Organize for Constant Change

Today’s certainties always become tomorrow’s absurdities.

One thing is certain for developed countries-and probably for the entire world-we face long years of profound changes.  An organization must be organized for constant change.  It will no longer be possible to consider entrepreneurial innovation as lying outside of management or even as peripheral to management.  Entrepreneurial innovation will have to become the very heart and core of management.  The organization’s function is entrepreneurial, to put knowledge to work-on tools, products, and processes; on the design of work; on knowledge itself.

Deliberate emphasis on innovation may be needed most where technological changes are least spectacular.  Everyone in a pharmaceutical company knows that the company’s survival depends on its ability to replace three quarters of its products by entirely new ones every ten years.  But how many people in an insurance company realize that the company’s growth-perhaps even its survival-depends on the development of new forms of insurance?  The less spectacular or prominent technological change is in a business, the greater the danger that the whole organization will ossify, and the more important, therefore, is the emphasis on innovation.

ACTION POINT: Are you and your organization in danger of ossification? Decide how you and your organization can systematically innovate, and build this into your management process.

Enlightenment and Science

...in a world of change and flux, "more of the same" is rarely the right answer. 

If new insights or ideas are not needed, deduction is sufficient.  There can be times when results are fine, when no new opportunities seem to have developed and no new risks have appeared.  Then, the logical answer to the strategy question is simply "Keep it up, do more of the same."

But in a world of change and flux, "more of the same" is rarely the right answer.  In a changing world, a good strategy must have an entrepreneurial component.  That is, it must embody some ideas or insights into new combinations of resources for dealing with new risks and opportunities. 

ACTION POINT: To generate a strategy, one must put aside the comfort and security of pure deduction and launch into the murkier waters of induction, analogy, judgment, and insight. 

Strategy is a Hypothesis II

Similarly, we test a new strategic insight against well-established knowledge about the business.

In science, you first test a new conjecture against known laws and experience.  Is the new hypothesis contradicted by basic principles or by the results of past experiments?  If the hypothesis survives that test, the scientist has to devise a real-world test -- an experiment-- to see how well the hypothesis stands up.

Similarly, we test a new strategic insight against well-established knowledge about the business.  if it passes those hurdles, we are faced with trying it out and seeing what happens.  Given that we are working on the edge, asking for a strategy that is guaranteed to work is like asking a scientist for a hypothesis that is guaranteed to be true--it is a dumb request.  The problem of coming up with a good strategy has the same logical structure as the problem of coming up with a good scientific hypothesis.  The key differences are that most scientific knowledge is broadly shared, whereas you are working with accumulated wisdom about your business and your industry that is unlike anyone else's. 

ACTION POINT: A good strategy is, in the end, a hypothesis about what will work.  Not a wild theory, but an educated judgment.

Strategy is a Hypothesis

a good business strategy deals with the edge between the known and the unknown.

Where does scientific knowledge come from?  You know the process.  A good scientist pushes to the edge of knowledge and then reaches beyond, forming a conjecture-a hypothesis-about how things work in that unknown territory.  If the scientist avoids the edge, worth with what is already well known and established, life will be comfortable, but there will be neither fame nor honor.

In the same way, a good business strategy deals with the edge between the known and the unknown.  Again, it is competition with others that pushes us to edges of knowledge.  Only there are found the opportunities to keep ahead of rivals. There is no avoiding it.  That uneasy sense of ambiguity you feel is real.  It is the scent of opportunity.

ACTION POINT: Seek the edge for your business and then reach beyond.

The Science of Strategy

A new strategy is, in the language of science, a hypothesis, and its implementation is an experiment.

Good strategy is built on functional knowledge about what works, what doesn't, and why.  Generally available functional knowledge is essential, but because it is available to all, it can rarely be decisive.  The most precious functional knowledge is proprietary, available only to your organization.

An organization creates pools of proprietary functional knowledge by actively exploring its chosen arena in a process called scientific empiricism.  Good strategy rests on a hard-won base of such knowledge, and any new strategy presents the opportunity to generate it.  A new strategy is, in the language of science, a hypothesis, and its implementation is an experiment.   As results appear, good leaders learn more about what does and doesn't work and adjust their strategies accordingly.

ACTION POINT: Look for the pools of knowledge within your organization to identify what does and does not work, then adjust.

Thinking Like a Strategist

There are a number of ways of thinking about thinking that can help you create better strategies. 

