Reports from the Knowledge Labs about our recent findings, research topics, and interviews with lifestyle leaders who are creating their own futures.

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. Got Knowledge?

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The Journal of 2020 Foresight
Friday, June 13, 2003  

Realignment: Building Organizational Resilience and Breakpoint Capacity

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

“Organizations have a tendency to buffer themselves from their markets in order to operate in as smooth and trouble-free a way as possible. Craftsmen look for customers who value price or quality and steer clear of those who want state-of-the-art equipment. Pioneers take the opposite tack. These attempts to avoid having to cope with external uncertainty instill momentum and inertia in an organization in two ways. First, they limit the range of action that is permitted…. Second, and more important, buffering reduces the occasions for organizational learning and adaptation. So organizations become closed systems that roll forward but rarely change course.”

Danny Miller, The Icarus Paradox

Journal of 2020 Foresight: Reinvention is the most difficult period in an organization’s lifespan,assuming that the company didn’t fall victim to infant mortality – unable to bridge the breakpoint between start-up and hyper-growthstages.

Trailblazer: In a reactive mode, organizations adopt the restructuring path, we just discussed, because they didn’t prepare. Some other competitor or a new player in the industry triggered a breakpoint discontinuity and caught them off guard.

J2020F: In a sense, they resisted when they shouldn’t have. They missed the opportunities to revitalize and renew when time was still on their side.

TB: That’s right. Mistakenly, they only focus their effort on influencing the environment – interacting with government and public agencies, trade and industry associations, and other external groups to reduce the breakpoint threat.

J2020F: But, isn’t that a viable response as a first step, while the company buys more time to renew, revitalize, or restructure?

TB: Yes, but when they fail to realign earlier,they can’t assimilate the disruptive change on their own terms. Instead, they have to accommodate the disruption – change their strategy, structure, and systems. And, shortly thereafter, they have to change their core values and behaviors – or collapse.

J2020F: You mentioned their failure to align. What is alignment? How does it work?

TB: It’s also a process of discontinuous change. But, unlike restructuring, realignment succeeds when companies have learned from their experience.

J2020F: By that, you mean what?

TB: It draws upon a learning capability derived from assimilating continuous or sporadic change. Companies have learned how to turn new trends, or trend reversals to their advantage.

J2020F: So realignment unfolds prior to the time the company gets in trouble?

TB: Yes. And the payoff? Ample time available for the internal change. Typically, realignment organizations march to the framework of a strategic goal. Their leaders mobilize their workforce by tapping into the strong tension between existing change efforts and the direction of the new trend.

J2020F: Somehow, it seems, they’veanticipated the new waves rolling their way and have managed to grab a surfboard.

TB: Instead of crashing on them, the wave provides transportation to a post-breakpoint competitive position.

J2020F: So reacting to a breakpoint brings its own pressure and stress to an organization. Fear, uncertainty, and doubt erode confidence. It’s not a lot of fun.

TB: No, all the fun resides in the company that creates the breakpoint, to which everyone else has to react.

J2020F: That must be the highest form of competitive strategy – forcing competitors or whole industries through a disruptively radical change when they’re totally unprepared.

TB: Sustained excellence requires nothing less than the capability to create breakpoints.

J2020F: How sharp must those breakpoint shifts be to be considered discontinuous?

TB: They must be both sudden and radical. They must be rapid and fundamental. Otherwise, they won’t trigger a noticeable break in an industry performance trend. Or the shift will fail to break the rules of competition.

J2020F: A sudden, radical, rapid and fundamental transformation from old game rules to new game rules?

TB: That’s right. What Joel Barker calls a paradigm shift – something that resets the way the game is played – a zero sum game.

J2020F: So, the result is recent industrial or competitive experience becomes useless, obsolete and counterproductive?

TB: Yes. Radical change, however, in a company’s competitive position may occur gradually over time.

J2020F: What do you mean?

TB: Change that is gradual and radical is what we call a turning point. They’re gradual and incremental, while breakpoints are sudden and sharp. The cumulative effect of sporadic and stepwise change over time can be quite radical.

J2020F: That’s the renewal approach, right?

TB: Yes. Managers have to anticipate future problems and opportunities. If they do, they can prepare solutions and coping strategies before a crisis gets out of hand.

