Innovations on the Decline

Innovation-Sjoo-2014

According to new research from Lund University, research and development innovations are declining and productivity within Sweden’s technology companies is slowing.

An innovation is created when a new product comes on the market and changes a particular pattern. A smartphone is an example of an innovation which changed the market for mobile phones and which is currently leading to change within many other markets. This important difference shows how an innovation isn’t the same as an invention. You might be able to say that Ericsson and Nokia invented the smartphone yet Apple was responsible for the smartphone innovation because they understood how the invention could be commercialized.

Innovations vs. Inventions

Joseph Schumpeter was responsible for defining the terms innovation and invention in the beginning of the 19th century. Innovations create new companies, new jobs and economic growth. However, an innovation isn’t solely a creative process – it is also a destructive one. For example, when Apple or Google’s Android developed smartphones, new jobs and huge profits were made for those companies. At the same time, the mobile phone industry in the Nordic countries was practically eliminated. Schumpeter referred to this phenomenon as creative destruction.

Fewer Innovations

New research from Karolin Sjöö and others at Lund University shows that Swedish industry has become less innovative since the 1980’s (as demonstrated by the red line in the graph above). Even more concerning is the fact that productivity within research and development has declined sharply within the same time period (as demonstrated by the blue line). Swedish companies invest more but get less out of it. According to Business Sweden, Sweden’s share of international exports has also declined. Researchers at Lund University have several theories for why innovations have been on the decline but none of them are completely convincing. However, there is other research that, together with our own research, points to an very important factor: projects.

Projects as Isolated Islands

At the end of the 1980’s and beginning of the 1990’s, Sweden’s industry increasingly used projects. Projects were described as the solution to every problem. There were early warning signs and many who paid attention to these signs. Companies that had started working in project form early on (such as Toyota, which started working with projects in the 1950’s), noticed an increasing degree of sub-optimization. Projects and project managers were singled out as the reason. American research in the 1980’s named autonomous projects as a problem. Even Swedish research in the 1990’s warned of this phenomena. A project can’t be seen as an isolated island, as Mats Engwall and Anna Jerbrant determined in their respective research. In all the companies we have studied there are significant problems with methods for managing research and development when using projects. All of these companies have significant problems with productivity. There are problems determining how much work is actually going on and there are complaints about the lack of resources when what is actually lacking is control and focus.

Bureaucratic Project Models

The project was promoted as a modern form of working based on cross-functional work. In reality, projects are bureaucratic monsters that create greater distance between people. Process-based development models (see stage-gate models, waterfall models), suppress creativity and, counter to their intentions, create a slightly chaotic business.

Popular definitions of projects maintain that a project has a clear goal yet reality tells us differently. Our studies shows that no one really knows the goal of the project or that there are many differing opinions about the goal of the project.

An Agile Network Organization

Road to an agile network organisation
Road to an agile network organisation

The solution to the inherent problems with projects is not to stop using them altogether. Rather, the solution is to implement a structure that allows management to prioritize and re-focus the organization. The solution is also to work with R&D at a strategic level, sometimes called a multi-project level. Toyota reformed their organization during 1991-1992 in order to have a more coordinated collaboration. These reforms were led by Takeshi Uchiyamada. As Chief Engineer within the new Pulse agile organization he developed a whole new kind of car: the Prius. He managed to accomplish this in record time – just 3 years. As Chief Engineer in the new organization he was a part of strategy-focused management. This differed from the old organization in that the different projects didn’t have to compete with each other for everything from resources to clients.

While working on the Prius, Uchiyamada continued to develop his multi-project solution by holding daily stand-up meetings in an Obeya. We call these Pulse meetings in a Pulse room. Scrum has developed a similar solution for project management that makes it possible to replace bureaucratic models with agile solutions.

