Now let’s tackle some truly challenging differences between evolutionary variation and our business process for generating variations.

Last week we said, Evolution does not care about an individual organism and it does not even care about an individual species. In contrast, we care which particular variations fail and we care passionately about the success of our business. It’s not just business, it’s personal. Quite simply, this difference is insurmountable.

Prejudice makes your world go down

On the surface it seems outrageous to propose that our desire to succeed actually is one source of our failures, but the evolutionary model points in that direction. We cannot eliminate our preferences, but perhaps we can understand the impact of our preferences.

Note the polite reference to our preferences, when the more accurate word is bias or even prejudice.

Literally, a prejudice is a pre-judgment. While judgment is good and even necessary, pre-judgment, that is judgment before the data is available, is not good.

By understanding our prejudices, perhaps we can reduce the negative impact of those prejudices.

As business leaders we like to think of ourselves as rational creatures, dispassionately weighing the facts and evidence, then rendering a judgment—like Solomon—upon the wisdom of any particular issue at hand.

Our self-image depends heavily upon this viewpoint, because it supports and justifies the many decisions we must make every day, usually with insufficient time and almost always with inadequate information to make the decision.

Many external factors affect our ability to make decisions, most of which are beyond our control. For instance, air temperature has a measurable effect on our attitude, so much so that we refer to a person as cold or warm. In a warm room our decisions tend to be more expansive and more generous. Lower the temperature a few degrees and we become colder, more calculating and stingy. Blood sugar level has a similar impact, with lower blood sugar correlated to cautious behaviors and higher blood sugar levels correlated to increased risk-taking.

No doubt you have experienced these variations in your own work. In the morning, after coming into the office from a cold commute and then drinking a cup of coffee, your actions may be just a little quicker, a little more cautious, a little less expansive and open. In the afternoon after lunch, you may be a little more relaxed in a meeting, a little more agreeable and willing to consider an unusual idea.

Also we are affected by internal chemicals such as testosterone, adrenalin, and endorphins. Testosterone, the ultimate male chemical, is correlated with feelings of power and control. Any perceived victory or accomplishment will tend to raise testosterone levels. In stressful situations our bodies release adrenalin, which triggers the well-known “fight-or-flight” responses. Endorphins tend to produce feelings of peace, and euphoria. Exercise typically increases endorphin levels, which leads to the feeling of relaxation and peace after a good work-out. We can change our levels of each of these chemicals by physical activities and also just by our own thoughts.

Outside the chemical and physical realms, our own brains tend to betray us. Tests demonstrate that our estimate of our own knowledge affects our decision making, even when our knowledge is wrong. As Will Rogers said, “It isn’t what a fellow knows that does him any harm. It’s what he knows that isn’t so.”

In today’s business, where change is so rapid, much of our knowledge is outdated, if not plain wrong. Small, subtle differences can have significant impact on the outcomes. Our ability to spot those subtle differences is limited to areas where we have very deep, very current knowledge. Technology and business change so rapidly that it is almost impossible to stay current across a broad range.

Finally, in business we work under short time frames, with incomplete information, and we care passionately about the outcome. Guessing what our customers will want tomorrow is particularly hazardous to our business health.  Truly we don’t have knowledge so much as prejudices, opinions and hunches. As Alcoholics Anonymous states, “The first step is admitting I have a problem.” So let’s confess together, “I am addicted to my prejudices.”

Prejudicial Checkup

• You just admitted you have prejudices. What are a few of your favorite prejudices? Name at least five.
• What external events or situations trigger your prejudices?
• What internal signals indicate that you are replaying an old, familiar prejudice?
• What internal images do you see, what words or voices do you hear internally when a situation triggers one of your prejudices?
• How can you interrupt your internal cycle of prejudicial thoughts? Perhaps you can stand up, count to ten, take a few deep breaths, or stretch.
• How can you protect your development teams and processes from your internal prejudices?

Nurturing New Variations—especially the ones we do not like

With this fresh understanding of our own prejudices firmly in mind let’s return to the first problem that limits our ability to produce variations – killing off new ideas too soon.

Knowing that our prejudices will inevitably lead us to kill off certain types of new ideas too soon, how can we design an environment within our business that protects them from our “best” instincts?

To thrive, new ideas need

• a champion;
• some time to grow;
• a few resources; and
• early exposure to testing by customers.

How do you provide these resources to your teams? It is not your job to nurture every new idea, but it is your job to provide the resources and patiently observe which ones grow. Most new ideas will eventually die, but a few unlikely ones will thrive, just like weeds.

How to move projects along

• Reinforcement from customers is extremely powerful—a few encouraging words from a customer can overcome almost any prejudice;
• set up small tests to demonstrate and validate critical elements early in the process;
• drive your development teams to put every new product in front of customers very quickly, much earlier than the development team believes it will be ready;
• full functionality of a few subsystems is much better than 90% functionality of the whole system; and
• remind your teams to fail fast, fail often, and fail small.

Checkup for Nurturing New Variations

• How do you encourage and support champions?
• How do you protect champions and new ideas from your own prejudices?
• How do you provide just enough resources to allow new ideas to grow?
• How do you expose new ideas to the testing of the marketplace? How quickly?
• How do you keep yourself out of the role of premature judge?

Next week join me to learn how our prejudices feed the vampires that suck the life out of our business—and what to do about it.

Your comments-priceless

Don’t miss a post! Subscribe via RSS or EMAIL

Last week we promised to dig a little deeper into the two primary mistakes—killing most experiments too soon and not killing off the vampires soon enough. Today we will address the first mistake.

Evolution Wins Because Evolution Doesn’t Care

Well, that is the problem for us as business managers. Evolution generates random variations and lets the environment select the winners.

