Adaptive Enterprise - Stephan H. Haeckel

Partial Excerpts (antilibrary)

1999

Contents

• Foreword ix by Adrian J. Slywotzky Introduction x v i i CHAPTER 1 The Premise and Promise of 1 Sense-and-Respond
• CHAPTER 2 Unpredictability: 23 The Only Sure Thing
• CHAPTER 3 Strategy: 37 Past and Future
• CHAPTER 4 The Sense-and-Respond Alternative 5 1
• CHAPTER 5 Adaptiveness: 7 5 Finding Meaning in Apparent Noise
• CHAPTER 6 The Role of Leadership in 9 3 Sense-and-Respond Organizations
• CHAPTER 7 Building Organizational Context 113
• CHAPTER 8 Coordination: 141 Keeping Track of Who Owes What to Whom
• CHAPTER 9 Managing by Wire 163
• CHAPTER 10 Managing the Transformation: 1 7 3 A Case Study
• CHAPTER 11 Changing the Corporate DNA 1 9 1
• APPENDIX A Creating the Modular Organization 207 by Michael Shanky
• APPENDIX B Collaborative Decision-Making in Adaptive Enterprises by Michael Kusnic and Daniel Owen
• APPENDIX C Putting the Commitment Management Protocol to Work
• Notes 249
• Acknowledgments 265
• Glossary 273
• Bibliography 277
• Index 285
• About the Author 295

Foreword: Adrian J. Slywotzky

*For some time now, I've been following the development of a strategic model called sense-and-respond, formulated in a variety of articles and whitepapers by Stephan Haeckel. Haeckel's point of departure is the logic of an information economy and the implica- tions of that logic for business strategy, structure, and governance.

*What a company does these days must be driven by a deep understanding of how customer needs are changing, customer by customer. I find the ideas and logic of sense-and-respond compelling, and I am delighted that they have now been gathered into a book.

*It contains a degree of prescription rare in "idea books," including the several very good ones that have appeared in the last few years describing how the business landscape is chang- ing and how the rules determining business success have been fundamentally altered.

*Very few of these great diagnostic books provide usable ideas on how to integrate a management concept for dealing with the unpredictable change they describe.

*Haeckel provides not only insightful diagnosis but a persuasive prescription for creating new business designs that systematically make sense out of turbulent change and re- spond adaptively to it.

*nalize. You must change the wiring in your mind from make- and-sell (which has been deeply imprinted into our thinking) to a different mode — sense-and-respond.

FIGURE 9.1 Managing by Wire at Aetna

Among other things, it requires shifting from a product-centric to a customer-centric way of looking at things.

The Transition to a Sense-and-Respond Business Design

*Haeckel maps stages in the transformation to sense-and- respond against the four strategic choices that define a firm^s busi- ness model: customer selection, value capture, scope definition, and strategic control point. Stark and revealing differences emerge from stage to stage.

FIGURE 8.1 The Commitment Management Protocol

Through negotiations, the dispatcher and customer seek the closest match between needs and capabihties. But this is only part of the story. As suggested above, the internal relationships that really count, the dynamic horizontal commitments, must be nego- tiated and executed to integrate capabilities into systems-level re- sponses

First, corporate leaders must articulate and choose among contrasting beliefs about organizational purpose. An effective rea- son for being can have only one primary purpose and one primary constituency — that is what primary means

and-respond will not replace make-and-sell because it is easy, but because it is necessary. Once they reach this conclusion, many leaders will find that the development of an unambiguous context is their logical start- ing point.

TABLE 8.1

Speech act

Remember from our discussion of hybrid organizations that most business designs will incorporate both make-and-sell and sense-and-respond capabilities

ers and pilots in the 1950s. Events and the vast, complex flood of information move so fast that we cannot take in, interpret, and re- spond to signals from our environments quickly enough to act ef- fectively. To survive, we, like jet pilots, need electronic augmenta-

tion of our ability to sense "what's going on out there" and an electronic representation of our knowledge about "how we do things around here." We cannot automate our most important ac- tivities, because rapid change and discontinuity make it impossi- ble to predict what we will face and how we should respond.

FIGURE 7.1

Governing Modular Organizations with the Commitment Protocol

nected" to implementation by using the commitment manage- ment protocol to establish formal accountability for carrying out the underlying actions.