As you just read, I outlined what Toyota did: they continued to develop their team-based approach while at the same time introducing a concept that made it possible to work strategically. Operations need to be decentralized when using projects yet at the same time they also need to be coordinated. In the entry “The Handlesbanken Way” you can find information about what being decentralized yet still being under the control of management entails. Thanks to agile multi-project organization, Toyota starting using a tool that enabled them to be both inventive and develop new technologies (including hybrid-drift and fuel cells), while at the same time being able to commercialize these inventions and thereby produce innovations. This might have been a more important step for Toyota than lean production. Just how important it has been is indicated by Uchiyamada’s career: after his role in the development of the Prius he has occupied several top posts, including head of development. Today he is the Chairman of the Board at Toyota Motor Corporation.

Increase Innovations!

The pulseroom where different teams has daily stand-up meetings.
The Pulse room, where different teams hold daily stand-up meetings.

There are some very frightening statistics that the researchers at Lund University are presenting today yet they come as no surprise to us. We know what the problem is. There are solutions that work and we know how to implement these solutions. Most companies have realized that they have a problem and during the past ten years, many companies  have taken the same steps as Toyota and implemented an agile network organization. It’s high time for the latecomers to upgrade their organizations because if they don’t there is a risk that Nordic inventions, like the smartphone, will become lucrative innovations somewhere else in the world.

What is Agile Product Development?

Agile product development is the ability to impact the market, utilize this impact and to have the ability to make use of new opportunities appearing in the marketplace.

In this article I will define agile product development. I will start with a definition of product development, followed by a short history of the term agile. Finally I’ll describe how the different strands of development of agile converge in Pulse.

The Definition of Product Development

Product development is the transformation of an opportunity on the marketplace into a product in the client’s hands. The opportunity may have been created by the company through analysis, campaigns, technology development, collaboration or other measures. A company can also make use of an opportunity that has appeared on the marketplace. Product development presupposes the ability to (1) create business models, (2) establish cooperation between clients, suppliers, distributors as well as other stakeholders, and (3) develop and nurture products and production systems.

The History of Agile – War

Agile/agility is a term that came into use among military researchers at the end of the 1970’s to describe the need for more agile military operations. A deciding factor of success in military operations is the ability to acquire information about current events, create an understanding of the situation, choose a plan of action and to implement that plan.

The first military strategist to discuss agility was the Prussian general Carl von Clausewitz in the beginning of the 19th century. After a life-long career in the military he drew the conclusion that a battle contained so much uncertainty that the plans quickly turned obsolete once faced with reality. His solution was quite unconventional: instead of creating even more intricate plans (which many still presume to do today), he told the soldiers what the ultimate goal was. Clausewitz’s idea was to let the soldiers solve the challenges as they appeared. It was an idea that a lot of people had trouble accepting. Despite this opposition, this agile philosophy was partially used in the Franco-Prussian War (1870-1871) with great success.

By World War I the Germans had forgotten about this success and once more relied on top-down detailed management with well-known results. After World War I the Germans introduced what came to be called mission command (auftragstaktik) and control freedom (truppenführung). When these were implemented in the German army they realized the importance of keeping the generals at the front –  not to micromanage but to better put what happened on the battlefield in a strategic context. The German army was initially very successful (1939-1944). However, when the war dragged on the British could make use of their agile abilities on a political level. Nazi Germany never understood the purpose of democracy. Their political system was based on strong leaders with overlapping responsibilities and where information was power. In the democratic United Kingdom the power came from the work involved in acquiring and sharing information.

From the military we can learn three things. 1) There is great insecurity in detailed plans  and control needs to be given in small steps as it happens. This step-by-step planning and control is preferably done by the people who have to perform the task. 2) There is a need for a “general” at the front who can put events at an operative level in a strategic context. Overall strategic plans must be able to be adjusted as the situation changes. 3) Superiority in the battlefield is not enough to win a war. One must also be superior at a political level within the highest leadership.

