Exponential organisations – Curious about change

Community & crowd

crowd 2

Increasingly crowds (whether existing communities or not) are a vital source of inspiration, funding, ideas, insights or simply support to many organisations. Think crowdfunding – whether the Eden project, business expansion or local causes there are now multiple ways that individuals (in a regulated manner, at least for equity and debt based funding) can get involved in supporting projects, organisations and activities that they care about. This is classic community territory where the power of ‘people like me’ turns into practical support.

But that support doesn’t have to be money – crowdsourcing has even more potential. Everything from Apple’s App Developer Network (no, they are not employees or formal suppliers) through to the employee who recommends a friend for recruitment purposes and including the ideas of the Kaggle community along the way constitute ways of tapping into communities with formal and informal knowledge, views, opinions and ideas.

The question of what’s in it for them also has multiple answers – for Apple it’s easy – 70% of any app revenue Apple takes (and by early 2019 that’s estimated to amount to some $120bn) but for others its the fun of having their ideas listened to, the intellectual challenge of a data problem, working with like minded colleagues and friends.

What underpins both, and perhaps makes any ‘crowd’ activity difficult for established businesses to identify effectively is the passion that drives these. Crowdsourcing anything requires the community or crowd to have an interest – something that inspires them to get involved. An overt outcome of making money for the organisation is certainly not enough on it’s own – but providing the value to the community is understood and engaged, it is not of itself a barrier.

The second barrier for large organisations (and which taps into the question of agility) is the lack of command and control. The very nature of crowds are that they are not going to return the obvious – or if they are why would you bother? That can feel very risky to an organisation looking for guaranteed outcomes.

And of course from the community perspective it becomes clear that their particular crowd have an element of control, of opportunity. The increase (albeit at low levels) of peer to peer platforms to a great extent depends on communities being prepared and passionate about getting together.

Performance – show time!

Performance

We all know about performance – it’s probably the commonest metric apart from cash in any business. And there are usually two elements to it – increase the top line, and reduce the costs. Both feel like an ongoing battle usually, and for most businesses both are only achieved incrementally and not always consistently.

Exponential type organisations by definition don’t simply grow incrementally – so what are they doing differently? Well in many cases they are changing the fundamental rules of the game. The costs to increase the top line may no longer rest within the organisation for example. A classic example is user generated content for advertising – you don’t have to pay an expensive media company for the film, and there is (if done well and genuinely) the added bonus that other customers will tend to believe ‘someone like them’ more than you telling them. That example relates to two of the headings in the map above – community & crowd and social / engagement. Product development by your customers (Threadless involving their ecosystem in the design of T-shirts is a well known example) is a great instance of community / crowd as are many examples of open innovation – whether the long established Innocentive or individual competitions like Nokia’s one in. The key to all of these is that the cost is low (and the scaling cost nominal) whilst the benefit can be substantial and will be innately relevant. Because of the low cost, they are inherently agile, as they are both variable costs and (although there are pitfalls to engaging external audience and then not following through) very flexible.

AND they are not limited to high growth or start up businesses.

Automation and AI are slightly different (although both can be applied to reduce still further the costs of engaging audiences beyond the corporate boundary. But both have the same potential of reducing costs / improving productivity beyond the purely incremental. One simple example is the use of robots in industrial complexes or warehouses to work 24/7 – perhaps stacking parts or stock ready for human intervention during the day.

A final point – just as demonstrated by Amazon so clearly, the use of online connectivity can make the long tail as profitable to service as the mass volume sales, and increasingly connectivity, mobile and an ever expanding set of technologies are enabling:

greater visibility and reach for lower or nil cost
higher engagement and opportunity to involve customers and audiences
lower production, supply and delivery costs

Clearly none of these is without issues – but in worrying about growth prospects, it’s easy to miss the startlingly large consequences of these opportunities.

