Business Analysis

Finding balance in business decision making

Edward Chalk

Finding balance in business decision making

Making balanced business decisions is complicated. There are simply so many variables and interactions involved in the situation, that sometimes we feel we can only guess at the best move.

Additionally, we sometimes feel we are caught in a Catch 22 situation where “You are damned if you do, and damned if you don’t.”

  • Why does this happen?

Or perhaps better

  • What can we do about it?

 

Implementing high-level decisions

We can be faced with making two types of decision.

  • The first type of decision is where we autonomously realise that a decision has to be made, due to the way the situation is evolving.
  • The second type of decision is where we are tasked with implementing a high level decision. Senior management has decided that a project will be implemented or that the company will proceed in a certain direction. Lower-level decision makers are then tasked with implementing the high-level decision.

Paradoxically, it may be easier for senior management to make a balanced decision than it is for lower level decision-makers. This is because senior management are in a central role, vis-a-vis the company’s overall capabilities and direction. Thus senior management has a high-level bird’s-eye view of the various capabilities which the company as a whole can exert to implement their decision.

The low-level decision maker is limited to the department-level resources or the team-level resources which they have at their command, however. Subsequently, even although the management decision may seem balanced relative to the entire company, it can create a local imbalance.

It is worthwhile understanding the nature of this potential imbalance, and how this imbalance can be usefully fed back to the high-level decision maker.

 

Systems

Generally speaking, most of the complex decisions we make, are made in the context of a system.

Q: What is a system?

A: Generally speaking, a system is any collection of interrelated parts that work together to produce a result. Examples of systems can range from a biological system (e.g. a tree or a flower), to a computer operating system, a socio-cultural system (e.g. a school), a country’s medical system, a computer business system, a psychological systems (e.g. the human mind) and a business.

Most professional work is performed within the context of a system.

Within a system, multiple capabilities are intertwined and many actors are involved in producing the final result. Any action taken to optimise one aspect of the system may have a deleterious effect on another part of the system.

Identifying the right course of action in a complex system requires intricate and detailed knowledge of all the moving parts, in addition to having a general overview of how the system operates. Categorising the forces that operate with a system can assist in simplifying the decision making process however, to a level that provides at least a reasonable chance of success.

It is difficult to find a way of analysing things that is applicable to every type of system, but the following is the closest to a set of universal analytical building blocks, of which I know.

 

Fundamental system aspects

Every system includes the following three fundamental aspects:

  • Logic: The type of thinking that takes place within the system.
  • Control: Controls that are enforced internally to ensure that the system operates within its set parameters.

Q: What are system parameters?

A: According to Wikipedia, a system parameter is, “any characteristic that can help in defining or classifying a particular system. That is, a parameter is an element of a system that is useful, or critical, when identifying the system, or when evaluating its performance, status, condition, etc.”

For example, an engine may be expected to revolve between 300 r.p.m. and 4000 r.p.m. Any slower, and the engine will stall. Any faster, and the engine will break. In this case we can say that the parameter for safe operation of the engine is between 300 r.p.m. and 4000 r.p.m.

  • Energy: The internal “life-flow” that is generated as a result of the system functioning correctly.

For example:

System Logic Control Energy
Human mind Life-fostering logic Check for conditions (both internal and external) that are adverse to life and respond appropriately. Feeling of well-being
Computer business system Encoded business logic Check for program and data errors and when these are found, either self-correct or alert users. Business benefit
School Educational paradigm Maintain educational standards, control student behaviour, etc. Education

We are used to assuming these basic system aspects in our everyday speech, so that:

  • If we say “That person has a good mind,” we mean that they create healthy positive thoughts.
  • If we say “This is a good business system,” we mean that it brings great benefit to the business.
  • If we say “That is a good school,” we mean that the children who graduate from the school are well educated.

 

System integrity

In a robust system, each fundamental aspect of the system must maintain its own internal integrity. This means that

  • the logic-aspect of the system must function correctly,
  • the control-aspect of the system must function correctly, and
  • the correct energy level must be maintained.

In addition, each system-aspect must interact correctly with the other two system-aspects:

 

Internal logic interaction

The logic-aspect of the system tells the control-aspect the correct parameters within which the system should operate. The logic-aspect of the system also tells the energy-aspect how to best employ its energy, for the betterment of the system.