In business we have difficulty matching evolution’s dispassionate process for several challenging reasons:

• Evolution runs thousands of variations each generation. In business we can develop and test only tens or maybe hundreds of variations each generation.
• Evolution has a very low cost for each variation. In business our cost for each variation can be significant.
• Evolution does not care which variation wins. In business we care about which variations succeed.
• Evolution succeeds even when an entire species fails. In business we fail when our business fails and each of us cares passionately about the success of our individual business.

Let’s address the two easy differences first.

Evolution generates thousands of variations, at an extremely low cost per variation. Evolution actually produces nothing but variations. Every individual organism is one more variation for the species. Unit cost and individual variation are inextricably linked. Evolution has designed its production process to generate individual variations as an integral part of the operation.

In direct contrast, since the industrial revolution we have driven human manufacturing processes to produce high volumes and low cost by eliminating variation. For over one hundred years we have driven manufacturing processes to reduce variations down to parts per million.

Fortunately in the past two decades we have begun to shift from a mass production model to a mass customization model, which begins to look a little more like evolution.

As one example, print-on-demand technology has lowered the cost of small-volume book production so much that a publishing run of one single book is now economical. This technology extends the life of low-volume books, but even more important it makes possible production of completely custom books, written and produced for a market of only one person or one event.

The most extreme approach to mass customization is to give the customer the capability to design and produce exactly the product that the customer wants.

Build-a-Bear has built a hundred million dollar business providing components for stuffed bears to children, who then construct a completely custom stuffed animal for themselves. The company has integrated the production process into the consumption process and the customer creates the variation as an integral part of the production process.

Using this approach for books, print-on-demand technology becomes not the source of the customization, but only the last step in creating a unique printed product that the customer has designed individually.

Among other new companies, Giftventure exemplifies the use of print-on-demand for mass customization. Giftventure provides a number of characters and puzzles that the customer can use to build a custom adventure for a child. Giftventure delivers the artwork electronically to a print-on-demand house near the consumer, and delivers the final printed adventure by mail.

Variation Checkup

• How does your customer participate in your product design?
• How does your customer participate in your production process?
• How do you integrate mass customization into your own product designs?
• Can your customer make a completely unique version of your product?
• How does customization affect your production costs?

When Caring is a Negative

Evolution does not care about an individual organism; it does not even care about an individual species.

Fundamentally, we care when particular variations fail and we care when our business fails. Quite simply, this difference is insurmountable.

This topic is one of the most fundamental challenges for business leadership.

Please join us next week when we will explore how our desire to succeed directly causes us to kill most experiments too soon, and how that same desire to succeed prolongs the life of the vampires—those experiments that should have died long ago, but keep coming back to life in every budget cycle.

Your comments-priceless

Don’t miss a post! Subscribe via RSS or EMAIL

Previously we discussed how evolution uses two types of variation – small and large – to explore the map of survival and to climb to the peaks of excellent adaptation for the best survival.

The Power of Many Tests

First let’s consider small and large changes in your services and products.

The consumer packaged goods industry, led by Procter & Gamble, has developed small variations to a science.

If Tide sells well in the 32 oz. box, then let’s try small, large, and jumbo sized boxes of Tide. Some will cannibalize other sizes and some (most) will just plain flop. But a few will grow and flourish in the grocery aisles. Product managers have created many other extensions of Tide – low suds, color-safe, and probably even low calorie. Each one is a single, small step exploring the landscape of consumer preference– and each one is an attempt to climb to a peak of survival in the grocery aisle.

This testing of small product changes goes on in almost every other market.

• Software providers offer many performance levels – entry level, professional, and enterprise.
• Credit card providers offer a wide variety of features in their card products – low interest, cash-back, donation to your favorite organization, points, and even your picture on the card.

Large variations may be a little less obvious, but are just as common.

Building on Tide’s success with consumers, product managers developed Tide-in-a-stick, which can remove stains immediately, even without washing. Can Tide make the jump from the laundry shelf to the consumer’s purse?

Apparently so. This is a large jump to a different environment.

• Intuit, the maker of TurboTax, recently began offering loans on tax refunds.
• Cable companies are now offering telephone service and telephone companies are attempting to offer television service.

Embrace Your Ignorance—Focus on the Failures

The examples of product variations discussed above appear to be pretty obvious. But we did not mention any of the failures, only the successes. The failures are gone from the grocery shelves and never even made an impression on us. These failures represent over 90% of the trials, so in running a business, we cannot ignore them. On the contrary, we need to understand them much better.

Bluntly, you cannot skip the failures and go right to the successes. That is called predicting the future and our track record is not very good there. Looking at a random process like the stock market prices, results demonstrate that an index fund—an investment that tracks a particular index (S&P 500, DJIA, etc.)—outperforms over 85% of the active mutual funds consistently, every year. Similarly, a strategy of dollar-cost investing (the same dollar amount every month) consistently outperforms attempts to time the market with purchases and sales.

Axiom of Evolution: The future is unpredictable.

Corollary: Central planning never works.

Evolution does not attempt to predict the future. It does not know, and does not care. To dramatically illustrate the point, evolution has no central planning committee. In a tangible sense, evolution does not even exist. How’s that for a lack of central planning.

For us as business leaders, the first step is admitting we have a problem. Repeat after me, “I cannot predict the future.”

Already I can hear the protesting thoughts in your mind. “I know my business. “I know my market.” “I know my customers.” And yet, the customers and markets continue to surprise us all.

Central planning never works—at the level of governments, businesses, and even individuals. The future simply holds too many surprises for each of us, both personally and professionally. The only events we can depend upon reliably are the failures. Successes are much too rare, and much too random.

