Stability, Relationships and Institutional Innovation as Pillars of Success

5 Feb

Just read a few pieces from John Hagel – one of my favourite writers – whilst catching up on my blog backlog.  Essentially two posts caught my attention, one describing some areas of concentration for the coming year and another exploring the concept of institutional innovation.  Both of these posts resonated strongly with me and I felt that elements of both were strongly – even inextricably – linked together.

The two main points from the first post that caught my attention were around the value of stability in a changing world and on the decreasing value of transactional behaviour.  These ideas were reinforced by the second post about institutional innovation as I believe that such transformational innovation requires us to recognise the need for stability whilst simultaneously downplaying transactional behaviour in favour of mutually beneficial relationships.

I’ll explore this a little further.

The importance of internal stability

I’ve discussed many times how I believe that in order to be successful in a rapidly changing world we need to look at the structural properties of our organisations before considering how they work.  In this context understanding the capabilities that we need to be successful – along with the metrics that they need to support – is a key lever to greater organisational adaptability.  This is so since these abstractions allow us to concentrate on what we need to achieve whilst burying the detail of how we achieve it to prevent ourselves from being overwhelmed and therefore powerless to act decisively.  Equally importantly, however, a concentration on structural components and their relationships allows us to escape from tightly coupled process-oriented thinking and move to an organisational style that is more loosely coupled and output-driven. 

In this discussion, however, the key characteristic of interest in a structural view is that of stability – essentially a structural, capability based view of an organisation is far more stable than a dynamic, process-oriented one.  This is because the things that we do broadly remain static over time whilst the way in which we do them can be impacted hugely by influences such as technology advances, economic pressures or the talent pool we have at our disposal.

As increasingly rapid change impacts our organisations and forces us to rethink how we do things, the value of understanding explicitly what we do cannot be overstated.  Chaos ensues when people have no fixed reference points around which to manage change; a stable view of intent, however, allows us to have the benefit of both worlds – a stable understanding of things that need to be achieved and therefore a clear field of operations in which to implement change in a decisive and systematic fashion. 

The importance of external stability

Taking this thinking to the next level, increasing pressures on organisations will increasingly force them to look at the set of capabilities that they have and decide which ones represent their core areas of expertise (it is worth stating here that this is another, related reason to take a systematic view of the capabilities an organisation needs but that is assumed in this post).  This choice will increasingly be driven by economic forces and so – to use another of John’s broad ideas – organisations will need to decide whether they major on customer relationships, infrastructure or innovation.  Making this decision will be a further expression of stability at the macro level, however, since our organisation will now be signaling to its wider ecosystem that it has capabilities of a particular nature that can be leveraged and also that it will be looking for partners to provide other elements of the value chain on its behalf.  At the top level well positioned service providers can therefore become points of stability in the changing landscape of an industry, enhancing both their own positions but also providing reference points to new entrants trying to excel in a different section of the value chain. 

The futility of transactional behaviour

One of the key issues that emerges as we begin to seek complementary services from partners is the nature of the relationships we wish to build.  Current transactional based thinking would tend to treat partners as ‘suppliers’ held at arms length and squeezed for the minimum costs sustainable.  This approach ignores the far greater benefits to be accessed by building and leveraging these relationships to achieve profitable and sustainable growth on both sides and represent a zero sum game in place of efforts to mutually grow the available opportunities.  Many kinds of emerging relationships – whether those lauded by social networking advocates mentioned by John or those enabled by increasing B2B information exchanges – are merely transactional in nature and not relationships in the true sense of the word.  If we are to maximise our opportunities and accelerate the improvement of our chosen capabilities then we must build deeper relationships in place of impersonal transactions in order to leverage complementary expertise and expand our influence and opportunities into new markets.

The increasing importance of deepening relationships

Increasingly we are seeing a shift away from consumer-supplier relationships where one side owns the power towards a situation in which different organisations are composing value for customers out of their complementary capabilities.  In this context relationships are of far greater value than the lowest possible cost because we now need to leverage our combined talents to improve all of our services and by extension the overall result as experienced by the end customer.  We are therefore going to be looking to leverage our different perspectives and expertise in order to look at the overall value being created and to realign our individual services to improve the output of our joint activities

Two points in particular stood out for me in John’s post in the context of relationships:

  • Deep relationships become increasingly valuable in times of widespread change;
  • in fact, deep relationships are essential to capture the full value of weak ties.

Again one of the broader questions around the need for stability is what and who we can count on to help us make sense of the changes that are happening around us.  In this context the deeper our relationships with our partners the more we can both consider them a point of stability and support as we deal with change but also the broader range of perspectives and insight we have in making sense of change and in deciding how to react most effectively. 