Internal control interaction

The control-aspect of the system tells the logic-aspect the current operating state of the system, so that the logic-aspect can process this information. The control-aspect of the system also directly controls the energy levels of the energy-aspect, in order to make sure that the energy-aspect is operating within safe and sustainable levels.

Internal energy interaction

The energy-aspect of the system provides actuating energy to the logic-aspect and the control-aspect of the system.

Quandaries in decision making

Many of the quandaries that are found in system-centric environments occur because of the fine balance required between the logic, control and energy aspects of the system, which can be upset by an imbalance in one area.

Going back to the example systems above:

System Aim to increase the energy level Suggested method Quandary
Human mind Increase feeling of well-being Perform more recreational activities Energy level: Trying to increase your energy level by engaging in additional recreational activities can lead to out-of-control energy levels (e.g. by drinking too much) and  can use up the energy available to the system (e.g. by getting a hangover).
Computer business system Increase business benefit Automate business processes Control: The business process can become too controlled, insofar as it cannot now cater for exceptional cases.

This can lead, for example, to the familiar bank clerk response, “Yes, I know what you’re saying makes sense, but the system won’t let me do that.”
School Increase students level of engagement Make teaching more informal Logic: The students do not amass sufficient knowledge, due to the more relaxed school atmosphere and reduced accent on scholastic accomplishment.

In each of the above cases, attempting to increase the system energy level can lead to unexpected outcomes, to the detriment of the system beneficiaries.

 

A system within a system

Within the operations of a company, we can identify a logic-aspect, a control-aspect and a energy-aspect as follows:

  • The company’s logic-aspect is the overriding way of thinking which permeates the company. Setting this thinking-tone is normally the responsibility of the CEO or the senior management team. Implementing and fleshing out this thinking may be the responsibility of the business analysis team or of the product development team.
  • The company’s control-aspect is the way in which the company controls its own operations. Practically this may consist of the legal department or the quality control department.
  • The company’s energy-aspect is the actual work that occurs within the company, which produces the company’s products.

However, all of these functions also exist within each department and team. This is because each department and team also requires their own localised methodology, their own localised way of maintaining quality control and their own skills and aptitudes which are required to perform the work that is required of them.

Therefore, a department or a team, comprises a system that operates within the context of another system (namely, the company).

 

Local imbalance

The reason that a good high-level decision can lead to a local imbalance in a department or in a team, is because although the high-level decision maker may have correctly taken into account the general, overall capabilities of the organisation, it may not be possible to implement this decision in a department or team, in a balanced manner.

This is because doing what needs to be done in order to implement that high-level decision, may require that one aspect of the department or the team should be preferred at the expense of the other two aspects.

For example:

  • The management decision may require that controls should be tightened within the department or within the team. This may suit those employees who are tasked with maintaining internal standards, but can pose a strangulation hazard to those employees who are responsible for carrying out the every-day business processes (the logic-aspect and the energy-aspect of the department or the team).
  • The management decision may require that the throughput of the team or the department should be increased. Management assume that the team is capable of making their internal processes more efficient, in order to be able to cope with the additional throughput.
    In this case it is likely that business process fidelity will suffer, even if the increased throughput is achieved. Thus the energy-aspect of the department or the team has increased, but the logic-aspect has been compromised (since the logical fidelity of the overall business processes has been reduced) and the control-aspect has suffered (since processes now run out of their control limits).
  • The management decision may require that the complexity managed by the department or the team should be increased. More products may have to be offered, or more nuancing may be required in existing products. This will require an increase in the logic-aspect of the department or the team (since the department or the team is now dealing with increased complexity in their everyday business processes), but may cause throughput (the energy-aspect) to suffer, and may also cause business processes to go out of control.

 

Push-back

Often the only realistic way to respond to a local departmental or team imbalance, which has been created by an upper-level managerial decision, is to push back on the decision. This is not always so easy, but by explaining the issue using precise and positive language, you can broaden the perspective of the senior decision-maker, who will then be able to take the ramifications of their own decision into account.

The decision may need to be re-thought, more resources may need to be supplied in order to implement the decision, or the business initiative may need to be implemented in stages, rather than all in one go.

