplishing that?
TB: You need just the right blend of Agent and Athlete talent, because you have to excel at larger than life product launches, early adopter programs, and massive marketing education.
J2020F: What does that mean from a Process standpoint?
TB: They must master three challenges. The first is that no matter what, they must remain creative.
J2020F: In what way?
TB: They have to recognize and embrace ideas that may originate anywhere – inside or outside of the product leadership laboratory.
J2020F: Secondly?
TB: Secondly, they must commercialize their ideas quickly. To do so, all their business and management processes are engineered for speed.
J2020F: And thirdly?
TB: Third, they must relentlessly pursue ways to leapfrog their own latest product or service.
J2020F: Relentlessly leapfrog?
TB: Right. Their whole attitude has to be, “If anyone is going to render our technology obsolete, it better be us.”
J2020F: So, they’re continuously crossing into new frontiers, then, on a mission to break new ground?
TB: Of course. They have to be adept at rendering obsolete all the products and services that they have created, because they realize it is only a matter of time – faster than they think – before someone else will develop the next generation.
J2020F: But, how do you develop a process capable of creativity and rapid obsolescence?
TB: Starting with an impossible problem or a breakthrough goal, individuals first dynamically explore their own minds and their immediate environment. They generate large numbers of alternatives and unusual combinations of ideas.
J2020F: Then what?
TB: They intuitively make the most unlikely associations using any and all types of exploratory, open, imaginative techniques.
J2020F: What do they do next with all these combined ideas?
TB: They put together enough bits and pieces to trigger a consolidation process by which they select the most promising combinations and discard the other ideas that are unworkable.
J2020F: And the basic pattern gets tested and refined?
TB: Yes, and then they assemble or synthesize a complete solution into a unique original expression.
J2020F: Can you give us an example?
TB: Sure. Back in his day, people thought Edison was completely crazy. He experimented with anything he could get his hands on to make a light bulb filament. He tried over 10,000 different materials.
J2020F: I read somewhere that he even tried putting electrical current through spider webs and Limburger cheese to see if they might be the solution.
TB: He had to go through all the experiments. Finally, by applying what he had learned from filaments made from burned thread, he synthesized and integrated some of his earlier experiments. And he wound up with a workable solution that changed the world.
J2020F: For an AGENT-Agent to survive the start-up phase, he not only has to successfully market his first blockbuster product, but he has to build an organization that takes a long-view on profitability, right?
TB: That’s the trick. Once survival, stabilization, and growth arrives to the product leader, he must have the right kind of product development processes in place to maintain that leapfrog momentum.
J2020F: How do you achieve that?
TB: The way Edison did for starters. As his business grew, he continued to study the life cycle of each invention.
J2020F: What did he learn?
TB: He realized the ebb and flow of investments and returns and prices and margins clearly were a function of each product’s lifecycle stage.
J2020F: Which are?
TB: Development, launch, growth, maturity, and decline. So his core process fine-tuned invention, product development and market exploitation.
J2020F: How does that differ than other process improvement efforts?
TB: Considerably. Unlike the typical TQM approach, Edison’s business grew out of his design principles. His business wasn’t driven by procedure, but by the highly energized and extraordinarily talented individuals who developed and marketed breakthrough after breakthrough.
J2020F: How did he keep them focused and motivated?
TB: Two ways. First, he focused on end results – not the means of getting there. Before development ever began, he created an inspiring vision of each new product.
J2020F: And, the second?
TB: He aligned the organization’s structure to the vision.
J2020F: How?
TB: Instead of pigeonholing his employees into a department function, he structured their jobs around the creation of products that realized the stated vision.
J2020F: So the business structure looked like what?
TB: A loosely knit, ad hoc ensemble that was ever-changing to adjust to the entrepreneurial initiatives and redirections that characterized his emphasis of working in unexplored territory.
J2020F: Edison favored a fluid organization?
TB: So much so, that he regularly reorganized and redeployed his talent towards the most promising projects.
J2020F: So today’s product leaders keep their processes free of procedures so their talent can flex their muscles and minds without causing disruptions. How do they pull it off?
