I believe we are about to see the birth of a new business organization - one that is optimized for complex systems of problems and solutions, rather than based on silos focused on specific functions, and which treats user experience as a core organizational axis rather than a meddlesome add-on. Call it Org Chart 2.0.

Today’s companies are largely structured with Org Chart 1.0: silos of knowledge and product offerings (segmented by customer type, price point, technology, etc.). We have had this structure for decades, even centuries, and there are good reasons for it: it helps drive efficiency of development and decision-making, focus on customer segments and competitors, it makes the chain of command and (in theory) accountability clear, and so on.

Unfortunately this type of organizational structure is quite poor at dealing with complex systems and systemic-level problems. And this is becoming increasingly untenable for several reasons:

1. User experience design challenges the ability of organizations to cross silos: user experiences run rough-shod over org charts. Why? Because many elements go into making a user experience that from the user’s point of view should all be seamless and to an extent indistinguishable. Users don’t really care if the e-commerce portion of your website is created by a different group than the informational areas of the site, and from a brand point of view you should be ensuring that both areas of your site speak with the same brand voice. Now multiply that across your products (hardware, software), collateral, packaging and out-of-box experience, call-center, point-of-sale displays and materials, sales staff, and so on. That’s how user experience gets created.
2. Companies now need to deliver whole “solutions” rather than old-fashioned products. User experience design is just one example of this. More and more companies must pull together complex networks of partners, acquisitions and vendors in order to create and sell these solutions. No-one today is as vertically integrated as Henry Ford’s River Rouge manufacturing plant, where iron ore came in at one end and finished cars went out the other. Being nimble, global and adaptive in hyper-competitive and dynamic markets has forced dis-aggregation of capabilities and resources.
3. Customers are more complex than they used to be (or more likely it’s simply that our old models of market segments and personas did not allow for human nature and its self-contradictions). This makes understanding them and addressing them with offerings more nuanced and multi-faceted. A one-size-fits-all shrink-wrapped product on the shelf at Best Buy or Walmart is not going to cut it any more.

The strain is showing on the traditional silo’d organizational structure. I believe we will soon see the emergence of new companies formed in this environment and they will look quite different than what we have seen for the last decades. For these companies, thinking systemically and about user experience will be as natural as breathing. They will treat complex systems as inherent to their structure and creators of value, rather than as headaches to be avoided and territories to be fought over by silo’d clans.

What could a Business Organization 2.0 look like?

Instead of business units these companies will have “experience units”, which manage the end to end experience. Instead of focusing on products and technologies, they will be focused on the “invisible” system that connects the various products and customer touchpoints together. They will welcome outside vendors and partners as enablers rather than disdaining them as “not invented here”, and see themselves as being modular entities that can fluidly adapt to chaning market dynamics and customer needs. Customer input will be voraciously sought after and taken in, and customer participation in shaping the company and its offerings will be routine rather than the exception.

I’m sure there are many time-honored and well-established reasons why these things don’t make sense, and why Org Chart 1.0 is better. But the fact is that the world is changing and we need to think about new business organizational structures to adapt.

So what do you think? Are there any companies you see emerging that have these traits?

Mark Ury just alerted me to a post he did on his blog, springboarding off my notion that “the system is the product”. He makes the point that time is an important factor in how systems come to be:

Time determines the success of systems more than any other factor. This can be maddening for strategists and designers slaving away at product, service, hardware, and software ecosystems.

He argues that systems are not so much designed as evolved. This may be a matter of semantics, but I’d argue that while systems do indeed change over time, and there are unexpected mutations caused by hapenstance and the “environment” (the surrounding customers, competitors, culture…), that does not mean design has no role. We have some control of our own destiny, even with complex systems (though perhaps not as much as we like or think). All is not left up to the divine, as it were, and fortune rewards the prepared mind.

Semantics aside, I definitely agree that time is a key factor in system success. I’ve used the phrase “high panic threshold” when it comes to thinking about complex systems problems - you must resist the temptation to prematurely state that you have defined the problem fully. Doing so means you will likely miss out on a key insight into your customers, your competitors or your business, thus losing potential competitive advantage. You must have a high threshold for ambiguity, patience to wait it out.

In the past I’ve written quite a bit about wicked problems. I’m still percolating on that idea, but moving in a somewhat different direction. Why? Because wicked problems are incomplete when applied to the business world because in their classic definition they lack the notion of competition. Wicked problems emerged out of public policy and planning. In that arena there is not competition in the same way there is in business. So you do not have the time pressures to the same degree, and the fear that someone else is going to crack the problem ahead of you and thus gain an advantage.

