Evolvable System Architecture: Design Issues of
Learning Systems
by
Venu R. Siddapureddy
Submitted to the System Design and Management Program
in Partial Fulfillment of the Requirements for the Degree of
Master of Science in Engineering and Management
at the
Massachusetts Institute of Technology
June 2002
Signature redacted
.Signature of Author
- Ven-u Siddap~ed~
System Design and Management Program
S~ig_n_a_tu_r_e_re_d~a_c_te_d_ _ _ __
Certifiedby _ _
11
Wanda J. Orlikowski
Thesis Supervisor
Professor of Information Technologies and Organization Studies
MIT Sloan School of Management
Signature redacted
Certifiedby ________~v~-----~'~~r~~/'--T1~<~-------------------
________________
Peter Senge
Thesis Reader
Senior Lecturer at MIT Sloan School of Management
Srgnature redacted
Accepted by ______________________________=-_______
--1.."_ _ _ _ _ _ _ _ _ _ __
Steven D. Eppinger
Co-Director, LFMlSDM
G~rofessor
of Management Science
and Engineering Systems
('-----,
~
Accepted by _ _ _ _ _
~_S_i_g_n_a_t_u_re_re__,,__d___.ar___ct-e-d-U
Paul A. Lagace
Co-Director, LFMlSDM
Professor of Aeronautics & Astronautics and Engineering Systems
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Evolvable System Architecture: Design Issues of
Learning Systems
by
Venu R. Siddapureddy
Submitted to the System Design and Management Program
in Partial Fulfillment of Requirements for the Degree of
Masters of Science in Engineering and Management
June 2002
ABSTRACT
If organizations are viewed as complex systems that are constantly adapting to and evolving with the
environment, then the design of the elements of the organizations can be set with the view that they will
constantly experiment and learn. In this thesis, Complex Adaptive System (CAS) is examined in a
societal context and the characteristics relevant to the behavior of learning are derived. These
characteristics are then considered in terms of the experiences of four companies attempting to make
constant changes in dynamic business environments. The architectures of these companies that allow
them to be reliable, robust and responsive concurrently are integrated to create a generic architecture for a
learning system. The important design issues for operating such a system are then discussed.
TABLE OF CONTENTS
List of Figures.....................................................................................................................
List of Tables ......................................................................................................................
5
7
Acknowledgm ents..............................................................................................................8
Chapter 1: Introduction................................................................................................
Statement of Problem .........................................................................................................................
9
9
P u rp o se o f S tu dy ................................................................................................................................
T h esis S tru cture ..................................................................................................................................
C o n clu sio n ..........................................................................................................................................
10
12
17
Chapter 2: Conceptual Framework for a Learning System .........................................
Complexity Theory (Theories) as applied to Organizational System ...................................
Learn in g System ...............................................................................................................................
C o nclu sion .....................................................................................
....................................................
18
19
44
45
Chapter 3: Leveraging Current Strengths: Case Studies of NTT DoCoMo and Vodafone....... 50
Purpose of the Cases.........................................................................................................................50
In du stry R eview .................................................................................................................................
51
Company Review: NTIT D oCoM o.......................................................................................
......... 52
Complexity and NTT D oCoM o's JV's/Alliances .................................................................
56
Company Review: Vodafone.......................................................................................................
Complexity and Vodafone's JV's/Alliances ...........................................................................
Conclusions: Comparative Analysis, Complexity M ap, System Architecture ......................
62
66
72
Chapter 4: Clean Sheet Design: Case study of Xerox LAKES Development Project.................. 78
Pu rp o se o f the C ase...........................................................................................................................78
Industry and Company Review ..................................................................................................
81
LAKES Product Developm ent..................................................................................................
84
Conclusion: Complexity M ap, System Architecture .............................................................
111
Chapter 5: Incremental Improvements: Case study of LonleyPlanet.com ............................
Purpose pf the Case.........................................................................................................................117
Industry and Company Review .....................................................................................................
Connectivity through Virtual Community ..................................................................................
Conclusion: Complexity M ap, System Architecture .................................................................
117
118
120
126
Chapter 6: Conclusion
Problem Statement Revisited........................................................................................................130
C ase
y y
es s ........................................................
.............................................................
1 31
System Structure and Design Issues............................................................................................137
3
141
Concluding Rem arks .......................................................................................................................
Limitations of Current Study and Future Research...................................................................141
References........................................................................................................................142
4
List of figures
Number
Page
1.1
D isrup tiv e Curv e's .................................................................................................................................
10
1.2
Continuous or Adaptive Vs Disruptive Curves ......................................
12
1.3
Sco p e o f C ase Stu dies ...........................................................................................................................
15
1.4
Th esis S tru ctu re ......................................................................................................................................
16
2.1
A Representation of a Complex System............................................................................................21
2 .2
Fitn ess Lan d scap e ..................................................................................................................................
34
2.3
L earning System Fram ew ork ...............................................................................................................
48
3.1
Alliances/JV's - NTT DoCoMo ..................................................................................................
55
3.2
Feedback Mechanism between NTT DoCoMo's Market and Technology Alliances.....60
3.3
A lliances/JV 's - V odafone ..............................................................................................................
66
3.4
Working of feedback loops in Vodafone's Alliances/JV's ........................................................
71
3.5
Complexity Map for NTT DoCoMo and Vodafone..................................................................73
3.6
System Architectures of NTT DoCoMo and Vodafone ...............................................................
76
4.1
Resource Based View of the System.............................................................................................
80
4.2
Interconnected View of the System.............................................................................................
80
4.3
Impact Analysis of the important functions on the behavior of LAKES Product.............. 88
4.4
The Principle of Creative Tension................................................................................................
90
4.5
H o ok s in to the Vision ...........................................................................................................................
94
4.6
Platform A rchitecture of LA K E S ......................................................................................................
96
4.7
Mo dularity of P latform s .......................................................................................................................
97
4.8
Modularity Enables Systems Engineering Process....................................................................
99
4.9
Conceptualizing Design for Environment (DfE).........................................................................
102
4.10
Complexity Map of LAKES during its Development Period....................................................
112
4.11
L akes System A rchitecture................................................................................................................
114
5.1
Impact Analysis of Virtual Communities on the behavior of LonelyPlanet.com .................. 119
5.2
C omplexity M ap of Lonely Planet...................................................................................................
127
5.3
System Architecture of Lonely Planet ............................................................................................
128
6.1
Continuous or Adaptive Curve vs. Disruptive Curves................................................................
131
5
132
6.2
Offering/Market Framework as applied to Xerox LAKES Project.........................................
6.3
Importance of Viewing Processes as Experimentation and Learning in the Long-term...... 134
6.4
Placement of the Organizations on the Offering/Market Framework....................................
135
6.5
Change E fforts Show n as S-curves .................................................................................................
136
6.6
Circular Architecture: Monitors Emerging Behavior from One-Level-Up to Where it Sells is
Built into the Architecture ................................................................................................................
137
6
List of Tables
Number
Page
3.1.
Complexity Characteristics in NTT DoCoMo and Vodafone.................................................75
3.2
Categorization of Alliances Based on Purpose ...........................................................................
4.1
New Level of Order in the Product and Process of the LAKES Project that is Reliable and
6.1
77
R obust and relatively R esponsive ....................................................................................................
113
D esign Issues of E volvable System s...............................................................................................
140
7
ACKNOWLEDGMENTS
A colleague of mine asked me "what are you doing for your thesis?" after a brief moment of silence, I
answered "I want to examine the traits of an organization that is good to its people, good to the
environment, makes products that customers would love and on top of it all have the ability to make good
money." He shot back "are you planning to finish your thesis anytime soon?" for which, I answered with
only an uneasy smile. The uneasiness that I felt was partly due to my uncertainty that I will not be able to
come up with all the answers for what constitutes the 'utopian' organization. Now, after having gone
through the arduous task of trying to find the right answers, what I came up with is a framework for
asking some of the right questions. I should thank this colleague of mine for having placed doubt in my
mind that not the right answers, but the right questions would give me a closure to my quest.
There are a number of people that I would like to acknowledge who have made this undertaking possible.
First of all I like to thank my two-year-old son and my wife for simply accepting that fact that I am
always buried in my books and thoughts. They were only too happy for whatever little time that I was
able to spare them throughout this program. I feel that it is more their achievement than mine and they are
the ones that should be receiving the diploma. I like to extend my gratitude to my parents, brothers, my
in-law's and my other family members for their encouragement, support and help. I should include among
them my friends and co-workers Russ Poulson and Edward Jih who were as supportive as an immediate
family member could be. I would also like to thank my management at Ford Motor Company for their
support in making it possible to stay away from my job and be on campus at MIT for an extended period
of time.
Most of all, I thank my mentors at MIT, Prof. Wanda Orlikowski, Prof. Peter Senge and Prof. Shoji Shiba
for giving me the confidence that 'change'is possible in large organizations. Their courses 'Organizations
as Enacted Systems: Learning, Knowing and Change' and Breakthrough Management'laid the
groundwork for this thesis by providing me the view of organizations as dynamic systems and showing
effective ways of intervening in them to bring the needed change.
I also thank my friends at the Xerox Corporation, especially Rich Howe for providing me an in-depth
view of their organization and giving me the opportunity to interview his colleagues. I extend my thanks
to many of my classmates with whom I had very lengthy dialogues about various aspects of my thesis.
These discussions, which sometimes seemed like arguments provided ways to shape some of the ideas
presented in this thesis. And finally, my thanks to many other people who are my extended family and
friends for their encouragement and support.
8
/
Chapter
INTRODUCTION
Statement of Problem
The disruptions faced in the businesses of companies, in general, are caused due to changes along
different fronts - technology, economy, environment, regulatory etc. They mostly depend on crisis
management to control damage and bring stability; which results in instituting more policies that affect
people, products and processes. In the long-term the results of this management philosophy are
summarized as follows:
1)
Sales and profits are subject to economic cycles.
2) The net flow of talent is negative - loss of valuable knowledge base.
3)
Competitors drive down the costs of the products.
4) Depend on internal R&D to supply with the new technologies and products.
5)
The environmental regulations are considered as policy issues that have to be complied with.
The organizational system includes people (customers, employees), products, processes, economic
aspects and the environment (work, natural) as its components. Currently, the interactions between these
components are treated as linear i.e. environment and people are used as resources for the processes to
produce products that will give us economic profits. These interactions are products of our system design
- organizations as top-down intelligence and products as low-cost commodity products. This could be
treated as a basic design problem that has produced over a long period of time reactive, linear behavior
that is always trying to move towards an equilibrium state of affairs rather than integrating changes to the
basic system structure, which would constitute a responsive system. Such a system can be defined as
incorporating an Evolvable System Architecture: one which is adaptive and self-organizing, with its
components able to co-evolve in response to changes in each other, while also changing in response to
external conditions. The 'system' that is the focus of this thesis as a whole is the contemporary
'Organization.' The 'Architecture' is the design or the placement of the elements of this 'Organization.'
Purpose of Study
The main purpose of the thesis is to examine if there could be a continuously evolving system, i.e. a
system that can be reliable, robust and responsive (R-Cube)' at the same time:
a)
Reliable: Able to generate the output expected by its customers.
b) Robust: Able to withstand changes in the internal as well as the external environment.
c)
Responsive: Able to adapt or evolve to take advantage of the changed environment.
To illustrate such a system, let us first examine the behavior of current systems by charting their
performance along time. For example, a small company with an innovative idea performs many activities
to bring the idea into fruition (into a product or service); this stage can be represented as the Ferment
stage in Figure 1.12.
Figure 1.1: Disruptive Curves
Jr
Performancef
Disruptive Curves
Maturity
Disruption
Takeo
Ferment
Time
1R-Cube:
2
This acronym or pseudonym will be used further in the thesis and will be referred to as a R-Cube system.
Normally called as S-curves in the technology strategy class taught at MIT Sloan School of Management.
10
It will then put the processes (production, distribution, selling, organizational etc.) in place to push the
product or service to the market, if it is enthusiastically received by the market the processes in place
acting reliably will allow for the takeoff of the product or service. Once widely accepted it will reach a
stage where the market is saturated and the number of units sold will not increase or will increase at a
very slow pace, and the profit margins will also be lowered due to increase in competition, this stage can
be termed as Maturity. At this stage, if a new technology or a new way of satisfying the need of the
market that is more efficient and cost-effective comes along, the mature company which was grounded in
its way of doing things (processes) might not be able to effectively change its direction to respond (or be
responsive) to the changes in the external environment. This could cause the firm to lose the market with
its products and services becoming obsolete. This stage can be termed as disruption. Examples of such
types of disruptions are abundant in the business world, a classic example is the replacement of the Horse
Driven Carriages with that of Steam Engines, which in turn were replaced by Internal Combustion
Engines. In all these cases, a cheaper, more efficient, faster way of providing the transportation services
was found, and the companies that dominated the different stages were not the same. The companies that
provided the horse drawn carriages hung onto their method of transportation, even when there were better
ways of doing the same until they ran into loss and were forced to close shop. None of the companies that
provided the older methods of transportation services moved into newer methods by sacrificing their older
infrastructure and processes and creating new infrastructure and processes to support and grow the new
business. Therefore in general, can there be a non-disruptive shift with the same system from one
technology to another technology, one product to another product, one kind of service to another kind,
one kind of processes to a different kind. In other words can there be an evolvable system? This point is
illustrated in Figure 1.2; the curve on the left is continuous because it is able to move from one disruptive
curve to the next. The 'tails' in this continuous curve represent that it is the same system that is evolving
11
by changing internally due to changes driven by external conditions and in turn bringing about changes in
the external environment.
Adaptive of
Continuou
,
Figure 1.2: Continuous or Adaptive Curves vs. Disruptive Curves
urve
Tail
*,
Disruptive Curves
Performance
Maturity
Disruption
rakeo
Ferment
Time
As part of examining an evolvable system in this thesis, the following aspects are also discussed:
a)
The main characteristics of an evolvable system,
b)
Use of the characteristics in an organization.
c)
Manifestation of these characteristics in terms of products, processes, people and
environment.
d) Ways to moving towards an evolvable system.
Thesis Structure
The structure for this thesis itself has evolved over time. It started as an effort to understand the product
development process of the Xerox LAKES development effort, which was successfully able to change the
product, the processes, the affect the product has on the external environment and above all the mindset of
the people that worked on the project. This study led me explore the implications of these kinds of
12
developments in organizations. In particular, such organizations might become places where change is
seen as the preferred process and becomes a norm. In other words, an evolvable system will be viewed as
the norm rather than an exception and there would be some generic properties of such systems that can be
applied to other contexts or organizations.
The evolutionary aspects or properties of biological systems are a good starting point to examine as an
evolvable system. These biological systems, which evolve continuously, are abundant in nature, the
properties of which are studied as part of the complexity theories at the SantaFe Institute, New Mexico;
Such evolving systems are known as Complex Adaptive Systems (CAS). These are dynamic systems able
to adapt and change within, or as part of, a changing environment. In order for the properties of CAS to
be useful to organizations, they have to be examined using the Organizational Learning and Evolution
theories, since these organizations are made up of humans who can consciously change their behavior as
opposed to the biological systems that are studied as CAS's. The outcome of this examination is a
framework that can be used for evaluating different organizations in different contexts. Therefore, the
cases chosen to study are those that have successfully changed (or changing) along with shifts in the
dynamic external environment. They are as follows:
a)
Xerox LAKES - Represents change effort in all dimensions of the product development
effort. Data for this case study was obtained by interviewing 7 employees of the Xerox
Corporation with each interview lasting more than an hour, a lot of public domain material,
and some internal documents. The names and the quotes of those interviewed are disguised.
The interviews proved to be an invaluable experience for getting the real sense of the work
environment and the journey through out the development processes that lasted for more than
6 years.
13
b)
NTTDoCoMo and VodaFone - represent change efforts leveraging current strengths and
using JV's and Alliances. The data are mostly obtained from public domain, including some
analysts' reports on these two companies.
c)
LonleyPlanet.com - is a dot com that makes profits on its products that are inexpensive and
are updated often. The data are mostly public domain.
The learning from these case studies yielded System Design Issues that could be applied to organizations
more generally and their elements (products, processes, people). The Scope and structure of study for the
thesis as described in the above paragraphs is show in Figure 1.3 and 1.4.
In Figure 1.3 the inner circle represents the organization, which includes it's elements (Products,
Processes and People), the outer circle represents the extended organization that includes the Suppliers
and complementors, outside these two circles is the environment that includes the people (customers and
people outside the company) and the natural environment and represented as a separate circle are
organizations that have JV's and alliances to the companies examined in the thesis. LAKES make an
integrated effort that includes the elements of its organization, extended organization and the environment
to perform its product development. LonleyPlanet.com makes its change effort based on the coupling with
its customers. NTT DoCoMo and Vodafone have their development effort jointly with the partners that
form part of their JV's and alliances.
Figure 1.4 shows the process laid out in the thesis for generating the system structure and attributes of an
evolvable system and its constituent elements. First a Learning system framework is developed using the
complexity and organizational theories, which are then applied to the different case studies to derive the
structure and characteristics of a generic evolvable system.
14
Figure 1.3: Scope of case Studies
People
LAKES
Orsyanization
Process
NTTDoCoMo,Vodafone
/
Product
LonleyPlanet.Com
Supp iers and Complementors
Environment - people and nature
External
Organizations
that are allied to the
companies studied in
the cases.
15
Figure 1.4: Thesis Structure
Organizational/Social
Systems Learning
Theories
Complexity
Theory
Learning System Characteristics
Learning Through:
Clean Sheet Design -Xerox LAKES
Tech. Intensive - NTTDoCoMo
Market Reach - Vodafone
Product Cost - LonleyPlanet.com
Evolvable System I rchitectur
I
II
II
h
Proces
Structure
16
Conclusion
Even though the structure of the thesis looks like a linear process, it has emerged after a number of
iterations between the study of the Xerox LAKES case and the theories of complexity, organizational
learning and change. The LAKES case provided the inspiration to look at change as an all-inclusive effort
rather than managing the change of one element (product, or process, or people or the environment). The
LAKES story profoundly shows that all the elements of the organization are very much connected to the
external environment and that the affect of these elements needs to have a positive impact on the external
environment to contribute to an R-cube system. A major section of the LAKES development story will be
dedicated to examining the connectivity with the external environment and its effect on the internal
elements.
By looking and analyzing the behavior of the organization from one-level up of its constituent elements
the framework for an evolvable system architecture is derived. I conclude the thesis by describing the
paths organizations can follow in each of their elements (products, processes, people) to get the benefits
of being an evolvable system.
17
Chapter 2
CONCEPTUAL FRAMEWORK FOR A LEARNING SYSTEM
Modem day organizations have many interactions within and with outside elements, the effects of these
interactions may be far in space and time, therefore are not readily evident. In such systems it is difficult
to pinpoint the causes and effects, a small change in the behavior one agent of the system may cause an
unintended change of the whole system. The change becomes only apparent when a new pattern of
behavior emerges for the whole system. It is impossible to see the behavior of the whole system by
studying individual agents. Therefore, they are studied as a whole and the characteristics that produced
the system-wide behavior are examined and studied in various contexts. These intertwined and interacting
complex wholes (systems) are referred to as Complex Adaptive Systems (CAS) by the researchers at
SantaFe Institute 3. Here we find physicists, biologists, psychologists, mathematicians, economists,
immunologists and others nurturing various ideas and techniques with focuses on the science of
complexity, which examines underlying patterns and regularities behind a wide assortment of real-world
phenomena.
Gell-Mann; Complex Adaptive Systems; Complexity: Metaphors, Models, and Reality; Ed by G. Cowan,
D. Pines and D. Meltzer, Addison-Wesley, 1994
3Murray
18
The work on complexity has been undertaken by scientists over the past three decades, particularly that of
Stuart Kauffman, 4John Holland,5 Murray Gell-Mann, 6 Philip Anderson 7 and Ilya Prigogine.
In this chapter the characteristics of CAS's are viewed in an organizational context and the relevant
characteristics that contribute to a reliable, robust and responsive (R-Cube) organizational system are
noted.
