Students of business history know to take car companies seriously. The era of scale economies was ushered in by a car company - Ford - on its innovative assembly line. While economies of scope were unleashed by another - Toyota - with its equally innovative total production system. So, has Lotus - a British sports and racing car company - just signalled the rise of the the next great step in the evolution of business?
The high-end car market is fierce and Lotus’ new CEO can only afford to innovate frugally - improve without investing. He asks ‘for all three existing car models to be broken down into their parts and laid out on tables and asks all 900 company employees to tag the parts using a traffic-light system: keep, renegotiate supply/redesign, or discard. This ensured everyone understood why these changes were being proposed and resulted in weight savings of 10% and £3,000 from the components bill. It also led to the overall quality of the cars being improved’ (1) and this was all achieved without an expensive re-design of the cars themselves.
Why does this have the potential to signal a radical new breakthrough in business?
Speed and flexibility drive competitive advantage in rapidly changing and unpredictable markets. Resource intensive major projects with long lead times and even longer pay backs are increasingly harder to justify. But this doesn’t mean organisations need to go into defensive mode, just protecting what they have by cutting costs further. It simply means business leaders should adapt better and, helpfully, Lotus has shown the way in three simple steps:
1. Work with finely-grained objects - like the Lotus CEO, break things down to the lowest practical level of action. Rather than re-design the whole car he looked to question the right of each component to be there in its current state. However, if you’re in a service organisation DON’T confuse people for car parts (people are more complex than component parts!). Instead the unit of analysis should be narratives (the micro-stories) that spread like wildfire around your organisation, shaping how people act. Become aware of them and adopt pragmatic steps to get more of the ones you want and less of those you don’t want
2. Leverage distributed cognition - Getting everyone involved not only helps create buy in but more importantly taps into one of the most important maxims of the new business paradigm: answers are already known, but just very widely distributed. Your challenge is to bring those knowledge-rich perspectives online - seeing what’s really happening through the eyes of those who know this best: customers, employees, suppliers etc. Again, capturing the narratives people share and exploring them with tools such as SenseMaker® lets you do this quickly in real-time
3. Ensure disintermediation - finally, and most importantly for business leaders, you must get your hands dirty. As Rumelt states in his excellent book ‘Good Strategy/Bad Strategy’ “Leaders who stay ‘above the details’ may do well in stable times, but riding a wave of change requires an intimate feel for its origins and dynamics.” Don’t let middle-men - internal middle-managers or external ‘experts’ - get in the way of seeing things with your own eyes as this is the only way you can effectively match what is possible (to do) with what is (really) needed.
The next stage in the evolution of business is here and it’s frugal. The barriers to entry are no longer capital-based ones but knowledge-based. Are you on board?
#TheNewSimplicity #SmarterOrganisations #SenseMaker
(1) This story was covered in the UK Sunday Times February 2015 http://www.thesundaytimes.co.uk/sto/business/Industry/article1516483.ece though I came across this in the excellent 'Cynefin Mini-Book' p6 http://www.infoq.com/minibooks/cynefin-mini-book
Leaders have a unique challenge in the 21st century. The ecosystems (the countries, markets and industries) their organisations operate in are increasingly volatile, uncertain, complex and ambiguous. And missing critical signals amongst the increased noise risks exacerbating existing fault lines in their organisation. What should leaders do?
Subject matter experts solve complicated issues at functional levels. But complex questions (e.g. top line growth, corporate culture, change or risk management) cut across specialised silos. Complexity therefore is always escalated up; making managing complexity the key strategic challenge for executives in the 21st century.
Yet complexity remains widely misunderstood; described as something ‘very complicated’ or confused with chaos theory. Complexity science itself ascribes distinct characteristics (non-linearity, emergence, unpredictability) that render traditional 'solutions' (e.g. best practice, ideal leadership styles) entirely context dependent.
