Realignment and Echoes of the Past

May 22nd

The idea that the Internet has transformed business and created a global economy is an assertion that is   often repeated in the media today.  Yet there is little consideration given to the implications of the global supply chains for national futures.

The echoes of the cold war could be heard this week as China and Russia announced their gas deal.  Russian economic stress has been a theme that has appeared with increasing frequency in recent months .

And then the gas deal – with its apparent economic benefits for Russia and its obvious geopolitical implications for everyone – was announced.  Interestingly the announcement followed a military review, not always necessary in signing a trade deal.

China.Russia deal

What was hard to miss as the Chinese and Russian leaders reviewed the troops (picture from the Washington Post)  was the fact that the previous time this week that China had been front page news had come only a few days earlier when the US Attorney General, for the first time, threw down the gauntlet on Chinese industrial spying by indicting 5 hackers who were demonstrably focused on stealing US trade secrets. (Picture from the New York Times) The indictment went to some length to distinguish the crimes of the Chinese Army from the practices of the National Security Agency.  And perhaps the media coverage of the indictments were in fact exploring one of the most newsworthy aspects of the matter.

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Were the two connected?  Even if they went unnoticed in the minds of the Chinese leadership, its difficult to miss the point that it was the mini-war along the Chinese Russian Border in 1970 that led Ntixon and Kissinger to the sequence of events that resulted in Nixon’s “China Card”.

The world today is obviously far more complicated.  But another question raised by the indictments of the Chinese hackers was whether there might be a need for some rethinking of the global supply chains that have grown in the aftermath of the Internet.  Today its customary for retailers in the heartland of the US to receive just in time delivery of their inventory by means of FedEx, UPS and other shipments to the US.  The connections are intimate.  They come from the massive shift of US productive capacity to China and other Asian locations.

The economics of off shoring obviously did not include a calculation of the risk of disruption.  There has been a 25 year bargain based on assumptions involving peace and prosperity. The events of the week may offer some new perspectives on those underlying assumptions.

 

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Amazon Changes the Game

May 20th

So what are the implications of Amazon’s moves to deliver their own products?

First, lets be clear.  This is not about delivery alone.  Second, Amazon is dead serious.

In January 2014 Amazon filed a patent application illustrated by this graphic.

 

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With this illustration Amazon describers a world of forward positioned warehouses and rapid fulfillment of eCommerce orders.

For those who don’t shop on the Amazon site, the company has long ago earned the title of The Everything Store as described in the recent book by Brad Stone.  You can buy everything there – from books and music to televisions to lawn furniture.

Some of these goods are more likely to be purchased if the consumer can get them the same day or the next day.   And for the retailer, the knowledge of who who will want which product when they can get it immediately is more valuable than the return from the sale itself.

What’s more, the market is not limited to the impulse end of the online eCommerce market that you can see today.   When you can fulfill products overnight, the scale of the marketplace expands to the Consumer Package Goods market – a multi trillion dollar marketplace.

Walmart knows this and they are experimenting with delivery themselves.  Soon every retailer in the Consumer Package Goods market is going to be confronted with the reality of the change that Amazon has anticipated.

The picture above anticipates another point as well – for those competitors who can reshape themselves as collaborators in a radically changing market, there may be new opportunities that have not been factored into the conventional forecasts.  No one should miss, for example, the fact that the U.S. Postal Service’s Sunday delivery volume from Amazon is exploding.  Where will Amazon deliver its own products and where will it rely on competitor-collaborators?

The answer to the question of where will the future of delivery be? will depend on a larger picture than one that is limited to the supply chain.  The future is going to be defined by seeing the whole board.

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Authentic Agility

May 8th

Major-league baseball ran into trouble in the beginning of the 2014 season with something that was called the “transfer rule.” The story offers some important lessons for philosophers and technologists at the same time.  In anticipating the future and predicting the way in which technology will shape our markets, there is one critical gut check that needs to be made. An assessment of the human interface needs to be featured prominently on the evaluation checklist.

The story really begins in the 2010 baseball season when a pitcher named Armando Gallaraga from the Detroit Tigers came within one out of a perfect game.  As the videotape would later show, he pitched a perfect game against Cleveland on that June night in Detroit.