However the situation pans out, by adopting terminology that is meaningful to the senior decision maker, you will earn their respect and consideration, and hopefully preserve the department’s or team’s homogeny, into the bargain.

 

Vital ingredients for successful software development: Clear requirements and trust

Edward Chalk

Collaboration

One of the four pillars of the Agile manifesto (https://agilemanifesto.org/)  is:

we have come to value:…

Customer collaboration over contract negotiation

At a basic level this means that instead of having a frigid, legal relationship between the business stakeholders and the development team, it is more constructive if they maintain a convivial relationship between them. Software development does not always proceed as planned and sometimes takes on a life and a direction of its own. If there exists a relaxed, friendly relationship between the customer and the developers, then this organic growth can happen. Otherwise, it can’t.

Various factors pose a challenge to forming a collaborative environment. For a start, there is the normal commercial tension between the supplier and the customer where each wants a “good deal”. Additionally, the business stakeholders and the development team both have different ways of thinking. 

Business stakeholders think in terms of generalities and business benefit.  “Putting up a slick e-commerce site would help boost sales.” 

Developers, on the other hand, think in specifics and look for elegant solutions. “What would be the best web development framework to use for this client’s requirements?”

Because of these differences, it is often useful to think about creating a collaborative environment as a pragmatic exercise rather than as in idealistic one.

 

Clear requirements

If there is one thing that the business stakeholders and the programmers need to agree about, that is: what the system is meant to do, what the system should look like and how the system should respond to user input. If the business stakeholders and the development team can agree on the exact system requirements then their different approaches can remain a source of reciprocal amusement, instead of becoming a project threat.

The following science-fiction short story demonstrates this reality, to an extreme that some business stakeholders would probably empathise with:

 

Isaac Asimov

“Reason” (https://en.wikipedia.org/wiki/Reason_(short_story)) is a short story by Isaac Asimov in which two astronauts are assigned to a space-station which orbits close to the sun. The purpose of the space-station is to focus a high-energy radiation beam onto a receiver placed on earth, thus supplying the earth’s total energy needs.

While the astronauts are on the space-station, the space-station control-computer comes to the conclusion that the power source of the space-ship is god, that it, the control-computer, is god’s prophet and that everything outside of the space-ship is merely an illusion and does not really exist. A new religion subsequently begins in which the robots manning the space-ship start worshipping the space-ship’s power source, with instructions on the correct mode of worship provided by its prophet, the control-computer.

A solar storm is expected, which will knock the radiation beam out of alignment, potentially threatening to incinerate populated areas on earth. The astronauts are barred by the robots from touching the ship’s controls, since they are not part of the control-computer’s religion. When the solar storm does hit, the astronauts are relieved to find that the robots maintain the exact alignment of the radiation beam. Since part of the control-computer’s religion is to maintain the measurements that indicate correct alignment of the radiation beam, the robots take the required corrective action to maintain the radiation beam’s alignment, as part of their religious obligations. This despite the robots’ belief that nothing outside of the space ship actually exists.

The astronauts realise that their job has been taken care of for them. It is irrelevant if the robots perform their function because that will enable the earth to receive energy safely, or if the robots perform their function because that is part of their religion. In summary, so long as the “system” generated the correct output, both the stakeholders (the astronauts) and the system engineers (the robots) were able to happily coexist despite their very different perspectives on what was actually happening.

Similarly with regards to software development, whereas it is vital that the business stakeholders and the developers agree what is being developed and how the software should behave, it may not be all that important for the two teams to think about the new system in the same way. If the software means increased revenue to the business stakeholders, but means a funky open source based project to the developers, that’s OK as well.

 

Software quality

If clear requirements are the linchpin of collaboration, then investing in system fidelity and quality engineering is the bane of peaceful coexistence between business stakeholders and developers. Simply put, this is because the business stakeholders just want a “result”, but the developers want to create and work on a “nice system”.

Business stakeholders couldn’t care less, on the whole, how elegantly engineered the system is. As long as the software produces the correct result, they reason, it will result in the desired business benefit. Developers, on the other hand, very much care how well engineered the system is. For a start, they want to work on a clean system because that will allow them to think naturally about the problem domain, without getting clogged down in convoluted legacy code. Secondly, the cleaner the system is, the easier it will be to extend the system in the future without anyone having to pull their hair out.