Complexity Theory (Theories) as applied to Organizational System
The idea of a complex system is fuzzy and differs from author to author. Murray Gell-Mann traces the
meaning to the root of the word. Plexus means braided or entwined, from which is derived complexus
meaning braided together, and the English word "complex" is derived from Latin. Complexity is therefore
4 Stuart Kauffman - Pioneer in complexity theory; MD from University of California (1968), Professor in
Biophysics, Theoretical Biology and Biochemistry (1969-1995), University of Chicago and University of
Pennsylvania; Currently, consultant for Los Alamos National Laboratory and External Professor, Santa Fe Institute;
Publication: "At Home In The Universe", Oxford University Press, 1995.
5 John Holland - "first" PhD in Computer Science (University of Michigan); pioneer of evolutionary computation,
particularly genetic algorithms; Professor of Cognition and Perception at the University of Michigan and Santa Fe
Institute.
6 Murray Gell-Mann -
Theoretical physicist; PhD (Physics) in 1951 from MIT; Professor Emeritus of Theoretical
Physics, California Institute of Technology; Professor and Co-Chairman of the Science Board of the Santa Fe
Institute; received a Nobel Prize in 1969 for work on the theory of elementary particles (co-discoverer of Quarks);
Currently in the President's Committee of Advisors on Science and Technology; Author of the book: "The Quark
and the Jaguar", W. H. Freeman and Company, New York, 1994.
7 PhilipAnderson - Condensed matter theorist; PhD from Harvard in 1949; Professor of Physics at Oxford
University and Princeton University (1975-present); received a Nobel Prize in 1975 for investigations on the
electronic structure of magnetic and disordered systems; Also at the Bell Labs (from 1949 to 1984) and Santa Fe
Institute (1970-present).
8 Ilya Prigogine - A Nobel laureate chemistry in 1977 for his contributions to non-equilibrium thermodynamics, has
studied the theory of dissipative structures. His work on dissipative structures has stimulated many scientists
throughout the world and may have profound consequences for our understanding of biological systems. Prigogine
aims for a better understanding of the role of time in the physical sciences and in biology. He has contributed
significantly to the understanding of irreversible processes, particularly in systems far from equilibrium
19
associated with the intricate inter-twining or the inter-connectivity of elements within a system and
between systems. Some other views put up by researchers dealing with complex systems as applied to
every day phenomenon, compiled by Joseph Sussman9 in 2000, include the following ideas:
Joel Moses
0
suggests that a complex system is composed of many parts that interconnect in intricate
ways. In other words, the complexity of a system is related to the number of interconnections and to their
nature. In addition, he argues that the amount of information in a system can be used as a proxy for its
degree of intricateness
Peter Senge 1 refers to the concept of dynamic complexity. Dynamic Complexity arises when cause and
effect are distant in time and space, and when consequences over time of interventions are subtle and not
obvious to many participants in the system.
Joseph Sussman suggests that a system is complex when it is composed of a group of related units for
which the degree and nature of the relationships is imperfectly known. In this case, emergent behavior is
difficult to predict, even when the behavior of every subsystem is readily predictable
Rechtin and Maier
suggest that a complex system is a set of elements connected in order to perform a
unique function that cannot be achieved by any of the parts alone. In their view, a complex system may be
approached at different levels of abstraction, each with its own techniques for problem-solving
9 Joseph Sussman is a Professor of Civil and Environmental Engineering and Engineering systems at MIT
Joel Moses is a Professor of Computer Science and Artificial Intelligence at MIT
" Peter Senge is a Senior Lecturer at the MIT and Chairperson of the Society for Organizational Learning
1 Eberhardt Rechtin and Mark W. Maier are Space Engineers at the National Academy of Sciences
10
20
David Levy' 3 argues that complexity and chaos theory attempt to reconcile the unpredictability of nonlinear dynamic systems with a sense of order and structure. He argues that, with this kind of system,
short-term predictability is possible but long-term planning is impossible to achieve
It becomes clear that different people, with different backgrounds and different research perspectives and
goals, share a common idea regarding complexity. Complexity turns up when "the whole is more than the
sum of the parts" and the language that we use to talk about parts of a complex system is unable to
describe the behavior of the system as a whole. Despite different attempts at defining complexity, its
meaning can only be understood by looking at the general properties of complex systems. There is a fairly
general agreement that the "ideal" complex systems, those which we would most like to understand, are
the biological ones, especially the systems having to do with people: or bodies, our grouping, our society,
our culture . These complex systems along with some of its properties is depicted by the artist Marshall
Clemens of Idiagram' 5 for New England Complex Systems Institute is shown in Figure2. 1,
David Levy is a Science Editor since 1998 and one of the most successful
comet discoverers in history
Michel Baranger in Chaos, Complexity, and Entropy: A physics talk
for non-physicists, Center for theoretical
physics, Laboratory for Nuclear Science and Department of Physics, MIT, Cambridge, MA, USA and New England
Complex Systems Institute, Cambridge, MA, USA
1 Diagrams were designed as part of a project in conjunction with the New England Complex Systems Institute
(NECSI) to visualize the key concepts of complex systems science.
13
14
21
Figure 2.1: A representation of a complex system (adapted from New England Complex Systems Institute website, www.necsi.org)
This picture is intended to serve only as only a starting point in trying to understand the characteristics of
complex systems. A complex system is composed of many parts and exhibits emergent behavior. This
emergent behavior cannot be inferred directly from the behavior of the components.
Complex systems may also exhibit hierarchy and self-organization resulting from the dynamic interaction
of the parts. This suggests that a number of different scales may characterize a complex system and one
can study complex systems16 by positioning oneself at one of these levels. Adding to the concept of
complexity, complex systems evolve over time and small changes in the parameters of the system may
easily result in chaotic behavior.
Note: Complex systems, Complex Adaptive Systems, Complex Evolving
systems, Complex Social Systems are
used synonymously. Also, 'element', 'system, and 'entity' varies depending on the context. The use of language
reflects one of the characteristics of complex system, which is that similar characteristics apply at different scales.
16
22
The characteristics the complex systems that apply to social systems will now be. discussed along with
some of the organizational learning and development.
a)
Connectivity (Interconnectivity, Interrelatedness, Interdependent)
As the name(s) gives the notion of closely linked with all other related systems in the environment making
up an ecosystem. In human systems, connectivity refers to the effect of decisions or actions of any
individual on all the other related individuals. The effect will not be uniform, but will vary with that of the
state (mental and physical) of the individual at that time. The state of the individual itself was formed by
his/her history in the system, which in turn was formed by the organization and structure of the system.
Therefore a complex system is composed of connected and interdependent elements.
The illustration of the concept of connectivity is best noted by the first looking at example of a noncomplex system - gas in a container. Take away part of its constituents i.e. its molecules, and the
pressure, volume or temperature changes a little, nothing dramatic. When the temperature of the container
is lowered to below a particular temperature, the gas changes to a liquid. This change in state of the liquid
is perfectly predicted by the gas laws. Now, consider the example of the Product Development Process
(PDP) for a car. Once the group responsible for the design of the engine makes a decision about the size
of the engine, it ripples throughout the PD community. Different groups receive these ripples as waves, of
different sizes and intensities. The transmission group that is responsible for the transfer of the power to
the wheels is the most connected to the engine and the most effected. But, the intensity of the decision
might not be very large, since the transmission group works in close proximity with that of the engine
group and might have been very aware of the decision process and would have aligned its development
with that of the engine development. Now, consider the group that is in charge of developing the airconditioning system for the car. Its priority is to give the passengers of the car maximum comfort.
23
Members of this group might have designed the radiator, compressor, fan, ducts etc., to give the most
benefit to the passengers of the car. When the full prototype of the car is put together and tested, they
might notice that when the A/C is turned on, the engine power is lowered more than expected as the A/C
compressor draws power from the engine. This effect might be considerable and noticeable by the
customer. Now, the A/C group will be forced to change its design of its components to deal with the
power levels of the engine. The engine design decision that was removed in space and time from the A/C
development caused an expensive redesign of the A/C system.
This is precisely what Toyota tries to
avoid in its PD by delaying decisions to a considerable extent, while exploring numerous designs for the
elements. This is what is called "set-based concurrent engineering" by researchers Ward et. al.
17
However, complexity does not argue for increasing connectivity, for high connectivity implies a high
degree of interdependence. Even a small move or action by one entity will cause disturbance in the
associated entities. As in the previous example, if the engine and transmission groups are closely
connected, each time the engine group makes a small decision to change one of its components at the
interface between the engine and the transmission it will affect the transmission design. When one entity
tries to improve its fitness or position, this may result in a worsening condition for the others. Each
'improvement' therefore may have associated 'costs' on other entities, either within the same system or
other related systems.
Degree of connectivity can also be associated with the quantity of information that flows between the
connected entities, the higher the connectivity the greater the exchange of information. But, a very high
rate of flow of information is found to push the system towards instability. As in the above example, the
17 Allen Ward, Jeffery K. Liker, John J. Cristiano, Durward and K. Sobek II, The Second Toyota Paradox: How
Delaying Decisions Can Make Better Cars Faster; Spring 1995, Sloan Management Review
24
high degree of information exchange between the transmission group and the engine group will cause
them to react to each other's minor changes, creating the effect of a seesaw.
b) Far-from-equilibrium & Dissipative Structures
Complex systems can also be viewed as open systems exchanging energy, matter or information with
their environment. In Prigoginian terms, all systems contain subsystems that are continually
"fluctuating." When one or more fluctuations become so powerful, as a result of positive feedback, that
they shatter the pre-existing organization, the system has been forced into afar-from-equilibrium
condition and has reached apoint of bifurcation. It is inherently impossible to determine in advance
which direction change will take. The system may disintegrate into instability or leap to a new level of
order or organization called a "dissipative structure" because it requires more energy (or information) to
sustain it than the simpler structure it replaced.
In terms of the flow of information, a stable system can be sustained with a sluggish flow, but a much
more vigorous and richer flow is necessary for a system operating far-from-equilibrium. If the flow of
information becomes too fast, however, then the system may disintegrate.
Nicolis and Prigogine
18
have shown that when a physical or chemical system is pushed away from
equilibrium, it survives and thrives while if it remains at equilibrium it dies. The reason is that far-fromequilibrium systems are forced to experiment and explore their space ofpossibilities and this exploration
heLonelyPlanets them discover and create new patterns of relationships and different structures.
25
This concept is being explored in medical cardiology, in the study of normal and abnormal heartbeat
patterns. The rhythmic beating of the heart is very orderly but there exists a subtle but apparently
fundamental irregularity. The interval between heartbeats varies in a disorderly and unpredictable manner
in healthy individuals, particularly in young children. Regularity of the heartbeat interval is a sign of
danger - order in heart dynamics indicates insensitivity and inflexibility. Therefore, it can be said that
complex systems function best when they combine order and disorder in an appropriate measure.
Going back to the car PD example, the A/C system groups was forced to change their design after
discovering during the prototype test that the A/C was drawing more power from the engine than the
engine can afford. But, if the A/C group was aware in the beginning of the development that the engine
size and power would be within a range and the exact specifications would not be known until towards
the end, then they would have been forced to design their A/C system to operate within the range without
any noticeable loss of power to the engine. That is, they would have been forced to innovate or come up
with new ways so that their A/C system could tolerate the range of engine power (tolerate order and
disorder).
In a general organizational sense, when an individual or an organization is pushed either by circumstances
or deliberate intervention away from an established pattern of behavior, or when constraints are
encountered in reaching a desired goal, then humans are forced to experiment, to explore their space of
possibilities and to find alternative ways of attaining a goal or changing the goal altogether. They find
new patterns of relationships, different structures and innovative ways of working. Yet the idea that
working away from equilibrium is desirable, is quite strange if not revolutionary. The Xerox LAKES
18 Nicolis Gregoire and Prigogine Ilya "Exploring Complexity" WH Freeman, 1989
26
program can be described as having been in a state far-from-equilibrium, which might have been the
reason the many innovations generated (500 patents were awarded during the program development).
One of the fundamental principles of classical physics and economics is that bodies and markets tend
towards equilibrium. We have accepted this tendency as inevitable and as beneficial. Yet reality and
experience show otherwise. We simply choose to ignore the possibility that a system working away from
equilibrium will thrive and will be more innovative.
But this is only one aspect of the argument, if a system is pushed too far away from a stable state, it will
dissolve into instability.
c) Emergence, Self-organization
The concept of emergence in a complex system is perhaps the most important characteristic and the most
difficult to explain. In very simple terms it is the development of a new pattern. These patterns are termed
'schemata' by Murray-Gell Mann, which can be summarized below.
In societal systems schema can be described as culture - a set of customs, traditions, myths, laws,
institutions, and so forth, what Hazel Henderson calls "cultural DNA"20. The various levels of adaptation
Emergence is also studied in chaos theory (or non-linear dynamics), which sees emergent order as co-existing
with disorder at the edge of chaos. When a system moves from a state of order towards increasing disorder, it goes
through a transition phase called edge of chaos. In this phase new patterns of order emerge among the disorder and
gives rise to the paradox of order co-existing with disorder. The order that emerges out of disorder is based on
iteration of a simple mathematical algorithm or a set of simple rules. But, complex social systems, do not necessarily
function on simple rules of iteration, unless iteration is defined to accommodate cycle of learning and adaptation. In
chaos theory the iterated formula remains the same, while complex systems are able to evolve and can change the
rules of interaction. Analogies from chaos theory when applied to complex social systems are vulnerable to the
same criticism applied to Newtonian paradigm and the scientific method, i.e. human behavior is reducible to, and is
governed by rules of laws, which implies that social systems are the same as physical, Chemical and biological
systems. This is obviously not the case.
19
27
of a schema to the real world are important towards understating this concept; the following description
throws light on these levels.
(Level 1) In a social system, the schemata include prescriptions for collective behavior. A culture
operating on the basis of a given schema reacts to altered circumstances such as climatic change,
invasion, and so forth, in a way prescribed by the schema. If the climate turns warmer and drier, the
response of a group of villages may be to move to a higher elevation. In the event of attack by outsiders,
the inhabitants of all villagers may retire to a fortified site, stocked with food and water, and sustain a
siege. What happens at this level is direct adaptation of the schema to the circumstances.
On the next level (level 2), the society may change its schema if the prevailing one does not seem to have
given satisfactory results. Instead of migration to the highlands, the villagers may try new crops or new
methods of irrigation or both. Instead of retreating to a fort, they may respond to invasion with a counter
attack aimed at the enemy's heartland.
Finally, there is the level (Level 0) of Darwinian survival of the fittest (as in population biology). In some
cases, not only does a schema fail, but the whole society is wiped out. (The individual members need not
die, but the society ceases to exist as functioning units). At this level the successful schemata are the ones
that support the societies in survival.
In organizational systems the parallel to a Schemata is the culture of the organization. This is described by
Schein (1985)2 as: A pattern of shared basic assumptions that the group learned as it solved its problems
of external adaptationand internal integration, that has worked well enough to be consideredvalid and,
Hazel Henderson, Cutting different shapes from the same, capitalist cloth: Ignoring a country's 'cultural DNA',
September 1998, World Paper Online (http://www.worldpaper.com/Archivewp/1998/Sept98/hazel.html)
2
28
therefore to be taught to the new members as the correct way to perceive, think, andfeel in relation to
those problems. He goes on to say that this definition does not include overt behavior patterns, since it is
always determined both by the cultural predisposition (the perceptions, thoughts, and feelings that are
patterned) and by the situational contingencies that arise from the immediate external environment. This
highlights the difficulty of defining one single term 'culture' to the collections of human behavior in a
system, which is made up of conscious individuals aware and capable of making a choice, and where the
behavior of any two individual may not be predictable upon encountering a similar situation.
The adaptation or change over time of this intangible property of the organizational culture (or schemata)
can be described by using Single and Double-Loop Learning as explained by Argyis and Schon
(1996)22.
Here the analogous term to schemata is theories-in-use. By Single-loop learning they mean instrumental
learning that changes strategies of action or assumptions underlying strategies in ways that leaves the
values of a theory of action unchanged. In such learning episodes, a single feedback loop, mediated by
organizational inquiry, connects detected error-that is, an outcome of action mismatched to expectations
and, therefore, surprising - to organizational strategies of action and their underlying assumptions. These
strategies or assumptions are modified, in turn, to keep organizational performance within the range set
by existing organizational values and norms. This is similar to the Level 1 adaptation of villagers to
changing environments described by Murray Gell-Mann.
By double-loop learning Argyris and Schon mean learning that results in a change in the values of
theory-in-use, as well as in its strategies and assumptions. The double loop refers to the two feedback
loops that connect the observed facts of action with strategies and values served by strategies. Strategies
2Edgar
Schein, Organization Culture and Leadership (page 12), Jossey-Bass Publishers, 1985
29
and assumptions may change concurrently with, or as a consequence of, change in values. This is
analogous to the Level 2 adaptation where the villagers break with the tradition and respond to the
changes in the weather not by moving to highland, but by changing the crops or the irrigation methods.
And, instead of retreating they take up offensive actions against the enemy.
So far the definition and the adaptation of the schema (culture, theories-in-use) have not dealt with the
process of emergence of schema. Francisco Varela23 gives a view on emergence in his study of the human
brain. He sees emergence as the transition from local rules or principles of interaction between individual
components or agents, to global principles or states encompassing the entire collection of agents.
Kauffman2 4 uses computer simulations of Complex Systems to demonstrate that it is possible for the
order of new survival strategies to emerge from disorder through a process of spontaneous selforganization. Order can result from non-linear feedback interactions between agents where each agent
goes about his own business. Emergent behavior can be easily seen in the flocking behavior of birds.
Research using computer simulations has shown that one can model the flocking behavior of birds by
using a few simple rules such as the distance each bird maintains between itself and other birds and other
objects. These rules are entirely local to each bird. There is no explicit rule to form a flock. If a flock does
form, it would have done so from the bottom up, as an emergent phenomenon. Indeed, flocks did form
every time the simulation was run. Thus, it appears that self-organization is an inherent property of
Complex Systems.
Chryis Argyis and Donald Schon, Organizational Learning II: Theory, Method and Practice, (Page 20, 21),
Addison-Wesley Publishing Company, 1996
23 Varela Francisco, paper presented at the "Complexity & Strategy Conference" London May 1995
24 Kauffman Stuart "The Origins of Order: Self-Organisation and Selection in Evolution" Oxford University Press,
1993
30
Self-organization is the spontaneous organization of the system's elements into coherent new patterns,
structures and behaviors. It is the process of interaction between individual elements (or local principles
of interaction) that brings forth or creates new patterns or emergent properties at a global or holistic level.
The above are different points of view on essentially the same concept. What they do not do is explain the
process of emergence, which is associated with the issue of scale. Nicolis2
has attempted such an
explanation in terms of "mechanisms." He identifies non-linear dynamics and the presence of constraints
maintaining the system far from equilibrium as the basic mechanisms involved in the emergence of selforganizing phenomena. The concepts of 'far-from-equilibrium' and 'self-organization' are essential to an
understanding of complexity, but they do not fully explain the process of emergence. They only describe
the process, but not explain it. This is a major research area of interest among the complexity theorists.
In societal systems the process of developing shared assumptions, the basis for cultural formation, is
described by Schein 2 6 is described as by starting with an example of a young business, which is a hotbed
for culture formations. In such a business if a manager (or the founder), convinces the management group
that in order to increase sales they have to increase the advertising, and the group acts on the manager's or
founder's belief, and if the solution works and if the group has shared perceptions of that success, then the
perceived value that advertising is "good" gradually starts a process of cognitive transformation.First, it
will be transformed into a sharedvalue or belief and, ultimately, into a shared assumptions (if action
based on it continues to be successful).
