Archive for the ‘Effects Ladder’ Category

Surrendering sovereignty through business platforms and K-type propositions

Tuesday, September 6th, 2016

by Philip Boxer BSc MBA PhD

What happens when an enterprise must respond to its client-customers one-by-one? The enterprise will face demand asymmetry and therefore will need to be able to make under-determined choices at its edges over the extent of any value deficit it seeks to address in creating shared value.  The multi-sided nature of the demand will require that the enterprise must support multi-sided relations between multiple product/services and therefore a business platform that is itself multi-sided, these business platforms then requiring network-based architectures. This all means that we are dealing with supporting novel emergence of a third kind.[1]  What does all this mean for how we define the enterprise?

K-type propositions dynamically align orchestrations of product/services to customer situations
The minimal macrostates of this third kind of novel emergence, defined by matrices 5 and 5b, are based on the maximal microstates of the r-type and c-type propositions generated by novel emergences of the 1st and 2nd kinds:
pan7
Note the ‘big data’ matrix here, representing all possible traces of behavior, whether generated directly or indirectly, which support the K-type dynamic alignment processes, along with the platform (matrix 4-platform), through which multiple product/services are dynamically aligned to the customer situations in matrices 6 and 7.[2]  Whereas the effects ladders (matrix 6) define how effects are generated on the overall demand situations of client-customers (matrix 7B), Matrices 5 & 5B define the K-type propositions through which ‘big data’, the platform and the product/services are orchestrated and aligned to the customer situations.

If we think of a patient’s condition as a demand situation, then a hospital is not only the source of treatments (the columns in Matrix 4).  It is also a platform that supports the orchestration and synchronisation of many treatments around the condition of the patient. Another example related to dogs would be the following from Garmin:

Delta Smart is the on-collar training device and activity tracker that works in tandem with the Garmin Canine app on your compatible smartphone. Your pup is more than just a pet, so get the tools you need for effective training and a more comprehensive look at your furry friend’s activity, even when you’ve been away. Our system lets you monitor and train with bark detection/limiting, behavior corrections, activity monitoring and more.

In this case, Garmin is supplying a platform that is a combination of smartphone app and an on-collar training and tracking device. It is also providing the ‘big data’ traces of the dog’s behavior. The point here, however, is that the orchestration and synchronisation of these capabilities within the dog-owner’s context-of-use are left to the dog-owner.  In other words, unlike with the hospital that is itself providing K-type propositions, in this case the platform is aimed at enabling the dog-owner to develop their own K-type propositions.

Novel emergence of the third kind
‘Big data’ and the platform together with matrices 4-5-5B generate economies of alignment: the ability to create additional ways of organising the business relationship with a customer over time, not only reducing the average cost of alignment of business operations to the dynamics of each customer relationship, but also reducing the costs to the client-customer of the value created. Creating economies of alignment are critical to competing within ecosystems by creating indirect value.  In the context of healthcare, there are not just the economies of alignment arising from shortening the length of the patient’s journey through the hospital’s care pathways.  There are also economies of alignment arising for the patient such as reduced recovery times and less travel to-and-fro for appointments.

The tension between supply-side sovereignty and being edge-driven
There is an essential difference between a sovereign supply-side approach to markets, and an edge-driven demand-side approach to the client-customer’s demand situation:

  • the sovereign supply-side (positional) approach does as much as possible for its management without jeopardising its market relationships, while
  • the edge-driven demand-side (relational) approach does as much as possible for its client-customers without jeopardising the sustainability of the enterprise.

