Rational managers for the past 30 years have focused tightly on efficiency, cost cutting and day-to-day execution – perhaps to a fault. With increasing industry disruption, efficiency is fast becoming of secondary importance to innovation and agility. Many large organisations have too little capacity for external sensing, strategic reflection and business transformation.
Wal-Mart, for example, has become too focused on trimming costs and inefficiencies, which has hurt its ability to serve its customers. According to Bloomberg Businessweek, a recent Wal-Mart staff proposal declared: “We have cut costs too far, stores are understaffed and associates cannot provide customers with the service that Sam Walton built the company on.”
In stark contrast, at a disruptive organisation like Google, the primary focus is on boosting creativity, not efficiency. Innovation is built into jobs through “20% time” projects: engineers are expected to spend 20% of their time on projects that create and test new ideas.
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Organisations need to explicitly develop two parallel management systems: the operational system that manages the short-term execution of work – what we call the “surface system” – and a second system that focuses externally on sensing and driving strategic change, what we call the “deep system.” In today’s tumultuous environment, we believe that the work of sensing and responding to the market is too important to be left to random projects and a “volunteer army”. It needs to be designed, staffed and owned just like all other company processes.
For example, in 2001, IBM set up a permanent transformation organisation designed to anticipate and respond to the increasingly unpredictable changes in its markets. The goal was to make IBM more agile and able to predict – even prescribe – where the company’s markets would go. Linda Sanford, senior vice-president of enterprise transformation, told us about three capabilities that IBM has built to fulfil this mission – capabilities that continue to evolve under its new CEO, Virginia Rometty:
1. Process governance
IBM introduced full-time process owners, employees with credibility and experience, who are responsible for driving change and eliminating waste within their respective processes. IBM has 15 enterprise processes that cut across business units and geographies in such areas as sales, marketing, software development, procurement, human resources, finance, client-facing information technology services and internal IT support.
These process owners are supported by centrally-trained business process experts and a client advisory team that ensures customer focus. The key aspect of the process owner role is that it is focused not just on the daily operation of a process, but on its design and long-term improvement.
2. Data and analytics
IBM’s process teams identify ways to improve the customer experience in terms of time, quality or cost. As they do this, they install meters or other measurement devices that help them gather more data about the performance of a particular process, and they build data repositories where managers can analyse this information. Having this performance data close at hand helps to defuse any emotional arguments that may arise in the future.
3. Change management
IBM realises that the changes it needs are not incremental tweaks, but rather involve all employees. Company leaders communicate and educate their people on the need for change. They have “hardened the soft stuff called culture” into methods and tools that they deploy to help prepare the organisation for sustained change. And they use online social collaboration and communications tools.
As Sanford told us, “I’m continuously amazed by the innovation that these process teams bring out. It’s not just standardising and streamlining. Once you get it into the fabric of the business, it starts to become a new way of thinking and bringing innovation to our business partners.”
The pace of change and disruption in today’s marketplaces will only increase. Organisations that focus only on their surface systems, no matter how well they operate and how low they drive costs, will miss the threats to the firm’s long-term survival. No company is immune; no market niche is safe.
Unless organisations start spending money now on the dedicated resources necessary to manage the deep system – processes to sense and respond to unmet customer needs, new technologies, demographic trends, and the threat of potential competitors – they won’t have the capacity to compete and survive.
Brad Power has consulted and conducted research on business process innovation for the past 30 years. Steve Stanton and Walter Popper have consulted, written, conducted research and spoken on process topics for more than 25 years. All three are on the faculty at Hammer and Co.