Archive for the ‘Double Challenge’ Category

When is a stratification not a universal hierarchy?

Tuesday, January 30th, 2007

by Philip Boxer

In describing the 3 asymmetries, Richard establishes a six-layer stratification relating underlying technologies to ultimate contexts-of-use. Thus in the case of orthotics, if we approach it from the point of view of a manufacturer of orthotic footwear, these layers look like increasingly general descriptions of the contexts within which the underlying technology will come to be used: technology=soles, product=footwear, business=footwear-to-order, solution=fitted footwear, customer demand=orthopaedic patients, customer experience=difficulties in mobility. Is this therefore not just a hierarchy moving from the particular of the technology to the general of its uses?

If, as a supplier, we want to take a symmetric view of demand, then this is true – ‘orthopaedic patients with difficulties in mobility’ is a general definition of the footwear manufacturer’s market.

But in distinguishing the third asymmetry we define the relationship to demand as being to a particular context-of-use that demands a particular form of orchestration and composition of services and products in order to satisfy it. Thus if we take up the perspective of the customer experience=the patient’s experience of living with their condition through its life, then the customer demand=that treatment for my condition that will have the greatest impact on my through-life experience at this time, and the solution=the treatment that is fitting for the current situation within its through-life context. Not surprising, then, that one of the major issues faced when insourcing clinicians employed by the manufacturers was how to reflect the through-life dimension of performance in the way the clinical service was contracted.

In finding the edge, we describe the particular form of orchestration and composition needed in response to asymmetric demand in terms of a wedge of services that needs its own four-colour model of how it is aligned to demand. Thus for our patient, the customer experience is in the black quadrant, the customer demand and its particular solution in the red quadrant, the business and its product(s) in the white quadrant, and the technology in the blue quadrant. East-West dominance means having a business agile enough to support the particular white-red organisation needed to sustain a relationship to the distinct forms of demand arising at its edges. But now the 6-layer stratification can no longer be thought of as a hierarchy, but rather as a particular structuring of the alignment between supply and demand – something more horizontal than vertical.

The way we understand the four-colour model is therefore central to the way this alignment is defined. In order to be able to construct it, three distinctions have to be made:

  • Internal//External: what is internal to the way we do business vs what is not. This distinguishes the provider of the insourced clinical service from the environment into which the service is being provided.
  • Viability//Identity: the way things work vs what determines the shape of the way things work. Clinicians learn about how orthoses are made and how they can be used on the musculo-skeletal system (the way things work), but the particular ways these are shaped depend on the patients’ characteristics and the way the manufacturer chooses to do business.
  • Addressed//Ignored: the domain of reality being addressed vs not addressed. The domain defined from the point of view of the manufacturer is going to be much narrower than that defined from the point of view of the patient’s needs. The way the domain is defined is fundamental to governance-at-the-edge, and implicates the ‘I’ of the beholder. Thus when demand is assumed to be symmetric, the ‘I’ can be the view from the top/centre of the supplying business. But when it is assumed to be asymmetric, the ‘I’ must be defined collaboratively through the way the relationship at the edge is itself constructed.

The 3 asymmetries and their associated economies correspond to the relationships between the blue-white, white-red and red-black quadrants, accounting for the particular way the quadrants are held in relation to each other. By including the third asymmetry, the stratification can no longer take the form of a universal hierarchy, but instead must be particular to the relationship to demand. It is this which presents the business with its double challenge, and the necessity to shift from an object-oriented to a subject-oriented approach to modeling the relationship of the enterprise to the demands of its clients.

Knowledge and Culture

Wednesday, April 5th, 2006

by Richard Veryard
Philip’s post on Managing over the whole governance cycle draws on some important work by Max Boisot, and I wanted to expand on this a little.

In his book Information and Organization, Boisot identifies four stages in the knowledge cycle, which he associates with four organizational cultures. These can be associated in turn with different strategies.

Knowledge
Diffused
Codified
Culture Industry
Cycle
Typical
Strategy
Public
Yes Yes
Market
Competition
Cost-Based (Sub-
Contract, Outsourcing)
Proprietary
No
Yes
Hierarchy
Monopoly
Product-Based
(Licensing, Hoarding)
Personal
No
No
Network
Start-Up
Problem-Based (Trading,
Intention Economy)
Common-sense
Yes
No
Clan
Oligopoly
Service-Based (Joint
Venture, Mashups)

Philip characterizes Microsoft as following a product-based strategy. I think this characterization is supported by the comments made by Bill Gates in his Mix06 keynote – for example, his idea that Microsoft customers benefit from the existence of other Microsoft customers because a large user base helps Microsoft to improve the product.

Meanwhile, companies like Google and Amazon are following a service-based strategy, and the evidence from the way they are used in mashups shows others are using their services to make the ‘jump’ to start new cycles (see interoperability landscapes). Can they also make this ‘jump’ – to start a new cycle at the next level up? Should they? How would such a strategy be accounted for commercially?