TB: Well, each product leader is unique, but three ways in general. The first keeps people on track by organizing work in a series of well-paced challenges. Each one has a clearly defined outcome and a tight deadline.
J2020F: So the process remains robust enough to afford efficient coordination without dampening the inventiveness and discipline required, right?
TB: Yes. And, secondly the organization structure at large companies replicate smaller scaled start-ups by breaking up hierarchical reporting relationships into teams and clusters. And they locate their research labs away from stifling headquarters.
J2020F: And third?
TB: Finally they emphasize discipline where they get the biggest ROI.
J2020F: Where?
TB: During the final leg of the product development process. The looming deadlines and commitments tense the work that increases velocity and accelerated activity.
J2020F: Teams work at hyper-speed, right?
TB: So it takes a certain kind of person to put up with last minute shifts in direction and make or break pressures.
J2020F: What kind?
TB: The most original, best and brightest among gadflies, concept champions, mavericks, the unconventional and eccentric.
J2020F: How do you reward product leadership behaviors?
TB: Based on results measuring new product success without punishing the experimentation on the front end to get there.
J2020F: Describe the culture, then.
TB: It’s a culture that encourages individual imagination and achievement, as well as, stellar out-of-the-box thinking. It caters to the special kind of mindset that is driven by a desire to create the future.
J2020F: We’ve talked about the idea product leader over time. But, in the start-up stage, we know a good many fail. Why is that?
TB: Well, what the HR executives discovered in the last step of the scenario process was too much creativity in the small start-up phase triggers a leadership crisis. And directive management solves that disruptive turning point.
J2020F: So the management practices changes to re-align the strategy and structure?
TB: Right. Remember, in the start-up stage the buyers must be convinced to buy the product, since it is usually a high-income purchase. Start-ups always face high degrees of buyer inertia. Buyers typically encounter poor quality due to frequent design changes and too many variations without a standard.
J2020F: From the manufacturing and distribution side, I imagine you need highly skilled labor and initial productions costs are high as well.
TB: Yes. This is the time of short production runs and over capacity. That equates into high prices and margins, but low profits. The only good news is there are few competitors. So, this is the best period to increase market share by beefing up research and development and engineering.
J2020F: What about the leadership crisis?
TB: Once the start-up survives and begins to grow, new knowledge about efficiencies and quality is required.
J2020F: More employees coming into the organization can’t be managed exclusively through informal communication, as before.
TB: Right. And, coming in after the fact, most new employees aren’t motivated by that same intense dedication to the product and its vision.
J2020F: Isn’t new capital needed to fund expansion?
TB: Yes. And new accounting procedures for financial control. So, the founders find themselves burdened with the unwanted management responsibilities. They long for the good old days and still act as they did in the past.
J2020F: They don’t realize that’s the kiss of death?
TB: No. Not until the crisis arises out of the conflicts.
J2020F: So when the key talent begins to ask, “Who will lead the company out of this confusion and solve the management problems we are facing?” – it becomes painfully clear that the answer is not the founder?
TB: Yes, in many cases. A strong manager is needed who has the necessary knowledge and skill to introduce new business techniques to help them bridge the widening gulf between start-up and early growth stage.
J2020F: I imagine the founders hate to step aside during this turning point, even though they don’t have the temperament to be managers.
TB: If they don’t, they prolong the inevitable. But, as we see in the next stage the directive management style plants the seeds for a new crisis at the end of the early growth stage.
Got Knowledge?
Copyright ©2002 - 2006 Aarnaes Howard Associates. All rights reserved worldwide.
7:19 AM
Monday, May 19, 2003
180 Degrees of Separation: Vital Signs for Innovation or Efficiency
Chapter Two: The Ridge
By Steve Howard, CKO
The Knowledge Labs
Table of Contents
Chapter One: Basecamp
Chapter Two: The Ridge
Chapter Three: The Outpost
Chapter Four: The Tribal Territories
"I doubt that managers can or should act to avoid revolutions. Rather, these periods of tension provide the pressure, ideas, and awareness that afford a platform for change and the introduction of new practices."