Getting smarter about assets

Balance

Our traditional view of assets has been driven primarily by the accounting records – what appears on the balance sheet, ie financial capital, and the physical assets that are similarly accounted for. Then we expanded that view to include other types of capital – human, knowledge, social etc. We’ve never managed, in spite of attempts to do so, to make these types of capital as visible, nor have markets really recognised the value of them. Until now that is. As the thinking on platforms shows the public markets are currently valuing less the physical assets and more the ecosystems, and potential of those networks to drive value.

But there are other ways in how we view assets differently these days. Not just platforms but high growth businesses and startups are essentially running off variable cost platforms – no longer do they need capital for premises (think WeWork), talent (the gig economy and virtual contractors), or IT (SaS and apps). In all cases they are leveraging the value of assets provided by others and using their financial and human capital to focus specifically on their own aspirations. Platforms like Airbnb and Uber are an extreme manifestation of this – it’s not just the infrastructure which is leveraging external assets but the entire business model. A massive contrast to the legacy of established organisations who have both a structural and a mindset issue with maintaining and updating buildings, systems and processes. The scale and lack of pace in digitisation transformations is testament to just how difficult it can be to change.

But there is yet a further way to think about assets, perhaps best typified by Amazon which has potential for these legacy businesses as well. It is easy to categorise Amazon as a platform business but considering how it has evolved it is also possible to see some really smart ways of identifying hidden assets and driving value from them. The shift from books to other products was essentially recognising the expertise and efficiency of their online and logistics processes and how to extract additional value from those. The move to selling other people’s product as well (overwhelmingly so as it’s turned out) was then a mindset shift that said we can leverage that experience and structural asset further. Perhaps the most lateral of these smart moves was the recognition of the physical asset, and even more important, experience of running large data servers – which led to the formation of AWS. Experience and expertise (together with the processes and structures that makes those manifest) is an asset that all too often remains focused on the core business (indeed many organisations treat that focus as a virtue and reward staff accordingly). Seen as an opportunity (perhaps the flip side of organisations seeking to leverage other people’s assets) it can be hugely valuable – not least because exploitation can be an incremental rather than material cost. We are seeing the germs of this in some of the pivots that are being considered – GE’s shift to a data based rather than physical asset based business for example. But there will be other instances where exploitation of expertise could be an additional rather than a replacement revenue stream.

Grow & Kill

As a strategy for growth corporate venturing is not new – I remember loads of conversations around it at the back end of the dotcom boom in the early 2000’s. But there is a new urgency and aspiration behind some of today’s thinking. If you believe that it’s just too hard to take the legacy organisation and transform it into a butterfly then corporate venturing is one way to explore the alternatives. And it’s not a massive step from there to say that if successful, the old organisation becomes the cash cow which funds the growth of the new – which in turn cannabalises the historic success.

cannabalisation

So simple to write on paper but in reality so much harder. As many find (from Kodak and Blockbuster onwards) the lure of the old, ‘guaranteed’ revenue stream is a constant distraction from investment in the new. And there are multiple pitfalls in the contrasting styles of old and new business models.

Corporate venturing is of course nothing new – and there are many differing models from the hands-off, pure investment play to the internal intrapreneurial activities. The latter can be anything from an innovation portfolio to a fully integrated strategy. And one of the newest models is in the collaboration space – interestingly often best portrayed in the public sector with a public sector (or quasi-public sector) body initiating activities amongst local (geographic or virtual) communities. What underpins the differences (although not always fully articulated) is the rationale for the venture.

There are at least 4 obvious drivers for corporate venturing – financial (to generate returns from an investment portfolio), R&D (to provide coverage over and above the specific focus of the organisation), increased impact/reach (frequently a public sector driver to achieve more than existing resources/knowledge/reach make possible) and strategic. Grow & Kill is clearly in the latter category – but there may be other strategic rationale for having a venture portfolio which are linked to specific functions within the business (new markets, new products, new channels for example) rather than an all encompassing agenda.

The issue with Grow & Kill really lies in the distinction between a genuine desire and strategy to cannabalise the legacy business vs an appetite and approach for complementarity (which may still be underwritten by an aspiration for cannabalisation). The latter is clearly much more comfortable as an approach – trying something new and yet protective of the old but has within it many pitfalls, not least the allocation of investment, remuneration practices, organisational environments, and the decision on when / how to integrate the new.