There were no hits and no one was allowed to get to first base through the first 26 Cleveland outs. But in the top of the ninth inning, an umpire at first base named Jim Joyce, as he later admitted, blew a call and declared that the runner was safe when in fact he had been thrown out by a throw from first baseman Miguel Cabrera to the pitcher, Gallaraga, as he covered first.

In a day of technology in which key moments in football games often turn on critical replay decisions, this seemed to be the last straw. There needed to be a replay camera in American baseball as well or so the thinking went.  It took the powers who run baseball another couple of years.  But things had been set in motion.

As of this winter a replay rule was created for baseball. Until this point, the judgment of the umpire has been final and even legendary in deciding the fate of baseball games for 150 years.

Perhaps there should’ve been a warning here about what was going to happen. But the replay rule was passed nonetheless and the 2014 season began with replay cameras.

What happens now is that when the play takes place and a team feels that it has been wronged, the manager is allowed to go out and question the call. The umpires consider the protest and they may ask for a replay decision to be made by someone in a control room in New York.

In practice, the replay rule has led to some annoyingly long delays as sometimes the decision takes three or four minutes of waiting. At least in football, the camera trains it’s picture on the replay official who is looking at the replay camera and agonizing over how to make the call. Baseball’s anonymous remote judge in New York seems particularly arbitrary. But this wasn’t the end of it.

There was also a need, major-league baseball believed, to clarify a few fine points of the game so that it would be possible to make clear-cut decisions. The entry of a third-party, the anonymous replay official, seemed to force a greater need for precision, or so it was thought.

And so, the transfer rule was modified. This is when a player catches the ball and transfers it from his glove to his throwing hand in order to make a play. To make it clear, the officials believed, the transfer rule should require a player to catch the ball and to make a clean transfer. If the ball was dropped, then the initial play was ruled an error and not an out.

What this led to were some amazing plays where a player might catch a ball run three strides seem to make a transfer and then drop the ball only to be told that not only was his team to suffer the consequences of the dropped ball but the initial play was no longer an out either.

Needless to say, the precision of clarifying the transfer rule created a whole new set of problems. After two or three weeks the officials have given up on transfer rule purity and gone back to the old way.  The game reverted the old method of relying on judgment calls, at least for transfers. There is still a replay camera but it no longer dominates the way it did when the game was trying for perfect clarity.  Somehow when someone truly great is playing, the speed, precision and finesse are all combined.

I think this compromise is more in the spirit of baseball and perhaps the replays will go as well.  During this controversy, I have been reminded many times of an experience that I had in the late 90s when I was invited to go to St. Louis to make a speech to a postal audience and to join the Chief Operating Officer of the USPS who was going to dedicate a stamp at Busch Stadium where the St. Louis Cardinals played baseball. At the Postal Service it became known that I was a huge baseball fan. In fact, I had been a lapsed baseball fan until friends introduced me to the Baltimore Orioles in Cal Ripken’s day and I found something that I had lost as a kid growing up.

Baseball was a great common denominator for the USPS. There were many times that people said to me “oh yeah I remember you, you’re the Orioles guy”.

Someone thought of me and did me the favor of inviting me go to St. Louis to the dedication. We gathered in the St. Louis Cardinals locker room before the ceremony when we would go out onto the field.  I stood around with several others who were going to go onto the field and we talked baseball. One man in particular was an especially nice guy, a gentle retired Cardinal who eventually was introduced to me as Ozzie Smith. I realized that I was talking to one of the five greatest shortstops of all time[i].

Screen Shot 2014-05-06 at 4.35.05 PMWhat do you say to Ozzie Smith? I realized that we were going to get a huge big round of applause when we went out to the field and it was going to have nothing to do with any of the postal guys or even other celebrities who were with us.  Instead it was going to be for this modest man.

I asked Ozzie whether there was anything that I should’ve known about making a double play or something equally lame. He modestly demurred and didn’t embarrass me by making fun of my dumb question but instead told me something about it being in the flow.