In the context of a hospital, the positional approach will be concerned with such things as operating-theater utilization, bed occupancies and costs-of-treatment.  In contrast, the relational approach will be concerned with such things as the patient’s length-of-stay, recovery times and re-admission rates. This tension between the positional and the relational is apparent when all the matrices are put together:
pan6
Whether the supply-side or the demand-side are dominant depends, of course, on the competitive dynamics of the ecosystem within which this tension is experienced.  In the case of the hospital, are the costs evaluated at the level of the hospital itself, or at the level of the through-the-life-costs of the patient’s condition.  What makes it difficult to move towards being edge-driven is not just the surrender of sovereignty necessary to becoming edge-driven. It is also difficult because establishing demand-side accountability is inherently more complex.  Nevertheless, all enterprises have to go through a P-K-c-r cycle, as described in value propositions at the edge. The issue facing an enterprise, therefore, is the tempo at which this cycle repeats itself, and how much time has to be spent in each part of the cycle.[3]

Notes
[1] Novel emergences and their relation to the four asymmetries, the first three of which we have met before (see the three asymmetries):

[2] Of course not all behaviors leave a trace, not all traces are captured for later recall, and of all the traces that could be captured, not all actually are. Even if traces are captured, there is no reason to assume that they are used in any way for the purposes of managing. For example, looking at commissioning of health care, much data is collected about patients, but the ways of examining that data are not organised in such a way to make the patient’s experience over time accessible for the purposes of managing outcomes.
[3] See also managing over the whole governance cycle – ‘destination’ involves P-type and K-type propositions, ‘comparison’ and ‘custom’ are different kinds of c-type proposition, and ‘cost’ is r-type.

Defining Demand Asymmetry: demand situations, effects ladders and P-type propositions

Thursday, September 1st, 2016

by Philip Boxer BSc MBA PhD

Demand asymmetry is a fourth asymmetry: the client-customer’s experience always leaves him or her with something more to be desired.[1] It means that a client-customer’s demand can never be fully satisfied – there will always remains a value deficit. The assumption here is that, however hard a client-customer tries to bring into consciousness what it is that s/he needs, s/he will never be able to say all of it – there will always be a deficit.  This deficit may not be apparent until a supplier tries to respond to the client-customer’s demand, when the ways in which the product/service supplied is experienced as falling short of what was hoped for – the client-customer experiences a value deficit. Examples of value deficits would be: the veterinary product didn’t make the owner’s dog better; the patient’s condition remained chronic after all those treatments; the minister’s congregant remained unconsoled despite his or her ministrations; the equipment did not perform as command expected once it was deployed in the field; the citizen felt that s/he had been duped by the government; the meal did not measure up to expectations; the performance didn’t manage to pull it off; etcetera.

Demand situations and effects ladders
In each case the need is experienced by an embodied subject who has tried to articulate, with the help of others, what it is that he or she wants.  The situation in which the need is experienced is a demand situation.  An effects ladder is a way of unfolding as much as possible about the nature of the situated behaviors that, together, are expected to meet the needs of the demand situation.  The situated behaviors are customer situations that can be addressed by value propositions.

In one-by-one consideration of a client-customer’s demand, we are formulating strategy at the edge: we are asking what is needed to address the demand situation of the active client-customer within his or her particular context-of-use on a sustained, through-the-life-of-the-relationship basis? [2] The effects ladder provides a way of thinking through what this involves. It starts with the demand situation in the client-customer’s problem domain – the client-customer’s context-of-use in which s/he is seeking to create value and/or to reduce a value deficit. In this problem domain, the client-customer’s demand situation is defined in terms of drivers.  These drivers are the ways in which the client-customer experiences the situation in terms of pain/pleasure. For example, the owner of a much-loved dog wants to make sure the dog receives all possible care as an important part of his or her life. It is important to note, here, that drivers reflect the way an embodied subject experiences the demand situation.