So, let’s take a minute to study our reliable friends – the failures – and the patterns they create. Our problems with managing failures are twofold, both related to our desire to pick winners according to our view of the future.

We kill off experiments too soon.

• We do not allow enough peculiar experiments to blossom. Early in the process, we identify some experiments as losers and shut them down before they can yield any useful information.

We allow our favorite experiments to continue too long.Governments suffer this phenomenon in particular. Once started, government programs are almost impossible to shut down.

• One good example is the temporary tax placed on telephone service to fund a war in the Philippines, back in 1898. This tax was finally eliminated only a few years ago, in 2005.
• Bridge and road tolls are another example. Originally these tolls were put in place to pay for the construction of the bridge or road. But, once in place, these revenue generators almost never get removed.
• On the spending side, any number of New Deal era programs are still in operation today.

In addition, when these programs are finally addressed, they are not terminated, but only cut back, or redirected. Like vampires, they keep coming back to suck the life out of the organization.

Evolution tolerates an extremely high failure rate for its mutations—well over 99% of its experiments do not succeed. To keep the experiments from overwhelming the rare successes, evolution is very disciplined about its five basic rules for failures:

1. Fail often.
2. Fail fast.
3. Fail small.
4. Fail cheap.
5. Fail uphill.

Fail often. Evolution is a master at frequent failures. In every single generation, every single organism is a new test. Of these, well over 90% fail the basic test – survival to reproduce the second generation.

Fail fast. Evolution tests each of its experiments immediately, in the next generation. It does not allow any experiment to live a sheltered life in a protected hothouse while the engineers perfect the technology, or the marketers search for the right market.

Fail small. Evolution has designed each test as a single organism, so each individual test is small. Limiting the size and scope of an experiment in a business takes a little more creativity. Speed can help. Forcing each experiment into tests soon and often will help to keep the failures small.

Fail cheap. Fail cheap. For evolution, cheap and small are synonymous. A test of one single organism is not only small, it is cheap, at least for the species, if not for the organism. For a business, if a failure is small and fast, then it is also likely to be cheap.

Fail uphill. This may be one of the most peculiar characteristics of evolutionary variation. In a completely random manner, evolution manages to fail uphill. By spraying out a large number of variations in all directions, evolution tests the “slope” of better survivability on the hill. Only a few variations actually move up the hill. The very next generation incorporates those few successes into the next experiments. Thus, while most experiments fail, the net direction is up the hill of better adaptability and survivability.

Frequent Failure Checkup

• How many experiments does your organization run each year?
• How do you encourage and nurture experiments?
• How do you test each experiment? How soon? How often?
• What are the consequences of each test?
• How many experiments does your organization shut down each year?
• How many vampires (failed experiments) are still sucking resources?
• What signs identify your vampires?
• How do you finally kill your vampires?

Next week we will dig a little deeper into the two primary mistakes mentioned earlier—killing most experiments too soon and not killing off the vampires soon enough. Both of these mistakes are extremely difficult to overcome, because they stem from our internal belief systems. Evolution has some suggestions here, as you may have already guessed. See you then…

Your comments-priceless

Don’t miss a post! Subscribe via RSS or EMAIL

This is part 4 of an ongoing discussion.

From the initial discussion you may remember the three fundamental functions that evolution uses:

• Replication

• Variation

• Selection

Previously… we discussed how replication simply means “do today what you did yesterday.” Sounds simple, but in fact it is very hard. See previous blogs for a discussion of how to replicate your business operations.

Today… we start exploring variation – Evolution’s version of product development.

Change

How does evolution create new versions? To understand the function of variation, first we need to investigate change itself.

Evolution is very careful about how it allows changes in the genetic code. Evolution has even developed—evolved—specific processes to mix the genetic code. Presumably, evolution tried other methods to mix genes but those methods simply did not work. So now we can explore the methods which have survived with the presumption that they actually work, and others simply don’t.

Small changes – Most of the time environmental change is gradual. Average temperatures move up or down only a degree or two. Mean sea level rises by only a few inches. Average rainfall changes only gradually. Seasonal changes are often much greater than the long-term trends. The tidal flow, typically a few feet, is much greater than any change in mean sea level. Daily and annual temperature swings are much greater than changes in long-term averages.

Organisms are designed to survive and thrive across large daily and seasonal variations. Therefore, changes in long-term averages do not require large-scale changes in organisms. Perhaps some tweaking will suffice. For instance, as the mean temperature rises in some high-altitude regions, the first response of many species is simply to move a little higher, where the temperature is cooler. Over time these species will adapt to thinner air, different rainfall patterns and other localized differences in the environment at a higher elevation. All these changes are small, incremental adjustments.

To adapt to these small changes, evolution encourages random changes in individual proteins in the DNA string. DNA uses four proteins (A,C,G,T) in its genetic code. Evolution uses everyting from x-rays to intentional transcription mistakes to create single-protein changes. Think of these changes as single-letter changes in a book. Within a single word or sentence, the change may be large. Consider the sentences below:

Evolution operates over long time scales.

Evolution operates over long time swales.

At the word level, both text strings contain legitimate words. At the sentence level, you probably guessed the intent of the second sentence, even with the misspelling. Within a paragraph and certainly with a page, the change is insignificant. Most single-protein changes are like this—no long-term change in survival and only a short-term inconvenience to the organism.

Now consider the sentences below.

Let’s eat, mother.

Let’s eat mother.

A small change in a single character here makes a big change in the meaning.

Evolution likes these changes. Most of them are detrimental to the organism, reducing its survival. But a few may create a competitive advantage in survival. Evolution is happy either way. Selection removes the detrimental changes in one or two generations while the good changes eventually propagate through the species, improving its survival, even if only marginally.

