Innovative Management - Gary Hamel, Lowell Bryan and McKinsey & Co.

A very interesting article in McKinsey Quarterly:

Innovative Management: A Conversation with Lowell Bryan and Gary Hamel

I'm going to return to this later in detail, but in short, it seems that management gurus are thinking along the same lines as we are:

Gary Hamel: The outlines of the 21st-century management model are already clear. Decision-making will be more peer based; the tools of creativity will be widely distributed in organizations. Ideas will compete on an equal footing. Strategies will be built from the bottom up. Power will be a function of competence rather than of position. In terms of the future of management, we’re at the beginning of what will be a fairly long journey. You can see some of the pieces starting to come together, but we’re not there yet.

So - decision-making at low levels; wide frontage for creativity; emergent, "recon pull" strategy...

Literature - articles

We will collect information about articles related to Boyd that we have read or are about to read into this post. Articles will be listed chronologically in the order they were read.

Articles we have read

Fast-Cycle Capability for Competitive Power
by Joseph L. Bower and Thomas M. Hout

Reading queue

Maneuver Warfare: Can Modern Military Strategy Lead You to Victory?
by Eric K. Clemons and Jason A. Santamaria

How Managers’ Everyday Decisions Create—or Destroy—Your Company’s Strategy
by Joseph L. Bower and Clark G. Gilbert

Literature - books

We will collect information about books related to Boyd that we have read or are about to read into this post. Books will be listed chronologically in the order they were read.

Books we have read

Boyd: The Fighter Pilot Who Changed the Art of War
by Robert Coram

Certain to Win
by Chet Richards


The Mind of War: John Boyd and American Security
by Grant Tedrick Hammond

Maneuver Warfare Handbook
by William S. Lind
http://www.blogger.com/img/gl.link.gif

vSentes Campaing Manual: How to create and Execute Effective Marketing Campaigns
by Mike Smock

Reading queue

Science, Strategy and War: The Strategic Theory of John Boyd
by Frans Osinga

The Japanese Art of War: Understanding the Culture of Strategy
by Thomas Cleary

What’s the use of all this?

After publishing that last post, I didn’t feel like continuing my conference presentation or my Master’s thesis (funny how you always find ways to procrastinate) and instead decided to write about the futility of it all.

Now this doesn’t have much to do about the fact that here in Helsinki, we now have daylight for about 8 hours, tops, per day, but more about the fact that there are reams and reams of paper written about how one should manage a firm or build a strategy to get filthy rich.

And what good are they doing?

Even though I lambasted the RBV and core competencies on the previous posts, I cannot deny that they, too, have their uses. However, what we’re sometimes seriously lacking is a simple, common-sense view of a dynamic competitive situation, something that’s so simple that you could actually learn most of it without doing a Ph. D.

Since most managers do not have Ph. D.s, and evidently some of them are doing very well, business must not be rocket science. (My own experience pretty much confirms this - for those of you who haven’t tried consulting in any form, let me tell you that even at the very highest levels the decisions are not always made with unlimited rationality and superior intelligence.)

I’m not deluding myself thinking that managers would particularly need a new management hypothesis, even if that’s as good as this Boydian one, but there are still uses for a simple theory. Panu, my co-writer, could tell you all about why - should you want to improve your performance - you must first have a hypothesis so you can compare what really happens to what you expected to happen, and then make adjustments to your intuition so that next time you understand the process even better.

Boyd’s theory of maneuver conflict is simple, fits competitive situation, and explains quite a lot without going into details. It certainly doesn’t explain everything, but it explains enough so that it is useful.

That’s why I like it.

And that’s why I’m convinced that writing this blog isn’t waste of time.

Resource-Based View and Core Competencies: Results, not Objectives!

Resource-Based View of the firm used to be (well, still is - I guess the jury is out on this one) one of the most influential theories about understanding strategic management. Here’s one take on why I’m looking for something else.

