Meeting the Challenge of Disruptive Change

By: Nima Heirati

 

Rapid development of technology, globalization, innovative initiatives and disruptive changes are pushing the organizations in the direction of increasingly flexible for changes. If they face major change, they might adjust the existing organization drastically. In this case, before managers rushing to breach, they must understand precisely what type of change the existing organization is capable and incapable of handling. 

Varieties of factors are affecting an organization’s capabilities. At first resources such as tangible and intangible properties with high quality and appropriate amount, increase an organization chance of coping with changes. Second, processes as the patterns of interaction, coordination, communication and decision making employees use to transform resources into products and services have critical role in organization change. The visible processes, like manufacturing, and background processes, like how to plan the budget, are defined the main abilities and disabilities of an organization. However, these factors are the visible side of an iceberg, and to organizational change another critical factors must be considered. 

An organization’s values as the standards by which employees set priorities that enable them to judge whether something is attractive or not. Employees at every level make prioritization decisions, so the consistent values among an organization are an ideal for every manager. A company’s values reflect its cost structure or its business model because those define the rules its employees must follow for the company to prosper. 

In fact, over time the locus of the organization’s capabilities shifts toward its processes and values. In other words, each organization starts in resources, then moves to visible, articulated process and values; and migrates finally to culture. Also, these factors define what an organization can do; they constitute disabilities when the problems facing the company change fundamentally. 

In brief, some companies are good at responding to evolutionary changes in their market which critics name it sustaining innovation. In this case, they make a product or service perform better in ways that customers in the mainstream market already value. However, some companies, run into trouble is in handling or initiating revolutionary changes in their market, are dealing with disruptive innovation. Disruptive innovations create an entirely new market through the introduction of a new kind of product or service, one that is actually worse, initially, as judged by the performance metrics that mainstream customers’ values. 

Disruptive innovation generally occurs so intermittently that no company has a routine process for handling them. Furthermore, because disruptive products nearly always promise loser profit margins per unit sold and are not attractive to the company’s best customers, they are inconsistent with the established company’s values. Therefore, the large companies often surrender emerging growth markets is that smaller, than disruptive companies are actually more capable of pursuing them; because, their values can embrace small market, and their cost structures can accommodate low margin. 

When an organization needs new process and values managers must create a new organizational space where those capabilities can be developed. At first, if a company’s capabilities reside in its process, and if new challenges require new processes, managers need to pull the relevant people out of the existing organization and draw a new boundary around new group, which somebody referred it to “heavyweight teams”. The teams are entirely dedicated to the new challenge, team members are physically located together, and each member is charged with assuming personal responsibility for the success of the entire project. 

Moreover, if the mainstream organization’s values would render it incapable of allocating resources to an innovation project, the company should spin it out as a new venture. Large organizations cannot be expected to allocate the critical financial and human resource needed to build a strong position in small, emerging markets, and it is very difficult for a company whose cost structure is tailored to compete in high-end markets to be profitable in low-end markets as well. In addition, sometimes innovative managers need to make separate assessment of the capabilities and disabilities that reside in their company’s resources, process, and values, so must they do the same with acquisitions when seeking to buy capabilities. If the capabilities being purchased are embedded in an acquired company’s process and values, then the last thing the acquiring manager should do is integrate the acquisition into the parent organization. 

To sum up, managers whose organizations are confronting change must first determine whether they have resources required to succeed. They then need to ask a separate question: Does the organization have the processes and values it needs to succeed in this new situation? Understanding a problem is the most crucial step in solving it. This is the reason that innovation often seems to be so difficult for established companies is that they employ highly capable people and then set them to work within organizational structure whose processes and values were not designed for the task.

How to Keep Your Temper at Work (And Everywhere Else)

By: Marshall Goldsmith on November 26, 2008. Harvard Business Publishing.

 

It’s hard for me to keep my temper, even more so now with the global economic meltdown! Do you have any suggestions on how I can stop from getting angry, especially in the workplace?

MG: Anger can distort our self-perceptions and do harm to the relationships with people important to us, both inside and outside of work. Handling our emotions is a tricky process if we don’t have the proper self-management skills. I’ve asked Mark Maraia, a relationship development coach and trainer who works with people, specifically partners in large law firms, on just such issues as yours. Here’s his response:

MM: I’m often asked, “How do I stop from getting angry?” And the answer I give is, “You don’t. What you need to learn is a process for releasing the emotion.”

