The world enjoyed very unusual conditions during the so-called Great Moderation. Interest rates and inflation were at historical lows, global political disputes appeared to be resolving themselves and the world's work force doubled. Science and technology rained down new possibilities, and the future appeared unbounded.
Organisations responded in ways that suited the times. They cut costs, outsourced activities and focused on what they did best. Asset prices soared to levels which made a large number of people in the industrial world feel rich, and able to borrow. Consumers borrowed as never before. Employment remained high, inflation low and even the Internet bubble was unable to dislodge the underlying confidence in the economic model.
This period is not going to return. The business model that underpinned organisational behaviour is also obsolete. In its place, there is an anxiousness, a frantic pulling on the levers that used to work and a universal malaise. Beyond Crisis offers a diagnosis of this problem and a solution to it.
The Great Moderation enveloped us with a period of false tranquility, finally dispelled by the financial crisis. The world ahead of us will be very different, fast-moving and innately challenging.
The Great Moderation concealed an important trend. This concerns the style with which many large organisations were managed. This style is not so much obsolete as irrelevant and a distraction from to the issues which most organisations face. It will still need to run in the background, but supplemented by a huge change of emphasis.
The orthodoxy of the pre-crisis world held that everything that could be delegated beyond the bounds of an organisation should be; and that what remained when this was complete should focus on uniformity, on reducing its costs and bureaucratising its processes.
Organisations pursued these goals through increasingly generic procedures and so, inadvertently, became increasingly similar to their peers in cost profile, customer offer and internal organisation. In the case of commerce, this situation leads to what called 'commoditisation'. One of the consequences of commoditisation is evaporating profits. However, this reductionist management style fossilises the organisation, and greatly weakens its capacity to renew itself.
The world will not return to the conditions of the Great Moderation. Very fast change is upon us. We turn, therefore, to the responses that organisations can make to this. At the centre of any viable response lies the idea of renewal, the continued change within the portfolios of activity that the organisation undertakes. This change affects what it does, how it does it, why it does it and for whom.
Renewal has to satisfy a range of requirements. It must be coherent, in the sense that the organisation remains a rational whole, or becomes an even more rational whole, as renewal proceeds. This rationality has to answer to two deep sources of insight:
This second set of concerns can be analysed into three distinct contributory factors, each of which is on a par with Insight.
Narratives can be strong or weak, but they can also be right or wrong. A poor Narrative will sink an organisation faster than no narrative at all.
Options offer a different way of thinking from the Narrative, being more concrete, more focused on specific numerical targets and more closely integrated with mechanisms that question established choices and filter investment and other proposals against non-numerical criteria. The Options are shifting alternative destinations towards which the organisation is migrating, shedding some parts of itself and acquiring new ones.
These four qualities - Insight, Values, Narrative and Options - are simultaneously generated by and held together though the operation of the fifth quality, that of Machinery.
Machinery is made up of processes – some of them organised spontaneously, to meet need, others formal and repeating in a predictable manner – that are nevertheless organised into structures that operate interactively, sequentially and in repetitive loops. Each repetition refreshes the knowledge base of the organisation.
All of this has to be formally structured and managed. It does not emerge by accident. It has to be resourced, organised, overseen and sponsored by the power structure of the organisation. It embraces not just a specialised cadre of people, but a wide range of expertise across all sources of insight and knowledge.
Renewal is a demanding requirement on any organisation. In addition to doing what maintains its current position, it also has to divert resource to undertake tasks which, of their very nature, are uncertain and unknowable.
Many organisations rely upon spontaneous ideas, happy propinquity, acquisition and outside assistance to generate renewal. Ideas are thought to be so plentiful that they can be scattered like seed. However, for an idea to be "helpful", it needs to answer to the issues of Insight, Values and Options which we have just discussed. For a good idea to be adopted, it needs both to be recognised as such - through resonance with the Narrative - and there needs to be the Machinery to take it up and do something with it. Equally, none of these will be clear if the Machinery has not made them so.
In the world in prospect, however, renewal cannot be left to chance. It has to be as professional as any other process in the organisation; indeed, as it is leading the charge, it has to be the strongest element.
Organisations access an enormous body of knowledge. Attempts to systematise this have not been hugely successful, as measured by contribution to renewal and output. Rather, what is needed is a form of organisation that clarifies Insight into what matters, Values around what the organisation "wants" to do, Options that reflect practical possibilities and absolute imperatives that impose themselves on the organisation.