The History of Agile – Car Manufacturing and Lean

The fact that plans become obsolete the moment they face reality is something that Taiichi Ohno, the product engineer of a car company, realized in the 1950’s. His solution was to replace top-down planning with day-to-day control out in the production line. He developed a method that made it possible for the operator in the production line to order more materials as they were being used. This method is known as just-in-time. By working in this manner he decreased the uncertainty involved in planning and management. With just-in-time there is considerable less material in circulation and faults and flaws become more visible. He complimented the just-in-time principle with jidoka, a method to take control of the problem at the source. With these methods, the operators were given the mandate to identify and solve problems themselves. Just-in-time and jidoka created an almost magical increase in both productivity and quality, which were consequences of reduced uncertainty. Much later on these principles came to be referred to as lean.

Visuell styrning sänker osäkerheten.
Visual management reduces uncertainty, which leads to increased productivity.

From lean we can learn that day-to-day management, just-in-time, reduces uncertainty when it comes to planning. We can also learn that management and problem solving at the source improve a company’s ability to make decisions.

The History of Agile – IT Projects

In the 1980’s and 1990’s many companies introduced decidedly more bureaucratic models for product development. These models led to a decline in productivity and quality. As early as the 1960’s, researchers demonstrated that bureaucratic models lead to stagnation. Eventually there was a counter-reaction against the bureaucratic models, particularly among the developers themselves. In the 1990’s Sutherland and Schwaber produced a development model that utilized short planning cycles. They called their model Scrum. Within Scrum the project manager was removed and instead it’s the team that is in charge of planning and solving problems as they come up. A decisive role in this model is that of the product owner, who has a responsibility to put the project work in a strategic context. In Scrum there are few roles and the model is so simple that it can be explained using a few sentences.

Scrum was inspired by research. One example of this is the article The New New Product Development Game in which the rugby term Scrum is used. Scrum is one of the few models that conforms to the Agile Manifesto which was first published in 2001.

From Scrum we can learn lessons about reduced uncertainty through iterative planning, teamwork, how just a few roles are necessary and the importance of an increased role for the product owner.

The History of Agile – Research in Complexity

Wikimol. http://commons.wikimedia.org/wiki/File:Lorenz_attractor_yb.svg. This file is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.
Wikimol. http://commons.wikimedia.org/wiki/File:Lorenz_attractor_yb.svg.
This file is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.

Complexity research has helped organization theory explain basic phenomenon. From Edward Lorenz we’ve learned that in complex systems only short-term plans or forecasts are possible. Lorenz was a meteorologist and studied weather patterns. He discovered that weather forecasts are impossible to make for periods longer than a few days ahead. It’s the same mechanics that make it impossible to plan projects in detail. Complexity research also shows us how normal abnormal events are. Each abnormal event by itself is rare but put together they form a major part of the managing product development. This is what causes development models and process models such as PROPS to create more problems than they solve.

Complexity research also show that groups in which people work together and share information have a superior ability to solve complex problems. A team can generate more versatility and more inner complexity, which is necessary for understanding increased complexity in the surrounding world. This explains why mission tactics, teamwork, and other decentralized working methods are better than top-down efforts such as order management and target management.

The History of Agile Product Development – Pulse

Pulsrummet där människor möts i olika grupper.
The Pulse room, where people meet in different groups.

Scrum is a model for managing projects. Pulse is a model for managing an organization. At Pulse we’ve built on earlier, pragmatically developed methods. We’ve advanced the development of these methods and complemented them with new methods based on research in complexity. Pulse is based on day-to-day management, just-in-time. We work in teams in which information is shared through work. The shape of the company’s policy and direction is formed dynamically by company management. Strategies are formed with the aim of creating an impact on the market, and based on the possibility of new opportunities. This happens through a network of daily “pulse meetings.” The strategies are implemented in the form of projects related to, among others, marketing and R&D. We have few roles, namely vice-president, marketing director, development director, program director, mission director and Pulse project manager. The program director is the equivalent of a product owner within Scrum and general in mission command.

