Wednesday, April 20, 2005

Books on Complexity, Performance, Competition

By Moje Ramos-Aquino, FPM

By Michael L. George and Stephen A. Wilson
(McGraw-Hill Companies)

By Paul C. Light

By Michael E. Porter
(Harvard Business School Press)

It is not enough that we know where we want to go (vision, mission, values and strategic goals) to get there. The ever changing world of business forces us to analyze our circumstances and take stock of our resources and processes to get a more focused picture of our business environment and project them into the future—the place where we would implement our strategies.

Authors George and Wilson wrote: Somewhere in your business, there is too much complexity. It erodes profitability, impedes productivity, confuses customers, and adds non-recoverable costs that can kill you in the marketplace. But that’s only half the equation. You may also be losing out by having too little of the complexity where it counts—in the products, services and options you offer to customers. Customers call this value-added complexity “variety,” “options,” or “customization.”

Either way, as you will discover in Conquering Complexity in Your Business, the impact of complexity is enormous in terms of lost profit, and missed growth opportunities. George and Wilson identify two kinds of complexity and conclude that conquering these complexities will give your business the competitive edge.

Deliberate complexity. To respond to growing competition, companies make deliberate decisions to increase complexity, to expand their products and service lines, to constantly modify and redesign existing products/services. The net impact is more and more product/services variations chasing limited resources, which are growing more slowly than the rate of proliferation. Many companies are now choked by the complexity they offer to customers.

Unmanaged proliferation. Much of the complexity in business is unintentional. New products or services are often designed without consideration for what already exists, new activities are added to processes without thought to whether existing activities could be used or adapted; acquisitions are integrated with no thought to the resulting cost of complexity. These happen simply because no one has understood how incremental decisions made in isolation can result in very high complexity-related costs over time.

Therefore, George and Wilson recommend steps to diagnose and prioritize the complexity in your business before developing your strategies. 1) Identify which complexity creates value and which destroy value; 2) Quantify the costs this complexity imposes on your business; 3) Expose the underlying cause of the complexity and; 4. Evaluate whether potential new products/services will be worth the complexity they introduce into the systems.

This holds true for our human resources management. Most times our customer, our employees, feel weighed down by the complexity of HR policies, systems, programs and procedures we implement without a second look at the cost (time, money, space, etc) , results and impact of such programs. Time to analyze our capabilities and to adjust our HR initiatives within the sight of our corporate vision/mission/values and goals.

Other than the social, political and regulatory, economic, and technological factors in our external environment, it is the industry and competition factors that shape our strategy, guide us allocate our limited resources, and impact our business the most. Speaking of which brings to mind Michael Porter’s five forces governing competition in an industry. For the past two decades, Porter’s work has defined our fundamental understanding of competition and competitive strategy.

In the book On Competition, Porter, writing alone or in collaboration with other writers, discussed more in-depth the concepts of competition and strategy, competitiveness of locations and competitive solutions to societal problems.

The five contending forces are:

 The Industry: jockeying for position among current competitors
 Threat of new entrants
 Bargaining power of suppliers
 Bargaining power of customers
 Threat of substitute products or services

Porter writes: The strongest competitive force or forces determine the profitability of an industry and so are of greatest importance in strategy formulation. For example, even a company with a strong position in an industry unthreatened by potential entrants will earn low returns if it faces a superior or a lower cost substitute products. In such a situation, coping with the substitute product becomes the number one strategic priority. Knowledge of these underlying sources of competitive pressure provides the groundwork for a strategic agenda of action.

Porter stresses the need to look beyond product to function in defining a business, beyond national boundaries to potential international competition, and beyond the ranks of one’s competitors today to those that may become competitors tomorrow.

And I say that HR departments face varied competition at every aspect of the HR function. Internally we compete in terms of budget (our training budget is the first to be cut at crunch time), heart and time of our employees and management. Externally, we compete with other companies who offer more satisfying jobs and better opportunities, salaries and perks. It is time to take a close look at the environment, internal and external, where HR operates to determine and manage complexity.

Having explored our past, present and future; and recognized our potential, vulnerability and uncertainty; and crafted our strategy, let’s think of how to improve and maintain high performance to achieve business excellence.

Paul Light writes about The Four Pillars of High Performance, lessons from the Rand Corporation. Light says that a high performing organization is a “robust” organization. Robustness in organizations means the ability of an organization to protect itself against external turbulence, whether by hedging against vulnerabilities or by exploiting opportunities as they arise. It also means achieving extraordinary performance by adapting to changing circumstances. Being robust involves the effort to harden organizations against both environmental turbulence and their own vulnerabilities.

Light names and explains the four pillars of robustness or high performance as:
 Alertness. It is simply paying attention to what’s out there because you are under state-of-the-world uncertainty. You keep getting more and more data and finally you start to see. It resides in a basic commitment to rigorous monitoring of how the organization is doing at any given time.
 Agility. Assume that an organization actually sets a signpost and discovers that a loadbearing assumption is somehow failing and has the warning time to act. Although the knowledge might be interesting as a harbinger of turbulence ahead, it is useless unless the organization can react. Agility is also essential to effective teams. For example, in the Army, it is the ability to do multiple missions effectively and react in a very short period of time, even though they had not planned to do them all.
 Adaptability. It is the ability to rapidly adjust strategies and tactics to meet changes in the environment. Innovation is a form of adaptation, but not all adaptation is innovative. Adaptability requires the organizational capacity to react. It involves more than just preparing for surprise. It involves efforts to stay ahead of the traffic through both continuous and disruptive maneuvering. It is important to emphasize that all of this adaptability has been based on rigorous research and measurement. This leads to understanding how organizations allocate resources to any activity. Should they invest early or late? What are the short-term costs versus long-term costs?
 Alignment. It is one thing to change the planning process or initiate new strategies, introduce massive or targeted change, the organization as a whole must be aligned to vision, mission, values and goals. In a well-aligned system, linkages are clear and understood. It also involves cost control and careful measurement. It is a central consideration in building lean organizations and empowering employees.

Robustness entails investment in all corners of the organization, and potentially disruptive changes in how the organization operates. It requires more than a broad embrace of alertness, agility, adaptability and alignment. It is also necessary to accept the notion that there is no single future out there against which to plan and invest in contingencies that may never come to pass.

HR units and HR professionals can hedge against falling in love with and fiercely defensive of their programs and processes by developing robustness in order to respond more relevantly to the needs of the employees and the organization.

How Breakthroughs Happen
By Andrew Hargadon
(Harvard Business School Press)

Abolishing Performance Appraisals
By Tom Coens and Mary Jenkins
(Berrett-Koehler Publishers, Inc)