Tuesday, February 11, 2014

A pet favourite - Inertia

Organisations consist of a mass of evolving activities, practices and data. As those components evolve from uncharted to industrialised then their properties change. It's that change of properties which means that one size fits all methodologies don't work despite organisations endlessly pursuing simple techniques (agile vs six sigma, insource vs outsource, push vs pull, network vs hierarchical, Hayek vs Keynes etc).

Figure 1 provides a simple view of organisation demonstrating a set of components at different states of evolution, for more on mapping read here or watch the detailed video on the LEF site. Figure 2 provides a list of common characteristics.

Figure 1 - An organisational map

Figure 2 - Changing properties

Now maps are not only useful for increasing situational awareness and an understanding of how things should be managed but they can also be used for various forms of scenario planning, strategic gameplay and economic learning.

For example, by using mapping then it can be quickly discovered that as components evolve they also go through different economic states - one of peace, one of war and one of wonder.  Depending upon how widespread the components are in other value chains, then sometimes these states manifest themselves as macro economic waves (known as Kondratiev waves) but in the majority their effect is usually much more localised (e.g. a specific industry). More details on this can be found here.

The different economic states are important because in the state of peace we experience that sustaining change tends to exceed disruptive change whilst in the state of war then disruptive change tends to exceed sustaining. The states also have different levels of predictability, for example the war state is highly predictable in terms of what is going to be happen but just not when (it depends upon actors actions). This means you can be prepare for the war state many years in advance but alas we often find companies being disrupted by highly predictable and ultimately defensible change. Cloud computing is an example of this.

You can also very roughly characterise the different states with wonder being breakthrough, peace being incremental and war being disruptive. Naturally our response to this depends upon the components in our value chain, how evolved they are, competitors actions and the economic state. This is all part of gameplay.

Unfortunately, if you can't see the map then business is like playing a game of chess without seeing the board - every action is haphazard - sometimes outsourcing works, sometimes it doesn't. It doesn't have to be like this.

The economic states are also useful in predicting how organisations will evolve,  It's no coincidence that every major age starts with commoditisation of a pre-existing act, that commoditisation results in a state of war and co-evolution of practice and those companies that survive have a different set of characteristics. The Electricity Age didn't start with the Parthian battery but with Tesla and Westinghouse and it led to Fordism. The Internet Age gave us Web 2.0. The Mechanical Age gave us the American system. Cloud has given us the Next Generation.

With experience of mapping, it turns out that many aspects (not all) of change are surprisingly predictable, defendable against and manageable.  Even those areas of high uncertainty such as the genesis of the novel and new can be managed by exploiting others (see ecosystems).  Of course, for those who don't look at the chessboard then everything seems highly confusing, random and difficult to understand.

In such circumstances, terms like ecosystem are completely misunderstood, strategy is often a mess of operational, tactical, purchasing and implementation details with little or no 'why'. Managers grab onto truisms like 'culture eats strategy for breakfast' or 'be a fast follower' or simply grasp the latest fad - agile vs six sigma,  'Open by default' without any understanding. These Chancers only survive because competitors are equally as blind. 

These Chancers also tend to get caught out by inertia to change. Now inertia is critical to gameplay and can be used to set up an environment where the competitor's biggest threat becomes itself.  The use of inertia is one of my favourite specialities. It's far beyond the more common tactical plays (tower and moats, ecosystems, alliances etc), the dark arts (manipulation of constraints, misdirection etc), altering competition (the use of open as a weapon, changing buyer vs supplier relationships, lowering barriers to entry) and the use of effective management. There's a special type of wicked delight that comes from setting in play a situation where a competitor self implodes.

However inertia is much more than just a tool, it also a key part of governing economic states. The states occur due to an interplay of competition (supply and demand) which drives evolution combined with the build up of inertia due to existing models, relationships, business and practice. Understanding when and how to use inertia is essential to the finer points of gameplay. Of course there are many forms of inertia.

In figure 3, I've characterised many of the main forms of inertia. All of them (with practice) can be exploited and certainly are things which an organisation should watch for.

Figure 3 - Types of Inertia.