Many of those apply equally to the cannabalisation route, but the overt strategic approach makes the need to deal with those up front a no brainer. In ideal world the new venture operates a much faster pace, frequently adopting Agile working practices, occupies a very different work environment, one which makes self-managed teams and project oriented work much easier as well as sending a very clear signal that this is different business. People will be looking to be remunerated differently and for many recognition of their contribution in the speed and outcomes will be a big driver. The question in an agile environment is less about performance measurement frequently and more about how to deal with experimentation – what happens when experiments do not succeed but are valuable learning exercises for example?

And employees (or contractors) are not the only concerned stakeholders – the attitude of investors, especially for those in the public markets is critical. Even those alert to the threats and risks to conventional business models can be less tolerant of unproven new directions.

But for many established organisations, whether it is articulated or not, the direction of their transformation programmes may make a grow & kill strategy more of a consideration, as the programmes inevitably become broader and deeper.

Purpose and Narrative

A brief deviation from growth and similar approaches to consider purpose and narrative.

Purpose and narrative

Behind all of growth, performance, agility and resilience lies the heart of the business – frequently these days described in its purpose (and often following a big exercise to determine, articulate and communicate what that is). It has become increasingly fashionable to talk about a ‘massive transformational purpose’ (MTP) or ‘big, hairy audacious goal’ (BHAG). And if you are a startup or recent organisation it is inevitably easier to create that kind of purpose which is both coherent (after all you have designed the company around it) and resonates with your current organisation. Both of those are significantly harder if you have years of legacy, a brand or brands position and global infrastructures operating in multiple cultures.

To add to the confusion, in my experience, very few organisations of that established nature have any widely understood clarity (let alone articulation) of what it is that lies at their heart – what it is that has consistently driven their success. For me, understanding that is crucial to asking the question ‘is there more or less opportunity for that (whatever it is) in the future VUCA world?’ and the related question, ‘how do I then link that to my role / purpose in a meaningful way?’ So there is a strong link to growth and resilience here.

To me the start point for the answer to both lies in one of my long term favourite bloggers and authors – John Hagel, talking about narrative. But narrative, whilst a perfectly normal word is not necessarily familiar in organisational terms. To my mind, it’s important to understand the distinction between narrative and story telling which John Hagel makes clear here (he has much to say on narrative and all of it valuable!). Story telling has become increasingly popular in corporate communications and can be hugely valuable – but the gulf between a message communicated via a story, and an open ended narrative that underpins the role of the organisation looking forward, whilst recognising the value of the past, is huge. And reading on corporate narrative he makes it very clear that the perspective of the narrative is the audience – not the organisation.

Looked at from this perspective, narrative is both broader than purpose but integral to it – in effect setting the broader context for it. Purpose all too often gets reduced to a soundbite – narrative offers a much wider canvas. One aspect of that wider canvas is the ability to reference the value of legacy and heritage – to leverage the heartbeat that has driven success to date. Listening to organisations that get closest to what feels like a genuine heartbeat often suggests it’s a capability or skillset (the start point for the conversation is so often ‘our people’). So the big oil majors tend to reference their engineering skills and the mindset that those characteristics bring.

Heartbeat need not be related to capability but thinking about it in that way does clearly distinguish heartbeat from mission or purpose. And it is frequently a valuable root when thinking about narratives looking forward – how can those capabilities be applied to provide the value audiences seek in an authentic way. That’s not to suggest that the heartbeat will not need to change (after all heartbeat by definition is a purely internal concept, and the narrative is defined from the external) but the continuity needed to provide credibility in narrative offers a change to turn the disadvantage of the established organisation (a big legacy and reputation) into a positive attribute. Incidentally that capability or expertise need not be applied to the new narrative in the same way as in the past – think of Philip Morris talking about their future without cigarettes earlier this year.