In fact, it is interesting how difficult it is for software developers to sell the idea of quality software development to business stakeholders. The same business stakeholders have no problem in understanding why they may pay more for a quality product in other areas in their lives. It is natural that a Bugatti or a Rolls Royce should cost many times more than a cheap hatchback, which can effectively do the same job. This is understandable not just because the more expensive car looks better, it is also understandable because the more expensive car is better engineered.

Why then is it so difficult for developers to sell the idea of quality software engineering to business stakeholders?

 

Universal and local quality

High quality manufactured goods are universally accepted currency. Regardless of which country you’re in, driving a Bugatti down the high street will make people’s heads turn.

The converse is true also, however. It is exactly because high quality goods are universal currency that people know that, when they buy them they’re getting a valuable, quality product. This is because our assessment of product quality relies as much on other people’s response to our ownership of that product, as it relies on our understanding of what comprises a quality product in the first place.

This rule of reflected glory breaks down in the world of software engineering, however. Software quality is very difficult to demonstrate objectively to anyone who is not working on that particular software system, and therefore you can never get that confirmatory “Ooh!” which tells you that you have indeed spent your money on a quality product.

The reason that software quality is very difficult to assess objectively is because every software system is unique in the balance required between

  • overall design simplicity and component complexity,
  • ingenuity and straightforwardness,
  • conciseness and being self explanatory and
  • data normalisation and data access complexity.

Since software quality is not demonstrable to anyone outside of the organisation that is developing the software, business stakeholders are left simply having to believe the developers concerning what constitutes quality in this particular piece of software development. 

 

Trust

It takes a great deal of trust for business stakeholders to invest time and money in software quality whose value they do not really understand. This means that ultimately business stakeholders have to acknowledge that they are not in a position to place a direct econometric measure on the value that is being generated by the development team. 

Instead of treating the software development team like a manufacturing facility, the dev team must be allowed a certain amount of breathing space. Practically speaking, this means that there must be a certain degree of disconnect between the perceived commercial value of the dev team’s output and the funding that is provided for them.

With clear requirements and an atmosphere of trust, it is possible to develop the right quality software, on time, with no-one being injured in the process.

WeWork – Reality check

Edward Chalk

My reality

Reality is a wonderful thing which can prevent people from doing things like drink-driving (“So there I was holding onto the steering wheel…”), speeding to “get there faster” and going swimming in crocodile infested creeks.

Now reality, as we all know, is relative. You have your reality and I have my reality. Your reality says that it is reasonable to speed “a bit” because you know the road blindfolded. My reality says that I should drive very carefully because the road has a sharp bends, lighting conditions are bad and I am unfamiliar with the area.

It is possible for our realities to collide. If you want to drive at 110km/h and you are stuck behind me, when I am driving at 80km/h, then you may get very frustrated and make it obvious to me that the sooner I get out of your way the better off I’ll be, regardless of the lack of an overtaking lane and the sheer drop off the side of the road.

What is interesting about this exciting (for you) experience is that we can both wind our ways home, and relate our close encounter from entirely opposite perspectives.

  • “I had this absolute lunatic tailgating me on the B234 when there was no way I could pull to the side to let him take over.”
  • “I had this absolute idiot in front of me all the way home driving like he had all the time in the world when he knew I wanted to get past.”

What is even more interesting is that, as long as we do not frequent the same pub, both complaints will attract the same number of ooh’s and aah’s, and we will both go home feeling happy and vindicated. It is only if we frequent the same pub that our conflicting points of view may result in words and actions that do neither of us any good.

 

Our reality

Just as every person perceives reality from their own perspective, so too does every group of people form its own version of reality. Whether that group of people comprises a company, a club, a special interest group or a country, there are unwritten rules that define how that group will evaluate people internal to that society, people external to that society and also things in general.

These unwritten rules define what is valued and what is discarded, what is an accomplishment and what is a failure, what is cool and what is trite and so on. A society can have a holistic view of reality which promotes benign behaviour, or a society can have a highly selective view of reality which encourages behaviour that may appear bizarre to the casual observer.

For Vikings, a nice day out may be spent plundering and pillaging. For classic pop music lovers, a nice day out may be spent listening to someone wondering whether or not this is the real world.

