Product development as an adaptive walk is a new way to manage uncertainty. Predictions far into the future are highly uncertain. Pulse support short lead time.
Nonlinear systems contain 3 actors or more that interact in a nontrivial way. The actors exchange energy, information, decisions and resources. A nonlinear system is not equal to the sum of its parts , it will always be less or more. A nonlinear system can have sudden changes and threshold transitions, but it can also be very resistant over a long period of time. People that interact in a company will form nonlinear systems internally and with the surrounding market.
Jan Wallander (born 1920) was the CEO of the Swedish bank Sundsvallsbanken in the 1960s, he was the CEO of the Swedish bank Handelsbanken in 1970-78 and then he was the Chairman of the Board until his retirement in 1991. Today it seems that few people know who Wallander is, and even fewer know of the results he achieved in Handelsbanken, at least outside the banking world. This is a pity since the way Wallander organized a company has been shown to be highly successful. It is above all Handelsbanken’s performance through the years which has demonstrated that Wallander achieved something special. While other banks had great difficulties during the real estate crisis in 1990-1994 and during the finance crisis in 2007-2008, Handelsbanken was doing all right. Frequently, the Toyota Way is highlighted as an example on how to organize a business activity. And there is a lot to learn from Taiichi Ohno’s methods for daily guidance and decentralisation of problem solution. But, many valuable lessons can also be drawn from the bank Svenska Handelsbanken. In the book From Vängåvan to Kungsträdgården, Jan Wallander tells us about his way of organizing an activity and how this agile organizational form emerged.
Vängåvan is a small park in the town of Sundsvall, Sweden, which extends in front of a palace-like building, formerly the central office of the bank Sundsvallsbanken. On taking up his duties as the CEO of Handelsbanken, Wallander had no experience in banking. He had to take a distance course for bankers when he started working. A course that all future bank employees were supposed to pass. Maybe this was the reason that he chose other solutions than the usual. Without preconceived ideas it may be easier to perceive the actual needs in the activities.
An example of Jan Wallander’s independence is the organizational chart he developed. When he detected that Sundsvallsbanken lacked these charts, he believed that introducing them would be an appropriate measure. Everyone else has organizational charts and they are basic in all management literature. But when he discussed this matter with different persons, and in particular, with his predecessor Erik Huss, he was discouraged. Firstly, the bank functioned well without charts. And to draw a chart would cause problems in the future. If the organization were to be modified, the chart would have to be redrawn and there would probably be individuals who would feel to have been put in an inferior position and to have lost face. If there is no chart, changes can be implemented gradually. Wallander listened to the advice, and this caused both Sundsvallsbanken and Handelsbanken to be more flexible when changes were introduced. When there is an organizational chart, every change becomes a painful experience often expressed by many employees. Stories about the last change and how difficult everything turned out because of this, has been expressed by a lot of people. A lot of energy is lost due precisely to the organizational chart, a chart which in reality describes very little of how the business activity actually functions with its informal channels. As Wallander pointed out, the telephone directory can be used to obtain all necessary information about who the manager is for a specific unit.
One of the most important interventions to make a bank profitable and with a minimum of credit losses is, according to Wallander, to place the responsibility for granting credits on the employees in the branches. When Jan Wallander implemented this, it was a revolutionary way of thinking. The view was that complex decisions always should be made by experts. At Handelsbanken there were a lot of experts at the central office in Stockholm. All important matters should therefore be submitted for analysis to the expert, then the management made the decision at the general assembly. This way of thinking was high fashion then and perhaps still is in some companies.
Wallander affirms that decentralisation is the basis of the success of Handelsbanken. So did also Taiichi Ohno, the author of Lean. To work in teams and to organize the work in order for the operators themselves to solve issues arising due to discrepancies is fundamental in Lean. As several researchers noted, in particular, the European industry has difficulty in delegating to the employees. When making decisions in the branches, a higher bandwidth is achieved in the decision-making. Over time, this bandwidth is increasingly difficult for the competitors to handle. While a decentralized company can go through several decision turns in, for instance, the contacts with a customer, a top-down company may have time for one. Wallander also notes this difference. This is what we also can observe in companies with agile organizations. Matters are solved much faster and more accurately. Accuracy is achieved through being close both to the problem and to those affected by the problem. A situated learning is created. An expert, independently of how well-trained and smart he is, cannot match the loops of learning of those in contact with the problem.
However, in a decentralized organization matters requiring a higher level also arise. Wallander describes the effect of decentralisation on the granting of credits to the branches. The years before he took office as CEO there were 725 matters handled by the central board. Twenty years later, the number was down to 50-60 a year. The matters actually handled by the central office in a decentralized organization are the truly complex matters requiring strategic competence. We have the same solution in Puls. Matters are constantly upgraded from the projects to strategic Puls meetings. But few matters require this kind of attention, which is why there is the time and possibility to work them thoroughly.
Wallander was during his time at Handelsbanken most well-known for abolishing the budget process. The only thing done in the budget process is to project the history on the future. This says nothing about what will happen in the future. To plan in the form of budget processes risks locking up the company in the past. What is needed is a structure allowing the company to create its own future. How Wallander solved this is unfortunately not specified neither in this book nor in the follow-up book “With Human Nature – not Against! To Organize and Lead Companies. But as Wallander writes in the book reviewed here, he does not disclose all secrets on how to successfully organize a decentralized business.
