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Tuesday, July 13, 2010

The Cascading Power Of Institutional Innovation

For a long time, it is an almost universally held view that a very wide majority of established big companies are slow innovators – while these were very disciplined in their execution , their ability to keep making game changing innovations were suspect. The innovation ethos inside large enterprises remains a goal worthy of pursuit. Sometime last year,John Seely Brown (JSB), John Hagel and Lang Davison published the results of a major research project, they have been conducting at Deloitte’s Center for the Edge. The Big Shift, a very insightful report that calls for immediate concerted action, highlights the deep rooted transformation that is pervading the global business. As one can easily spot out, last few decades of global business have been significantly influenced by advances in digital technologies amidst other major influencing factors.

The Big Shift brought out the fact the return on assets (ROA)of US companies,( this study looked at some 20,000 US companies) - a direct indicator of economic value add has been over a period of time in the last few decades progressively falling and is now hovering around 25% of what was recorded circa 1965. This is counterintuitive and paradoxical so to say. After all the general consensus is that the labor productivity has been raising and measured now , it is perhaps around twice the 1965 levels. So this begs the question why did this happen besides an appreciation of what and how the supposed benefits got lost in translation?

John Seely Brown, Johan Hagel and their teams came out with more than two dozen metric trackers that can be seen together to understand the massive shift that is happening in business which in turn contributed to the noticeable fall in rate of business value generation. With that as the background, the authors – John Seely Brown, John Hagel & Lang Davison have now attempted to look for solutions to overcome the slide and there they are here with the new book The Power of Pull: how small moves, smartly made, can set big things in motion,

Traditional management techniques of centralized management in areas like planning , resource allocation, investments , branding , marketing etc are firm pillars on which the “push based management" is centered upon. The raison-d’être of the traditional firms lay in centralizing all planning and resource allocation to ensure the transaction costs within the system get optimized. Conventional management is so structured that the ability to create an environment of constant innovation and swifter response gets compromised as everything gets tied to a model of central planning and resource allocation – the actors in this model are also so aligned to this way of working – it requires a huge swathe of change to try anything different and the opportunity for optimizing this model is also getting very limited as it is in vogue for a long time – so scope for incremental innovation gets much harder and harder.

This can be best corroborated by the fact that the life expectancy of firms in the Fortune 500 has already fallen to less than fifteen years—down from 50-60 years around 1960. The authors predict that if these current trends continue, with no change in management, the life expectancy of Fortune 500 will fall to five years. Clearly, this can be attributed to the fact that at a certain point, the economic rot of the traditional organization will be clear to all , so much so that even traditional managers will be forced to embrace change, irrespective of their preferred way of work. Has this model delivered in terms of generating sustainable business value is the question that the authors asked as they began to investigate corporate performance of business in the last several decades.

In this business world of heightened global competition, the authors argue that the pace of change and buyer power inflicts enormous demands on enterprises and the basis of competition shifts from strengths centered on scalable efficiency to scalable collaboration. The span of influence of collaboration extends to hundreds and hundreds of participants in the “pull platform”. This is in contrast to techniques techniques like lean manufacturing which encompasses tighter integration amongst small number of select partners.

Let’s begin at the beginning. The book sees pull as the ability to draw out people and resources as needed to address opportunities and challenges.” “Pull, “gives us unprecedented access to what we need, when we need it, even if we’re not quite sure what‘it’ is. . . The power of pull provides a key to how all of us - individually and collectively - can turn challenge and stress into opportunity and reward as digital technology remakes our lives.” How’s this different. Let’s look at the push economy that has been in vogue for many many years. The book points out that “Push approaches begin by forecasting needs and then designing the most efficient systems to ensure that the right people and resources are available at the right time and the right place using carefully scripted and standardized processes. . . Push programs have dominated our lives from our very earliest years.”

From our education framework to institutional planning and execution, the authors point out were all centered on a push culture. Push was a suitable mechanism to support the industrial age companies performance characterized by incremental growth, hierarchical style of management in a deterministic world where correlation between yield and plan remained in a satisfactory state, The fading push economy had given way to a more dynamic world with more linkages showing more dynamic, complex and emergent behaviors. Dispassionate employees, disloyal customers, fast churning brands, dysfunctional governments all are clear indicators of this complex interplay.

Lets switch to the “pull model” The key premise in this model is that tapping the benefits of what is happening at the edges of organization and typically passionate and motivated employees and their networks make such things happen – the pull model leverages such participation and efforts. Deep performance improvements are made possible by embracing the pull model and this unleashes the power of individuals towards achieving such goals. The Power of Pull argues that the network effects of scalable collaboration can flip the experience curve and create what was unthinkable in traditional 20th Century management: an increasing performance improvement curve.

The Power of Pull is anchored on a framework that includes multiple dimensions in which interventions and initiatives happen and in their interplay comes out a very different mechanism of operation that encompasses business, process and people.

Some of those key levers of influence as identified by the authors include:

Access : the ability to fluidly find and get to the people and resources when and where we need them.

Attract : the ability to get resources and people wth right expertise both within and outside the enterprise.

Achieve : the ability to get results based on the partnership , collaboration , production leveraging amongst other things knowledge flows.

Within the achieve dimension, the book brings a new concept called “creation spaces”. These are defined as “environments that effectively integrate teams within a broader learning ecology so that performance improvement accelerates as more participants join.” These creation spaces “ . . . allow large numbers of participants, often in the millions, to come together to test and refine the practices required to master this third level of pull - achieving their potential more effectively.” “Although from a distance it may look like they are emerging spontaneously, self-organizing in response to the needs of the participants, a closer look reveals that creation spaces are carefully crafted by their organizers, especially in the early stages, to engage the right kinds of participants and foster specific types of interactions, all within environments that unleash the potential for increasing returns.” I like the emphasis the book makes on “Passion” of individual as cornerstone of their success. All these interplay at the individual, organization and network of organizations. The nature of interplay could range from “shaping views (direction or trajectory)”, “ shaping platforms (creates incremental values at individual, organizational and network wide)” and “shaping acts and assets ( interventions of rightly aligned resources)”.

Though the book may be short on real life examples that we can relate to, it is a very important body of work. We have to recognize that happenings in the edge (of the business ecosystem) may not be so obvious as we are accustomed to recognizing corresponding happenings at the core of the business ecosystem, The book succinctly argues that in this emerging 21st century economy, scalable mass collaboration brings together the people centered expertise and innovative ideas needed to address the very complex challenges, as well as the humongous opportunities all around us. This is hugely different from the last century model of mass production. The book convinces us that it is clear that our existing institutions, firmly rooted in the world of push, will require significant redesign in order to effectively harness the potential of pull. Institutional innovation - redesigning the roles, relationships and governance structures required to bring participants together in productive endeavors - will be a key requirement. In fact, the book argues that institutional innovation will trump either product or process innovation in terms of potential for value creation. Clearly this calls for well studied efforts to make this leap and I believe that The Power of Pull is one of the companions that shall help us navigate through this transition to conquer greater heights!

(Article first published as Book Review: The Power of Pull: How Small Moves, Smartly Made, Can Set Big Things in Motion by John Hagel III, John Seely Brown, and Lang Davison on Blogcritics).

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