Large changes – Evolution has developed mechanisms to cut and swap DNA in large chunks. If we think of DNA as computer code or a long string of text, simply cutting and swapping large chunks of DNA code will lead to confusion and disaster. Imagine reading A Tale of Two Cities, and suddenly finding a big section of Mark Twain inserted into the text. The sentence crossing the cut point will not make any sense, and the flow of the story across the cut point will certainly be peculiar.

However, evolution has co-evolved this adaptation and the response of DNA to it. Since it has proven successful in creating new variations, evolution continued to use this process. In response, DNA has generated large areas of blank space (junk DNA) between active sections of DNA. Some DNA analysts estimate that the blank space may be as much as 30-70% of the total DNA. As a result, a random cut/switch of DNA code has a good chance of cutting and switching in the blank space between active sections. Thus this process provides good randomized mixing, with only infrequent damage to active DNA sequences and organisms.

Of course, when the random cut and swap does destroy an active DNA sequence, the consequences may be fatal to that particular organism, but evolution runs millions of tests so a few failures are to be expected, just like product versions that don’t survive in the market.

The Topographic Map of Survival

If we think of a topographic map, we can better understand why evolution has developed two different strategies to create variations, also called mutations.

To climb a mountain, we can usually follow the simple strategy of making sure each step goes uphill. This corresponds to random changes of individual bits in the DNA sequence. Each individual change represents a single step– uphill or downhill we don’t know until natural selection evaluates the value of that step, but each single-bit change is only a single step. This type of change results in a slow, steady path up the hill, one step at a time.

Evolution views the environment as a topographic map, with hilltops representing areas of better survival for each species. Each species climbs the hill by becoming better adapted to its specific environment.

Mathematically, this is an optimization problem. Given some criteria of “goodness,” a species climbs the hill as it moves closer to the criteria of goodness. For evolution, the criteria is very simple – survival. While a complex set of inter-related factors all contribute to survival, the final exam is a simple pass/fail test. Did the organism survive to reproduce? Did it pass on its genetic code? Species at the top of the hill are very well adapted to their environment, so the species tends to last a long time with few changes.

Now go back to that topographic map. You are near the top of one hill, but there is a taller, larger hill nearby. How do you get there? The simple strategy of “just go uphill every step” won’t take you back downhill then uphill once again to the top of the larger, higher mountain. You need a different strategy to jump from one hilltop to a nearby hilltop. Hence, evolutions other strategy – cut and swap big sections of DNA. This approach allows evolution to jump from one hill to another. The combination allows evolution to climb individual hills and simultaneously to jump to other hills to explore the evolutionary landscape more thoroughly.

Next week we will explore the beauty of failures and the two biggest mistakes managers make in nurturing failures. See you then…

Your comments-priceless

Don’t miss a post! Subscribe via RSS or EMAIL

This is part 3 in an ongoing discussion.

Documentation

The documentation of evolution is DNA, the amazing double helix that contains the entire genetic code for each individual.

Contrary to most business documentation, evolution does not store its genetic documentation in printed “white notebooks” that sit on the shelf gathering dust. On a daily operational basis, each cell uses RNA to copy sections of the DNA. Then RNA reads these strands to execute cell functions.

Operating processes (documentation) are the DNA of a company. To replicate its operation from day-to-day a business must have complete documentation.

• How does your business document its operation?
• How does any individual employee know what to do in any specific situation?

Thorough documentation is critical. But remember that evolution uses its documentation every day to drive the operation of the cells.

• How accessible is your documentation?
• Can an employee find it quickly?
• Is the operational sequence embedded in the process itself?

Historically it has been difficult to make documentation easily accessible, and even more difficult to embed processes in the organization. But with the advent of the internet and intranets, help files, business process software, and the entire operational process has come to resemble evolution more closely.

In fact, only online documentation and processes can ever function as well as evolution.

Documentation Checkup

• Is all of your business documentation available online?
• Is it accessible through context-sensitive help?
• Are all of your business processes documented?
• Are your business processes embedded in the everyday operational processes that your employees use to do their work?
• Are your business rules externalized?
• Do your explicit business rules drive your business processes?

Training

Evolution has developed an almost foolproof process to train new cells. Every time a new cell is created, it receives a complete set of DNA documentation . When a cell splits the DNA double helix unzips down the center and  each cell receives one of the exact original strands of DNA. Training for the new cell is 100%, with a complete set of original documentation. Note that the cell does not learn the DNA documentation of the processes of life. The DNA simply is the processes. The definition of the processes is intrinsic to the processes themselves.

In the same way, a business needs to replicate itself very carefully. A new employee must be trained thoroughly. Ideally the process description and documentation is not separated from the business processes themselves. The definition and description are embedded in the processes. The closest description is a context-sensitive help file in a completely transparent process.

Most businesses have some sort of training for new employees. Thorough training should present a holistic view of the operation, from the business goals to very specific operation of particular business processes that the employee will do. Further, training should include error checking and correction. Simple online, self-paced, computer-based training (CBT) is a good place to start, but only a start. An old Chinese proverb provides a direction for comprehensive training.

I hear and I forget.
I see and I remember.
I do and I understand.

Training starts with reading the documentation and testing recall. Then it extends to simulation and participation in the actual business processes. Like learning to swim, the employee flounders in the deep end of the simulation until, suddenly, the light bulb goes on. Only simulation and participation in the actual processes can provide the direct feedback that leads to knowledge, mastery, and effective reproduction of the process.

