Renewal, Innovation and the Sigmoid Curve

My recent posts have explored the theme of how organizations develop and, inevitably, decline. Almost all organizations end up closing their doors – some do this in a planned and graceful manner, some do it through managed mergers and acquisitions, and some do it abruptly and without much notice.

While the end of an organization is inevitable, the time and place when this happens is not. Organizations have opportunities to renew themselves, to innovate their services and products, to change their business model, and to gain a new lease on life. Rather than the lifespan of an organization looking like a bell curve, this renewal brings about renewed growth and performance – this creates the shape of an S curve, known to mathematicians as a Sigmoid Curve.

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One of the best descriptions of this is provided by Charles Handy in his classic book “The Age of Paradox” (also known under its British title as “The Empty Raincoat"). He views the essential paradox of this renewal and innovation in this way:

"the secret to constant growth is to start a new sigmoid curve before the first one peters out. The right place to start the second curve is at point A where there is the time, as well as the resources and the energy, to get the new curve through its initial explorations and flounderings before the first curve begins to dip downward."

This is a key dilemma for leaders in organizations – how do you assess when your current business model, your current "theory of success", has run its course? How do you judge when the very approach that led to your growth and success will now be the cause of your decline and close?

Part of the response to this dilemma is that you can never know when that tipping point is reached, until well after the fact. This is why leaders need to be questioning their assumptions about what is making them successful, and what will continue to drive success in the future.

Leaders also need to be able to hold the paradox of embracing their business model (or strategic plan), being fully committed to implementing it in all its details, while at the same time questioning whether this model needs to be replaced by a new focus.  (The text of Handy's chapter on the Sigmoid Curve can be viewed online)

One way of holding this paradox (as I'm not sure it can actually be "managed") is to promote innovation and experimentation across the organization. Encouraging people to be dissatisfied with the way things are today gives them permission to push the boundaries and develop new ways of working – whether this is improving and making more efficient work processes or developing disruptive products and services.

Either way, an organization’s lifecycle is typically shaped like a sigmoid curve. The question is how many curves will be evident in it before the organization comes to its inevitable close?

Source:http://www.cognitive-edge.com/blogs/dave/Sigmoid%20curves.png

Dave Snowden, writing in his always provocative and thoughtful Cognitive Edge blog, has sketched out 3 sigmoid curves over the history of management, starting with Taylor's Scientific Management.  This diagram illustrates how management thinking and practice has evolved over time, as the changes in technology and markets meant that older modes of management would have resulted in the decline and close of the original companies. 

In a similar fashion, companies have the possibility and the opportunity to launch new growth curves - but they have to do so before they reach the tipping point that leads to decline.  The risk of waiting too long to introduce a new approach, and to scale down and abandon an old approach, is that resources (whether of money or energy) are reduced on the decline.  You may also face increasing resistance - in the form of active resistance or of apathy - that disrupt your efforts to introduce needed changes.

So how do you promote - and model - dissatisfaction with the status quo and a quest for innovation and improvement? 

Companies can expect to die - unless they innovate!

I commented in my last post about the ways in which organizations are like living systems, and how it can be helpful to anticipate these natural of and change in our organizational life. However, I was taken by surprise by some validation of this from an unexpected source…

I was watching a TED Talk called "The Surprising Math of Cities and Corporations" by Geoffrey West  (a physicist associated with the Santa Fe Institute, a research group focused on multidisciplinary studies of complex adaptive systems).  (Additional references to his work are available at the bottom of this post).   

The title was the first thing that caught my eye, but I became increasingly intrigued as he started to explain some curious parallels between animals, cities and corporations.

Dr West first offers some background, drawing on some of his earlier work.  He had uncovered the mathematical principles that explains an observed relationship that exists between all mammals - the greater the mass of the mammal (think of mice and elephants as two extremes of the scale), the more efficient its metabolism - in a predictable manner.  The elephant is about 75% as efficient as a mouse, relative to its size (this is known as the metabolic scaling theory - a useful introduction is available here).