Nicolis Gregoire "Physics of far-from-equilibrium systems and self-organization" Chapter 11 in "The New
Physics" Edited by Paul Davies, Cambridge University Press, 1989
26 Edgar Schein, Organization Culture and Leadership (pages 19, 20, 21), Jossey-Bass Publishers, 1985
2
31
Here leadership is seen as an important element for the process of creating a shared assumption, in turn
for creating the culture. Schein [1985, pp. 15] says that culture and leadership are two sides of the same
coin in that leaders first create the cultures when they create groups and organizations. Once cultures
exist, they determine the criteria for leadership and thus determine who will or who will not be a leader.
This tell us how difficult it is to generate new assumptions within an already formed culture, since there is
a natural tendency for the culture to select the leader who understands the culture but does not tamper
with it radically. But, if cultures become dysfunctional, it is the unique function of leadership to manage
cultural evolution and change in such a way that the group can survive in changing environments. This is
analogous to the Level 0 adaptation of the schema, which says that when the schema fails and the agents
fail to take action, the whole society is wiped out. (The individual members need not die, but the society
ceases to exist as a functioning unit.) At this level, the successful schemata are the ones that allow
survival of those societies using them.
d) Co-evolution and fitness landscapes
Another key characteristic of complex systems is that of the co-evolution of all related systems within an
ecosystem. Kauffman and Macready 27 describes it, as "Co-evolution is a process of coupled, deforming
landscapes where the adaptive moves of each entity alter the landscapes of its neighbors." By
'landscapes' they mean the 'fitness landscapes' which was developed using the NK model, where N
stands for the number of entities or elements in a system and K stands for the degree of connectivity
between the entities. Each entity N makes a fitness contribution that depends upon that entity and upon K
other entities among the N. That is, K reflects how richly cross-coupled the systems is.
32
In the geneticist's term, K measures the richness of epistatic interactions28 among the components of the
system. The process of epistatic coupling is when a new gene links into the network of a species' existing
genes. These 'coupling' interactions between new and existing genes means that the contribution of a new
gene to a species' overall fitness depends on the genes the species already has.
In social systems this may be likened to the history of experiences and constitution of an institution - new
ideas can only be 'seen' and developed if both the constitution and the history allow them to be 'seen' and
developed29
The NK model is abstract. Although we do not yet know what the real landscapes are like, Kauffman
contends that we may be able to develop some intuition for their typical, or statistical structures by
building simple models such as the NK model, which help us understand their expected features. As the
main parameters are altered, the model generates a family of increasingly rugged multi-peaked
landscapes. A simple illustration of a fitness landscape is shown in Figure 2.2.
27
Kauffman and Macready, Complexity, Vol.1, No.2, 1995
28Fitness is rarely dependent on the state of one isolated gene. It depends instead on the coupling between genes,
known as epistatic coupling. This coupling, when diagrammed, looks like a network where each node is a gene and
the connections between them are inputs to the gene's behavior.
29 David Oliver and Johan Roos: "The Poised Organization: Navigating Effectively on Knowledge Landscapes" a
Paper presented at the Strategy & Complexity Seminar, London School of Economics, 13th February 1997
33
Figure 2.2: Fitness landscape
In evolutionary biology these landscapes are used to illustrate the competition for survival. Species
attempt to alter their genetic make-up by taking 'adaptive walks' to move to higher 'fitness points,' where
their viability will be enhanced. Species that fail to move to higher points on their landscapes may be
outpaced by competitors who are more successful in doing so, and risk becoming extinct through a
process of natural selection. The adaptive moves that the species make in the process of looking for the
highest peak will affect the other species, which in turn will deform the landscape. Therefore it is a coevolving system where the species influence as well as are influenced by other species.
Complexity emphasizes evolution with rather than adaptation to a changing environment and thus
changes the perspective and the assumption, which underlie traditional management and systems theories.
Axelrod 3 0 says a fitness landscape may be used by companies to assess their 'fitness' within a competitive
ecosystem. Such an exercise may be used to illustrate or clarify a number of issues: competitive fitness;
conflicting constraints within a web of epistatically interacting entities; and participation within a coevolving ecosystem. By changing different parameters, an organization may take 'adaptive walks' within
0 Axlerod, R.: The Evolution of Cooperation; Penguin, 1990
34
its industry 'landscape' - this would demonstrate the existing position as well as opening up other
possibilities, which would improve its 'fitness' or competitive position. A fitness landscape would also
demonstrate how each adaptive move affects the position of all other related businesses, how it 'deforms'
the 'landscapes' of neighbors and would illustrate the concept of co-evolution.
Further, adaptive evolution is bounded by the character of fitness landscapes. But that character in turn
depends upon the entities that are evolving. Hence evolution can change the rugged structure of fitness
landscapes and their impact on evolution by changing the adapting entities.
Change therefore, may be seen in terms of adaptive evolution. But adapting entities confront conflicting
constraints both in their internal organization and in their interactions with their environments. These
conflicting constraints typically imply that finding the 'optimal solution' is very difficult. But it also
means that there may exist many alternative locally optimal compromise solutions.
Furthermore, the consequence of attempting to optimize in systems with many increasingly conflicting
constraints among the components brings about what Kauffman calls a 'complexity catastrophe.' 31 "As
complexity increases, the heights of accessible peaks recede towards the mean fitness. The onset of the
catastrophe traps entities on a local optimum and thus limits selection in the space of
possibilities.. .Technological evolution, like biological evolution, can be considered a search across a
space of possibilities on complex, multi-peaked 'fitness', 'efficiency' or 'cost' landscapes."
31
Kauffman and Macready, Complexity, Vol.1, No.2, 1995
35
Thomas Allen of MIT in his research on the teams in R&D has concluded that a group of 7 is the
optimum number for a group, where the level and richness of interaction is high. When the number of
individuals increases, the direct connectivity increases; to maintain the same level of interaction would be
impossible, given the amount of time employees would have to spend in meetings. Similarly, when the
number of projects increases for an employee his/her attention and the effectiveness is decreased. The
employee attending to the many conflicting requirements from different people and different projects will
pave the way for complexity catastrophe to set in, in other words, reducing the employees fitness peaks to
a mean level.
The long-term effect of the complexity catastrophe on complex physical systems might have a surprising
effect; a complex system can be replaced by a simple system. Brain Arthur 32 says that "in evolving
systems, bursts of simplicity often cut through growing complexity and establish a new basis upon which
complication can again grow. Take for example, Whittle's Jet engine, with its extraordinarily simple
propulsion principle, it largely replaced the piston aero engine of the 1930s, which had become incurably
complicated in attempts to overcome the limitations in operating internal combustion engines at high
speed in the very thin air of higher altitude."
In the short-term this could be dealt with by reducing the density of connectivity, at both to the physical
and social systems. In physical systems this is accomplished by grouping together relevant parts to form
modules and limiting the module's interaction with other modules to defined interfaces. In organizations
as the number of individuals increases while the number of interactions remains small, the fitness
landscapes retain high local optima. In other words, if each individual interacts directly with few other
32 Brian Arthur; On the Evolution of Complexity, Stanford University; Complexity: Metaphors, Models, and Reality
[Page 3]; Edited by G. Cowan, D. Pines and D. Meltzer, Addison-Wesley, 1994
36
individuals within the network, then the network can grow without disintegrating. This is made possible
by limiting interactions to a few individuals within a group, and also limiting group interaction. The
interaction may be limited locally but the pattern of interaction is such that ideas can proliferate, and be
shared by the network as a whole. Here the groups are analogous (metaphorically) to modules in physical
systems with limited interface to other groups (modules). Therefore, for limited interactions, (small
values of K) the local optima are not distributed randomly in space but are near one another, thus there is
global structure to the fitness landscape: the highest optima are nearest one another.
Finally, fitness landscapes explore the space of possibilities that includes change by mutation and by coevolution. Mutation is an unpredicted 'step-change' as opposed to a gradual incremental change.
e)
Exploration of the space of possibilities
As we have seen in the study of the concept of fitness landscapes for an entity to survive and thrive it
need to explore its space of possibilities and encourage variety. Variety means diversity of thought,
diversity of language and diversity of action. In organizations this often implies duplication or
redundancy. It also implies that exploring the space of possibility brings us into the unknown territory of
risks and uncertainty. Experimentation and learning are imperative when attempting 'step-change' and
failure is seen as a part of the learning process.
Benjamin Zander 3 3 the conductor of Boston Philharmonic Orchestra in his book 'The Art of Possibility'
talks about how it feels and looks like at a personal level to explore this space. He says "The action in a
33 Benjamin Zander and Rosemund Stone Zander; 2000, The Art of Possibility: Transforming Professional and
Personal Life" [page, 19,29, 21], Harvard Business School Press, Boston, MA
37
-
universe of possibility may be characterized as generative, or giving, in all senses of that word
producing new life, creating new ideas, consciously endowing with meaning, contributing, yielding to the
power of contexts. The relationshipbetween people and the environment is highlighted, not people and
things themselves. Emotions that are often relegated to the special category of spirituality are abundant
here: joy, grace, awe, wholeness, passion and compassion. There are moments in everyone's life when an
experience of integrationwith the world transcends the business of survival - like seeing a grandchild for
the first time, witnessing an Olympic record broken or the uncommon bravery of an ordinary citizen ...
These are the moments when people forget ourselves and seem to become part of all being."
Even though he is talking to the individual self, these ideas have implications at every level of the
organization. "...Yielding to the power of contexts ... become part of all being" implies the connectivity
with environment, making environment a part of the organization, evolving with the environment. In
doing so, the space of possibility is seen and actions become generative "...producing new life,
generating new ideas..." Very often it is not expensive research and development which produces major
innovations, but 'seeing' a novel function for an existing entity in a new light. That is called, 'exaptation'
and emergence. Kauffman describes it as follows "Exaptation is the emergence of a novel function of a
part in a new context. ... Major innovations in evolution are all Exaptations. Exaptations are not
predictable"34
Eric Von Hippel 35 in his book 'The Sources of Innovation" has examined when and where these
exaptations occurred. In his study of the innovations in the scientific instruments, he found that users
were the developers of fully 77% of all innovations he studied. The users did so because they wanted
34 Kauffman, Complexity and Technology Conference, London, 11 March 1997
35 Eric Von Hippel; The Sources of Innovation, 1988, Oxford University Press
38
the instrument to perform additional or different functions (or simply to fit their environment or context)
to those it was designed for. This finding speaks volumes about the need for organizations to include
users as part of their product/service development, i.e. increase their space of possibility by including the
environments of these users. This inclusion process is termed the "lead user method" and is used to a
great extent by 3M, where the employees involved in developing new products, identify a group of "lead
users" - who have done different things with the products and spend a considerable amount of time with
them, to allow for new ideas/innovations to emerge.
At the level of strategy formulation for an organization, Arnaldo Hax and Dean Wilde 3 6 in their book
"The Delta Model" point out that "The intimacy and connectivity of a networked economy offers
opportunities to create competitive positions based upon the structure of the customer relationship,
independent of the product. A business can establish an unbreakable link, deep knowledge, and close
relationship that we refer to as customer bonding. These bonds can be directly formed with the customer,
or indirectly formed through the complementors that the customer wishes to access... With this
understanding comes the recognition that competition based upon the product alone misses entirely a
primary force driving profitability. Bonding emerges as a central force in shaping strategy."
Hax and Wilde not only emphasize the need to see connectivity with the customer and complementors but
also the need to include them in the organizational structure, i.e., the strategy and operations are
performed including the customers and complementor's environments. Even doing so, it is not clear
whether the organization will be able to develop a long-term strategy, will it be able to form an optimum
strategy with the ever-changing environment. Complexity also indicates that the search for a single
Arnolodo C. Hax and Dean L. Wilde II; 2001, The Delta Project: Discovering New
Source of Profitability in a
Networked Economy; [Page 8, 9] Palgrave, NY, NY
36
39
'optimum' strategy is neither possible nor desirable. Ashby
37
says, "When markets were stable and growth
was a constant, single optimum strategies based on extrapolation from historical data, were thought to be
feasible. But unstable environments and rapidly changing markets requireflexible approaches based on
requisite variety."
f) Feedback, Positive Returns and Sensitive Dependence on Initial Conditions
A central concept in the theory of communication and control is the theory of feedback. The feedback
described in this theory is that of negative feedback in a system, where there is a "sense organ," a control
apparatus and an effector. A common example of this is a room heating system, where the thermometer
senses the temperature, the control apparatus determines if it is hotter or colder than the required
temperature and sends the signal to the heating coil (effector) either to shut off or turn on. These kinds of
feedback arrangements are widely used in modern technology for the stabilization of a certain action, as
in thermostats or in radio receivers; or for the direction of actions towards a goal where the aberration
from the goal is fed back as information, till the goal or target is reached. There are a large number of
biological phenomena that correspond to the feedback control, an example of that is the thermoregulation
in warm-blooded animals, which works in the body of an animal similar to that of a room heating system
described above. The theory of Cybernetics
38
introduced by Norbert Wiener to deal with this
phenomenon. The theory tries to show that mechanisms of a feedback nature are the basis of teleological
or purposeful behavior in man-made machines, as well as in living organisms and social systems.
37 Ashby W R "Self-regulation and Requisite Variety" 1956, in Systems Thinking, Ed by F E Emery, [Page 105-
124], Penguin 1969.
38
Norbert Wiener, "Cybernetics, or Control and Communication in the Animal and the Machine", MIT Press,
Cambridge, MA, 1948
40
Management planning systems tend to work on the assumption of negative feedback. A popular example
of this philosophy is W. Edward Deming's PDSA (Plan, Do, Study, Act) cycle, where the monitoring
systems detect the variations from the planned outcome and action is taken to reduce the gap between the
intended and the actual outcome. These works well with the manufacturing system of an organizations
where the outcome should be extremely accurate and predictable, but applying this generally to the other
parts (R&D, marketing, sales etc.) implies that the employees of an organization should act towards a
very specific goal and that all the management systems are put in place to make it possible to achieve the
goal. Unfortunately for planners, social systems cannot always be controlled through negative feedback as
they are also subject to positive feedback, which can take the form of what Parker & Stacey 39 describe as:
"self-reinforcing growth, bandwagon effects, chain reactions, self-fulfilling prophecies, and virtuous and
vicious circles." If positive feedback does set in, then the gap will widen instead of narrowing, and there
is no way of knowing in advance which feedback mechanism will apply. A popular example of the
positive feedback is the reinforcing behavior of buyers and sellers on eBay, the on-line auction company.
Here the buyers want to shop at the market exchange with most sellers, and sellers prefer the exchange
with the most buyers, thereby creating a reinforcing effect between the buyers and sellers, which has the
potential to become a dominant exchange leaving little room for competitors to occupy the same space.
Another common phenomenon in organizations is the re-engineering effort to lower costs or increase
efficiency. As part of these efforts employees are given voluntary retirements or separations. Usually the
good and the experienced staff take these offers, since they know that either they can afford to retire early
or they will be able to find job elsewhere. This leaves the company with inexperienced or less capable
employees, who may not be able to take up the additional responsibilities effectively thereby essentially
reducing the quality of the output, which in turn may have a negative effect on the profitability. The re-
Parker David and Stacey Ralph "Chaos, Management and Economics: the Implications of Non-Linear Thinking"
Hobart Paper 125, Institute of Economic Affairs, [Page 26], 1994
39
41
engineering efforts that are meant to control costs have the unintended effect of increasing costs in the
longer run.
Therefore, organizations are capable of many possible responses; that is, they are complex, unpredictable,
non-linear systems, producing multiple outcomes. Yet they are studied as if they are simple, linear
systems guaranteed to produce a single, predictable outcome. Another aspect that is often ignored is that
any outcome is influenced by a number of contributing factors. These factors cannot all be taken into
account for various reasons: they may not be known, may not be quantifiable, or they may be ignored as
relatively insignificant. Yet these factors may be subject to the phenomenon known as sensitivity to initial
conditions, which may lead to major qualitative changed in the system behavior, which when combined
with the quantitative effect of positive feedback will make it impossible to predict the specific outcome or
achieve a particular objective
40
Although the specific behavior of a dynamic system may be unpredictable, the range of possible
behaviors does have limits. That is, there are limits to the instability. Complexity theory calls this limited
range of behavior: bounded instability. For example, due to the strange dynamics of weather, a butterfly
flapping its wings in Iowa might cause a typhoon in Indonesia. But, the typhoon itself is not a disorderly
pattern: it has a highly organized dynamic structure with well-understood behavior. Where does this
order come from? It emerges from the intrinsic properties of the weather as a dynamic system. That is to
say, a typhoon is one of the (relatively few) patterns that the weather system can generate. These limited
set of patterns are called attractors, which limit the system's unstable behavior within those limits.
40
A famous example of this phenomenon is the VHS vs. Beta format videotapes, where a small shift in the market
share by the VHS tapes led to a virtual capture of the entire market.
42
For a complex, dynamic system bounded instability is the state of transition between the extremes of
stability and instability. This third state also called the edge of chaos can accommodate stability and
instability, certainty and uncertainty, order and disorder at the same time.
If organizations are viewed as stable systems in a stable environment then the conventional planning
systems can be used to get to a desired future. But, when the patterns of behaviors of the systems begin to
change and are no longer recognizable, they cannot be extrapolated into the future, and if the uncertainty
increases to a point of turbulence than the conventional planning becomes totally ineffective. In the
transition phase between stability and instability the behavior may be new but it does have pattern and
structure. Eve Mitleton-Kelly4 1 says, "It will be the ability to recognize new patterns as they emerge
which will provide organizations with real competitive advantage in the future." Thinking in complexity
terms helps to 'see' the new patterns.
41 Eve Mittleton-Kelley; Organizations as Co-evolving Complex Adaptive Systems; Paper presented at the British
Academy of Management Conference, [page 15], 1997
43
Learning System
Fred Kofman and Peter Senge42 describe their vision of a learning organization as follows:
"Learning Organizations are both more generative and more adaptive than the
traditionalorganization.Because of their commitment, openness, and ability to deal with
complexity, people find security not in stability but in the dynamic equilibrium between
holding on and letting-go, holding and letting-go of their beliefs, assumptions, and
certainties. What they know takes a second place to what they can learn, and simplistic
answers are always less importantthan penetrating questions."
So far, the ability to deal with complexity has been seen as essentially dealing with multi-variable
problems. Warren Weaver (1948), co-founder of information theory, has expressed this in an often-quoted
statement. Classical science, he stated, was concerned either with linear causal trains, that is, two variable
problems, or else with unorganized complexity. The latter can be handled with statistical methods and
ultimately stems from the second law of thermodynamics. However, in modern physics and biology,
problems of organized complexity, i.e., interaction of a large but not infinite number of variables, are
popping up everywhere and demand new conceptual tools.
These multi-variable problems are as prevalent in the behavioral and social sciences as in biology. These
problems are studied as the "human-machine systems," where the people are in the loop with that of the
existing human-made and natural systems. A very simple example of this kind of organized complexity is
seen by anybody crossing the continents by jet with incredible speed and having to spend endless hours
waiting, queuing, being herded in airports. The physical techniques in air travel are different to those of
"organizational" techniques. The need to study these systems as complex wholes is realized in some sense
Fred Kofman and Peter Senge, Communities of Commitment: The Heart of Learning Organizations, American
Management Association, [Page 17], 1993
4
44
and applied fields of study have been developed that deal with the complexity of the human-machine
systems. They can be enumerated as below,
a)
Operations Research, i.e., scientific control of existing systems of humans, machines, materials,
money etc.
b)
Systems Engineering, i.e., scientific planning, design, evaluation, and construction of humanmachine systems.
c) Human Engineering, i.e., scientific adaptation of systems and especially machines in order to
obtain maximum efficiency with minimum cost in money and other expenses.
Although there is considerable overlap, different conceptual tools are predominant in the individual fields.
In systems engineering, cybemetics43 and information theory" are used. Operations research uses tools
such as linear programming and game theory 45 . Human engineering, concerned with the abilities,
physiological
limitations
and variabilities
of human beings,
include biomechanics,
engineering
psychology and human factors, etc., among its tools. Other tools that find their place in the modem
48
47
organizations are decision theory, 46 relational mathematics, and factor analysis all of which are used to
solve multi-variable problems.
