Simon Terry

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Risk Management in Responsive Organisations

Leaders of traditional organisations often look at the discussion of Responsive Organistions with horror. Confronted with transparency, autonomy, less process and experimentation they exclaim ‘where’s the risk management?’ Responsive Organisations can have highly effective risk management but they leverage adaptation not compliance in managing risk. 

Traditional Risk Management. 

Traditional risk management is an elegant science. Determine the risks, their frequency and their consequences. Choose your appetite to take risk informed by this assessment and the cost and outcomes of mitigation. We mitigate or accept risks driven by the risk appetite. This process is straight forward in organisations where the focus is scaling a proven process or business model. Risks and their mitigants are reasonably well understood. 

We often focus on the compliance, policies and processes as risk management. They are simply the mitigation, an outcome of what should be a considered decision of what risks to take and which risks to avoid. Many businesses go wrong when they forget to set a risk appetite and seek to mitigate all risk. We have seen organisations where risk appetite declines and processes are tightened with every bad outcome. 

Responsive Risk Management

Responsive Organisations approach risk with the same fundamentally commercial logic. However they tackle the risk assessment and mitigation in a more adaptive and systemic way. 

If the risks of activity are unclear, hard to assess or changing quickly more dynamic risk management will be required. We step out of the domain of setting a fixed policy or process and move into learning in a distributed way. We apply the same process but we learn and mitigate risk using other methods. 

Better understanding by leveraging the insights of entire network of the organisation and its stakeholders is a risk mitigation strategy. So is a continuous process of experimentation to ensure losses are small until greater confidence is achieved. Autonomy shifts the locus of accountability closer to every day risk decisions and accelerates the responsiveness to bad outcomes. Most importantly of all motivating people through purpose and a focus on outcomes mitigates the incentive mismatches which create many risks for traditional organisations. 

The best risk management strategy is responsible, engaged and responsive people. People help drive the adaptation and response to a changing environment of risks. Responsive Organisations manage risk using this distributed capability to adapt.

Inexorable

‘We are change itself. We often think of our life in terms of things changing: we like some changes and we don’t like others; we want things to change in some ways and not in other ways. And of course this moment of ongoing change is our opportunity for skilful, appropriate response to the circumstances that reveal themselves, the conditions that reveal themselves at this moment. And yet we are change itself.’ Elihu Genmyo Smith

Humans Change

No moment of a human life is without change. We learn. We grow. We work. We live. Every breath, action and reaction in our lives is a moment of change. We are constantly interpreting our circumstances, adapting and changing to achieve our purposes and to manage ourselves through a changing world.

The thousands of small adjustments we make each day are barely noticed. Larger ones rise to our consciousness as an explicit opportunity to learn or to adapt our approach.  Bigger still are obstacles that might challenge us to rethink our approach entirely or even set us back at the beginning of the change process again. Some of these we will see as frustrations but others we will approach as the test that gives energy to our purpose and our work.

If every individual is in a state of continuous transformation, the change in communities of people is a force of enormous potential.

Responsive Organisations Change

Because our traditional organisations were designed for the repeatable execution of a proven business model, we lost the natural and dynamic potential of this human change. We locked it away in processes, in policy, in hierarchy and in performance measures.

Organisations need to adapt as much if not more than people. Their existence is almost entirely driven by competition for resources, stakeholders and attention. They must deal with the scaled change and complexity of people internally and externally every day. However, our traditional model has been to ignore the mismatches as the environment changes and to stick to a fixed model until a hierarchical decision is made to make change. Organisations can drift a long way from their purpose and from effective execution before they see that need for change. The bigger the drift and the more stuck their system, the more wrenching the resulting change management is.

Responsive organisations distribute that change decision. Moving closer to the continuous adaptation of a human life, they recognise that organisations must learn, grow, work and change to continue to live and to continue to fulfil their purpose. Responsive Organisations explicitly challenge their people to focus on purpose, to learn through experimentation, and to leverage the adaptive potential of transparency and networks. Agile and adaptive change is a human exercise and a part of ensuring that our organisations remain relevant and effective in their systems.

Thank God It’s Friday

We can go into the weekend fulfilled.

We look back on a week that is a celebration of purpose and meaningful achievement to benefit others.

We know we cannot have done better this week and that our efforts were well directed to effectiveness.

We have enjoyed a week of the freedom to do the best work we can supported by our peers.

We can rest tonight comforted by the fact that all our work is up to date and the open issues are next week’s work.

We aren’t waiting for decisions and we have made all the decisions that we needed to resolve this week. 

We are excited about the opportunities to learn, to experiment, to create and grow next week.

We have the transparency of our performance, our peers’ performance and our organisation’s outcomes to be confident on what is ahead and ready for the new challenges that the next week will bring.

We know that our accountabilities are clear and that the culture of accountability means colleagues won’t send a flurry of last minute emails dumping problems on others.