Both the Vikings and the music lovers will feel uplifted and refreshed at the end of the day, because they have both accomplished something of value which they feel is vitally important for the continued well being of “society”. Additionally, both the Vikings and also the classic pop music lovers feel that what they do makes sense, because within each group the thinking of that group is internally consistent.

  • “It makes sense to go plundering and pillaging.”
  • “It makes sense to listen to someone wondering whether or not this is the real world.”

However for Vikings, music-lover-logic is insanity (you could just plunder and pillage the person who is wondering whether or not this is the real world, instead of listening to him singing). And for music lovers, Viking-logic is insanity (so unreal, man).

In other words, just as your reality may make sense to you, but not to me, so can that which “makes sense” within a society not make sense (i.e not be logically consistent) outside of that society, and vice versa. In fact what “makes sense” within a society is often the absolute opposite of what “makes sense” outside of that society.

This is because, just like people, every society has a specific way of seeing things, i.e. a specific way of fitting together the myriad experiences and artefacts that make our experience of “life” into a coherent whole. And that which “makes sense” is that which fits into this holistic – but localised – pattern.

 

Reality incorporated

Modern socio-cultural corporations deliberately create their own self-contained “society”. This means that corporations effectively create an internal micro-culture in which the following “reality” applies:

  • The company is immutably “good”.
  • The company’s products and services are a source of “goodness” to society. (This applies even to products such as gambling services and tobacco.)
  • Because the company is “good”, and because the company’s products are a source of “goodness”, therefore it is the moral imperative of the company’s employees to work towards the success of the company and to facilitate the stream of quality products and services which the company “provides” to its customers.

In order to become a “part” of the company, employees are expected to buy into this self-contained “reality” and to live (at least when at work) according to its dictates.

 

Market buy in

The interaction between the inner company culture and the culture of the customer base depends on the type of product being sold:

  • Basic utility products: Products that provide a basic utility value, e.g. bread.
    For this class of product there is little or no interaction between the company culture and the consumer base. If I buy a loaf of bread, I have not bought into the company that produced that loaf of bread. I do not have a “relationship” with the bakery.

 

  • Products that combine functionality and an “idea”: Products that combine basic utility value with some thoughtfulness, e.g. fashion clothing.
    In addition to providing the protective function of clothing, fashion clothing also makes a statement about the wearer. The fashion clothing communicates the lifestyle intended by the fashion designer, with which the wearer has chosen to self-identify.
    For this class of product there is likely to be considerable overlap between the inner company culture (at least that of the design department) and the consumer mentality. Just as employees are socialised to believe that “our clothes are stunning”, so too, when customers purchase the company’s clothes, they do so because they “believe” in the feel-good aura that is advertised by the company.

 

  • Ideation products: Products that primarily consist of a sophisticated idea that is meant to enhance the “life” of the consumer. The idea (e.g. social networking) is “sold” together with an ancillary product (in this case, social networking software) that allows the implementation of that idea.
    For this class of product, when the consumer buys the product, they also subconsciously buy into the thinking behind the product. “This is going to work for me.” By extension, the consumer also buys into the company culture that created the idea. In other words the customer agrees, to a certain extent, to perceive reality through the eyes of the company.

In short: Bread does not make a statement. Fashion does make a statement. Social networking is the way in which I make statements.

 

New technology take-up

The market for innovative technological products is taken to be comprised of five demographics which differ in their thirst for new technology:

  • Innovators: People who love innovation for its own sake and who will buy a new product exactly because it’s new.
  • Early adopters: People who have an objective understanding of the benefits of the new technology and are willing to give it a go because they think it could work for them.
     
  • Early majority: People who will start using new technology once they see it becoming mainstream.
  • Late majority: People who are skeptical about technological innovation but who eventually follow along with the crowd.
  • Laggards: People who are positively averse to change.

It is generally understood that if a new technological product has been adopted by the innovators and the early adopters, then it is only a matter of time till the product spreads through the entire market. The early majority, the late majority and the laggards will eventually follow in the path of those who embrace change.

However, the idea-functionality class of the new product will influence the purchasing decisions of the more conservative demographics.

 

Market take up pattern for ideation products

If a technological innovation has some essentially useful functionality, then although the conservative demographics will be put off by the newness of the product, at the same time they are also attracted by the product’s fundamental usefulness. Therefore once the product enters mainstream use and is no longer quite so new, its usefulness will surpass its novelty and the staid market sector will start buying.

