Strategic Change

“Right in the Kisser” (A Diversion for the Holidays)

December 19, 2009 · Leave a Comment

An unshaven man in a damp and tattered overcoat pulls his collar up around his neck. The rain had begun when most people were safe and dry in their homes finishing warm stew and steamy cornbread. It has been a week since the man ate his last hot meal at St. Bart’s with other men down and out and forced onto the streets. As he hugs the long bulge under his coat, the man thinks about his wife and kid who had both died nearly a year ago. The city undertaker had written “Malnutrition” as the cause of death on each death certificate, for Mayor James McCluskey would not have any “Starvation” in his berg. The unshaven man backs into an alley and leans against a wet brick wall forming a dark silhouette barely visible to the driver of a ’41 Hudson rolling by. The man tries to stay dry, and he waits.

Up above, a battered Underwood Number 5 clacks as Philip Casey hammers letters, words, and sentences onto a fresh sheet of onionskin paper. This sound has gone on and off continually for eight hours, since one in the afternoon, when the shamus began his assault on the opening paragraph of his first book:

It was a dark and stormy night – a night when women and weak men would read trashy novels while curled up in front of warm fires. Hawthorne stared blankly out the 6th floor window onto Olive Street. The obscene red neon glow of the Alhambra Theater flashed on the wet sidewalk. Hawthorne thought about Ted Seymour, his partner, the partner who was killed on a case while tailing a suspect in the Parson’s jewelry heist. The desk across from Hawthorne’s still sat empty after fourteen weeks. He saw no need to fill it anytime soon: business had not been good and it had not been bad.

“Aah, this is garbage!” Casey shouts as he pushes his heavy oak-wood chair away from his heavy oak-wood desk. His book agent, Robby Epstein, needs a sample chapter by morning when he will pitch Casey’s work to a publisher of cheap dime novels. Casey sweats underneath his clammy shirt and his hands shake ever so slightly as he thinks about the critical deadline that would rush toward him through the rest of the night.

Della opens the door to the inner office, her alabaster hand gently grasping the worn brass doorknob. “What’s the matter, boss? Can I get you anything?”

Casey barks, “If I want anything, I’ll tell you! Now get the hell out of here and leave me alone!”

“You don’t have to snap a girl’s head off, you know.”

“I’ll snap at you whenever I want for fifteen fifty a week. Now get out!”

The secretary retreats to the outer reception area with a soft pout on her face, the kind of pout a man wants to take into his arms and kiss slowly. Casey flips open the lid of the tin cigarette case on his desk and glances at the inscription inside:

For meritorious service above and beyond the call of duty.

Casey shakes his head slowly and thinks, “This is what I have to show for 15 years on the force.” He places a Fatima in his mouth and lights it with the Zippo lighter he had taken off a tough guy when Casey was just 14. He puffs. Milky smoke floats and swirls under the heat of the incandescent desk lamp casting ghostly shadows on the Underwood. “I gotta’ get out of here to think.” Casey stands. His chair rolls violently into the middle of the room and tips over. He grabs his trench coat and Fedora off the leather over-sized chair in the corner and bursts into the reception area. As Casey charges through to the hallway, he grumbles something to Della sitting at her desk going over last month’s receipts. She barely has a chance to look up.

No one but the downtrodden inhabits the streets on a night like this. The only sound is a fast “ka-slap, ka-slap, ka-slap” as Casey’s shoes make angry splashes on the sidewalk. The unshaven man in the tattered overcoat emerges from the alley and blocks Casey’s path.

“Say, mister, can you stake a fellow American to a meal?” asks the unshaven man.

“Get the hell out of my way! And don’t give me that ‘fellow American’ bunk. Where’d you get that from? Some chump movie?”

“Sorry, all I meant was…”

“Get out of my way or else it’s ‘Pow!’ Right in the kisser.”

The unshaven man pulls a lead pipe out from under his coat and pow. He lets Casey have it. Casey’s left cheek starts bleeding before he hits the pavement.

When he wakes, Casey slowly rises, reels his head twice, and puts out his arm to lean against the dripping brick wall. He frisks himself. His wallet is gone, and worse, his 38-caliber detective special is missing from its usual place on the P.I.’s right hip. For years, the gun had been Casey’s back-up weapon used only once in the line of duty. Casey knows he would have to report this to his old buddies on the force to avoid any future misunderstandings.

Casey turns to get oriented and begins walking. The only sound is the slow “slop, slop, slop” as he struggles back to his building. Casey ascends the seven steps from the sidewalk and pushes the front door. “Got… to get… to the office.” He spots the elevator on the far side of the black-and-white tiled lobby. Casey can see his face in the gilt mirror as he stumbles by, and he does not like what he sees. The gumshoe reaches the elevator and gets in almost tripping over the transom. He presses the black, Bakelite button marked “6” and steps back. The cold, steel grate closes in front of the somber look on Casey’s face casting a shadow of X’s across it.

