thingamy

rules vs. principles and transparency

I read about principles vs. rules based corporate governance (page 42 in this PDF) at breakfast today, and it reminded me:

Principles are riverbeds, rules are pipelines.

Riverbeds leaves room for ups and downs, sideways movement, leaving and entering, adaptation to reality - and you can see, follow and understand the flow.

Pipelines are limiting, you cannot see nor understand the flow. The flow remains laminar until the speed and volume passes a point and turbulence and resistance explodes. Changes to reality as it happens does not always have room in a pipe.

Politicians and regulators love to draft rules (and revoke gravity if possible), then declare all is well. And we trust that rules are adhered to until some find ways around them.
One Enron and the regulators makes rules to follow the rules. Then rules to follow the rules to follow the rules.

Where did the P as in Principles in the GAAP go? It's more like it should be GAAR.

Since forever humans have developed principles to follow, then making the on-the-spot decisions accordingly. And we're still alive. QED.

Why do we now underestimate the human being saying he needs strict rules? Why do we even believe we need specific rules ourselves?

Measure and control of course. Those blasted command-and-control structures raising its head again. That unholy human need to control his fellow man and our meek submission to such nonsense.

Without strict rules, then control is hard.

Principles and transparency, creativity, efficiency, energy and happiness - tricky stuff to control.

Creativity, good decisions and effective operations are better off following good and universal principles instead of strict and specific rules. Anybody disagree?

Is not the commander in the field best off with a good strategy (principles) leaving the tactical matters to be decided during the battle?

Principles are better, stronger, more efficient - but principles requires transparency:

Leaving me alone with a set of principles is no good. It would not take long before my principles get bent, reappraised, reinvented, reconverted.

Let the world see my principles and how I apply them, and let the world correct me when I go astray.

Principles and transparency instead of rules and regulations please.

Flow as a riverbed instead of pipeline please.

Flow and principles based organisations instead of command and control structures please.

There, I said it again. Avast, ye scurvy rules, regulations and hierarchies!

management is rubbish

Not the people of course.

But let me suggest in all humility that the function, the act of managing an organisation is a complete waste of time and counter productive:

• To manage is to direct and control.
• To manage is detrimental to leadership.
• Organisational process structure requires management. It is the main pillar of that kind of process structure. This is the main raison d'être for management.
  

Why wait, do this:

1. Find an alternative and efficient organisational process structure (physical, flexible process based IT systems*, whatever). Implement. 
   This is the crux - focus on finding a good alternative instead of defending status quo. When found, the need to defend management will vanish.
2. Dump 'direct and control', let 1. above take care of that. Burn the organisational chart.
3. Let leadership bloom.
4. See organisational flexibility, energy and creativity thrive.

Beat your competition hands down. Live happily ever after.

*[DISCLAIMER: Have interests in the IT direction as mentioned...]

flow infrastructure in the real world

As you may have seen from some of my other posts - I'm all for flows, all against disruption, disarray and artificial structures.

But a flow requires structure of some sort. Preferably using a 'riverbed model' and not a 'pipe model':

Supply a flexible and instinctive flow-structure and then leave it to nature!

My interest lies first and foremost in the corporate / organisational domain - "avast, ye scurvy hierarchies!" - would be the rallying cry heard from behind my laptop in the morning.

A no-brainer it should be, and sure enough, the attitude is getting traction in related fields. Like production facility design and urban planning:

BMW's new plant in Leipzig defies high German labour costs and implements a simple structure - last week Business Week European Edition as well as New York Times / International Herald Tribune had articles about it. Here's from IHT:

"By creating a fluid work environment in which management, engineers, autoworkers and cars seem intertwined, Hadid is seeking to break down the hierarchies that have defined the traditional factory. In this world, information flows freely and man and machine live in blissful harmony."

Nuff said :-)

An urban 'grand plan' for the Palestinian territories as suggested by Californian architect Doug Suisman:

"The proposal calls for a mere connecting of the dots, for a high-speed train and fiber-optic network curving through the West Bank and Gaza to link the main Palestinian cities and towns."

In short deliver the flow infrastructure and let the people and nature take charge from there. Such a relief from classic monolithic and rigid urban planning of yore!

I like this. Now apply to organisations, allow me again; "Avast, ye scurvy hierarchies!"

ladies and gentlemen, what's your business model? Part #4

More on 'Extreme Business Modelling' - following #1, #2 and #3 and Hugh's here.

Investors, VCs - they'd really like a neat five year plan showing nice profits etc. so they can calculate a value today without too much hassle. Like what they do here.

And they're in good company, the templates, the blueprints for how your Business Plan should look like are much the same everywhere.

But if you're a start up: Those five year financial projections could just as well been written by the brothers Grimm.

