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.

More about 'being inside'

ReportonBusiness.com has nice article titled Got a competitor on your radar? where Senior partner from Boston Consulting Group of Canada describes how Canadian manufacturer of men's suits, Peerless, uses faster OODA loops as competitive advantage.

It would be interesting to hear comments from company representatives because in my opinion this article pretty much describes lean company, but company website doesn't mention neither, lean or OODA. What the company itself calls what it is doing? Is lean driving force behind their ability to cycle OODA loops faster?

Real advantage requires something uniquely active and not easily achieved. The speed of the OODA loop is rooted in systems thinking. Typically, less than 10 per cent of the total time devoted to any work in an organization is truly value-added. The rest is wasted.

This is measure that is often mentioned in lean articles as well, it is said that typical company has about 3-5% of value added work compared to Toyota who have around 14% of value added work.

This paragraph is sums 'being inside' to extent:

In business today, the difference in OODA loops among competitors is separating winners from losers. Organizations that consistently operate within the OODA loop of their competitors win. These organizations are faster than their competitors in developing and introducing new products or services, delivering their products and services, and resolving customer dissatisfactions. Organizations that pre-empt the moves of adversaries throw the loser into confusion and into a reactive cycle.

But still, I have yet to come clear definition of what being inside opponents OODA loop in business means and how one can spot it. Is being fast enough? I don't think so.

Did some searching at BCG website and found previous article, published in 1987 in New York Times, in which this one is based at. Almost word to word.

How can you tell if someone is inside opponents OODA loop?

This question is one the defining questions of this blog. And I started thinking about it more again after reading this blog post.

Fast reaction to your opponents actions is not getting inside his decision cycle. It is still reacting, when you should be the one whose actions your opponents have to react to.

Google got inside Facebook’s decision loop with Open Social. Apple got inside the cell phone industry’s decision loop with the iPhone.

Did Google really get inside Facebooks loop or merely reacted with their own similar product? And Apple, did they really surprise market with product that steals the profits from competitors pockets with practically no effort at all on their part? Where their competitors all 'what the fuck' when these products were announced?

I don't think so and I'd even say that both of these were mere reactions to their competitors.

One might even say that Nokia got inside Apple with it's own touchscreen phone. And what about HTC Touch which was available in Europe before iPhone.

It isn't getting inside opponents loop if you can't take advantage of your successes and consolidate. And repeat. And repeat. It doesn't matter if you get inside your opponents cycle once. You have to do it over and over again until you have beaten all opposition into oblivion.

I don't think that I have answered this question yet so I have to return to this in future. But point I want to make is that it is too easy to claim that company got inside competitors OODA loop after one success while wasn't necessarily able to sustain that success.

FedEx's founder reads military history: says selflessness is the key to effective leadership

http://blogs.bnet.com/ceo/wp-trackback.php?p=1061

This is not strictly about manouver competition, time-based strategy or boydian conflict, but interesting nevertheless, as it illustrates how history can be applied to modern life:

On BNet Corner Office, Fred Smith, the founder and chairman of FedEx, describes the secret to effective leadership, from Alexander the Great onwards:

" It’s the willingness of the leader to put the interests of the organization above his (or her) own interests."

However, leadership is simply a part of a bigger question - the one we're here interested in finding the answer for:

"What is the secret to winning in competitive situations?"

Schwerpunkt and how to have clear focus

Fast Company has article titled The Strategy of the Fighter Pilot which covers background of Boyd and his thoughts and also provides some nice examples of OODA in action. Even if Boyd is relatively know article is well worth a read.

I especially liked notion of schwerpunkt.

Systems like Toyota's worked so well, Boyd argued, because of schwerpunkt, a German term meaning organizational focus. Schwerpunkt, Boyd wrote, "represents a unifying medium that provides a directed way to tie initiative of many subordinate actions with superior intent as a basis to diminish friction and compress time." That is, employees decide and act locally, but they are guided by a keen understanding of the bigger picture.

I relate Boyds schwerpunkt to lean concept of 'High Agreement' and the need for organization to have High Agreement both on what they want to achieve and how they will achieve it. This allows whole organization to operate as cohesive unit towards common goal. Jamie Flinchbaugh and Andy Carlino describe High Agreement in page 16 of their book Hitchhikers Guide To Lean as follows:

"Valuing a common way or process with low ambiguity more than you value your own way." To be clear, this definition does not mean individuals need to like the common way, but they value having the agreement and accept decisions that they may not like.

I don't mean that schwerpunkt equals High Agreement, rather that in lean environment High Agreement is a way to maintain that organizational focus.