When the grate opens, Casey takes a deep breath, winces at the pain, and begins dragging one leg after the other. 30 feet, 20 feet, 10 feet, 2 feet. As Casey leans against the office door, his blood smears the opaque glass and a swath of red paints over the words “Casey and Thatcher”.

Della hears a bump from behind the office door and reaches into her top drawer for the 25 automatic she keeps secret from her boss.

“Who’s there?”

“Angel, it’s me.” Casey turns the brass doorknob adding a new layer of blood to the 28-year old patina. The door swings open, and Casey collapses.

“What have you gotten yourself into this time, boss?” Della returns the 25 to the top drawer and reaches for the bottom one on the right. It slides out quickly. Della reaches in. Gauze pads. Iodine. Bourbon.

Della sits down next to Casey at the door and puts his head on her lap. The wound oozes. Della fills a gauze pad with iodine and her boss with bourbon.

“Angel, I … I’m sorry for …”

“I know, boss. I know.” Della dabs Casey’s left cheek and smiles mysteriously.

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Business Architecture & Design Thinking

November 25, 2009 · 4 Comments

I often take on the role of Business Architect for my clients to design for them front-to-back enterprises that embody future state visions, innovation, and sustainable competitive advantage. Business architecting is a blend of science and art with the role of the Business Architect requiring the integration of multiple perspectives and multiple disciplines to create a tight package for the client. Some call this “Design Thinking”.

Tim Brown, CEO of IDEO, and Roger Martin, Dean at the Rotman School of Management, currently evangelize the application of Design Thinking in the context of entire businesses, going well beyond traditional product development role of designers. Brown and Martin have both developed powerful frameworks that drive mindset change for interdisciplinary teams as those teams develop creative solutions to business and social problems. Brown and Martin have authored books on Design Thinking (among them, “Change By Design” by Brown and “The Design of Business” by Martin) which I highly recommend.

Multi-Layer Business Architecture

Here is a Multi-layer Business Architecture framework that I have used successfully on consulting engagements with numerous senior executives over the years. Layers and “plumbing” comprise the architecture model, which provides an executive a means to envision the transformed business. The framework also gives interdisciplinary, cross-functional teams a hard deliverable to create as they formulate the right, insightful problem statement and develop innovative solutions to tackle the complexities of transformation.

By design, the framework sets up detailed planning, management of business impact, mitigation of risks, establishment of implementation teams, integrated execution, and comprehensive transformation management. Business architecting applies Design Thinking to an entire enterprise. The Multi-layer Business Architecture helps business design teams organize work, provides structured play areas for creativity, and serves as an integrated rendering of a senior executive team’s vision.

Substructures of the Architecture Serve to Both Inform and to Define the Outputs of the Business Architecture Process

The Layers and Example Substructures

  • Macro-economic environment
    • Trends and forecasts
    • Growth or decline
    • Globalization
    • Deep and prolonged recession
    • Slow recovery to the new normal
  • Context of the industry or industries
    • Industry constructs and constraints
    • Eco-systems and sub-systems
    • Influencer maps
    • Porter’s 5 forces
    • Disruptive innovations and chasms
  • Business strategy
    • Chosen markets
    • Unique, attractive, and defensible value propositions
    • Portfolio of companies and products
    • Growth scenarios
    • Long term vision and short term objectives
  • Financial model
    • Revenue generation processes
    • Internal strategic costs
    • Capital structure
  • Interactions with the Enterprise
    • Interaction design
    • Empathy and insight
    • Customers’ experiences with the enterprise’s products and services
    • Ease of doing business with the enterprise: channel partners, suppliers, service providers, financial capital providers
  • Organization and process
    • Organizing principles
    • Facilitation of strategy execution
    • Core processes along the value chain
    • Inter-organization coordination
    • Support processes
    • Key performance measures
  • Information technology
    • Information strategy
    • Technology and systems architecture
    • Competencies
    • Right-sourcing
  • Business integration
    • Frameworks
    • Connections
    • Dependencies
    • Communities
    • Performance measures and performance management

The  Plumbing and Example Substructures

  • Leadership
    • Decision process
    • Leadership style
    • Management changes
  • People
    • Human capital strategy
    • Staffing levels
    • Skills and development
    • Organization knowledge and learning
    • Rewarded behaviors and cultural alignment

Change Spectrum

Change is not an absolute. Degrees of change reside along a spectrum ranging from incremental change to larger scale, strategic change to up-heaving, fundamental change. As a Business Architect, I map the change occurring or required along each layer of the Multi-layer Business Architecture. The end goal is to aid an executive to achieve or sustain competitive advantage and other measures of business improvement for the executive’s firm. The leadership of a firm might choose to lead change in certain layers, follow a leader in others, and do nothing for the rest. Senior executives pick their spots. Map it out. Select a change strategy. Manage it. Beat the competition.