Most people are trying to control or manage their anger. It never occurs to them that they can release it–completely! Stifling our feelings or our urges to act out in anger doesn’t work. People can read us… sometimes better than we can ourselves. Stifling our feelings will work against us because when we deny or suppress anger, we end up projecting it. Either we turn it inward, which leads to depression or disease, or we turn it outward, which leads to many of the annoying habits Marshall discusses in his book, What Got You Here Won’t Get You There.

My own path of self-discovery led me to a startling conclusion: We don’t get angry at facts; we get angry at our interpretation of facts. This means, that we have a choice about how we respond to an event or person that triggers our anger. We’re going to get angry – this is a perfectly natural emotion. The problem isn’t our anger; it’s our attempt to justify it rather than release it. Let’s be clear: if you put energy into justifying your anger you CAN’T release it. However, most people find anger or intense rage unpleasant and are highly motivated to rid themselves of it.

When people are hijacked by their anger, I ask them: What process do you have (in the moment) for dealing with negative emotions like anger? Most people don’t have an answer. Some have coping mechanisms, such as stifling or projecting; some use physical exercise, which is useful, but not so much in the moment.

I’ve learned a thought process for dealing with negative emotions that I have practiced for more than 20 years. Anyone can use this tool to deal with negative emotions “in the moment” and later if the negative feeling resurfaces. This is a process of rejecting the negative emotion and it actually interrupts this “doom loop.” Rejecting negative emotions can be used in many situations, both personal and business, in the moment — without anyone knowing you’re doing it!

Here’s how it works. The next time you are overcome with a negative emotion, ask yourself this question: “What am I feeling at this moment?” Get in touch with the feeling or emotion first. Once you’ve done that, make a silent declaration to yourself that you don’t want it anymore! For instance, when someone dangerously cuts you off on the freeway, your thought might be: “I do not want this anger” (or “rage,” if it’s that bad).

Then, replace the feeling with a constructive thought. In this way you make a conscious choice to have a positive state of mind. Your thought might be: “I do not want this anger. I choose to be at peace instead.”

This new skill will take practice. It will probably feel awkward at first. But with enough practice it will become a habit and you will find yourself working through negative emotions in minutes or hours rather than obsessing for days, weeks, or years!

MG: Thank you, Mark, for this constructive approach to releasing negative emotions!

Readers – Do you have difficulties releasing negative emotions? If so, please try this thought process and send your comments on how it works for you! If you would like to ask Mark a question, he can be reached at mark@markmaraia.com. I know that it is tough out there for many people today. Many of you have a right to feel angry. My advice is simple – change what you can – and do your best to ‘make peace’ with what you cannot change.

The Innovative Organization: CREATING VALUE THROUGH OUTSOURCING

By: Nima Heirati

 

Many companies who have tried outsourcing view it as a difficult process that does not often end as initially planned. Indeed, the failure rate for outsourcing relationships remains incredibly high. In a recent Deloitte Consulting survey, One-quarter of the companies had brought business functions back in house after realizing that they could do the work themselves more successfully and at lower costs. Forty-four percent of the companies surveyed reported that outsourcing didn’t save any money, and nearly half identified hidden costs as the most common problem when managing outsourcing projects.

Hence, though initially motivated to outsource in order to cut costs, simplify projects, and tap expertise not found in-house, many companies learned that unexpected complexity, lack of flexibility among outsource providers, and other unforeseen problems added costs as well as friction, ultimately translating into higher total costs than originally anticipated.

 

Outsourcing Problems

In May of 2006, InformationWeek surveyed 420 business technology professionals. In that survey, participants were asked to rate services provided by their outsourced vendors in a number of categories on a scale of 1 to 10. Respondents were only reasonably satisfied with their vendors’ performance and generally disappointed with the cost-for-value of the service. When referring to failed outcomes, %45 attributed failures to poor service and lack of flexibility, and %39 pointed to hidden costs as a serious problem.

What are the “hidden costs” of outsourcing? The costs of identifying and specifying the functions in a business that ought to be outsourced can be expensive, especially if a company relies on the services of outside consultants to do the evaluation. The real hidden costs that most often adversely affect the bottom line, however, are in the transfer of knowledge and scope of work along with the costs of ongoing management of the outsourcing relationship.