J2020F: Is that because when broad organizational capabilities have to be acquired, for example, more of the organization will be involved than when a particular functional competence has to be developed?

TB: Yes, in certain situations. Basically, the pace of change reflects the time needed to complete the shift whether it occurs in a sudden jump or via ongoing spontaneous adaptation.

J2020F: So to master alignment or to trigger breakpoints, top management has to identify and develop managers capable of leading the three different types of basic change processes – continuous, sporadic, and discontinuous?
TB: That’s right.

J2020F: How do you develop that capability?

TB: Change managers develop by being "jolted" out of their daily routines with challenging assignments that stretch their abilities and then allow time for integrating the experience into their managerial repertoire.

J2020F: What kind of assignments?

TB: Remember earlier we said in each developmental stage an organization responds to external pressures, as well. In the case where either a new divergent or convergent industry cycle is about to begin, the internal change will call for either innovation or efficiency.

J2020F: Go on.

TB: Let’s take innovation first. For resistance (no change) the manager leads an organizational spin-off. For revitalization (continuous change) the manager launches an intrapreneurship program. For renewal (sporadic change) the manager leads task forces for innovation, and for restructuring (discontinuous change) the manager kicks off a program of team competition.

J2020F: What about efficiency-based assignments?

TB: The manager leads programs to increase the scale of operations (resistance), to launch continual improvement teams (revitalization), task forces for cutting costs (renewal), and finally organizational restructuring efforts to cut costs.

J2020F: Now, all of those assignments prepare the internal organization for radical change – at least in the long run, as well.

TB: Yes. But, further development assignments can address external initiatives.

J2020F: Such as?

TB: Such as, developing arm’s lengths relationships to resist the new force in the industry. Or, integrating newly merged organizations for revitalization. Or, managing special partnerships and alliances to renew a competitive position. Or, finally, taking an active role in negotiating hostile takeovers.

J2020F: So, savvy organizations can develop key talent while addressingold game, new game, turning point and breakpoint strategies simultaneously.

TB: Yes. They’re developing the internal organization needed to provide a diverging innovation, or a converging cost reduction capability, while coping with the resistance on a given intervention path.

J2020F: Is that why you said top management must frame these initiatives with a strategic goal, earlier?

TB: Yes. Keep in mind that external networks and alliances need to complement the internal change organization, or you experience a misalignment.

J2020F: And, I imagine that both the scope and pace of organizational change needs to be audited for consistency with the chosen intervention path, as well.

TB: Sure. Take the internal innovation initiatives, for instance. The nature of a gap in innovation capability can be described in terms of the need created by change forces for innovation, and the organization's resistance to innovation.

J2020F: Explain what you mean by innovation.

TB: Innovation is the commercialization of an invention, taking an invention from the research lab to the marketplace.

J2020F: What about innovation consistent with the resistance level?

TB: With respect to the change force, two broad types of innovation can be identified: fundamental and incremental.

J2020F: What’s the difference?

TB: Fundamental innovation involves a major shift in the product offering and/or the business system.

J2020F: And the other?

TB: Incremental innovation, by contrast, involves stepwise improvement.

J2020F: What about the innovation resistance?

TB: They can be divided into two broad categories: open and closed. Organizations open to innovation offer low resistance to new ideas and change. They innovate more frequently than the other.

J2020F: So, organizations closed to innovation are more rigid, resisting new ideas and change, with sparse innovative activity?

TB: Right. And, the combinations of forces of change and resistance dictate the need for four different organizing approaches to innovation which correspond to the intervention paths:

Incremental innovation in a closed environment for the resistance path;

Fundamental innovation in an open environment for revitalization;

Incremental innovation in an open environment for renewal path; and

Fundamental innovation in a closed environment for restructuring.

J2020F: So I take it that the organizational spin-offs you just mentioned correspond to an incremental innovation in a closed environment, right?

TB: Yes. Spin-offs operating outside the organizational mainstream provide an approach to innovation that does not upset the existing organization. Rather than attempt to integrate the innovating team into the corporate mainstream, this approach allows for virtually total autonomy on the outside.

J2020F: But, doesn’t that newfound freedom create a new set of problems?