Reverse Architecting and Forward Implementation

For implementation, an executive team cannot simply jump in and start transforming an enterprise into the vision captured by a Business Architecture. The team must know enough about the current state to know where to begin the transformation. Here, a process of Reverse Architecting lays out the current state of an enterprise in the same framework as the future-state vision. With this construct, leadership and implementation teams have detailed blueprints and plans for transformation. Consider the remodeling of a kitchen. It is best to know where the plumbing and wiring are behind the walls before beginning to tear down, re-plumb, re-wire, and re-build.

Become a Draftsman

Consider adopting the role of Business Architect when your enterprise is challenged with the need to transform. Use the mindset, techniques, and tools of design thinking to create a vision for the transformed business. Develop a Multi-layer Business Architecture to provide detailed blueprints and plans to implement the vision. Do not neglect the Reverse Architecture to know what you are changing, where to start, and how to direct implementation teams.

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A Strategic Change Diagnostic: Critical Success Factors of Transformation

November 13, 2009 · 3 Comments

fall-berlin-wallSuccessful business transformations are few and far between. A business transformation is a major shift in a firm’s strategy and the subsequent execution of that strategy. Transformations necessarily involve an entire organization and can include extensive work in strategy formulation, mergers & acquisitions, core business process redesign, organizational change management, performance metrics development, and management information systems alignment.

Symptoms of corporations in need of transformation initiatives include:

  • Obsolete business models
  • Stalled growth
  • Eroding marketshare
  • Ineffective innovation engine
  • Uncompetitive cost of goods and costs to serve
  • Organization misaligned for profitable growth
  • Excessive, ineffective high cost processes
  • Unmanaged customer defections
  • Threats to industry structures and norms
  • Underperformance to financial stakeholder expectations
  • And others.

Success of a business transformation is measured by the degree of relief to the original symptoms and improvement in a firm’s business performance. That performance can be measured by top-line growth, market share gains, improved long-term customer relations, sustainable cost reductions, bottom-line increases, speed of transformation, minimized business disruption, and other tangible factors.

But what are those things that must be in place and happen well in order to achieve a successful business transformation? I see twelve critical success factors (CSFs). All CSFs are equally important so there is no priority associated with the order in which they are listed. These CSFS are:

  • Business urgency
  • Clear value add to shareholders
  • Unswerving focus on business case and value metrics
  • Shared vision of the transformed state including new cultural norms
  • Visible top executive leadership
  • Management alignment
  • Multifaceted, integrated approach
  • Disciplined governance and program management
  • External and internal stakeholder involvement
  • Sustained organizational momentum
  • Relentless embrace of change
  • Continuous learning and tolerance of minor missteps

The Diagnostic

Applying these critical success factors, a diagnostic can be used to assess which CSFs are in place and which ones need shoring up. A series of management interviews and organizational surveys can be used to gain the internal perspective. External perspectives can be obtained through interviews of customers, supply chain partners, channel partners, strategic allies, and service providers including outsourcers.  However, the risk of “opening the kimono” must be weighed against the benefits of capturing the outside viewpoint.

Slide1Responses can be summarized using “Harvey balls” for a quick visual report on where a firm is doing well and where the firm needs improvement in its transformation efforts. In the example above, one sees a business with a high degree of urgency for transformation yet clear gaps exist in other critical success factors such as management alignment and stakeholder involvement. This diagnostic provides leadership of a transforming firm guidance on execution and management of a significant undertaking.

Key Questions of the Diagnostic to Probe Each Critical Success Factor

Business Urgency

There must be a compelling reason to undertake a transformation. What are the competitive pressures? What are the pressures laid on by investors? What are the internal cost pressures? Is there a strong sense that major change should have happened “yesterday”? Is the sense of urgency ubiquitous throughout the organization or minimally, throughout the management ranks?

Clear Value Add to Shareholders

Will shareholders realize gains as a result of the transformation? What are the tangible targets? Which ones are quantifiable in both financial and non-financial terms? Do the board of directors and influential investors agree with the objectives of the transformation efforts?

Unswerving Focus on Business Case and Value Milestones

Has a comprehensive business case been developed? Does the business case incorporate competitive, customer, strategic, operational, financial, organizational, and intangible benefits? Is the business case sufficiently quantified with linkages to the top-line, costs, and bottom line impacts? What mechanisms have been implemented to ensure focus on the business benefits? Have transformation metrics been articulated so that the organization understands why transformation is necessary? Is there a process for benefits tracking, communications, and management?

