strategic and economic drivers of governance

Strategic and Economic drivers of Governance

Philip Boxer 14th December 2008

1 Copyright © BRL 2008

Contents

• The relationship to demand

• The economics

• Strategy

• Governance as driven by economics and strategy

• Managing the balance

• The East-West Challenge

• Exploring the connections to ULS


Nation % WW

Labor

%

A

%

G

%

S

25 yr %

delta S

China 21.0 50 15 35 191

India 17.0 60 17 23 28

U.S.A. 4.8 3 27 70 21

Indonesia 3.9 45 16 39 35

Brazil 3.0 23 24 53 20

Russia 2.5 12 23 65 38

Japan 2.4 5 25 70 40

Nigeria 2.2 70 10 20 30

Banglad. 2.2 63 11 26 30

Germany 1.4 3 33 64 44

Top Ten Nations by Labor Force Size (about 50% of world labor in just 10 nations)

A = Agriculture, G = Goods, S = Services >50% (S) services, >33% (S) services

2004

The largest labor force migration in human

history is underway, driven by urbanization,

global communications, low cost labor,

business growth and technology

innovation.

2004 United States

(A)

Agriculture: Value from

harvesting nature (G) Goods: Value from

making products

(S) Services: Value from enhancing the capabilities

of things (customizing, distributing,

etc.) and interactions between things

The World is becoming a service system (I.E. PLATFORM-CENTRIC BECOMES CAPABILITY-CENTRIC)

Source: IBM Research © 2005 IBM Corporation


Positional Advantage

Boundary characteristics determine value of position


Value Chain Organisation

• Need to consider – demand-side changes in the way value is

created for the customer – supply-side changes in the organisation of

the value chain itself

One position Our current ‘front-line’ line

addressing different customer requirements

Alternative organisation of the

Value Chain


Air Traffic Control position

The ATC Chain

Components

Boxes

Design, Build, Make

MSSR

RSC/CSI Integrator

3rd Parties

NATS

Install, train,

operate

Air Traffic Control Provider

Airline

Service, Support, Finance

Regulation

Considering the possible organisations of the Value Chain from

here will give a very different perspective on the ATC position


The Effects Ladder – organising the value chain

Rethinking how the customer

creates value

Rethinking how value is created for

the customer

Managing the relationship means competing on the

Effects Ladder

Effects

Ladder


Problems related by a shared value

proposition

Zoning of ladder by type of competitive

presence

level below which context-of-use can

be ignored, and there can be an

arms-length procurement relationship

Major drivers determining

nature of demand situation

The Effects Ladder1

This is the crucial ground to ‘take’

competitively

The demand situation

This boundary is moving


Indirect Battlefield

Engagement

Weapon systems upgrades

Non-Tactical training

(knowing what)

ISTAR – situational awareness

Maintenance

Logistical capability

Storage

doctrineInter-operability

cost-effectiveness

Manpower productivity

Synthetic environments

War gaming

Operational analysis

platforms Tactical training

(knowing how)

ROE x TEWA

Exo-system context able to ‘feed’ STA

capability + interface integration

Physical installation

integrationSoftware installation

integration

MMI/STA integration

C2 Structure

‘feed’ fusion

CM Mvre

DEC CCII

DEC ISTAR

CM IS

CM IS

Army

CM Mvre

DERA

?

Army

DLO

DERA/CDA

CM IS

CM Mvre

Army

?

To sort out these dotted line areas, it is necessary to get at DCDS (Systems), DGE, CM Mvre, CM IS, CM

ISTAR, DEC IBE & DFD.

The Effects Ladder2


Contents


• The economics

• Strategy






Asymmetric Advantage

• The third kind of asymmetric advantage depends on relating to asymmetric forms of demand

• The traditional approach to competitive advantage (following Porter) is based on owning something i.e. on establishing property rights.

• The new kinds of disruptive competitive strategy (viz Christenson et al*) are based on creating asymmetric advantage.

• Asymmetric advantage is based on knowing something that competitors don’t know that creates value for customers

• There are three kinds of asymmetric advantage:

1. uses-of-technology know-how, 2. customisation-of-business-process know-how, and 3. embedding-in-customer-context-of-use know-how.

* Christensen, C.M., Johnson, M.W. and Rigby, D.K. (2002) ‘Foundations for Growth: how

to identify and build disruptive new businesses’, MIT Sloan Management Review, Spring


The third asymmetry: Asymmetric Demand

• Symmetric Demand – Those aspects of a demand situation

• that can be abstracted and generalised across different contexts-of-use, and

• that are treated as symmetric with supply-side capabilities

• Asymmetric Demand – Those aspects of a demand situation

• that are particular to the context-of-use (i.e. cannot be abstracted and generalised), and

• that need orchestration and synchronization of supply-side capabilities in a way that is particular to satisfying the particular demand

• Value Deficit

– The gap between the symmetric and asymmetric aspects of a demand situation.