The following definitions are adapted from the book "General Systems Theory: Foundations, Development,
Applications" [Page 90, 91], Revised Edition; By Ludwig von Bertalanffy; George Braziller, Inc., 1969
43 Cybernetics, based upon the principle of feedback or circular causal trains providing mechanisms for goal-seeking
and self-controlling. Also, termed as Stimulus-Response (S-R) principle.
44 Information theory, introducing the concept of information as a quantity measurable by and expression
isomorphic to negative entropy in physics, and developing the principles of its transmission.
45 Game theory analyzing, in a novel mathematical framework, rational competition between two or more
antagonists for maximum gain and minimum costs.
46 Decision theory, similarly analyzing rational choices, within human organizations, based upon examination of a
given situation and possible outcomes.
47 Topology or relational mathematics, including non-metrical fields such as network and graph theory.
48 Factor analysis, i.e. isolation, by way of mathematical analysis, of factors in multivariable phenomena in
psychology and other fields
45
All the methods and tools described above are used for managing complexity, but all of them emphasize
the tendency towards equilibrium. In brief,
a)
The Stimulus-Response (S-R) scheme misses the realms of play, exploratory activities, creativity
and self-realization etc.
b) The economic scheme misses specific, human achievements - most of what is loosely termed
"human culture"
c)
The equilibrium principle 49 misses the fact that physiological and behavioral activities are more
than relaxation of tensions.
So we arrive at the conclusion that a great deal of human behavior is beyond the principles of utility,
equilibrium, and stimulus-response and that it is the characteristic of all human and cultural activities.
Thus far our discussion of complexity as applied to human organizations offers a way of thinking, a way
of 'seeing' the world, and a different set of assumptions, which transcend the principles of utility,
equilibrium and stimulus-response.
Such principles of complexity as far-from-equilibrium, emergence,
fitness-landscapes, self-organizations, etc. can help us to construct a new theory of organizational
adaptation and change that includes "human culture". These principles when applied to organizations will
manifest themselves in different ways in the products/services, processes, people and the environment,
and has the potential to realize the shape of the organizations that are close to the Kofman and Senge's
vision for a learning organization. In other words a reliable, robust and responsive (R-cube) system as
described in chapter 1. I will examine these manifestations at different levels using the four case studies
and a conceptual framework that embodies the principles of complexity as shown in Figure 2.3.
In Freudian formulation, this is the "principle of stability": the basic function of the mental apparatus consists in
maintaining homeostatic equilibrium. Behavior essentially is reduction of tensions, particularly those of sexual
49
46
The name give to the Figure 2.3, which is created in this thesis is the Learning System Framework', since
it represents the major principles related to organizational complexity on a single sheet and circular
formations means that they are not connected linearly. The relevant characteristics of each principle are
shown in the dotted squares hanging off the box representing each principle. The gray area represents the
edge of chaos and can accommodate stability and instability, certainty and uncertainty, order and disorder
at the same time. When a system resides in this area it has the potential to become an R-Cube system. In
the following case studies, I will study those systems aspects and the issues that can contribute to the
properties of an R-cube system and map them on to the Learning System Framework.'
nature. [Adapted from "General Systems Theory: Foundations, Development, Applications" [Page 190], Revised
Edition; By Ludwig von Bertalanffy; George Braziller, Inc., 1969 ]
47
Figure 2.3: Learning System Framework
Point of bifurcation,
order, disorder, space of
possibilities
....................
Degree of
Connectivity
Far-from-equilibrium,-.....
Dissipative Structures
..........
Complexity Catastrophe,
Burst of Simplicity
I..
CoEouin
itness
Landscapes
Connectivity,
Interdependence
Complexity in Organizational
Context
Disorder(C
Stability
Emergence, Self-
Feedback, Positive Returns,
Sensitive Dependence on
Initial Conditions
Bond ed Instability,
Attra ctors, Edge of
organization
Exploration of Space of
ChaosPossibilities
Single-loop and Doubleloop learning,
Leadership
Variety, Duplication or Redundancy,
Experimentation and Learning, Failure
part of Learning, Step-change, Users
as Innovators, Exaptation, Customer
Bonding, Complementors, Flexible
Approaches
48
Conclusions
The 'Learning System Framework' depicted Figure 2.3, shows the generic characteristics of complex
social systems that will be taken into account in order to understand the nature of change that occurs in
the organizations. The framework is descriptive and supported empirically by only a few examples drawn
from the literature. Using these characteristics as the basis for exploring their applicability to the case
studies will help me develop a prescriptive framework that may be relevant to organizational design more
generally.
49
Chapter 3
LEVERAGEING CURRENT STRENGTHS: CASE STUDIES OF NTTDOCOMO AND
VODAFONE
Purpose of the Case
No company can go it alone. For industry giants and ambitious start-ups alike, strategic partnerships have
become central to competitive success in fast-changing global markets. More than ever, many of the skills
and resources essential to a company's future prosperity lie outside the firm's boundaries, and outside
management's direct control. In this new world of networks, coalitions, and alliances, strategic
partnerships are not an option but a necessity. While alliances can create enormous wealth, they can also
become black holes for management time and resources. Understanding the long-term competitive
consequences of alliances requires a long-term vantage point: one has to observe the unfolding of
alliances over time, assess their consequences, and analyze how managers perceived those consequences
and factored them into their decisions.50 This chapter attempts to understand alliances in the mobile
wireless telecommunications industry by examining, in detail, the strategies adopted by NTT DoCoMo
and Vodafone in expanding their markets and developing new technology, as manifested through their
numerous alliances and joint ventures. In turn, this extension of the organization by including many
companies that were never previously seen as potential partners will help us understand how these two
companies operating in a fast changing environment are able to manage the complexities involved. In
short, these cases will show us how these companies are changing with the external environment, i.e.,
how they are expanding their space of possibility and how they are able to grasp new emergent patterns.
Abstracted from Yves L. Doz, and Gary Hamel, Alliance Advantage; The Art
of Creating Value through
Partnering,Harvard Business School Press, Boston, Massachusetts, pp. ix-xi.
50
50
The strategies used by these two companies JV's/Alliances will be analyzed using the ' Learning System
Framework' and implications towards realizing a reliable, robust and responsive (R-Cube) systems will
be laid out.
Industry Review
a)
Industry Characteristics and Trends
The mobile wireless telecommunications industry is a very capital-intensive industry, involving high
technology complexity. Technology for mobile wireless systems is still evolving at a rapid pace and the
industry can be considered to be in relative infancy. The industry has moved from the first generation
analog systems (such as AMPS) to the second generation digital voice systems (GSM, IS-135, IS-95) and
will soon be making the transition to third generation (3G) digital systems capable of transmitting data at
very high speeds. Concurrently, wireless carriers are developing wireless data platforms with which to
deliver compelling content to mobile users. NTT DoCoMo was the first to do this successfully with its imode service.
Use of mobile wireless devices has substantially changed social relationships an opened many new
possibilities for interaction. Never before have individuals been able to stay connected anytime,
anywhere. And as human behavior changes because of technology, so too will our demands on what
technology can do for. Thus we can assume that the wireless telecommunications industry will continue
to see change and growth into the distant future.
This constantly evolving industry brings opportunities and threats. In the last few years, many
governments have deregulated their telecommunications industry and competition has skyrocketed.
Though deregulation encouraged the emergence of many startups, we find that the industry naturally
51
favors big, strong players, and many of the small companies have either been acquired by or merged with
other firms. Even big telecommunications carriers have found it necessary to forge alliances and joint
ventures with other regional and international carriers and collaborate closely with equipment
manufacturers, in order to protect their growth and competitiveness, and exploit economies of scale. In
addition to alliances and ventures, acquisitions are also common means through which
telecommunications companies grow.
b) Competition
The main contenders in the global arena for worldwide domination are Vodafone and NTT DoCoMo.
Vodafone is now the largest telephone company in the world, holding controlling interests in the 13 of the
25 networks in which it is a shareholder. There are many aspiring "wanna-be" global players such as
Deutsche Telekom, British Telecom, and still other smaller players with regional ambitions such as
Singapore Telecom (which recently acquired Optus in Australia). In deregulated local markets, there are
often three or more wireless service providers with significant market share, and the competition is
generally fierce.
Company Review
In this section, we will examine separately each company's business development strategy, by mapping
the alliances they have formed and analyzing these using the 'Learning System Framework.' This will
form the basis for our comparative analysis and discussion in the next section.
NTT DoCoMo
a)
Background
52
NTT DoCoMo was the wireless telecommunications arm of Japan's national telecommunications
monopoly, Nippon Telephone and Telegraph (NTT), before it was spun out as a separate company in
1992 as a result of legislation enacted to break up NTT's monopoly. Though NTT DoCoMo is
operationally a separate company, its parent company NTT is still its largest shareholder, and holds a
controlling interest in the wireless operator. Throughout most of its history, NTTDoCoMo hasfocused
solely on the Japanese market. It has consistently maintained a majority market share, despite aggressive
competition from other wireless service providers. It has managed to do so by staying ahead of the
technology curve, for example, by being the first to introduce second generation digital cellular service in
Japan, as well as being the first to commercialize successfully the wireless Internet through its i-mode
service.
b) DoCoMo's Products and Services
In Japan, i-mode has taken the country by storm, attracting more than 20 million subscribers in just two
years. i-mode is a packet-based wireless Internet service, which allows user to access all sorts of
information, perform transactions, and play games and music. European carriers have developed
information services based on SMS, but these ultimately do not provide a true interactive experience, and
have severely restricted scope for development, as compared to i-mode. NTT DoCoMo is aggressively
pushing out its third generation W-CDMA infrastructure, both to establish a superior nodal position
technologically, as well as to relieve the capacity constraints on its present second-generation system.
c)
Market -
Share, Access, & Growth
NTT DoCoMo commands about 60% of the Japanese cellular market, a market share unmatched by any
wireless operator for any particular national market in the developed world. Because of its wildly popular
i-mode service, NTT DoCoMo has managed to limit churn, and has consistently gained the lion's share of
53
new subscribers. NTT DoCoMo faces competition in the Japanese market mainly from KDDI (through
its cellular service branded au) and J-Phone (with major shareholders being Vodafone and East Japan
Railway).
d)
Technology Strategy
The types of JVs/alliances used by NTT DoCoMo can be grouped into two categories, JVs/alliances to
develop technology, and JVs/alliances to develop market access. JVs/alliancesto develop technology
involve one or more partners, which have deep technology expertise in certainsectors. These alliances
would result in the development of similartechnological capabilityfor the wireless platform. This is
often called the convergence of wireless with other industries. These alliances usually do not involve
NTT DoCoMo acquiring an equity stake in the partner company, and are usually non-exclusive. Since
NTT DoCoMo already has a successful and working wireless data platform in i-mode, its current
technology strategy is to develop the next generation of i-mode, mainly by extending the capabilities of
the current system, and incorporating features from other competing technologies. Another thrust of its
technology strategy is to make W-CDMA the dominant third generationstandard the world over. This is
to ensure that it reaps significant payoffs for the trillions of yen it has already spent on developing
intellectual property on the W-CDMA standard.
e)
Market Strategy
NTT DoCoMo's alliances to develop market access involve taking minority equity stakes of 10-20% in
the alliance partners. These equity participation deals often stipulate conditions that require the partners
to commit to adopting NTT DoCoMo's technology for their wireless data platform, as well as the WCDMA standard for their 3G systems. In exchange, NTT DoCoMo shares its technological know-how,
which is significant considering its large R&D facility, as well the first-mover advantage it has over its
54
competitors in both its wireless data platform, i-mode, and its 3G (W-CDMA) infrastructure deployment.
As a significant shareholder, with deep pockets, these partner companies are generally not appealing
targets for hostile takeovers, making the alliance, in a sense, exclusive.
Thus we can see that NTT DoCoMo is pursuing its market strategy, not so much to actually gain
subscribers in other countries, but rather to establish a technological dominance, that is, support its
technology strategy.
f)
Alliances/Joint Ventures
The alliances/JV's formed by NTT DoCoMo are plotted on a graph Figure 3.1 with the horizontal axis
showing familiarity with the technology and the vertical axis familiarity with the market. This kind of
51
matrix is also called Roberts/Berry Familiarity Matrix, used mainly for assessing the potential of success
for an alliance or JV. Roberts and Berry recommend alliances that generally fall in the center band as
these have a higher chance of success. However, from complexity theory, we know that participants in
system development are interconnected and interdependent on each other; therefore we will not be able to
assess the success of individual alliances by looking at their position on the Roberts/Berry Matrix. We
will however, study the behavior and the characteristics of the whole system by looking through the
'Learning System Framework,' and assess the development of the system towards becoming a 'Learning
System.' Therefore the Roberts/Berry matrix is used not as a diagnosis chart but only as a representation
of NTT DoCoMo's current strength.
Edward B. Roberts and Charles A. Berry; Entering New Businesses: Selecting Strategies for Success; Sloan
Management Review, Spring 1985
51
55
Figure 3.1: Alliances/JV's - NTT DoCoMo
%NTT
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Complexity and NTT DoCoMo's JV's/Alliances
As noted earlier, NTT DoCoMo is trying to establish a technological dominance with future generations
of data forms based on its widely successful first generation i-mode. In complexity terms NTT DoCoMo
has seen a new pattern emerge in the Japanese market from just voice to data services. It believes
eventually the rest of the world will evolve towards data services. Therefore, the alliances that it forms
with other wireless companies (involving a sizeable equity stake of 10%-20%) as shown in the top left
area in the Familiarity matrix are used more for forming connectivity with unfamiliar markets so that it
will be able to customize and adapt its data platforms to the local conditions. In furthering this effort, the
alliances in the middle of the matrix, with SAP, AOL, and SEGA etc. will be used as the providers of the
56
connection to the content that the users are already familiar with from their PC's. NTT DoCoMo, in its
attempt to capture an emergent pattern of behavior (believing it knows what the pattern will look like
from its experience in the domestic market, might be unknowingly blocking the emergence of new
patterns of behavior in the local markets of its alliance partners.
a)
Connectivity and Interdependence
Alliances can turn potential competitors into allies and provide complementary goods and services, i.e.,
establish connection with the local markets. In the case of NTT DoCoMo, the minority stakes it has in the
large local wireless companies will provide the necessary foothold to learn about the local markets.
Also, partners can contribute unique and differentiated resources-skills, brands, relationships, positions,
and tangible assets-that can create interdependence as they focus on delivering systems and solutions
rather than discrete products. NTT DoCoMo has a wealth of technological expertise with regards to
integrating multiple subsystems seamlessly to enable a wireless data platform; it might quickly be able to
create data services for its wireless partners based on their local needs. Here NTT DoCoMo is trying to
establish a strong dependence by wireless partners on its data platforms, but by the same token it depends
on its partners knowing the local market. Therefore, interdependence becomes increasingly important,
and more likely to be at the heart of an alliance, as companies refocus on a narrower range of core skills
and activities, and as opportunities become systems and solutions rather than discrete products. Also, the
degree of connectivity between the alliances partners is low to non-existent, therefore managing all the
alliances, which on the surface seems complex is only complicated, i.e. involves only the management of
details.
b) Self-organization and Emergence
57
NTT DoCoMo controls both the criteria and the content of the alliance formation, so there is no selforganization of these companies towards creating an emergent pattern. We have to assume that NTT
DoCoMo has 'seen' the emergent pattern and has taken up the leadershiprole in architectingthe
functions and forms for the subsystems of the new pattern. But, what remains to be seen is if the process
of the interaction between these partner companies and NTT DoCoMo, which is in the nodal position can
create an avenue for learning and internalizing new skills, in particular those that are tacit, collective, and
embedded (and thus hard to obtain and internalize by other means), i.e., double-loop learning to occur in
the partnering companies and spread into other activities and businesses beyond those covered by the
alliance. A rather simple example can be seen by looking at the result of the collaboration between NTT
DoCoMo and Sun to produce Java-enabled handsets, and Java content for i-mode. Adoption of the Javaenabled handsets have been quick, and even though NTT DoCoMo suffered a setback when it had to
recall a particular model of handset, the Java component of i-mode has been successfully integrated with
the rest of the system, and so far seems to be performing well. Here NTT DoCoMo, despite its expertise
in system integration, was tolerant to experimentation and learning in integrating the Java component into
its wireless data platform. Sun, on the other hand created Java libraries of routines and gained knowledge
about wireless data platforms that could be used to increase the functionality of the Java library, so that it
will be compatible with both the wired and wireless data platforms.
c)
Co-Evolution, Fitness Landscapes and Exploration of Space of Possibilities
Co-Evolution is a process of mutual transformation. It is inextricably linked with the principle of
connectivity and emergence and its development can neither be designed no controlled to a fine degree.
As mentioned before, NTT DoCoMo being in the nodal position tries to control the process and detail of
the alliance. In doing so it blocks emergence, and also restricts the exploration of space of possibilities, by
58
imposing 'its solution' for data platform on the rest of the partners. But, in this 'designed in' and 'solution
specified' partnering, NTT DoCoMo has left some space for the divergence and variety, since only
having a minority stake in the partnered companies means that duplicate skills and processes cannot be
taken out of the partnered companies in the name of cost cutting or efficiency improvements.
Even though complexity emphasizes evolution with rather than adaptationto a changed environment, the
alliances formed are more towards adapting the NTT DoCoMo's data platform to the other markets of the
world. Also, in a co-evolving system, each organization is a fully participating agent which both
influences and is influenced by, the social ecosystem making up of all the alliance partners. Clearly in
this arrangement, NTT DoCoMo is more on the influencing role rather than being influenced. To be
influenced would depend on its openness to 'seeing' and accepting innovations wherever they occur in
the social eco-system. The acceptance of change or innovations implies a 'step-change' as opposed to a
gradual and incremental change when exploring the space of possibilities. Within the time scale of the
available data there is little evidence that there are any 'step-changes' that occurred within the NTT
DoCoMo eco-system. As mentioned, there is evidence of mutual learning between Sun and NTT
DoCoMo, but there is not a complete change in their internal models or schemas. A simple explanation
might be that NTT DoCoMo has formed its alliances (or created its 'fitness landscape') based on a preconceived framework that limits its learning to that of a single-loop, i.e., it is trying to adapt its
technologies to that of the local markets. In some sense it was influenced by the competitive landscape in
the wireless arena and made the 'step-change' to the global market from the local market where it deemed
itself very 'fit', i.e. where it had an optimal solution to the Japanese market. It is trying repeat the same in
a global market by taking minority stakes in the wireless companies worldwide and trying to provide
'local optimal solutions' to these markets by forming alliances with local content and technology
companies.
59
d) Feedback, Positive Returns and Sensitive Dependence on Initial Conditions
The two categories of alliances in new markets and the new technologies have the potential to form a
positive feedback loop whereby the technology alliance can produce compelling products and services
that would provide the basis for marketing through the local wireless companies to the local markets. If
successful, these products and services in the local markets can ensure the technologies of its wireless
data platforms can be adopted successfully. This feedback mechanism as shown in Figure 3.2 might
provide the quantitativeeffect to give the required qualitative boost to its data platform to become a
dominant player in similar technologies.
60
Figure 3.2: Feedback Mechanism between NTT DoCoMo's Market and
Technology Alliances
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Technology Factors
The reliance on its data platform to provide the required foothold in the global arena shows its 'sensitive
dependence on the initial condition' which led to the success of its data platform in the Japanese market.
61
Vodafone
a) Background
The Newbury, UK-based Company, formerly known as VodafoneAirTouch, serves more than 95 million
customers through its subsidiaries and affiliates in Europe, the Americas, the Asia/Pacific region, the
Middle East, and Africa. In the UK, where Vodafone is the number one wireless carrier, the company has
built on the success of its Vodafone Retail outlets by launching a virtual Web store and by distributing
prepaid service. Features available through the company's GSM (global system for mobile
communications) network include popular messaging services and access to the Internet.
b) Vodafone's Products and Services
In Europe, SMS has become a daily part of many wireless users, and the trend is towards more data
services for users. Vodafone predicts that one third of its revenue by 2005 will come from data services.