And writers are beginning to recognise the complexity of today’s world, and to distinguish the northstar or compass represented by narratives from the narrowly defined purpose and associated targets that has tended to arise thus far. The latter is perhaps not surprising if the start point,as it most often has been, is to define purpose as an increment to the business and then seek to demonstrate how that purpose can be met in numbers, akin to other targets of the business. That’s very different from a business following and developing its own narrative around specific audience needs or desires underpinned by the expertise and value demonstrated from history.

It’s worth thinking here about complex systems briefly and another of my favourite authors – Dave Snowden who first raised the concept in my mind of metrics for organisations as vectors not absolutes. The value then of a northstar or narrative vs a specific goal is immense – the issue then becomes whether the organisation (or its various constituent elements) is moving in the right direction (towards making the narrative real, and at the right speed). Given sufficient clarity on the narrative, there should be progress towards it across the organisation if it is understood. This then raises the question of tight / loose frameworks – only if the vectors are transgressing the tight boundaries is tough intervention needed – within those the vectors can be used to demonstrate tolerance for different angles of progress and alternative speeds. Small nudges – reinforcing the narrative perhaps through story telling, might be sufficient to speed up, slow down or change the direction more positively.

I find talking about purpose hugely frustrating – I absolutely get the value of an MTP or BHAG for multiple stakeholders. But the time and energy spent coming up with something is frequently at odds with the impact. I’ve seen it become something which feels distant (is our priority purpose or profit?), constraining (how can we be innovative if we have to meet that?) or both to the wider organisation. That’s why for me narratives, open ended (and hence agile), audience driven (and therefore innately relevant but flexible) and yet authentic (building off and celebrating the best of the past) seem to be much more valuable. All we need now are the examples!

Platforms

So much has been written about platforms organisations, and their value in the markets is becoming increasingly dominant.

platforms value

The analysis of platform companies often focuses on the business model and it is indeed a very different one from conventional businesses. However, what is less often considered is the mindset behind the model. This contrasts fundamentally with how organisations have viewed their role in the past. The distinction is between control of scarcity (traditional) and leverage of abundance (platforms), and the role of the organisation in achieving that goal.

Most organisations have seen the necessity of command and control over a particular set of assets (physical property, people, IP, a product or service portfolio) as fundamental to their success – control which dictates who has access to those assets, for what price and via what channels. Hence decisions about sale or lease, mass or niche marketing, on or offline sales. And as growth has become more elusive, the control has been reinforced by increasing focus – on individual markets, competitive advantage, a specific market need etc.

Platform businesses have a very different perspective – in essence they perceive their role to be to maximise the market opportunity – in some cases (such as Amazon or Uber) on both the demand and supply sides. They then become the route through which the entire market accesses something – be it data (Google), property to rent (Airbnb) or transactions (Alibaba).

The consequence of such an approach is that the platform enables growth in multiple directions without materially changing the cost base. Uber is not about only the people who want a ‘taxi’ late at night, it’s about the generation that doesn’t want to buy a car, park a car or drive a car (for environmental or other reasons), or those who want an income (supplemental or otherwise), or who want convenience. The platform provides a solution to all of these and more – without change. And as Airbnb (and of course, Amazon, Apple, Google, Tencent and Alibaba too) is demonstrating enhancing the offering is equally simple. So not only is Airbnb targeting the SME market, it’s also offering ‘experiences’ – led by the existing customer base.

In all of this, the underlying mindset is not about focus, it’s about abundance. It’s not about control, it’s about opportunity and maximising it. Many established organisations have a dominant position in the market place – they understand their value networks up and down stream, and have a strong brand presence. All of which would be valuable as platform plays. But the mindset is looking for growth from a predictable, controllable, focused market or product set or route already understood.

So how might this change? Some of it is in terms of definition and perspective – being clear about whose agenda is driving change. All of these platform organisations share an obsession with understanding not just what their markets say they want and need, but what they are doing and almost more importantly why they are doing it. That’s like a supermarket asking ‘why are you shopping?’ The answer today feels like an assumption based on a lot of data about what and how (the shopping basket and whether it’s online/offline, delivered, collected etc) but behind it lie a raft of interesting ‘why’ type questions – Why a weekly shop? Why you? Does the when matter and what does it say why you shop? Why shop for food rather than go out? Then the question arises – is the platform the shopping or the activities driving it? Or is the platform the supply side – ease and cost benefit of collating goods? In his blog Edge Perspectives John Hagel talks about today’s world the contextual age – where opportunity and growth lie in deep understanding of, and responding to, the context rather than the transaction.

