Archive for the ‘Power-to-the-Edge’ Category

Evaluating platform architectures within ecosystems: modeling the supplier’s relation to indirect value

Thursday, April 26th, 2012

by Philip Boxer, PhD

I have completed a PhD by publication at Middlesex University’s School of Engineering and Information Science under the supervision of Professor Martin Loomes.  Here is its abstract:

This thesis establishes a framework for understanding the role of a supplier within the context of a business ecosystem. Suppliers typically define their business in terms of capturing value by meeting the demands of direct customers. However, the framework recognises the importance of understanding how a supplier captures indirect value by meeting the demands of indirect customers. These indirect customers increasingly use a supplier’s products and services over time in combination with those of other suppliers . This type of indirect demand is difficult for the supplier to anticipate because it is asymmetric to their own definition of demand.

Customers pay the costs of aligning products and services to their particular needs by expending time and effort, for example, to link disparate social technologies or to coordinate healthcare services to address their particular condition. The accelerating tempo of variation in individual needs increases the costs of aligning products and services for customers. A supplier’s ability to reduce its indirect customers’ costs of alignment represents an opportunity to capture indirect value.

The hypothesis is that modelling the supplier’s relationship to indirect demands improves the supplier’s ability to identify opportunities for capturing indirect value. The framework supports the construction and analysis of such models. It enables the description of the distinct forms of competitive advantage that satisfy a given variety of indirect demands, and of the agility of business platforms supporting that variety of indirect demands.

Models constructed using this framework are ‘triply-articulated’ in that they articulate the relationships among three sub-models: (i) the technical behaviours generating products and services, (ii) the social entities managing their supply, and (iii) the organisation of value defined by indirect customers’ demands. The framework enables the derivation from such a model of a layered analysis of the risks to which the capture of indirect value exposes the supplier, and provides the basis for an economic valuation of the agility of the supporting platform architectures.

The interdisciplinary research underlying the thesis is based on the use of tools and methods developed by the author in support of his consulting practice within large and complex organisations. The hypothesis is tested by an implementation of the modeling approach applied to suppliers within their ecosystems in three cases: (a) UK Unmanned Airborne Systems, (b) NATO Airborne Warning and Control Systems, both within their respective theatres of operation, and (c) Orthotics Services within the UK’s National Health Service. These cases use this implementation of the modeling approach to analyse the value of platforms, their architectural design choices, and the risks suppliers face in their use.

The thesis has implications for the forms of leadership involved in managing such platform-based strategies, and for the economic impact such strategies can have on their larger ecosystem. It informs the design of suppliers’ platforms as system-of-system infrastructures supporting collaborations within larger ecosystems. And the ‘triple-articulation’ of the modelling approach makes new demands on the mathematics of systems modeling.

The following summarises the argument in terms of Value for Defence:

Value for Defence

View more presentations from Philip Boxer

(w)Edges – working at the edge

Saturday, February 19th, 2011

by Philip Boxer

Delivering East-West dominance involves finding the ‘edge’.  But how is a strategy-at-the-edge to be delivered?  How are services at the edge to be supported if they must be responsive to the customer’s context-of-use?  This represents a challenge to the architecture of an enterprise that questions the ideological basis of the enterprise itself.

In the following diagram, two organisations are shown, each with a reporting hierarchy under which a number of functional units operate, providing particular types of treatment. This accountability to the ‘North’ is exercised in terms of the costs incurred by each unit (typically over the course of a year)  in the provision of its services. These costs are influenced by the economies of scale and scope that each unit can generate, given the way each unit provides its services.

 

To the ‘East’, two patient episodes of care are identified, each episode demanding a particular combination of treatments.  This combination is represented by the horizontal blue line, and for the episode to be effective, the constituent services have to be aligned to the particular patient situation.  Accountability to the ‘East’ would involve holding the clinician responsible for this alignment, the costs of which would depend on the economies of alignment possible in the way treatments from multiple organisations can be aligned.