Many feel impatient with so-called nonproductive time spent in negotiation rather than action. But it is in the negotiation phase that the outcome, its specifications, and the risks are explored and made explicit.

scribbled on slips of paper. On average, a trader's desk was littered with more than one hundred such slips

two specific questions. First, "What attributes do cus- tomers perceive and value?" Second, "How much would each cus- tomer segment be willing to pay in the future for a one-unit im-

provement in each of these attributes?"

Alternatives

brid. When the process works well, this hybrid alternative inte- grates the highest value-creating elements of each of the initial al- ternatives into a course of action with significantly more value than any of the original proposals

was GM's primary purpose. Its primary constituency was the shareholder, for whom money was made

Leading by Developing and Adapting Organizational Context

What happens when an unanticipated request for an un- precedented response arrives?

Managing by Wire

The Role of Leadership in Sense-and-Respond Organizations

Building Organizational Context

The system could only work if rewards were tied to outcomes, not just to hours worked or tasks completed

An ADP Application at IBM's Advanced Business Institute

Its emergence will typically be characterized by several in- terrelated events interacting with one another. The challenge for decision-makers is to relate these events and their effects in a co- herent pattern. Using a tool called a scenario table, those partici- pating in the alternatives phase identify alternative sets of events that could give rise to fundamentally new worlds. They ask and an- swer the question, "What is the range of possible alternative new worlds?"

After a brief discussion, they came up with an akernative:

"The LaBarr Partnership exists to make money for its partners by providing high quahty commercial legal services." The individual members as partners, not attorneys, had become the primary con- stituency. Making money was now the primary purpose, with high quality services the non-negotiable constraint.

Define the tasks to be accomphshed in each of the four pro- cedural, or task, phases in appropriate detail

Enabling Modularity with the Protocol

In a small business, the people running it may keep in their heads a shared model of a coherent business design. But as busi- nesses grow and become more complex, working from a purely mental model becomes impossible. The usual response, breaking

the system down into smaller, more "manageable" units, will fail. Complex systems cannot be fixed through fragmentation. Not sur- prisingly, managers overwhelmed by the complexity and multiplic- ity of the problems they face often embrace simplification by frag- mentation. This compartmentalized approach merely demonstrates

managers' self-image as problem-solvers, rather than as context builders.

The Commitment Management Protocol

At this level, ADP addresses the two fundamental questions of business.

• What do our customers, both present and potential, want?
• How can we best respond to their needs?*

The High-level Business Design

ADP AND THE Value of Information

Managing the Transformation

A Case Study

An Alternative Approach: The Adaptive Decision Process

Imagine a corporate cockpit where corporate pilots view, in real time, the status of commitment networks displayed as in Fig- ure 8.3.

Organizations as Value-Creating Systems

Decisions and Decision-Making

Analysis

By the end of the effort, it is rarely the case that more than three or four of these issues continue to be decision-relevant. A decision-focused filter for information ac- quisition leads to a 90 percent reduction in the number of issues worthy of continued investigation.

Confusion and conflict can arise because individuals play multiple roles. We are not accustomed to consciously switch- ing our frameworks from role to role. Yet we must do so if we want to authentically negotiate commitments in each of them.

Straightforward but powerful analytic tools are now brought to bear to identify the sources of the value and risk embedded in each initial alternative

Coordination

Keeping Track of Who Owes

What to Whom

Many decision-makers do not distinguish between the pro- cess of decision-making and the content of the decisions they make. They tend to think of decisions as conclusions (as in "I de- cided to do X") and to think of decision processes as decision sup- port processes

In addition to tracking commitments, the protocol can be used as a tool for diagnosing existing processes. Tom Morgan of Brooklyn Union Gas recognized this potential and used it to ana-

lyze failures in his company's business processes. He found that, missing speech acts (especially agree and accept or reject), miss- ing phases (especially negotiation and assessment), and, above all, missing customer roles correlated directly with process failure.

Developed in the 1980s but still not widely known today

*The committee set aside a day in May to formulate a state- ment of the essential nature and function of the partnership, in other words, its reason for being. Prior to that session, each committee member was asked to submit a single sentence beginning with the words, "The LaBarr Partnership exists to." They produced the following statements of purpose:

Immediate managers, who typically play the role of evaluation administrator, frequently evaluate outcomes for which they are not the customers

It uses scenarios to identify the envi- ronmental uncertainties most likely to yield information about relevant emerging discontinuities.