Shared Vision of the Transformed Business

How will you know it when you see it? How will others know it when they see it? Has the vision been clearly articulated? Does the vision include both external and internal elements? How will the culture of the organization change if at all? What specifically will be different in competitive actions, business model, business processes, and how the firm is managed? Who does not share the vision?

Visible Top Executive Leadership

Do all members of the firm’s top executive leadership team publicly champion and support the transformation objectives and intent? How visible is the level of support? Do major decisions and actions of each executive reflect and support the transformation goals? Does the organization believe that executive support is genuine and goes deeper than simple lip service?

Management Alignment

Do all levels of management from senior executives to the front-line supervisors agree with the need for transformative change? Where are the sources of dissent? Why does the dissent exist? What remedial actions are necessary to ensure 100% alignment?

Multifaceted, Integrated Approach

Are there direct and explicit linkages between the new strategy of the firm, operational changes, new expected behaviors of individuals, new organization structures, and new supporting technologies? Are there any gaps in the transformation teams? Which initiatives have the most risk of diverging from the objectives of the transformation? Does the portfolio of transformation and change initiatives capture all the possible synergies across the initiatives?  Is there a holistic perspective? Is the timing of all milestones synchronized to maximize benefits? Do the initiatives incorporate both macro and micro orientations?

Disciplined Governance and Program Management

Who is running the transformation and ensuring integration of all the efforts? How strong is the executive sponsorship and how committed is management? Do actions reflect words and intent? Is there a transformation infrastructure that ensures rapid, fact-based decision-making? How empowered are transformation initiatives teams to make tactical decisions so they are not waiting for weeks on end for executive level sponsors to meet? Is there a program management function and structure in place to manage the tactical integration, coordination, prioritization, and synchronization of all transformation initiatives? Who looks across the portfolio of initiatives to ensure the optimal use of resources? Is there a clearly developed transformation roadmap that shows critical workstreams and milestones? Is there a mechanism for tactical communications? If there is a program management office, is it clearly understood what its role is (decision making versus administration)?

External and Internal Stakeholder Involvement

Externally, what has been the involvement of customers, supply chain partners, distribution partners, and strategic allies? Has their input been sought? Do these external stakeholders support the changes you are making during the transformation? What is the pay-off to them? Internally, are you undertaking the transformation with horizontal, cross-functional teams?  Vertically, are you involving people from the front-line as well as management? Are there people or pockets of people who potentially feel left out of developing new business models, processes, and direction? How are you ensuring high degrees of buy-in from those who will execute the transformation and be accountable for operating the business in its transformed state?

Sustained Organizational Momentum

Is the organization capable of sustaining change during the course of the transformation which will last anywhere from two to five years? What interventions, such as communications, are in place to capture and keep the hearts and minds of the general population? What are the barriers to sustaining the organization’s momentum and what are the specific actions required to remove or overcome the barriers?

Relentless Embrace of Change

Does your firm embrace change? How flexible are your teams and other working groups? Are individuals adaptable to change and capable of working differently? Are people open to trying new things with uncertainty? Do managers promote and support change? How much endurance does your organization have? Are there naysayers who are infecting the organization with resistance? If so, what is leadership prepared to do with them?

Continuous Learning and Tolerance of Minor Missteps

By its nature, businesses that transform are delving into terra incognita with many unknowns and risks. Does your organization’s environment reward discovery and learning? With every transformation decision and subsequent actions, does a process exist for review and correction? Are “mistakes” viewed as learning opportunities without going overboard to a zero-consequence environment? Is management tolerant of missteps and can managers supervise groups that include individual risk takers?

Closing Questions: How is Your Firm Performing in Its Transformation?

Is your firm undergoing transformation on a grand scale? If so, how would you assess the effort against the critical factors for successful transformation? Is there true business urgency to warrant the investment in time and money required for the necessary changes? Which CSFs are the strongest on which to build a foundation for change? Which CSFs have been neglected and now require remediation? Over time, is the situation getting better or getting worse?

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An Improvement Story: When “RIF” Does Not Mean “Reduction in Force”

November 7, 2009 · 4 Comments

DuPont NylonOur small, twin-engine turbo-prop had flown over Lookout Mountain just prior to descending into the Tennessee River Valley. As we landed at Chattanooga Municipal Airport, it rained a summer rain which tries but fails to provide relief to the heat and humidity of the Deep South. I collected my luggage, descended the 20 steps onto the tarmac, and thought about this new assignment.

In the early 1990s, we were asked by Ed Woolard, then CEO of DuPont de Nemours, to undertake a massive improvement program aimed at transforming the 190-year old chemical giant into a progressive, modern enterprise as measured by (1) nimbleness in the competitive marketplace, (2) responsiveness to customer needs, (3) agility in manufacturing operations, (4) advancement of its people, (5) profitable, global growth, and (6) attractive financial returns to shareholders.