However, for ideation products whose entire sell is that it is “a new way of doing things”, the product may be totally irrelevant to the later demographics.

Although the idea (and associated technology) is useful to the more progressive demographics, that is because their personal culture was already fundamentally in sync with the culture of the company that produced the idea. Therefore the idea is cogent for them and enhances their lifestyle. However, for conservative people to whom the company’s progressive culture is foreign, the idea may have no functional value and may actually be contraindicated. 

In other words, an ideation product may be of negative value (“worse than useless”) for people who are external to the culture in which the idea originated. In this case there is no essential value and usefulness for the conservative demographics, because to the contrary, it would be detrimental for this demographic to adopt either the idea or the thinking behind the idea.

 

Permission to disagree

If you work for a high-tech startup, it would be extremely career limiting to voice your doubts about the wonderfulness of the startup’s products. This is because, although the startup’s founders may be aware of the functional limitations of their products, it is unlikely that they are aware of the limited scope in which their ideas apply.

Therefore for a product whose primary content is the idea inherent in the product, it may be impossible to honestly evaluate the potential of the product, from within the company.

In this case, if the market takes its cues from the optimistic mood and the thinking within the company, it may be following a very distorted view of reality.

Internal employee view vs external business view of a company

Edward Chalk

Internal employee view vs external business view of a company

Employees’ understanding of what a company is all about, is very different to the market’s understanding of the business. This is because employees have an idealistic view of the company, whereas the financial markets take a commercial view of the company.

An example of the non-idealistic business perspective, is the commonly held view that the only ideal that a business should have is to increase its profits.

There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.

https://en.wikipedia.org/wiki/Friedman_doctrine

Although this is a healthy perspective as far as investors are concerned, thinking that the only goal of the company is to increase its profits, would very quickly demoralise the most enthusiastic company woman or man. Employees have the need to believe in a higher purpose in their daily tasks, other than making money for the company’s shareholders.

In response to this need for professional self-respect, companies create an internal world in which there is inherent pride in doing your job. Management organises the company in a way that if everyone does their job well, then the company will be financially successful. Employees do not need to ponder over the financial significance of their work, however.

Let me once again emphasize that instilling feelings of pride in your employees is an essential part of the environment that stimulates them to do their best.

Pride in who I work for, or pride in my company, is the first and most important. It is having the feeling that where you work is a good place, that it makes a product that is good, and that it is one of the best, or the best in their industry. It is feeling good when you tell someone where you work.

Pride in what I do is the feeling that my job, and especially how I do it, makes a difference… It is a feeling that you stand out in your profession. It is knowing that you are doing the best of the best.

The Workplace Family: A Framework for Getting the Best From Your Employees, page 85

https://books.google.com/books?isbn=0557885086

 

Context for accomplishment

To create an internal company world where professional pride is insulated from the financial evaluation of the company’s work force, the following elements must be present:

  • Feeling of goodness: Employees must have a good feeling about the products or services that they produce. In other words, employees must feel that the goods or services that the company produces are inherently good and desirable. If employees feel proud of the goods or services that they produce, then they will feel good about their share in making this result possible, without having to think about the financial evaluation of their productivity.
  • Professional pride: Employees must feel proud that they are doing professional work which requires their unique skills, talent and knowledge. If employees feel pride in their work, then they will gain a sense of professional self-respect, without having to think about the financial value of their skillset.
  • Recognition and respect: If employees feel that their contribution to the company’s success is recognised, this will motivate them to succeed, without having to view themselves as the cause of the company’s profits.

The basic ingredients for developing a healthy internal company work-attitude are respect for the company’s products, respect for the skills needed to turn out the company’s products and recognition of employees’ part in creating the company’s products. Together, these attitudes create a self-contained world of striving and accomplishment, which insulates employees from the commercial evaluation of their activities.

 

Paradigm translation

The market’s perspective of employees’ work is very different to the perspective of the employees who do the work. The market evaluates employees’ work from a commercial perspective, however employees assess the value of their work according to its inherent usefulness and goodness.