Resource-Based View claims that sustained competitive advantage is derived from the “resources and capabilities a firm controls that are valuable, rare, imperfectly imitable, and not substitutable” (Barney et al. 2001). Resources can be things such as assets, organizational characteristics, processes, aptitudes, information and knowledge controlled by the company and its employees (Barney 1991).

Then, competitive advantage is defined as something that allows the company to earn above-average returns, compared to other firms in the same industry.

In other words, you win if you have and can continue to have something that other firm’s don’t have, and can combine those somethings into something else (that’s called the product) that is better than what your competition can do.

This leads us into the idea of Core Competency (Pralahad & Hamel 1990), which has been used often to justify all kinds of business activities from outsourcing to training. In short, it’s about the idea that there are activities what you can do better than the competition, and others where someone else is a better choice - and that you should concentrate on the things you can do really well. If that core competency is sustainable, then it is sustainable competitive advantage. In technical terms, that would indicate the presence of piles of money and stock options.

Coyne, Hall and Clifford (1997) open the definition a little by proposing that for a competency to be a core competency, “the skills or knowledge must be complementary, and taken together they should make it possible to provide a superior product.” Leonard-Barton (1992) says that core competency should differentiate a company strategically.

This is sound advice and a neat, not to mention hugely influential theory. The problem is that it doesn’t really give any directions of what to do as practicing managers or consultants.

Like many others have noted (for example, see Priem & Butler 2001), the entire resource-based view smacks of tautology and circular logic. Almost everything can be a “resource”, so you can pick any successful company and point out that those and those are the core competencies.

Even the inter-evaluator agreement inspires confidence only rarely. For example, some say that Volvo’s core competence is safety - and others tell it’s really in the sourcing process of high quality components. Probably someone else could say that it’s the managerial skill to pick good people to lead the sourcing process…I sometimes wonder how many Master’s thesis are written about the subject and how many of those agree with each other!

Other criticisms from Priem & Butler are that one can get to the same result via different resource configurations, and that - interestingly enough, since we and others are sometimes equating marketplace with battlespace - the role of product markets is underdeveloped in the argument.

What’s more damning is that resource based view and core competency thinking (incidentally, this applies to most business research) are really good at telling you what you’ve done well after the fact, but for guidance on future directions?

What I say isn’t that RBV and core competencies should be ditched, but that they (especially core competencies) should be seen as results instead of objectives.

And more specifically, they should be seen as results of long-term Boyd cycling the competition. That’s where those competences are forged: in the crucible of training, practice, and success, which leads to increased internal cohesion, elimination of needless or harmful practices, better morale, and intuitive understanding of the environment, among others.

In academic-speak, competencies are path dependent, meaning that in order to achieve similar capability, one must go through similar experiences. (Although note again that one can achieve similar outcomes through entirely different capabilities. There are water desalinization plants and aquifer drills, and both use quite different competencies to produce drinking water.)

In other words, there are no true shortcuts to happiness - and I’ve noticed that this is something that just isn’t understood by many people, no matter what their rank or bonuses. The story of General Motors trying to copy Toyota’s practices is just one case in point.

Core competencies are not something that one can just start doing and say, “we have these core competencies”. They are emergent, in other words. And here’s the rub: there’s no way of predicting company’s future core competencies from a set of resources it possesses, unless you take some absurdly abstract position and say that a company’s core competency is in creating core competencies... Which, when you think about it, brings you back to out-cycling the competition and therefore creating the capability.

So here’s a trick question: why do you need to out-cycle your competition to develop a sustainable competitive advantage?

Quick research note - what indicates that a company is exploiting uncertainty? Or trying to reduce it?

In a Clausewitzian conflict, one's aim is to minimize your uncertainties, that is, to decrease friction.

In a Boydian conflict, one aims not to eliminate own uncertainties, but increase and exploit those of others.