I later read the famous statement of Honus Wagner (another great Shortstop) that’s on the wall of the baseball Hall of Fame that “it don’t take much to be a ballplayer, if you are a ballplayer”.

Ozzie Smith was such a ballplayer and the memory of his manner seemed an appropriate conclusion to considering baseball’s attempt at precision with the transfer rule. Ozzie probably wouldn’t have needed to have the transfer rule clarified or to have umpires make “proximity calls” giving him the benefit of the doubt. He was that good. But his finesse was also not something, I think, that could easily be judged by the replay official in a remote studio in New York.  There are moments when humans and events interact in a manner that cannot be made more precise with technology and it’s an important factor to consider in judging the trajectory of future events.  There will be cases where forecasts aren’t as useful as just being in the flow.

 



[i] Cal Ripken of course, Ozzie Smith, Derek Jeter, Ernie Banks and Honus Wagner would be my five nominees.

Valence

May 3rd

One of the most important elements of the new dynamic is being created by activists constituencies. There will be the need for future leaders to recognize and to anticipate this force. No surprise, many will say. There has been a need to recognize multiple stakeholder constituencies in the past. After all, there are functional specialties within the typical firm to manage customer experience, shareholder issues, labor relations, supplier management and so forth.

Valence

These functional specialties will only become more sophisticated as stakeholders become more active. But what makes this process of communications important to the stakeholders is that the stake are getting bigger. As markets change more rapidly and corporations and others are forced to adapt and to transform, it’s going to be clear to the stakeholders that they will want to have a greater voice in strategic decisions.   Likewise, the traditional business functional leaders who have historically managed stakeholder interests that the activists need to be better connected to the strategic thinking of the organization.

Unfortunately, what will make the communication process more complex will be the fact that the agenda of the individual groups will change as the organization moves through the stages of transformation. When it is clear that a change may be coming, but that it’s not likely to come soon, employees and customers can anticipate the ominous future but like residents living on a floodplain they will not necessarily act to protect themselves.

As the necessity for action comes, the stakeholders will divide between those who understand the future and want to shape it and those who have different strategies. Many don’t want to hear about negative trends they they view as self-fulfilling prophecies.  Others may recognize the direction of the future but do not want to lose the protections that the traditional enterprise has provided. Agendas change from anticipation to engagement to avoidance depending upon the way in which the activists may shape there actions to deal with the necessity of change.

An example makes the issue clearer.  Stakeholders who believe that they don’t have a choice, who will be punished by the negative consequences of decline want to protect themselves.  Those who have a choice will calculate that to eir interests and move to alternative products and services.  It’s important to understand the stakeholders and their voices.

In simple terms, the up slope and that downslope required different muscles.  Those on the rise have different priorities from those who are descending.  The curve acquires valence as it reaches the inflection point and turns downward.

 

Crafting Innovation for a Transparent, Interactive Marketplace

April 26th

While there is widespread acceptance of the idea that in times that demand transformational change innovation has become an important, even critical management capability.  And the notion that innovation needs to anticipate both investments in sustaining technologies and investment in new disruptive business models – the ideas first advanced by Professor Clayton Christensen of Harvard Business School in his book, the Innovator’s Dilemma – have received widespread support as well.  But the approaches that are often suggested for engaging the forces of disruptive change may need to be revised to anticipate the age of social media.

The problem is not a surprising one.  No one is in favor of disruptive change when it undermines them.  Long-time line managers who have developed their careers in a business model  favoring one kind of profile are naturally likely to resist investing in a new business model that will put them at a disadvantage and possibly even bring in leadership from a new generation or new group with a different skill set. S it’s not surprising that an old-line institution such as the Postal Service might have managers who would resist a new era of digital media. But what might be even more surprising is the subtleties within the disciplines inside the institution – those who have made their careers improving the delivery of letter mail, resisting new patterns that would emphasize parcel delivery and integration of the traditionally independent institution with new e-commerce providers.

But if the customers are going to act as Christianson suggests that they will in his exposition of the shift too disruptive technologies, then there’s a need to refine strategies for him bracing the disruptive future.