The company expects to capitalize on its large subscriber base, bringing to its subscribers data services
that are regional and customer specific. They intend to make this a high value added service, such that
there will be sufficient stickiness, creating a barrierto switching. They also plan to generate new revenue
streams by adding new applications to the existing portfolio of services.
c)
Market -
Share, Access, & Growth
The company has advanced towards its goal of creating a pan-European wireless network with the
acquisition of Germany's Mannesmann, which controlled the number one network in Germany (D2) and
the number two network in Italy (Omnitel). On the other side of the Atlantic, Vodafone has combined its
US wireless operations (acquired when the company bought AirTouch in 1999) with those of Bell
Atlantic and GTE to form Verizon Wireless, the largest US wireless provider. Verizon Wireless is 45%-
62
owned by Vodafone and 55%-owned by Verizon Communications (formed when Bell Atlantic bought
GTE). Vodafone is moving to expand its wireless data offerings, and the company has partnered with
France's Vivendi Universal to develop the Vizzavi Internet portal, which is designed to be accessible from
mobile phones, computers, and TV sets.
d) Technology Strategy
'The introduction of 3G technologies is not solely about faster data rates. The additional spectrum afforded
to 3G will enable Vodafone to handle the continuing growth in customers and dramatic increases in usage
per subscriber in both voice and data. This additional spectrum will be crucial if the take-up of data
services worldwide were to match that in Japan. Vodafone's experience in Japan (through J-Phone) is that
the next generation of services will only become successful if the new generations of mobile devices are
attractive to the user. Vodafone is working very closely with handset manufacturers including Nokia,
Siemens, Ericsson, Motorola and new partners such as Panasonic, Mitsubishi and Casio who will add
their experience of the Japanese device market to ensure that the next generation of devices appeal to the
consumer. In order to enable the Vizzavi and Terenci services across the global platform the company has
partnered with many Internet infrastructure providers to power its portals. One such partnership is with
Oracle to provide business services to its clients across the world.
e)
Market Growth Strategy
For the last three years, Vodafone has pursued a three pronged growth strategy to maximize its
competitive position:
Accelerated customer growth
The Group has achieved a compound growth rate in its customer base of over 40% per annum over the
last four years. Vodafone's worldwide customer base has increased from 4 million 5 years ago to almost
63
95 million by September 2001. About 25% of mobile phone users worldwide are connected to networks
in which Vodafone has a shareholding.
Geographicexpansion
Vodafone has increased its worldwide presence to nearly 30 countries from just 10 countries five years
ago.
Provision of new services
Over the last 48 months, the first data service - short messaging (SMS) - has made a breakthrough into
wide spread adoption and is now having a positive impact on average revenue per user (ARPU).
Vodafone's strategy for growth remains unchanged. As penetration rates increase around the world, new
products and services will become increasingly important.
f)
Maximizing the benefits of a global footprint
Vodafone's vision is that fixed communications will be largely replaced by mobile for voice, narrowband data and many other applications. The aim is to leverage the benefits of its global footprint realizing
the potential of Vodafone as a single worldwide Group, rather than a collection of separate operating
entities. In order to achieve this goal, Vodafone has partnered with many content and infrastructure
providers as show in the familiarity matrix (see Figure 3.3), which will allow the company to focus on a
number of key issues:
A global brand -- Vodafone's objective is to position Vodafone as one of the most valuable global brands
by 2004.
64
Standardizedcustomer relation management (CRM) -- Vodafone is developing a group-wide standard in
CRM to ensure a deep knowledge of its customer base and their preferences in order to facilitate the
efficient sale of its new range of services and products, unlocking the full potential of its customer base.
A truly seamless global offering -- Vodafone is building platforms, which harmonize existing and future
network systems, which will enhance its ability to introduce products with a focus on both speed to
market and the ability to deliver them seamlessly across the Group's networks. Vizzavi Internet portal will
act a key enabler to provide the seamless services across the many networks and continents.
For the business segments its strategy is to provide a corporate 'wireless ASP farm,' and also provide
end-to-end business solutions through Terenci, a joint venture with Cap Gemini Ernst & Young.
g)
Alliances/Joint Ventures
Figure3.3 shows Vodafone's alliances and joint ventures as plotted on the Roberts/Berry Familiarity
Matrix. Similar to the matrix for NTT DoCoMo, we find the alliances in the middle band of the matrix
indicate that Vodafone is partnering with content and technology providers to develop its wireless data
platform technology. The top-left of the matrix shows the alliances with the content providers, the
bottom-right are the alliances with the infrastructure companies and the middle of the matrix with the
Internet Portal companies apart from all the wireless companies in which it has taken a majority share. As
we have done with NTT DoCoMo, will study the behavior and the characteristics of the whole system by
using the 'Learning System Framework' to assess the development of the system towards becoming a
'Learning System.'
65
Figure 3.3: Alliances/JV's - Vodafone
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Complexity and Vodafone's JV's/Alliances
Vodafone gained absolute control of the wireless operators through participation in joint ventures,
purchasing equity stakes and performing outright acquisitions. On the other hand, its alliances with
infrastructure and the content providers to develop wireless data platforms are joint development efforts.
The scope and depth of these alliances and acquisitions with companies in many unfamiliar technology
and market areas certainly has the potential 'on the surface' to move the company into afar-fromequilibrium condition, where the system is in a transition between stability and instability. Seen from a
66
chaos theory perspective, Vodafone is moving the system towards the 'edge of chaos.' In this transition
phase, the emphasis is on the new patterns of order that emerge among, and co-exist with, disorder. As a
dissipative structure, the emphasis is placed on the amount of information or energy required or dissipated
in order for Vodafone to maintain the alliances and joint developmental efforts to bring about newer
structures. In both, complexity is seen in terms of new levels of order, which emerge from disorder.
a)
Connectivity and Interdependence
One of the fundamental principles of complexity is connectivity; Vodafone certainly has established a
number of connections worldwide with local wireless companies. Since it has absolute control of the
acquired wireless companies, the degree of connectivity is high, i.e. it requires a greater attention and flow
of information to bring these companies under the Vodafone umbrella. The consequence of this high
degree of connectivity is that there will be grater interdependence of these companies on one another's
decisions and actions and ultimately on each other's fortune. On the developmental side, Vodafone
learned through the success of its popular messaging service that connectivity with the customers
increases as more of their communications and data needs move form wired to wireless, prompting the
company to form more than 20 developmental alliance for developing data platforms. Even though
Vodafone was the catalyst in creating the alliances, it is not at the nodal position in terms of the
development effort. This reflects its inexperience in the wireless data platform technology. Also, the
degree of connectivity between the alliances partners seems to be high, therefore on the surface managing
all the alliances is ridden with complexities.
b) Emergence and Self-organization
Just as in the case of NTT DoCoMo, the alliances formed were based on a preconceived notion that the
wireless data platform will be the new order that is emerging In other words, Vodafone took a leadership
67
role by recognizing and acting towards realizing the new pattern. Vodafone tried to mitigate its lack of
experience in the data platform technology by forming its developmental alliances through choosing
large, proven, best of breed technology companies such as IBM and Sun, as its major partners, and by not
relying on just one partner for its developmental efforts-a mistake that several wireless carriers had
made in relying on Phone.com's WAP technology for their wireless Web services. By selecting partners
with complementary and overlapping capabilities (as in the cases of IBM and Sun), Vodafone is in effect
supporting divergence and variety, which are the essential elements in enabling the emergence of new
patterns, or qualities, or behaviors, or characteristics that might have an impact on the new technologies,
which in turn will impact its connectivity with the customer. However, having multiple alliance partners
working together on the same project can be a double-edged sword, and it will require skillful
management, facilitation, and communication on Vodafone's part to ensure successful collaborations.
c)
Co-Evolution, Fitness Landscapes and Exploration of Space of Possibilities
Given Vodafone's history as the first carrier to bring SMS and prepaid cards to the customers, it was
clearly a pioneer in recognizing an emergent pattern; in doing so it changed the expectations of the
customer towards the wireless service reshaping the competitive landscape of the wireless service. As the
reliance of the customers on the service increased, so did their expectations for additional services. In this
sense, Vodafone influenced and was influenced by its customers and is continuing to try and evolve with
them. Vodafone recognizes that as it grows more global and its customers become more diverse, it needs
more products and services in order to continuously find the peaks among its competitive landscape for
acquiring and retaining customers. This lack of fitness in data services was even acknowledged by
Vodafone, albeit tacitly, when it had to trot out ten alliance partners at one time to announce its wireless
data platform strategy in January 2000, in order to convince Mannesmann shareholders that Vodafone had
a credible data strategy, and thus would be a worthy acquirer for Mannesmann.
68
As a major part of its data strategy, Vizzavi Internet portal and Terenci will act as key enablers to provide
integrated services across the many networks and continents for both the customer and business segments.
This development effort is along the same lines as NTT DoCoMo's data platform, but trying to develop
the platform that fits its entire diverse customer base will create many conflicting constraints. So trying to
optimize with many conflicting constraints will bring about a 'complexity catastrophe.' This implies that
the performance of the platform will recede towards the mean fitness, or it might drive the development
into a total disarray or disorder. Vodafone seemed to have recognized this fact and is trying to develop the
platforms with enough interfaces to them, such that they could be customized to the local markets, i.e., it
will be able to recognize and select many alternative locally optimal solutions. Experimenting with these
local optimal solutions locally will increase its tolerance towards failure and can serve as valuable
lessons. For example, Vodafone chose to introduce version one of its wireless data platform only in
Australia first, before spreading the technology to other countries. It has this luxury of having
experimental test-beds (because of its absolute control of many wireless operators worldwide, gained
through acquisitions.) without adversely affecting a large proportion of its subscribers if the experiments
fail. In other words it uses the connectivity and interdependence of its subsidiaries to increase its fitness
landscape and therefore can explore the space of possibilities of all its partners and potentially be able to
find the highest local peaks that they can import to other areas and thus increase the overall average
fitness.
d) Feedback, Positive Returns and Sensitive Dependence on Initial Conditions
The cycle of exploring the space of possibility, finding the highest local optima, doing double-loop
learning that will change the overall system is probably what Vodafone is trying to do by using local
markets as experimental test beds. Having to do this means that it must be tolerant to failures and being
on the transition from order to disorder. Vodafone with its large size and enormous cash flow gives it a
69
very strong staying power even if it is at the edge of chaos, unless it terribly mismanages the importation
of learning from one local site to other local sites or globally by ignoring the local needs, in which case
the customers will be dissatisfied and reject the new services. Or, if it does not import the learning from
other sites to global level, it might fall into the danger of freezing in the local order it created, and not
satisfying the customer base who have evolved towards accepting any new service that the data platforms
can provide. A hypothetical example of this kind of mismanagement is introducing the 3G wireless
services to U.S. when it is not yet ready and not introducing the 3G services to Japan where the market is
primed towards accepting these services. This feedback loop of experimentation and learning between
the local and the global markets and the customization and platform development is illustrated in the
Figure 3.4. The local market drives the content and the features of their wireless services, these services in
turn drive the needs for the requirements of the data platforms, which drives the effort of its infrastructure
partners towards the development of capable data platforms and the data handsets that are compatible
with the changed platform, these infrastructure capabilities in turn will drive the efficacy of delivery of
the services to the local market. Also, the sensitive dependence on its initial condition of lack of depth in
the technology development is clearly illustrated in the many alliances it formed with the technology
companies. As mentioned before, the redundancy in the number of partners can have a positive effect on
development of services by being able to increase its chance of recognizing new patterns for services and
at the same time decreasing its dependence of single partners for each module of its technology, which
can be risky if the partner fails to deliver or worse delivers a mediocre product that can drive away
customers.
70
Figure 3.4: Working of feedback loops in Vodafone's Alliances/JV's
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Conclusion: Comparative Analysis
of the Two Companies' JV's/Alliance
Strategies
As we have seen from each of the companies perspective on their JV's/Alliances both of them
recognize that in their businesses, market strategy and
technology strategy are closely intertwined, and the two
categories of strategies form a positive feedback loop
Technology
Strategy
Market Strategy
whereby a well-thought out technology strategy can
produce compelling products and services that would provide the basis for market strategy, and a
successful market strategy can ensure the dominance of a company's technology over similar, and even
superior, competing technologies.
We have seen in the previous section that both NTT DoCoMo and Vodafone have formed alliances in
order to achieve both their technology and market strategies. NTT DoCoMo's and Vodafone's market
and technology goals are largely similar, concurring almost entirely in general terms on where they
foresee the market and technology evolution heading. There is no doubt amongst the industry players that
data services will be the main driver of revenue growth in the future, and that growing big and going
global are the only ways to survive in an increasingly interconnected and globalized industry.
Yet, similar though they are in their broad business objectives, and even in their efforts to establish a
dominant design for a wireless data platform, the two firms appear to have rather distinct business
development strategies, which can be explained by their different historical circumstances i.e., their
sensitive dependence on initial conditions'. Vodafone, having established a global market presence, is
now putting much emphasis on developing technology for wireless data services, while NTT DoCoMo,
though strong in technology, is trying hard to make up for its relative weakness in global operations.
72
Given that they are heading towards the same goal, albeit from different directions and different starting
points, what remains to be seen is how they recognize and deal will any emerging patterns that might
occur along the journey. Will they be able to change the directions when the goals seemed different than
what they started with? In other words would they be genuinely learning systems, where they will be able
to change their products, process and people with the changing environment? In short will they be
reliable- delivering what is expected of them, robust - Weather minor fluctuations in the environment,
and responsive - recognizing and dealing with new and emerging patterns. The analysis of the
JV's/Alliances we have performed using the Learning System Framework by looking at the
manifestations of the characteristics of the framework has given us some clues on their preparedness
towards becoming a R-cube system.
Figure 3.5 shows both the companies positions on a single figure, the outer bold curve shows that
Vodafone is in the transition region, i.e., bounded stability compared to NTT DoCoMo in more of the
stable region, and therefore less prepared to change with changing environment. Table 3.1 give the
differences between these two companies preparedness to facing dynamic environment is summarized
using a qualitative description of the strengths of each of the characteristics of the 'Learning System
Framework'. Figure 3.6 describes the architecture of these two companies along with key differences in
the bulleted list for dealing with dynamic environment. On the left is Vodafone, with a two-way
interaction of its technology partners, shown with a single loop arrow, which means that there is the
potential for solutions not prescribed before to emerge.
Also, Table 3.2 is added at the end to show the list the alliances and the reason for forming them.
73
Figure 3.5: Complexity Map for NTT DoCoMo and Vodafone
Far-from-equilibrium,
Dissipative Structures
I
Vodafone
Complexity map
NTT DoCoMo
Complexity map
Complexity in JV's/Alliance
Disorder
r-
Feedback, Positive Re ns,
Sensitive Dependencn
Initial Conditions
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74
Table 3.1: Complexity Characteristics in NTT DoCoMo and Vodafone
Characteristics of
Organizational
Complexity
NTT DoCoMo
Vodafone
Connectivity and
Interdependence
The arms-length relationship with its
technology and market partners might be a
limiting factor in deploying its platform
services. The degree of connectivity is low.
The out-right acquisitions and multiple
infrastructure and technology partners give it
the required degree of connectivity to
influence and be influenced by the partners.
Self-organization
and Emergence
Partners are organized based on the same
customer pattern as in the local market.
JV's were formed with the goal of providing
local customer and business data services. The
JV's (Vizzavi & Teranci) are given freedom
to form their partnerships to deliver to the
goals.
Co-Evolution,
Fitness Landscapes
and Exploration of
Space of
Possibilities
Planting the optimal solution for its local
market to the other markets will obstruct it
from 'seeing' the 'fitness landscapes' of the
The diversity in its market and technology
partners will give it many opportunities to see
the space of possibilities
Feedback, Positive
Returns, Sensitive
Dependence on
Initial Conditions
Dependence on the I-mode platform will
push the company towards partnerships that
can provide technology-based solutions.
other regions.
The lack of technological depth and a lot of
market breadth might push the company to
find growth (not profitability) with market
driven alliances.
75
Figure 3.6: System Architectures of NTT DoCoMo and Vodafone
Solutions can emergefrom
the interactionamong the
Technology Partners
Vodafone
NTT DoCoMo
Technology Partners
Market Partners
Market Partners
Technology Partners
Vodafone
NTT DoCoMo
*
Absolute control of market partners
Absolute specifications for technology
development given to its tech partners.
0
Local markets are test-beds
Imposes its solution to market partners
0
Solutions can emerge.
Solutions are specified.
76
Table 3.2: Categorization of Alliances Based on Purpose
NTT DoCoMo
Vodafone
Marketing Alliances
KPN Mobile, Hutchison
Whampoa, KG Telecom, AT&T
Wireless, TIM
J-Phone, Verizon Wireless,
Swisscom, etc.
Content and Platform
Technology
Matsushita, Sony Computer
Entertainment, AOL, Sega, Coca-
Infospace.com, Charles Schwab,
Sabre Travelocity, New York
Times, pogo, Epiphany, Vizzavi,
Terenci, Google, Clickmarks,
Cambridge Technology Partners,
Screaming Media, Oracle,
MedicinePlanet, Associated Press
Cola, SAP
Infrastructure
Sun Microsystems, Microsoft,
AOL, Symbian, Palm
Sun Microsystems, IBM, Nokia,
Ericsson, Palm, Cisco,
OpenWave, Psion
77
Chapter 4
CLEAN SHEET DESIGN: CASE STUDY OF XEROX LAKES DEVELOPMENT PROJECT
Purpose of the Case
-
"I want to make sure that the new program that I am working on will follow the 'Zero to Landfill'
philosophy and will get the product out with minimum throwaway parts" - Systems Engineer
"The processes that we developed for the software requirements gathering, design and development on
the LAKES project was the outcome of extensive effort, even though it was a search in the dark in the
beginning, they proved to be very useful for us on the program, I am trying to put in place these processes
on the new program so that we will have field tested and hardened techniques for our software
development processes" - Software Engineer
Form the above two comments (quoted from the interviews) by the people who had been on the LAKES
program from almost the beginning we can see a process of double-loop learning, where they changed
their view of the world, or internal schemas, or the mental models - that is they fundamentally changed
their thinking and behavior and truly believe that the lessons learned are useful to the organization and
even the external environment. People working on the LAKES project were truly inspired, and the
inspiration was internalized. They talk about their LAKES experiences as if it is the highlight of their
work experience and how they wish they could have a similar experience again. The reasons for studying
this case are intended to answer the following questions:
1)
How were the people inspired, and what caused them to stay inspired?
2) How could a development group involve more than 1500 people from different educational,
ethnic and cultural backgrounds and still succeed?
3)
What were the characteristics of the product design that helped the people stay focused and be
innovative at the same time?
78
4)
What were the processes through which people interacted with each other and with the product,
that helped them to resolve constraints?
5)
What were the characteristics of leadership that existed or emerged in the project?
6)
How were the complexities involved in such a large undertaking managed?
7)
How could the product and the system of which it is a part of be reliable, robust and responsive
(the R-cube system)?
Figure 4.1 and Figure 4.2 are created to illustrated the questions we are trying to answer, where the
people involved on the project went form a traditional view of organizations as a linear system
(Figure 4.1), to a view where they felt an interconnected part of the system (Figure 4.2), where their
decisions and actions in producing products or services have effects on the environment and on the
people that are in contact directly or indirectly with the production, use and disposal of the-products,
when these effects are removed in time and space.
79
Figure 4.1: Resource Based View of the System
Environment
The System Structure is viewed as static and
interactions linear, people and environment are used
as resources to produce economic profits by selling
products or services.
FnmieIS
Pr
People
uct
W,
Figure 4.2: Interconnected view of the system
-Zero to landfill
- 90% Remanufacturable, 97% Recyclable
- Net +ve effect on the environment
Environment
The System Structure is viewed as dynamic and th
interactions as non-linear, people and environment
are interconnected and economic profits are
measured in the long-term generated by selling
products or services that satisfies customer's
present and future needs.