In the second case it is worth highlighting the fact that deep relationships do not automatically infer tight integration.  In building relationships with partners who will offer their complementary capabilities to us we need to ensure that we deliver the loosest possible coupling between our respective services.  Counter-intuitively perhaps this is not because we wish to return to a view of our partner as a supplier to be easily swapped out but rather that we wish to give them the maximum scope for innovation in the services that they deliver to us.  In this context – again counter-intuitively perhaps – we require much deeper relationships and trust to be in place before we will consent to the loose coupling required to maximise innovation – the natural tendency when we unbundle capability to another is to want to understand and control the way in which things are done on our behalf.  This is limiting behaviour since we fail to take advantage of the complementary expertise of the specialised partner and instead continue to project our inadequacies onto their delivery and constrain their ability to deliver the best possible service on our behalf.  Breaking this habit requires deep and trusting relationships, however, since the more interdependent we become the more we each depend upon the other for mutual success and therefore the more we tend to want to feel in control.

Leveraging stability and deep relationships to realise institutional innovation

These ideas around the importance of stability and the inadequacy of transaction thinking lead onto a consideration of John’s other post around institutional innovation.  Developing a stable view of your organisation, zeroing in on your key capabilities and then concentrating on changing the nature of your relationships with partners can open the door to the benefits of institutional innovation:

Stability:  We know what we do and what our partners do and so can successfully build relationships around these points of stability.  We have a context for innovation across organisational boundaries.

Modularity:  A shift to a stable view also drives a more modular approach.  We can therefore minimise coupling and maximise innovation opportunities.  We therefore have a context for distributed and deconflicted innovation implementation.

Relationships:  Developing deep, positive sum game relationships enables us to jointly seek mutual advantage with our partners through leveraging our diversity.  We therefore have a context for longer term capability development and organisational growth.

Essentially as we and our partners become more dependent on each other to realise value so we also become dependent on each other to realise such value in the most effective way possible.  In this context innovation is no longer something that happens within the bounds of your organisation but rather is most potent at the intersection of your capabilities with those of your partners. 

As John points out such innovation transcends current practices around ‘open innovation’ and moves from point attempts to leverage occasional 3rd party expertise to inform our own innovation towards sustained and systematic examination of innnovation opportunities across our partner ecosystem.  This broader approach requires us to continually leverage the diverse experience, expertise and perspective of our wider ecosystem to look for mutual advantage, a subtle but important difference.  Essentially such innovation recognises the increasingly symbiotic nature of partnership and the huge opportunities to create breakthrough innovation through diversity  Such innovation may come in the form of improvements to individual capabilities as a result of partner feedback, in improvements in the functioning of the overall value web or in insights regarding new joint offering or market opportunities. 

Summary

This is an emerging area that requires us to rethink the way in which we deal with partners, the way in which we locate our people and the tools and technology that we can use to support distributed co-creation and innovation.  It may be that some of the tools are already here – I’ve written about using Web 2.0 techniques to leverage talent, for example – but our understanding of the practices and processes that will enable us to really exploit these opportunities is still limited.  Given the rich seam of benefit to be mined through broader, more collaborative innovation, however we all have a duty to promote and develop these ideas as quickly as possible.

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3 Responses to “Stability, Relationships and Institutional Innovation as Pillars of Success”

Trackbacks/Pingbacks

  1. Relationships vs Transactions « IT Blagger 3.0 - March 27, 2008

    […] – a chap called Martin Abbot – by email a couple of days ago with respect to my last post about institutional innovation.  Whilst I’ve been planning to find some time to write a follow up that links these ideas […]

  2. Differentiation vs Integration « IT Blagger 3.0 - May 12, 2010

    […] I’ve talked many times about the use of business capabilities to document the stable structure of an organisation and provide a framework for concentrating on ‘what’ the organisation does rather than getting lost in the mess of ‘how’ it actually does it.  Business capabilities allow us to concentrate on the outcomes we require and map value streams both within and across organisations to coordinate these outcomes but ignore how the value is delivered.  This allows us to federate out the issues of implementation to the owners of each capability and give them the maximum scope for optimising their capability.  This is particularly important when you realise that codification of outcomes gives you options for supply – given that transaction costs have now made use of external capabilities highly desirable – but also requires you to let go of tight control of implementation and trust your chosen partner.  I wrote a long post on this whole subject here for those who are interested. […]

  3. What Does it Mean to Think of Your Business as a Service? « IT Blagger 3.0 - November 17, 2010

    […] adaptable, help them to specialise by disaggregating non-core capabilities to partners and unleash innovation on a scale not possible in today’s internally focused and tightly coupled organisations.  Looking at different kinds of value can also help us to sustainably disaggregate and then […]

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