In creating strategy, it is often important to take on the viewpoints of others, seeing how the situation looks to a rival or to a customer.  Advice to do this is both often given and taken.  Yet this advise skips over what is possibly the most useful shift in viewpoint: Thinking about your own thinking.

Our intentions do not fully control our thoughts.  We become acutely aware of this when we are unable to suppress undesired  ruminations about risk, disease, and death.  A great deal of human thought is not intentional--it just happens.  One consequence is that leaders often generate ideas and strategies without paying attention to their internal process of creation and testing.   There are a number of ways of thinking about thinking that can help you create better strategies.    Inductive leaps are part of both the scientific hypothesis and strategy.   Subjecting your ideas to deeper criticism can help expand your thinking and sharpening your sensitivity can help you see beyond the excitements of crowd thinking to better form independent judgments about important issues.

ACTION POINT: Consider your own process for thinking and look for ways to sharpen and expand it.

Turbulence: Threat or Opportunity?

When it rains manna from heaven, some people put up an umbrella.  Others reach for a big spoon.

The manager will have to look at her task and ask, “What must I do to be prepared for danger, for opportunities, and above all for change?”  First, this is a time to make sure that your organization is lean and can move fast.  So this is a time when one systematically abandons and sloughs off unjustifiable products and activities-and sees to it that the really important tasks are adequately supported.  

Second, she will have to work on the most expensive of resources-time-particularly in areas where it is people’s only resource, as it is for highly paid, important groups such as research workers, technical service staffs, and all managers.  And one must set goals for productivity improvement.  

Third, managers must learn to manage growth and to distinguish among kinds of growth.  If productivity of your combined resources goes up with growth, it is healthy growth.  Fourth, the development of people will be far more crucial in the years ahead.

ACTION POINT: Get rid of unjustifiable products and activities, set goals to improve productivity, mange growth, and develop your people.

Nvidia's Strategy; What Next

But there are many difficulties on both parts, and both are far from sure things.

Nvidia's chosen field is one of the fastest moving and most competitive on the planet.  It's successful strategy of 1998-2008 does not ensure enduring success.  In particular, by 2009 the waves of change Nvidia had exploited in its rise were waning.   

Strategically, Nvidia is presently engaged in a two-pronged pincer movement.  One initiative has been opening up access to the computing power of its graphics chips.  Each graphics processor contains hundreds of separate floating-point processors.  Its new hardware supporting this concept is called Telsa and delivers desktop supercomputing.  In November, 2010, Chinese researchers announced the world's tastes supercomputer-powered by Nvidia Tesla graphics chips.

The second arm of the pincer is Tegra--a complete system on a chip. This tactic is called "disruption from below" and aims to upset the Intel-AMD-Windows hegemony by building on a much simpler, more efficient platform.  The chip is aimed at the makers of smart phones, net books, and game consoles.   

This pincer movement offers two ways to succeed and makes trouble for competitors.  But there are many difficulties on both parts, and both are far from sure things.

ACTION POINT: Strategy is an ongoing consideration for every business.

Strategy at Nvidia; The Competition

The deeper reality was that Nvidia's carefully crafted fast-release cycle induced 3dfx's less coordinated responses. 

For Nvidia's strategy in 3-D graphics to work, other firms would have to fall by the wayside, not being able to keep up.  To a large extent, that is exactly what happened.

Whenever a company succeeds greatly there is a complementary story of impeded competitive response.  Sometimes the impediment is the innovator's patent or similar protection, but more often it is an unwillingness or inability to replicate the innovator's policies.  Nvidia bet that it could rapidly charge up the graphics pipeline, but it also be that key rivals would not be able to replicate its fast release cycle.  Rival 3dfx followed spurious advice from Wall Street and the marketing instincts of a new CEO, setting out after the mass market.  Spreading its resources too thin, it attempted to compensate by stretching the goals for its next high-performance chip beyond the competencies of its development process.  

3dfx closed its doors in the last months of 2000, selling its patents, brands, and inventory to Nvidia where many of its talented engineers ended up working.   A surface reading of history makes it look like 3dfx did itself in with too many changes of direction.  The deeper reality was that Nvidia's carefully crafted fast-release cycle induced 3dfx's less coordinated responses. 

ACTION POINT: As Hannibal did to Rome at Cannae, Nvidia enticed its rival into overreaching.