The complexity of creating economies of alignment can be seen more clearly in the following diagram, in which each functional unit is represented by a ring:

Each episode-of-care is represented now by a wedge, representing the particular alignment of treatments needed for that patient’s condition. The economies of scale and scope depend on the way functional units (rings) can deliver services into multiple wedges, while the organisation of the wedges determining the economies of alignment possible.

  • These (w)edges involve working at the edges of healthcare ecosystem in delivering effective treatments to the patient; and
  • with East-West dominance, the tension between the Northern economics of scale & scope and the Eastern economics of alignment have to be managed dynamically, and therefore explicitly.

The rings need not belong to a single organisation, so that each (w)edge becomes a collaboration.  The architectural challenge of East-West dominance is therefore how to manage the tension between wedges and rings dynamically.

[1]

Notes
[1] A first step towards managing this tension is through identifying the multi-sided matrix in terms of which it can be expressed. This ‘multi-sided matrix’ sits in the middle of a stratified set of relations linking underlying behaviors all the way through to the ultimate contexts-of-use in which demands arise, and is the key link between supply-side and demand-side ‘logics’ of supply and demand.

Designing Collaborative Systems of Systems in support of Multi-Sided Markets

Wednesday, October 28th, 2009

by Philip Boxer

This paper was presented in collaboration with Dr Nicholas Whittall (formerly Strategy Director, Thales UK Aerospace Division) at the 12th Annual NDIA Systems Engineering Conference in San Diego with the following abstract:

Recent studies into the operational use of a UAV system have shown that the variety of mission situations in which the UAV system was used had far exceeded those anticipated at the time it was acquired. In effect, the dimensions of the operational capability space had expanded beyond the particular dimensions of the capability design space constrained by the acquisition paradigm. Whilst this may be regarded as the benefit of network-enabled approaches, which are intended to increase the variety of ways in which capabilities can be combined to create composite capabilities within systems of systems (SoS), this raises the question of whether the engineering of SoS can be addressed adequately from within the perspective of the capability design space.

From the point of view of the supplier, one way of approaching the impact of an expanding operational capability space is to think in terms of its being multi-sided, its multiple ‘sides’ corresponding to the multiple ways in which a supplied system can participate in larger systems of systems. This multi-sidedness yields an additional value to that normally associated with the direct use of a system’s particular capability. This additional value is associated with the system’s ability to support multiple ways of being used in conjunction with other capabilities, creating a multi-sided market in which two kinds of value have to be considered.

For the supplier of a component system within the context of a SoS, “Directed” or “Acknowledged” processes for acquiring SoS establish a single customer for the performance of the component system against a particular capability requirement, so that the supplier’s focus can be on the capability design space alone (referencing OSD’s Systems Engineering Guide for Systems of Systems, v1.0 August 2008). But in the case of “Collaborative” SoS, no such ‘top-down’ requirement is established, and a community interested in the uses of the operational capabilities of the SoS (possibly a Community of Practice) has to define its requirements ‘bottom-up’. In this case, the supplier of a component system faces customer requirements that must span a variety of different ways of being used operationally, making the supplier’s market multi-sided. As a result, the system’s supplier must approach the capability design space from the perspective of an expanding operational capability space in which two kinds of value must be generated for the customer.

The paper will outline an approach to Collaborative SoS in which the multi-sidedness of the SoS is defined in terms of its expanding operational capability space. The paper will use this approach to distinguish the two different kinds of value associated with supporting the SoS as a multi-sided market, and show how these two kinds of value impact differently on the design of its component systems.

Valuing Agility: A Demand-led approach to Capability Management

Wednesday, September 30th, 2009

by Philip Boxer

This paper and presentation were given at a RUSI Defence Programme Management Conference 29th to 30th September. It concludes as follows:

Approaching Through-Life Capability Management from a demand-side perspective uncovers three tempos that drive enterprise success within dynamic demand environments. These tempos are themselves governed by the enterprise’s ability to respond to demands for agility, and its need for operational capability leading to the requirement for equipment and other DLoDs.

