Currently thinking about what the company of the future looks like, I loved reading Dave Gray’s book The Connected Company. It is an amazing read and I would like to give you a little bit of a summary and show you a few of the nuggets of information in the book. Here is the blog that is kind of part of the book.
Long gone are the days of a predictable world in which you could take your time to make decisions, manage an organization from the top, or get away with mediocre products and services. [... ]Eventually, every customer will be a connected customer. And if you want to win over connected customers, you will need to become a connected company. [...] The producer-driven economy is giving way to a new, customer-centered world in which companies will prosper by developing relationships with customers — by listening to them, adapting, and responding to their wants and needs. [...] The problem is that the organizations that generated all this wealth were not designed to listen, adapt, and respond. They were designed to create a ceaseless, one-way flow of material goods and information. Everything about them has been optimized for this one-directional arrow, and product-oriented habits are so deeply embedded in our organizational systems that it will be difficult to root them out.
This is the most important shift that is going on. Previously we could push a product into market with a good marketing strategy but with the rise of social media, we have a regained a real marketplace around products that is open to anyone, and people talk about their experiences. Faking it with a bad product does not work anymore.
The entire world moves in the direction of services and even products really become a service. The iPhone is a service for me to enjoy interacting with it to reach a goal of talking to people.
Services cannot be designed and manufactured in isolation, like products. They are co-created with customers and are interdependent with wider service networks and clusters. [...] Sure, many services require some level of efficiency, but services are not production processes. They are experiences. [...] The value of a service lies in the interactions: it’s not the end product that matters, so much as the experience. [...] To this end, a company with a service orientation cannot be designed and organized around efficiency processes. It must be designed and organized around customers and experiences. [...] Products aren’t just things. They are servants. [...] A service is different. While processes are designed to be consistent and uniform, services are co-created with customers each and every time a service is rendered. This difference is not superficial but fundamental. [...] customers introduce a massive amount of complexity into the Company Formerly Known as The Well-Oiled Machine. [...] We need to optimize not for the line of production but for the line of interaction, the front line — the edge of the organization — where our people and systems come into direct contact with customers. It’s a whole different thing.
He cites a great idea from Vanguard, who have a different methodology for customer care in the sense that you have one person responsible for solving your problem. It is based on measuring Net Promoter Score (NPS) which is being adopted by a lot of companies. What they are doing right is that if you call their support line, and the first line worker cannot fix the problem, he will not hand over to the second line support but get some expert in on the call but stay on the call. It first of all feels great for the customer and the support person learns something. Great move and oh so simple.
You need to give the people that are talking to your customers real power, and then he adds a saying: “When in doubt, go towards the fear.”
Complexity is a function of three things: the number of unique nodes (in this case, companies); the number of connections and potential connections (not just competitors but partners and other allies); and the rate of change in the system. Taken together, these three change forces create a highly volatile, uncertain environment, where advantages are short-lived and the competitive landscape is constantly shifting.
And we are in a time of increasing rate of change, of increasing creation of niches and specialisation. This again fits with looking for T-Shaped people as employees, not an old idea, but an increasingly important one. You need to open up to that complexity and reach out to your increasingly complex environment to solve real problems. And then you have the innovators dilemma and a changing environment.
If you are at the top of a fitness peak and the landscape starts changing, it can really throw you off. Companies doing the right thing at the time — making the right moves for their situation, trying to optimize their production lines to squeeze out all the costs and inefficiencies so they can run lean and mean operations — may later find that they have optimized for a business environment that no longer exists.
Two great quotes here: Jack Welch once said, “I’ve always believed that when the rate of change inside an institution becomes slower than the rate of change outside, the end is in sight. The only question is when.” Darwin said, “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.”
So you need to optimise for adaptability. Things change faster than ever, you need to integrate that into your processes.
“The purpose of a company is to do something for customers while making a profit.” If you have increasing complexity you need to establish something called Command Intent. “Command intent is a style of management used by the US Military when a situation is too complex or uncertain to give detailed orders.” Always remember that:
Profits are not a cause of success, they are an effect. They are a result. And looking at a result tells us very little about the causes that led to that result. [...] Of course, profits are important. And measurement is important. What gets measured gets done. If you only measure profits, then that’s what you’ll get. But the wrong kind of profits will kill your company. Traditional accounting tells you nothing about the quality of your relationships with customers. And happy, loyal customers are the only driver that will yield success in the long term.