Superior and sustainable financial performance Measured in longrun profitability
Economics
Product
-Almost Monopolistic Power
- Service Provider
- Fallen in Love
People
-"Spirit of Success"
- Bonded Customers
80
In Figure 4.2 we say that the financial performance is measured in the long term. This view towards the
system is a starting point to recognizing all the inclusiveness of the components in a system and realizing
that there are complex interactions among these components. The LAKES undertaking is major one,
measured on any dimensions such as the number of people working, the number of new technologies
placed in the product, the number of market segments that the product would address, or very importantly
the number of self-imposed environmental constraints placed on the product. There clearly were many
complex issues that emerged out of the development effort, and the successful outcome of the project
suggests looking at how they were able to manage the complexities during the development effort and yet
make a product that is simple and flexible for the customers presently and into the future.
First in this chapter we will briefly look at the copier Industry, the place of Xerox Corporation in the
competitive environment, and the trends or patterns that are emerging. I then describe how LAKES
products envisioned the trends and how it addressed those and any future trends by analyzing its system
architecture (Product, Process, People and Organization) using the ' Learning System Framework' that
was developed in chapter 2.
Industry and Company Review
Xerox produces document-processing machines and provides related services. The company
manufactures products for black-and-white and color copying, digital publishing, and electronic printing.
Xerox's products include photocopiers, duplicators, digital-publishing equipment, facsimile products,
computer software, and ink-jet, laser, and electrostatic printers. The Company's activities encompass
developing, manufacturing, marketing, servicing and financing a complete range of document processing
81
products, solutions and services designed to make organizations around the world more productive. The
company's Xerox Credit subsidiary arranges financing for equipment purchases. Xerox markets its
products in the United States and abroad. Foreign revenue accounts for approximately 46% of the
company's revenue.
Xerox has a strong brand, quality products, and a large sales force. These have earned the firm leading
market share in several important product categories, like color printers for the office, digital copiers, and
digital printing and publishing systems. Office Products Analyst report published by Industry Analysts,
Inc., February 2002, shows Xerox office printing and multifunction customers are the most loyal in the
industry. For the third consecutive year, 100 percent of Xerox users said they would re-purchase and
recommend Xerox office technology. "This survey, representing an install base of nearly 1,400 printers
and multifunction systems, shows Xerox printers and multifunction systems continue to outperform the
competition and are rated best overall in the industry," said Lou Slawetsky, president, Industry Analysts,
Inc. 52
To extend its office leadership, Xerox is playing to its strengths and focusing on fast-growing segments of
a worldwide printing, copying and multifunction market valued at about $53 billion. "Sweet spots like
multifunction and color printing are growing at 15 percent a year," Hatch5 3 points out. "Xerox is better
positioned than any other company to capture our share of that growth. We will continue to lead the way
to better work in offices as we reduce costs and expand our reach through expanded channels of
distribution."
5
The Office Products Analyst, Published by Industry Analysts Inc., Feb. 2002, [Page 5]
82
Xerox continues to offer significant productivity and connectivity advantages with its Document Centre
line of digital multifunction systems. "The rated speed of multifunction systems is not the primary
measure of network performance. Xerox technology is specifically designed to provide superior
connectivity and total processing time," said Hatch.54
Xerox will also have new products to sell this year. The firm is set to release five new office and
production platforms in 2002, including the much-hyped DocuColor iGen3, the firm's third-generation
digital color production printer. Xerox hopes this machine will drive growth on a trajectory similar to that
of its DocuTech black-and-white digital production printer, which has produced $15 billion in cumulative
revenue for Xerox over its 11 years in production.
There is however reason for caution. Xerox's business is highly competitive. In slow-growth areas like
black-and-white office copiers, Canon and Ricoh compete fiercely. Higher-growth segments like digital
production printing face competition from Heidelberg and Oce, among others. Recognizing that HewlettPackard HWP and Lexmark LXK were too far ahead, Xerox discontinued its ill-fated effort to sell
printers to consumers and small-office users. With the rise of electronic communication, the demand for
office copiers will probably shift to office printers. Xerox is much weaker in printers than in copiers.
Therefore, recognizing this trend, Hatch in his recent speech outlined Xerox's office strategy and
discussed plans to refresh the company's line of Document Centre and WorkCentre Pro multifunction
systems that print, copy, fax and scan.
Gil Hatch, president, Xerox Office Systems Group, quoted from his speech
delivered on March 14, 2002 at an
imaging conference sponsored by Salomon Smith Barney.
53
54 Gil Hatch, president, Xerox Office Systems Group, quoted from his speech delivered on March 14, 2002 at an
imaging conference sponsored by Salomon Smith Barney.
83
LAKES Product Development"
The statement by Hatch clearly signals that the trend is visible and addressed in some of their products,
and that Xerox is going to put more emphasis on marketing those products and show that they are capable
of moving with the trend and that they will not sell what had been their strengths. The development of the
product line Document Centre was the result of the synthesis of envisioning this trend a long time ago
(1991). Such a major undertaking when the trends were hardly visible on the radar screen had to
incorporate many emerging technologies into its products so as to satisfy the future customer needs that
are hard to see and had to be capable of handling any unforeseen trends that might occur after its
inception into the market. Such kind of projects carry with them major risk for the corporation in terms of
future market share and profitability. John Elter the Chief Engineer and the Chief architect of the LAKES
project in his address to the 1999 MIT's System Design and Management Class summed up the risk
involved this way:
"Of greatest risk are those form-first, technology-driven systems that create
major qualitative changes in system level behavior, changes in kind rather than in
degree, systems of this type almost invariably require across the board starts in
design, development, manufacturing and use. By far, the greatest single risk in
these systems is of timing. Painful experiences shown that without widespread
changes in the system, technology-driven initiatives seldom meet expectations
and too often cost more and are of less value. And it is not much of an
exaggeration to say that success was well architected."
'Well architected systems' - what makes up a system that is well architected - the placement of the
structural elements that deliver the required functions now and into the future for known, unknown and as
well as unprecedented needs. The top-level structural elements of such systems are the products, people
and the processes through which the people come in contact with the products. These elements are in turn
well-architected systems, all the way down to the individual component, to the individual personal
This Section is not intended to provide the complete Product Development Process of LAKES. Only some its
aspects are studied here. Interested readers are referred to the book 'Product Design and Development' by Karl T.
Ulrich and Steven D. Eppinger, 2 "d Ed, 2000, Irwin McGraw-Hill
5
84
motivation, and to the individual interaction process between components, between people, and between
people and the physical components. Due to this interaction of the individual elements, properties emerge
which are ingredients for the next level of interactions. This process occurs happens all the way up and
across the whole system, which shapes the behavior of the whole system. We have seen in chapter 3, how
organizations try to manage their behavior at levels beyond their organizations by forming alliances and
JV's. NTT DoCoMo and Vodafone are trying to add elements to their systems such that the emergent
behavior will have the properties of a well-behaved system. The LAKES project was able to create a
system from the ground-up - develop new products, install new processes and hire new people, create
new work practices etc., almost all the elements of the system were new. As we have seen in chapter 2,
having new and good elements will not ensure a well-behaved system; due to the positive returns and
dependence on initial conditions the elements and the systems behavior at any level are unpredictable.
Even in biological systems, where we think we know the behavior of the individual elements, we cannot
predict the behavior of the eco-system that constitutes these elements over a longer time and space scale.
Similarly, even in physical systems that have many elements that interface and interact with each other
and where we know very well the behavior of the individual elements, managing the emergence of
behavior of the whole physical system is difficult and unpredictable, this is in spite the use of all the
system engineering and simulation tools that we use to try and analyze or predict the behavior of the
systems upfront. Despite this lack of predictability LAKES included a target for product reliability of
99.99% i.e., for every 10,000 copies the machine makes it can only fail of jam once.
Complex adaptive systems that have many interfacing, interacting and interdependent elements are able to
adapt to and evolve with the environment. The LAKES products could operate in many environments
starting with the home all the way up to a factory floor, i.e., they are robust; also they can be customized
to the requirement of the customer and they are able to adapt to the future needs of the customer through
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easy addition of new features. LAKES has a program where they take back the product at the end of the
life cycle. This was intended to serve their goal of Zero-to-landfill, but at the same time, it addresses the
limitations of LAKES products in meeting the requirements of a completely changed environment. That
is, when they have reached their adaptability limit, they are taken back and could be replaced by some
other system that works for the changed environment, thereby ensuring retention of customers and the
corporation as a whole is able to evolve with the customers environment, even when the LAKES will not
be able to. Therefore what makes the physical systems reliable, robust and relatively responsive is not just
the placement of elements, but the managing the behavior of the system at every level as a complex
adaptive system. Analyzing the physical system as a CAS using the ' Learning system Framework' will
give us insights into the properties of the physical system that are important towards realizing an R-cube
system.
Physical systems do not just interact and interface with other physical systems. There are humans
involved at every point, including design, development, manufacturing and use. These are termed as
humans-in-the-loop systems; in fact almost all human-made physical systems are such systems. The
human element in these systems will constitute more unpredictability in design all the way up to use and
disposal. Perhaps humans are the only organism that are capable of consciously controlling or changing
their behavior, and each human is distinct in form, function, capabilities and behavior, and this behavior is
also unique when interacting with other humans or a group or in a larger crowd, the behavior can at best
be described as unpredictable. This emergent behavior of an organization, which is loosely termed as
culture is bounded by norms and values. The culture can be a double-edge sword, where it can act
towards bounding the unpredictability of human behavior and at the same time can limit the rate of
experimentation and learning. Double-loop learning can become a catalyst for innovation, both in the
culture and artifacts that are the by-products of the culture. It is challenging to even imagine a culture
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where there is predictability co-existing with innovativeness. Complexity theorists call this state the edge
of chaos, coexistence of order and disorder or bounded instability. The LAKES project with more than
1500 people spanning seven years, developing and maturing many new technologies, was able to deliver
products of the highest quality in the industry and obtain more than 500 patents during the development.
Any outsider looking at this development program, which has placed so many requirements on itself,
might see the project heading towards a complexity catastrophe, since satisfying all these requirements
seems impossible. But, LAKES seemed to have recognized the complexities involved and managed the
emergence of the outcome(s) successfully. Looking through the ' Learning System Framework' can give
us insights into the organization and emergence of the culture responsible for the success of the LAKES
project. The 'people' part of the project cannot be divided and studied separately from the physical
systems, which are the necessary ingredients through which the humans (at least the technology
development) interact. By separating product,.process and the people and studying them as independent
elements of the system, we run the risk of falling back to the Newtonian Mechanistic way of reducing to
individual elements and trying to understanding the whole in terms of the parts. In the following sections
even if the elements of the system are highlighted separately, their influence on the other elements and
ultimately towards the overall behavior of the system will be noted.
We cannot imagine the physical elements of the LAKES products self-organizing themselves into new
patterns and exhibiting emergent behaviors. This kind of phenomenon is being studied in artificial life and
artificial intelligence fields, where the software elements interact with each other and create new patterns.
The basis of interaction of the software elements is rule-based, i.e., the rules created by humans that
define the behavior of the individual elements. 56 The creation of LAKES products involved humans as
Anybody who played with the software 'Game of Life', which is freely available on the Internet knows that the
patterns that are formed are always new, but the behavior of individual elements remain the same.
56
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well as the physical elements, the rules for interaction of the physical elements and their architecture are
far easier to define in comparison to that of the interaction of human elements, where each person exhibits
a unique behavior. There are many aspects that affect human behavior and interaction, they cannot all be
known and detailed, but the ones that are of interest and most useful in managing the emergence of
complex products like that of LAKES are as follows:
1)
Shared Vision
2) Organization of the physical elements - product architecture
3)
Systemic thinking and action... Knowing that all things are connected (design, Suppliers,
Manufacturing, Sales, Service, End user and the Environment)
4) Leading and managing with the premise that people act with good intentions and the belief in
their unlimited potential for innovation.
All of the above aspects influence the physical and human elements of product development and are most
critical for the properties of Complex Adaptive Systems. Figure 4.3 is created to show that the above
aspects are directly related to the characteristics of a CAS (CAS characteristic, Method or tool boxes) and
analyzing the influence of each of the aspect on the elements of the PD will show us the nature of their
manifestation in the whole system.
Figure 4.3: Impact Analysis of the important functions on the behavior of LAKES Product
Function
Method, Tool
Impact measured by
the emergence of
properties of a CES
Space of Possibility
Vision
Xerox Org
Self-Organization
Product Arch
LAKES ProductsL
Connectivity
Design for Env
LAKES Process
Managing from the
Heart
LAKES People
Feedback and
Positive Returns
Architecture and design
attributes of this emergent
behavior of the system
R-Cube
System
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1) Vision
One of the most important concepts not discussed so far is the importance of a well-articulated vision that
is shared among hundreds of people working on a complex undertaking, such as the LAKES project. The
vision of the LAKES was guided by the idea that the product was not a box, but that, which provides to
the office environment services that influence the way work is done and knowledge is shared. In short, the
vision of LAKES is a fully integrated and networked document production and management system for
the office. In complexity theory, the vision can be termed as exploring the space of possibility and seeing
the emergence of a new pattern or seeing the peak on a fitness landscape. LAKES was a big idea sold
internally as the DocuCentre, which was communicated through an early internal video, in which the
question was posed "So what is this concept known as DocuCentre, anyway? The answer in the video:
"DocuCentre is anything you want it to be It can scan your originals, store them electronically, and then
redistribute them for printing at the local or remote sites whenever and wherever you want It can come as
"
a copier, a printer, a fax machine, or all three. It can be configured to be whenever you want it to be."
This internal video was made and distributed in 1991, when digital technology and the Internet were only
viewed with academic interest. This was a difficult vision to communicate and to get buy-in and financial
support from the corporation where the current culture measured success on problem solving and shortterm returns. The success of LAKES is measured by the long-term impact that LAKES has had on the
growth and profitability of the Xerox Corporation. John Elter, the chief architect of the project, believed
in this vision and that drove him to communicate and get the buy-in of many people at all the levels of the
organization. Where does the courage come from to not only believe in something that seems an
57
Internal marketing video made as early as 1991 to spread the LAKES Vision to the. employees.
89
Senge58
impossible task but to communicate and gather support for this seemingly impossible task? Peter
calls this the principle of creative tension. "Leadership in a learning organizations start with the principle
and
of creative tension. Creative tension comes from seeing clearly where we want to be, our "vision"
a natural
telling the truth about where we are, our "current reality." The gap between the two generates
tension, as shown in the figure below" [Figure 4.4].
Figure 4.4: The Principle of Creative Tension [from Senge 1990]
current
"But creative tension cannot be generated from vision alone; it demands an accurate picture of
to "dramatize
reality as well. Just as Martin Luther King Jr. had a dream, so too did he continually strive
without
the shameful conditions" of racism and prejudice so that they could no longer be ignored. Vision
of
the understanding of current reality will more likely foster cynicism than creativity. The principle
creative tension teaches that an accurate picture of current reality is just as important as a compelling
picture of a desired future."
they
The current reality at Xerox in 1991 was well known to most of its employees and management,
and adding
knew that they had declining market share, and that competitors were copying their products
team, the
bells and whistles and gaining an edge on them. Through the leadership of Elter and his initial
of the
vision to be at the forefront of competition was propagated and had a great influence.at all levels
58
The Leader's New Work: Building Learning Organizations; Peter M. Senge, Sloan Management Review, Fall
1990, [Page 9]
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organization, both at the technical and human level and the for the whole approach towards product
development.
Influence of vision on the Organization
" I guess it started off with a great deal of commitments and a great deal of uncertainty, both at the same
time. There was a vision based on very little actual work. There was a lot of faith that we would be able to
pull off what we wrote down. Certainly none of the technologies that we were postulating had ever been
demonstrated before in a product. So, at the very beginning, there was a great deal of courage required to
send the corporation off in a very strategic direction with very little actual hard data that said it could be
done. It was a strategic decision to commit ourselves to digital since we would not be able to use that
engine for anything other than digital. I think in 1991 or '92. Even five years ago the digital revolution
was not obvious as it is today. LAKES was ahead of the curve. We called it optimized for digital. So, it
took a lot of courage to send a corporation down this path and a lot of faith that the people who would be
working on it would pull it off. And in those days, there weren't many people working on it. We were
given us a handful of people to start things. We grew from there."
- Senior Manager, LAKES PD
For Xerox Corporation LAKES was going to replace the product line that was at the core of their
business. Also, LAKES was the best thought-out family of products that Xerox ever had. Clearly the
groundwork had been done much better. In the past Xerox would start with a basic product and then
evolve to other variants in the family. With LAKES, Xerox had a concept not only of the initial product,
but also of whole series of variants for changes or scale-ups that could be generated from day one.
This vision also made management realize if they continued on the current path there was a danger that
they would just become an assembly house that put parts, pieces, and major assemblies together and made
money in the market, rather than investing in new engineering techniques and evolving people. The shortterm view would eventually catch up with them and they would become obsolete. Therefore,
emphasizing longer-term visions, planning and investing can help develop a company's future.
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The LAKES motto was, "To re-invent copying... to help transform Xerox from the Copier Company to
the Document Company." Which perfectly aligned with the direction that the company was hoping to go
in.
Influence of vision on the Product
The vision for this product was to be almost all things for everybody, which seemed impossible to
engineer such that it plays as a copier, as a printer, and as a networked device. There were conflicting
customer requirements for each of those environments, but at the same time the engineers had a bigger
design space to work with (that's the root of the meaning for a clean sheet design) and they were able to
find the right approaches to finding a solution.
"John was the one to talk about setting the bar high and I thing his style was the right approach - set the
bar higher than people are going to be able to. achieve because if you set it too low that's as far as they'll
go... I feel very good about what we have accomplished." - Electronics Engineer, LAKES PD
In summary the vision for the product was to be a "DigitallyOptimized Network device that is modular
and scalable and that supports multiple end-user customers."
Influence of vision on the Process
From bench marking to manufacturing, the processes that were followed were rigorous and developed inhouse. Especially in engineering, the LAKES team had to go through a lot of learning, since the digital
engine was new and different; a large portion of the time was spent understanding the complexity of
digital. But, in this experimental process the team developed some very good templates that could be used
for other programs. For example, the Quality Function Deployment (QFD) that rationalized the Voice of
the Customer into engineering requirements was used not just for engineering but also for the
manufacturing and service. This was a novel way of using QFD that could serve as an important lesson to
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the other programs.
"I ran the benchmarking. For the first six months we just did benchmarking. We had the opportunity to
invent the process and implement, and other programs are getting the benefit of that. We actually tried to
take the principle and the vision of the corporation and to put them in place and reduce those to practice.
Before LAKES, I think we talked a very good ball game, we said the right words, but we never did it. On
LAKES, we said the right words and we did it. That was the difference." - Senior Manager, LAKES PD
In summary the vision influenced the Process to be 'Driven by the voice of the customer and structuredby
the system engineeringprocess.'
Influence of vision on the People
"So, I would say that where we ended up was a synthesis of a lot of people's different inputs. It' sort of
like when a group makes a snowman. Who can say, in the beginning, exactly what the snowman's
dimensions are going to be if everybody works on it together? But everybody at some point can see the
showman - a shared vision emerges - so that everybody's embellishing the same idea and adding to the
value." - John Elter
On the LAKES project the employees had the feeling that they were part of a community with a common
purpose, making a big journey knowing where to get to (vision), but they did not always know how to get
there, but knew that they had all the support that they can count on, and so they experimented, learned and
invented ways (500 patents) to get there.
Leadership
-
"Well maybe some comments about John. I don't think there's anybody else that I know in the company
who could have done what he's done in bringing this forward. It's always been clear to me that he's
poured his entire heart and soul into what we're doing, and I think that is reflected in the organization."
Electronics Engineer, LAKES PD
When it is absolutely clear to the followers that the motives of the leader are working towards a vision
larger than any one person, then the leader can get unconditional support from his/her followers. The
millions who marched with Mahatma Gandhi, the scores who heeded to the words of Martin Luther King
Jr., were true followers who unconditionally supported the leaders and their visions. This kind of
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leadership is what seems to have emerged on the LAKES project, where all the interviewees said without
hesitation, that they could not have asked for a better leader.