John Hagel also talks about transformation as the shift from caterpillar to butterfly – rather than the ability to do what’s already being done cheaper, faster, more efficiently. Thinking from a platform mindset is one angle of that kind of transformation for growth, whether the net result is to become one, partner with one or adopt some of the mechanics.

Growth

For a long time economists have used long term population growth as a proxy for GDP growth – and when you consider the historic rise in global populations – especially post the industrial revolution in the 1800’s – it is easy to think that this is headed in only one direction. As the graph shows, nothing could be further from the truth if the annual growth rate is considered.

World Population 1750-2015 and projections until 2100

updated-world-population-growth-1750-2100-768x538

Source: Our World in Data

Of course this is all very long term – but it does serve to complement short term concerns about the impact of Brexit, the rise of protectionism and other mooted barriers to growth opportunities. And the concern over future growth reflects an implied view of historic growth – that the market opportunity will somehow suggest itself. From the industrial revolution onwards, through increasing globalisation and the economic rise of Australasia and South America, opportunities have continued to flow over the last couple of centuries. But several years ago a KPMG review of the fund management business pointed out that irrespective of whether or not Gen Y ever developed the investment habits of their baby boomer parents, their financial situation and hence their investment opportunity was likely to be very different from that of the second half of the twentieth century. A salutary reminder that markets shift, and a point not restricted to the investment sector.

But that doesn’t mean that growth isn’t available – simply that different mechanics are needed to achieve it. I can’t think of a clearer instance of the problems of assuming that the future of any business lies in incrementing yesterday’s model than in the question of growth.

If the barrier on overall success factors is structurally related – what about growth? To my mind this is much more a mindset issue. At the risk of oversimplifying, the opportunities provided by the rise of globalisation, benign trading conditions and the increasing affluence of the second part of the twentieth century has to some extent bred a risk aversion mindset – it seems to me that to think of growth, the market opportunity needs to be familiar, incremental (even if it is in a new geographic area) and above all proven and predictable. Two of the most famous examples of corporate failures – eg Kodak and Blockbuster both illustrate this reluctance to truly deviate from the known and proven. That mindset by the way is not necessarily limited to an organisation’s leadership – many public markets, investor communities and funders appear to have built their models on similar assumptions.

OK, so what? All of that is much better documented elsewhere. But to my mind it’s this risk aversion that makes growth today seem more problematic than perhaps it should be (I am however not suggesting that any growth is ‘easy’!). At least 3 potential strategies (and there are, and will be, others) are available but all require a different perspective as start point – one much more prepared to see the historic success as the least likely to succeed in tomorrow’s world and more prepared to consider unproven alternatives:

Growth

Success criteria in a VUCA age

We live in an increasingly complex, fast moving and changing world – that’s immediately apparent. And there is an increasing body of writing about the characteristics of organisations designed to make the most of opportunities in that world (for example, Exponential Organisations). But, perhaps because it is still early days for traditional, global and multi-national organisations to come to grips with that VUCA world, there are comparatively few case studies about what those types of organisations can do to make the change, and perhaps more importantly just what it is that stops them.

Having seen many organisations in my working life, and thinking from my foresight perspective and how the trends and shifts play out, here’s what I’ve observed – no right answers but perhaps some provocations.

At the highest level, looking at the priorities of traditional organisations they have primarily been driven around 2 – performance (in the short and medium term) and growth (in the longer term). The perspective on both has almost invariably been internal – certainly in terms of action taken to drive them.

In the complex world of today, it seems to me there are two big changes to this:

Performance and growth still matter as much as ever, but the range of options to drive both has grown hugely – and in many cases require leadership to engage outside as much as inside. For example tactics like using User Generated Content (UGC) for marketing is less about the level of marketing department resources and more about the quality and nature of customer engagement – which will not be wholly within the control of the organisation at all.