Another great quote: No plan survives contact with the enemy. – Helmuth von Moltke
Law of Requisite Variety, also known as Ashby’s Law, states that any control system must be capable of variety that’s greater than or equal to the variety in the system to be controlled. [...] Taken together, agile teams, service contracts, composability, and loose coupling allow the creation of complex service clusters and networks that operate in a peer-to-peer, city-like way. In fact, these kinds of “service cities” can sometimes be so complex that the only way to manage them is to not manage them. Instead, the company focuses on creating an environment within which they can thrive.
He goes on to show what Netflix does with their Chaos Monkey and it is a truly great system.
Netflix has a kind of digital “building inspector” they call the chaos monkey. Says Cockcroft: The chaos monkey…goes around killing things, killing services. The chaos monkey is the building inspector that makes sure that you followed the planning department’s advice and you built a safe building that won’t burn down. If you build something that’s fireproof, it doesn’t matter how much fire there is. It’s fireproof. The chaos monkey is our pet arsonist.
You need to make teams small, and let them run on their own on their own vision that is part of a shared vision and roadmap, but they will need to be independent. They also need to know how other teams are doing and what is going on in the company and how their performance compares. Whole Foods does that for example.
Teams also have access to detailed financial data, like product costs, profits per store, and even one another’s compensation and bonus information. They can look up the best-selling items at other stores and compare them to their own. Employees at Whole Foods are so well informed that the SEC has designated all employees “insiders” for stock trading purposes.
WordPress also has small teams and Amazon is known to work like that, also making everyone interact with customers every two years for a few days.
Teams are limited in size to about 8–10 people. At Amazon, they call them two-pizza teams: if you can’t feed a team with two pizzas, it’s too large. What keeps the teams close to customers? Three things: Each team has a fitness function — a number they are focusing on — and organizes its work in any way it pleases to improve that number. Such data is critical for organizing autonomous pods. “Fact-based decisions overrule the hierarchy,” says Bezos. Since each team focuses on a small part of the ecosystem, the company gets closer and closer to the data, tightening up feedback loops and helping the whole system evolve faster. Teams work backwards from customer value to service or product. They start with a press release describing their intended features, and start collecting feedback before they have built a thing.
But Dave also emphasises values in this case:
When it comes to language, protocols, culture, and values, you don’t want variability, you want consistency. Having shared values is one of the best ways to ensure consistent behavior when you lack a formal hierarchy. Consistency in standards is an absolute requirement if you want to enable autonomous units.
He also talks about a trait that has recently been found with entpreneurs.
Instead, entrepreneurs focus on the capabilities they have and ask the question: “Given what is currently under my control, what kinds of things could I do in the world?” Instead of looking for money, they focus on the means they have at hand and what they can afford to lose.
I know that at a previous company this was for example the internationalization strategy. We had contacts in a certain market and the risk was smaller, … go.
The bottom line is that entrepreneurs focus on things that are within their direct control and try to make things happen. If life gives you lemons, you make lemonade. [... ]It doesn’t take a genius. What it takes is a bias for action, a willingness to work with what you’ve got, to experiment, and to engage people in collective action.
But you need the right people for this and this is especially important at the beginning, actually explained by something called preferential attachment.
Network theorist Albert-László Barabás discovered the mechanism that governs the growth of scale-free networks, called preferential attachment. New nodes don’t enter a network and connect randomly to other nodes. When a new node enters a network, it will prefer to connect with nodes that are already well-connected. Over time, highly-connected nodes continue to acquire more links than those that are less connected. The result of this growth pattern is that nodes that are rich in links continually get richer relative to their peers. [...] Developers of malls and business parks use the law of preferential attachment to their advantage. Early in the development process, they secure long-term agreements with anchor tenants, who form the initial center of gravity for the network to grow around. Developers subsidize early “seed tenants,” often losing money on the first few tenants. As more firms move in and the cluster grows, they raise the rents.
Good quote for that: “The best executive is the one who has sense enough to pick good men to do what he wants done, and self-restraint to keep from meddling with them while they do it.” — Theodore Roosevelt
Overarching subject of the book is that what is important in the future is innovation, and the best summary for what you need then comes from Jeff Bezos: “You need to set up and organize so that you can do as many experiments per unit of time as possible.”
Leadership is different in a connected company though:
In a connected company, senior leaders should be the most connected people in the company. They should spend their time listening, connecting, and empathizing. [...] One way to help people make good decisions in uncertain environments is to have a strong, constant purpose so everyone understands the job to be done, and a few clear principles that they can use to guide their decisions about “how” to do that job. [...] The purpose of management is to design, operate, and improve the system by which work gets done.
And I love the quote from Rackspace CEO Lanham Napier: “It really comes down to core values, and we don’t train our employees in core values. Their parents did that a long time ago.”
With that, I will leave you thinking about how the company of the future looks. I know I have been for some time and we are getting closer.