Training Checkup

• Does your business provide complete online, self-paced CBT?
• Does your training include testing and exception handling?
• Does your training include simulations and the real business processes?
• How do you keep records of employee training?
• How often do you retest and retrain your employees?
• When your business processes change, how do you retrain and recertify your employees?

Error Correction—Handling Exceptions

Exceptions happen and some exceptions have serious consequences. Sometimes errors occur in transcribing DNA and almost every transcription error is bad, often fatal to the organism. Evolution assumes that DNA will have transcription errors, so it has developed error checkers that travel the DNA chain specifically to find and fix these transcription errors.

Evolution also assumes that errors will occur in cell operation, so it has developed a number of methods to fix operational errors. Evolution evidently is a believer in Murphy’s Law—Whatever can go wrong, will go wrong. One of evolution’s favorite error correction methods is terminal obsolescence—death. It’s a little drastic, but works well for evolution. All of evolution’s experiments come with expiration dates.

Like evolution, a business must develop a number of mechanisms to detect exceptions and correct errors. Our focus is on exceptions in existing operational processes—”events outside the boundaries of normal operations,” as opposed to true anomalies—novel events which occur rarely and unconnected to existing processes.

Computerized processes automatically identify simple exceptions such as data entry errors, e.g., identifying and rejecting letters entered into a numeric data field such as age. But most exceptions are more complicated.

An exception to a time-based event may have a number of responses conditional upon the degree of the exception. When an insurance policy expires and the payment check arrives late, the response may depend upon how late the check arrived, with penalties increasing in proportion to the tardiness.

Just as operational processes are simply expressions of business rules, the first few levels of exception handling must be controlled by business rules, with automatic detection requiring no human judgment to determine the response.
For processes that manage hundreds to millions of separate events, exception handling must meet four criteria:

• Immediate identification – because the cost of the exception and the response increases dramatically as the exception remains unaddressed.
• Immediate response – even if the consequences are delayed, the response must be quick.
• Appropriate consequences – “Let the punishment fit the crime.” Choose a response that resolves the exception with minimal side effects.
• Recorded for evaluation – trends often start as exceptions. Log the exceptions so the causes can be found and fixed.

The long-term response to exceptions is to eliminate them. In manufacturing processes a method called “statistical process control” uses operational trends to identify root causes and to resolve them. Example: An automatic lathe trims metal wires to exactly 1 cm diameter. The acceptable tolerance is 0.01 cm. The measurement of the bars after trimming shows upward trend, from 1.002 cm last week to 1.004 cm this week. The wires are still within the specification, but the statistical upward trend indicates problems ahead. A maintenance check on the machine shows the cutting bit has worn down.  Once the bit is replaced, the upward trend stops.

This is a simple physical example, but the same concept applies to other operational processes.
Automatic processes make easy examples, but most of our processes are semi-automatic, with people doing the “semi” and people causing most of the exceptions.

Various tests indicate that people achieve success rates of 90-98% for many things, attaining success rates above 98% only in very specific situations designed to support peak performance. So when our business processes include people we must expect exception rates of 2-10%.

The root causes for exceptions generated by people fall into four categories:
Documentation – is the task adequately documented?
Training – is the person trained to do the task?
Task match – Is the task reasonably suited to the person doing it? Obvious examples are physical limitations—requiring acute eyesight or hearing. Less obvious examples are tasks requiring math skills, language skills, or external knowledge.
Personal issues – Does the person have some issues (health, family, etc.) that are affecting performance? How do you identify these situations, and how does your organization handle them?

Exception Handling Checkup

• How does you business plan for exceptions?
• How well does your business define and identify exceptions?
• What is the frequency and cost of each exception?
• Does your business have automatic business rules for handling frequent exceptions?
• How quickly does your business identify each exception?
• How quickly does your business respond to each exception?
• Does your business log exceptions and track exception trends?
• Do you know which of your processes are semi-automatic vs. fully automatic?
• How does your organization handle employee personal issues?

Redundancy through Distribution (Cross-training and Project Teams)

Evolution builds in redundancy almost everywhere, at almost every level. DNA itself has two strands in a double-helix. Evolution prefers bilateral symmetry—two eyes, two ears, legs, arms. Bilateral symmetry provides many benefits, including back-ups.

Evolution also uses cross-training. As an extreme example, some adult reptiles, amphibians and even fish can change sex when needed. Stem cells can change functions. The same gene that controls the number of spines in the fins on a fish also controls the number of fingers on a hand. Enable that gene for a short time to get three fingers on a frog hand. Enable it a little longer to get four fingers and a thumb.

Evolution also uses cross-functional teams. Genes perform different functions when enabled by different proteins at different
times. Genes even respond to relative position in the body—front/back, left/right, top/bottom. The same gene expresses different actions depending upon the proteins that indicate its position within the body.

Evolution uses clusters of genes to drive the development of specific elements in an organism. The overused example—the eye—is the result of a number of genes working together. Frequently genes activate other genes in a long Rube Goldberg sequence of genes and proteins to construct a specific organ. Each gene may be a member of several clusters, each cluster working together for a short time, to accomplish a specific purpose.

In business we use project teams, or cross-functional teams, in much the same way. To install a new software system the project leader may bring together a collection of experts in the software application, business process engineering, subject matter experts, and of course the users themselves. If we look at the entire business as a series of projects, is it possible to operate the business predominantly with a collection of cross-functional teams on a routine basis?

At this point a reader may be considering some obvious objections. First, all this cross-training and project operation must create redundancy and increased overhead with all the associated additional costs. As any good cost accountant knows, there are many ways to analyze cost.  Cross-functional project teams typically add value to a business on a longer time horizon and on a larger scale.

Example: Installation of a new software system. The project implementation team has specific goals: improve the internal adoption rate, make the system easier and better to use, and reduce the operational errors it generates.