UGC and ads

Source: Kleiner Perkins – Mary Meeker Internet Trends 2017

The need to add 2 further metrics of success in terms of agility (short and medium term) and resilience (longer term). The latter is not simply a question of financial resilience which it could be argued has always been a consideration but resilience of the business model, even of the organisation and its market niche. Both resilience and agility again require an external lens to be thoroughly understood – indeed it could be argued that the catalyst and drivers for both start externally.

Source: Change is an Opportunity Ltd

And yet – how many organisations are designed and managed to prioritise the external context rather than the internal structure? Think of the nature of the Executive – CFO, COO, Head of HR perhaps – almost all key leadership roles are about the internal resources, disciplines and activities. I’ve mentioned this before in my post on Leading in an externally focused world.

I know when I run a foresight presentation how often the comment is made by the leadership team that they know they need to spend more time on thinking about what the world of the future looks like, but it clearly isn’t any one person’s responsibility and each is taken up with their own urgencies and pressures – so in these situations the net result is that it is constantly de-prioritised by all of them. Similarly the trends which superficially bear no relationship to the established business model are considered frequently with a detached view – interesting but, not yet at least, relevant to today’s business priorities. It seems that the concept that disruption comes from the unknown, not the known direction, is understood in theory only.

Additionally it’s clear that the necessary response to many of the trends doesn’t fall neatly into Finance, Procurement, Sales, Operations etc (perhaps not surprisingly as the external world isn’t organised like that). The barriers then are not simply time pressure or misunderstanding but structural in nature.

Those organisations best placed to engage with all 4 success criteria of growth, performance, agility and resilience are those that have recognised (amongst many other aspects) the need for:

A continuing informed external perspective made available across the organisation. A truly impactful leader I met headed their organisation’s Competitive Intelligence division – and used his regular slot at their Executive to challenge the conventional and current view of their future operating environment but in a neat way that meshed with their existing approaches whilst provoking new thinking.
Cross-disciplinary decision making groups. The most common instance of this today is in innovation where multi-functional groups with diverse members are increasingly applied – but in reality why limit this purely to innovation?
The ability to demonstrate rather than tell the organisation how relevant and immediate a disruptive trend is, together with it’s potential impact on the established model – whether this is in creating an app to change perceptions of how customers could interact or the more dramatic ‘speedboat’ intrapreneur groups aiming to cannabalise the core business as at Aviva’s innovation garages.

More to follow

Collaboration – simple surely?

Collaboration is a word I hear more and more. And yet, like innovation, I’m not sure always what people are talking about. To my mind there is a spectrum of relationships in business – for me it looks something like the picture below but that will no doubt iterate as my musing continues, and it’s certainly only one possiblity. The range covers from the purely personal to the legally defined corporate level. And collaboration for me sits somewhere on this spectrum.

Spectrum of relationship

So what do I have in mind when I think collaboration? It’s probably something like the Apple Developers Network, or open innovation type activities such as Foldit at the University of Washington. Such activities contain an element of making the contributor feel valued and appreciated (so that’s more akin to the personal end of the spectrum) but there is a structure (however loose) to the activity that creates discipline in the response.

Why do I care? Well I increasingly hear that organisations are seeking to collaborate, (or to partner) and I wonder if they have any idea of what their culture needs to look like to make genuine collaboration possible. . . . For a start it’s about understanding both sides of the deal – what motivates people to contribute as well as what the organisation wants from it. That motivation may not be immediately recogniseable or understandable to the organisation at all.

And it maybe possible to add a level of discipline or structure to the collaboration but it is a far cry from specific legal control or a guaranteed outcome, both of which are implicit assumptions in the operations of many large established organisations.

For me, collaboration will be increasingly important in the gig economy – those prepared for it (on either end of the ‘deal’) will gain both agility and speed of response – those who only think they understand it may discover otherwise. But that assumes that collaboration as a term can be defined and articulated rather than simply a buzz word of the moment.