Christianson suggests three models in an article written in Harvard business review quote “on innovation”, a Harvard business review paperback copyright 2001, “meeting the challenge of disruptive change”, Clayton M Christiansen and Michael Overdorf first there’s the skunk works that develops the new technologies in a laboratory set apart from the traditional enterprise. Second there’s the division within the company that said apart from others and finally there’s the strategy of acquiring the technology that allows for disruptive change.

Each of these three strategies might be seen as a “sequestering strategy” where the new investments are protected from interference from the traditional line managers. The problem with relying on sequestering strategies alone is that organizations are increasingly transparent and services require integration. Both features of the network economy are likely to make it almost impossible to protect the alternative vision of the future from the traditional enterprise. This is good news for entrepreneurs but it is going to be challenging for large complex organizations. How do you invest in alternative visions of the future without being stopped?

One pathway that’ worth a new look may be to revisit the notion of open innovation. Clayton Christianson writes about open innovation in his blog (Wednesday, September 19, 2012) he relates his experience at the annual meeting of the Academy of management (AoM). He describes a session on open innovation featuring Allan Afuah from Carnegie Mellon, Karim Lakhani and Michel Tushman from HBS, and Todd Zenger from Washington University in St. Louis.

“Open innovation is a method of innovation that has arisen in recent years which allows companies to essentially source some of their innovation efforts to outside parties, often through contests where individuals compete to develop the best solution to the innovation challenge the company has set forth,” Christensen writes.

He describes the way in which such challenges work and notes the work of InnoCentive to help companies to “clearly define the innovation challenges they are facing” and develop platforms where challenges can be held.  And Christensen notes the way that the changing marketplace has played a key role in this development,

“The rise of social media in recent years has been a significant enabler of open innovation, as it allows firms to develop strong communities of external innovators eager to solve problems.”

What’s interesting about Christensen’s review of the open innovation panel is that he both acknowledges the benefits of open innovation that offer some promise to work past the obstacles to the sequestering strategies that are created in transparent interactive enterprise and at the same time he recognizes some of the limitations,

“Open innovation can be an excellent means for innovating around specific technical challenges.  In contrast, open innovation may be a less effective means for bigger architectural or business model innovations.”

Opening the innovation process but at the same time given the challenge and the intended solution precise definition offers an important potential path around difficulties that will become increasingly apparent in the future enterprise.

The Stakeholder Constituencies

April 23rd

 

Stakeholders

If the moral of the story here were to “adapt to new technology” it would still be a worthy discussion.  But there would be little news. Organizations throughout the economy have had to adapt to survive and many haven’t been successful. The Internet and the technologies that are associated with it have undermined the fundamental business models of many of the icons of the American economy. The impact of new technologies is a story that has been told many times.

But in fact, there is an even more important and interesting story that is unfolding in every sector of the economy. The implication of the new communications modes that have made global communication instant, ubiquitous and free have had brought implications for the way in which companies communicate with one another and within themselves. The classic model of communications for the firm is one that emphasizes the employees and management. Many of the key conversations that take place are therefore thought to take place within the box outlined above.

Even before there was Internet communication facilitating global connections, the boundaries of organizations were becoming less important and connections between the traditional organization and its customers, its shareholders (in the case of public at organizations this is taxpayers, and their representatives), suppliers and even host communities describe the multiple dimensions that describe the stakeholders in a representative manner.  The pressures that they supply are easiest to see and understand.

What has become important in the modern era has been that the economics of communications have made it so dramatically easier that there are new voices seeking to express their views and to defend their interests.  Even more importantly, there is growing recognition that the stakes really do matter.  Transparent enterprise and the abundant self-publishing sources of analysis have made it easier to see strategic issues as they appear on the horizon of the leadership.  The types of products, the location of tomorrows jobs, all of these issues and more are being contested in the new, increasingly competitive market.

If the Internet Age has brought a new era of challenge, the scope of the issues have moved far beyond adapting to the new technology and now include the Democratic Impulse that has awakened the stakeholders. √

Strategic Inflection

April 22nd

Andrew S. Grove, the former leader of Intel, wrote a book in the mid-nineties in which he sought to help leaders “exploit the crisis points that challenge every company.”  In 1996 when the book (Only the Paranoid Survive) was published, not even the head of Intel might’ve guessed the true scope of the revolution that was underway.