Hooks into the vision
"You don't approach a party animal and tell him that this machine is great because it's zero to landfill, no
you tell him about the great teamwork; you don't approach those hard core middle engineer types with
stuff about principles, you tell them about driving down Unit Manufacturing Price." -Senior Manager,
LAKES PD
There was a clear vision of where they were going, and it was shared among everyone - managers,
engineers, technicians etc., that were involved with the LAKES PD. Everyone knew that we are heading
for the milepost ('96 Olympic games) and everyone pulled in the same direction. The diverse group of
I
professionals who worked on this project had each found some aspect of this project that excited them;
call this Hooks into the Vision, as shown in Figure 4.5, below,
Figure 4.5: Hooks into the Vision
Engineers,
Mfg. Engineers Management
Technicians .......
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2) Organization of the physical elements - product architecture
Despite the numerous and often conflicting product requirements that might have lead to complexity
catastrophe, on the LAKES program, complexity was managed and the vision was realized. Seen from
the outside, these conflicting requirements was a sure symptom for throwing the product development
into chaos, or disorder. The architecture of the product has a role in containing the disorder and creating a
new order. The aspects of the architecture that are responsible for this are examined in the following
sections.
The existence of complexity in physical products can partially be attributed to the number of
interconnections and degree of connectivity between elements of the system. The more the number of
connections and higher the degree of connectivity, the larger is the complexity of the product. But, the
connection between the physical or logical elements of the system and their interdependence on each
other is necessary to deliver functionality of the product. Therefore, functionality is the main driver for
the complexity in any given product. The LAKES products as mentioned, have multiple functions and
the arrangement of these functions is essential to the management of the interconnections and their
connectivity. This arrangement has to be managed properly such that it is not too obvious to the customer
who may get turned off by too many features. LAKES called this arrangement modular construction; the
modules are responsible for the delivery of a certain function, which can be a major delivered function or
even a sub-function, which when combined with the other sub-functions will form a major delivered
function. The functions that are common across all the products of LAKES are placed in modules and are
made part of a platform. Upon which the modules that are customizable to the customer requirements are
placed. The high-level platform structure is shown in Figure 4.6.
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Figure 4.6: Platform Architecture f LAKES
Services at client PC - can control
Centreware Services
4
the device from the desktop- Real-
time and asynchronous operation.
Network Controller
4
Provides connectiv ity to the LAN
Digital Document Platform
Platform has sub-systems that
provide the major functions such as
scan, mark, finish, etc.
Each subsystem (made up of modules) of the product has a specific function (refer to Appendix A for a
complete depiction of the sub-systems and their functions); when combined, they create a higher form of
function for the overall product architecture. The combination of subsystems and interfaces defines the
architectureof any single product. The goal here was to make that architecture common across many
products. Any single product's architecture therefore has the potential to become a product platform
architecture if it is designed and then used as the basis for creating several or more derivative products.
Therefore, clear definition and naming of the interfaces (or interconnections)between the subsystems will
ensure that the complexity of the product is managed and will pave the way for easier evolution of the
product into derivative or even completely different products, which will be able to use the subsystems
whose functions of the interfaces are clearly known.
Modularity
Modularity is one of the important concepts for handling product complexity. The multiple functions that
make up a the family of LAKES products are considered as a whole and are partitioned horizontally such
that the basic services for every function are combined and into the boxes (modules) and the combination
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of all these boxes will make up the platform. Figure 4.7 is created to show the modularity of LAKES
products. The bottom level of LAKES has many functions that are common across the line of products;
the top layer (software) can combine and control the working of its bottom layers to provide the delivered
function (Copy, fax, etc.) to the customer.
Modules at Every Level
Interact to Give
Services to the Next
Level
Fiaure 4.7: Modularity of Platforms
Customer Solutions
Work Group Publishing
Demand Printing
Knowledge Sharing
To solve an application need of
business Droblem
..............................
AL
Services at client PC
Centreware Services
Print, Copy, Fax, Internet,
I1-
Provides connectivity to the LAN
Etheret
Messaging, Storage and Retrieval
services can be assembled at the
cstomer site.
.......................
.....................
................-N..r Controller
o tr l e
Network
Platform has sub-systems that provide the major functions
such as scan, mark, finish, etc.
Scan
@
Digital Document Platform
Each modules has a function, which are
called facilities on LAKES, they are the
building blocks of the Platform.
In LAKES products a good effort was made to construct these modules as independent units that have
defined functions and defined interfaces. This deliberate attempt to modularize the functions has a great
impact on the processes and the teamwork of the people. It will be detailed in the following sections.
Influence of Product Architecture on the Organization
"When we start what we call a clean sheet design the management never really understands the risk
you're taking. You start with a clean sheet; all you might get is a torn-up sheet of paper. You might get
started wrong. So when you say to your management, we must do clean sheet design, the financial people
start asking for dates. They don't understand what a clean sheet of paper means. You really can't give
them a date. You can, based upon past experience give them a date, based on past experience give them a
budget, but you don't really know." - Senior Manager, LAKES PD
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LAKES was a risky proposition for the organization. Everything had to be built new, technology had to
be learned and matured at the same time, but, the promise that the LAKES architecture was capable of
generating many derivative products (-15 derivatives) convinced Xerox of its viability in generating
profits well into the future.
Influence of Product Architecture on the Processes
Benchmarked every aspect of the product
"The other thing that was very important, especially early in the project, is that we did a lot of work with
the big picture - making sure there's a level of compatibility, synergy, and a common approach. The
customer wants to see a consistent approach - a machine that looks like it was designed on one planet."
The team used Voice of the Customer and benchmarking to come up with exemplars - productivity,
image quality, ease of use, interactive communications, connectivity, dependability, maintainable in
house, customer support. In complexity terms, they found the peaks of every fitness landscape they
could explore and measure, and they kept these fitness's alive through out the six years of development.
For example, by deliberately limiting the number of parts (-200) and using the unit manufacturing cost
(UMC) - they gained economies of scale/cost to drive more functions into a box. If the UMC went above
target, they stopped and recombined more things into smaller number of boxes.
Used Systems Engineering Process to structure the development.
Systems engineering tools such as Quality Function Deployment (QFD) and Robust Design were used to
manage the interfaces between the modules as well as the delivered function that emerged through the
layers of the product platform. This process is shown in the Figure 4.8, created here to show the fact that
system engineering process will be a mirror image of the modules but with emphasis on the interfaces.
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System Engineers also managed
the interfaces across layers for
the delivered function
Figure 4.8: Modularity Enables Systems Engineering Process
Work Group Publishing
Demand Printing
K nowledge Sharing
Software: Object-Oriented Design
L
Customer Solutions
To solve an application need of
business problem
....... ........................
.........................
The software was divided into
objects with specific function,
which when combined will create
Print, Copy, Fax, Internet,
..bj... b---the---Messaging, etc.
Provides connectivity to the LAN
Protocol
Traditional Engineering processes to design the function.
System Engineering Process to provide linkage between
functions.
FF~tlFnt2Ft3
Digital Document Platform
Each modules has a function, which
are called facilities on LAKES, they
are the building blocks of the
Platform.
System engineering processes were not only used for the PD but they were propagated throughout the
system. The team used QFD (Quality Function Deployment) to map the customer requirements from
design all the way to sales and service.
Customized the Systems Engineering Process through experimentation and learning.
"Build it, test it and find out how it works. Build it, test it and find out how it works. Build it, test it and
find out how it works." - Senior Manager, LAKES PD
In software test area they had no robust processes to test the software on LAKES products. So they built
strong tools for testing and implementing the software. They were able to get the software releases in a
month to six weeks, whereas in the past programs it had taken them many months to finalize the program.
The team is now planning to use some of these tools in other development program. Also, during the
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testing phases team brought in customers into their lab to evaluate the results. This ensured the team
members that they were not diverging from their goal of providing benchmarked solutions to the
customers.
Some of the Tools used on the program were: Benchmarking, goals convergence, QFD, robust design,
critical parameter management, Object Oriented Design, rapid prototyping, performance simulation, and
software process improvement.
Software Driven for flexibility
The top layer of the product is very software intensive, which is critical to generating new variants of the
products. The future set of products are becoming more software driven. Now with digital the horizon is
expanded and opened to other capabilities that software can do - for example, manipulation of images,
printing, rotating images, and more creative applications.
Influence of Product Architecture on People
Putting people into module teams where they are required to deliver a function specified for that module
is one of the very important concepts for managing the complexity of the product. The module
requirements are generally specified only within a range and the team is left with a larger design space to
come up with their solution. The systems engineer who thinks on a broader scale and figures out how
everything is going to work together manages the connectivity of their module with other modules.
"As we approached the technical readiness phase gate, it was clear we would not pass with the current
development technology. Our team produced an alternate design enabling the program schedule. We also
developed new toner and photoreceptor designs and integrated them into the system with a complex
process control scheme. This turned out to be a significantly more complex task than initially
recognized." -Module design engineer, LAKES PD
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The module teams were not only left with larger design space but also more time for experimentation,
learning and developing breakthroughs. Therefore, delaying the solution is possible with modularity
while not affecting the performance of the other module teams.
3) Systemic thinking and action
The LAKES products are 100% remanufacturable and 97% recyclable, they exceed all requirements for
environmental safety, and they take back the products at the end of their life. They called it Zero to
landfill .... for the sake of our children. They did not force the environmental requirements on the
module teams, yet the teams took on the Design for the Environment (DfE) and implemented these all
the way across the system (from design to service), and all the way down to the individual component. I
will first discuss, what DfE means from an academic perspective, and then discuss how it influenced the
whole LAKES system, which will show us that thinking through the concept of DfE sensitizes all
elements of the system to how interconnected and interdependent they are with other elements of local
systems as well as the larger eco-system.
Design for the Environment
DfE is defined as the "systematic consideration of design performance with respect to environmental,
health, and safety objectives over the full product and process life cycle. 59. DfWE combines and results
from the interaction between two systems, the economic system and the environmental system and
branches out into two area of action: sustainable development, which aims at designing industrial
progress that "meets the needs of the present without compromising the ability offuture generations to
meet their own needs "; and enterprise integration, which is concerned with factoring environmental
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concerns into the profitability and effectiveness of the firm. Sustainable development is a statement more
related to a macro view of the industrial world, whereas enterprise integration is more concerned about
how to develop and integrate sustainability requirements at the micro level. This is shown in Figure 4.9.
Figure 4.9: Conceptualizing Design for Environment (DfE) [Adapted from Fiksel, 1996]
DfE results from the combination of economic and environmental performance and branches out to areas
of research: sustainable development that takes a macro view of the problem and enterprise integration
that deals with implementing DfE at the micro level. Once the premise of DfE is understood, the big
challenge rests on its implementation. Barriers to this process are the lack of expertise among product
development engineers to take into account environmental concerns, the complexity of environmental
phenomena, which makes it difficult to build "systems dynamics" type of models and the fact that the
59Design for Environment: Creating Eco-efficient Product and Processes; Joseph Fiksel; Mc.Graw-Hill,
1996 [pp 5]
102
economic environment in which products are produced and used is much more complex and difficult to
control than the products themselves.
DfE often triggers technological innovation. The LAKES program was responsible for several
innovations that can be directly linked to meeting the requirement of DfE. In other words, net benefits
emerge when the benefits of reducing the overall cost structure out weigh the losses of incorporating
environmental related costs. DfE is a concept that results from the crossroads between environmental
concerns and economic performance. By definition, it is rooted in an integrated view of more than one
system. It combines and discusses the societal implications of environmental quality, technological
innovation for cleaner manufacturing processes and products and the economic efficiency of such
changes.
In the following sections I will discuss DfE how this principle was applied throughout Xerox system.
Organizational Level: DfE
"But what we realized out there in the desert was that the real task was not just a green machine, but to
green our entire corporate culture. This means listening to our customer. Is the customer asking for a
green machine? Implicitly yes. Nobody is saying, I want a messy, noisy copier that uses lots of power,
stinks up the office, is hard to operate, and spits out a ton of throw-away parts we don't know what to do
with!' Of course, they want an efficient machine. And this is what we've made. - Principal Engineer (in
charge of Environmental Design and Certifications)
For example, at the service end of the things, when a customer calls with a problem, the machine can be
connected to the phone line and the problem can be diagnosed remotely. The service engineer knows the
problem before hand and goes in with the required part, 7 tools and a laptop computer. Also the there is
only one adjustment no cleaning after servicing. Savings in service time, savings in gasoline for the
service truck, and saving the customer time by reducing the down time were only a small part of the
product vision behind LAKES, which involved savings in all the elements - including energy, labor,
transportation, communication, packaging and even the customer's needs. The total parts in the machine
were only 200, which are Customer Replaceable Units. On the manufacturing side, there were less
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number of parts in the inventory, fewer trucks to unload, fewer things to box up in corrugated plastic.
Xerox reduced the number of suppliers, most of whom were a day's drive away. Xerox moved to a 'localis-best' policy with incalculable savings.
Product Level: DfE
"This product is a great product put together by some very good people. You know, great! This is a very
efficient program with very little waste, and yet simple. I believe in simplicity. And I believe in things
that are good for Mother earth are also good for us. I like LAKES in terms of greenness, how little power
it draws. It's what I was bought up as an engineer to do." -Software Engineer (female)
There was a broader consensus on the program that every little thing that they build into the
design adds up and becomes a huge savings not only to the customer, but also to the society, to
culture, and to the earth itself. Even the software people, who tend not to have anything to do
with materials that are to be recycled, have benefited from the DfE mentality. The systemic
thinking perspective has helped them to develop software so that it could be used and reused on
many other programs. Of course, they also put in place software to help with power management,
to help conserve energy, and also to help support the reusable customer replaceable unit strategy
for recycling parts. The software keeps track of everything from copy volume and when it is time
for particular a part to get replaced.
Process Level: DfE
Xerox also developed innovative ways to get buy-in from designers who did not completely
understand what the requirements meant and why they had to comply. To do so, they put a
government regulatory spin on the issue giving strength to the DfE principle. On the
manufacturing process side, waste was reduced by reducing the assembly time of each machine to
only an hour and half instead of the usual four hours for other comparable products. These
machines are also build-to-order i.e., there are no machines in inventory and the machines are
104
shipped directly from the factory to the customer. Therefore every single step of the process was
taken into consideration as for reducing waste in every form.
People Level: DfE
The vision of a "green machine" originated with Elter himself and his team. It was not a corporate
directive. As John Elter says:
" It was time to do the right thing. And the right thing means taking care of the environment. I don't know
exactly where the impulse came from. We knew we had to meet all the Blue Angel and Nordic Swan stuff
for Europe. But 100% recyclable? Zero to landfill? Now there's magic. Certain corporate projects have a
lot of magic in them, I believe. Probably somebody said, 'Hey let's have a machine with fewer
adjustments. How about none? Let's have a machine that's optimized for digital. How about no light
lens? Let's have a machine where we recycle the parts. How about nothing to Landfill?' Maybe that's
how it came into being. Magic. Maybe it had to do with those sessions in the desert."
In order for the vision to become reality there was a need for the rest of the core team to become
sensitized to the ecological perspective of LAKES. To do so, Elter with the help of a private
company - created a program for the members of the LAKES to spend one week in the desert of
New Mexico. The goal of this program was not only to get connected with the natural
environment, but also to improve the communication skills and teamwork of the participants.
Research conducted by Hilary Bradbury
60,
which examined the employees who participated in
this training found that the majority of them were more engaged than usual in the LAKES
program. The training program helped them see why DfE was important to them as well as the
health of the entire system.
Hilary Bradbury, Weatherhead School of Management, Case Western Reserve University; Engaging
Sustainability: An Opportunity for Revitalizing Individuals, Teams, Organizational Learning and the Natural
Environment., Working Paper, 2001
60
105
4) Managing from the Heart
"Our ages ranged from young to "seasoned," our professions from technician to engineer to manager, but
we were all "corporate," trained in the corporate way of doing things, and the politics of big companies
encourages CYA (Cover Your A--) rather than the open environment."... "Be careful what you say."
"Don't appear weak," "The boss's boss is here, I better act like I know my stuff."
The above quote sums up the corporate thinking at Xerox. It was provided by a participant on the training
trip to New Mexico. Here they also had the chance to reflect on the things they were doing right, reflect
on the things they were doing wrong, reflect on who they were as individuals, as a team, as spouses, as
parents, as people. They tried to understand the conflicting forces that were pulling them away from each
other, and the common ground that already existed. Finally, how do they pull the two together, how to
reconcile them? When the issue at hand is emotional and heartfelt, this process of passage allows people
to talk and make steps towards resolution. 61
Significant experiments on the LAKES program were in the area of what could be called human ecology
- the people-environment in which everything happens. The questions they faced were, "How does a
corporation set up the work place so that people have the opportunity not only to do their best but also be
their best? How can we encourage creativity, thinking "out of the box", and true innovation? How do we
provide the paradoxical ingredients of truly sustainable business: risk-taking and reliability, freedom to
fail and full accountability, teamwork and individual satisfaction? These are the issues that confront every
The LAKES Story, Marlow Hotchkiss, Colleen Kelly, Robert Ott and John F. Elter, Volume 1, Number 4, 2000
REFLECTIONS, Society of Organizational Learning.
61
106
management team, whether they are ready for them or not 62. The quotes in this section truly reflect a
'Learning System' where the people work to resolve these paradoxes.
To start with, LAKES has taken a more participative approach to the issues of work environment and
employee satisfaction. They created what they called "The Bill of Rights" and hung them it on the walls
near their work area.
Employee "Bill of Rights" - Managing from the heart
Hearme and understandme
Even though you disagree with me, don't make me wrong
Acknowledge the greatness within me
Remember to look for my loving intentions
Tell me the truth with compassion
These 'HEART' principles were totally paradoxical to the CYA attitude that pervades most corporate
environment. The presence of the "Bill" on the wall seems to have inspired many people to realize what
were the important aspects on building relationships, which in turn allowed them to reflect on the quality
of the work that they performed.
"I think there was an incredible need for management and the whole Program to raise the bar on the
human side of the project, just like we were raising the bar on the technical side. I put the bar high enough
that they have to really stretch. Ultimately, it's a mutual decision. I think people want the bar high; they
want to achieve their best. How can we ever know our limit unless we exceed it? -John Elter
62
The LAKES Story, Marlow Hotchkiss, Colleen Kelly, Robert Ott and John F. Elter, Volume 1, Number 4, 2000
REFLECTIONS, Society of Organizational Learning.
107
On the LAKES program the management was trained to not meddle too much into the work of the
designers and engineer, i.e., they gave them space to find their own way of solving problems and
occasionally, offer help with their work and life issues.
Teamwork
There was a strong belief that emerged in the LAKES development that they needed to function as a
team, they needed to deliver as a team, and if one person failed, the team failed. If the team succeeded,
then everyone succeeded. The responsibility for each other and the accountability for the whole as a team
was also made possible by the modularity of the product system, where the module teams were jointly
responsible for the delivery of the module functionality.
Listenin2
"Group Meeting - To everyone's surprise, the twelve-hour meeting was over in four. When people
slowed down and really listened to each other, not just to what they were saying but to what they were
meaning, the process moved much more swiftly. Understanding came easily. Differences were held to a
test of idea and designs rather than personalities. A group consensus emerged." - John Elter
Instead of listening to get ammunition for a counter attack, or not listening at all but internally rehearsing
our own ideas, or just waiting for someone to take a breath so we can jump in with our two cents,
listening deeply and intently will create understanding that is collective with surprising efficiency work
gets done. The principles for listening that they practiced were: Favor curiosity over opinion, Favor
understanding over self-defense, Favor building community over scoring points, Favor being truthful over
being right, Favor trust over doubt.63
108
Empowerment with boundary conditions
Again, modularity of the teams responsible driven by modularity of the functions, and the managing style
of not meddling too much into the team activities seemed to have produced what I call Empowerment
with boundary conditions'. The boundary conditions are both technical and social, where the module
teams operate within the defined interfaces to the other modules teams (through the system engineers),
which is a mirror image of the physical module interfaces. This kind operating style will empower the
module teams to make decisions within set directions and are free to innovate within the bounds.