To face a complex issue means to deal with a ‘brownfield’ context - never a ‘greenfield’. Complexity is located in the system (e.g. the organisation, market, population) and always has a history, yet is constantly evolving. And as we engage with it, it changes - often in unpredictable ways. This is why answers in a complex system often appear only in hindsight - though this doesn't lead to foresight (e.g. it seems obvious now that sub-prime mortgages were a bad idea, but likewise, today's Quantitative Easing is variously described as the only thing saving the global economy or creating an even bigger future crash. Only time will tell).
In a complex world context is king.
Idealised futures are an illusion - as are strategies based on certainties designed to get you there. The collapse of Michael Porter’s Monitor Group in 2012 showed that while rigorous strategic analysis can help explain how excess profits were created in the past, it's a poor predictor of how to generate them in the future. Even the best formal strategising can trap leaders into believing the future will be an extension of the past. But if the future fails to conform to expectations we are left naked and fragile, exposed to the elements.
Like King Canut ordering back the tide, we discover powerful natural forces defy command and control.
Yet, the natural world itself - of which man is a part - has adapted wonderfully to exploit complexity. Evolution works through a process of increasing variation (of options), basing selection on what works now, and replication (or starvation) of options based on hard evidence of suitability. Can leaders learn something from nature about adopting a rigorous external focus, increasing awareness of options through rapid trial and error, and creating mechanisms to amplify or dampen options in order to thrive?
Effective horizon scanning uncovers emerging signals that signal where and what to act on before its too costly or too late. Technology is a great enabler in this, if one caveat is kept in mind: technology without human interpretation is meaningless. Google may find anything you ask, but can’t tell you what to ask for. Uncoupled from humans technology merely increases the noise surrounding the signals. Data is dumb - to become meaningful information human knowledge must be applied.
Humans should be at the front and back end of technologically-aided decision-making - defining the issues to explore and discovering its real meaning. Technology therefore must be designed to fit the human - the way we are now, rather than the way we'd like us to be. It must augment our natural sense-making abilities, which have supported human evolution through millennia (a best practice case?).
Critical knowledge flows through organisations in human networks. Navigating these flows effectively can reveal the origins and dynamics of change. And as humans share such knowledge naturally, extrinsic rewards aren’t required to tap this. Humans naturally create and share knowledge in the form of narratives - ‘micro-stories’ - that are both universal (every culture has them) and democratic (no barriers exist to sharing). These are the 'water cooler’ stories that spread insights and enable other people to make sense of the world around them so they can act better in it. Harnessing these narratives is critical to making sense of and navigating complexity.
Critical knowledge can be leveraged at little extra cost.
Leaders must create the conditions for contextually-appropriate knowledge to emerge. Managing for serendipity (‘pleasant surprises’) means seeking fresh insights, rapidly field-testing coherent ideas and replicating success. But as genuine breakthroughs don’t come from established thinking patterns. Leaders must learn how to break through the hard-wired autonomic brain we rely on - which seeks first-fit, rather than best-fit, solutions - and instead become receptive to novel ideas. Strategic leadership is less about engineering future visions than it is about increasing awareness of the critical factors in our ecosystem, 'identifying the biggest challenges in them and devising coherent approaches to overcoming them'. Real strategy is about seeking the truth of the current position.
Navigating and exploiting complexity means leaders must take multiple perspectives to discover genuine insights. Going beyond objective numbers to understand the why. Rapidly testing coherent ideas as ‘safe-to-fail’ experiments. and feeding success, whilst starving failure of resources. No-one can ‘cut through’ or ‘simplify’ complexity - nor should we want to. Complexity contains rich opportunities in a changing world. Leaders employing naturalistic approaches can exploit complexity profitably.
SenseMaker® - an innovative technology first deployed by the Singapore government to detect weak signal terrorist threats - taps into mass organisational knowledge flows and helps join up disparate information from silos to form actionable knowledge. It presents whole network perspectives leaders can rapidly see and understand, helping unlock the organisation’s present evolutionary potential.
For more information about how to make sense of, navigate and exploit complexity for organisational success contact firstname.lastname@example.org
The Sigmoid curve is a mathematical concept which has been widely used to model the natural life cycle of many things, from biological organisms to markets. Known also as the ’S’ curve (as it resembles a stretched out S lying on its side) it visually represents life’s three critical phases: learning, growth and decline and acts as a metaphor for the rise and fall of everything. It’s a powerful mechanism for looking at the bigger picture.