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In the short term, virtually every institution, both public and private, was forced to contend with the impact the creation of a global Communications system that was immediate, global, ubiquitous and virtually free. Harvard held two conferences, one in 1998 and one and 2000, and sought to involve the entire university in thinking about the Internet and Society.  There was wide recognition at the time that the Internet would have a dramatic impact on concerns that range from business to learning to global diplomacy.

The question was asked “Was this a revolution that was more like Gutenberg or Luther? the invention of the printing press or the Reformation?”  This may sound like Harvard. But the point should not be lost that there has been a recognition for some time that a revolution was taking place and that it would have wide implications for the economy, security, knowledge and much much more.  But whether the Internet would be a call to action for a given organization or not, it was the perfect illustration of the challenge for leadership in seeking to deal with pending change.

How was one to know that a downturn was actually a lead up to a strategic inflection point? Grove defined strategic inflection points as the place where a business or public institution recognizes that the fundamentals of the traditional business model were about to change. He described his own practice of looking for “10 next change” among the critical variables.

And he emphasized that change did not have to signal pending disaster.  For those who can become adept at anticipating strategic inflection and operating in a new way, these moments of transformational change can offer opportunities.

The Coming Tension: The Democratic High Performance Enterprise

April 19th

There is a growing tension that will will be seen in the future Enterprise as many of the same technologies that are making it possible for new voices to be heard will also empower the sometimes opposing effect of top-down, centralized management.

I have discussed the dynamics of the bottom up communications revolution from a number of perspectives. But in essence what is most important is the recognition that the constituencies of the traditional firm–the myriad stakeholders are being given a new voice What’s more., the transparency of the modern enterprise makes it possible for these stakeholders to see the effect of the forces of competition. They can see and now they have every reason to be concerned.

What the empowerment of stakeholder constituencies has done is to create a new democratic force that will ultimately change the dynamics of the traditional hierarchical enterprise. The force of democracy will exert new pressures that will ultimately change historical traditions and strategic priorities for the future.

Yet at the same time, technology is making it possible to improve performance in the short term by creating a new age of performance management.  Today we live in the era of the smart enterprise as IBM might put it where there are indicators of performance, intelligence about the movement of the operating parts and interoperability among information systems.  By creating measures of performance where none have existed in the past, the modern enterprise is going to be able to wire itself to a new performance ethic.

The Coming TensionMany of the conversations about data and technology are leading in this direction.  The Internet of Things and the new capabilities of Big Data analytics are going to empower the power of top down controls at the same time that Information Technology has strengthened the capacity of the grassroots organization to assert new powers from the bottom up.

That there will be new tensions within the modern organization as top down meets bottom up.  Successful future leaders will build the capacity to mitigate tension and establish decision priorities.  There will be times when different, and possibly contradictory priorities are most important to the future of the enterprise.

To establish principles of service and frameworks for evaluating value will be critical in defining the ultimate goal by which these contrary impulses may be reconciled in the future

The Transformation Strategy Model

April 15th

There is value in creating a model to understand the interactive dynamics of the elements of transformation. In a time of rising and falling fortunes, the growing stakeholder activism is going to create major communications challenges.  The model helps anticipate the forces of the changing system dynamics.

The strategic transformation model was created overnight in 2002 when the final editor in a series of publishing stages ask for a change in an article that I was going to publish in the Harvard Business Review. The initial proposal had been to discuss lessons learned in the effort to transform the US Postal Service. I was leaving my position as Vice President for Strategic Planning at the Postal Service to return to my private sector management consulting career.

The article was ultimately named (by the Harvard Business Review)”When a Turnaround Stalls”. I learned the hard lesson that you don’t necessarily get to put a title on your own article and there are many, even most readers, for whom the title is the most important part and sometimes the only thing that they read.

My personal view was very supportive of the senior management of the Postal Service that I continue to believe does an extraordinary job just to make the complex, difficult machine work as well as it does. Every night the service moves almost a half a billion pieces of mail and many local postal workers would literally be buried in the mail if they didn’t make the machines work in the night. But when I tried to get a final anecdote into the article, Word came back from the editors “Does he understand the phrase pandering?” and I found out who was running the show.