Not all secrets of Handelsbanken are disclosed, but despite this, I recommend all managers and others interested in organizations to read Jan Wallander’s books. There is a lot of food for thought, in particular now when hierarchical company culture is increasingly questioned.
In the past I have written about the problems of the Swedish industry in, for instance, Sweden Loses Export Shares and The Decrease of Innovation. In the latter, I discuss a study by Karolin Sjöö about the decline in innovations in Sweden from the 1980s. In the article What’s Wrong… Phelps discusses the same issue, but applied to the Western world as a whole. Briefly, Phelps is of the opinion that our attitude towards innovations and changes has gone through a major transformation lately. In particular, during the nineteenth century there was a great deal of enthusiasm for finding new solutions to old problems. In those days, entrepreneurs and engineers, such as George Stephenson, could develop entirely new transport solutions (the railway) that essentially changed the world.
Stephenson was born of poor parents and all lacked education. But he was a proficient inventor who soon received support from investors and politicians. His biggest achievement was perhaps that he succeeded in building the first railway line in the world. The double lined railway between Liverpool and Manchester. Stephenson, as well as many other entrepreneurs and engineers, was able to achieve huge changes, despite the fact that he was not part of the elite. Many were not even able to read. But, of course, there were also well-trained individuals who achieved a lot. The mathematician and statistician Florence Nightingale fundamentally changed health care through her research. Her proposals were accepted despite the fact that she was woman in a society dominated by men.
As Phelps points out, this type of innovations and changes are uncommon today. Today’s society and the way it is described is based on the perception of the human being as a machine, a robot acting according to a program. They are cogs in the machinery. When these robots are on vacation they are expected to be “recharging the batteries”. To imagine new solutions is almost considered improper. Phelps shows, by using statistics, that in the 1960s America started to decline from the innovation peak. Europe followed a few decades later. This is entirely in accordance with Karolin Sjöö’s results.
The problem with a decaying economy is that exclusion increases, Phelps points out. Unskilled jobs disappear through globalisation and productivity improvements. No new jobs are developed. It is therefore the lack of innovations and changes that lead to the lack of unskilled jobs The frequently acclaimed Silicon Valley is only responsible for 3 percent of America’s economy. It is not too much of Silicon Valley, but too little. Despite the lack of innovations and change, many are nevertheless disturbed by “all” the new products from companies such as Apple. So what is causing this reluctance to change? Phelps does not have the answer. Ken Robinson, on the other hand, proposed an answer. We need creativity and imagination to imagine new things, says Robinson. We all have this as children. But where does the creativity go after that? Adults seem not to have it, says Robinson, and Phelps agrees. We are trained to lose it, says Robinson. It is interesting to note that countries with major investments in science, technology and mathematics do not have more innovations.
I believe we are a product of the same society we are creating. This applies both when we speak about Sweden as a society or an enterprise. We see society as a machine. The many machines we use every day have made us believe that the whole world is a machinery in which we all have predefined tasks, like cogwheels. In order for us to break free from this view, we need to accept that social systems should be dynamic (agile) in order to be able to adapt to changing circumstances. To remain idle is not an eligible possibility. The lack of adaptation in the form of innovations leads to an economy in decline. This leads to exclusion which in turn leads to crime and social unrest.
It is time for innovations and changes in the way we organize society and companies.
The concept of disruptive technology was coined by Clayton Christensen in the book The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. In the book, Christensen shows how new technology often starts off as a “poorer” and cheaper alternative to the existing solution. However, the new technology is getting better over time, and as prices are lowered, the existing companies are overthrown. An often repeated example on disruptive technology is how the mainframe was substituted by the minicomputers, which then in turn was ousted by the PC.
Christensen was not the first to observe this, Joseph Schumpeter discussed the phenomenon already in the 1930s. He called it creative destruction. I am of the opinion that Christensen’s definition is too narrow. Disruptive technology does not need to begin with a product that is poorer and cheaper. Smartphones rapidly killed off Nokia’s and Sony Ericsson’s products which resulted in closures and layoffs. A smartphone is not, as the name implies, a smart mobile telephone. It is a computer packed in a mobile phone shell – also used as a phone! It is not poorer or cheaper. We, the customers, have adapted quickly, a smartphone creates added value for us users. I view smartphones as an example of how disruptive technology essentially transforms the market.
Companies have difficulty to handle changes. They are often stuck in today’s product and business model through their line organization. In these organizations, information and knowledge are power. To make changes in the line organization is not simple, since power is linked to position. In agile organizations, such as Puls, power is to be able to share information and knowledge. Then it is much easier to make changes.
In order to return to Tesla, is Tesla disruptive? Does this change anything for us customers? Is this a threat to the leading manufacturers, Toyota, VW and GM? Tom Bartman, among others, answers no in Harvard Business Review. Christian Sandström followed up with an article in MIT Technology Review in which he answers yes. Sandström argues that Tesla has built an organization that fits the new product, while the established companies are permanently stuck in an organization adapted to the old product.