Managing over the whole Governance Cycle

Monday, April 3rd, 2006

by Philip Boxer
In the chapter with Richard Veryard on Taking Governance to the Edge, I introduced a model of the WHAT, HOW, FOR WHOM and WHY of the relationship between a business and its environment:

The concept of a governance cycle was based on four different ways in which the supplying ‘inside’ could be related to demands on the ‘outside’, in which the movement around the cycle was driven by standardization or customization of supply and demand models.  Thus in the move to ‘comparison’, demand is standardised, in moving to ‘cost’ supply is also standardised, and in taking up a ‘custom’ relation to demand, there is sufficient flexibility in standardised supply model to be able to customise its relation to demand in different contexts:

The names for two of these four ways came from research on shopping behaviour by Gary Davies in which he distinguished ‘cost’ convenience (choosing between similar standardised offerings) and ‘comparison’ behaviours (choosing between different solutions to the same demand). The other two separated out circumstances where there was a demand particular to the customer, distinguishing offerings in which there was only one place for the customer to go ( ‘destination’), or in which the supplier would adapt the offering to the customer’s requirement ( ‘custom’) within their context-of-use. The point being made, however, was that the ‘destination’ form of offering required asymmetric governance because of the need to hold power at the edge of the organisation. What distinguishes this position in the cycle?

If we think of the original development of pc-based spreadsheet programs in-house (destination), they soon became a limited number of alternative branded solutions (comparison) that in turn became dominated by the one offering all the others’ features in one package (cost). From here we have seen an increasing ability to customise the ways it can be used (custom) to the point where we are now looking at a new cycle of web-based solutions that we can build one-by-one (destination).

An answer can be found in Max Boisot’s book on Information and Organisations (HarperCollins 1994) in which he distinguishes two axes, one giving an account of the codification of a domain of knowledge, and the other an account of the diffusion of that knowledge across a population. Four different kinds of knowledge are described by him as a result:

  • Public knowledge, such as textbooks and newspapers, which is codified and diffused.
  • Proprietary knowledge, such as patents and official secrets, which is codified but not diffused. Here barriers to diffusion have to be set up.
  • Personal knowledge, such as biographical knowledge, which is neither codified nor diffused.
  • Common sense – i.e. what ‘everybody knows’, which is not codified but widely diffused.

With this comes a knowledge diffusion cycle, which we can approach in the same way as the cycle above, with the ‘solution’ being offered lying along the codification axis, and the customer’s ‘problem’ to which the supplier is offering a solution lying along the diffusion axis:
k-diffusion
The result is a cycle showing the initial (problem-based) response as being a personal one to a particular demand in its particular context. A knowledge engineering process of codification can then transform this into a ‘product’, which can remain proprietary for as long as the codification can itself be protected (hoarded). Insofar as it cannot, it becomes public knowledge, so that competition is in terms of the cost of its provision. Finally, the process of embedding this public knowledge back into particular contexts through engineering use value takes us into the ‘custom’ quadrant. From here, the ‘jump’ is about starting a new cycle in relation to a new problem-based response.

It is easy to see in the ‘hoarding’ response a way of describing Microsoft’s defence of its market-leading position. In contrast, the Google approach has sought to accelerate the diffusion and embedding of its technology into others’ mashups to create competing ecosystems (and their associated landscapes) – a strategy of riding the cycle as a whole instead of seeking to hold position within it.1

We see now how it is the personal nature of this problem-based response that distinguishes taking power to the edge of the organisation. It used to be sufficient to rely on the ‘free’ market to incubate such innovations. All business then had to do was to buy the idea, and manage the rest of the governance cycle. The point we make in our paper, however, is that this is becoming more difficult not only because the rest of the cycle is speeding up, but also because demand itself is becoming increasing asymmetric: everyone wanting something different. So in the 21st Century the whole cycle is having to be managed, with the balance between the stages in the cycle changing. This presents those leading at the edge with a double challenge, but it also presents those at the centre with the leadership challenge of developing a capacity for asymmetric governance.

Notes
[1] An interesting example of this is to be found in on of the essays in Platform Economics, called “Two-Sided Markets” by David Evans.  To quote from pp145-146:

Two-sided platforms coexist and compete with other business models to fulfill customer needs. Market definition must consider the diverse ways in which a two-sided platform may face rivalry, taking into account the market participants’ reactions to price changes. These reactions are more difficult to predict when the firms are following different business models.
First, a two-sided platform may face single-sided competition on one or both sides. For example, a shopping mall developer faces competition from single stores for the attention of shoppers, as well as from real-estate investors that rent single-store locations. The degree to which these single-sided alternatives constrain the two-sided mall’s conduct is an empirical question.