The tempos support the view that our thinking about Defence – and enterprises in general – has rightly moved from equipment to capability, and that a third perspective, that of agility, is beginning to emerge.

“Agility” is the word of the moment, but it lacks content. Here we have offered a definition, which is meeting the campaign tempo. We may summarise this as “doing right things right at the right time”. This brings the need for timeliness into the mix with the needs for efficiency and effectiveness.

However, the full range of agility may not be affordable, and some means of costing it is required. We have presented cohesion based costing as such an approach and drawn on rough orders of magnitude to illustrate our argument in the case of Tactical UAVs.

Further work is required, of course, but it would need the collaboration of those who know the activity-based and alignment costs to strengthen our grasp on Agility and its Value for Defence.

Distinguishing active from passive users

Thursday, December 21st, 2006

by Philip Boxer
The different kinds of value proposition at the edge involve different kinds of relationship to the user as follows 1:

With r-type propositions, there is no relationship to the user’s context, the user being reduced to a ‘consumer’.  With c-type propositions, the way the product or service is delivered can be customised to fit into the user’s context, making the user a ‘customer’.  In both these cases, the supplier specifies the nature of the problem that it will deal with.

This changes with K-type or P-type propositions.  Here the user specifies the problem, which may be no more than a ‘pain’ that needs identifying before it can be defined as a particular kind of problem.  Once defined, the supplier then has to orchestrate and synchronise (align) a number of products and services to deal with it.  This makes the user a ‘client’.  A special case of this arises when the products and services that are available to be aligned are constrained by what the supplier is able to make available.  This reduces the user to a ‘patient’.2

Notes
[1] The original version of this two-by-two was in a paper by myself and Robin Wensley in 1996, entitled:  Is the customer an endangered species?  Niches and Clusters
[2] Doctors are, or course, trained to approach their ‘users’ as clients.  Where they are constrained in the kinds of treatment they can align to the user’s condition, whether by their own knowledge or by the infrastructure they are able to draw on, then the user can be reduced to being a patient.  Much benefit is derived, however, from the user’s active involvement with their condition – particularly if the condition is chronic.  The current dilemma facing the NHS, therefore, is how to create the conditions where this active involvement is possible.

Finding the edge

Thursday, December 14th, 2006

by Philip Boxer
In the blog on East-West Dominance, we talked about taking power to the edge. But where is this ‘edge’? In order to answer this question, we need to clarify how we understand what an enterprise ‘is’  before we can say where its edges might be.

The basic approach to an enterprise thinks of it as incorporated, so that as observers of this embodied entity, we can make three kinds of distinction about the way the enterprise is:

  1. ‘the way things work’ can be distinguished from ‘the way identity is determined’ for the enterprise (like distinguishing the different kinds of expertise that go into producing a film from the work of the director in determining how it should all fits together);
  2. its supply-side defining how it supplies products and services can be distinguished from its demand-side where its products and services are aligned and combined with others’ products and services in response to demands within the contexts-of-use within which those demands arise (like the difference between ‘back stage’ and ‘front-of-house’ in a theater); and
  3. the particular domain of relevance within which the enterprise is working can be distinguished, defined implicitly by the behavior of the enterprise (we would expect a street theater to engage with its audiences in a different way to an opera house).

This gives us the what, how, who/m and why in the picture below, and the questions we can ask of any enterprise: what does it do (blue), how does it organize these activities (white), who are its clients for this work and who is it trying to be for them (red), and what is driving the need for this demand from them (black).

We can represent this foursome in traditional hierarchical form, with each layer acting as the context for the layer below it. Put in this form, the ultimate (black) assumptions about the ‘why’ are held at the top of the hierarchy, and imply the presumption of a symmetric relation to demand. This means that the enterprise as a whole assumes that it can know at ‘design-time’ what it is that it is going to do for its clients/customers at ‘run-time’ – a presumption of symmetry between what the enterprise is prepared to do and the forms of demand that it is prepared to recognise.