Our week will finish with the thanks and congratulations of a team and an organisation that understands, respects and values our commitment and efforts.

We know this is not a dream. We know this is possible. We will make it happen. Thank God it is Friday.

Competency vs Capability Mindset: The Organisation

Design your organisation for the potential of its people and their capabilities, not the limits of an expertise.

I recently noticed that Capability or Competency? Mindsets matter was the second most read post on this blog. Part of the appeal of that post is that it addresses a critical shift in mindset for those grappling with the new dynamics of the future of work. We stand facing an organisational version of the personal insight Marshall Goldsmith described succinctly as “What Got Me Here Won’t Get Me There”

Competency-led Organisations

The Core Competency concept introduced by Prahalad and Hamel refined a concept that had been strong in management for decades. It is undoubtedly true that organisations compete by being better, more competent, at something than their competitors. However the mindset of being more competent differs from a competency. This subtlety was often lost as core competency flowed into the mainstream of management thinking.

The focus on core competencies created a mindset that organisation gets to choose its competencies as part of a strategic planning process and should set targets for competencies to fulfil its strategy.  While Prahalad and Hamel spoke of the need for organisations to look forward to assess and build their competencies, much of the focus in organisations has been historical. The biggest outcome of the discussion of core competency has been a narrowing of organisational ambition and a focusing of activity on historical strengths. “That’s not our core competency” is more common than “We can leverage core competencies”.

Influenced by themes that go back to the beginning of scientific management, we have turned core competencies into rigid processes, standards and policies. We have judged these competencies by what sustained competitive advantage in past markets. We have spent less time on the changing customer perceptions of value and the ongoing dynamics of the future marketplace driven by new competitors. The list is long of disrupted organisations who felt safe because a new entrant lacked their core competencies. In many cases the infrastructure to reinforce and sustain these core competencies became a burden in their ability to adapt and survive. 

Capability-led Organisations

The Big Learning mindset that pervades the future of work highlights that competitive advantage in the next century is based on the ability to build the capabilities required to compete in an environment of uncertainty. Rather than specifying a fixed goal of competency, we seek to build an open capability to fulfil our strategic intent and our customers’ needs as they arise.

Adapting organisations to foster autonomy, learning and change is what enables people to build the practical capabilities necessary to learn, grow and execute. The process you inherit is less important than the customer insight you gain in working to meet your customer needs. Prahalad and Hamel reinforced that in Competing for the Future their update of the core competencies discussion. The discussion on the need for organisations to build open capabilities that can help manage and drive adaptation.  These capabilities include openness to their networks and environment, collaboration, ability to learn, share and drive change. Critical too is the development of purpose as the new focus for organisational activity and the inherent rationale for groups of people to come together in work to benefit others.

Design for Capabilities

Responsive Organisations need to design for a capability-led response to a uncertain future. They need to develop core Big Learning practices like working out loud, personal knowledge management, adaptive leadership and experimentation. They need to design their organisations to allow individuals and the collective to focus on the realisation of purpose.

This organisational design will leverage networks, transparency, autonomy, experimentation and the inherent motivation of employees in ways that we have not yet seen. Developing a new competency in holocracy, agile, lean product development, design thinking, big data or any other single practice is not enough. An organisation must build the capability to continuously adapt to customer needs in a changing market.

Ultimately, it will also focus organisations more strongly on realising the potential of people, customers and other stakeholders. We need to design our organisations to build the capabilities that realise human potential. That can only help make work more human.

Returning to Autonomy

Ubiquitous communication is taking us back to approaches to organisation of work that predated modern communications. The challenge now is not lack of communication. The challenge is the complexity of ubiquitous communication.

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If you were setting up a business in 1816 and you were going to operate over any distance, you needed to rely on your people to operate autonomously. Through much of the 19th Century as the telegraph, railroads and eventually automobiles arrived, communication and transportation remained slow and costly.  If you relied on instructing a distant workforce through more than an occasional letter or shipment, you were in danger of losing your business. Bureaucracy had been created to enable management on merit and talents and to provide consistent decision making to the management of local autonomy. People hired for trust, autonomy and the creative talents to manage a business because there was no other way to manage local affairs in a volatile changing world.

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By 1916, the cost of communications and transport had fallen significantly. The technology of management responded by leveraging the communications technology to measure, simplify, standardise and organise. Risk, discretion and variation were eliminated to achieve economies of scale and consistency of quality. Communication technologies enabled the end of autonomy, replacing it with policy, process, hierarchy and management. Bureaucracy enabled by communication took over the art of management in a fast global world. People hired for experience, organisational fit and ability to execute.

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In 2016, digital communications are ubiquitous, logistic networks cover the world and through technology like 3D printing and digital services we are even beginning to explore options to avoid transportation costs entirely. We have passed beyond exchanging, measuring and recording enough information to manage the business. Now there is too much information for everyone.  Employees, managers, customers and stakeholders are overwhelmed and unable to properly understand and respond to the system of interconnected processes that exist across organisations. 