Are there any external indicators which could be used to assess whether some activity is aimed towards reducing own uncertainties, or exploiting the existing ones (or creating new ones)? Could we classify some actions as inherently reducing and some as inherently exploitative? For example, could we say that radical innovation is typically exploitative, whereas incremental innovation tends to be uncertainty reducing?

Could we analyze a company from an external viewpoint and derive whether its strategic moves are towards exploitation or reduction?

(Note - I'm involved in a new product development research at Helsinki University of Technology's FutureLab of Product Design, and this blog also doubles as an extension to my research diary. Therefore, I do speculate much and test out ideas which might, with further thought, not make any sense at all. So please don't order rotten eggs and vegetables yet, but do feel free to comment. ;))

Business, sports and war: can we use analogues?

A comment dismissing military analogues from business thinking at George Stalk Jr's article (see previous blog entry) made me write this post.

It is our opinion that direct comparisons from military or sports are mostly meaningless in business contexts, except where they are used as metaphors to aid understanding. Even then, there is an evident risk that the listener interprets the metaphor too literally or doesn't understand it at all (for example, I fail to understand a lot of metaphors involving baseball). This is the major danger in reading classic books of military strategy - say, Sun Tzu's Art of War, or von Clausewitz's On War.

If the reader thinks only about tactics and manouvers, she has failed to think about underlying issues that are common in all competitive situations.

Competitive situations - that is the key. Although athletic, military and business conflicts are played out in completely different landscapes, with very different motives, and totally different resources, they all involve competition against and often include cooperation with other humans. The major difference is that business has more win-win outcomes, whereas sports and war tend to be zero-sum games, but even this delineation is not exact. There are business situations which are zero-sum games (competition in stable markets) and sports events which have win-win outcomes (some "ladder" type leagues, where "giving" points to opposing player might help at the long run, for example by blocking more fearsome team from play-offs).

If one concentrates on what are needed for success in all of these activities, I suspect that faster decision making - OODA loop, in fact - surfaces at some point. Some other principles that I suspect, but cannot yet prove (that's why we're having this blog) include

-using strength against weakness, instead of strength, and going where the competition isn't
-doing what the opponent is not expecting, and being able to rapidly change posture from obvious to unobvious (ch'i/cheng or Fast Asymmetric Transient)
-the importance of situational awareness

...and so forth. John R. Boyd and his disciples nailed these principles of winning in competitive situations; that they were derived from the study of military history isn't relevant to the discussion. What we in this blog are interested in is how to apply these findings to business; we know what needs to happen, now we need to find out how to make that happen.

However, a word of warning for all Boyd and competitive strategy enthusiasts: if you refer to military strategy or terminology the odds are that your message is misunderstood. Much of this is simply because words "military" and "strategy" connotates something destructive, violent and undesirable; business is not war, and your listeners do not want it to be. As a result, they tend to focus on details and not on the message.

One example from a small workshop I delivered to product development students and specialists at Helsinki University of Technology: I was lecturing on the possibility of using "decision-making exercises" (see Gary Klein's books Sources of Power and Power of Intuition) as a way to give product designers more decision-making practice. In my lecture material/further reading list, I had included U.S. Marine Corps "MCDP-1 Warfighting" as a reference, both because I had referred to the military as one early user of decision making exercises, and as a freely available example of mission-type orders and the importance of quick decision making.

Now bear in mind that this was in Finland, where 80-90% of males go through military service and probably a majority of those present in the class were reserve officers or NCOs, therefore being at least somewhat familiar with military, and that there were other "further readings", too -

yet one student questioned that is military strategy really relevant to what the workshop participants are doing (he was right, it isn't, really - the reference was mostly historical) and commented that he, at least, would have strong feelings against using lessons from any military in any business.

I hope I did manage to explain to him some concepts of competitive strategy and the importance of fast decision-making later on, but I think the lesson is clear: military arouses passions both for and against. If you want to get your message through, avoid them.