At Pulse, the network of Pulse meetings determine the organizational structure. Information is shared at Pulse meetings, in workshops and at demonstrations. By using this network of organization, Pulse builds agility. Pulse is a model for agile product development.

Visual Decision-Making Structure

The visual decision-making structure is the foundation of an agile network organization. The organization is visualized through the network of Pulse meetings in the Pulse room.

Organigram-hierarki

“Let me show you our organization” are words you might hear when first meeting a company as a job seeker or potential business partner. The picture that is oftentimes shown is that of a hierarchical structure. You can see which departments are organized under the CO and the different staff. If you look closer, the names of managers and personnel appear. The organization that is shown is based on people and their relationship towards each other. However, today it’s rare that a single boss can make all of the important decisions; instead they are made during board meetings.

Hierarchical Linear Organizations

Hierarchial-organisation-network

The organization chart doesn’t show what discussion forums already exist. You can only vaguely imagine a management team and departmental meetings. Additionally, cross-functional meetings that are necessary for the organization are missing. Production might have planning meetings, quality service meetings and daily management meetings. Within projects there are project meetings, board meetings or a product board. Besides daily management, these are not frequent meetings, maybe just weekly or monthly. They take place sitting around a meeting table with no aids besides presentations and summaries shown using a computer and projector. When the projector is turned off, accumulated picture disappears. Since a hierarchical structure is dependent upon people developing the organization, individuals are supposed to carry the knowledge and decisions between meetings. Here it’s possible to see big gaps in the structural level since the individuals move around in different spheres that don’t overlap and have a tendency to forget. It doesn’t help if individuals reappear in different meeting constellations when issues and decisions aren’t being shared between the meetings as well. Information and feedback don’t flow through the organization; they tend to stop and get lost between different decision-making forums. This creates frustration since the meetings both take up a lot of time and the decisions are unclear or non-existent due to the lack of up-to-date information.

Visual Decision-Making Structure Using Pulse

Agile-network-organisation-hubb

With a network of Pulse meetings a visual decision-making structure is established in the Pulse room that has the capacity to make decisions quickly with the help of up-to-date information. The Pulse meetings are frequent and are part of the same feedback loop in order to create a decision-making network that moves questions, decisions and information to the right forum. The Pulse boards are left after the meetings are over and remind the group and other parties of what decisions were made at the previous meeting and any new unfinished business.

The organization is constructed by institutions (the Pulse meetings) and the connections (questions, decisions and information) that exist between them. It’s this network that creates a visual decision-making structure.

The connections are partially supported by people yet Pulse boards have a crucial role to play. When a problem comes up it’s possible to take care of the problem by writing on a Post-it and putting it up on the appropriate Pulse board. The Post-it will remain on the boards until the problem is dealt with and how the problem is being handled can be traced by looking at the board. Information and feedback flows through the decision-making network and is used daily by the participants of the meetings to act, interact and relay information.

The Pulse room, Pulse boards and the Pulse meetings create an integrated and continuing flow that processes information. In other words, the Pulse guide has created an agile network organization.

Agile Network Organization for Demanding, High Tempo Work

The agile network organization is a new way to run an organization. An agile network organization can handle complex, high tempo tasks.

During the years we’ve worked with implementing the Pulse guide at various businesses we have learned holding more Pulse meetings and involving more people in the Pulse network will improve results.
In order to understand what a network is and how it differs with the approach during the Industrial Age, Foton lab has put together the following video:

Pulse is a network organization where certain nodes have more contacts than others and therefore more influence.

Agile-network-organisation-hubb

Random Networks

At an ordinary organization without a Pulse network, spontaneous interaction between people occurs in order to solve tasks. Some of this interaction is recurring and partially institutionalized through meeting forums. However, a large part of the interaction is random. The connections that exist between different parts of the operation are weak and information and demands are lost on the way, leading to loss of energy and more disruptions.

