Strategic and economic drivers of governance

2. Contents • The relationship to demand • The economics • Strategy • Governance as driven by economics and strategy • Managing the balance • The East-West Challenge • Exploring the connections to ULS 2Copyright © BRL 2008

3. Nation % WW Labor % A % G % S 25 yr % delta S China 21.0 50 15 35 191 India 17.0 60 17 23 28 U.S.A. 4.8 3 27 70 21 Indonesia 3.9 45 16 39 35 Brazil 3.0 23 24 53 20 Russia 2.5 12 23 65 38 Japan 2.4 5 25 70 40 Nigeria 2.2 70 10 20 30 Banglad. 2.2 63 11 26 30 Germany 1.4 3 33 64 44 Top Ten Nations by Labor Force Size (about 50% of world labor in just 10 nations) A = Agriculture, G = Goods, S = Services >50% (S) services, >33% (S) services 2004 The largest labor force migration in human history is underway, driven by urbanization, global communications, low cost labor, business growth and technology innovation. 2004 United States (A) Agriculture: Value from harvesting nature (G) Goods: Value from making products (S) Services: Value from enhancing the capabilities of things (customizing, distributing, etc.) and interactions between things The World is becoming a service system (I.E. PLATFORM-CENTRIC BECOMES CAPABILITY-CENTRIC) Source: IBM Research © 2005 IBM Corporation 3Copyright © BRL 2008

5. Value Chain Organisation • Need to consider – demand-side changes in the way value is created for the customer – supply-side changes in the organisation of the value chain itself One position Our current ‘front-line’ line addressing different customer requirements Alternative organisation of the Value Chain 5Copyright © BRL 2008

6. Air Traffic Control position The ATC Chain Components Boxes Design, Build, Make MSSR RSC/CSI Integrator 3rd Parties NATS Install, train, operate Air Traffic Control Provider Airline Service, Support, Finance Regulation Considering the possible organisations of the Value Chain from here will give a very different perspective on the ATC position 6Copyright © BRL 2008

7. The Effects Ladder – organising the value chain Rethinking how the customer creates value Rethinking how value is created for the customer Managing the relationship means competing on the Effects Ladder Effects Ladder 7Copyright © BRL 2008

8. Problems related by a shared value proposition Zoning of ladder by type of competitive presence level below which context-of-use can be ignored, and there can be an arms-length procurement relationship Major drivers determining nature of demand situation The Effects Ladder1 This is the crucial ground to ‘take’ competitively The demand situation This boundary is moving 8Copyright © BRL 2008

9. Indirect Battlefield Engagement Weapon systems upgrades Non-Tactical training (knowing what) ISTAR – situational awareness Maintenance Logistical capability Storage doctrine Inter-operability cost-effectiveness Manpower productivity Synthetic environments War gaming Operational analysis platforms Tactical training (knowing how) ROE x TEWA Exo-system context able to ‘feed’STA capability + interface integration Physical installation integration Software installation integration MMI/STA integration C2 Structure ‘feed’fusion CM Mvre DEC CCII DEC ISTAR CM IS CM IS Army CM Mvre DERA ? Army DLO DERA/CDA CM IS CM Mvre Army ? To sort out these dotted line areas, it is necessary to get at DCDS (Systems), DGE, CM Mvre, CM IS, CM ISTAR, DEC IBE & DFD. The Effects Ladder2 9Copyright © BRL 2008

11. Asymmetric Advantage • The third kind of asymmetric advantage depends on relating to asymmetric forms of demand • The traditional approach to competitive advantage (following Porter) is based on owning something i.e. on establishing property rights. • The new kinds of disruptive competitive strategy (viz Christenson et al*) are based on creating asymmetric advantage. • Asymmetric advantage is based on knowing something that competitors don’t know that creates value for customers • There are three kinds of asymmetric advantage: 1. uses-of-technology know-how, 2. customisation-of-business-process know-how, and 3. embedding-in-customer-context-of-use know-how. * Christensen, C.M., Johnson, M.W. and Rigby, D.K. (2002) ‘Foundations for Growth: how to identify and build disruptive new businesses’, MIT Sloan Management Review, Spring 11Copyright © BRL 2008