Challenges of Applying the Protocol

The Aetna Portfolio Management Group

A visualization of the commitment management protocol described in chapter 8 looks like the diagram in Figure G.l

Most organizations use a familiar strategic decision-making process to resolve conflicts over resource allocation

In the early 1990s, when Glen Salow became CIO of the Aetna business unit responsible for managing a portfolio of more than $50 billion in securities, the group faced business challenges familiar to the leaders of any money management firm

To make meaningful judgments about marginal value from a customer per- spective, the attributes of value perceivable to the customer must

be sharply defined and measurable.

The final version of the LaBarr reason for being makes the client the primary constituency, good legal outcomes the primary purpose, and a collegial environment and fair returns the non-negotiable

constraints

Employees are either assigned or asked to commit to results at the beginning of the year without authentic negotiation. But these are not commitments.

Level I: Responding Within Our Current Understanding of the World

Sources: Alan Scherr, Fernando Flores

These capabilities can snap together in virtually any configuration because they share a common understanding of how to connect

The vertical arrows represent the speech acts separating the task stages of a commitment

Many people find it surprisingly difficult to think about their work in terms of outcomes and commitments rather than

activities and plans

The protocol does not just use a new vocabulary to describe the same old work.

It reflects a shift from being held accountable for one's actions to being held accountable for the consequences of one's actions

Ambiguity, particularly if "undiscussable," is a pernicious, ineffective way to deal with uncertainty. Better is a sequence of

commitments that permit mid-course adjustments.

it can represent accountabilities ranging from "pro- vide for the common defense" to "set up a lunch date with Bob." It applies equally well to stable, repeated processes and to ad hoc re- sponses to unanticipated requests. Its rigor imposes^ clarity on processes that may otherwise be rife with ambiguity and misun- derstanding.

The task phases (shown in the white boxes in the figure) consist of activities. Ad hoc decisions about what to do must re- flect the priorities estabhshed by the organization's reason for be- ing, and be hmited by its governing principles. Technology can en- sure that this is the case by automatically adding the firm's governing principles to the conditions of satisfaction associated with every commitment

More importantly, the value of acquiring additional information on the remaining 10 percent is typically an order of magnitude higher than anyone believed at the outset.

All the partners felt they could easily relate to all six of the

statements

Then someone in the group asked, "Who is going to see this?"

Figure 8.2 presents a schematic diagram of how those in dispatching roles can use the protocol to manage the relationship with the customer and to se- cure commitments from both internal and external capabilities.

The U.S. Air Force uses the term OODA loop to describe how pilots process information when they fly

Westpac's GS90 system provides an early and impressive ex- ample of such a system. Although Westpac is not now managed as

a sense-and-respond organization, the bank's Product Develop- ment Application system demonstrates that systems supporting manage-by-wire operations can be built. It was possible to do so, in fact, even with the now outmoded technology of the 1980s.

collaborative decision process (described in appendix B)

The intent is not to pick the best alternative but to create a shared un- derstanding of the value and risk associated with each

The process consists of four phases— /ramm^, alterna- tives, analysis, and connection — each culminating in a structured dialogue between the decision-makers and a decision support team

This exercise in process reengineering achieved significant improvement in organizational performance without the redesign of a single procedure. The only new procedures added were those to assess the results of each outcome

Financial reward — a proxy for shareholder return — appeared as a universal theme.

Adopting the commitment management protocol requires this shift. The goal is not a sociological or humanistic one. Negotiation

is intended to create clear, meaningful, and authentic commit- ments with the people who are or will become dependent on them

The planning manager also scheduled shipping, but no further communication took place be- tween planning and shipping until the customer received the prod- uct. Accurate information about order status could not be deter- mined inside the company and could not, therefore, be made available to the customer.

We will use the term decision to mean an irrevocable allocation of resources. This is not the typical definition, which approaches more closely the

use in the statement "Management decided to strive for world- class quality." Without a concomitant resource commitment, the strategic "decision" to strive for world-class quality becomes a wish or an empty statement of desire.

