Marketing Management, a publication of the American Marketing Association, has published this article in its Fall, 2010 Edition. It is a response to Peter Drucker’s call for a new theory of business, and has been called a manifesto for Information Age leadership.

With permission from the publisher, the article is reproduced on this site, with embedded hot links to an expanded XEROX Vignette and a Sidebar summarizing the principles of Organizational System Design. It will also appear (later) on the website of the American Marketing Association.

Increasingly unpredictable and rapid change follows unavoidably from doing business in an Information Age. What could be more strategically important than coming to grips with the implications?

The message of Adaptive Enterprise is that large, complex organizations must and can adapt systematically–and successfully–to this kind of change. Systematic is a property of the sense-and-respond model described in this book. Success will be determined by leadership’s competence in making a particular set of choices within the model framework.

The only strategy that makes sense in the face of unpredictable change is a strategy to become adaptive. Speed-to-market, customer intimacy, operational excellence, and organizational agility, however important, are not adequate strategic objectives in and of themselves. They are attributes of the real objective: successful and systematic adaptation. Adaptation implies more than agility. It requires appropriate organizational response to change. And when change becomes unpredictable, it follows that the appropriate response will be equally so.

These are the opening paragraphs of the Introduction to Adaptive Enterprise, published in 1999. The Introduction in full is now available on the Essays and Images Page with permission from Harvard Business School Press. It is a succinct description of the rationale and content of the Sense & Respond managerial paradigm.

When we say “think outside the box” we really mean “think in a different box.” A boxless thinker is literally insane.

We make meaning when we associate perceptions with a context. According to sociologist Karl Weick, (see March 3,2010 post) three components are required for humans to make meaning: an object or event (either physical or mental), a framework ( a context, or “box”), and an association that links the object/event to a framework/box.  If we choose the wrong box, the result is a wrong idea….such as when we take literally something meant to be funny, or when our brain applies the rules of perspective to create an optical illusion.

The same kind of wrong ideas result when we apply inadequate models to interpret sales, the economy, climate change, or the chances of filling an inside straight at the poker table.

Sometimes we fail to see any pattern at all because we don’t have access to an adequate framework.  Until the Rosetta Stone was found and deciphered, ancient Egyptian hieroglyphics were essentially noise to archaeologists. The Rosetta Stone established an association between Egyptian hieroglyphs and ancient Greek, enabling the Frenchman Champollion to create a framework that allowed archaeologists to make meaning out of apparent noise.

Rapidly matching environmental signals to an appropriate framework is a Sense & Respond core competence, because it enables decisionmakers to know earlier than others the meaning of what is happening now.

Rigor and authenticity are essential attributes of inter-role negotiations about outcomes and accountability. Here is a link to David Ing’s summary of the linguistic theory that provides the rigor of S&R’s Commitment Management Protocol.

We innovate all the time: finding better ways to get to the airport, adding a new ingredient to a favorite sauce, writing a poem, explaining why we missed that deadline for the third time……

Innovation is a survival trait in unpredictable times.  So natural is it to human nature it seems odd to find this trait, like adaptability, so difficult to realize organizationally. One reason is that for an innovation to have any effect there must be a customer who values that effect. Matching an innovation with a customer is both critical and unnecessarily difficult in today’s large organizations.

We are our own customers when it comes to finding a better way to the airport, but who is the customer for a new idea in a large company? Finding that customer inside a suboptimized hierarchy of silos is, to put it mildly, not easy. Local budgets and metrics typically leave little room for the additional time and energy it takes to evaluate, reengineer, redeploy and harvest an unplanned initiative. Even if the idea is acknowledged to be good by a high level manager, the outcome is too often a suggestion to talk to someone else with equally tight time and resource constraints.

Out of the box innovations created in one silo are adopted in other silos only if they happen to address, and come to the attention of, someone’s existing, acknowledged and pressing problem. But this kind of timing is fortuitous and too rare. Many innovators spend less time developing and validating an idea than they do trying and failing to find an internal customer for it.

What if the organization were not chronically siloed and suboptimized? What if it were in fact designed as a system of coupled customer and supplier roles—whose interactions are defined by negotiated agreements to produce specific customer benefits? Then innovators would systematically have a robust context within which to innovate…….a context provided by internal (or external) customer roles whose needs define the problems, including those that require new and creative solutions.