TB: Spin-offs once developed are difficult to re-integrate into the corporate mainstream. As a result, spin-offs are suitable for companies with a small innovation capability gap and strong resistance to change within the mainstream organization.

J2020F: If I’m a manager put in charge of intrapreneurship for my development opportunity, what’s that all about?

TB: Intrapreneurship involves the spontaneous emergence of self-motivated project champions and teams. The prototypes are the product champions at 3M Corporation, who drive continual innovation from the bottom up, within a well-defined corporate culture.

J2020F: How does it work?

TB: Employees are given the autonomy and encouragement to be innovative with respect to those activities over which they have some control, but always in harmony with corporate strategy.

J2020F: So this approach fits a less resistive environment than the highly resistant one spawning spin-offs.

TB: The continual nature of the innovations mainly in the product, plus the spread of the innovating process throughout the organization, indicate that intrapreneurship is appropriate for companies with low resistance facing well-developed forces of change.

J2020F: Therefore, a climate supporting intrapreneurs is the typical objective of an innovation-oriented revitalization path?

TB: Right.

J2020F: You mentioned 3M. Who else chose this path?

TB: The better-known cases of intrapreneurship are associated primarily with companies having a high-tech and/or strong market orientation: Hewlett-Packard, Apple Computer, Texas Instruments, 3M, Procter & Gamble, Frito-Lay, United Airlines, Seiko, Schlumberger, Dana, and Raychem.

J2020F: They were the classic high-tech legends.

TB: The original "HP Way" encouraged product innovation throughout the company's mainstream by autonomous teams, which split off from existing divisions once the latter became too large.

J2020F: What was the secret to their original success?

TB: These teams compete with one another to "sell it to the sales force." Divisions comprising collections of such teams were limited in size and quite independent, having separate responsibility for most of their own support functions.

J2020F: What about incremental innovation in an open environment for the renewal path – the task forces for innovation?

TB: Task forces are given an often given a critical task to perform by top management, with maximum possible freedom of action. Although independent of the company's main control systems, the task forces have easy access to all needed resources, both human and financial.

J2020F: While not much flexibility is required of the organization when setting up the task forces, what about their re-integration into the main stream?

TB: Re-integration is often managed by allowing the task force to evolve into an independent business unit. Whatever the approach, if the rest of the organization is to benefit it must be reasonably open to the task force's output.

J2020F: Describe the fundamental innovation in a closed environment for restructuring.

TB: This is the team competition option. The company, or division, is decentralized into business units, or teams, each pursuing its own business or project as independently as possible.

J2020F: Isn’t this a high-risk option?

TB: Well, for the approach to succeed there must be enough entrepreneurial executives in the middle ranks ready to take up the challenge and opportunity presented by greater independence.

J2020F: And, I’m assuming in those cases where this strength is available, the restructuring can occur rather rapidly.

TB: True.

J2020F: Shift gears for us. Spell out the efficiency cost reduction strategies and core business process approaches that parallel the innovation initiatives.

TB: Well, the important point to remember is that organizing approaches to cost reduction may fit in more easily with the existing organization than the innovation initiatives.

J2020F: How do you go about increasing the scale of operations as a method of resistance?

TB: Economies of scale and investment in new plant and equipment are examples within the existing organization structure. Increasing the scale of operations makes the most sense in industries with a declining long-run cost curve, provided the benefit of the experience can be protected from the competition.

J2020F: Is that because higher market share leads to a further cost advantage?

TB: Yes. But, over time most information gets out, so that the latest competitor to invest in capacity expansion undercuts those that invested earlier on. To stay ahead, the first movers have to lead not only in capacity expansion, but also in lowering the costs of existing capacity.

J2020F: What about the corresponding approach to business processes?

TB: Process improvement initiatives address challenges according to the degree of and pace of change.

J2020F: By degree, you mean what?

TB: Are we incrementally improving something that is already working – removing waste, streamlining existing procedures, updating technology, increasing skills or versatility, or is it more fundamental – disruptive in a whole new way?

J2020F: Now, what about the pace of change?

TB: Most organizations want to improve at least at the speed of change dictated by the market place and their stage of lifespan. If the organization senses a turning point or breakpoint on the horizon they’ll want to select either a measured or faster improvement initiative.

