Short Term Versus Long Term, and Other Distinctions: The ‘One Horizon - One Domain’ Concept

From the 1950s till now, long range planning, also called strategic planning, has been serving as a prescription for growth. The concept has become so ingrained in organizational psyche that potential managers and leaders are expected to acquire, develop and demonstrate skills for crafting and executing strategy over a long career span. Superimposed on this is the ability to visualize a future and channel the strategies towards realizing this future. This has percolated to individual domains too with the responsibilities and competencies for operational management and strategic management becoming differentiated. In terms of understanding managerial and leadership processes, the distinction has become, over the years, rather sharp. The long term is seen to require strategic and planning approach while the short term only tactical and execution approach. Extending the philosophy a bit, it is believed that if one has a good long term plan and executes as per that in the short term, the job is done.

This approach, good for most parts, has a few unanticipated consequences. Firstly, the separation of execution in the short term and planning for the long term weakens the feedback and course correction loop. Secondly, the differentiation of long range planning as an annual, fixed period exercise and short range execution as a daily routine actually disconnects the perspectives. Thirdly, the differential approach makes the young professionals, scientists, technicians, who constitute the young talent base with fresh thinking and new knowledge, mechanical and controlled in thinking. As a result of these deficiencies, the intellectual and leadership wealth of the organization tends to get sub-optimized. Merging the paradigm of planning, long range and strategic, with the paradigm of execution, short term and tactical, is a challenge; the differences of approaches and skill sets between the two paradigms would still need to be maintained for orderly planning and execution. This blog post tries to separate the fiction from facts between the two paradigms and explores ways to optimize the wealth of talent through three optimized organizational processes.

Definitional optimization

The differences between what constitutes the long term versus the short term or the strategic versus tactical, or even planning versus execution are relative. Even in a steady state industrial and economic environment, technology shrinks or extends these definitions significantly. With regulatory changes and environmental volatility superimposed, the irrelevance of the long term plan to the short term and the relevance of the short term to the long term become highly pronounced. Let us take the example of the Indian airlines industry. The top national carriers (except possibly IndiGo) have posted a combined loss of USD 1.7 billion (Rs 10,201 crore) in 2013-14 and are expected to post another huge loss of USD 1.4 billion (Rs 8,408 crore) in 2014-15. In fact, the cumulative losses of the industry over the last seven years have hit a staggering USD 10.6 billion (Rs 63,633 crore)! It is estimated that the ailing firms require an immediate capital infusion of USD 1.6 billion (Rs 9,610 crore) just to stabilize operations.  No wonder that the long range plans of all the ailing (and possibly non-ailing) firms are anchored under external capital infusion on one hand and cost reduction with operational efficiency on the other.

Even before the ink could dry on the plans, news is out that AirAsia has launched its operations and Tata-Singapore Airlines would launch its operations in October 2014. Tougher still, six new airlines have also been given approval to fly by the new Government. Stable oil prices become volatile with every geo-political crisis. Rupee value becomes unpredictable every equity cycle. On the positive side, a resurgent India could see the development of at least 25 new international airports and 75 new domestic airports, and a helpful Government may just provide a relief in terms of tax burden.  Clearly, the airlines industry cannot rest on long range planning of conventional mode; it would need to make a long range plan possibly once in a quarter or each time there is a material change. This is a perfect example of the short term being more relevant than the long term and the long term getting secured with the short term. Many other industries are witnessing the need to merge short term and long range approaches rather than separate them.

Talent optimization

Today’s talent is commonly judged on a variety of skills; technical skills and communication skills, hard skills and soft skills, conceptual skills and analytical skills, to name a few. More important than all of these, which will be present in one measure or the other, are two sets of skills or competencies which are hard to get. The first is the ability to see a firm’s value chain on an end to end basis, and appreciate the impact of the value chain on one’s role, and vice versa. The second is the ability to understand the relationship between short run performance and long run plans of a firm. Typically, it is felt that these two skills of critical thinking get developed with experience in an individual. If this were to be true, the tendency to separate short term delivery and long term planning under two sets of talent pools (for example, front level executives and senior level managers, respectively) would only deny further the opportunity for frontline executives to acquire the two critical skills. In addition, the separation of (only) doing as the (sole) responsibility of front line executives and (only) planning as the (sole) responsibility of senior managers serves to delay the development of such critical skill in young professionals.