Aircraft designers today use computers to help pilots move rapidly through the OODA loop, vastly reducing the time it takes them to assimilate and react to information. Heads-up displays — computer-generated pictures projected onto helmet visors — show selected abstractions of a few vital environmental sigiials, helping

pilots to see and understand "what's going on out there."

describing a role as a list of activities sheds lit- tle light on why the position exists at all

Analysis

Level II: Adapting to New Worlds AND Discontinuities

Benefits of Codifying Commitments and Accountabilities

A successfully adapting enterprise must be able to rapidly convert apparent noise into meaning. Exploring the uncertainty

around future possible states of "what is going on out there" is an effective way to improve a firm's ability to distinguish re^ from ap- parent noise. ADP provides a systematic guide to where and where not to look in this sea of potentially relevant signals

Because of this, the analysis phase is often referred to as the search for value.

Authentic commitment to some outcomes is not possible. Uncertainties will sometimes be so great that negotiations must center on how the customer and the supplier will share the risk rather than on the desirability and specification of the outcome it- self

Each iteration on this process takes place through four structured dialogues.

High-Level Business Design

The sense-and-respond adaptation in Level I takes place within a given set of environmental assumptions. We call this col- lection of assumptions the momentum world.

Good systems designs minimize intra-person role conflict

Governing Principles

IBM consultant Kathleen Snyder used it to help a make-to-order appliance manufacturer understand some significant operational problems.

Assume, for example, that

Sloan had said, "General Motors exists to make motor cars prof- itably." In this case the company's primary purpose would be making motor cars. Making money would then become a non- negotiable constraint: The cars must be made profitably. In this

formulation, the primary constituency becomes not the share-

holders, but GM management and employees, the "car guys" who invest their careers and talents in making motor cars

The Reason for Being

Using the commitment management protocol to design adap- tive processes involves these basic steps.

Notice the implicit assumption here that the best possible result of negotia- tion is a win-win agreement that represents the highest common denominator of two separate agendas

A reason for being expresses essential organizational pur- \ pose. It states what the organization exists to do, as opposed to what it must do to exist.

Framing

s "current" investment position came in the form of a two-and-a-half-foot-high computer printout that was out of date by the time it hit executives' desks

According to many of the traders, how- ever, the most significant change was that, for the first time, they felt personally accountable for the performance of the portfolios they managed. They now had quality information and an adaptive loop cycle short enough to illuminate the cause-and-effect rela- tionship between their decisions and changes in portfolio value.

This approach fosters a culture high in distrust, especially regarding information sharing

Everyone agreed that clients would not be sur-

prised to learn that the firm was in business to make'fnoney, but all were troubled that clients were not mentioned in the reason for

being

The last task in framing is to articulate the uncertainties (and their interrelationships) that stand between the Actions we have the power to take and the conditions necessary for delivering value to the customer. A powerful tool called a sensing diagram helps provide new insights into how the system creates value and its potential for creating more.

FIGURE 8.3

Establishing "Who Owes What to Whom'

Salow's staff replaced the scribbled notes with two moni- tors on each desk. One, a Bloomberg terminal, provides a constant stream of signals about current business events in general and se- curity markets in particular. The second monitor displays an in- terpretation of those signals. It links to databases containing ab-

stractions of carefully chosen elements of the Aetna Group's business

Some Implications of the LaBarr Reason for Being

Investment managers, accountable for maximizing the re- turn on the portfohos they oversee, are subject to three con- straints: Aetna's current investment policy, which defines limits on the amount of types of securities in the company's portfolio; similar constraints imposed by the individual owners of the portfo- lios; and an Aetna cash flow management policy requiring that every investment be matched with insurance policy premiums

Connection

The framework of the Adaptive Decision Process differs from the traditional process in three important respects

Haeckel has noted that decision-making is the process by which people transform knowledge into action. In the ADP, con- necting decisions to implementable action happens in the connec- tion phase.'

An essential re- quirement for an adaptive enterprise, however, is an ability to deal with increasingly frequent, discontinuous change. The Level II loop identifies and anticipates which potential discontinuities

warrant a fundamental revisiting of the enterprise's context and, therefore, of its hybrid response strategy.