12. The third asymmetry: Asymmetric Demand • Symmetric Demand – Those aspects of a demand situation • that can be abstracted and generalised across different contexts-of-use, and • that are treated as symmetric with supply-side capabilities • Asymmetric Demand – Those aspects of a demand situation • that are particular to the context-of-use (i.e. cannot be abstracted and generalised), and • that need orchestration and synchronization of supply-side capabilities in a way that is particular to satisfying the particular demand • Value Deficit – The gap between the symmetric and asymmetric aspects of a demand situation. Strategy based on extracting maximum value from position Strategy based on extracting maximum value from relationship 12Copyright © BRL 2008

13. Competitive Advantage • A particular form of competitive advantage flows from each form of asymmetric advantage: 1. Superior know-how about uses-of-technology generates economies of scale: • we can produce things more economically than our competitors 2. Superior know-how about customisation-of-business-processes generates economies of scope: • we can deliver our products and services to markets more economically than our competitors 3. Superior know-how about embedding-in-customer-context-of-use generates economies of alignment: • we can orchestrate and synchronize products and services dynamically in ways that change with the way your particular needs are changing. • These forms of competitive advantage are not mutually exclusive 13Copyright © BRL 2008

14. Technology 6-layer stratification WHY: What are the contexts-of-use and customer situations that are generating the demands that you are targeting, and how will you synchronize* the composite capabilities needed to satisfy them? WHAT: What are the critical technologies*that you have to be able to master and/or source? HOW: What are the key constituent performances that you need to construct output performances WHO/M: How are you going to have to customize and orchestrate outputs to generate the composite capabilities you need to support the customer situations you are targeting? 1st asymmetry the technology is not the product Economies of Scale 2nd asymmetry the business model is not the value proposition Economies of Scope 3rd asymmetry the demand is not the experience Economies of Alignment The Asymmetries build on each other critical technologies Key constituent performances output performances Customized outputs Composite Capabilities Customer situations Contexts- of-use Engineering Type 0 Constructive Type I Customization Type II Orchestration Type III Synchronization 14Copyright © BRL 2008

16. Opportunistic (marginal/ incremental) Effects-based (focus where Relational advantage can be sustained) Niche-based (focus where Positional advantage can be sustained) Asymmetric Advantage from Economies of Alignment No Yes Asymmetric Advantage from Economies of Scale or of Scope Yes No Commoditization centre-driven directed composition or directed collaboration edge-driven distributed collaboration The challenge for the enterprise is to be able to extend the competitive footprint of its businesses so that they are able to include effects-based forms of competition Digitalization The processes of digitalization are shifting the economics towards being able to address asymmetries of demand Relational Advantage has a half-life because of Knowledge Diffusion The impact of Digitalization 16Copyright © BRL 2008

17. Business: 2-levels • Strategic Marketing – Shaping the demand of the client • Strategy – Defining the SBU positioning to capture sustainable competitive advantage • Tactics – The steps needed to implement the strategy . Military ‘Strategy’ ≠ Business ‘Strategy’: Military Strategy is Effects-based Military: 3-levels • Strategy – Shaping the will of the adversary • Operations – Defining operational capabilities to support the strategy . • Tactic – The steps needed to deliver the operational capability in this instance Effects-basing requires new ways of competing that involve taking the ‘shaping’ power to the edge of the organization, and making the organisation’s infrastructures structurally agile. Uncertainty • About what needs are out there. • About how to organize things . • About what will be the effect. A 2-level approach to strategy relegates strategic marketing to being subordinate to operational strategy 17Copyright © BRL 2008

18. The more dynamic the demands, the higher the Strategy Ceiling needs to be lifted (the level above which it is none of your business…) WHYStrategic Why is this needed? WHO/MOperational Who is going to deliver value to whom? HOWTactical How should we organize it? WHAT What do we need to do? 18Copyright © BRL 2008

19. Implications • With a 2-level approach to strategy, “strategy” is about defining the organization within which things will get implemented. – This is ‘operational strategy’ (Porter, 1996*), and is about the long term/general in relation to the short term/particular – prone to arm-waving! • With a 3-level approach to strategy, “strategy” becomes very specific to the situation giving rise to the demand and how effects can be generated upon it – This is about ‘shaping the demand’, and involves considering the variety of forms of value proposition that it must be possible to generate to create those effects (Hagel, Brown & Davison, 2008**). • Distributed collaboration is needed to sustaining 3-level strategies in complex and dynamic demand environments – 3-level strategies become necessary in (e.g.) counter-insurgency environments: environments where the varieties of demand are too great and too dynamic to rely on 2-level strategies. * “What is strategy?” by Michael Porter. Harvard Business Review Nov-Dec 1996. pp 61-78. ** “Shaping Strategy in a World of Constant Disruption” Hagel, Brown and Davison, HBR October 2008 19Copyright © BRL 2008