At the firm level, opportunity to promote the ability to perceive end to end thinking and think of short term and long term simultaneously helps organizations develop the intellectual capital of a firm better and make the firm more competitive. A marketing executive who is trained to understand the design connectivity will be able to relate customer feedback to potential for product improvement. In fact, without end to end thinking approach, the executive may even fail to observe a whole sweep of market triggers. Similarly, the executive who understands how easy or difficult it is to remove costs of a component would understand if a particular product design has reached the end of life, or there is potential to extend the product life cycle with a next generation of product. In addition to the above tangible benefits, the nurturing of creativity that takes place results in an overall creative organization. This requires that senior managers and leaders make it a point to integrate the short run execution and long run planning processes, and to promote value chain thinking.

Technological optimization

Technological change is profound but essentially continues to be incremental. Optimizing rather than accelerating technology holds the key to ensuring that short run product plans stay on for a longer term in a company’s life horizon. When the progress of product design in an industry, be it automobile or computer, is reviewed over a long period, say over two decades, one would be puzzled that the changes that looked major improvements each time look merely incremental over a longer time span. As an example, minimization of bezels in a phone or tablet to  provide greater display size within the same form factor is not a rocket science discovery but it took close to ten years and an LG G3 to take it to perfection (and Apple is yet to get that)! With the rapidly growing popularity of ‘selfies’ it again is not breakthrough thinking to incorporate high performance front cameras (equal in capability to rear cameras) in smart phones, yet only one or two phone models go beyond 2 MP front cameras!

Like with the other two thought processes discussed earlier, technological optimization is a matter of mindset. It requires a mindset to think of all technological features in a totalistic manner and get the best of the technology package. This requires that every member of design school understands the limits to which each sub-technology can be pushed and how such frontier-testing technologies can synergize themselves in combination. A light weight gearbox and a fuel-efficient engine, cannot, for example, be effective on a chassis with high tare weight. A light weight suitcase need not skimp on multiple sub-folders just to drive down total carried weight. Managers and leaders must go all out to give out the best technology package each time rather than hold back available knowledge for future use. Delayed deployment of technologies could, in fact, be counter-productive. ‘Develop now - deploy later’ has never been, and will never be, a winning proposition in techno-commercial thinking; in fact, it has proved to be counterproductive as being ‘too little - too late’.

One horizon, one domain

A review of the above three thought processes which correspond to certain organizational processes reveals that the various differentiations we have, namely short term versus long term, strategic versus tactical, planning versus execution, firm-level versus unit-level, executive versus leader – are all certain convenient methodologies to manage division of responsibilities and accountabilities as well as hierarchical differences in an organization and not necessarily the most optimizing processes. Given the range of external and internal factors (“factors”), and their unpredictability, firms need to have one horizon for planning whose time span is limited by the first material change in any of the factors, and one domain whose relevance is defined by firm level competitiveness accruing through individualization and collectivization of all the organizational functions or units. Young executives and mature leaders must embrace the ‘one horizon - one domain’ concept so that intellectual capital in the firm is built up for competitiveness and growth.

Posted by Dr CB Rao on August 3, 2014

 

Structural and Process Impedance: A Key Factor for Organization Design and Strategic Acceleration

Organization structures are essential mechanisms for delivering strategic objectives. They are like the equipment shell or the chassis in (or on) which the rest of the hardware and software is integrated to develop a product that meets design objectives. That structure is an enabler for strategy is well researched and well validated. Alfred Chandler in his path-breaking work established that structure followed strategy. Yet, not much research is focused on the enabling and disabling capabilities of an organization structure, relative to its strategic objectives. Organization structure is an enabler to “house” qualified and experienced individuals to meet both strategic and governance requirements. It is also an enabler to fix accountability and responsibility. Rightly designed, therefore, it must provide competitive advantage to a firm.

Like structure, process is a key component of delivering strategic performance. In several ways, process is like the operating system of a computer. However, unlike the operating system of a computer, the processes are as varied as firms are. Even within a firm, processes can vary across businesses, functions, sites and geographies. Process follows structure because process prescribes how different parts of a structure “talk” to each other. The more efficient a process is the more effective a structure would be. In practice, however, organization structures, like equipment or houses, provide a base for talent but do not automatically enable complete deployment of talent while processes, like operating systems, require increasing complexity to achieve even minor differentiation in delivery.  This blog post proposes that rather than the structure or process it is the level of structural and process impedance that determines a firm’s efficiency and effectiveness.

Impedance, conductance

Impedance is the total resistance of electric equipment (a wire, for example, at the simplest level) to the flow of power. The lower the impedance the better would be the equipment efficiency. Electrical impedance depends on the geometry and material. A thin copper wire would be more resistant than a thick copper wire while an iron wire would be more resistant than a copper wire of the same thickness. The same principle applies to structural impedance too. If an organization structure is geometrically complex and if the individual parts are resistant to organization-wide change, structural impedance would be strong. Processes tend to get established to manage structural impedance.  However, processes which are essentially aimed at information flow also suffer from process impedance. The flow of information also tends to be like flow of current in the electric wire. The mindsets of people determine the resistance level to information flow.