Strategy based on extracting maximum value from position

Strategy based on extracting maximum value from relationship


Competitive Advantage

• A particular form of competitive advantage flows from each form of asymmetric advantage:

1. Superior know-how about uses-of-technology generates economies of scale: • we can produce things more economically than our competitors

2. Superior know-how about customisation-of-business-processes generates economies of scope: • we can deliver our products and services to markets more economically than our

competitors

3. Superior know-how about embedding-in-customer-context-of-use generates economies of alignment: • we can orchestrate and synchronize products and services dynamically in ways that change

with the way your particular needs are changing.

• These forms of competitive advantage are not mutually exclusive


Technology 6-layer stratification

WHY:

What are the contexts-of-use

and customer situations that

are generating the demands

that you are targeting, and

how will you synchronize*

the composite capabilities

needed to satisfy them?

WHAT:

What are the critical

technologies*that you

have to be able to master

and/or source?

HOW:

What are the key

constituent performances

that you need to construct

output performances

WHO/M:

How are you going to have

to customize and orchestrate

outputs to generate the

composite capabilities you

need to support the customer

situations you are targeting?

1st asymmetry the technology is not the product

Economies of Scale

2nd asymmetry the business model is not the

value proposition

Economies of Scope

3rd asymmetry the demand is not the experience

Economies of Alignment

The Asymmetries build on each other

critical

technologies

Key constituent

performances

output performances

Customized

outputs

Composite

Capabilities

Customer

situations

Contexts-

of-use

Engineering

Type 0 Constructive

Type I Customization

Type II

Orchestration

Type III Synchronization


Contents


• The economics

• Strategy






Opportunistic (marginal/ incremental)

Effects-based (focus where

Relational

advantage can be

sustained)

Niche-based (focus where

Positional

advantage can be

sustained)

Asymmetric Advantage from

Economies of Alignment

No Yes

Asymmetric

Advantage

from

Economies

of Scale or

of Scope Yes

No

Commoditization

centre-driven directed

composition or directed

collaboration

edge-driven

distributed

collaboration

The challenge for the enterprise

is to be able to extend the

competitive footprint of its

businesses so that they are able

to include effects-based forms of

competition

Digitalization The processes of digitalization

are shifting the economics

towards being able to address

asymmetries of demand

Relational Advantage has a half-life

because of Knowledge Diffusion

The impact of Digitalization


Business: 2-levels • Strategic Marketing

– Shaping the demand of the client

• Strategy – Defining the SBU positioning

to capture sustainable competitive advantage

• Tactics – The steps needed to

implement the strategy .

Military ‘Strategy’ ≠ Business ‘Strategy’: Military Strategy is Effects-based

Military: 3-levels • Strategy

– Shaping the will of the adversary

• Operations – Defining operational

capabilities to support the strategy .

• Tactic – The steps needed to deliver

the operational capability in this instance

Effects-basing requires new ways of competing that involve taking the ‘shaping’ power to the edge of the organization, and making the

organisation’s infrastructures structurally agile.

Uncertainty

• About what needs are out there.

• About how to organize things .

• About what will be the effect.

A 2-level approach to strategy relegates strategic marketing to being

subordinate to operational strategy


The more dynamic the demands, the higher the Strategy Ceiling needs to be lifted

(the level above which it is none of your business…)

WHY Strategic Why is this needed?

WHO/M Operational Who is going to deliver value to whom?

HOW Tactical How should we organize it?

WHAT What do we need to do?


Implications

• With a 2-level approach to strategy, “strategy” is about defining the organization within which things will get implemented.

– This is ‘operational strategy’ (Porter, 1996*), and is about the long term/general in relation to the short term/particular – prone to arm-waving!

• With a 3-level approach to strategy, “strategy” becomes very specific to the situation giving rise to the demand and how effects can be generated upon it

– This is about ‘shaping the demand’, and involves considering the variety of forms of value proposition that it must be possible to generate to create those effects (Hagel, Brown & Davison, 2008**).

• Distributed collaboration is needed to sustaining 3-level strategies in complex and dynamic demand environments

– 3-level strategies become necessary in (e.g.) counter-insurgency environments: environments where the varieties of demand are too great and too dynamic to rely on 2-level strategies.