LaBarr's executive committee recognized that adopting this reason for being would lead to substantial changes in the firm. For one thing, attorney skills would be valued differently. Previously, finders, attorneys who brought in new clients, were considered more valuable to the firm than minders, those who maintained re- lationships with current clients, or grinders, those who did the re- search, drafted the contracts, and so forth. A chent-centric ap- proach implicitly placed a premium on minding talents. Such a change would be far from trivial. Any organization that reorders its list of essential skills and revises its established ideas of where

value resides in the firm faces a difficult and potentially acrimo- nious reaction.

Managing by wire means running a business by running its informational representation

Snyder's map of a redesigned appliance manufacturer pro- cess appears in Figure G.3.

Reason for Being

This protocol makes possible the governance system re- quired by the sense-and-respond model. Appendix G illustrates its application in more detail, showing how the protocol can improve

a business process by explicitly incorporating human accountabil- ity and commitment.

The multiple answers expected for the second question have important implications for organizational alignment and coher- ence, decentralization of decision-making, and organizational em- powerment. Using the ADP framework fosters decentralized, yet coherent, subsystem-level decision-making because all decisions use the same metric for evaluation: impact on customer value

Anyone in a role accountable for outcomes requiring such dynamic linking of capabilities would benefit from a heads-up dis- play like the one just described

"In which new worlds is our hybrid response robust? Which of the new worlds represents a threat? Which represents an opportu- nity?"

This sequence is always the same, except that it may start with an offer rather than a request

Analyzing the statements in terms of implied outcome, pri- mary constituency, and non-negotiable constraints or qualifiers, however, as shown in Table 7.1, brought some genuine differences to the surface

Rather than starting with a "straw man" solution, ADP iden- tifies several significantly different but practicable courses of action that capture the range of debate within the organiza- tion about what ought to be done.

Any capability (that is, any role with skills and resources at its disposal) can initiate a commitment with a request or offer. A commitment ends with an accept, reject or withdraw speech act.

asking and answering three key questions.

• Who are our customers?

• What is our purpose?

• How will we accomplish it?

That same rigor makes possible the use of technology to register and track commitments and to coordi- nate the dynamic interactions among the components of adaptive systems.

To maintain parity in the debate, all stakeholders to the decision must inde- pendently develop their own sources of information

A group of expe- rienced Advanced Business Institute faculty needed five full days

of meetings to agree on a redefinition of the offering owner's role recast in terms of accountability for outcomes to customers. The

amount of effort required and the range of interpretations put for- ward— early discussions yielded more than ten possible key out- comes— show how much ambiguity existed about this one appar- ently straightforward organizational role

Connection defines a new, hybrid response combining the sources of value in each of the initially identified alternatives

The centerpiece of this decision process is a "pitch." The pitch, as the term indicates, is designed to "sell" the proposed so- lution to the decision-maker(s). This advocacy process, in turn, tends to create an adversarial culture.

Consider the patient-doctor negotiating process. No physician can authentically promise to keep us healthy, much as both supplier and customer may desire that outcome

many will resist redefining their roles in terms of outcomes owed to customers other than their managers. Such people tend to

be risk-averse

As Reg Munro of Old Mutual Insurance once said, "Sense-

Decades ago the United States Air

Force implemented a technology program to augment people's ability to cycle through their adaptive loops faster and better. The application of this concept to business is the subject of the next chapter, because, in more and more companies, technology- assisted adaptive cycles are fast becoming a requirement for keep- ing up with the unexpected

Unlike many mission state- ments, a reason for being is unambiguous about the organization's primary constituency and the primary outcome the enterprise must provide that constituency

Sometimes the System Is to Blame

Alternatives

The heart of adap- tive decision-making lies in collaborative dialogues, not hierarchi- cal reviews. ADP uses dialogue to lure into the open all alternative views, issues, and value conflicts, and then deals with them in a shared learning context

The alternatives phase helps to identify and articulate the range of possible strategy responses to customer needs within the environment defined in framing

Deluged by dirty data

Rigor is necessary but not sufficient for successful implemen- tation of a commitment-based governance system. The commit- ments made and registered must also be authentic.

Rather than beginning with what is known about the world, ADP identifies what is not known that would be useful to know in evaluating the relative merits of the alternatives

Not all decisions are alike. Managers do not need a formal de- cision-making process for many operational decisions. Experience, discussion, and some traditional analyses will be sufficient.