Conductance is the inverse of resistance. The greater the conductance of a material the lower will be the resistance.  Interestingly, the flow of electrons in a material determines the levels of resistance and conductance. The principles of impedance are similar to principles of mechanical friction as well as hydraulics. The information flow, in particular, bears a similarity to pressure differential in flow of water from source to a destination, the pressure at later stage being lower than at source. The choice of materials and the geometry are important in design; so is the importance of additional accessories to achieve efficiency.  For example, resistors and boosters are added in equipment and pipeline designs to overcome issues of resistance.  The important point to note is that natural human elements as well as synthetic material elements display widely varying characteristics. It is necessary to choose options that meet design objectives.

Design language

Products, as we know, have design language. Organization structures and business processes also have their own design language. While a product’s design language is to appeal to customers in a differentiated manner, an organization’s design language is aimed at promoting internal efficiencies. The deployment of the right geometry in an organization design can lower the otherwise inevitable structural and process impedance in an organization. One of the best geometrical patterns in organization design is Rensis Likert’s Linking Pin Organization (LPO), which offers an elegant balance between vertical hierarchy and horizontal span, while ensuring absolute clarity on how chain of command and cross-functional links could work across an organization. There are several other organization design constructs and principles but few are as clear as the LPO is.

Clarity in organization design came to be affected over time as concepts of line and staff functions began to take root. The emergence of multi-business and multi-site global organization has led to several organization structures that sought to impose diversity on line-staff differentiation. Structural complexity has resulted in further efforts to impose additional structures to manage complexity. Firms adopting this route tend to be impacted, rather unknowingly, by the increased structural and process impedance caused by the complex organizational geometry. The increased fragmentation caused by such structures also has been inhibiting the ability of firms to develop leadership pipeline. The Strategic Business Unit (SBU) concept provides an ideal design solution to bring the simplicity of LPO structure to highly diversified businesses; the success of a diversified construction major such as L&T in India to find homegrown internal leadership succession is related to a combination of SBU and LPO structures.

Structural planning

While it is widely accepted that structure follows strategy in a generic sense, not many give attention to the need to let organization structure to follow business structure in a specific context. Strategic planning happens, in most organizations, every year to look at a five year perspective on a rolling basis. Many emerging businesses become mature businesses and mature businesses become declining businesses while green shoots of new businesses emerge in the strategic plan horizon. Mostly however, firms try to make do with only minor adjustments to organization structures that could hopefully accommodate strategic changes as much as possible rather than proactively reinvent organizational structures along with strategic shifts. The positive way is to make organization design an integral and concomitant part of the annual strategic planning process and make development of a new organization structure mandatory before any strategic investments are planned.

Structural planning should focus on creating independent but accountable organization structures for new strategies. Typically, today’s organizations should be created for tomorrow’s results. The costs of not being organizationally proactive could be immense. Tata Motors’ inability to make a sustainable growth path in the car market is attributed to its unwillingness to create an end to end discrete sales, marketing and dealership organization for passenger cars, distinct from that of its traditional commercial vehicles.  Leading hospitality chains, from Hyatt and Hilton to Taj and ITC, are able to achieve complete market coverage by developing discrete hotel infrastructures and marketing organizations appropriate to each segment. These business strategy driven organization structures reduce structural and process impedance by design.

Design behaviors

Managements, somewhat strangely, tend to prefer complexity rather than simplicity. Some managers find creation of new organization structures ahead of business development to be an avoidable expense. Some managers find it difficult to let go of career opportunities that could come along with additional responsibilities when an existing structure is burdened with additional scope. Some managers, of course, fail to appreciate the nexus between strategy and structure. The combined effect of these embedded behaviors is the creation of monolith firms that become unwieldy and complex. Enlightened managements, however, recognize that the costs of discrete organization structures are more than compensated by increased business efficiencies within each structure. The success of conglomerate business model is based on such realization.

The fear that individualization of organizational units promotes non-standardization or non-harmonization of enterprise processes is ill-founded. A linking pin organization that connects the leaders of individual organization structures into a conglomerate leadership group addresses most such concerns. Proactive organization design approach requires the choice of right heads for right structures and trust in their ability to lead accountably at SBU level and integrate responsibly at conglomerate level. Envisioning an organization of the future needs to be an integral component of leadership vision for new businesses, whether mono-product standalone businesses or multi-product conglomerate businesses. Understanding the physics and mechanics of organization structures and the role of structural and process impedances is a key component of successful organization design and development.   

Posted by Dr CB Rao on June 28, 2014