So what happens to all of this when the demand is asymmetric?
An enterprise encounters asymmetric demand when the actual demand being encountered is in some way different to what is being offered symmetrically. This creates a value gap from the point of view of the client/customer which can only be filled if the supplying enterprise is able to respond to the particular nature of the demand being presented. Obviously there are limits not only on the extent to which this value gap can be reduced, but also to whether the enterprise wants to reduce it.  But insofar as it does, the principle is that the relationship to demand, rather than being generalised across client/customers (and therefore treated as symmetric to the supplier), has to be treated as particular to individual clients/customers within their respective contexts-of-use.

This requires a different form of response from the enterprise. Demand has to be understood as arising at the ‘edge’ of the enterprise where the demand is encountered.  The particular way the enterprise responds (i.e. the what, how, who/m and why of the response) therefore has to be particular to the demand rather than the same across all demands.  This requires a form of hierarchy with its own particular arrangement of layers relating to the particular demand at the edge. To make this possible, power has to be moved from the centre to the edge, so that effective forms of governance within each local hierarchy are able to align what the enterprise does to the particular local demands being responded to.

How can this be practicable for the enterprise?
For this to be practicable, the enterprise needs agility in the ways it can align constituent products and services together depending on what particular composite service the enterprise is trying to deliver at its ‘edge’. We can think of these constituent products and services as represented by concentric rings in the diagram below. In a symmetric relation to demand, the products or services represented by these rings are aligned with each other at ‘design-time’ in predefined ways to satisfy the demands that the enterprise has defined as its services. But in an asymmetric relation to demand, a different ‘wedge’ must be dynamically defined for each relationship to demand at ‘run-time’, each ‘wedge’ organizing particular relationships between the rings by customizing each individual product or service used, orchestrating their composition with each other, and synchronizing the composite result with the customer’s situation:


Understood in this way, taking power to the edge involves enabling a ‘wedge’ to align products and services to the particular demand at the edge, with each ‘wedge’ enabled to make its own assumptions about the way it holds the
what, how, who/m and why in relation to each other.

With a symmetric relation to demand, the general assumptions made by the center about the black-blue (North-South) relation dominates the way white (West) can organize the relation to red (East). But an asymmetric relation to demand has to reverse this, with the red-white relation leading, the black-blue relation being aligned in support of each particular demand. This is the East-West dominance spoken of earlier. So where is the edge? Wrong question. In an asymmetric world, the question is where do you want to find your edge? This is a question of what forms of competitive advantage the enterprise can create in how it relates to particular demands.

Healthcare Reforms

Tuesday, April 18th, 2006

by Richard Veryard

The UK Government recently published a white paper describing a range of proposals designed to improve access to community healthcare services. The intention is to improve healthcare outcomes (including longterm outcomes) for individual patients while reducing the cost pressures on the system as a whole. Proposals include more outreach clinics, a regular healthcare checkup, and “joined-up” care plans.

[Source: BBC News Jan 30th 2006]

The term MOT refers to the regular system of checks required for all cars in the UK.

These proposals appear to shift control of the patient’s healthcare experience closer to the patient, and at first sight might seem to be a sensible and appropriate response to the increasingly asymmetric demand facing the healthcare services.

But not surprisingly, the proposals have had a mixed reaction. One of the concerns is the assumption of triage. If we can separate simple cases from complex ones, then nurses and other professionals can take some responsibility for the simple cases, call in the doctors for medium cases, and send the most complex cases into hospital.

But this focuses the difficulty on the separation of simple from complex in the first place, which is not just an epistemological difficulty (what are the small signs that this might be meningitis or bird flu, rather than just a bad cold) but ontological (whose notion of complexity is to prevail). A nurse or pharmacist may deal with a backache simply as an acute pain; however, a doctor may be able to see the backache as the first symptom of a chronic disability. And a doctor with a longer-term responsibility for a patient may be able to see emerging patterns in the patient’s condition, that might not be adequately recorded in the patient’s health record.