And as you can imagine - 'Extreme Business Modelling' does not exactly correspond with their black-and-white template-and-blueprint driven 'reality' :-)

My first spreadsheet was Visicalc, on an Apple II. Neat stuff in those days, and I used it to do pro-forma P&Ls, balance sheets, cash flows and sources & uses of funds for banks when seeking funding for projects. The banks were much impressed.

Then we used it as a rough budget. Did not take long before map and reality diverged - but nothing that a small adjustment of margin, market-share or other in the map (spreadsheet) couldn't fix! Red numbers turning black in a jiffy.

Of course that led to no good. Dressing up the bride for the bank to extract funds was one thing, but using it to trick yourself was not so smart. You could end up with the wrong bride.

In conclusion:

"If you cannot make the case for real profit on the flip side of an envelope, without a calculator, then abandon the project!"

Start there. A quarter sheet of paper, all should go in there. Simplicity is beauty. Simplicity is always closer to the truth. Then see if the VC or investor gets it.

If yes, you have a potential partner - then make a proper five years from that - but be abundantly clear that it is only for illustrative purposes!

If no, be polite and say "thank you for your time" and move on :-)

ladies and gentlemen, what's your business model? Part #3

Following up on 'what's your business model? #2':

When talking to potential partners and customers I'm asked about our specific 'pricing model' and our 'path to market' - typical Business Model issues.

To that I answer, straight-faced:

"We are extreme business-modelling. We'll have the answers when the time is right."

And then I turn the question to "what do you think is the right price?" and "how could this product add value to your company?".

Those of you who are geeks probably know the concept of 'extreme programming', a methodology, a set of values to steer a program development process. Perhaps useful for more than programming?

A few important aspects of extreme programming, eh, extreme business-modelling:

• Write a user story. Explore the value for the customer!
• [Extreme business-planning specific: Acid test your pricing and margins. If you could easily deliver at half the price of the competition, you may be good. If you're pretty sure you can deliver at 1/10th you'll have the leeway to play really loose :)]
• The customer (even the potential one) is always available. Involve the customer, use him, make him a part of the process.
• Pair programming and collective code ownership. Involve the customer again, let him have ownership to your product!
• Make frequent small releases. Test one thing at a time, don't get stuck with a half-baked and untested complete plan.
• Iterate and integrate often. Test and try, go back make better, test and try again, go back...
• Leave optimisation till last. When it gels, shape the last parts, refine when the basics are right!

Funny thing, even the potential customers likes it.

transparency is scary

A comment (arguing against transparency) on Hugh's latest Porous membranes prompted a small discussion:

So far I've argued for the good aspects of transparency, like..

Transparency equals trust.
Leadership requires transparency (or visibility).

Why fight it? Is leadership and trust not important enough?

Perhaps the answer lies within "what's dependent on ambiguity?":

• Identity, if you have carefully crafted a personal 'image' over the years.
• Identity, if you answer "Who are you?" with "I am the CFO of XYZ Corp!".
• Position, if it depends on keeping control over information. "You have to go through me as I'm the only one in know...".

Or "what does transparency require?":

• Integrity.
• Courage.

Yep, beyond scary, it certainly will not be easy to implement transparency.

But the courageous, the ones with integrity, the leaders, those being trusted will be the ones... ehh... leading!

Ah well, there is hope after all then :-)

ladies and gentlemen, what's your business model? Part #1

About to start a new venture? Of course you are.

Be prepared to answer this: "What's your Business Model?"

Then find out that this widely used term is very seldom precisely defined, leaving popular (and perhaps faulty) descriptions to thrive. Confusing to say the least.

Here's an academic definition from KMLab (found here at Harvard Business School, note they say "seldom precisely defined" too):

"...a Business model is a description of how your company intends to create value in the marketplace. It includes that unique combination of products, services, image, and distribution that your company carries forward. It also includes the underlying organization of people, and the operational infrastructure that they use to accomplish their work."

Allow me to simplify:

"How to use the resources to deliver a value to your customer and keep some of the value yourself."

But the popular take, as expressed by some 'practical-advice-web-sites', is what comes first to mind:

"Value proposition, Market segment, Value chain structure, Revenue generation and margins, Position in value network, Competitive strategy." here.

"Simply put, a business model describes how a business positions itself within the value chain of its industry and how it intends to sustain itself, that is to generate revenue." here.

There we go, the popular and simplified definitions: Distribution, value chain, sales model, market segment etc. The stuff that is visible to the user, the outside world. The end-of-process add-ons to the product itself.

Just like the tail fins and gleaming hubcaps of a 1957 Cadillac. Cake decoration.

What about all that happens before the service or product reaches distribution? What about the process and the resources that creates the product? What about the process structure proper?
That's the real stuff. That's where a good chunk of the margin might be made. That's where the real value for the customer is made. All in all, what earnings are made of.