The business unit of this assignment was the DuPont Nylon division. A DuPont scientist had invented nylon in 1935. Initial products such as nylon-bristled toothbrushes and nylon stockings drove the first wave of growth for the business. The Second World War drove the next wave with high demand for nylon to be used in vehicle tires, flak jackets, and parachutes. The third wave of growth emerged post-WWII with the booming U.S. population and domestic economy.

This third wave of growth spurred DuPont executives to decide to build a chemical plant in Chattanooga and begin nylon manufacturing operations in July of 1948. Exactly 44 years later, our team stepped onto the 500-acre site to launch the transformation of the facility. The still air sweltered and the smell of burnt plastic stung our nostrils.

The reception was mixed. Some people truly welcomed outside help, others accepted us as it was the politically correct thing to do, and a fairly large contingent viewed us as doing “the devil’s work”. Those that truly welcomed outside help formed the nucleus of what was to become an ever-growing portion of the workforce focused on making improvements around the plant.

As we uncovered opportunities for improvement, we discovered there was an enormous amount of pent up demand among the employees for positively changing the business. The employees, however, needed ways to channel their energy to make change happen. They lacked the necessary tools to start initiatives and then, see their ideas through implementation. Our main thrust in the early stages of the transformation was to provide the tools and the training required to ultimately realize results.

At the time, improvement tools included team building, problem solving, statistical analyses, root-cause diagrams, work elimination, and many other traditional methods. But we were surprised to learn not all employees had one critical and fundamental tool. And that fundamental tool was the ability to read and write!

Approximately 10% of the 2,000 employees were functionally illiterate. Each person functioned in his job, understood his responsibilities, and knew how to operate his machine as this knowledge was passed to him on the job “by the last guy”. Even more startling was that nearly 30% of those who volunteered to participate early in the transformation program fell into the functionally illiterate group. This would not work for the transformation.

We quickly teamed with plant management to launch an adult literacy program to improve the reading and writing skills of those employees in need. This served not only as a critical step towards engaging employees in the transformation effort, but also as an opportunity to fill a gap in people’s life skills. The benefits included increasing management’s ability to engage a higher portion of the workforce in the transformation program, an enhanced stature for DuPont in the community, and the new readers were enabled to further grow and develop individually.

As a result of the transformation efforts, the Chattanooga facility realized significant improvements. Machine uptime increased total effective capacity as a result of improved preventive maintenance, accelerated product changeovers, and synchronized material moves. Fixed costs decreased from interventions targeted at eliminating unnecessary spending. Manufacturing material costs stepped down through reductions in scrap, rework, and other sources of waste. Cash flow from operations increased enough to mostly self-fund a $250 million plant renovation project completed in 1997.

RIF does not mean “reduction in force”. RIF means “reading is fundamental”.

Are you experiencing pent up demand and energy among your employees to make improvements to your business? Are you leading major change in your enterprise today as Ed Woolard was at DuPont in the 1990s?

Do your people have the fundamental and necessary improvement tools given the global nature and complexity of the today’s business environment? What modern improvement methods are you implementing which give your organization a sustainable competitive advantage? What are your competitors implementing?

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The 6th Dimension of Competitive Advantage

November 3, 2009 · 4 Comments

high jump photoThe previous blog entry is incomplete.

There is a sixth dimension for ever-increasing competitive advantage. This sixth dimension is a firm’s capabilities to improve. Along this dimension, there is an infinite supply of possibilities, thus firms do not compete in a state of scarcity. However, a firm must provide the environment and the tools conducive to sustainable improvement.

A firm’s culture (accepted behavioral norms) must support all employees in their pursuit of the implementation of improvement ideas. And improvement methods must be ingrained in daily habits at all levels of the firm from the frontline to the executive suite. All employees should be “on alert” to continually seek out, find, and implement improvements with positive financial benefits. A firm has the accountability to establish channels for the thousands of improvement ideas to be vetted, integrated, and executed with a high degree of coordination.

The truly advantaged firm develops or adopts innovative ways to improve at least one step ahead of its competitors. The concept of first to market applies here. The first among industry competitors to successfully implement an effective improvement method will gain significant advantage. The first to find the holy grail, a truly sustainable improvement method, will achieve long term sustainable advantage.

So, 6 dimensions exist for ever improving competitive advantage not just 5. The sixth being the capability to improve in advance of all others.