J2020F: So, what is the equivalent improvement strategy for increasing the scale of operations?

TB: Because the pace of change is slower and the degree of change miniscule in a highly resistant organization, the process initiative usually called for is incremental improvement – the old standby of the TQM movement in the ‘80s and ‘90s.

J2020F: For revitalization, the innovation initiative was intrapreneurship. What’s the equivalent cost reduction initiative?

TB: Ongoing continuous improvement teams drive cost out from the bottom up in an organization. Cost improvement teams apply the benefits of the learning implicit in the accumulated output and experience of the organization.

J2020F: Since this is the revitalization track, top management’s on the hook to build the commitment essential for sustaining a cost-conscious culture. Isn’t this the requirement for the long-term investment in organizational learning?

TB: That’s right. It takes time to open up the organization to the point where it can support strong pressure to lower costs from the bottom up spontaneously – the ideal approach for new game strategies.

J2020F: Does the organization still follow an incremental improvement strategy?

TB: Well, the scope, like incremental, includes all processes across the enterprise, but business process innovation requires new processes for the new game strategy.

J2020F: Out with the old and in with the new, eh?

TB: Often, like skunk works, business process innovation teams operate independently, but in tune with the new vision and the guidelines of a compelling business case. Integrating their improvements back into the organization can be challenging.

J2020F: Now, what about turning point strategies, where change is limited to parts of the organization, in a more incremental step-wise approach?

TB: Cost reduction in bigger bites than continuous improvement teams can provide requires the top-down organization of tasks. Task forces are appropriate for incremental cost-cutting which is concentrated over an intermediate time period. As such they are consistent with a renewal intervention path.

J2020F: Are these the same task forces you described chartered to deliver incremental innovations?

TB: No. The main difference between these task forces and those used for product innovation is their mission.

J2020F: Their mission, what do you mean?

TB: The objective of cost-cutting task forces might be to develop new cost-reducing processes and systems. Alternatively, the objective might be to simplify the business, its organization, products, and processes.

J2020F: So they focus more on process simplification and transactional costs?

TB: Many corporations have used task forces to make suggestions and show how decision-making might be simplified, most commonly by getting rid of excessive administration and control. Exposing and weeding out the hidden factor of unnecessary transactions is a major part of this effort.

J2020F; I’m assuming the same rationale applies to business process improvement, right?

TB: Focused process improvement, usually contained to a business function or department, reacts to the fast pace of change driving the step-wise change.

J2020F: Can you give and example?

TB: Sure. The product development process in engineering requires substantial improvement, as a component in an otherwise streamlined cross-functional process, to meet the competitive demand to get products to market faster, for instance.

J2020F: Now for breakpoint strategies – therestructuring counterpart.

TB: Again, this differs from restructuring for team competition on the innovation track – though both address discontinuous change that is growing stronger in an organization highly resistant or closed to change.

J2020F: Is this the turnaround option?

TB: Yup, it sure is. Eliminating marginal products, operations, and organization is the quickest way of cutting costs.

J2020F: How does the turnaround restructuring unfold?

TB: Usually in three ways: first, identifying the potentially profitable parts of the business; second, pruning the deadwood; and third, giving the business a viable direction for the future.

J2020F: Organizing a turnaround is very much a top-down, authoritarian move that requires a commander leadership style that fits a restructuring path, right?

TB: Yes. Rapid, focused, specific change is the order of the day. As always with discontinuous change, there are severe limits to the change in behavior and beliefs that can be accomplished in the time available.

J2020F: But, can’t this crisis be seen as a glass half full?

TB: Sure, if a crisis has convinced everyone of the need for radical change, the turnaround manager can draw on the change agents in the firm to help execute the leap.

J2020F: So, how does the burning platform translate into business process improvement?

TB: Focused reengineering – fast and disruptive. But the first time is always the hardest – and because of so much resistance encountered, only 30% successful. If they haven’t learned how to produce breakpoints, they may be willing, but unable.

J2020F: What do they do in that case? Look to the outside?

TB: Often the resources and competence needed on the other side of a breakpoint cannot be developed in-house, especially under time pressure. The resource commitment may also be too large or risky for one company alone. External organization is the key to the successful handling of a breakpoint in significant circumstances.

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