Each of these goals is an annuity that generates an ongoing economic return over time. So the value of the project implementation team must be calculated over time.

Another common objection to a cross-functional team is the specific expertise required for certain jobs. Can an accounts receivable collections clerk be trained to do software development? Do we really want our lead sales person to learn the intricacies of cost-accounting? Some job pairs simply do not fit into a cross-training model, but many others are amenable to cross-training.

Businesses face considerably different demands for reconfiguration as they grow and change. So the capabilities for reconfiguration must be different. Obviously an accounts receivable collections clerk cannot be retrained to do software development overnight.

Cross-training requires the elimination of many cherished prejudices in order to take advantage of all cross-training opportunities within the business.

Cross-Training Checkup

• To cross-train, you need good training capability. How well does your business train employees?
• What cross-training programs do you have in place?
• How often does your business use project teams?
• Does each project team have a charter, a set of objectives, and an expiration date?
• Are the project team members chosen from different functional areas?

Why so much talk about operations? What about sales, new products, and business leadership?

For some readers this series of posts may feel like a long walk through the weeds of operations. Some sales people left the room awhile ago, to go make customer calls.

However, evolution’s first job is replication and, just like evolution, a successful business must know how to replicate its past success.

Processes, training, documentation, exception handling, project teams and cross-functional training, are the tools by which a business “remembers” what it did yesterday and recreates that success today. In short, operations and execution keep the business going every day.

Do not give up on evolution yet as a model for business. As we consider how evolution uses variation and selection, you will find plenty of opportunity to use your creativity, enthusiasm, insight, and other uniquely human skills.

I’ll return next week for the first of two posts on variation.

Your comments-priceless

Don’t miss a post! Subscribe via RSS or EMAIL

This is part 2 in an ongoing discussion.

Previously… we discussed the three functions necessary for evolution:

• Replication

• Variation

• Selection

From these simple functions evolution has created everything from bacteria to redwood trees, from viruses to people. Evolution is pretty powerful stuff. We raised the question of how evolution can apply to business.

Today’s featured evolutionary function is replication. How does evolution get clean copies, and how can that apply to business?

Replication – The Foundation of Every Business Operation

On any typical day, most businesses generate products and services that satisfy customers and generate a profit for the business. Therefore the single most effective action a business can take is to do today exactly what it did yesterday. In the short term, that’s the best bet a business can make.  But before we go any deeper with an exploration of business operation, let’s investigate how evolution handles replication.

Just like a business, the best bet evolution can make for survival of a species is to reproduce exactly the individual members who survived in the last generation. Now, when we talk about evolution, we understand that evolution itself is not alive and has no intent. Indeed, it does not even have a physical existence. However, because evolution appears to have intention and desire to survive, it’s easy, almost unavoidable to discuss evolution as an entity with a goal and intent. So we will use that shorthand to refer to evoution, but periodically we should remind ourselves that evolution is a natural process with no desire, no intent, and indeed not even any goal—long-term or even short-term. Evolution is simply an undirected, random, statistical  process. While the best short-term bet for survival is to do today exactly what the species did yesterday, that bet guarantees extinction in the long-term. The reason is simple: over time the selection criteria for survival will change.

Change – that word hangs over life—and business—like a dark cloud looming in the distance. The storm is coming, but it may miss us, or it may not be so bad. Our ability to forecast the future is not all that good. Sometimes, change is truly cataclysmic but usually not. How does a business prepare for uncertain, sudden, cataclysmic change even while assuring survival in the (relatively) static environment of right now? Evolution can provide some insight.

Evolution is very careful about how it allows changes in the genetic code. Evolution has even developed (evolved) specific processes to mix genes. Presumably, evolution tried other methods to mix genes but those methods simply did not work. So now we can explore the methods which have survived with the presumption that they actually work, and others don’t.

Evolution has developed techniques to accommodate three different types of change:

• No change at all – most common, almost all the time.

• Gradual change

• Sudden, cataclysmic change

Over any stretch of a thousand-year millennium, the best bet for genetic survival is to make no change. As a result, evolution is extremely cautious about how it allows changes in the genetic code. In fact, genetic code “error checkers” have developed specifically to find and fix errors in the DNA. Since almost all organisms have these genetic code checkers, we can safely assume that they are necessary and important to survival.

The best survival strategy, at least in the short-term:

Assure that the organism (or business) can do today exactly what it did yesterday.

Evolution has an instruction manual (genetic code) approximately the size of a large encyclopedia. And it has extensive tools for checking, correcting, and copying that encyclopedia. That’s replication!

How does your business replicate itself? Fundamentally, a business replicates its operation using tools similar to evolution:

• Documentation

• Training

• Error correction

• Redundancy through Distribution (Cross-training)

Come back next week for a detailed discussion of these four tools.

Your comments-priceless

Don’t miss a post! Subscribe via RSS or EMAIL

This is part 1 in an ongoing discussion.
Evolution may be one of the most powerful forces in the world. It is certainly one of the most peculiar natural forces, with the unusual characteristic of being a long-term, natural statistical process with no particular goal. Because it is statistical it is not as dependable as the law of gravity. Because it is statistical, it operates over thousands of trials, so it operates over long time scales – often millions of years. It does not have any particular goal, but it does seem to move in particular directions. Finally, it operates with a very simple set of rules, needing only some life and three actions to work its magic:

• Replication (Reproduction)
• Variation (Mutation)
• Selection (Survival)

Evolution starts the survivors of the last generation and uses them to produce the next generation. Replication is very good, but not perfect, so a few variations creep in. This new generation, with its variations, competes in the environment. The survivors then seed the next generation. While this process appears almost trivial, over millions of generations (or statistical trials) the random process of evolution has created some amazing forms of life, including people who are reading and writing this blog.