To be successful, companies must respond to the market’s commercial expectations, and also foster an internal work-environment of striving and fulfillment in which employees can feel good about themselves because of their accomplishments. For this to happen, the company’s leadership must translate the commercial pressure on the company into internal dynamism, and also align the company’s internal creativity with the commercial expectations placed on the company.

In 2004 Drucker said, “The CEO is the link between the Inside that is ‘the organization,’ and the Outside of society, economy, technology, markets, and customers…”

My experience validates Drucker’s observations, and my actions since those early days and weeks have been consistent with them… Over time I’ve come to see the power in Drucker’s words about linking the outside to the inside…

The CEO is uniquely positioned to ensure that a company’s purpose, values, and standards are relevant for the present and future and for the businesses the company is in. The CEO can and must make the interventions necessary to keep purpose and values focused on the outside. To sustain competitive advantage and growth, he or she must create standards to ensure that the company wins with those who matter most and against its very best competitors.

https://hbr.org/2009/05/what-only-the-ceo-can-do

True leadership requires emotional involvement and inspired guidance within the company’s internal world, combined with forthright and astute business practices when selling the company and its products.

By translating commercial pressure into internal inspiration and internal inspiration into financial results, managers can be popular with both staff and investors.

 

 

 

knowledge creation strategy

Knowledge creation strategy – creating an intense learning environment

Edward Chalk

Knowledge creation strategy

Theory of the Firm and knowledge creation strategy

When devising a strategy for the future growth of a firm, it is initially necessary to decide how to view the current state of the firm. The Theory of the Firm provides various perspectives that firms can be analysed from.
For example, the Product Based View of the Firm states that the products that a company produces are its primary differentiator. In this case, strategy consists of dominating specific product markets.

The strategic objective in the PBV (product based view) is to dominate in a product or service market. Firms are able to dominate when they have the best understanding of the industry, particularly the opportunities and threats that are emerging.
… The PBV (product based view) of strategy asks what it is that the firm must do to dominate in its selected industry. Pursuit of these answers is expected to generate the most desirable internal configuration.
Governing Transformative Technological Innovation: Who’s in Charge?
https://books.google.com/books?isbn=1781951004

On the other hand, the Resource Based View of the Firm states that a firm’s capabilities are its primary differentiator. Therefore strategy consists of applying the firm’s capabilities in the most effective manner possible.

Resource based theory sees the firm as a collection of assets, or capabilities… The success of corporations is based on those of their capabilities that are distinctive…

Business strategy involves identifying a firm’s capabilities: putting together a collection of complementary assets and capabilities, and maximising and defending the economic rents which result…
https://www.createadvantage.com/glossary/resource-based-view

Knowledge Based View of the Firm

The Knowledge Based View of the Firm (KBV) is a specialisation of the Resource Based View, which posits that the primary competitive advantage of a company lies in its knowledge. This perspective is particularly relevant to companies that rely predominantly on human capital and know-how, such as financial services and high-tech companies.
The knowledge-based view of the firm argues that the products and services produced by tangible resources depend on how they are combined and applied, which is a function of the firm’s know-how. This knowledge is embedded in and carried through individual employees as well as entities such as organization culture and identity, routines, policies, systems, and documents.

The knowledge-based view of the firm posits that these knowledge assets may produce long-term sustainable competitive advantage for the organization because knowledge-based resources are socially complex to understand and difficult to imitate by another organization (Alavi & Leidner, 2001).

Strategic Knowledge Management Technology, page 55
https://books.google.com.au/books?isbn=1591403367

However, assuming that knowledge is the primary differentiator of a company can make it difficult to identify a future growth strategy. There does not seem to be any way to guarantee the invention of commercially useful knowledge within a company and there is nothing to prevent the smallest company from making a discovery that is crucial to the entire industry.
In other words, how can a company position itself to be the repository of knowledge that does not yet exist?

Due to this problem, some researchers have come to the conclusion that it is not possible to create a strategic growth plan that is based specifically on the Knowledge Based View of the Firm.

Given the current theoretical perspectives on knowledge, KBV (knowledge based value) is not yet a theory of strategy (i.e., a theory that links independent variables to a specific conception of firm performance) that goes beyond the insights provided by the resource-based view and the related dynamic capabilities approach.
…Similarly, the empirical literature suggests that it is unlikely that we have a new theory of organization, given that internal and external knowledge transfer processes are not appreciably different (i.e. there is no way of localising knowledge creation within the firm).