21. •The goal is to establish who are the key actors, and how they influence each other in determining the performance of the whole: The domain of practice White: how we must do what we do Blue: what we do Red: particular demands Black: the contexts from which the demands emerge The ‘who for whom’: Are we satisfying the presenting demand? The ‘why’: Will we produce the effect that we want to? The ‘what’: Are things working as they should? The ‘how’: Are we doing things right? Defining the Enterprise as a sovereign entity 21 What shapes the way things work The way things work Internal External N S W E Copyright © BRL 2008

22. Governance as driven by the need to manage balance Direction of the whole Operational Capabilities Developing the best supporting infrastructures Demand The particular nature of the demand Problem-solving Know-how Developing effective ways of satisfying the particular demand Balance Clear overall intent Source: East-West Dominance, Philip Boxer, 2006, http://www.asymmetricdesign.com/archives/32 Black: the contexts from which the demands emerge Red: particular demands Blue: what we do White: how we must do what we do 22Copyright © BRL 2008

23. North-South vs East-West Dominance • With North-South dominance, the E-W response is subordinated to the N-S control axis – Directors’ top-down strategies (N) for how business capabilities (S) are to be used dictate the way demands are identified and responded to. • With East-West dominance, the N-S axis is subordinated to the E-W demand axis – The identification of demands (E) and the formulation of effective responses to them (W) determine the way business capabilities are directed and deployed. • The ‘Faustian pact’ delays having to develop E-W dominance – It allows the organisation to remain N-S dominant by cutting enough slack for those needing to operate E-W so that they can deal with the variations in demand they are encountering by informally flexing the system within the overall N-S control framework. • East-West dominance presumes asymmetric demand and means taking power to the edge of the organisation. Black: the contexts from which the demands emerge Red: particular demands Blue: what we do White: how we must do what we do 23Copyright © BRL 2008

25. Functionality available Customer’s Timing & Logistics The relations to the context-of-use Crossing over this line means having a relationship to the context-of-use….. ‘problem solver’ ‘product developer’ ‘service provider’ ‘cost minimiser’ Where does the Enterprise need to compete in this space? 25Copyright © BRL 2008

26. Knowledge Diffusion from supplier to competitors and customers Functionality offered Customer’s Timing & Logistics The relation to the context-of-use ‘problem solver’ ‘product developer’ ‘service provider’ ‘cost minimiser’ 26Copyright © BRL 2008

27. ‘role’ Do what you are told ‘achievement’ Use informal mechanisms to compensate for limitations in how your role is defined in order that you are able to achieve the objective set Crossing over this line means being driven by the nature of the situation….. ‘power’ Use informal mechanisms to overcome the limitations of hierarchy through personally authorised situational definitions of how solutions should be delivered, but still constrained by the silos The forms of authorization Responsibility-for Accountability-to ‘support’ The supporting infrastructures are designed to have the agility needed to support a relational response to asymmetric demand 27Copyright © BRL 2008

28. ‘role’ ‘achievement’ ‘power’ Managing the use of scarce resources: de- confliction vs synchronisation Responsibility-for Accountability-to ‘support’ De-confliction dominant Synchronization dominant Requires power at the edge Requires power at the centre Informal/ad hoc synchronization of the use of resources in the response to demand within the context of Business Units De-confliction of the use of resources in response to demand within Business Unit Clusters Synchronization of the use of resources in the response to demand through formalised edge processes Faustian deal leaves silos of control intact… Faustian deal preserves authority of hierarchy… 28Copyright © BRL 2008

29. ‘role’ ‘achievement’ ‘power’ Changing the forms of authorization Responsibility-for Accountability-to ‘support’ This move is not possible organizationally What is needed is this kind of move 29Copyright © BRL 2008

30. Managing the balance Responsibility-for Accountability-to The forms of authorisation Functionality offered Customer’s Timing & Logistics The relations to the context-of-use ‘role’ ‘achievement’ ‘power’ ‘support’ The relation will collapse to the level at which there is a sustaining form of authorisation… … or more will be invested than can be justified by the relation to demand The position on the LHS has to match the position on the RHS ‘problem solver’ ‘product developer’ ‘service provider’ ‘cost minimiser’ 30Copyright © BRL 2008