Larry Greiner
Journal of 2020 Foresight: Last time we talked about the lifespan of an organization, you said when we examine the Start-up, Growth, Maturity, Decline, and Reinvention stages one-by-one, each phase is both an effect of the previous phase and a cause for the next phase. What did you mean by that?
Trailblazer: To move ahead companies must consciously introduce planned structures that are 180 degrees different than what worked in the recent past.
J2020F: And, we discussed how each stage evolves through a mostly incremental growth phase with only minor periods of upheaval, only to end with a chaotic period of turmoil.
TB: For instance, the organic, creative, ad hoc looseness in the start-up phase has to be reversed 180 degrees to begin the growth phase.
J2020F: An AGENT-Agent innovates a new disruptive technology, business model, or a radically new science in the start-up phase.
TB: That's right. Paul Stebel says that for survival and progress, every organization needs to master fundamentally two sets of competencies -- innovation and efficiency. He says innovation takes on the challenge of responding to the competition by increasing the value of its products and services in a new way.
J2020F: So, while innovation creates the variety of new possibilities and choices to adapt to a shifting business environment, what about efficiency?
TB: Well, efficiency cuts total resource costs and boosts an organization's competitive position. That means beginning in the innovative start-up state, over the lifespan of an organization we'll experience several swings between decentralization and centralization as the organization's strategy shifts between innovation and efficiency.
J2020F: How does that oscillation process play out?
TB: In the beginning, and whenever the strategic emphasis is on enhancing adaptability through innovation, the company needs to turn 180 degrees and loosen its decision-making reigns.
J2020F: Moving from a tightly controlled top management handful to the troops in the front lines?
TB: Right. Top management has to delegate authority and responsibility to those closer to the point of contact with the customers.
J2020F: Aside from the organic start-up, in which other organizational states?
TB: In the late growth, mature organization with a divisional structure and in the latest stage, the reinvention state with the network organization structure.
J2020F: And, efficiency?
TB: When the emphasis needs to shift to efficiency, the idea is to tighten decision-making for coordination purposes, as in a strong central headquarters structure in the growth and late maturity / decline states.
J2020F: Now, what about economic cycles. They can come and go regardless of what state an organization is currently in, right?
TB: We see cyclical swings back and forth between diversification and consolidation.
J2020F: I'm guessing as the economic cycle contracts the organization consolidates its product offerings, while they diversify their product line when it expands.
TB: That's true. Each of the typical turning points between innovation and efficiency, or between expansion and contraction corresponds to a loosening divergent or a tightening convergent organization strategy.
J2020F: Divergent in what way?
TB: Usually a way from a structured, centralized, or coordinated organization structure and decision-making approach.
J2020F: To what?
TB: Towards a more unstructured, decentralized hierarchy designed to deal with the competitive environment changes and increased complexity. This is the innovation-driven, adaptive period.
J2020F: And the opposite?
TB: The reverse begins with a convergence away from an autonomous organization and decision-making process and moves to a more coordinated, centralized structure -- designed to economize on scarce resources.
J2020F: How do you know when it's time to trigger a turning point?
TB: Well, if the organization, the marketplace, or industry is in one period, the next turn will be the opposite.
J2020F: So, if your organization is in a divergent state, then look for signals of emerging convergent forces.
TB: That's right, because at the next turn of a business cycle the organization will be pushed into a chaotic transition period.
J2020F: If they are ready, the talent culture will resist the needed change less. They will be able to make minor adjustments to assimilate the opposite set of behaviors required.
TB: With enough time, a shift of 180 degrees can be accomplished more incrementally. But, if the organization leaders, especially in Human Resources, keep their head buried in the sand, they will miss the early signals.
J2020F: And we already know that the abrupt change triggers a more radical disruption. And that gut-wrenching crisis forces everyone to accommodate it to survive, whether they want to or not. So, if I've been in a prolonged economic contraction and my organization has been converging, how do I know a cycle of divergence is nearing?
TB: According to Paul Stebel, you look for some of these leading indicators in your customer-base, among your competitors, in your supply chain and distribution channels:
Declining growth rates reveal an increasingly saturated market for your standardized commodity product;
Declining returns force competitors to cast about for new market niches as cost reductions and operational improvements squeeze as much margin as is practical;
Customers sever loyalties and attract new competitors into the market;
New product development springs out of new technology, different supply sources and new resources; and
Divergence is well under way when changes in distribution channels produce competitive advantages.