It is notoriously difficult to anticipate what will lead to creative destruction and important changes in people’s behaviour. Considering the present situation, I perceive Tesla as a new car manufacturer, exactly as said in the HBR article. Moreover, Tesla is part of a major change in the energy market. Operators such as BP, Exxon and Statoil have as much to fear from Tesla, as GM, VW and Toyota. Wind energy, solar energy and batteries are all examples of technologies that, compared to existing technology, were (are?) inferior. In the area of energy, an ongoing classic example on exponential growth and creative destruction is, for example, how Vattenfall is watching its assets being erased at an increasingly rapid pace.
I believe, as does Sandström, that the automotive industry may undergo a fundamental change due to Tesla. Manufacturers stagnated in the diesel technology are in danger of extinction. This is due to a better organization, according to the reasoning of Sandström. Traditional line organizations tend to cement old solutions and business models.
Currently there is new technology under way from Google and Apple that may transform how we perceive cars: driverless cars in urban traffic. Today we see cars as a possession and something we ourselves drive. It should be possible to manufacture a simpler and less expensive car than the cars of today. Basically, the majority of the car buyers want fast and easy transportation. A smartcar that not only can find the fastest route between A and B, but also does it fast and inexpensively might be a winning concept. Today, it is very expensive to own a car that most of the time is stationary. If it was possible to reserve transportation from A and B using an app, and a smartcar arrives a few minutes later, maybe a disruptive technology has seen the light of day. The technology development is under way in this direction. Tesla is contributing to this.
One thing is for certain: changes seldom turn out as intended.
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.
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
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.
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.
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.
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
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
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.
The agile product development process is based on a combination of iterative work and strategic positioning. The process is determined by the demands of each particular situation.
According to the current norms it’s necessary to have a product development process. An online search results in several images of what one may look like and all of them are noticeably similar: product development is depicted as a conveyor belt in which every step of the process is defined in advance. Why?
Process as a Noun
Organizational theorists have long championed an events-based approach. However, language is a hindrance to that. Languages are based around nouns – things you can touch. Events are verbs – something one does, change, a process. One of the first pioneers for an events-based approach was Mary Parker Follett in the 1920’s. She pointed out that decision are a result of the work of many people. Decisions should therefore be seen as processes rather than things. However, the images describing so-called processes aren’t verbs – they’re nouns. The fact that we can turn a verb into a noun is a side-effect of our noun-centric language. We can change something living into something dead.
The pictures of processes, oftentimes drawn, all have origins in the 1960’s along with depictions of strategic planning. When strategic planning, together with the conveyor belt principle, had been tested all over the world, heavy criticism from researchers and practitioners emerged. One notable critic was Jan Wallander at Handelsbanken, who claimed that the plans said more about the past than the present.
Process as a Verb
When organization researchers such as Parker Follett talk about processes it’s so we can understand that it’s what we do that’s important. They use terms such as strategizing instead of strategies and processes instead of plans.
When we at Pulse use iterative means to work with visual management instead of a plan, it’s a shift from a noun to a verb. Through people’s work and interaction at daily stand-up meetings and workshops a dynamic process is created. It’s important to understand that the development process can’t be determined in advance. However, it’s possible to plan and to organize but only as long as it’s about planning and organizing. That is to say that one works with the issues all the time, daily and continuously.
Agile Product Development Process
In the picture below the company is portrayed as a network of interacting groups, such as management groups, project groups and working groups. A company that uses their whole organization to understand the world at large can make decisions with far-reaching understanding in their strategies. They can home into the signals of the world at large early, process the information internally and implement the necessary measures. When management works using Pulse meetings in a Pulse room, we refer to it as an agile network organization.
The images seen on Pulse boards are a real-time image of the ongoing process. The image is always in flux. Because there is a collective image that represents reality, the management and others in the company can supervise what is happening and they can act on the company’s needs, just-in-time. Management can’t micromanage what the groups will do, and in that sense they don’t have control of every little detail. However, management exercises leadership through daily stand-up-meetings with full transparency about what is happening. Through their work, management creates strategizing in line with the company’s vision and mission statement. This makes the company agile and it has an agile product development process.
Companies that are successful have the ability to quickly adapt to changes. A company that has the ability to create changes in the market and can exploit new opportunities has the potential to become very successful.
To adapt is a verb. You can observe the feedback that comes from the market through salespeople, service technicians and other channels. You can make yourself familiar with your current situation and find different possibilities for action. You can choose a course of action. And finally, you can act. This iteration is repeated all the time but the situation is always different. Each time you act the world at large changes. Also, you are not the only one changing the world around you.
Important factors for success include the ability to receive information and understand the world at large, to be able to show an internal versatility and the ability to get things done. A company that demonstrates a low degree of adaptation is low-dimensional. One example of low-dimensional companies are the businesses that work using detailed static process images. These companies risk being put out of business.
So why do companies try to work using process descriptions? Because there is a notion that companies must have them. Images are powerful. It might be easier to bankrupt a company than to remove the process images.
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.
“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
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
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.
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.
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.
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.
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
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.