P-type propositions[3]
To make the client-customer’s demand situation tractable, it has to be broken down into constituent customer situations within a Knowledge Domain that are individually amenable to value propositions.  These value propositions ultimately draw upon c-type product/service capabilities in support below ‘c-level’, meaning that their delivery can be customized without knowledge of the client-customer’s context-of-use. An example above c-level would be caring for the dog at a kennels.  An example below c-level would be customized delivery of food supplies.[4] The laddering effect comes from the way individual customer situations are built and sustained in support of the larger overall effect on the demand situation. A P-type proposition involves defining an effects ladder:
ladder4
The relation of a demand situation to its constituent customer situations is always one of novel emergence
We can relate this kind of analysis of demand to the previous postings on stratifying relations of novel emergence as follows:
pan4
The driver properties desired by the client-customer in the form of demand situations are novel forms of emergence (Matrix 7B) brought together from component client-customer situations (matrix 7) in the form of an effects ladder (matrix 6).  These matrices 6-7-7B then form the context-of-use into which value propositions must be delivered one-by-one.

The customer demand is not the experience
Two kinds of value deficit arise here, therefore, in the way the client-customer experiences the effects ladder.  The first of these defines the third asymmetry, that the client-customer’s demand is not the client-customer’s experience:

  1. There will be a value deficit left by the way a value proposition addresses a client-customer situation.  Beyond that, however,
  2. The effects ladder will itself be a hypothesis (a P-type proposition) about how the needs of the demand situation may be met, so that the experience of its composite effects will be constitutive of a novel emergence in the embodied experience of the subject(s) on whom it is producing its effects.[5] This embodied experience will itself leave a value deficit.

Note that for the client-customer, the demand situation is what is being experienced ‘on the surface’, while its constituent situations involve the client-customer reaching deeper into their experiencing to distinguish its different aspects.  This relation of surface-to-depth is captured by the relation of matrix 7b to matrices 6 and 7.

The next posting will describe the processes of alignment and supporting platform needed to  deliver value propositions into this context, giving rise to the first kind of value deficit above.

Notes
[1] The four asymmetries, then, are:

  1. The technology is not the product.
  2. The business is not the customer’s solution.
  3. The customer’s demand is not the customer’s experience.
  4. The customer’s experience always leaves him or her with something more to be desired.

These can be read back onto the psychoanalytically-based dilemmas of ignorance: (top-down vs bottom-up; espoused theory vs theory-in-use; affiliation vs alliance; object vs sinthome).
[2] For large-scale cases considering the implications of through-life management, see meeting the challenge of health care reform, valuing agility through a demand-led approach to capability management and managing the system-of-systems life cycle. These are all cases involving the need for ‘type III’ agility.
[3] See rcKP – value propositions at the edge.
[4] For more on these different kinds of value proposition, see value propositions at the edge.
[5] Note that this will be a fourth kind of novel emergence, the third being of the processes of alignment needed to deliver value propositions.

Strategy-at-the-edge

Wednesday, January 10th, 2007

by Philip Boxer

The collaborative approach depends on there being a service infrastructure agile enough to be under-determining of the way the customer’s demands can be responded to. Put another way, the supplying business needs to find its edge where it can be structure-determining in how it responds to the customer, rather than being structure-determined by its infrastructure. At this edge, it is in a position to offer cKP services that can be responsive to the customer’s context-of-use. But how is it to work collaboratively with the customer in agreeing the nature of those cKP services?

The example below comes from working with a computing services business with banking customers. The customer was operating in a problem domain in which the fundamental concern with managing risk required them to manage two kinds of problem – looking for market inefficiencies that could create investment opportunities for the bank, and managing the ‘value at risk’ associated with existing investments:

banking-regn.jpg

At the bottom of the diagram is ‘data warehousing’, understood to be a generic service that can be provided in a way that does not require knowledge of the specific bank’s situation, and ‘c-level‘ (it is always rising) is the level above which the bank’s specific context-of-use can no longer be ignored. In between c-level and the problem domain is a knowledge domain, in which knowledge about the bank’s context-of-use enables cKP-type services to be offered. The situations within this knowledge domain then identify opportunities for the supplier to provide services that cumulatively build on each other to meet their larger need in the problem domain.