Competition: The Go-Fast Force 

Competition is fundamental to business. You might think of it as the “go-faster” force that propels the world of business and individual companies forward. This instills a sense of impatience in companies, particularly when dealing with complex, rather abstract systems. Mark hits it on the head:

Most companies don’t have the patience (or the time) for the system to reveal itself. Public companies are focused on three month cycles. Their CEO’s have three-year tenures. Their middle-management has 50% churn. At the other end, startups have no resources. Two-thirds have the wrong-market strategy. Ninety-percent of them fail in three years.

Systems are so rarely produced because they take time and time is one resource companies don’t have. Most die long before the system is revealed.

This is the market equivalent of natural selection.

In this context, time to market comes to the fore. First mover advantage is key. Decisions are made quickly, partial understanding is the rule.

Emergence: The Go-Slow Force

However, as Mark points out, systems take time to understand, to refine. As the wicked problems definition would have it, you have to start making solutions in order to even understand the problem, and the problem definition emerges slowly over time. In other words, wicked problems resist the classic waterfall process of research > synthesize > define > recommend > act . In fact they turn it on its head: It is only by starting to act that you can illuminate the less obvious aspects of the problem, but its those aspects that deliver the competitive advantage for the very reason that they are non-obvious. If you can crack the wicked problem you gain a competitive advantage just because it is so difficult to understand.

So we have a “go-slow” force that is in polar opposition to the go-fast force of competition. I call this force emergence. Instead of time-to-market, time-to-right is the priority in emergence. Having that high panic threshold really comes in handy here, because this can take several years.

Obviously having large monetary resources helps a lot here, as you can afford to make mistakes (up to a point - shareholders and investors often have low panic thresholds). Having said that, start-ups tend to be good sources of illumination of wicked problems as they are laser focused on differentiation from the big-boy incumbents. Rather than complacently thinking they’ve got the problem well bounded, they actively seek out new aspects of it. The resource-constrained nature of start-ups often makes them more efficient at the rapid, iterative prototyping that is at the heart of using solutions to understand the problem (note that “solution” does not have to mean full-blown product on the market).

The Never-Ending Tension

We’ve all experienced the clashing forces of competition and emergence, the tension between going fast and going slow. For many people it sets the daily context of their work life, myself included. All the tools, processes and frameworks that we bring to bear on design challenges (user research, competitive analysis, trend spotting, market analytics, etc.) are fundamentally about trying to resolve this tension, or at least to make it managable.

There was a pretty good article a few days back in the NY Times about the rather obscure topic of business processes and process innovation. It was entitled “The Unsung Heroes Who Move Products Forward” and argues that while the final products sold to end users may get all the glory, it’s invisible process innovations behind the scenes that are largely responsible for their success. (Thanks to the NY Times now making everything free, it’s easy for anyone to check out.)

Process innovations like Google’s computer network are often invisible to the public, and impossible to duplicate by rivals. Yet successful companies realize that maintaining competitive advantage depends heavily on sustaining process innovations. Great process innovators often support basic research in relevant fields, maintain complete control over the creation of every aspect of a product and refuse to rely on outside suppliers for important components. Certainly, there are exceptions to these patterns, but even companies like Apple that buy essential processes on the open market nevertheless invest in gaining a working knowledge of the technologies and an understanding of their future arc.

Processes should be considered core competencies, along with IP on technology. If anything they are even harder to replicate.

I was was doing some reading on the concept of core competencies a little while back, as originally formulated by Gary Hamel and C.K. Prahalad, and there was an interesting shading to the concept that I hadn’t heard before; that is that core competencies should be hidden from the competition even if the end results are not. A lot of companies talk about their core competencies, but in many cases they are things which are quite obvious and not that unique to them. Instead, Prahalad and Hamel pose a more specific definition for core competencies:

The diversified corporation is a large tree. The trunk and major limbs are core products, the smaller brances are business units; the leaves, flowers, and fruit are end products. The root system that provides nourishment, sustencance, and stability is the core competence. You can miss the strength of competitors by looking only at their end products, in the same way you miss the strength of a tree if you look only at its leaves.

(C.K. Prahalad and Gary Hamel, “The Core Competence of the Corporation.” Harvard Business Review, May-June 1990, p82)

Hidden core competencies allow companies to diversify into new, unpredictable and seemingly disconnected categories, much as Google and Apple have been doing. As descried in the Times article, it’s the marshalling of processes and knowledge that allows firms to create great new products, not just as lucky breaks but over and over again. And because these competencies are hidden (as the roots of a tree are invisible under ground), they are extremely difficult for competitors to replicate, and tends to force them into constant catch-up mode.