Comments? Thoughts?

Boyd in Business, elsewhere in the internet #1

I'll try to make this recurring post every once in a while when I find direct discussion about Boyd in Business around the net.

First up is Mike Smock in vSentes blog and a four part series where he interprets Boyds four questions from The Strategic Game of ? and ? (pdf at d-n-i.net) into marketing.

What is Strategy?
What is the Aim or Purpose of Strategy?
What is the Central Theme and What Are the Key Ideas that Underlie Strategy?
How Do We Play to This Theme and Activate These Ideas?

Robert Greene, author of books Power, Seduction and War has article titled OODA and You. Discussion about article and Boyd in Business continues in this forum thread called The OODA Loop & You; The strategy of allowed chaos. Allthough most of the examples covered still revolve around armed conflict.

John Martellaro writes in the Mac Observer article titled Hidden Dimensions - Apple, the OODA Loop and Staying The Course about how fast apple is running it's OODA loop and who if any is inside Apples loop.

Other than those linked now and obvious ones at Belisarius.com there isn't that much written about Boyd in Business. Technorati searchs pretty much end up with general descriptions of OODA but nothing specific.

Should companies try to out-Toyota Toyota?

At first I intented to post this as comment to this post, but then decided that this warrants whole post of its own.

"Striving simply to be "lean", or even "world class" is insufficient and, in fact, somewhat simplistic. At best, you end up only as good as (that is, no better than) your toughest competitors, and find yourself continually playing catch-up with them. ...long-term success still requires that a company differentiates itself from its competitors by offering something unique and valuable to customers - whether this be especially quick service, high reliability, low costs, or innovative products."

And

The whole point of Sun Tzu and Boyd was that the best way to win is avoid playing by your opponent's rules. If a competitor is really, really good at something, the odds are you're not going to be that good even if you tried. No one, not even fellow Japanese car manufacturers, has managed to copy Toyota Production System; trying to out-Toyota Toyota is foolishness.

I think that trying out-Toyota Toyota is the single biggest thing where people go wrong with lean. And that has to do with mistaking tools for thinking and trying to copy what Toyota does instead of concentrating on how Toyota does what they do. You can copy tool applications from Toyota all you want but you won't get better than Toyota that way, not even close, you might even worsen your own situation.

Toyota is good or even great at making cars, but that is only a result of a thing they are extremely good at - problem solving. And that is a thing every company willing to succeed should be great at. I don't believe that it really is do or don't or thing to differentiate yourself from competition, you should just do it. Being good at problem solving will enable you to launch features or products or conquer new markets that will really differentiate you from your competitors.

I don't understand how striving for perfection can get you only as good as your best competitor. For real lean thinkers there is no finish line, no written in stone goal that once you cross it you are 'lean' and can then focus on other things. Toyota is not lean, they don't claim to be, but they certainly are leaner today than they were yesterday and that is what matters. It is ongoing journey, not a trip with fixed start and end.

Ofcourse, you need to have goals but they don't need to be fixed. You might have set your ideal state as something that might've seem unattainable couple years ago, but can be feasible today. If that happens you need to figure out new ideal state to strive for. And then continue proceeding towards it one step at a time.

That being said I think lean is really an enabler for a company, thing that will allow fast transients from ch'i to cheng or other way around. Not necessarily manifestation of Boydian strategy but a model that will allow you execute it.

Long-term success still requires differentation

from Hayes, R., Pisano, G., Upton, D. & Wheelwright, S. (2005) Operations, Strategy and Technology: Pursuing the Competitive Edge. John Wiley & Sons

Criticizing "New Approaches to Operations" (NAO); the "re-engineering" frenzy and all that

p. 14: (Contrast this to Blue Ocean Strategy's Strategy Canvas!)

Striving simply to be "lean", or even "world class" is insufficient and, in fact, somewhat simplistic. At best, you end up only as good as (that is, no better than) your toughest competitors, and find yourself continually playing catch-up with them. ...long-term success still requires that a company differentiates itself from its competitors by offering something unique and valuable to customers - whether this be especially quick service, high reliability, low costs, or innovative products.

The whole point of Sun Tzu and Boyd was that the best way to win is avoid playing by your opponent's rules. If a competitor is really, really good at something, the odds are you're not going to be that good even if you tried. No one, not even fellow Japanese car manufacturers, has managed to copy Toyota Production System; trying to out-Toyota Toyota is foolishness.