An example of this is the Microsoft Office Suite competing with the (originally) separately sold word-processing and spreadsheet packages. But now consider Evans’ second type of situation (he goes on further, but these two types serve my purposes here):

Second, a two-sided platform may compete with a three-sided platform. The three-sided rival produces another product which could, for example, have below-cost prices on both sides served by the two-sided platform. A two-sided platform is particularly vulnerable to competition by a three-sided platform that uses its third side to subsidize both of the other sides. This asymmetric competition is potentially lethal to a platform that does not provide the third side. A multi-sided platform can therefore use “envelopment” to challenge platforms that provide a subset of the services it provides. It adds another group of customers to the platform and uses revenues from
this group of customers to lower the price—possibly to zero—of the key profit-generating side of the other platform.
For example, Google gives away office productivity software that competes with Microsoft’s software to users and software developers.44 By doing so, Google attracts customers and profits by selling access to those customers to advertisers. Google can use its advertising revenue
to compete with Microsoft in software. Competition from this advertising-supported software model has led Microsoft to enter into advertising to ensure that it also has a stream of advertising revenue available.

The example here is of Google building targetable traffic by accelerating the diffusion and embedding of the (in this case) office productivity technologies, subsuming Microsoft’s pursuit of direct value by its own pursuit of indirect value. (For more on this distinction, see what distinguishes a platform strategy).

The Double Challenge

Wednesday, March 1st, 2006

by Philip Boxer
Larry Hirschhorn recently referred me to a book on the impact that network forms of organisation are having on the nature of work: “Fragmenting Work: Blurring Organizational Boundaries and Disordered Hierarchies”. His comment was as follows:

“It’s a serious book. The authors argue that the return of the network form of organization, while it has some economic logic sometimes, is often just a political solution that has become available, and that it is not necessarily more rational, but may benefit some interests, often at the expense of workers who are poorly treated, promoting an atmosphere of rootlessness that is no good for the more steady social system that is necessary for substantial innovation, rather than the rapid marginal effects of edge initiatives. So there’s lots of stuff about how edge work is different, and hard on the worker.”

He went on to ask whether this is a necessary consequence of ‘edge’ forms of working. I don’t think it has to be. Rather it needs to be seen as a consequence of misalignment between forms of organisation and the response to demand: a failure to meet a double challenge.

This double challenge can be understood in terms of the following double diamond, in which each side presents a challenge, to which is added the need to match the relationship being demanded on the right with a corresponding (mirror-image) basis of authority on the left. Thus increasing demands from the customer on the right for customisation and timely coupling with their individual context-of-use (an ‘edge’ relationship) are not matched by a correspondingly appropriate span of responsibility and accountability to the customer’s situation on the left:

So the double challenge involves not only responding to the customer’s demand, but also creating the organisational context that will sustain that response. It is this second part of the challenge that is not being taken up. Thus:

  • Historically, the assumption was that interoperability was endogenous to the enterprise silo, and so could be resolved hierarchically through processes of deconfliction (i.e. through accountability to hierarchy instead of to situation).
  • With the flattening of (vertical) hierarchies and growth of horizontal linkages between them, enterprise silos are being faced increasingly with interoperability that is exogenous to the enterprise silo (i.e. the span of complexity required exceeding the span of control).

Under stable conditions of demand, this flattening just amounts to using technology to take costs out of existing forms of organisation. But demand is not stable, and the big (‘21st century’) challenge is managing the risks arising from addressing new forms of demand within this new environment. The book is right in saying that this flattening can be very destructive. If it is just about taking out costs and not really addressing the change/development agendas, then it is very punishing on the people working within them because they are continually being expected to do more than their role is set up to do. The effect is that people are increasingly expected to work across a span of complexity that stretches beyond the hierarchies to which they are being held accountable, producing burnout, dependency on informal networks and long-term exhaustion.

So what is the solution?
The traditional way of managing interoperability is through establishing forms of vertical transparency consistent with the way in which the constituent activities have been deconflicted. The new forms of edge role require new forms of horizontal transparency that are consistent with the horizontal forms of linkage needed across enterprise silos to support them. Horizontal transparency enables different forms of accountability to be used that take power to the edge, but which in turn require asymmetric forms of governance. (see the paper on “Taking Governance to the Edge”). Asymmetric design is our name for a process that supports asymmetric forms of governance, establishing the horizontal forms of transparency needed to sustain new forms of response to demand at the edge.

The 21st Century Challenge to leadership

Thursday, January 5th, 2006

by Philip Boxer
The Tavistock Institute of Human Relations recently published this paper on the challenge faced by leadership in the 21st Century in their pamphlet on learning (page 2).

The paper argues that this challenge is a double challenge: organisations are being presented increasingly with forms of demand that are asymmetric to their assumptions about demand. Even if customers don’t want more, they at least want what they are being offered in a way that relates particularly to them. This means that for leaders it is not sufficient to find new ways of addressing demand – it is also necessary to question the existing terms within which they themselves understand demand. Asymmetric demands require you to pay attention to what you don’t know.

The lesson to be learnt from the military about threats is that you can die if you ignore them. In creating a double challenge for leadership, the threat presented by asymmetric forms of demand is that they question the current basis of power and authority of the leadership itself. This is the 21st Century challenge to leadership – to find the basis of their authority in the value they create within their customers’ contexts-of-use.

The Tavistock Institute is an example of an organisation committed to taking up this double challenge in its work with its clients.