Then a customer-back orientation would permeate the organization and innovation would flourish.

Why questions are about purpose and effects. How questions are about process and actions.

System thinkers answer the question “Why” by first considering the external entities on which a particular event or object exerts an influence. Analytic thinkers answer “Why “by considering the actions of parts internal to the event or object.

To paraphrase John Polkinghorne’s analogy, an analytic thinker would answer the question, “why is that tea kettle whistling” with a process answer: “because the tea kettle is on a hot stove, causing energy to be transferred from the stove to the water molecules, making them move faster and faster until some of them escape through a narrow opening, thus creating sound waves audible to the human ear.” A system thinker would answer: “because I want tea.”

Analytic thinkers invariably answer Why questions with How answers.

The largest S&R implementation to date is a multi-billion dollar systems integration project involving 3,000 people.  The smallest is a seven person organizational design for responding to what the United States National Oceanic and Atmospheric Association calls “coastal mortality events.” These include the unpredictable and devastating occurrences of whales and dolphins beaching themselves.

A previously unpublished summary of a 2001 interview with Dr. John Ramsdell describing how he applied Sense & Respond principles to deal with such disasters in near-real time has been posted on the Essays page

In the early 20^th century managers controlled procedures. Frederick Taylor’s colleague Frank Gilbreth created Time and Motion Study, a method of teaching workers the most efficient sequence of micro movements to accomplish their highly repetitive and largely physical tasks. Supervisors were charged with enforcing strict adherence to the prescribed sequences.

Gilbreth’s method was taught in Industrial Engineering undergraduate curricula as late as 1958, by which time the pace of change had increased to an extent that it no longer made economic sense to continue training and re-training workers at this level of detail. Over the next four decades, led by innovators such as Deming and Juran, the focus changed to statistical control of process design and execution — a more general description of the series of steps to be taken in transforming a specified set of inputs into a specified set of outputs. “Six sigma” processes are the latest twist in managerial control of processes, and  where most businesses are presently focusing their attention. This, in spite of the fact that change has become so rapid and unpredictable for many firms that improvisation and ad hoc processes have become the de facto behavior norm. And in spite of the fact that the high premium currently placed on innovation implies and requires unpredictable behavior.

The control issue for post-industrial managers is: How can organizational leaders ensure that the improvisations of empowered individuals produce coherent behavior by the organization? What replaces tasks and processes as the focus of control?

The answer is to shift the focus of control from activity to results; from outputs to outcomes; from process design and management to system design and management; and from holding people accountable for their actions to holding people accountable for the consequences of their actions.

This Sense & Respond prescription is reflected in and supported by the writing of sociologist Karl Weick, whose Sensemaking in Organizations is a must-read for anyone interested in how humans make meaning out of what goes on in the world. Weick describes three orders of control: direct supervision, control of routines, and premise control, which is essentially the control of context. The appropriate level of control is a function of the degree and predictability of change. Here’s an excerpt:

People at the top often inadvertently make their task more difficult by their efforts to make it easier. When they impose first – and second – order controls on subordinates, they create interactively complex situations….that enlarge in unexpected dimensions with unintended consequences, in ways that defy comprehension.

For most of us, evidence of a pervasive lack of organizational alignment in the companies we do business with is all too familiar. Who has not been in the highly frustrating situation of trying to coordinate the fragmented parts of their bank, insurance company, phone service provider, on-line retailer, software provider, hospital, appliance manufacturer, newspaper provider, electrical utility, ISP or on line pharmacy? Such negative experiences are the symptoms of organizational structures and managerial practices that discourage cooperation and foster sub-optimizing behavior.

The costs to the firms themselves can be enormous. The large account executives in one multinational company report spending more than 80 percent of their time on internal conflicts, trying to make their organization appear seamless to its customers. This company learned that organizational incoherency costs it $1 billion per year because of delayed, compromised and uncompetitive responses to client requests for bids. The root causes identified were lack of clarity about accountability for results, confusion about who has the authority to make what decisions, and internal battles over the allocation among units of revenue credit and costs.

There is an innovative solution to this problem for leaders willing to learn and master a new managerial competence: redesigning their organization as a system of roles and accountabilities focused on a well-defined purpose. This does not “solve” the alignment problem; itdissolves it, because alignment is an intrinsic property of all system designs