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Complexity Innovations

Disruptive technologies are changing many markets. What effects will that have on your business?

New technologies that changes conditions in a market, and often for society as a whole, are called disruptive. The phenomenon has been known since at least the early 20th century (see Joseph Schumpeter and Creative destruction) although concepts and models have changed.

The biggest disruptive changes in recent history have been the steam engine and the electrification, respectively. The steam engine became the starting point for the industrial revolution that fundamentally changed the whole of society. The last two examples of major disruptive technologies are the computers followed by the internet. These two have not had as strong an impact as the steam engine, but they have nevertheless fundamentally changed how our society works today.

For the individual, changes in the labor market that follows a technology shift are the great drama. Jobs that previously existed in abundance disappear. Companies are being forced to make significant rationalizations. Lots of administrative tasks have disappeared with computerization. This was often simple routine jobs that few workers today would want, but which were important to those who once had them.

For companies, disruptive technology is a constant threat. But a business can be part of the transformation and thus turn them to their advantage by working on innovative cutting-edge product development. Being late will mean lost market share or, in the worst case, bankruptcy.

The difficulty with disruptive technologies is that they are insidious. Electric cars are an example of such a change. In 2010, a few thousand battery-powered electric cars were sold in the world. In 2020 sales will be counted in millions of vehicles. Sales of electric cars are now increasing rapidly at the same time as sales of fossil fueled cars are declining. If we follow the trend curve, electric cars will have completely taken over the market during the second half of this decade.

This example demonstrates the challenge that companies face. Investing in development and manufacturing of disruptive technologies involves enormous costs for many years before any profits can be made. It may take more than 10 years to scale up production and become profitable. It is an excrement long time compared to the payback time many companies have set as a limit for an investment.

When a new technology emerges, it is often (but not always) more expensive to manufacture compared to the existing technology. That comes down to the volumes manufactured annually.

There are several “laws” that show how costs fall over time with increased volumes. Best known is perhaps Moore’s Law, formulated by Gordon Moore, one of the founders of Intel, which says that the number of transistors on a chip doubles every two years. Thus, the cost of computing power also decreases at the same pace. Moore’s Law has proven to be fairly accurate for all possible areas of technology, although researchers have pointed out that there is a fundamental flaw – the assumption that the cost drops over time. A more accurate law, according to the researchers, is Wright’s Law, which says that cost falls with rising volumes.

But why will the cost drop when volumes increase?

The intuitive answer is that gradually as the volumes increase, the players learn to handle the new technology and how to organize their communication. Errors, hassles, rework and misunderstandings are becoming fewer as they are sorted out, unnecessary steps will be taken away, tailor-built production lines will become available and the supply chain is trimmed.

Another way to explain what happens is based on complexity theory. The number of actors in the system increase as the volume increases. And the actors start to self-organize. When actors in the system increase their ability to self-organize and create relevant emergent information, local conflicts decrease. That is, the cost decreases as the actors are allowed to self-organize and thus can learn to master the technology and their communication.

But not all new technologies will ever reach the volumes that will substantially cut cost. One reason might be that the market is too small and the number of potential customers is limited. One other important reason is that time matters. It is not possible to pursue challenging development if the execution is too slow. Not only will the investors hesitate to put in money when the payback time is very long and the risk very high. There is also a growing decision debt that eventually will jeopardize the success.

A company doing product development can be seen as a system that both creates its own information (new knowledge) and receives information from the outside world. As new technology is being developed, the work gives rise to more information. This information must be handled and decisions made at the same pace as information arrives at the system. Then the information becomes useful in defining the product and process design, thus creating boundaries that will channel the energy.

If decision-making is too slow, the emergent information will increase and the business’s ability to self-organize will decrease. That will be seen as a lot of information, that doesn’t create any meaning, is circulating in the system. The cost will go up as momentum slows down, making the hill to climb ever steeper. The business has created a decision debt that will slow down an already slow progress even more.  

In order to maintain the balance between self-organization and emergent information, work must be provided, in this case in the form of decisions. The proof follows from the second law of thermodynamics; work cannot arise out of thin air.

We can also learn from this reasoning that volume alone is not the key to low cost. That can be seen from many acquisitions and mergers that have failed to deliver added value. Instead it is the self-organization among many actors and the ability to make decisions that will lower the cost.

So the first conclusion is – in order to make innovations, the business must be able to make quick decisions to get momentum.