Related past articles:

• Google’s Labs
  
• Logical Yet Unpredictable
• Wicked Problems
  

An interesting article in the June 11 Wall Street Journal talks about one company’s real-life realization that to maximize efficiency you have to not keep people working at full capacity - and this is especially true if you are looking for innovation. Furthermore, you need to carefully filter which innovations you invest in rather than trying to jam too much into the pipeline.

Avery Dennison Corp. loves to innovate. In recent years, the adhesive-label maker has expanded into areas such as stick-on automotive trim and heat-transfer inks to label clothing. But Avery executives grew vexed a few years ago at how long it took to turn ideas into products. Schedules were slipping. Customers were chafing.

Hoping to find the culprit, Avery hired George Group Consulting LP of Dallas to examine its practices. The surprising conclusion: Avery was jamming too many new ideas into its product pipeline, without enough slack time to ensure that critical tasks stayed on schedule. The remedy: Shrink the number of rollouts.

This fundamentally comes down to queuing theory, and how many things you can stack up without having dependencies which throw off schedules unpredictably. As the article notes, this type of thinking has been standard practice in manufacturing for decades, but “the same notion can seem like heresy when applied to scientists, designers or other creative types who launch new products.” In fact, this is exactly the approach that Donald Reinertsen advocated in his outstanding book Managing the Design Factory, which I have in my recommended books section.

Briefly his notion is this: innovative product ideas are like inventory sitting on a company’s books - until you get them out in the market they should show up as a debit in the accounting sheet (though company’s rarely track these things well, so the costs are often invisible). So you want to have as many inventory turns as possible to get ideas out quickly. But you don’t want to put out bad ideas, you need to balance time to market with “time to right”. This requires focusing your efforts and managing the innovation pipeline carefully. (I’ve written before about Google also dealing with this “innovation surplus” problem.)

The consultants mentioned in the WSJ article apply a mathematical theory on queuing, called the Pollaczek-Khintchine theory, to also show how  you need to have slack in the system to be most efficient overall. In other words, don’t keep people loaded up to 100% all the time if there are possible variances in how long tasks will take, as inevitably bottlenecks will occur during peaks. Since most real innovation efforts have multiple variables like this, to be most effective with a new innovation program you need to “under-utilize” people.

There’s a really good article in the June 11 issue of BusinessWeek about the tension at 3M between a free-spirited innovation culture and an efficiency-focused Six Sigma culture. 3M’s last CEO, James McNerney, came from GE and spread Six Sigma throughout the 3M organization, including in places where some people felt it shouldn’t be, such as the R&D labs. The new CEO, George Buckley, appears to be rolling some of these efforts back and trying to re-invigorate the open-ness to uncertainty and risk that innovation requires.

The article raises some fundamental questions about the balance between bottom-line and top-line growth and what the optimum tools, processes and attitudes are to achieve those, and hammers Six Sigma pretty hard in the process.

Some excerpts:

Efficiency programs such as Six Sigma are designed to identify problems in work processes - and then use rigorous management to reduce variation and eliminate defects. When these types of initiatives become ingrained in a company’s culture, as they did at 3M, creativity can easily get squelched. After all, a breakthrough innovation is something that challenges existing procedures and norms. “Invention is by its very nature a disorderly process,” says Buckley, “You can’t put a Six Sigma process into that area and say, well, I’m getting behind on invention, so I’m going to schedule myself for three good ideas on Wednesday and two on Friday. That’s not how creativity works.”

[T]he very factors that make Six Sigma effective in one context can make it ineffective in another. Traditionally, it uses rigorous statistical analysis to produce unambiguous data that help produce better quality, lower costs, and more efficiency. That all sounds great when you known what outcomes you’d like to control. But what about when there are few facts to go on - or you don’t even know the nature of the problem you’re trying to define?

Hellooo wicked problems! These are actually the types of situations where an overly data driven and prescriptive model can stifle competitiveness.

Early during the Six Sigma effort [at 3M], after a meeting at which technical employees were briefed on the new process, “we all came to the conclusion that there was no way in the world that anything like a Post-it note would ever emerge from this new system.”

The Post-It note is of course a famous story about how a “useless” invention - the non-sticky adhesive - led to a massive profit generator after years of tinkering and searching for the right application. Since its launch, innovation and design consultants have made Post-Its  as core to their processes as pencils and computers. Art Fry, the Post-It inventor, notes in the article that innovation is “a numbers game. You have to go through 5,000 to 6,000 raw ideas to find one successful business.” Something which organizations primarily focused on efficiency have a hard time comfortably accommodating.

Read the whole article at IN online.