31. The dynamics are different on either side Responsibility-for Accountability-to Responsibility-for Accountability-to The forms of authority Functionality Timing & Logistics The relations to the context-of-use ‘problem solver’ ‘product developer’ ‘solution provider’ ‘cost minimiser’ ‘role’ ‘achievement’ ‘power’ ‘support’ ‘role’ ‘achievement’ ‘power’ ‘support’ 31Copyright © BRL 2008

35. The 21st Century challenge Asymmetric demand (threat) – that demand which is specific to the customer’s particular circumstances and context-of-use. This may include tacit or latent demand that the customer is not yet able to articulate. Technology now makes it possible to demand that products and solutions be customized, personalized, unique and distinctive to ourselves within our context (Bobbitt, 2002 ‘Shield of Achilles’) * Power to the Edge: Command and Control in the Information Age. Alberts & Hayes 2003 The dominant source of threat shifts from competitors (other nations) to customers (citizens and NGOs) Power to the edge* – Enabling people who directly experience a customer’s demand at the edge of the organization to be able to organise forms of orchestration and synchronization appropriate to the particular nature of the demand. – The assumption is that the organization faces many such forms of demand, and that power-to-the-edge therefore involves distributed collaboration. 35Copyright © BRL 2008

36. Sustaining East-West Dominance Sustaining East-West dominance requires: – Leadership that can sustain power-at-the-edge • A leadership model that can sustain the dynamic alignment of infrastructures to demand – An East-West approach to demand • Collaborative relationships with customers within their contexts-of-use developing strategy-at-the-edge. – Infrastructures with agility • Capabilities delivered within a framework of stratification and granularity able to support distributed collaboration. – Horizontal transparency • The ability to hold accountable those with authority at the edge 36Copyright © BRL 2008

37. Contents • The relationship to demand • The economics • Strategy • Governance as driven by economics and strategy • Managing the balance • The East-West Challenge • Exploring the connections to the ULS arena 37Copyright © BRL 2008

38. Case Examples of the use of Projective Analysis Methods 1. Defining market failure and the need for changed purchaser-provider boundaries At Raytheon UK we examined the market failure that resulted in a change in the customer’s acquisition approach from being product-based to being capability-based, and identified the new forms of value proposition needed to rectify that failure. 2. Governance challenges supporting distributed collaboration At the Purchasing and Supplies Agency of the UK NHS we identified the challenges involved in creating accountability to care purchasers for providing through-life care to orthotic patients’ conditions, and established the collaboration platform needed to support the horizontal transparency required by distributed collaboration. 3. Operational effectiveness and its required variety of geometries-of-use At the MoD we analyzed the organization of campaign plans and the variety of patterns of organizational and technical orchestration needed to support them, and identified the gap between these patterns and the current approaches to capability audit. 4. Socio-technical interoperability risks and their mitigation At NATO we identified the risks posed by their current approach to orchestrating and aligning the constituent elements of their upgraded AWACS capability to sustaining its operational effectiveness over the next 10+ years. 5. Cohesion-based costing and the economics of alignment At Thales we examined the economics of alternative approaches taken by its MoD customer to orchestrating and aligning UAV capabilities across the DOTMLPF spectrum to create cohesive military responses. 6. Balancing centre-driven and edge-driven processes of distributed collaboration At JFSP we diagnosed the gaps between agencies’ center-driven approach to virtual organization and their ability to support the variety of approaches to collaboration used at the edge to mitigate wildland fire risks. 7. Situationally-driven data fusion and multi-sided market architectures At the Seattle Research Station of the US Forestry Service we established the scientific and data fusion characteristics particular to predicting smoke diffusion and defined the stratification of the BlueSky platform that enabled it to be embedded in a variety of user environments. 38Copyright © BRL 2008

39. How projective analysis extends and complements existing forms of analysis Current State of the Practice Functional Architecture Description Data Architecture Description Accountability Hierarchy Description Social Synchronization/ Data Fusion Description Description of Heterogeneity of Demand Organization Stand-alone Systems Architecture  () - - - Stand-alone Software Architecture ()  - - - SoS Architecture (‘Complex’ as currently used)  () () - - In the following case situations, projective analysis extended SEI’s Analytical Practice BlueSky Framework Architecture   ()  - CREATE Framework Architecture - Phase II      NATO AWACS SoS Architecture      TUAV ULS Socio- Technical Ecosystem      Projective Analysis Views Structure- function Trace Hierarchy Synchronization Demand 39Copyright © BRL 2008

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