S&R as Post-Industrial Managerial Paradigm
An adaptive management model is the missing link in current attempts to transform businesses into adaptive organizations. Adaptive people, technologies and infrastructures are necessary but insufficient, because the legacy industrial age management paradigm systematically discourages the exploitation of adaptive capabilities. Those firms that have made a degree of progress in becoming more adaptive (or at least more agile or resilient) have by and large relied on process improvement, adaptive technologies, and on what Bruce Harreld of IBM has called ”the heroic model“ of management – counting on exceptionally talented people to break the rules without breaking too much glass.
Sense and Respond fills the adaptive management gap. It is a fundamentally different framework for on-demand, customer-back businesses; one that systematically leverages adaptive individuals, technologies and infrastructures to produce and scale adaptive organizational behavior.
Post-industrial Core Competences
An organization that does not trust its ability to predict what needs doing can no longer rely on planning, process designs, hierarchies of authority, and command and control. Instead of focusing on operational excellence to efficiently make and sell products and services that customers were predicted to want, an adaptive enterprise must be designed to sense and respond effectively to what is actually happening. It therefore needs, as core competences, the capabilities to: know earlier (anticipate) the meaning of what is happening now; dynamically dispatch modular capabilities in response (preempt); and express strategy as a systems design of roles and accountabilities. This transforms strategy from a plan of action into a structure FOR action. The organizational design becomes the main strategic document, and policy executives must therefore acquire competence as business architects. In an adaptive Sense and Respond enterprise, leadership controls context, not process and activity.
Benefits of Adopting System Design Principles
Most existing organizational designs are emphatically not systems designs. For example, it is not unusual to see managers holding multiple roles accountable for producing the same outcome – meeting revenue, profits and customer satisfaction targets. Even more bizarrely, organizational elements are sometimes asked to justify their budget by quantifying their Return On Investment — e.g., Return on Marketing. That kind of metric never makes sense in a system: what, for instance, would NASA consider to be the Return on Investment in O-rings? Such anti-systemic behavior happens all the time in business, leading to unnecessary redundancy and fostering non-productive, very expensive (though rarely measured) internal conflict.
Systems are radically different from processes. Processes produce internal results called outputs; systems produce external effects called outcomes. Outputs, such as diagnoses and appendectomies, are things delivered by a system. Effects are outcomes realized by someone or something external to the system…such as the patient, the taxpayer, the family.
Process designs sequence action, and specify HOW to do something. System designs structure relationships and specify WHY are we doing something? Process designs have a time dimension; system designs don’t. Process designs are plans OF action. Systems designs are structures FOR action. Processes are measured in terms of the quantity and quality of their outputs. Systems are measured in terms of the quantity and quality of their effects.
Applying the principles of adaptive system design to organizations is a new, post-industrial leadership competence. A major advantage of system designs is that they obviate the need for matrix management — whose relentless suboptimization costs large, multiple product global firms hundreds of millions of dollars a year in opportunity costs as well as significant internal transaction costs. An organizational system design does not solve these issues, it dissolves them. It also invests an organization with other important attributes, among which are synergy, role and accountability clarity, and intrinsic alignment of capabilities around a common purpose.
Sense and Respond “Role and Accountability” designs typically include a customer-facing role that makes bid/no bid decisions and dispatches resources in response to CURRENT customer needs. The role is held accountable to the customer for providing customer-defined value, and to the organization for delivering a minimum amount of revenue and profit. This means they must be qualified and empowered to make decisions traditionally reserved for general managers. In one specific case, the Role and Accountability design called for individuals in the customer-facing role to relate to the corporate office in the way entrepreneurs do to a venture capitalist — competing for budget based on the opportunities within their respective client domains. As a result, the product and services units see more of their funding coming from current customer opportunities, as opposed to the annual top-down plan/budget process. The idea is that, over time, this will cause internal capabilities to change their focus from the firm’s plan to current customer needs.
This is a change in business orientation from “firm forward” to “customer back.” It is business that co-creates value with customers, rather than extracting value from them.
Strategy as Structure
Structure no longer follows strategy. It becomes strategy….strategy that expresses executive intent as a modular structure for action, as opposed to a plan of action. Businesses are designed as systems of outcomes and interactions, rather than as silos of authority linked by processes. It is business on demand, rather than business as planned.