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Ever-Improving Competitive Advantage: Hitting the 5 Dimensions

October 31, 2009 · 1 Comment

 

Mario Andretti Watkins Glen 1974A firm exists in competitive environments along several key dimensions. Each dimension (or metaphorically, a competitive marketplace) has its own set of competitors acting in their own self-interests. In each dimension, the players compete for scarce resources (customers, marketshare, industry profit share, people, investments, etc.). A firm improves by increasing its competitive advantage along each dimension. These 5 key dimensions are:

  1. Customers
  2. Financial capital
  3. Talent
  4. Extended value chain or value network
  5. Community

A modern approach to improvement:

  • Covers all dimensions simultaneously.
  • Is integrated, holistic, sustainable, high impact, and a whole slurry of other buzzwords
  • Allows improvement ideas from everyone within a firm to fit somewhere, which draws in full participation (“Full Force Improvement”)
  • Has a goal to enable a firm to constantly ever increase its competitive advantage (as in any Olympic athlete who continually strives for better performance)

To gain ever-increasing advantages, a firm must be, or must be perceived to be, more attractive than the competition.

  • Customers
    • This is what people usually think of when they hear competitive market.
    • A firm competes with other firms in the same industries.
    • More attractive offerings (products, services, innovation)
    • More attractive value proposition (benefits versus cost)
    • More attractive long term relationship
  • Financial capital
    • Here the firm competes for limited investment dollars from investors and creditors
    • Competitors include those offering any number of investment alternatives for an investor: stocks, bonds, commercial paper, cash, etc.
    • Gain advantage by providing more attractive financial returns than alternative investment vehicles available
    • Being more attractive in the stock market drives up stock price
    • Being more attractive in the credit market increases access to capital and lowers the cost of capital
  • Talent
    • The competitors are other employers that require the same skills, experience, and knowledge that a firm requires.
    • The other employers can be from similar, adjacent, or different industries.
    • Competitive advantage includes providing a more attractive work environment, richer total compensation (salary, benefits, wealth creation), and other elements that make a firm a “great place to work”
    • For example, firms like NetApp (Fortune’s 2009 “Best Place to Work”) have an advantage in attracting the best talent.
  • Extended value chain or value network
    • The extended value network includes business partners on both the supply side and the demand side: suppliers, service providers, channel partners, and so on.
    • Good partners are in short supply and a firm gains advantage by being a more attractive partner than other players in the market.
    • Example, Dell is one of the leading channel partners for hard disk drives. Drive manufacturers constantly compete to have their drives picked for the next PC that Dell assembles.
  • Community
    • A firm can gain competitive advantage over others by demonstrating stellar corporate social responsibility.
    • Communities desire firms with a strong sense of CSR.
    • Firms can realize significant tax benefits from state and local governments.
    • CSR also impacts other dimensions such as talent (the feel good factor).

An effective and sustainable improvement approach must be directed towards continually gaining competitive advantage along the 5 key dimensions. A firm can never rest nor ignore others in its ecosystem. The firm must marshall it employees and those in its extended value network to execute strategies for Full Force Improvement.

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Knowledge Architecture

October 17, 2009 · Leave a Comment

Slide3

Not all knowledge is created equal.  Knowledge is one of those vague, global terms of which people assume they know its definition.  Very seldom in conversations about knowledge or learning will someone raise a hand and ask, “Hey, what is knowledge anyway?” unless he is Aristotle or some philosophy major.  One can postulate that there are different types of knowledge.

A hierarchical structure is one method to use to classify knowledge.  We show here a knowledge architecture that has seven levels: null, data, facts, know-how, memories, wisdom, and connections. Notice that the model begins with a state known as “void”. In this state, even the recognition of nothing does not exist.

Each layer of the hierarchical knowledge architecture is separated from other layers by a specific type of insight. Insights differ according to the particular level of knowledge on which they are acting. Seven insights elevate knowledge through the hierarchy: instinctual, definitional, contextual, utilitarian, experiential, reflective, and networked. The progression of insights up through the hierarchy represents increasing sophistication in thinking with “connections” as the highest order of knowledge.

Void + Instinctual Insight = Null

We see “instinctual insight” acting on the void to create null, the first layer of knowledge. This is the base level of knowledge. Null emerges from void as primal instincts create an awareness of one’s environment. This level of knowledge is deemed null because this level is the level at which simple consciousness of existence or non-existence occurs. Expressed another way, null takes on a binary state, 1 or 0. In the void even this simple a consciousness does not exist. Note that null represents the “whole” as within Zen philosophy.

Null + Definitional Insight = Data

We see “definitional insight” acting on the null to elevate knowledge into data. At this level, thought processes give definition to objects and actions in the null. In other words, definitional insight labels a collection of unnamed and unidentified things so that distinctions are drawn between them. Each object or action is now defined and becomes data.