Knowledge-Based View: A New Theory of Strategy?
www.uhu.es/alfonso_vargas/archivos/Eisenhardt%20y%20Santos-2001.pdf

Hence the question arises, is it possible to determine a company structure that is optimised for the creation and application of new knowledge?
The following are some ideas for encouraging creativity and retaining inventive talent.

Emotional complexity

Due to the need for social crystallisation and operational predictability, corporations often encourage an emotionally simple and homogenous environment.

Corporate homogeneity – All business verticals and functional components can achieve a homogeneous ambition and approach if their aspirations and perceptions are well guided. A vision document provides the required homogeneity. All stakeholders can perform with better zeal if they connect to a common purpose provided by the organization’s vision.
Strategic Planning, Execution, and Measurement (SPEM): A Powerful Tool for CEOs, page 8
https://books.google.com.au/books?isbn=1466567465

However, predictability is the antithesis of innovation. People with a predictable work-habit are likely to think predictably as well. The passion of intellectual accomplishment can only be cultured in an emotionally complex environment that does not scale down diversity, variety and expressiveness.

Creation lies at the edge between order and chaos. Requisite variety helps a knowledge-creating organisation to maintain the balance between order and chaos. An organisation’s internal diversity has to match the variety and complexity of the environment in order to deal with challenges posed by that environment.
SECI, Ba and Leadership: a Unified Model of Dynamic Knowledge Creation, page 28
https://www.ai.wu.ac.at/~kaiser/literatur/nonaka-seci-ba-leadership.pdf

Intellectual excitement

Foment an atmosphere of intellectual excitement that incorporates mind, body and spirit. All of these are required input for new knowledge creation.

Knowledge is created in the spiral that goes through two seemingly antithetical concepts such as order and chaos, micro and macro, part and whole, mind and body, tacit and explicit, self and other, deduction and induction, and creativity and control.

SECI, Ba and Leadership: a Unified Model of Dynamic Knowledge Creation
https://www.ai.wu.ac.at/~kaiser/literatur/nonaka-seci-ba-leadership.pdf

Knowledge-outcome ownership

Encourage people to feel ownership of the outcome of their knowledge.

The Mac team had a complicated set of motivations, but the most unique ingredient was a strong dose of artistic values. First and foremost, Steve Jobs thought of himself as an artist, and he encouraged the design team to think of ourselves that way, too. The goal was never to beat the competition, or to make a lot of money; it was to do the greatest thing possible, or even a little greater…
Since the Macintosh team were artists, it was only appropriate that we sign our work. Steve came up with the awesome idea of having each team member’s signature engraved on the hard tool that molded the plastic case, so our signatures would appear inside the case of every Mac that rolled off the production line…
We held a special signing party after one of our weekly meetings on February 10, 1982. Jerry Mannock, the manager of the industrial design team, spread out a large piece of drafting paper on the table to capture our signatures. Steve gave a little speech about artists signing their work, and then cake and champagne were served as he called each team member to step forward and sign their name for posterity… Steve waited until last, when he picked a spot near the upper center and signed his name with a flourish.
http://www.folklore.org/StoryView.py?project=Macintosh&story=Signing_Party.txt

Societal improvement

The “I did something really great” feeling, can only be experienced if people realise that they are doing something which is genuinely useful for society.

It was no use appealing to the ‘organization’ to produce new products in a miracle time. Everything had to be done on a person-to-person basis and cutting across all the lines of red-tape…

I summarize the qualifications for this sort of operation:

1. Money capitalism has to give way to motives of human capitalism both as to public sentiment (‘fighting for our lives’) or the breaking of red tape (‘You can do the paper work later’). It is a sense of vital urgency.

2. One has to work with back-room boys who are both self-starters and ingenious and who enjoy the sense of vital urgency. For once, the back-room boys feel they are doing something useful.

Innovation and Employment, page 143
https://books.google.com/books?isbn=1483165485

In summary

Creative minds are attracted to interesting environments. Compulsory homogeneity is the first warning sign that ingenuity and originality are on their way out. A true learning environment can only be led by someone who relishes the personal growth of constant learning themselves.

The Black Board drawings of Rudolf Steiner

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