This is an effects ladder, and it provided the bank customer and the computing services supplier with a framework within which to build a shared picture of the bank’s context-of-use. In the diagram below you see this generalised, with the relationship of rcKP services to the ladder. This adds the concept of a ‘knowledge ceiling’, being the level above which problems become too large to solve.  An effects ladder is therefore a way of thinking through how such problems can be made tractable by bringing aspects of them below the knowledge-ceiling and/or raising the ceiling by becoming able to take on more of the complexity of the problem.

ladder.jpg

Strategy-at-the-edge requires that a double challenge be met which balances internal changes with external opportunities. The effects ladder provides the means of agreeing with the customer how effects need to support their demand situation within their context-of-use.

rcKP – value propositions at the edge

Thursday, December 21st, 2006

by Philip Boxer

How are we to think about the services offered by a business taking power to the edge? One way is in terms of the three asymmetries.

As pointed out here, the economies associated with the first two asymmetries can be secured under conditions of North-South dominance. This means that their profit potential is defensible because the knowledge associated with creating them is asymmetric on the side of the business: the business has something that both its competitors and client-customers do not.

In contrast, the third asymmetry requires East-West dominance capable of delivering an appropriate degree of intensity in the relation the business has to the client-customer’s value deficit, defined in terms of the client-customer’s effects ladder. This intensity reflects the degree to which the business is engaging with the asymmetric nature of the client-customer’s demand – asymmetric on the side of the client-customer. From this we can derive four kinds of value proposition, the first two of which assume no relation to the client-customer’s value deficit:

  • r-type: The presumption is that demand is symmetric, and therefore the value proposition is to replicate the offered product or service in as many variants and forms as can be profitably sustained, based on its ability to capture economies of scale. (e.g. pharmaceutical products, telecoms equipment)
  • c-type: The value proposition is to offer a combination of products and services that can be dynamically customised in relation to the customer’s demand, based on the ability to capture economies of scope. (e.g. providing injections, or telecoms connections). The value proposition is in delivering a customised product/service where and when it is demanded.

The other two services all have varying degrees of involvement with the client-customer’s context-of-use:

  • K-type: the value proposition is to offer the know-how needed dynamically to orchestrate and synchronize the use of products and services in collaboration with the client-customer in solving some part of a larger problem that the client-customer is currently experiencing. (e.g. managing an episode of care, or the way connectivities can be made available to a business in particular types of situation).
  • P-type: the value proposition is to offer the ability to work with the client-customer on some area of pain that they are currently suffering, in order to find a way of making it tractable. (e.g. diagnosing what kind of treatment is needed, or defining what kinds of connectivities a business needs).

We can combine these into a diagram that shows the different types of value proposition as a cycle which may or may not end up in the r-type zone:

rckp.jpg

In each cycle, there is an initial (P-type) proposition that develops with the client-customer a way of addressing its need, experienced by the client-customer as a value deficit (red circle). As the client-customer learns this way of organizing its demands for itself, this may become a (K-type) service managing how particular aspects of those overall needs are being addressed (yellow diamond), these ‘particular aspects’ being the customer situations within the effects ladder generated by the P-type proposition.  This will happen if there is some aspect of the K-type know-how that is also defensible. This K-type know-how may become a (c-type) service that the client-customer includes as part of how it takes up this K-type know-how for itself (green triangle). Or the service may end up becoming commoditized and defined purely in terms of its means of production, becoming an (r-type) service (blue square).1

The precise dynamics of these cycles, and the mix of rcKP value propositions offered by a business, will depend on the particular demand and competitive conditions encountered. What I have described, however, are the different kinds of service needed depending on the way in which a client-customer is choosing to internalise learning (or not) as it responds to some aspect of its own particular value deficit.

It follows that if a business is to be able to sustain power at its edge, then the services it offers will involve some mix of K-type and P-type services. The interesting thing about this mix is that its dynamic and collaborative nature makes the services necessarily relational, creating (at least) two-sided markets in the relationships a business has with its client-customers.

Notes
[1] More is written about the rcKP cycle in Understanding Value Propositions and Effects Ladders.