The customer is seeking to procure a good or service at lower costs than it would incur with in-house production. However, the vendor wants to make a profit. This tension between the buyer’s wish to buy at a low price and the seller’s wish to sell at a high profit margin means that the relationship must be designed carefully in order to ensure a successful outcome for both customer and vendor. As a consequence, if the activity outsourced is difficult to scope, define, bound or monitor, then what the buyer may seek and what the vendor delivers are neither aligned nor easily described, leading to an imperfect contract for which neither party’s expectations are adequately accounted.

The decision to outsource an activity should begin with a straightforward cost-benefit analysis that quantifies all the relevant costs associated with the prospect of outsourcing a function and weighs them against the projected benefits from having that function produced outside of the company’s control.

 

Systematic View

Once such a sound business analysis is completed, an operational framework for analyzing strategic sourcing decisions can be made on an informed basis, exploiting the opportunities from outsourcing and off shoring by using a systematic method.

The framework proposed here argues that any activity can be viewed either by considering the function that it performs or by considering what inputs are used to create it and how these inputs need to be managed. A company has to decide between buying the function, or output, versus buying and managing the inputs, the latter including capital and labor. Hence, the celebrated “make-or-buy” question can be thought of as a “buy-or-buy” question, where the refined question is what to buy, function or inputs, and how to manage the deal.

The relative advantage of outsourcing as compared to in-house production is cost-savings associated with the procurement of well-defined functions and enforcing adequate delivery by the outsource vendor using a well-defined contract. This means that both the complexity of the function and the need to adapt the function over time will put a strain on the ability of a company to outsource an activity. Thus, the framework offers an operational method for evaluating the hidden costs by which so many companies have fallen prey to disappointment. The framework further provides a method for evaluating the costs and projecting the benefits of employing external markets to procure needed goods and services.

 

Tips for Success

Outsourcing is broadly applicable across industries. Realizing that every activity (or transaction) serves a function is the first step towards effective procurement. Realizing that the ease of contracting for the delivery of the function will affect the effectiveness of outsourcing is the second step needed to identify activities that are good candidates for outsourcing. The key driver is determining how difficult it is to develop terms in a contract that adequately cover the function-activities required to fulfill the function over time. The more difficult to prescribe, then the less likely outsourcing will be the right choice.

In brief, here are several “tips for success” to assist a company’s executives in making informed outsourcing decisions, optimally leveraging use of the global market economy to a company’s advantage:

Reasons-Good reasons for outsourcing are looking for cost-effective deals, reducing distractions for non-core activities thus increasing core activity focus, and keeping fluctuating capacity outside the company.

Timing-Analysis of the company’s direction over time provides a basis to distinguish core from contextual activities. Using outsourcing to drive the innovation of the company’s procurement structure means that it is important to recognize the need to outsource early ahead of the competition.

Contract-Having a well-defined contract is paramount. Clearly define expectations, responsibilities, and activities on both sides up front, and make sure to have good evaluation systems to measure outcomes.

 Accountability-Ensure that every contractible action has an accountable entity, and define the relationship clearly-who’s responsible for what, and what gets done cooperatively. When possible, build penalty and performance clauses into contracts, and share both risk and rewards to provide ample and aligned incentives to do the job effectively and efficiently.

Life Cycle-Be mindful of the project’s life cycle. If up-front transition costs are very high, a longer contract is needed to benefit from reduced long-run costs. However, longer-term contracts are more likely to require changes and adaptation, which often increase costs dramatically. It is therefore necessary to fine-tune the scope and the length of the contract to maintain balance between the contract length and the potential needs for flexibility.

Selection-If you know what you want, and have a solid contract in hand, using the market mechanism (competitive or invited bidders) will be best. Use a network of other companies who have experience in outsourcing similar activities to help identify qualified vendors.

 

To sum up, sourcing can prove to be a valuable tool in the arsenal of innovative business leaders who wish to create value and, in the case of public companies, increase shareholder wealth. It is important to acknowledge, however, that the bottom line will be compromised if the so-called hidden costs of outsourcing are not uncovered and quantified, and the need for flexibility is not adequately considered and accounted for in advance. Following the framework and guidelines prescribed here will result in better business decisions for strategic sourcing.