Let's give that approach a try - in the next post, #2.

ladies and gentlemen, what's your business model? Part #2

Following Part #1, here's a build-a-business-model... eh, model:

First of all, a strategy is a must; freely gleaned from Professor Porter at Harvard Business School:

"What value are you to deliver to what customer and how are you going to be different from your competition."

Now, to the Business Model design:

1. Rethink the value.
The value you are to deliver is supposed to solve a problem. Revisit the problem definition, ask "what for?" until the core issue is laid bare.
Guiseppe Delena at Ford (from Fast Company June issue) puts it nicely: "Don't tell me you want a bridge, show me the canyon!" A bridge is good if the canyon is unavoidable, but sometimes it could be as simple as using another road.
This may lead to a slight rewrite of the strategy.

2. Clarify the parts.
Map the resources needed, the natural process sequence and include absolutely everything. Product development is after all just another process within the whole, not a separate one-time experience. Ditto for production. Customer interaction as conversations have to include the customer in some manner. And so forth.
Most important: Do not limit yourself to anything at this point, do not set borders - suppliers, outsourcing, advisers, funding, customers, employees - all resources you may need. Ditto for processes, stick to one holistic flow for the moment, split it later if necessary.
Did I mention that you should forget the structural stuff for now? Hierarchies, titles like CEO, CTO,CFO, VPs and so forth? Focus on 'required resources', add titles and structure later.

3. Check out the competition.
What are they doing? Anything useful there?
Keep this information for a comparison with your Business Model in progress later. See similarities as danger signals.

4. Prototype the Business Model.
Map a natural flow: Where does it start? Where does it end? What happens in the flow?
Place the required resources in that one-single-flow. Find a practical solution to how the process will happen in real life terms, i.e. how are work-orders delivered, how are resources delivered and readily at hand.

5. Smack some structure onto it.
If you have the answer to how the process could work in real life terms you already have the answer. If not, try 4. again.
Did I mention, do not fall into the trap of automatically using old hierarchical models?

6. Test the prototype.
Going to market full blast is never a good idea. Appreciate a slow start, that gives you ample time to get feedback from real customers, then go back and make better and repeat.
Do not think that a product or service ever was used, bought or perceived exactly as planned.

7. Iterate.
Keep the Business Model loose enough so you can change and tweak immediately upon customer feedback. Spending a million on advertising at this stage cements the Business Model. Hiring-to-fill-positions and setting structure in stone leaves not much room to tweak. Hire for resource needs, not hierarchical needs.
Stay loose, have all stay loose.

8. It gels.
It could take weeks, months - but prototyping a loose Business Model may give you a real life tested and good Business Model. And that's not a bad idea.

9. Revisit.
Have mechanisms in place to question the whole Business Model at all times, do not settle for tweaks to little parts like ads, wording on web page or number of sales people. Be holistic, look at the complete process, take nothing for granted.

[EXAMPLES: Dell did not take over the 'design, produce then sell PCs' model for granted, they started off with a customer ordering, rearranging the process. Check out what Amazon, Southwest Airlines and others did, some of the same all-the-way-down to the core approach when building their Business Models from scratch.]

[DEPARTMENT OF IRONY: The above list amounts to yet another model and should thus be tested, iterated and changed at will :) Expect some follow-up on this.]

crowds

Ray in his comments here led me to a beauty by Søren Kierkegaard:

"To win a crowd is no art; for that only untruth is needed, nonsense, and a little knowledge of human passions."

(From Provocations, spiritual writings by Kierkegaard compiled and edited by Charles E. Moore - © 2005 The Bruderhof Foundation. You can even download it here.)

Søren lived in Denmark 1813-1855. Hmm, and I was convinced he was talking about advertising and brand building. Must have been something else then :-)

Waddyasay Hugh, anything for the advertising industry in that?

great wall of opportunity!

Excellent discussion on models here and here that prompted an aha! for the slow-witted yours truly:

Not only do one face "entrenched management methodologies and monolithic stacks of software", but also a certain lack of enthusiasm to look into it, even a lack of belief that change is possible.

I can only say: "Excellent!"

What an opportunity!

Say I'm in the pack when racing my bike, then I move to escape: What then if all goes "Nah, he does not know what he's doing, let's stick together and not split up" - should I then try to convince them to join me? Or should I go, "bugger off" and split?

As Hugh puts it.

"Don't try to stand out from the crowd; avoid crowds altogether."

There is a great mass of businesses that does not want to question their models.
A market that crave "pre-packaged" stuff.
A market that often picks a book title of "seven steps to bliss" over a complicated and challenging one.
A market that wants "best business practices" so they can aspire to be almost as good as the best. In other words, shortcuts and easy-way-out.

That amounts to a complete open road for the brave and willing.
That amounts to a hole in the competitive wall large enough to drive a truck through! Go drive.

[CROP of MODEL BUILDERS: Amazon, Dell (in the beginning that is), eBay.]