If evolution is so powerful, can we use its basic principles to drive improvements in a business? Yes, but the deeper question is how. Before digging into that question, let’s investigate three environmental conditions required for evolution to operate.

• Evolution requires many trials in each generation, because it is a random process. Fail often.
• Evolution operates only over a large number of generations. Fail fast.
• The external selection criteria (the measure of fitness) must be stable over many generations.

In short, evolution won’t work in any environment that does not provide these three conditions. Some operations within a business might provide these conditions, while other business operations might not.

Celebrate Failure—Fail fast, fail often.

In the late nineties (in the last century), many business books and business consultants preached about “celebrating failure.” One popular expert took the concept even further, exhorting his readers to “fail fast, and fail often.” Little did he know he was advocating an evolutionary approach to business. While it makes no sense to celebrate failure per se, it does make sense to celebrate failures which identify dead-end paths. The quicker a company can explore and eliminate opportunities, the quicker it will find good opportunities to exploit. A business seeks successful markets, successful products and successful customers. In the search for these successes a business will encounter many dead-ends, or failures. Failing fast and failing often will accelerate the discovery of the successful markets and products. In evolutionary terms, the business will discover survivable niches in its environment only as rapidly as it explores its business environment. Therefore, don’t celebrate failure, but work hard to fail fast and often.

Evolution has a high failure rate at every level. Within a single generation, very few of the members survive to propagate. Of all the acorns an oak tree grows, almost none actually grow to be another oak. Most don’t even survive to become a sprout. Within each single generation, evolution fulfills the exhortation to “fail often.”

Evolution also prefers to “fail fast.” In the mammal kingdom, evolution starts a new generation every year for large animals, even if an individual mammal may survive many years. But evolution is not locked into the annual calendar. At the bacteria level, evolution can starts a new generation every few hours or so. In a business what are the natural generation time cycles for various operations? How can a business accelerate its generational cycles to “fail faster?”

Selection Criteria – External, not Internal

Evolution simply provides the experiments, by creating variations. The environment provides the selection criteria that pick the winners. Each species “discovers” these environmental selection criteria by watching which the variations survive. Each of these variations contributes a small amount of improved survivability to the species.  It is critical to understand that the selection criteria are not provided internally, by a president, business owner, or central planner. The business must discover the natural selection criteria in its environment—its customers, competitors, suppliers, and partners. This is particularly difficult for most businesses because, as business leaders and owners, we think we should “lead” the business.

In addition to being hidden in the environment, selection criteria also change over time, usually slowly, but sometimes suddenly. Dinosaurs thrived largely unchanged for hundreds of millions of years. Over that time the environment changed little, so the selection criteria for survival changed very little. Dinosaurs, already pretty good at surviving in a hot, humid environment, continued to thrive while evolution made only small changes at the margins. However, a sudden cataclysm (huge meteor, giant sunspot, massive volcanic eruption or something else?) changed the environment almost instantly. Hot and humid switched to cool and dry. Swamps dried up, plants changed and selection criteria for survival changed accordingly, faster than dinosaurs could adjust. A previously marginal species—prototype mammals—had the unusual ability to regulate its body temperature internally. While dinosaurs could not stay warm in the new environment, the prototype mammals thrived.

Several million years later, we are reading and writing business blogs. In this environment of constant change, the selection criteria for survival in business change swiftly, sometimes overnight.

Business leaders and owners have great difficulty in discovering the selection criteria for business survival. Even worse, when a business leader finally does “get it right,” the criteria for business survival change, leaving the business leaders leading furiously in the wrong direction.

So, what do we do? The good news is that business leaders are not evolving into extinction. But, the requirements for business success are evolving, swiftly.

Are you leading your company into extinction?

Tune in next week as we explore in depth how a business can evolve toward success.

Your comments-priceless

Don’t miss a post! Subscribe via RSS or EMAIL

In last week’s article we discussed the tsunami of changes engulfing the business world this year and the next. However, the real issue is not external changes, but rather the internal changes you will make in your business. How will you adjust your business to take advantage of the opportunities that these external pressures will create? Ironically, even though these changes are unique, your responses to each have many common aspects. Consider five specific elements of your business:

• Customers
• Products and services
• Employees
• Processes
• Suppliers

Each element provides a distinct opportunity for restructuring and realignment with the changes which will buffet your business now and on into 2009.

1. Restructure your customers.
You have a loyal customer base, which has served you well for many years. But you know that each customer has a different value profile. Use this opportunity to upgrade your customer base. Be ruthless in your expectations of customers.

• Fire your lowest 10% customers. The marginal costs to serve them may already exceed any profits they generate. Raise prices to cover the marginal costs to serve these customers, and simultaneously invite these customers to shift a web-based, self-service model. Let the low-value customers walk away.
• Shift your mid-range customers to self-service. Move these customers to your web-based, self-service model. Charge for any special services not available from the website. Charge for human interactions, especially for services that are already available on a self-service basis.
• Expand services to your top 20% customers. Increase your direct interactions with these customers. Learn more about their needs. These customers will lead you to new services and increased value.

2. Redefine your products and services.
Move the entire order/fulfillment cycle to a web-based, self-service model. Expand high-value services and eliminate low-value products. Customers want complete customization, self-service, and immediate fulfillment. Be ruthless in your expectations of your own products and services. Specifically, consider these adjustments to your products and prices.