J2020F: And, leading indicators of convergence -- having enjoyed a period of economic expansion or growth in a business cycle?
TB: Customers -- the segmentation between customer groups looks increasingly artificial and starts to break down;
Competitors -- convergence becomes obvious when you see increasingly similar products, services, and images;
Potential competitors -- nobody shows up on the radar as potential entrants into the marketplace;
Supply chain -- neither a different set of suppliers or resources provides a significant source of competitive advantage; and
Channels -- the bargaining power that you and your competitors had enjoyed shifts downstream to your distribution channels.
J2020F: OK. Let's see. We've got organizations with a lifespan that lasts somewhere between 10 and 40 years. At any one time it can face a growth phase turning point or one driven by expanding or contracting business and economic cycles.
TB: And, over an organization's lifespan moving through several stages as it grows and declines, a company cannot return to a previous growth solution. It must adopt a new solution or it won't move ahead.
J2020F: Also, you've told us that a strength in one phase, or a solution to a previous crisis, taken to an extreme in the next evolutionary phase becomes a new weakness.
TB: Yes, it triggers a crisis that forces an urgent search for a new solution.
J2020F: But, the pattern is predictable, right?
TB: That's right. Too much creativity in the start-up phase of a small, young organization triggers a leadership crisis that is solved through a more directive management practice in the next phase. However, the tightening that comes from too much direction causes a crisis of autonomy.
J2020F: So, the 180-degree change triggers the need for delegation in the next phase, right?
TB: Yes. But, too much delegation creates a crisis of control from the loosening emphasis. In order to grow, the organization returns to a tightening structure that concentrates on coordination.
J2020F: But, too much coordination leads to, what?
TB: To a red tape nightmare from excessive tightening.
J2020F: And that leads to?
TB: That leads to collaboration through the next loosening wave.
J2020F: Which almost brings us back full cycle to the start-up first phase. We'll talk about that next.
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Copyright ©2002 - 2006 Aarnaes Howard Associates. All rights reserved worldwide.
10:18 AM
Monday, May 05, 2003
Lifework Solutions: Templates to Extend an Organization’s Life Expectancy
Chapter Two: The Ridge
By Steve Howard, CKO
The Knowledge Labs
Table of Contents
Chapter One: Basecamp
Chapter Two: The Ridge
Chapter Three: The Outpost
Chapter Four: The Tribal Territories
“So much random information reaches the brain that the vast majority of it must be ignored. The brain could not function properly if it gave equal priority to all the information it receives. Ingvar hypothesizes that our “memories of the future” provide a subconscious guide to help us determine which incoming information is relevant. The stored time paths serve as templates against which the incoming signals are measured. If the incoming information fits one of the alternative time paths, the input is understood. Information becomes knowledge, and the signal acquires meaning.”
Arie de Geus, The Living Company
Journal of 2020 Foresight: Before, when we discussed the four life work and the four work life scenarios, you said the process that the two expedition teams followed consisted of 8 steps.
Trailblazer: Yes, that’s right. The last two steps are to rehearse the future by playing out the original decision across each of the scenarios, and then to select relevant signposts or indicators to monitor.
J2020F: Why do you complete the last two steps? Haven’t you already predicted the future?
TB: Be careful. No, we haven’t predicted the future. No one can do that. What we are doing is examining the dynamically changing forces that will most likely play out over the course of our plan. There are no guarantees, but we can anticipate several ways our future story might unfold.
J2020F: How is that valuable?
TB: Usually crossroad decisions involve high risk and uncertainty. By rehearsing our decision across four qualitatively different futures we dramatically reduce the risk of being blindsided by events and shifting conditions.
J2020F: Kind of like contingency planning?
TB: Sure. Most of the time we’ll make plans or make a decision without considering something could go wrong. But, in the real world, the plan or decision is almost obsolete as soon as it is implemented.
J2020F: Earlier I believe you said that threats remain threatening as long as we ignore their presence, have not anticipated how to handle them, or lack the will to confront them.