Connection

Better-than-committed outcomes are rewarded with bonuses for over-achievement. This fosters two-agenda negotiations and erodes authenticity by motivating providers to make low-ball offers and customers to ask for more than they think they need.

Hovering near the surface here is the issue of trust and its role in negotiations

uses the same four phases. What differs, however, are the key questions asked in each phase.

Suppose Sloan and his executive committee believed that the

customer should be GM's primary constituency. They would then have developed a different reason for being, such as: "General Mo- tors exists to meet people's personal transportation needs by mak- ing motor cars profitably." Making motor cars and making money are now non-negotiable constraints.

Because ADP works from the customer back, the first step re- quires defining who the customers are and what they want. These questions are clarified by identifying the implicit customer value attributes delivered by the firm's existing offerings and responses

The communications acts (shown in the figure's black boxes) are performed by saying them. Linguists call them commissive

verbs or speech acts. Saying, for example, "I agree," constitutes a

It asks and answers the question,

"What is the range of alternative coherent responses, given the context defined during framing?" Using a tool called a response table, each alternative response strategy is spelled out in terms of the value attribute levels it would deliver to each customer seg- ment.

ADP's decision pull serves business much more powerfully than does information push.

Other Transition Issues

By authentic, I mean two things. First, both parties must mean what they say and

say what they mean — they must be sincere. Second, each party must know and understand what they mean — they must be com-

petent

Figure G.2 shows the results of Snyder's analysis, with roles listed vertically on the left and speech acts indicated by arrows

It incorporates an elec- tronic representation of the business into the actual fabric of the business

Framing

Rather than making specific assumptions about the future to calculate business case profitability, ADP identifies the ranges of uncertainty about the key factors influencing the desired outcome to learn what information is and is not im- portant to the decision.

Level II framing identifies events that might trigger the emergence of a "new world." Decision-makers explicitly ask and answer, "What events define relevant new worlds?"

In empowered companies, most of the commitments that count are made horizontally, between people with accountabilities acting to produce business outcomes. But the commitments that are counted still tend to be those made vertically, between individ- uals and their managers

The

key questions asked are "What are we going to do? And why?"

The protocol has the very important traits of rigor, universal- ity, and generality

Scaling Up Management by Wire

Decision-makers must ask and answer the following questions: "What must we sense about the environ- ment to anticipate the emergence of relevant new worlds? Who

will be responsible for deploying and monitoring those sensors?"

At Aetna, managing by wire was applied to the trading func- tion of the Portfolio Management Group, one part of a much larger organization. At Westpac, a much more extensive effort produced a more nearly comprehensive management-by-wire system, one used by many people developing and selling a wide range of finan- cial products. Even Westpac's GS90 system, however, did not incorporate commitment management or propagate policies un- related to products. Westpac does not, therefore, constitute a com- plete example of enterprise-level management-by-wire.

No linkages between individuals' commitments are made. Therefore, no coherent design emerges from the collection of commitments and assignments registered

Clients are abstracted into symbols describing the size of their portfolios and their individual risk and portfolio mix con- straints.

The sooner the parties become aware of changing con- ditions that invalidate an existing commitment, the more effec- tively they can deal with the situation, with the least cost to the or- ganization

Down to Cases: Employee Benefits

External and internal data were man- aged as separate resources

As described in the next two sections, ADP operates simulta- neously at two levels. Level I aligns actions to add value within the

context of the organization's current understanding of the envi- ronment within which it operates, what might be termed its mo- mentum world. This level includes sensing selected environmen- tal signals to improve the value of the current course and speed of the business. Level II deals with the problem of adapting the con- text

They want their compensation to be

based on their ability to carry out these tasks skillfully — an atti-

tude Frederick Taylor thought all "high price" workers should have.

But these conditions rarely exist for the kind of strategic de- cisions that must be made when a new business environment

arises from competitive or government actions or from the emer- gence of new markets or technologies.

Two essential characteristics of flying by wire make it an im- portant foundation for discussing managing by wire. First, fighter pilots today do not fly airplanes; they fly informational representa- tions of airplanes. We can use technology to fly airplanes only after translating into symbols the highly dynamic business of flying.