I can see that many businesses today fail in that respect, not only because the internal decision–making process is too slow, but mainly because a lot of time is spent on waiting, e.g. waiting for suppliers, waiting for production, waiting for test results. With those obstacles you are doomed to fail. Vertical integration is a popular word today. It means that the business is able to do more in-house. To succeed in innovative product development, you have be able to build a mock-up and test it within a few days, you should be able to build a prototype within weeks, and you should be able to produce the first demo product to customers within months. Projects that take longer than 4 months will probably not succeed. This is a tempo many thought was impossible, until Tesla started to execute in this speed. When we consider the importance of fast execution, Moore’s Law can be seen as a deliberate strategy for Intel. To develop new chips, they needed to keep the two-year cycle of development. Tesla currently dominates and in a rapidly growing market and they have managed to increase their market shares thanks to the pace of decision-making and actions.

So the second conclusion is – in order to make innovations, the business must be able to do more work in-house (vertical integration) so that feedback is generated faster and more abundantly.

There is also a magic wand in the increasing volumes. When actors in the system increase their ability to self-organize and create relevant emergent information, complexity increases and reaches its maximum. Complexity is here a good thing, because at that turning point the system as such can expand, over time generating more value overall. The system is said to “be balancing on the edge of chaos”.

One consequence of this is that the decision-making process has to continue speeding up to keep up with the increasing demands. That is especially tricky as the business is growing. More actors are introduced, more communication is generated, and more decisions are needed. The organization must be built so that it can handle new problems, new products, and new working methods. What is needed is an agile organization, that over time can learn, that is self-organize, to handle a large number of cases of widely different types and thereby reduce time and cost for each individual case. An agile organization can handle situations that have never happened before and also grow with increasing demands for fast decision-making.

So the third conclusion is – in order to make innovations, agility of the strategic management team is crucial to focus the resources.

There is never a lack of good ideas, some of them even brilliant, in a business. But the resources are always limited, so only a very small proportion of the ideas should be pursued. The bottleneck will always be decision making on a strategic level. What is the long term vision, what are the major steps towards that goal, what actions are needed today to come closer, and what ideas and options should be left untouched? With the strategic decisions, the business can focus its resources and step by step achieve the long-term goals.

Innovations will thus require agile strategic management, which in practice means that the management team meets daily or bi-daily to do work and make decisions. The strategic and operational levels also need to be closely connected. Problems, decisions, actions and feedback should flow at a high rate between the management team and the projects, as they do in a Parmatur Pulse-network. Then the projects are able to get strategic decisions within a couple of days. With a network of pulsed meetings, the business can also reshape itself as the system expands and can thus meet the increasing demand for quick decisions.

So the fourth conclusion is – in order to make innovations, strategic management and operational work must interact closely, so that problems, decisions, actions and feedback can flow freely between them.

Innovation conclusions

As a wrap up follows my conclusions on what is needed in order to make innovations. The business must be able to:

  • Make quick decisions to get momentum. Speed in execution is essential. Otherwise the decision debt will grow and slow down progress.
  • Do more work in-house (vertical integration) so that feedback is generated faster and more abundantly.
  • Maintain high agility of the strategic management team to focus the resources.
  • Interact closely between strategic management and operational work, so that problems, decisions, actions and feedback can flow freely between the levels.

Ulla Sebestyén has written three books on agile management, most recently The Principles of Agile Management and Parmatur Pulse.

Reference: Fernández N.; Maldonado C., Gershenson C. (2014) Information Measures of Complexity, Emergence, Self-organization, Homeostasis, and Autopoiesis. In: Prokopenko M. (eds) Guided Self-Organization: Inception. Emergence, Complexity and Computation, vol 9. Springer, Berlin, Heidelberg

Categories
Agile organization Multi-project management

Three Books on Agile Management

Finally all three books that I planned in my series on agile management are published. With these books I want to state my view on agility and assist the reader in implementing agile governance.

I’ve watched my whole life as Swedish and European industry went into decline, due to slow product development and few new launched products. Instead, companies have spent time on cost-down projects, minor product up-dates and on moving production to low-cost countries. But still there are many big and urgent problems to be solved in our world, e.g. how to produce cheap and clean energy, how to store energy, how to detect and fight infections, how to produce sustainable food. And it is not up to the politicians to find the answers; it is the engineers and the businessmen who should to come up with technical and commercial solutions and put them into production.

I believe that our way of organizing companies today hampers our success in product development. Agility has become a key word in the search of organizations that can execute faster. The agile movement has invented many smart methods and fruitful ideas. But they have so far failed to connect the operational work with strategic design and strategic decision-making. When agile models are implemented only in the projects, the management team soon loses control. It’s time for them to take back the initiative and rejuvenate product architecture, strategic road maps and a vision for the future.