Data + Contextual Insight = Facts

“Contextual insight” acts on data to create facts in the next layer in the hierarchy. Facts represent a richer and fuller set of knowledge than pure data. For example, if we take the word “coffee” as data there is no context for what coffee actually means. Given some context such as the commodities trading market, coffee takes on the meaning of a traded good. If food service is the context, then coffee takes on the meaning of a beverage. Contextual insight allows distinctions be made between data to create different facts.

Facts + Utilitarian Insight = Know-how

“Utilitarian insight” acts on facts to create know-how. How is an object to be used and for what purpose? In our coffee example, utilitarian insight emerges to provide the know-how for what to do with coffee. In the commodities market context, know-how would be how to trade coffee on the spot or futures markets. In the food service context, know-how would be how to prepare coffee for consumption. Without utilitarian insight, coffee has no real value. Simply speaking, utilitarian insight provides the knowledge of utility.

Know-How + Experiential Insight = Memories

“Experiential insight” acts on know-how to create memories. Actions taken or the execution of know-how generates experience that can be remembered and used for improved execution. Following the coffee example, experience in making coffee enables a barista to remember how much foam to put on top of a latte.

Memories + Reflective Insight = Wisdom

“Reflective insight” acts on memories to create wisdom. Reflection works on a “meta-plane” of thinking and takes on a new layer of abstraction in the knowledge hierarchy. Insights are not simply generated on single points of execution but on a set of memories. For example, remembering how to make a latte is a memory but being able to forecast demand in a coffee shop during the course of a day takes wisdom. Wisdom emerges as a person can take a step back to reflect and learn from prior actions and decisions.

Wisdom + Networked Insights = Connections

“Networked insights” act on wisdom to create connections, which represent the highest order of knowledge in the hierarchy. Making connections links related or unrelated pieces of wisdom to generate knowledge that would not emerge otherwise. For example, connecting the preparation of a perfect latte to the film “Seven Samurai” in which one of the samurai has dedicated his whole life to perfect his skills as a swordsman represents connecting two topics that on the surface are completely unrelated. Networked insights create connections that drive thinking further and generate the highest order of knowledge, connections.

At what level of knowledge do you work most of the day? At what level do you believe your colleagues, subordinates, and superiors work? Do you drive yourself to think at higher levels within the knowledge hierarchy? At what level do you believe you can add the most value to your work group or your organization during times of large-scale change?

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Knowledge Age Economics

October 11, 2009 · 1 Comment

Knowledge Economics

What are the new laws of economics in the knowledge age?  In the manufacturing age, the quantity of goods or services demanded and subsequently supplied determine the price of goods or services.  The laws of supply and demand dictate at what price and quantity the economy operates most efficiently – the point of equilibrium.

Manufacturing Age Economics – Physical Assets

Slide1

In the information age, the laws of supply and demand still apply.  In a true knowledge economy, knowledge and information are demanded and supplied. The economic system finds equilibrium. However, there exists a fundamental difference between economies based on physical assets and those based on knowledge assets.

Knowledge Age Economics – Knowledge Assets

Slide2

The shape of the knowledge demand curve follows the same path as the manufacturing demand curve. The more one piece of information is demanded, the more value the market will place on that knowledge asset (directly proportional).

The shape of the knowledge supply curve, on the other hand, does not follow the same principles as the manufacturing supply curve.  For a manufacturing supply curve, the price of a physical asset decreases as its supply increases (inversely proportional).  For a knowledge supply curve, the price, or value, of a knowledge asset increases as its supply increases (directly proportional).

The knowledge supply function in this economic model is based on three principles.

  1. The more information on a subject that exists, the more it is valued.
  2. Knowledge follows a law of conservation. As knowledge is consumed, it does not disappear as a physical asset does. Rather, knowledge has infinite duration. (Side note: In physics, this law is known as the conservation of information. There also exists the information paradox which some physicists have argued exists at the singularity of a black hole. As matter collapses in a field of infinite gravity, does the information stored in atoms disappear?)
  3. As knowledge is utilized, more knowledge is generated.  Two pieces of knowledge come together to form new knowledge. The production of knowledge is an infinite, self-perpetuating process.

Equilibrium in the knowledge economy is achieved when the supply curve perfectly overlays the demand curve. As a result, an infinite number of equilibrium points occur.

What are the shapes of the supply and demand curves for the output of your industry?  What are the shapes of the supply and demand curves for the output of your business? Do you or your organization develop and distribute knowledge that follows the knowledge supply curve? Have you fully leveraged the new paradigm of supply in the knowledge age?

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Harmony in Economic Transformation

October 6, 2009 · Leave a Comment

yingyang

Segregation of Work and Integration of Knowledge

Economic tides are shifting.  Industries based on physical assets are losing the economic high ground to industries based on intellectual assets.  We are in a time of massive, large-scale change and transformation – a transformation where we have one foot in the manufacturing age and one foot in the information age.  Major changes drive our transformation including the deployment of advanced technologies, the emergence of true global enterprises, and the uncertainty of the world’s political environment.