* “What is strategy?” by Michael Porter. Harvard Business Review Nov-Dec 1996. pp 61-78. ** “Shaping Strategy in a World of Constant Disruption” Hagel, Brown and Davison, HBR October 2008


Contents


• The economics

• Strategy






•The goal is to establish who are the key actors, and how they influence each other in determining the performance of the whole:

The domain of practice

White:

how we must

do what we do

Blue:

what we do

Red:

particular

demands

Black:

the contexts

from which the

demands

emerge

The ‘who for whom’:

Are we satisfying the

presenting demand?

The ‘why’:

Will we produce the effect

that we want to?

The ‘what’:

Are things working as

they should?

The ‘how’:

Are we doing

things right?

Defining the Enterprise as a sovereign entity

21

What shapes

the way

things work

The way

things

work

Internal External

N

S

W

E

Copyright © BRL 2008

Governance as driven by the need to manage balance

Direction

of the whole

Operational

Capabilities

Developing the best

supporting

infrastructures

Demand

The particular nature of the demand

Problem-solving

Know-how

Developing effective ways

of satisfying the

particular demand

Balance

Clear overall intent

Source: East-West Dominance, Philip Boxer, 2006, http://www.asymmetricdesign.com/archives/32

Black:

the contexts

from which the

demands

emerge

Red:

particular

demands

Blue:

what we do

White:

how we must

do what we do


North-South vs East-West Dominance

• With North-South dominance, the E-W response is subordinated to the N-S control axis – Directors’ top-down strategies (N) for how business capabilities (S) are to be

used dictate the way demands are identified and responded to.

• With East-West dominance, the N-S axis is subordinated to the E-W demand axis – The identification of demands (E) and the formulation of effective responses to

them (W) determine the way business capabilities are directed and deployed.

• The ‘Faustian pact’ delays having to develop E-W dominance – It allows the organisation to remain N-S dominant by cutting enough slack for

those needing to operate E-W so that they can deal with the variations in demand they are encountering by informally flexing the system within the overall N-S control framework.

• East-West dominance presumes asymmetric demand and means taking power to the edge of the organisation.

Black:

the contexts

from which the

demands

emerge

Red:

particular

demands

Blue:

what we do

White:

how we must

do what we do


Contents


• The economics

• Strategy






Functionality available

Customer’s Timing & Logistics

The relations to the context-of-use

Crossing over this line

means having a

relationship to the

context-of-use…..

‘problem

solver’

‘product

developer’

‘service

provider’

‘cost

minimiser’

Where does the

Enterprise

need to

compete in this

space?


Knowledge Diffusion from supplier to competitors and customers

Functionality offered


The relation to

the context - of - use

‘problem

solver’

‘product

developer’

‘service

provider’

‘cost

minimiser’


‘role’

Do what you are told

‘achievement’

Use informal mechanisms to

compensate for limitations in

how your role is defined in

order that you are able to

achieve the objective set

Crossing over this line

means being driven by

the nature of the

situation….. ‘power’

Use informal mechanisms to overcome the

limitations of hierarchy through

personally authorised situational

definitions of how solutions should be

delivered, but still constrained by the silos

The forms of authorization

Responsibility-for

Accountability-to

‘support’

The supporting infrastructures are designed

to have the agility needed to support a

relational response to asymmetric demand


‘role’

‘achievement’

‘power’

Managing the use of scarce resources: de-confliction vs synchronisation

Responsibility-for

Accountability-to

‘support’

De-confliction dominant

Synchronization dominant

Requires power

at the edge

Requires power

at the centre

Informal/ad hoc

synchronization of the use of

resources in the response to

demand within the context of

Business Units

De-confliction of the use of

resources in response to

demand within Business

Unit Clusters

Synchronization of the use of

resources in the response to demand

through formalised edge processes

Faustian deal leaves silos of

control intact…

Faustian deal preserves

authority of hierarchy…


‘role’

‘achievement’

‘power’

Changing the forms of authorization

Responsibility-for

Accountability-to

‘support’

This move is not possible

organizationally

What is needed is this kind of move


Managing the balance

Responsibility-for

Accountability-to

The forms of

authorisation

Functionality offered


The relations to

the context-of-use

‘role’

‘achievement’

‘power’

‘support’

The relation will collapse to the

level at which there is a sustaining

form of authorisation…

… or more will be invested than

can be justified by the relation to

demand

The position

on the LHS

has to match

the position

on the RHS

‘problem

solver’

‘product

developer’

‘service

provider’

‘cost

minimiser’


The dynamics are different on either side

Responsibility - for

Accountability - to

Responsibility - for

Accountability - to

The forms of

authority

Functionality

Timing & Logistics

The relations to

the context - of - use

‘problem

solver’

‘product

developer’

‘solution

provider’

‘cost

minimiser’ ‘ role’

‘ achievement’

‘ power’

‘ support’ ‘ role’

‘ achievement’

‘ power’

‘ support’


The relation to the context-of-use - diagnostic

Where are you, and

where do you need to

be competitively?