The risk now is that the good parts in agility are thrown away when more control is required. But the solution is not to build a bureaucracy with extensive rules and dotted lines. Instead we have to go back to what agility actually is and implement methods and organizations that are agile for real, balancing between resilience and adaptability both on strategic and operational level. We have to include first and foremost the management team and product management to adopt agile methods, so that the business is able to create effects on the market, take advantage of the opportunities that arise and thrive long term.

Let me take a quick look back in time to the days when the Agile Manifesto was written. This is important because ideas are always solutions to the problems at hand. The four core values in the manifesto don’t state anything about formulating and communicating strategies, simply because that was not a core problem at that time. The Agile Manifesto focuses on speed in operational management, how to quickly execute projects within a strategic framework taken for granted.

But when working with product development, it soon becomes clear that when accelerating operational development, strategic work and decision-making must be accelerated even more. And so far there have been very few attempts to support agile governance on the strategic level, except from Parmatur Pulse. And that’s why you, as a potential agile manager, should read my books.

The three books cover different areas of agile management. Here is how they relate.

Agile Multi-Project Management is written for those of you who work in project businesses. The key question is how to plan, start, execute and keep good progress in projects. The answer is that you have to keep your focus on the management level. The book shows how portfolio, product and resource management are performed in Parmatur Pulse and points out what makes the pulse-concept so different from other multi-project models, and so powerful.

The Principles of Agile Management digs much deeper. What exactly is agility? And how can we understand agility from a scientific perspective? Once you understand the basic laws of nature that govern agility, you are free to be really agile, to choose methods that suit the current situation. Agile principles are formulated that in the end are compiled in our advice to the agile manager. The book also contains an agile self-assessment. Are your business truly agile or have you just ticked the boxes?

Parmatur Pulse contains basic methods that can be used to implement agile governance in strategy and development. The book provides more guidelines and explanations than what is presented on our website. The methods cover management of projects, the product portfolio, the project portfolio, resources and short assignments.

Categories
Cyber Pulse Boards

Cyber Pulse Board

Parmatur Cyber Pulse Board
Parmatur Cyber Pulse Board – Laptop style – app.flatfrog.com

Parmatur Pulse is built to increase interaction between people and hence create an agile decision process in a company. Primarily this interaction takes place at pulse meetings in a pulse room where the participants stand in front of their pulse board. But it is quite common that pulse teams are working on several development sites or that some team members are working from home. So far the solution to connect different locations has been to use a web cam. This works. But remote people have difficulties in really being involved and contribute.

Categories
Agile organization

Pulse Room and Obeya

Pulse room
The Pulse Room and Obeya are similar in some respects, but differ in others.

What is a pulse room and why is it such a central part of Parmatur Pulse?

Categories
Teamwork

Pulse Meeting Agenda

Pulse meetings are a stand-up meeting in front of a Pulse board conducted in 5-20 minutes. The purpose is to apply real-time management and take care of problems that have arisen during the work. Pulse meetings have become popular in all kinds of businesses.

Categories
Innovations

SAFe is not safe

Over the years we have worked with several software companies that use Scrum alongside Parmatur Pulse. Recently SAFe has also appeared in some discussions with potential customers as an alternative to Parmatur Pulse. I can now see the same problems in all these Scrum-companies. These are problems we have never encountered with Parmatur Pulse. It has made me dig deeper and compile my own conclusions and opinions. What is happening in the companies that use Scrum and why has SAFe appeared on the scene?

“You are not supposed to feel safe in product development. It’s your job as engineers to deal with uncertainty and risks involved.”

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Parmatur

How to make a Cybertruck

Tesla Cybertruck, Wikipedia CC BY SA

Few can have missed that Tesla announced its upcoming Pickup truck back in November 2019. The truck shocked the world with its “cyber” design. The look is not a choice just to polarize the world. It is a result of how they chose to design the car.

Categories
Key Performance Indicator Lean Product Development Parmatur App

Successful New Product Development

Successful New Product Development is based on a combination of business strategy and business transparency.

Technology companies generally have an R&D department where people work with development. It’s taken for granted, just like having a finance department. But have you, as a manager, really thought about what you want to achieve with the R&D resources? It may seem like a silly question; Of course you know what the R&D department does and why. Or do you?

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Parmatur

Chalmers Formula Student

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Key Performance Indicator Parmatur App

Pulse Room in Your Hand

Image by Niek Verlaan from Pixabay

In the 1990s, Toyota and Scania developed the Pulse-room concept, or Obeya as it is called in Japan. The pulse room is a solution to the problem with weak management control when organising work as projects. This problem was highlighted by several research programs during the 1980s. The effect of an Obeya was immediate for Toyota; in some few years they were able to develop the hybrid car Prius, and new brands as Lexus and Scion. It took their competitors decades to catch up.