"The Adaptive Enterprise", Greg Lowes, Nov. 21, 2002, 10:30 a.m.

Greg Lowes, Practice Leader, Strategy & Change, IBM Business Consulting Services, at "Strategy on the Edge: Charting the course in turbulent times", Strategic Leadership Forum, at the Design Exchange, Toronto, Nov. 21, 2002, 10:30 a.m.

These participant's notes were created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. These should not be viewed as official transcripts of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. These notes have been contributed by David Ing (daviding@systemicbusiness.org) at the IBM Advanced Business Institute ( http://www.ibm.com/abi).

[Introduction]

Strategy not as a static target.

[Greg Lowes]

Objective:  Present and help you understand a new model to look at your business.

• Different approach from predict and plan.
• Assertion:  you can't predict the future, so how can you create a response?

Agenda:

• Will walk around the adaptive model.
• Will address why you want one.
• How you go about injecting sensing and responding behaviours.

There are two ways of looking at business models:

1. Industrial age model:

• Could predict what would happen in the next planning cycle.
• Then the trick is then how execute on this.
• This works well in stability.
• Focus on making and selling

2. The network age model (or sometimes called the e-business model) assumes that you can't predict.

• What can you do about this?
• Need to change to sense, and then find an organizational response for the timeframe.
• It's an open system, to sense what's out there, and then assemble a response.

There's a continuum in organizational orientation from offers to requests

• Offers:
• Business scope:  products and markets
• Core knowledge: process know-how
• Structure: integrated mass production hierarchy
• Organizational priority: efficiency and predictability
• Profit motive:  Economies of scale
• Requests:
• Business scope: Capabilities and customer values
• Core knowledge: Systems know why
• Structure: Modular mass customization
• Organizational priority: Flexibility and responsiveness
• Profit motive:  Economies of scope

Adaptive model in two parts:

• Change is discontinuous
• Need to dispatch

Adaptiveness and sensing and responding can be in multiple ways:

• One extreme is reactive:  listen and comply
• The other extreme is proactive:  anticipate and comply
• e.g. a doctor

Becoming adaptive requires three core competencies

• Today, not focusing on sensing.
• We want to drive capabilities from the customer's request back.
• At an organizational level, we want to design our business as a system.

Focus with clarity, on the customer

• "Firm-forward":  what products and markets in the strategy, communicating, and then hoping.
• "Communicate and hope" doesn't work in an unpredictable environment.
• Secondly, form around capabilities
• When predictable, efficiency was key.
• Like a bus company
• Schedule, as make, then sell.
• Sometimes, an alternative
• Dispatching
• Sense customer value, and then respond.

To design an open, adaptive system, how do you do this?

• A challenge in traditional strategic planning is incoherent behaviour.
• Need to focus on getting away from incoherent behaviour.
• Clarity of purpose
• So we don't have to deal with conflicting mission statements
• How to trade one off against the other
As a leader, can reduce this ambiguity
• Boundaries
• What behaviours are appropriate
• Governing principles
• We will always do ... and we will never do ...
• Also guiding principles
• Relationship between parts
• Measurement

An example of reason for being:

• General Motors exists to make money by making motor cars
• A good example:  we exist << for something >> by << doing something >>
• GM was a good place for car designers, but this purpose reorients the purpose as a place to make money.
• How would you come out with a similar statement for your firm?

To create a system design, also need capabilities and roles

• We want to design a network of capabilities
• Capabilities are given a structure by a system design.
• e.g. GM making money by making motor cars draws on multiple capabilities
• These come to life by adding accountable roles, towards a system outcome.
• To design a system, you need to define the capabilties, and then define what roles owe what to whom

Role owners are accountable for outcomes

• Senior leaders are accountable for giving accountabilies to others.
• Leaders are accountable for the total system outcome.

How do we govern this?

• A commitment management system.
• Need to connect customer-back with capabilities.
• You need to be able to dispatch capabilities to very granular dispatches.
• There's an important role, of a dispatcher.
• Can dispatch at a central role and at the individual level (e.g. the taxi driver).
• Needs to keep track of commitments of capabilities, and the deliverables between role.
• You see this behaviour in matrix organizations.

Returning to the Sense & Respond model, as a whole

• Senior leader's role, to reduce ambiguity through a reason-for-being.
• Capabilities
• Commitments

Why do this?

• To align the organization to being customer-back.
• Significant reduction of internal transaction costs.
• Clarity of roles, accountabilities and authorities
• Incorporate partnres and suppliers
• Designed for change, as opposed to predicting.

There are five areas that the leadership team needs to focus on

• Do we understand our reason-for-being?
• Governing principles
• High-level business design.
• Adaptive role design -- how to populate people and skills.
• Execution mode, commitment management

Suggests a change in the way senior leaders work:

• Not a focus on efficiency.
• 1. Most important to create organizational context -- reason-for-being
• 2. Create a commitment management system
• 3. Populate the roles with appropriate people.

Questions

Controlling or reducing ambiguity.  Comfort with ambiguity gives individuals an ability to respond, as they're empowered.

• If senior leaders are good with handling ambiguity, then they're limited in their scope.
• Could result in sub-optimizing at the interests of each individual leader, rather than at the whole

From a network of capabilities to a network of roles.  Explain the transition.

• The network of capabilities is to respond to a customer.
• What makes it come alive is someone who is accountable.
• Need to also connect the people in roles.
• The network of roles is not an organizational reporting structure, but the relationships which get set up a the moment to satisfy requests.

A set of examples that have gone through this process, and organizational types that respond well to this.

• None that is end-to-end, but most.
• An example:  IBM Global Services
• Need to go to market satisfying customers.
• A capability network that can be reconfigured.
• Any large matrixed organization would satisfy this.
• Worked with an HMO in California, though purpose and bounds, into commitment.
• Question of who they own allegiance to:  customers, hospital, doctors, ...

[Thanks]