These things are generated within the organisation by its Machinery and propagated through the Narrative. However, much of the important knowledge is external to the organisation: it is either publicly available, or accessed by the "antennae" of the company, the - frequently young - people who deal with customers, suppliers, technology providers and the like. In both cases, specialised minds, often close to their technical training, need to be able to spot a good thing when they see it.
Awareness of this sort implies that the individual has been broadened into the patterns of thought once confined to senior management. An idea is, however, of no use if the organisation is not prepared to recognise a good thing when it sees it, and undertake a disciplined, multi-faceted assessment of it. The people in question need to be motivated, resourced, given the "space" in which to undertake this.
Good ideas do not "just happen", or not very frequently. Organisations have spent decades cutting their costs and inadvertently making themselves more and more like their peers. Renewal reverses this process, making organisations uniquely fitted to their niche, and resilient when that niche undergoes change.
We have symbolised these flows with a double cone, as shown in Figure 1. At the base lies the cloudy, uncertain business environment. Rooted in this, ideas somehow take shape in the lower cone, and advance up it. When they have achieved this, they reach the central point where the two cones meet. This is the "location" where assets are allocated and the portfolio of resources and activities is continually assessed. If they cross this final hurdle - if they gain resources - they pass into the upper cone, in which the bulk of the organisation spends most of its time and resource. Here, well-understood activities are subject to rigorous disciplines that answer to the stakeholders: customers, regulators, shareholders and a host of others.
Figure 1: the double cone
We now introduce a new term: the Purposeful Self-Renewing Organisation, or PS-RO.
This entity has all five of the essential elements in place. These are developed and deployed in three separate sets of processes, a structure which we call the Three Ring Circus. The rings fit chiefly around the upper, middle and lower parts of this figure, and cause them to interact usefully. Iterating around these rings, therefore, discrete activities spark Insight, challenge Values, define Options, propagate and test the Narrative. All of this is, of course, held together by the required operational and motivational machinery.
The PS-RO is continually and actively changing its nature. It is doing this in order to meet anticipated conditions.
The PS-RO model defines the broad shape of the organisation that is fitted succeed in the turbulent, fast-flowing river of change. The remainder of the book is concerned with the details of the PS-RO, and the tools that you can apply in building one.
Almost by the definition of renewal, there can be no single correct form for a PS-RO. Anything which is remotely generic is immediately susceptible to commoditisation, to being made out of date. The PS-RO permanently strives to adapt itself to its precise circumstances, which are unlike those of any other organisation.
How is all of this to be put in place? Curiously, implementation is relatively easy once the understanding is in place as to what needs to be done. This book offers you precisely such a perspective. We cannot, however, offer a more detailed blueprint, both for the reasons already offered – that there is no one right answer, except for this particular organisation within the context of its current circumstances - and also because matters do not stand still. There will be times when technology changes rapidly, or perhaps when stakeholders are particularly demanding. Your structure - your Machinery - will need to shift its focus in order to accommodate this. In the same way that education teaches us how to think as much as what to think, this book is intended to show how to organise for a Purposeful Self-Renewing Organisation.
Between us, the authors have over 100 years of experience, working as senior managers in multinationals, and as consultants to major corporations, governmental departments and third sector organisations. We have worked with hundreds of organisations across the world, enabling them. You will see that we use many examples and case studies; most of them come from our direct experience.
In this book we demonstrate how the future organisation will work and why this will be successful. Every organisation is different, however, and there is no single, generic solution. But we do know that to be successful, a PS-RO will need to have five qualities: Values, Insight, Options, Narrative and Machinery. To that end, we provide a tool kit which provides you with the necessary tools to create your own PS-RO.
We believe that the future need not be overwhelmingly daunting; ‘getting the job done’ can be challenging, stimulating, inspiring, rewarding and enjoyable. PS-RO staff are respected and responsible, informed and insightful, exhibiting qualities of confidence and leadership that lead to long term success – and, crucially, profitability.
Finally, to create your own PS-RO we do not ask you to establish planning groups or other cost centres because we believe that the wisdom of the organisation must be tapped directly. What is needed are long, purposeful conversations, backed by insight into which everyone with something to say has their voice. Then you will see renewal: establishing clarity, hunting out useful ideas and capabilities, creating options for the future and exploiting new abilities for the present. As you can see this goes beyond traditional strategic planning; what we envision is the desire - and the will - to create an environment which encourages and enables a whole organisation to take charge of its destiny.
We hope that you enjoy reading Beyond Crisis.