The 20th century was the paradigm of the industrial age, dominated by manufacturing engineering. Car firms revolutionised business far beyond their own industry boundaries, first with Ford’s assembly line in the 1920s and then Toyota’s production system in the 1980s. These also helped previously weak nations like Japan emerge into world players and cemented the 20th century as America’s. Ford’s S curve was founded in the world of scientific management and economies of scale; Toyota’s in leveraging new computing power to deliver mass customisation along the same basic production lines. And it was computerisation that ushered the modern ‘age of information’ in the 21st century. Information today dominates organisations, nations and the global economy the way capital unilaterally did yesterday. Klaus Schwab, founder of the World Economic Forum, argues that “capital is losing its status as the most important factor of production … it is being superseded by creativity and the ability to innovate - therefore by human talents.” Does this signal the emergence of another ’S’ curve?
People are now more inter-connected than at any point previously in human history, at essentially zero cost. Barriers of geography and poverty to achieving a fully-connected world are now surmountable. Knowledge (applying information wisely) is being let loose and no individual, organisation or state can own it. Knowledge is a social construct emerging from the interplay of human interaction - this new currency only grows by spending it. Attempts to hoard it (to make profit) or restrict it (to offer protection) will relegate those to the slow lane of the 20th century paradigm while the 21st century inhabitants race by in the open knowledge fast lane.
The changes for organisations will be far-reaching as more knowledge now rests outside their four walls than can possibly be contained within them. Don Tapscott points out our new paradigm is now being driven by collaboration, transparency, sharing and empowerment - from the seminal story of Goldcorp finding $3billion of gold after publishing its data on the internet to IBM investing $1billion in Linux which generated helped generate double that in annual returns and helped save their business during challenging times. As organisations become naked in the global glare of open knowledge it’s more important than ever to be surfing the right part of the Sigmoid curve. Is it time to make the leap to the new curve for you?
Views of the forest are often obscured by the trees. This metaphor helps explain why General Electric is alone amongst the founding members of the Dow Jones to still be on that list of leading companies today. Even the biggest and best organisations fail to see the forest for the trees and throw away considerable advantages.
To stay ahead of the curve an organisation must change internally as rapidly as the world outside changes - for when the pace of external change outstrips that of internal change the organisation will struggle to adapt. In such organisations - especially very successful ones - a crystallisation forms: leaders seek to replicate success by trying to engineer defined outcomes through process optimisation; a focus on style rather than substance for initial success is often delivered by reinventing or breaking outmoded rules and processes.
‘Success’ in such organisations starts to become defined by internal measures, such as hierarchical position. Good functional specialists are promoted - often on the contribution they make to internal cohesion - to their own particular level of incompetence, replacing a much needed expert for another, far less needed, incompetent manager. Behaviour in such organisations is reinforced by “meaningless sloganising and mission statements” and the result is Kafkaesque - everyone knows the system is ineffective but are powerless to change it.
But change is a constant and organisations failing to recognise this - and adapt accordingly - risk becoming the walking dead - like the founding Dow Jones alumni of 120 years ago. Today’s increasingly rapid pace of change requires organisations to be ready to undertake change far more often. Doing so at the peak of their current development (S) curve - while resources are still abundant - enables them to act from a position of strength. Doing so only after new technologies or approaches dominate the market - which has likely already started to eat into your competitive advantage and reserves - is a strategic error. Change may not kill you straight away, but it inflicts a heavy enough blow that will eventually: leaving you a zombie organisation.
Dell developed the vacant stare of the zombie prior to its buyout last year. The computer firm hadn’t made the leap to the new ’S’ curve while they were riding high. Now, they are busily sinking money from declining PC sales to finance a belated move into services, storage and software. Time will tell whether this shuffle has enough momentum for them to survive and thrive again. Another one to watch out for is yesterday’s behemoth, Microsoft. Is your organisation next?
Shape the Future
Don't just adapt to it