Rational managers for the past thirty years have tightly focused on efficiency, cost cutting, and day-to-day execution — perhaps to a fault. With increasing industry disruption, efficiency is fast becoming of secondary importance to innovation and agility. Many large organizations have too little capacity for external sensing, strategic reflection, and business transformation.
As a recent WalMart staff proposal stated “We have cut costs too far, stores are understaffed, and associates cannot provide customers with the service that Sam Walton built the company on, and that we are proud to provide…” In stark contrast, at a disruptive organization like Google, innovation is built into jobs through “20% time” projects — engineers are expected to spend 20% of their time on projects that are creating and testing new ideas.
We believe that organizations need to explicitly develop two parallel management systems: The operational system that manages the short-term execution of work — what we call the “Surface System,” and a second system that focuses externally on sensing and driving strategic change — what we call the “Deep System.” In today’s tumultuous environment, we believe that the work of sensing and responding to the market is too important to be left to random projects and a “volunteer army”; the processes of external sensing and driving enterprise-level integration needs to be designed, staffed, and owned just like all other processes.
For example, in 2001, IBM set up a permanent transformation organization designed to anticipate and respond to the increasingly unpredictable changes in its markets. The goal was to make IBM more agile and able to predict — even prescribe — where IBM’s markets would go. To fulfill this mission, Linda Sanford, SVP of Enterprise Transformation, told us about three capabilities that IBM has built and which continue to evolve under its new CEO Ginni Rometty:
1. Process governance: IBM introduced full-time process owners, people with credibility and experience, who are responsible for driving change and eliminating waste within their respective processes. IBM has 15 enterprise processes that cut across business units and geographies in such areas as sales, marketing, software development, procurement, HR, finance, client-facing IT services, and internal IT support. These process owners are supported by centrally trained business process experts and a client advisory team to provide customer focus. The key aspect of the process owner role is that they are focused not on the daily operation of a process, but on its design and long-term improvement.
2. Data and analytics: IBM’s process teams identify ways to improve their customers’ experiences, for example, with respect to time, quality or cost, and they measure the performance impact. As they reengineer their processes, they install meters or other measurement devices that help them gather ever more data about how the process is performing, and they build a repository where managers can analyze performance. Once they have process performance data, the facts defuse emotional arguments.
3. Change management: IBM realizes that the changes they need are not incremental tweaks, but rather involve all employees. Company leaders communicate and educate their people on the need for change. They have “hardened the soft stuff called culture” into methods and tools that they deploy to help prepare the organization for sustained change. And they use online social collaboration and communications tools.
As Sanford told us, “I’m continuously amazed by the innovation that these process teams bring out. It’s not just standardizing and streamlining. Once you get it into the fabric of the business, it starts to become a new way of thinking and bringing innovation to our business partners.”
The pace of change and disruption in today’s marketplaces will only increase. Organizations that focus only on their surface systems, no matter how well they operate and how low they drive their costs, will miss the threats to their long-term survival. No company is immune; no market niche is safe.
Without spending money now on dedicated resources (with long-term payoffs) to manage the “deep system” — processes to sense and respond to deep customer unmet needs, the threat of potential competitors, possible uses of new technology, and useful demographic trends — organizations won’t have the capacity and muscle to compete and survive.
Question: Where do you see the Deep System at work in your company? How many people are dedicated to it?
This was first published on the Harvard Business Review and has been lightly edited.agili