Any social system — no matter how rigorous — can be sub- verted by inauthentic behavior. Sincerity alone cannot prevent this

The commitment management protocol consists of four task phases — define, negotiate, perform, and assess —
and seven communications of a special kind — offer, request, agree, report, accept, reject, and withdraw.

ADP produces consensus, commitment, and closure prior to implementation

Introducing the practice of negotiating rather than assigning accountabilities can be tantamount to initiating a cultural revolution.

*The diagram clearly shows the communications failures largely responsible for the company's problems. For one thing, the sales function was out of touch with the rest of the organization. It committed product delivery to the customer without any consulta- tion or agreement with planning and production about whether that commitment could be met.

In our experience, this process results in significant shared learning about the sources of value and risk in each of the initial alternatives. Collaborative learning leads to a better alternative upon completion of the process. We call this alternative the hy-

An important outcome of

this phase is a compelling rationale for why the synthesis "makes sense."

Defining Roles in Terms of Commitments and Accountabilities

Let's take another look at Alfred Sloan's statement of purpose for General Motors, rephrasing it slightly, to illustrate the charac- teristics of an effective reason for being: General Motors exists to make money by making motor cars

Businesses that achieve modularity have a different attitude toward change

Using the scenario table in reverse allows us to identify which uncertain events to monitor

Customer-Back Versus Firm- Forward Decision-Making

For our purposes, trust means the certitude of a person

in a specified role about another's competence and intent to de- liver what they have agreed to in a negotiated commitment

Business will continue to need people with this attitude, but not in roles requiring adaptiveness. Good performance in these roles depends on a capability to create new ways of responding to unprecedented requests.

In the sense-and-respond governance system, a commitment is an agreement between two parties to produce a defined outcome and to accept that outcome if it meets the agreed-to conditions. One party, the supplier, takes responsibility for producing the out- come. The other party, the customer, must accept the outcome if it meets the conditions of satisfaction. Accountability is estab- hshed by this interaction

Much of the current information that investment managers actually used took the form of notes

The outcomes to which the par- ties authentically commit may be no more than these: professional assessments, recommendations, demonstrations of due diligence, and performance that meets or exceeds specific standards of prac- tice. Forcing anything more, as happens when the culture values aggressiveness over authenticity, changes the nature of the real commitment from an outcome into a best effort

In such cases, decision- makers often suffer from one or more of the following deficits.

• Lack of clarity on how prior experience applies.

• Lack of consensus on the critical issues to consider and feasi- ble actions to undertake.

• Lack of certainty about what numbers to use in the evalua- tion

The system also includes models embodying some of the es- sential knowledge of experienced investment managers. One re- lates changes in credit rating to changes in security values. An- other sorts many thousand investment opportunities into a dozen or so clusters with similar properties.

Outcomes and the measurements of those outcomes are not distinguished

Even as part of a make-and-sell speed-to-market system, PDA dramati- cally reduced product development time, increased efficiency, and put Westpac in a position to lead in the introduction of new finan- cial products

Com- petence might be assessed objectively by asking for certain kinds of information during negotiation. But how does one assess in- tent?

Flying by wire means much more than using autopilot. Au- topilot automates flying. It carries out standard pilot behavior in

situations that the plane's designers could anticipate. Fly-by-wire capabilities augment a pilot's functions. Pilots decide on and take ad hoc action

In this sense, the alternatives phase is designed explicitly to bring to the surface conflicting views about what should be done. Our experience shows that the value of the process lies in examining the conflict.

Adopting the creation of customer value, as opposed to shareholder value, as the enterprise's fundamental pur- pose is essential to the shift from firm-forward to customer-back decision-making

Second, human beings remain essential for dealing with unexpected events. Flying

by wire augments the pilot's role; it does not automate it.

The result is "con-

At the beginning of an ADP application, participants will typ- ically identify between forty and sixty different issues or areas of uncertainty about the future

The LaBarr Partnership Creates a Reason for Being

The LaBarr Partnership (the name is disguised) is a mid- sized midwestern legal firm

Managing by Wire

Many of us working in today's information-intensive busi- nesses confront problems similar to those faced by aircraft design-

According to Sloan's reason for being, making money

This led them to think about what out-

comes really interested their clients. Was it "good legal work," or a will that sailed through probate?

Developing a reason for being chal- lenges companies in several ways