Strategy at Nvidia: Cohesive Action

The benefit of a faster cycle is that the product will be best in class more often.

The first step in executing the guiding policy of a faster cycle time  was the establishment of three separate development teams.  Each would work  to an eighteen-month start-to-market cycle.  With overlapping schedules, the three teams would deliver a new product every six months.  Accordingly, the second set of policies were meant to substantially reduce the delays and uncertainty in the development process. 

A serious source of possible delays was a design error.  To address this source of possible delays, Nvidia invested heavily in simulation and emulation techniques and organized its chip design process around these methods.   Nvidia also took control of the creation and management of drivers for its chips, developing a unified driver architecture.  This approach would greatly simplify things for users because they would not have to be concerned with matching drivers to chips.   To speed up driver development, the company made a significant investment in emulation facilities.  These were complex hardware "mock-ups" of new chips that allowed driver development to begin four to six months before the first true chips appeared.  Implementing the new strategy, Nvidia invested its remaining cash in emulation equipment and in engineering a new chip.   The benefit of a faster cycle is that the product will be best in class more often.  Compared to a competitor working on an eighteen-month cycle, Nvidia's six-month cycle would mean that its chip would be the better product about 83 percent of the time.

   

ACTION POINT: Act and invest in support of the guiding policy.

Strategy at Nvidia; Guiding Policy

...the Nvidia team designed a set of cohesive policies and actions to turn their guiding policy into reality.

Progress in the semiconductor industry was based on reducing the size of a transistor.  Smaller transistors were faster and consumed less power.  The whole semiconductor industry coordinated around achieving a higher level of integration, based on smaller transistors, about every eighteen months.  This rate of progress was called Moore's law.  No one could jump much ahead of this pace because all the technologies, from photo lithography to optical design to metal deposition to testing, had to advance in lockstep.   The industry called this patter of collective advance the "road map."

Nvidia's top management and its technology board sketched out a different road map, one that would push 3-D graphics performance at a much faster rate than Moore's law predicted.  There were two factors crucial to making this happen.  First, they anticipated a large jump in performance from putting more and more of the graphics pipeline onto a single chip.  Second, most manufacturers, such as Intel, didn't keep cramming the maximum number of transistors possible onto a chip--they took advantage of increases in density to make more chis per wafer, thereby cutting the cost of chip.  Nvidia, by contrast, planned to use that extra density to add more parallel processors, boosting performance-a consequence of using the Utah-SGI "triangle bus" idea.

On the demand side, management judged that the market would buy virtually all the graphics processing power that could be provided.  There was not shape call for word processors or spreadsheets but ran one hundred times faster, but there was a very sharp demand for faster and more realistic graphics.  CEO Jen-Hsun Huang believed that Nvidia could construct an advantage by breaking the industry's eighteen month cycle.   He reasoned that since it looked possible to advance graphics power three times faster than CPU poet, Nvidia could deliver a substantial upgrade in graphics power every six months instead of every eighteen months.  

This is the point where a bad strategist would have wrapped the concept of a faster development cycle in slogans about sped, power, and growth, and then sought to cash in by taking the company public.  Instead, the Nvidia team designed a set of cohesive policies and actions to turn their guiding policy into reality.

ACTION POINT: Sometimes a guiding policy will go against the grain of the industry standard.

Creating a True Whole

Create a true whole greater than the sum of its parts.

A manager has the task of creating a true whole that is larger than the sum of its parts.  One analogy is the task of the conductor of a symphony orchestra, through whose effort, vision, and leadership individual instrumental parts become the living whole of a musical performance.  But the conductor has the composer’s score; he is only interpreter.  The manager is both composer and conductor.

The task of creating a genuine whole also requires that the manager, in every one of her acts, consider simultaneously the performance and results of the enterprise as a whole and the diverse activities needed to achieve synchronized performance.  It is here, perhaps,that the comparison with the orchestra conductor fits best. A conductor must always hear both the whole orchestra and, say, the second oboe.  Similarly, a manager must always consider both the overall performance of the enterprise and, say, the market-research activity needed.  By raising the performance of the whole, she creates scope and challenge for market research.  By improving the performance of market research, she makes possible better overall business results. 

The manager must simultaneously ask two double-barreled questions: “What better business performance is needed and what does this require of what activities?”  AND “What better performances are the activities capable of and what improvement in business results will they make possible?”

ACTION POINT: Have you composed your symphony?