Agile Network Organization – Guided Networks

An agile network organization institutions are established that are supposed to handle all work and questions, both recurring and unique. Within a visual decision-making structure the institutions take the form of Pulse meetings. These are by necessity cross-functional so that information and interaction can spread to the relevant parts of the operation. Additionally, there needs to be enough institutions to handle demands and problems as well as have the knowledge and capacity to deal with them. For example, questions about technical choices are dealt with primarily by the developers of the projects, while questions about what investments are the responsibility of management. However, both these questions will affect each other, which makes it vital for information to flow between Pulse meetings. The greater the frequency of Pulse meetings and the greater the proportion of the operation involved leads to greater transmission of information throughout the organization.

Channelizing Energy

I like to explain the transportation and flow of information within an operation by comparing it to energy being transported through waves. Waves transport energy from the wind over large distances without transporting the water itself. Only a small current occurs when the wave passes by. It’s only when the wave hits the beach that the current breaks since the top and the bottom can’t move at the same speed anymore. When the wave breaks, the energy of the wave is lost in turbulence. The flow of information within an operation works in the same way: as long as information can be transported through the operation there are only small losses of energy. However, as soon as there are no connections between different parts of the organization the flow of information will slow down. The wave of information breaks and energy is lost in the form of stress and conflicts.

In order to turn an organization into an agile network there must be enough nodes with frequent intermediate connections and a network focused on letting management direct resources. Therefore, how the the network is created and where the nodes are established is important in order to ensure efficiency and adaptability.

Cross-Functional Work and Network Organizations

The best way to create cross-functional work is with the help of a fractal, shell-less network. This kind of an organization is quick and agile.

Cross-functional work (for example, projects, Scrum and management groups) are nowadays normal aspects of most operations. However, this was not the case when I started working in the early 80’s. Back then collaboration between different functions was handled by management and it wasn’t common even for engineers that had the same roles to talk about work with each other. Nonetheless, even at the time the complexity of the tasks was so great that managers were finding it difficult to handle collaboration effectively. The solution to this turned out to be projects.

Cross-functional Work and the Challenge of Decentralization

There is a saying that “yesterday’s solutions are today’s problems.” Projects led to faster and more effective communication between different groups (i.e., acquisitions, marketing or production), however, at the same time management lost influence and perspective of what was actually going on. When we analyze different companies, we can see many new problems popping up: overload from taking on too many projects and tasks at the same time, lack of clarity in decision-making and unclear goals.
Project models of the 90’s were built around standardized work-processes and push planning yet these created more problems than they solved. Every project is more or less unique and needs to create its own work methods based on the situation at hand. Projects are also much more effective when utilizing visual management (pull). What was missing from the project models was what the network between people should look like. The networks became random, which made them unreliable and inefficient. However, these types of networks were the only known ones before the turn of the millennium. Then small world networks and shell-free networks were discovered and these changed everything.

Agile Network Organizations

Tvärfunktionellt arbete
The Pulse meeting is a node in the network. Certain Pulse meetings are n (hubs) with many contacts. Certain Pulse meetings are hubs with many contacts.

Most of the time a shell-free network belongs to the small world network category. A small world network is a network in which the distance between people is short, regardless of a person’s  function or position. We create a small world network through implementing Pulse as an agile network organization.

A problem within Pulse is never more than 2-3 steps (Pulse meetings) from the managing director. A shell-free network is never fractal, which means that it looks the same everywhere. This makes it easy to adjust the network according to needs. A new project is added as a node in the network and is removed when finished. The same method assures us that any node can be added and removed without any taxing changes to the organization

What we refer to as nodes are different types of Pulse meetings that create permanent and temporary institutions. The network consists of the collaboration that happens between the different Pulse meetings where needs, decisions and results flow between them and a cross-functional work is created. Through a network of Pulse meetings a new formal organization with greater efficiency, shortened lead times and greater understanding is created and we call this an agile network organization.