Different strategies and operating methods are required for maximizing economic value in the information age than in the manufacturing age.  The tried and true method of the manufacturing age is the segregation of work, also known as the division of labor exemplified by Henry Ford’s assembly line.  As we accelerate through the information age, time will show that the segregation of work by itself is no longer the ideal method for maximizing economic value.  In the information age, market leaders will successfully integrate knowledge through collaboration, utilization of transparent information technologies, and the leverage of strategic resources in a firm’s value network.

During the present transformational era, we have a duality of mission given the duality of existence in both the declining manufacturing age and the emerging information age.  The integration of knowledge must coexist with the segregation of work in order to achieve true maximization of economic value.  Senior executives must lead organizations into a new paradigm of information transparency, shared accountabilities, and communal benefit yet balanced within a culture which still values individual excellence.

Transformations do not just happen.  Leaders must manage their organizations through the uncertainties. Especially now in an era of mass consolidation, downsizing and restructuring, senior executives run the risk of rushing to a false “safe harbor” promised by the operating models of our past.

What is your current operating model and where is it headed?  How many of your people work in segregation of one another?  How many contribute to the integration of knowledge?  How will you manage harmony between the segregation of work and the integration of knowledge?  Where do you find equilibrium?  How do you spend your day?

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Risk and Change

October 3, 2009 · Leave a Comment

Risk-Change Matrix

People love control and abhor chaos.  Yet most of our daily lives are filled with uncertainty and change.  The first step to maintaining a sense of order amidst the chaos is awareness of change and awareness of the type of uncertainty (risk) with which you are faced.  An understanding of the current state of your environment will inevitably benefit you in your quest for control.

To aid awareness of the chaos-control state of your environment, we can use the simple matrix shown here.

Type of Environment

Type of Risk

Static

Dynamic

Deterministic

1. Certain, stable state

“Business as Usual”

3. Certain, changing state

“Transformation”

Stochastic

2. Uncertain, stable state

“Non-linear”

4. Uncertain, changing state

“Chaos”

Risk is broken down into two types: deterministic and stochastic. Actions and decisions in a state of deterministic risk produce outcomes that are linked to past and present known behaviors in the system. In other words, future system behavior can be predicted with certainty based on the knowledge of previous outcomes. We label this state’s risk as “certain” but one must realize that this is an extreme case. Nothing is ever certain but to serve the purpose of this matrix we assume that this deterministic state can exist.

Stochastic risk is risk that has uncertain outcomes, outcomes that are not necessarily linked to past history of events or occurrences. Probability does play a role in the stochastic state. Expected outcomes can be used in decision making with the understanding that the past does not play a strong predictive role in system behavior. One can look at this state as one of a complex, non-linear system. Decisions and actions can cause completely unexpected system behavior.

Environment is also broken down into two types: stable and dynamic. Stable environments do not change in the short to medium term. Drivers of a business’s state are relatively constant. For example, an industry’s competitors, customers, and suppliers are not undergoing major changes or shifts in relative power.

Dynamic environments are undergoing major changes that could be caused by industry consolidation of suppliers, customers, and/or competitors. Other drivers of dynamic environments are disruptive technologies that enable disintermediation or cause obsolescence of particular products or services.

Looking at the 2×2 matrix formed by type of risk and type of environment, we see four possible states for a business at any one time.

1.   Certain, stable state

  • Future system behaviors can be predicted by prior, historical behaviors
  • No disruptive change is occurring on the business’s landscape
  • “Business as usual” characterizes this type of environment

2.   Uncertain, stable state

  • Future system behaviors cannot be predicted by knowledge of past responses to decisions and actions
  • No disruptive change is occurring on the landscape
  • “Non-linear” characterizes this environment

3.   Certain, changing state

  • Future system behaviors can be predicted by prior, historical behaviors but only on a short time horizon given the dynamic, changing industry state
  • Disruptive change is occurring on the business landscape that might or might not be caused by an executive’s own business
  • “Transformation“ characterizes this environment

4.   Uncertain, changing state

  • Future system behaviors cannot be predicted by knowledge of past responses to decisions and actions
  • Disruptive change is occurring on the business landscape that might or might not be caused by an executive’s own business
  • “Chaos” characterizes this environment and presents the greatest challenge to an executive’s decisions and actions to be taken by an organization

Where do you see your business?  Would others agree with you?  How do you conduct your daily life and under what assumptions about the state of your business? Where are you the most comfortable?  Where are you the least comfortable? Is your business properly prepared to thrive in its current state? What about your competitors?

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