In this complex adaptive system, we can no longer expect an all powerful centre to see and manage the processes, policies and business. We have returned to autonomy. People are hired for trust, autonomy and the creative talents to manage a business because there is no other way to manage complex affairs in a volatile connected and rapidly changing world.

The organisations that succeed in an interconnected world will be those who enable their people to respond autonomously to their environment, to lead experimentation and adaptation and to apply creative human intelligence to improving the system. New models of management are being developed now to create these responsive organisations

The Future Belongs to the Curious #PSKEvents

Curiosity is a critical capability for the future of work. We have reached the end of stocks of expertise.

This morning I was lucky enough to be involved in a fishbowl conversation with Cheryle Walker, Andrew Gerkens, Renee Robson, Charles Jennings and an insightful audience. The final question of the engaging conversation about learning and performance was ‘What capabilities matter for learning and development professionals in the future?’ The question prompted a great discussion of the value of strategic, business, relationship and systems acumen as learning becomes more focused on performance improvement & more integral to work.

My contribution was that curiosity is an important capability. As the attention shifts to how organisations can manage big learning systems, those facilitating this change need to be curious well beyond traditional domains of expertise. When work is learning and learning is the work to quote Harold Jarche, there is a need for facilitators of this process to be looking at their system and looking beyond the organisation with an intense curiosity. The question is not ‘what do I or our team need to know?’ The question needs to be ‘what can we learn that helps us work better and be more effective?’

Traditional approaches to learning often have an implicit or explicit assumption that there is a fixed reservoir of knowledge to be known by employees. Global connectivity has shown us that the required knowledge is constantly expanding, being shared and being created as people experiment with the edge and step into new domains or engage with new systems.

Big learning processes are key to the future of responsive organisations. Performance will depend on how fast and how effectively we learn. To shape this we must remember, the future of work belongs to the curious.

Why Collaboration Value is Understated

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Applying mechanical process productivity to collaboration provides us with an efficiency benefit case for collaboration. Understanding the true benefits of collaboration requires us to understand the knowledge work systems in place and the broader effectiveness of the organisation at creating value.

Value of Collaboration is Not Easy

We always facing the challenge of valuing the benefits of collaboration.  Collaborative technology is part of the infrastructure of the organisation. It’s use is open to many applications that will be co-created by the employees and shaped by the organisation. Many of the outcomes are not direct; collaboration facilitates a more effective organisation.

The temptation is to play it safe. We can use the same process efficiency mindset that applies to any other system to automate processes.  The question usually asked is “How much more efficient will our people be when they use a collaboration system?’  A number of studies have looked at the impact of collaboration systems on in process efficiency of knowledge workers. One of the most widely quoted statistics is the McKinsey survey that identified 20-25% of the time of knowledge workers could be saved with better ways to search for and interact on information. This mindset often drives an adoption focus to collaboration projects that misses a bigger opportunity to create value.

25% Better Off?

If you are processing iron ore into steel and you find a way to do it 25% better, then you will have 25% more steel or need 25% less inputs. That is a mechanical process saving. Inputs became outputs at a cost. This is how our traditional efficiency mindset has focused us on measuring value.

However, knowledge work isn’t like steel manufacture. At the end of a knowledge work process, we still have the inputs and the outputs. Both the inputs and the outputs can be shared widely at very low cost because they are easily reproducible. Most importantly, neither the inputs nor the outputs are fixed. 

Let’s consider a practical example. As a knowledge worker, you are asked to create a new process to improve the efficiency of steel production. Is the goal to do this 25% faster? No, the goal is to create the most efficient way of producing steel.  There are four elements that measure effectiveness of your work:

  • Reduce waste: If there is no better way currently possible or someone has already done the work, then don’t work on creating a new process. Do something else.
  • Reuse existing knowledge: If someone has developed a process that is more efficient, use that process as a basis. Don’t start with a blank page.
  • Create new knowledge: If you can bring together people who have never been connected, if you can share information that has not been shared you may be able to solve new problems or create an entirely more effective process for steel manufacture. This is likely to impact a much larger value opportunity than knowledge work in your organisation.
  • Create new value with existing or new knowledge: Your new process for steel manufacture will be able to be shared across your organisation and may even become a product in its own right.

The economic value of these four elements aren’t productivity measures of knowledge work.  The economic value is the impact on the production of steel and the greater value created in the organisation by collaboration to improve steel production. In my experience the benefits from simply stopping wasteful projects without any value add, is an order of magnitude larger than the productivity benefit from reduced search by knowledge workers.

Thinking more broadly about the economic impacts of collaboration can create a dramatic step change in the benefits for an organisation.  Rather than looking at efficiency in the cost base of knowledge work, collaboration impacts value creation organisation-wide. This new view has a critical role to play in shaping leaders support for collaboration and the level of investment an organisation should make in fostering collaboration in the organisation.