Part of the difficulty is the conflict between the acute and the chronic. Dealing with a chronic condition as a series of acute episodes can be costly and ineffective for the healthcare organization, and typically produces inferior long-term outcomes for the patient. Indeed, acute treatment (such as painkillers) may interfere with (and therefore delay) the diagnosis of a severe chronic condition.

Of course, the doctors sometimes protest too much. They complain indignantly whenever they fear nurses invading their professional territory, but of course a lot of the triage is already done not by nurses and healthcare administrators but by the patients themselves – deciding whether a symptom is disturbing enough to justify seeing the doctor. After all, an unnecessary appointment with a doctor is not just a waste of the doctor’s time, it is also a waste of the patient’s time. Busy people often prefer to take a quick painkiller rather than hang around in a doctor’s waiting room.

And of course doctors are under extreme time pressure: they often spend their time prescribing painkillers and sometimes fail to recognize the chronic conditions. Clearly there’s a problem if the working practices of doctors are not conducive to the effective deployment of their expensive medical skills.

Much of the complexity of healthcare comes from the fact that health is (literally) embodied in the life of the patient; this means that doing healthcare properly means paying attention to the life of the patient. Think of the individual healthcare that a top sportsman gets – with every minor sprain carefully examined for its potential effect on sporting performance, and every medication assessed for its effect on energy levels.

But this is often the problem with asymmetric demand – a small number of highly privileged customers get an individually customized service, and everyone else has to accept a one-size-fits-all solution. Is there a way in which highly flexible and customizable long-term healthcare services can be made available to everyone, at a reasonable cost?

Oh yeah, technology. Health 2.0.

Taking power to the edge is difficult and fraught with resistance. The latest UK proposals are merely the latest in a series of similar proposals, going back over thirty years. BBC reporter Nick Triggle complains of Deja Vu, and lists some of the repeating initiatives from 1976 onwards.

Clearly, every reorganization has its perceived winners and losers. In an organization as political (small p) as the UK health service, every reorganization turns into a major battle about the control of healthcare. There is a legacy of suspicion and cynicism, sometimes interpreted as an institutional defence against anxiety. The centre talks about empowering the edge, while at the same time imposing further centralizing controls.

Is there any difference this time around?

Must we fall into the vortex?

Thursday, April 6th, 2006

by Philip Boxer
David Miliband, the Minister for communities and local government in the UK, spoke recently of the need for a double devolution that could bridge the power gap:

“not just devolution that takes power from central government and gives it to local government, but power that goes from local government down to local people, providing a critical role for individuals and neighbourhoods.”

Central Government is the archetypal power-at-the-centre, placing local government at the edge facing the asymmetric demands of individuals and neighbourhoods. The ‘power gap’ is an acknowledgement of the failure of local government to fulfil the expectations of the citizen under a single devolution from the central to the local. So what is involved in a double devolution?

Building on the insights springing from the socio-technical nature of work within organisations, the Tavistock Institute of Human Relations developed a socio-ecological view of the relationship between the organisation and its environment, in which the community of organisations and the environment with which they interacted could be thought of as an eco-system. We can begin to understand the challenge of double devolution if we look more closely at the characteristics of this eco-system.

Understanding the challenge of double devolution
We can start from the double challenge, introduced in an earlier blog. This talks about the match between the relationship to demand needed and the corresponding (mirror-image) relationship to authority. This authority is associated with the business model being used to respond to demand, and in the following diagram we position this business model on two axes:

  • the variety of forms of demand being recognised by the business model, and
  • the variety of forms of supplier using that business model

Fig 1
The process of mergers and takeovers will tend to reduce the variety of suppliers offering the business model, thus leading to supply-side dominance which can in turn then reduce the variety of forms of demand that the model need respond to. Equally, an excessive variety of suppliers offering the business model relative to a limited variety of forms of demand will lead to a shake-out of the less efficient forms of supplier. In both cases, the tendency will be towards the bottom-left ‘mature’ zone.