TB: That’s right. By going back to the starting point – with the crossroads decision we will make – and rehearsing it against four future stories, we can anticipate major hurdles that we might not have considered.
J2020F: And those hurdles could be the show-stoppers, right?
TB: Exactly. If you remember both the life work and the work life expeditions began their scenarios with listing the highest impact, most uncertain forces.
J2020F: So, if we play out our plans against the highest impact, uncertain forces, we’ll be able to better anticipate the changes in our plans we should activate. Is that right?
TB: Remember, you aren’t trying to pick out one of the four. You are testing your plans across all four. If none of them support your plan’s success, then you’d better abandon them immediately.
J2020F: What happens, though in most instances?
TB: Usually two or more scenarios support your decision. The other two help you brainstorm alternative steps to include, if they begin to come true.
J2020F: So, instead of being surprised like a deer caught in the headlights when a negative scenario begins to impact your plans, you’ve already considered the threat, how to handle it, and so you can simply shift tactics. Is that it?
TB: Yup. We’re turning potential disruptions -- the kind most people react to with shock, bargaining, denial, anger, depression, and finally acceptance – into adventures. Without scenarios, you feel drained and stressed out. With scenarios you feel exhilarated.
J2020F: OK. Let’s turn, then to the types of original decisions and plans we’d likely make at a crossroads, according to the three clusters of options.
TB: OK. The first set -- Work for Others:
Change positions in same organization
Change organizations in same field / industry
Change careers in same organization or in new profession – do what you really love
Grow in same job, but moonlight
The second set -- Work for Self (in current or new geographical locations):
Start a business
Buy a business
Buy a franchise
Develop a consulting practice
The third set -- Maximize my Portfolio of Tangible and Intangible Assets:
Pursue a portfolio career
Live on investment portfolio and volunteer
Retire, yet freelance or consult
J2020F: The HR executives spun 4 scenarios about work life. From an individual life planning perspective they would give clues to selecting the best option for working for some one else.
TB: Some of the executives were also asking the individual decision questions for their own career.
Should I continue to work for this organization or another one?
Should I strike out on my own?
Will the human resource development profession become obsolete in the near, medium, or long term future?
If they planned to change organizations, they’d want to know what kind of culture they’d encounter? What the advancement opportunities might be?
At any rate, the choice they were considering had a direct and significant impact on the third category of options. Will I be financially independent? If not, shouldn’t I enjoy the work I’ll have to do?
J2020F: What about the “fit” question from the other side of the table – from the HR executive’s role as a representative of the organization?
TB: Those on the team in mature organizations responsible for thousands of employees and millions of dollars in budgets examined their current talent capabilities.
They questioned how long it takes to develop their talent pool to make up any gaps, and in worsening business cycles, how many of their surplus talent could they afford to let go?
J2020F: If I recall correctly, they listed the following key questions:
What is the future organization’s point of view about talent?
Will they “appreciate or depreciate” their “knowledge base”?
How will employees of the future view their relationships with future organizations?
Where and when (if at all) will development take place?
How will you go about converting talent into corporate assets?
TB: As they looked for answers in the Agent, Athlete, Associate, and Academic scenarios they discovered certain combinations of talent seemed to fit better in different stages or states of an organization’s lifespan.
J2020F: The talent contributed more in one stage, than in another?
TB: Not only that, but their influence and presence all but disappears in other stages.
J2020F: How is this significant?
TB: Well, the lifespan of huge, solid companies is only 40 years. Not all organizations even make it that far. The infant mortality rate is a decade. Arie De Geus says 40% of all newly created companies don’t last that long . Regardless of size, the average in Japan and Europe is 12.5 years.
J2020F: So hanging on to talent combinations at the wrong stage accelerates the decline?
TB: And, not attracting, developing and retaining new talent to move from one growth stage to another shortens an organization’s life expectancy.
J2020F: From the individual career changer perspective deciding to work-for-another, that’s valuable information.
TB: You bet. If you know which of the talent clusters describes you best, and if you know what stage of the lifespan the organization is in now and will likely transform into next, you’ve got a much better idea of how well you will fit and how to sell your expertise.