Source: http://www.thecloudcollective.org/blog/9/blog_intro.jpg

West wondered whether this principle might be found in other living systems, such as cities. After wading through the data, he found that this principle of efficiency and scale does indeed apply.  The basic idea is that doubling the size of a city brings about a 85% increase in certain  infrastructure (e.g. banks, gas stations), rather than the expected doubling - this 15% is known as sub linear growth, and is the basis of the idea of economies of scale.  (An example from the Netherlands is shown in the chart). However, the city research also uncovered that doubling the size of a city brings about a 115% growth in certain 'assets' such as income, number of patents, (and crime!). This super liner growth points to the benefits of growth, the reasons why cities have continued to grow and be successful is that the serve the needs of their inhabitants in ways that smaller towns and cities cannot...

Then West began to ponder whether this principle might apply to that other large social system in which we spend much of our time – corporations. Working with data from thousands of publicly traded companies in the United States (useful because of comparable data), West and his colleagues found that the same scaling theory was evident.

In some ways, this is not surprising. As companies grow larger, they need to become more efficient in their processes and systems.  Companies will see sub linear growth as they achieve economies of scale.

This is the concept inherent in the shift from the Pioneer Phase to the Rational Phase that is described in the Barefoot Guide that I introduced in my previous post.

However, profit per employee (a useful metric for the nature and quality of growth) also follows a sub linear pattern – the larger a company becomes, the more efficient its processes and systems, the lower the profit per employee, as companies invest more and more revenue in managing and maintaining the systems that are necessary to sustain their size.

This raises the key challenge for organizations – their growth will inevitably lead to their decline and death.  The only way out of this predicament is to bring about super linear growth, a route that is often only possible through innovation and disruptive change (this is what cities have had to do in order to maintain their super linear growth).

The difficulty of this is that organizations have become comfortable with their business models, and are often reluctant to change a business model that appears to be working so well for them – after all, it's this very business model that allowed them to grow and be successful in the first place.  Compounding the challenge, it can be very hard to recognize just when the organization has gone over the top of the Growth/Decline curve, and managers are reticent to abandon a business model that still seems to be working for them. 

There is a wealth of interesting research and writing on this theme of confronting a declining business model.  I will explore this further in future posts, as I believe this ability to forecast and anticipate decline, while simultaneously investing in and building new and disruptive business lines is a critical capacity in organizational leaders.

Additional resources on Dr. West's work:

"A Physicist Solves the City" New York Times Magazine

Why Cities Keep Growing, Corporations and People Always Die, and Life Gets Faster  – a conversation with Geoffrey West  

A "Barefoot" foundation

In my previous post, I introduced the value of paying attention to the models or frameworks that inform our understanding of organizations and what enables them to be effective.  I described two  books that had an important influence on my own understanding at the start of my career. In this post, I am going to describe a third framework that has had an important influence on my approach and practice in building the effectiveness of organizations.

When you take a systems perspective on organizations, you begin to understand  that they have a dynamic interaction with the environment within which they are located, and that changes both within and outside the organization can have a influence on its potential for effectiveness. Looking at the world around us, we see many examples of this dynamic interaction, not least in the natural world. So if organizations are social systems, created by the people who are part of these organizations, it is not a big stretch to consider that organizations may share many similarities with the people who inhabit them.

One of the key frameworks that help me understand this draws from the work of Bernard Lievegoed, the founder of the NPI Institute of Organization Development.  Along with my colleagues at Olive OD&T at the time, I was introduced to this work by Mario van Boeschoten, James Taylor, Sue Soal and their colleagues at CDRA in Cape Town.

One of the key concepts is that organizations, like people, develop in predictable and understandable fashions.  In fact, organizations can be viewed as living systems, and it would be strange indeed were they not to develop over time.  Organizations typically move through four phases:

• Pioneering Phase – A dynamic, intimate workplace characterized by close connections to the client and a central role for the founder
• Rational Phase – As the organization grows, there are necessary calls for more structure, consistency, systems, predictability; (this phase is also known as the 'Bureaucratic' phase for obvious reasons!).  While the increased structure of the Rational phase helps the organization grow and become more effective, there are obvious downsides during this time, not least of which is the development of the "silo" mentality.
• Integrated Phase – While organizations can continue in the rational phase for a long time, eventually the internal and external calls for coordination become strong enough to lead the organization into the Integrated phase. This phase is characterized by a renewed vision, increased self-management, and more integration of functions and teams.
• Associative Phase – this final phase for mature organizations is fairly rare in practice. It is a phase in which the organization is open to sharing with its environment, in which it has a focus on collaboration and on challenging systems of power through strategic alliances.