Maybe this is because those last bits of excellence that distinguish the champions from the also-rans come only with a combination of circumstances AND hard practice. Achieving that last 20% (or 5%) of capability improvement might very well take as long as reaching from zero to 80% (or 95%); and in this age of MBAs and bean-counters, is it likely that someone whips out an Excel sheet, showing that spending another 10 M € is not worth the improvement? (And he's probably right, too.)

By the way, this is at the bottom of what I think makes Apple so formidable: I've gained the impression that when mr. Jobs wants something to be done 100% - say, the iPhone user interface - it is done 100%, not until cost/benefit analysis shows that customers don't really pay that much more for "extra few percentages" in usability.

The other companies stay at 80% level, at the O.K. level, and move on to the next project - but it's not the same thing as taking a photographer's loupe to every tiny little detail (see Time article on iPhone).

That's 100%. And that's why it's not smart trying to out-Apple Apple.

The Evolving Bases of Competition

from Hayes, R., Pisano, G., Upton, D. & Wheelwright, S. (2005) Operations, Strategy and Technology: Pursuing the Competitive Edge. John Wiley & Sons

p. 7-8:

...In the early 1970s, most competition in the U.S. was price-based. Within a given industry, defect levels, breath of product line, delivery times, and the rate of new product introductions tended to be roughly similar across companies, thus, rendering them "neutral" as far as competitive differentiation was concerned. ... "The American consumer will not pay for better quality", confidently stated one top auto industry executive to a class of Harvard MBA students back in the mid-1970s.

This, of course, was about the time many Japanese companies were beginning to mout attacks on U.S. markets based on their product's superior performance, fit, and finish, as well as defect rates that were one-hundredth or less of the levels that had been acceptable before. And European luxury cars began flooding U.S. markets in response to an exploding demand for clearly superior - and vastly more expensive - performance and appeareance. In the 1980s, quality became "Job #1" at Ford and many other companies...

...Clearly, a fundamental shift in consumer preferences had occurred: quality had moved from being a neutral basis of competition to being a powerful source of competitive differentiation.

The resulting, somewhat frantic, efforts by U.S. companies over the next decade to reduce costs and improve quality ... succeeded in narrowing the gap between U.S. and Japanese products in many industries - to the point where often those attributes no longer served as effective bases for competitive differentiation. This kind of competitive stalemate usually presages a new assault from a different direction (one must be careful not to prepare oneself to fight the previous war, as Marshall Foch vainly warned France in the 1930s). Indeed, even as companies belatedly recognized and grudgingly responded to the quality revolution, another competitive battleground began to emerge: flexibility and product variety.

The authors go on to point out that after flexibility and variety, the next "battleground" was the speed of new product introduction.

Are we straining the analogue here if we note that

a) there might be an OODA loop in action,
b) this illustrates the changing balance from ch'i to cheng (ch'i becomes cheng)?

Push and pull systems (1)

http://www.johnhagel.com/creationnets.pdf

An interesting article on open innovation and creating "creation nets" to capture value -

but one of the most interesting parts is a table on page 15 where "traditional" and "creation net" approaches to innovation are compared.

Creation nets are, when compared to traditional organizations (I'm paraphrasing here, read the whole article - it's good!)

1) focused
2) have multiple participants, which can be individuals as well as institutions
3) dispersed, rather than concentrated
4) pursue parallel innovation
5) coordinate through integration events, not stage gate reviews
6) use "constitutions" and norms for governance, rather than process manuals
7) outcome definitions tend to be high level performance specs ("prevent x from happening") rather than detailed blueprints ("use part y")
8) mobilize using pull, not push systems
9) review performance via appropriation and re-use (if something is good, it is used again)

Is it just me, or does this sound remarkably like Boyd's concepts for manouver warfare, blitzkrieg etc?

OODA-loop or O followed with ODA-loop?

It can be argued that Toyota with it's Toyota Production System is using Boydian principles. Not necessarily after studying Boyd, but nevertheless they have come to similar conclusions.

There is atleast one thing that clearly separates Toyota from most of the other companies. And it is reflection (or hansei in japanese) and I relate it to Observe phase in OODA-loop.

To me it seems that not whole lot of companies actually look back into their successes in addition to their failures to determine their new current reality. So instead of OODA-loop they use one iteration of Observe and then endless loop of Orient-Decide-Act. Which will eventually lead to disaster. Not necessarily when market is good but almost certainly when things turn sour.

This post was partly inspired by post in Lean Blog about differences of approach between Merrill Lynch (8.4 billion USD write down) and Toyota (Exceeding sales goal three years early).