J2020F: From the HR executive perspective?
TB: If you know the same things, you can better plan how to move the organization’s culture, its people policies, its processes and practices, its very organization structure in order to survive longer and compete more effectively.
J2020F: We know mastery and development take time. And the more sudden a change is sprung upon a person or a culture, the more resistance they’ll produce, right?
TB: That’s right. The more HR executives can anticipate ahead of time and begin to change, the less resistance the organization is likely to produce.
J2020F: So as a result of the four scenarios, what should HR executives pay attention to as key organization development drivers?
TB: I think one of the most fundamental is that the organizational solution chosen today, to address the current state’s set of problems, actually creates problems for the future.
J2020F: So, solutions for surviving the start-up phase in infancy, actually cause problems in the next growth phase?
TB: Well, not only that, but to move ahead companies must consciously introduce planned structures that are 180 degrees different than what worked in the recent past.
J2020F: So the organic, creative, ad hoc looseness in the start-up phase has to be reversed 180 degrees to begin the growth phase?
TB: Right. And that illustrates the next fundamental. Each stage evolves through a mostly incremental growth phase with only minor periods of upheaval, only to end with a chaotic period of turmoil.
J2020F: The chaos marks the boundary between states?
TB: Yes. But, keep in mind organizations don’t necessarily proceed through an orderly sequence from start-up to decline any more. And, how long an organization stays in a period of evolutional growth depends on the industry and market. High tech companies have moved through life stages more quickly than insurance companies, for instance.
J2020F: Are there any other fundamentals?
TB: Well, the key drivers are age, size, states of evolution or revolution and industry growth rate.
J2020F: What do we have to know about age?
TB: Over the 40 years or the 12.5 average – depending upon the mortality rate – the same practices differ. They are not the same throughout the entire lifespan.
J2020F: So, in many cases the types of management problems encountered are rooted in a particular stage?
TB: Yes. In slower developing and longer living organizations, employee attitudes become institutionalized. That makes for more predictive employee behavior. But, it also means that they are much more resistive to change when those attitudes become outdates.
J2020F: What about size. I’d imagine you encounter problems tied to coordination and communications, right?
TB: Briefly, an organizations problems and solutions change dramatically as the number of employees increase, and as sales volumes increase.
J2020F: I remember some of the HR executives on the expedition team wanted to discover stand alone organizations of talent clusters, such as an Academic organization.
TB: The best way to do that is to choose not to grow to the next state. If you choose not to grow, you can retain many of the same management issues and practices for a longer time.
J2020F: You already talked about periods of incremental improvements – evolutionary change periods versus the radical innovative improvements – revolutionary change periods.
TB: The longer a period of continuous growth without major internal disruption or economic set back, the longer an organization can continue to grow without shifting their practices 180 degrees.
J2020F: But, if growth accelerates, what happens then?
TB: A chain reaction. A rapidly expanding market environment pressures the organization to add more employees as rapidly as possible. When that happens it triggers the need for new organization structures to accommodate large staff increases.
J2020F: What about organizations that have enjoyed success with less struggle?
TB: When profits come easily – usually in periods of incremental evolution – as in mature organizations, poor practices can be masked. That sets up conditions for decline.
J2020F: How?
TB: They fail to recognize the need to abandon past practices in favor of triggering a major organization change. Delays in doing so put the organization into sudden chaos. The ensuing crisis and turbulence produces significant upheavals.
J2020F: So, before we go into each stage one at a time, it is important to remember that the critical challenge to HR executives is to find a new set of organizational initiatives that will become the basis for managing the next period of evolutionary growth.
TB: Yes, because in time, the new practices end up sowing their own seeds of decay. And, that always leads of another period of crisis and turbulence.
J2020F: The grand irony in all of this, then, is organizations witness a major solution in one stage becoming a major problem at a later date.
TB: As we will see, when we examine the Start-up, Growth, Maturity, Decline, and Reinvention stages one-by-one, each phase is both an effect of the previous phase and a cause for the next phase.
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Copyright ©2002 - 2006 Aarnaes Howard Associates. All rights reserved worldwide.
7:23 AM
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