Forms of Authorization - diagnostic

Where are you, and

where do you need to

be competitively?


Contents


• The economics

• Strategy






The 21st Century challenge

Asymmetric demand (threat)

– that demand which is specific to the customer’s particular circumstances and context-of-use. This may include tacit or latent demand that the customer is not yet able to articulate.

Technology now makes it possible to demand that products and solutions be customized, personalized, unique and distinctive to ourselves within our context (Bobbitt, 2002 ‘Shield of Achilles’)

* Power to the Edge: Command and Control in the Information Age. Alberts & Hayes 2003

The dominant source of threat shifts from competitors (other nations) to

customers (citizens and NGOs)

Power to the edge*

– Enabling people who directly experience a customer’s demand at the edge of the organization to be able to organise forms of orchestration and synchronization appropriate to the particular nature of the demand.

– The assumption is that the organization faces many such forms of demand, and that power-to-the-edge therefore involves distributed collaboration.


Sustaining East-West Dominance

Sustaining East-West dominance requires: – Leadership that can sustain power-at-the-edge

• A leadership model that can sustain the dynamic alignment of infrastructures to demand

– An East-West approach to demand • Collaborative relationships with customers within their

contexts-of-use developing strategy-at-the-edge.

– Infrastructures with agility • Capabilities delivered within a framework of stratification

and granularity able to support distributed collaboration.

– Horizontal transparency • The ability to hold accountable those with authority at the

edge


Contents


• The economics

• Strategy




• Exploring the connections to the ULS arena


Case Examples of the use of Projective Analysis Methods

1. Defining market failure and the need for changed purchaser-provider boundaries At Raytheon UK we examined the market failure that resulted in a change in the customer’s acquisition approach from being product-based to being capability-based, and identified the new forms of value proposition needed to rectify that failure.

2. Governance challenges supporting distributed collaboration At the Purchasing and Supplies Agency of the UK NHS we identified the challenges involved in creating accountability to care purchasers for providing through-life care to orthotic patients’ conditions, and established the collaboration platform needed to support the horizontal transparency required by distributed collaboration.

3. Operational effectiveness and its required variety of geometries-of-use At the MoD we analyzed the organization of campaign plans and the variety of patterns of organizational and technical orchestration needed to support them, and identified the gap between these patterns and the current approaches to capability audit.

4. Socio-technical interoperability risks and their mitigation At NATO we identified the risks posed by their current approach to orchestrating and aligning the constituent elements of their upgraded AWACS capability to sustaining its operational effectiveness over the next 10+ years.

5. Cohesion-based costing and the economics of alignment At Thales we examined the economics of alternative approaches taken by its MoD customer to orchestrating and aligning UAV capabilities across the DOTMLPF spectrum to create cohesive military responses.

6. Balancing centre-driven and edge-driven processes of distributed collaboration At JFSP we diagnosed the gaps between agencies’ center-driven approach to virtual organization and their ability to support the variety of approaches to collaboration used at the edge to mitigate wildland fire risks.

7. Situationally-driven data fusion and multi-sided market architectures At the Seattle Research Station of the US Forestry Service we established the scientific and data fusion characteristics particular to predicting smoke diffusion and defined the stratification of the BlueSky platform that enabled it to be embedded in a variety of user environments.


How projective analysis extends and complements existing forms of analysis

Current State of the Practice

Functional Architecture Description

Data Architecture Description

Accountability Hierarchy

Description

Social Synchronization/

Data Fusion Description

Description of Heterogeneity of

Demand Organization

Stand-alone Systems Architecture () - - -

Stand-alone Software Architecture () - - -

SoS Architecture (‘Complex’ as currently used)

() () - -

In the following case situations, projective analysis extended SEI’s Analytical Practice

BlueSky Framework Architecture () -

CREATE Framework Architecture - Phase II

NATO AWACS SoS Architecture

TUAV ULS Socio-Technical Ecosystem

Projective Analysis Views

Structure-function

Trace Hierarchy Synchronization Demand


Challenges for Policy, Acquisition and Management in the ULS Arena


strategic and economic drivers of governance

Business

value of position

copyright brl

value rethinking

value chain organisation

way value

effects ladder effects

products s services

world labor