But in fact, the transformation of the Postal Service, at one point in 2000 referred to as the turnaround story of the nineties, had stalled.  While chairing a hearing on how to perform in the spring of 2001, seven or Fred Thompson set man exclaimed “Okay I get it the taxes in the ditch, big time”

Given the setting, lessons learned seem to be agreed to far and we headed them out of the draft. But with 24 hours to go to the publishing deadline, the final editor came back and wanted lessons learned. I wrote them in an hour, Although I had written them before over the period of months and we have been debating for transformation for six years you’re in

Screen Shot 2014-04-15 at 1.27.46 PMPostal transformation inevitably followed a pattern that has been shaped by dozens of American icons in business that have had wholesale change in the years following the Internet Revolution and other traumatic turning points of recent years.

The enterprise comes to recognize that it must change.  Alternative innovations that would redefine the future are considered.  A balance must be struck between the vision of the future and the traditional enterprise.

In the Strategic Transformation model above each of these three perspectives are captured and noted. In coming posts we will explore the dynamics of transformational change.

 

 

Your Personal Brand

April 15th

You need to be ready with your own concept of your personal brand because it anchors your mission.  In the modern market, where everyone can be their own publisher, no one will have time to wait for you to think it up; nor can you sustain authenticity if you shoot from the hip and aim haphazardly. 

I learned the hard way.

We were at the high-end British Columbia ski resort, Whistler, at a conference on the global postal industry. In retrospect, I should have been more appreciative of my surroundings. This was living large. But at the time it just seemed as though it was a nice dinner at another economics conference.

Some friends and colleagues and I got up to leave to go back to the hotel. Others were going to move to the bar.  Suddenly a colleague from Swiss Post for whom I have great respect looked up and said,

“Are you leaving? We haven’t gotten a chance to talk this week.  Tell me, what’s your brand?”

I must’ve looked puzzled.

“…So that I can tell others about what you’re doing these days,” he explained. It didn’t help. I didn’t have an elevator pitch about my brand.

Of course I knew what he was talking about. At Harvard Business School the marketing professors used to talk about brand management as one of the great breakthrough management innovations that has come from the American marketplace.  And when I was at Market Opinion Research, we used to talk about the rise of new brands, especially in political policy analysis.

And I knew the concept of having a personal brand.  I remember Tom Peters (of In Search of Excellence, Tom Peters, Robert Waterman. 1982) talking about personal brands and personal mission statements in the 1980s.  But the point was that here I was being asked for my brand and this was probably exactly the setting and exactly the questioner that I would have chosen to illustrate the need to have a personal brand.

The Triumvirate

The Eiger, the Monk and the Jungfrau

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 Not only was this  a respected colleague, an executive with Swiss Post, but he was also collaborating in setting up a Center on Innovation in Lausanne.  You could not have picked a questioner who would have been closer to the heart of my work and interests.

I have watched as the concept of personal branding has moved from the self help section of the book store to a central concept among the leadership books in the on-line book store.  In these times, there is a practical necessity to communicating with brands, a concept that’s not far from SEO (search engine optimization).  But even more importantly, if you are going to communicate in symbols, you need to connect the short hand to your moral compass or you will consign yourself to living in the froth.

For me, the symbol of the Eiger the Monk and the Jungfrau anchors the recognition that my work on the growing activism of the stakeholders and their constituencies was in fact illustrating an emerging dynamic that will be especially important to future leaders of transformation.

Figure 1 The Transformation Model

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It’s important to see that in the successful, thriving enterprise,  points of Strategic Inflection will be replaced by the innovation that is traced by a second curve.

But the constituencies are going to have significantly different agendas on the upslope and on the down slope.

Leaders have spent their careers learning how to advance with one set of assumptions and then, one day, while colleagues and forecasters are telling them that the change is not really coming, it does.

In the transformational setting, there will be a need to rethink the givens.   Far smoother transformations will come for those who can anticipate the way that expectations and priorities will change as growth is replaced by decline and then replaced again by new growth.