• Information is more valuable than physical product. Increase the information content of your products. Include more services and analysis with your products.
• Move the entire order and fulfillment process to the web.
• Redesign your services for self-service customization, fulfillment and delivery.
• Provide automated reporting of production and fulfillment status.
• Negotiate long-term contracts with built-in price adjustments.
• Offer additional value or services in return for price increases.
• Offer reduced services in exchange for fixed prices.
• Use your high-value customers to identify and develop new services.
• Use your mid-range customers to understand and implement self-service order and fulfillment models.
• Use your lowest 10% customers to find new products for price-sensitive users.

3. Redesign your internal business operations. Move your entire business online.
Your internal business already operates online, but a few hold-out processes may still operate manually. Be ruthless in finding these laggard processes and drive them online.

• Increase automation across every aspect of the operation. Automate every manual operation. Us the automation tools already built-in to your computerized business systems.
• Eliminate paper. Pieces of paper are visible red flags that indicate manual processes and extra expenses. Production and storage of paper is a significant operational cost, especially considering the cost of manually finding and retrieving information on paper. Use automation to eliminate paper and reduce manual processes.
• Eliminate exceptions. Each exception requires significant time from an employee. It’s no surprise that exceptions create considerable paper. Eliminate or automate exceptions to reduce costs.
• Charge the user for every exception. Whenever a customer or supplier creates an exception, charge for the extra service. If an employee creates an exception, charge that department. Better yet, assign the employee to eliminate the exception.
• Drive reports online. Investigate every report your business produces. Is it necessary? Is it generated automatically? Is it delivered by email? Does it go to a customer? Why not?
• Reduce your IT department. Make each employee responsible for configuring the applications that employee uses. If an application is not configurable, replace it.
• Increase the training budget. Use external courses wherever possible. Develop your own internal training courses to teach employees how your company works.

Your comments-priceless

Don’t miss a post! Subscribe via RSS or EMAIL

Image credit: guruphoto CC license

Today is a very special day. I’m pleased and proud to introduce Richard Barrett, who will be writing every Tuesday from now on.

Richard is the creator of One-to-One: Business Relationships and has over 20 years experience in technology development, sales, and marketing. He served as President of Mobileforce Technologies, Vice President of Sales and Marketing for two start-up companies, Vinca and Nucleus, and co-founded Adaptive Data Systems, which pioneered the Small Computer Systems Interface (SCSI) standard.
Richard holds an MEE and BSEE from Rice University and has published five books, many professional papers in technical journals, and numerous articles in trade magazines.

Richard brings a new dimension of business information to both stimulate your MAP and help your business thrive.

The first few years of this new century were only the warm-up! Business change continues to accelerate. If your business is not actively planning for major changes, then it may already be falling behind the curve!

Consider these changes already reshaping the global business landscape:

1.    Inflation is coming. China and India are driving raw materials prices. The weak dollar policy by Fed has contributed up to 7% in the increasing price of oil, which ripples throughout every consumer good in the economy. The Consumer Price Index (CPI) increased by 1.1% in June, which is the largest monthly increase since June, 1982 (Wall Street Journal). Annual inflation will almost certainly exceed 10% in 2009, and likely go higher in 2010.

2.    The price of gasoline is already shifting the workplace. Who can afford to commute, much less fly? With airlines reducing service across the board, how will you deal with remote workers and even more remote customers?

3.    GM Introduces New Line of Layoffs for 2008 – 30,000 this year, more coming next year. The US manufacturing sector will continue to shrink, with massive restructuring yet to unfold. Count on the federal government to use your tax dollars bail out GM and other automakers.

4.    Coming soon, the new US Workforce: Older and wiser and ready to retire. These workers have irreplaceable institutional knowledge, often unique and usually undocumented. How will your company retain these workers, find new workers and deal with the loss of critical knowledge as the older workers retire?

5.    Healthcare, the line item that ate Detroit. Is your business next on the menu?

6.    The new world – online communities. What is a wiki? What is UGC? How will these new online trends affect your business? What opportunities do they present for your business?

7.    Climate change – it’s real, but what does it mean for your business? Green is good. But, can you paste it on? Don’t be distracted by long-term global change. Identify immediate, local changes that may be opportunities for your business.

a.     Water will move. Drought, fire, floods will follow.

b.     Coastal insurance will skyrocket even as coastlines move and shrink.

c.     More erratic weather will increase production risks, disruptions, and costs.

d.     Food production areas will shift. Disruptions in food supplies will become common.

8.    Remember the mortgage crisis? It will continue to restructure the financial industry of the world through 2010. The credit crisis will consume weaker companies throughout the next year. After the US government nationalizes Fannie Mae and Freddie Mac, US taxpayers will pay the bill in higher interest rates and increased taxation. Brace for tighter credit and further pressure on the US housing market. How strong is your balance sheet? Clean-up will exceed $2 trillion, or 15% of the entire US GDP.

9.    The world is not flat. The economy is shifting, sliding far eastward toward Asia. How will you extend your business into Asia?

10. The world is not flat on the other side, either. Cash is sliding near eastward to Oil. Is your new banker (or owner) Middle Eastern?

11. US Presidential Election – Lawmakers will create confusion and uncertainty. OK, there is nothing new here.  The next President and Congress will have a full plate of problems. Regardless of any candidate’s agenda, the problems are already in place and restricting a President’s range of action. Congress and the President will likely continue to dally and kowtow to lobbyists, creating even more damaging incentives like the mandates and subsidies for ethanol. Don’t expect any help from your elected officials.

How mobile is your business? Can you move portions of your business to regions with lower taxation, better labor, and more flexibility for your business?

Your business will change in 2009. If you stand still, external forces will drive the changes. Take time now to understand how these changes will impact your business.

How will you reshape your business before these external forces do it for you?

Your comments-priceless

Don’t miss a post! Subscribe via RSS or EMAIL