A simple summary of these phases is to view them in terms of relationship:

Dependent (Pioneering)

Independent (Rational)

Interdependent (Integrated and Associative)

 I am pleased to see that a fairly accessible introduction to Lievegoed's ideas has recently been published by an ad-hoc group calling themselves the "Barefoot Collective".  They have published two volumes under a Creative Commons license, so you are free to download and use these resources freely!  Their website also offers a number of easy to use resources that you can use to take stock of your own organization and begin a more deliberate process of developing your effectiveness.

Foundations and Frameworks

If you're going to blog about building the effectiveness of organizations, it helps to have a model in mind of what effectiveness looks like, and some thoughts about ways of helping to bring about this effectiveness in diverse organizations.

Now the challenge is that there are literally hundreds of models describing organizational effectiveness, and many of them make useful contributions to our understanding of the dynamics of organizations. I have never taken the view that there is only one way to look at organizations – my experience as a consultant, entering into many different organizational contexts over the last 20 years, has shown me that you need to keep an open mind as to which model can offer insight into the particular dynamics of a specific organization.

Having said that, we are all influenced by some core models, or foundational frameworks.  these may come from the work of influential researchers and practitioners, or they may come from our own experience. We may have been introduced to them at an early point in our careers, or met them at timely moments when they offer insight into a particular setting.

Some of my own foundational frameworks come from my time as a practitioner in South Africa during the 1990s. The process of change that the whole society was undergoing was reflected in changes taking place in organizations across the spectrum. And this coincided with a broader shift around the world in views about organizations, with increasing emphasis being placed on participation and engagement within a systems perspective. 

Two books had an important influence on my understanding of organizations at the start of my career, And ideas from these books have continued to influence my practice to this day.

The first is the classic "The Fifth Discipline: the Art and Practice of the Learning Organization" by Peter Senge.  I continue to call on many ideas whose origin I can trace to concepts I was first introduced to in this book, and I view systems thinking (the fifth discipline, with the other four disciplines being Personal Mastery, Mental Models, Shared Vision, and Team Learning) as central to my practice as a  practitioner.

The second book is Marvin Weisbord's "Productive Workplaces" (a third edition, to celebrate the 25th anniversary of the original text, is to to be published next week). one of the pleasures of this book is that it provides a very useful background of how thinking about organizational effectiveness has developed over the last 100 years, summarized in the simple diagram that can be summarized as:

• 1900: Experts Solve Problems
• 1950: "Everybody" Solves Problems
• 1965: Experts Improve Whole Systems
• 2001+: "Everybody" Improves Whole Systems

By linking theory (and theorists) with practical cases, Weisbord illustrates how the practice of building effective organizations has developed through the 20th century and into the 21st century.  No doubt our thinking and insights into effective organizations will continue to develop, helped in no small part by writers like Senge and Weisbord who help us understand where we have come from and who continued probing the boundaries for what we still have to discover…

In my next post, I will introduce a third foundational framework that informs my understanding about organizational effectiveness.

Happy New Year

Welcome to 2012, and to my new blog!

This blog will focus on my interests on building the effectiveness of organizations, and you will find periodic contributions, reflections, reviews, and resources on this broad topic.

I look forward to sharing with you ideas that come across through my work, and that emerge from my reflections on my consulting practice.

Some posts will draw on material I have written elsewhere, though of course I will take the opportunity to update and incorporate my latest thinking on these topics. (If you are interested, you can view my other print and electronic publications on my website - www.RandelConsultingAssociates.com

And of course I look forward to conversations with you, the readers of this blog, as you respond and comment on what I share here…