Implicit in the formation of this business model is also the bringing together of a number of knowledge domains. This allows us to introduce a third axis:

  • the variety of forms of knowledge domain brought together as a whole within the business model

fig 2
The ‘high ground’ is ground in which there is a low heterogeneity of suppliers using the business model, but a high heterogeneity of knowledge domains being used – ‘high ground’ because of the rarified status of the different professionals being brought together. From here there are two routes to the bottom-left ‘mature knowledge’ , where knowledge becomes ‘common sense’. One involves rationalisation and standardisation, reducing the heterogeneity of the knowledge domains as they become consolidated into schools of thought, and the other involves an idiosyncratic body of thinking being substituted ultimately by more widely held forms (therefore easier to replicate).

Put together, these axes allow us to define an equilibrium surface for the eco-system, in which for a business model to be above the surface is to incur excessive integration costs for the level of demand heterogeneity it is responding to, and to be below the surface is not to be able to respond adequately. The result is the surface below, in which we see the knowledge diffusion cycle associated with the governance cycle traversing the terrain from the high ground (problem-based) via establishing a school of thought (product-based) down towards becoming a mature industry (cost-based) and then turning back up under the overhang (service-based). What moves a business model down this path is the constant attempt to take out costs and to secure greater economies of scale and scope, while what moves it up the path is the pursuit of new forms of demand. But what causes the ‘fold’ in the surface, necessitating a jump to move in that direction, and possibly to start a new cycle?
fig 3

The ‘jump’ to a new high ground
To understand the ‘fold’, we must appreciate that the high ground involves a limited variety of forms of supplier being able to span a large variety of knowledge domains in relation to a large variety of forms of demand. Such a business cannot be organised using hierarchy, requiring instead an East-West dominant form of networked organisation able to hold accountability at the edge in a way that is situation-based. This means that there are points along the ‘demand’ axis where there are two viable forms of organisation, the depth of the overhang depending on the capabilities of the enabling the system-of-systems architectures. These enable hierarchies to customise their offerings to a wider variety of customers, as well as enabling networks to extract greater economies.
fig 4
But despite this overhang, in order to capture greater varieties of demand, a North-South dominant organisation can only go so far before it must either refuse to engage with further complexity or make the ‘jump’ to a more adaptive and adaptable form of organisation. Which brings us to the question of the vortex and the consequences of such a refusal. Phil Swann, the director of the Tavistock Institute writes in an article on Public Opinion as follows:

“The chances of making progress on both elements of Mr Miliband’s double devolution would be enhanced if it was presented as a joint endeavour rather than a deal. Government at national and local level finds devolution difficult. They should agree to learn from each other as they grapple with the challenges.

His point is that double devolution has to be a two-way process, not only between the local and the central, but in relation to the individual or neighbourhood situation, and government is just not set up to work in this way at the moment.

The consequences of maladaptive responses
The progression along the demand axis was originally described by Emery and Trist in their 1963 paper on “The Causal Texture of Organisational Environments” (to be found in Vol III of the Tavistock Anthology), which at the ‘high’ end is described as turbulent. This is where the environment has a life of its own that can no longer be ignored by the organisation, i.e. it becomes asymmetric in a way that cannot be ignored. A vortex is what happens when organisations are not willing or able to adapt to this environment – they continue to ignore it, not because it is not there, but because they have no way of responding to it (see Baburoglu on the resultant maladaptive responses of stalemate, polarisation and monothematic dogmatism). A metaphor for the kinds of consequences that might follow from this refusal can be seen in the riots that broke out in Bradford in 2001, and across the French banlieue in 2005.

Must we fall into the vortex? It depends on whether we can find it within ourselves to start bridging the power gap by taking up the double challenge.

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).