Tuesday, December 13, 2011

MIDAS (Momentum-Inertia Differential As Strategy): A Mechanistic-Behavioral model for Organizational Agility

Corporate leaders and organizational experts are, more often than not, concerned about the speed and responsiveness of organizational mechanisms. Be it product development, manufacturing innovation, technology renewal or go-to-market, the speed, the nimbleness, and the agility with which a corporation pioneers or responds is a determinant of its share and sustenance in the market place. There are often valid reasons as to why some firms are reluctant to work at top speeds. Mostly it is due to a risk perception that speed could be at the cost of quality in planning and execution and the possibility that shorter cycles could lead to greater investments. The bottom line, however, is that those firms which combine speed with quality would emerge as the leaders in industry battles.

The Indian market, one of the largest markets of the world, has many examples of how speed could influence profitable wins but could also lead to severe losses. The classic example is the differential speed of the Japanese consumer electronics majors (say, Sony and Panasonic) and the Korean consumer electronics majors (say, Samsung and LG) in addressing the emerging Indian market needs. The Koreans who were very agile and nimble in decision making and execution became the market leaders in India. Often, organizational speed is hypothesized to be influenced by the risk propensity of the organization. While not ignoring the connectivity between these two factors, this blog post examines a novel mechanistic or structural model of organizational speed and efficiency.

Momentum-inertia model

Every organization can be considered to be a machine of moving parts; with departments acting as machine sub-systems and people acting as machine components. As with any machine, an organization is programmed to perform certain repetitive tasks, with the components and systems (ie., people and departments) interacting and moving synchronously in the process. As a characteristic corollary, every organization also exhibits its own momentum and inertia as any machine would. The leadership of the organization may be considered the software of the machine that directs the sequence of machine operations. Treating leadership as a controlled variable, the momentum and inertia factors follow certain hypotheses as below.

The more repetitive the organizational tasks and processes are the more momentum the organization generates. Conversely, the more variable and unpredictable the organizational tasks and processes are the more fluctuating the momentum becomes. The leaner and more compact an organizational department is the less is its inherent efficiency. The larger and more expansive a department is it takes that much larger effort to build consensus and overcome the inertia. Clearly, organizations with high momentum and low inertia have the greatest possibility to be speedy, agile and nimble.

The goal of organizational design must therefore be to design the overall structure and departmentation on a model of standardized processes and lean structures to maximize the momentum-inertia differential. The essence of the Toyota Production System very much traces itself to these two design principles. That said, the essence of competitive industrial scenario is periodic, if not continuous, changes in products and processes to achieve competitive superiority in the marketplace. Momentum is, therefore, a compelling market necessity while inertia is an inevitable structural reality. Organizational design needs to come up with new paradigms to manage the momentum-inertia differential.

Maximizing momentum

A nimble organization develops its momentum by building on its successes and benefiting from its learning curve. The momentum of success is a function of the data base and analytics it builds in its operational model. The nimble organization always analyzes areas of waste and entropy loss in its planning, execution and monitoring processes and seeks to eliminate them. This again is a success factor for Toyota and several other Japanese manufacturers who constantly eliminate layers of waste through continuous observation and continuous improvement. The success of momentum also accrues through working with all the stake holders, such as vendors and distributors, to enhance their own momentum.

The momentum that arises from learning curve is the intrinsic ability of a person or department to do its act better each time out of experience. This had its roots in the early industrial engineering, Taylorisms and incentive systems. Over time, this has proved to be a pain point for the workforce with allegations of robotization. A view of the Maruti unrest in India links the workforce discontent to its inability to continuously ramp up production. It is important for the managements to identify the theoretical limits to learning so that employees have scientific benchmarks to rely on and own. Also, the learning curve has to be juxtaposed with two other curves, the quality curve and the value curve, to determine the optimal level of momentum.

Minimizing inertia

Human beings, and consequently human organizations, are genetically programmed to seek comfort in status quo. Even higher order entrepreneurs who revel and excel in nimbleness and speed are seen to find their zones of comfort and status quo at some stage. The status of normal employees is even more inertia-prone. However, from an organizational viewpoint, inertia starts from the reluctance of leadership to embrace change. This is usually typified by an unwillingness to redefine the vision and mission, despite transformational changes in the environment and also by an unwillingness to recognize that the core competencies, be it technologies or practices, need to be rejuvenated.

Inertia tends to be lower when more power and accountability is placed in one's hands. It also tends to be lower when change does not require a huge consensus to be built. Inertia is typically pared to the minimum when organizational culture promotes openness to ideas and incentivizes positive changes. Compact organizations which face the market opportunities and challenges directly tend to recognize the penalty of inertia far more intuitively than large organizations which are distanced from market dynamics.

MIDAS, and the leadership role

The foregoing leads us to a rather simplistic paradigm of maximizing momentum-inertia differential as a strategy (MIDAS) for corporate efficiency. It fits rather nicely into a 2X2 prescription grid of maximizing momentum through waste elimination and learning curve and minimizing inertia through change management and lean structures. While mechanistically, the model is viable, there is a leadership component that makes it sustainable. The leadership component has a strategic element to it. As earlier mentioned, leadership is to the mechanistic model of organization what software is to a machine system.

The leadership software for the mechanistic model comprises a fusion of change management and risk management. Change management requires a fundamental mindset of recognizing the possibility of environmental discontinuities and the potentiality of disruptive technologies, a faculty in which Steve Jobs excelled. Companies which held on to rapidly aging technologies, be it dot matrix printers or cathode ray tube televisions, paid the price irrespective of their scale. On the other hand, companies which have forced obsolescence onto their products consciously have prospered. Continuous investments for product and process renewals and new technologies is a critical requirement of change management.

Risk management is the other side of the change management coin. An ability to take risks comes naturally to some but risk taking can be nurtured as an organizational culture by leadership actions. An ideal way would be to encourage established managers and emerging leaders to take up certain risky pilot projects so that they get a hands-on experience of risk management. Such approach provides the visibility to the organization that a proactive risk-taking culture is a cultural DNA. A positive but balanced risk management culture minimizes organizational inertia, optimizes change management and enhances performance momentum.

Metrics for MIDAS

The suggested MIDAS model of momentum-inertia differential is structurally mechanistic with an overlay of leadership behavior. Key metrics for momentum-inertia differential could be go-to-market speed, product development time, service down-time, manufacturing setup changeover time, competitor response time, strategic re-orientation lead time and so on. Leadership has the responsibility to program the organization to put in place optimized systems of change management and risk management culture that can keep the mechanistic model of momentum-inertia differential in top gear.

Posted by Dr CB Rao on December 13, 2011


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