Appreciation
"We have always noticed when someone has a strength. Whenever someone comes up with something
unique and it does the job, everyone goes over and looks at it and really appreciates that person's work. I
think we need more of that. I think people need to appreciate each other more." - Technician, LAKES PD
David Kolb64 in his book reports: "Appreciation is a process of affirmation. Unlike criticism, which is
based on skepticism and doubt appreciation is based on belief, trust, and conviction. And from this
affirmative embrace flows a deeper fullness and richness of experience. This act of affirmation forms the
foundation from which vital comprehension can develop... Appreciation of immediate experience is an
act of attention, valuing, and affirmation, whereas critical comprehension of symbols is based on
objectivity dispassionate analysis, and skepticism."
In Kolb's terms the appreciation showed to each other on the technician's team was clearly an act of
affirmation based on immediate experiences. The management of LAKES seemed to have realized the
power of appreciation and included this in the 'managing form the heart' bill and spread it to the whole
development group.
63
64
Abstracted from Xerox internal document on spreading the message of Managing form the Heart
Kolb, D. A. Experiential learning. Englewood Cliffs, NJ: Prentice-Hall. 1984, [page 104, 105]
109
Motivation
"I think most of these people out there are motivated by using the proper example. If you set the
examples, most people will fall behind you. If I ask someone to work late, I will stay, or I will offer to
stay. I think appreciate if their managers are willing to make the same commitment." - Senior Manager,
LAKES PD
'Leadingby Example'seemed to have spread in the management ranks. The interviewees often quoted
John Elter the chief architect as a leader who they appreciate the most and he set the example for
commitment and leadership to the LAKES development program.
Influence of Managing from the Heart at the Organizational Level
Created Open Environment for Maximizing Communication
"As a product we had a clean sheet. We had to drop everything we'd done before. We had to do
something really unique from a workspace design point-of-view in order for this to work. Once you get a
new paradigm in your head, then all the paradigms become questionable. For Example, where managers
sit, what managers do, where they park, who does what to whom, phones, computer systems - all that
now comes into question. The first question is, do we really need it? And the second question is, is there a
better way? On the clean sheet, the environment in which you develop the product becomes much easier
to sell." - Facilities Manager, LAKES PD
There were a lot of works space innovations that were made on the LAKES program based on the tenet
that 'to be seen not hear', every workspace had glass walls, the labs were big, meeting rooms were square
to see and hear each other and had big white boards from floor to ceiling. This kind of physical work
environment became the benchmark for many companies that were attempting to increase the level of
interaction among its employees.
Influence of Managing from the Heart at the product Level
All the human aspects have a direct positive effect on the products that were being worked on. For
example, the teams were formed according to the machine modules (as explained in the product
architecture), where they had a lot of interaction with each other and they were all collectively responsible
for the delivery of the functions of the module. AS mentioned before, the teams were empowered within
110
their module boundaries and thus were able to come up with innovative solutions for many design
problems, as evident in the software group, which came up with new tools for testing.
Influence of Managing from the Heart at the Process Level
Customize the Process or Create a New Process
"My philosophy is don't do anything stupid. If you're told to follow a process that's really stupid, don't
do it. If you're told to do something that takes too much time, and there's a better way, do it the better
way or don't do it. Which doesn't mean just disagree or be difficult, but question it, raise suggestions, do
it in appositive way. You don't have to follow the exact letter of the law, but follow the spirit of the law.
Get the job done; try and have some fun at the same time." - Module Design Engineer, LAKES PD
This kind of freedom to modify or create a new process can really empower an employee to come up with
ground breaking methods for performing the same work more effectively, or even completely eliminate
the work as unneeded. The processes seen as avenues for experimentation and learning are critical to
organizations that want to change in a dynamic environment.
Conclusion
LAKES products are a networked system that span across many traditional market segments in copiers as
well as create and enter new markets for integrated copier/printer/fax/scan applications. Trying to satisfy
the requirements among all these customer segments and at the same time working with new digital
technology created tremendous complexity in the development process. But, a "well-thought-out" system,
as the LAKES was described by a senior manager, was able to manage the complexity that resulted in the
emergence of this elegant product(s). Using a complexity map allows us to see where LAKES resided (in
terms of complexity) during the development effort. The main concepts used by LAKES used during the
management are given in the outer boxes. (see Figure 4.10)
111
Figure 4.10: Complexity Map of the LAKES project during its Development
Mature and incorporate major
new technologies into the system.
Risk of customers being not ready
for the products
LAKES was well in line with the
overall Xerox strategy of a document
company. DfE and the retreat to the
desert helped them see the
connectivity of people, product,
process and the environment.
Far-from-equilibrium,
Dissipative Structures
- - --r - - - --- -'- - '-'-
Benchmarking was at its best. Two
or more modules were integrated to
capture economies of scale
I
Co-Evo tion,Fitness
Lan capes
Connectivity,
Interdependence
Disorder
Feedback, Positi
Sensitive Depe
r nce, Selfization
Returns,
ence
on
Initial Cond ions
Managing from the Heart;
Leaders led by being examples.
Modular teams encouraged
teamwork and empowerment,
came out with innovative
solutions when pushed to the edge
!
I
I
Product organized in a platform
structure, each layer giving its
services to the next. Modularity in
the system encouraged
experimentation and learning.
Developed an integrated strategy for the product
strategy. Suppliers, PD, Mfg, Mkt, Sales and
Env were taken as a whole, i.e. their space of
possibility had increased exponentially.
.-
-
- -
-
--
--
-
- .
..
.
..
...-.-.-,- . . ...
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Throughout the development effort, LAKES resided in the bounded instability area, sometimes even
going into the chaotic region. The persistence of the development team to stay in the region was
exemplary, eventually resulting in a new order that is reflected in the product which married many
concepts into the single product as shown in Table 4.1 below. As far the people are concerned, the
following quote sums up the new level of order they found.
"I used to work for 60 to 70 hours a week, because of that the relationship with my family suffered, I
missed out on a lot of sports nights at my kids school. But, now in a funny way I work only 40-45 hours a
week and I am a lot more effective, I find no reason to hide anything from anybody and am a lot more
team oriented and I encourage other people to do so by being an example my self. At the family front, I
am more there when I am there. I am very glad LAKES had happened to me. It scary to imagine myself in
the same way before LAKES for the rest of my career" - Module Design Engineer, LAKES PD
Table 4.1: New level of Order in the Product and Process of the LAKES project that is Reliable and Robust and
relatively Responsive
Concepts
Origin or context of the
concept
Copier when viewed as not
just a document copier but
as a office process
solution.
Function
Form
Incorporate voice of customer
for Interactive communication,
connectivity, ease of use,
maintainability, image quality,
productivity and dependability
Digital copier with network controller
and a client/network server.
Mfg. Facility with no warehouses, build
to plan/ship to order, high level
assemblies and mfg. Partnerships with
suppliers.
Copier with reusable cartridge, energy
efficient digital technology and less
parts, which could be replaced with
remanufactured parts.
Electronic order fulfillment, next-day
delivery and direct return to
remanufacture.
Copier provides Scanning, printing and
faxing from desktop.
1
Document solution provider that is
network based, digital, with standard
hardware components, customer
replaceable units with reduced repair
time and documentation.
2
Manufacture and deliver on customer
order.
To enable lower cost and
higher quality.
Reduce overhead in
manufacturing.
3
Recycle, reuse parts and capable of
using recycled paper, and with
minimum waste.
Desire to exceed
environmental
requirements.
Zero parts to landfills.
4
Faster and automatic customer order
fulfillment, delivery and service.
Lowering cost and
increasing efficiency.
Integrate design, manufacture
and service strategies
5
Control from desktop, and incorporate
other document handling processes
6
Allow assembly of system elements at
the customer site.
Too much time spent and
walking around in offices
to manipulate documents.
Customization of the
copier to the work site
Make the copier with ease of use
and as a part of the office work
process
Enable creation of solution at the
customer site
7
System architecture with a set of
modules will facilitate the scalability
and configurability.
Reuse platform and
modules to provide
solution of varying degree.
Enable Scalable, extensible, &
Configurable set of solutions.
Assemble, mix and match to
requirements the print, copy, fax,
Internet, Messaging, and Storage and
Retrieval services.
Modules for user-Interface, Controller,
Video System, Scan, Mark and Finish.
113
System Architecture of LAKES
The LAKES system architecture was indeed a "Clean Sheet" design from one-level up from the Product.
It integrated six elements (manufacturing, service, operations, marketing, sales, and environment) at the
higher level and redesigned the way the product was developed and delivered. On the customer side, they
tried to redesign the customer work environment in which their product operated. They asked the
customers and themselves, "How do we increase the value of the processes that take place in an office?"
They shifted the product concept entirely to the perspective of a delivered function. LAKES is really a
paradigm shift in Design, Manufacturing and Service, changing both what is done and how it is done (see
Figure 4.11).
Figure 4.11: Lakes System Architecture: Product shipped directly from the factory to the customersite
The platform (or pyramid;
structure of LAKES allow
for solutions to emerge fr(
ground-up
Service calls
PD
Deliver
Suplr
Sale
S
*c
-
g
CRU's sent for
Remanufacturing
Customers
LAKES System Structure
114
115
Chapter 5
INCREMENTAL IMPROVEMENTS: CASE STUDY OF LONLEYPLANET.COM
Purpose of the Case
They have a great influence on the travel relatedservices ....
"When you see a restaurant owner burst into tears when they hear the Lonely Planet author is in town, or
a once-quiet hill town transform into a big tick on the travel trail, you quickly become aware of the power
of LonelyPlanet
books."
- Quote from LonelyPlanet.com website FAQ
Their virtual community (Virtual Communities) is a resourcefor even the out of the ordinary requests.....
"Hi everyone I'm looking to start a trip around the world from the U.K later in the year but I want to go
between countries by ship not plane, I was hoping you guys could help me out and give me some tips of
where and how I get on to a cargo ship and that sort of thing? Thanks guys!!" - Quote from LonelyPlanet.com
Virtual community member
They get suggestionsfor improvement of their servicesfrom the Virtual Communities members....
"Will LonelyPlanet ever get a chat room going on this site? I've been to other travel sites and the chats
seem to be quite popular and I've always thought it was a shame the best travel site of all doesn't have a
chat. Let's
get chattin' on LonelyPlanet!!" - Quote from LonelyPlanet.com Virtual community member
Oh! And did I mention that they publish some of the best travel guide books in the industry and yet they
make mistakes in them.....
"I have just returned from a trip to NZ. On visiting my cousin's farm/property in a rather remote area in
the Island I was amazed at the amount of travelers that now entered his property illegally. On further
investigation it was brought to our attention that the latest LonelyPlanet travel guide to NZ actually
encourages travelers to enter this property to explore, camp etc. Despite having to travel through 2 closed
gates with very large 'Private Property' signs attached, travelers felt it there right to enter the property
considering they felt they had permission due to the write up in the travel guide book.....No where in the
guide does it mention that this land is private property & due respect should be followed. Several travelers
have in fact left gates open allowing stock to escape. Your thoughts are appreciated. Cheers!"- Quote from
LonelyPlanet.com Virtual community member
116
The remarks above each quote are added to show the current standing of LonelyPlanet among its
customers. The main purpose of this case is to understand what makes this company have so much
influence, power and trust not only on the customers of its travel products/services but also on the
complementary products/services that their customers use during their travel trips. The company
continually develops new travel guides along with other travel related product/services, many of them
successful in the market. The company is a good example of a Complex Evolving Social System and we
can learn for examining it in detail.
Industry and Company Review
The LonelyPlanet company is one of the best know travel guide publishers in the world. The company
was started by Tony Wheeler and his wife Maureen, who decided to write a book about their travels from
Europe to Asia on land and over to Australia. Their book was written in 1972 at the height of the Asian
"hippie trail" phenomenon, and they titled the book Across Asia on the Cheap, It became an instant
bestseller and the couple decided to go into business producing travel guide books. At a time when
guidebooks stuck to a banal formula featuring typical travel destinations, Wheeler's lax business model
and far-flung idea broke all the rules, making Lonely Planet books the bible for backpackers worldwide
phenomenon.
65
With nearly 400 employees working in offices in Melbourne, London, Paris, and Oakland, with a crew of
experienced free-lance authors traveling and writing around the globe, Lonely Planet churns out the
world's best guidebooks for independent travelers. The books are known worldwide for reliable,
insightful, pull-no-punches travel information that also include maps, photos, and background historical
and cultural information. They cover every continent covered (including Antarctica) with an ever-
117
increasing list of travel guides, atlases, phrasebooks, travel literature, restaurant guides, videos, world
food guides, guides for handheld computers, hiking guides, coffee-table books 66 . The Lonely Planet brand
is well known worldwide and is considered by employees as one of its most important assets.
The companies products are sold through bookstores, electronic retailers and through the Lonely Planet
website. These books and website contain no advertisements; they are written for travelers going to farflung destinations, who want to discover them for themselves. With this in mind, authors gather accurate
information to make the practical aspects of a journey run smoother, and historical and cultural
background to enrich the traveling experience.
Lonely Planet authors are seasoned and enthusiastic travelers with an eye for useful and interesting
information and quirky tidbits in the destinations they cover. Most of the 200 or so authors work on a
contract basis. They are based all over the world and tend to spend a large proportion of each year on the
road. It's also Lonely Planet policy to give in-house staff members the opportunity to work as authors.
The LonelyPlanet's Virtual Community is called the 'Thorn Tree' and it is the place where fellow
travelers talk to other fellow travelers about their experiences. This award-winning website 67 received
nearly 3 million hits a day [Weill, 2001], often from people who are already traveling. Lonely Planet has
a staff dedicated to reading every one of the postings and e-mails sent to the company. The staff briefs the
company management about emerging trends in travel and identifies updates for guidebooks. Most of the
Interview with Tony Wheeler by Hillary Geronemus for Travel & Leisure magazine
Source. LonleyPlanet.com website, P.Weill & M. Vitale From Place to Space: Migrating to e-Business Models,
HBS Press, 2001
67 The Website feature are as follows, 1) Worldguide - destinations and attractions. 2) Thorn tree - Virtual
Community of fellow travelers. 3) Scoop - daily international traveling news. 4) eKno - all-in-one communication
kit, and includes free webmail, a great phonecard service and a place to store the travel documents online. 5) On the
Road - to know more than the facts about any country. 6) Postcards - Latest from travelers who've just been to the
destinations. 7) Propaganda - Web store for Books, videos, etc. 8) Health section - healthcare info needed for
travelers. 9) SubWWWay - everything about travel.
65
66
118
guides are updated on a two-yearly cycle, with updated information incorporated in reprints. For each
new book or new edition, the authors travel to all the places mentioned in the guide, verifying and
updating existing information and scouring the scene for new attractions, happening spots, and hangouts.
Authors also take photos and update the maps.
Some of the trends that are occurring in the travel industry are as follows,
1. Previously exotic destinations are becoming commonplace travel destinations. Amenities and travel
arrangements are becoming more prevalent at these sites.
2. The adventure travels are becoming beaten paths, so travel advice and guides for these kinds of
adventure travels are increasingly becoming available.
3. The airline travel industry is providing flights to destinations that were not available before. They are
also making up revenue from volume rather than price.
4. To a lesser extent the travel industry is co-coordinating (e.g., among planes, trains, buses, rental cars
etc.) to provide end-to-end scheduling and pricing for their customers.
5. The demographics of the independent traveler are changing. At present the majority of these travelers
are young adults between 20 and 35 years old, and the minority is the baby boom generation. But, as
many baby boomers reach retirement age, they are finding themselves with time and cash to spare. This
segment of the market wants to travel far and wide independently but safely. They trade money for
convenience, visit exotic places, dine at the finest restaurants, and play at the nicest golf resorts. They also
are moderately tech savvy, can use the Internet and other communication tools. They need to be in touch
with their families while traveling. All in all, they are a growing segment that can buy the high value
products that a travel company can offer.
The other segment, that likes to travel and is finding ways to do that is the Echo Boom generation, the
119
pre-college and college-going members of the population. They usually travel in groups and are not
averse to inconvenience if it saves them money. This inexperienced segment usually needs a lot of
guidance on their trips, but might not be willing to be chaperoned. They are the most tech savvy. They too
need to be in touch with their families. They place high value on adventure or the perception of adventure
while traveling. This segment poses challenges as well as great promise to the travel companies. Once
they become involved in travel communities they will be longtime customers.
With these drivers and the growing trends in the industry it is useful to examine LonelyPlanet's
dependence on its current (initial) position and how best it can use Virtual Communities to become an
evolvable system. An important tool based on the concept of connectivity is the Virtual Community that
is used by customers and it has a large impact on LonelyPlanet's overall business. By looking at the
impact of Virtual Communities on all the elements of LonelyPlanet's system we can identify some of the
attributes of this 'Learning System' that resemble the properties of a Complex Adaptive Systems (or an
R-cube system).
The process for examining LonelyPlanet as a Complex Adaptive System is shown
below,
Figure 5.1: Impact Analysis of Virtual Communities on the behavior of
Function
Connectivity
Tool
Virtual
Community
Impact measured by the
emergence ofproperties
Architecture and design
attributesof this emergent
of Complex Adaptive
behavior of the system
Product
Process
People
Reliable, Robust
and Responsive
system
120
Connectivity through Virtual Community (VC)
A social system that has an effective social network can enhance its collective knowledge and sharpen its
ability as an interconnected and interdependent system. Communities organize themselves around
common affinity or purpose. In organizations, creating opportunities to connect is often the stated or
unstated purpose of facilitated off-site meetings and other communication initiatives. Social networks
grow from the personal interactions of human beings over time, that take place face-to-face, via
68
telephone, online, and even via things we send each other in the postal mail.
Online social networks are webs of relationships that grow from computer-mediated discussions. The
webs grow from conversations among people who share a common affinity (e.g., travel in the same
region, same concerns such as health, or trying to hook up with a companion for travel), and who differ in
other ways (e.g., they are in different locations, keep different hours, hold different views about
destinations, and reflect different age groups). When people are distributed across time and space, these
conversations need to take place online.
Influence of Online Connectivity on People
Online communities create a shared social space that makes them feel part of the community and build
relationships. Everybody can express their opinion, unlike in social setting where the quiet members are
often inhibited.
Influence of Online Connectivity on Products
68 Lisa Kimball and Howard Rheingold; How Online Social Networks Benefit Organizations;
http://www.groupjazz.com/pdf/osn.pdf ;
121
The products have a direct mapping to the forums on the Virtual Communities, through this connectivity
between product and forum it's easy for the LonelyPlanet staff to gauge the products usefulness, and act
on that information by providing free upgrades on their websites. The product is a living thing rather than
a one-time transaction.
Influence of Online Connectivity on Processes
The feeling that customers' impressions of the products are incorporated into upgrades makes them more
engaged in the Virtual Communities and sometimes their 'latent' needs may also be reflected in the
conversation. Therefore, the upgrade process becomes more focused and effective to the needs of the
customers. Each LonelyPlanet product is updated every couple of months and undergoes major overhaul
every two years.
Emergence and Self-organization
It is very impressive to see the all the new postings (on average about 1500 per day by one estimate) on
all the forums. The Virtual Communities is structured around three main areas, viz., geography, issues for
travelers, where there is even talk about the local politics. Each of the forums has many topics that people
talk about. Topics can be initiated by any person and where the conversation will lead is unknown. The
participants sometimes get truly passionate in their postings; after all they have traveled, discovered and
experienced the thrills, adventures, mishaps all by themselves taking the cue from the Lonely Planet
guides. The people self-organize around the topics that interest and concern them, and even the forums
are somewhat self-organizing. The LonelyPlanet employees initiated the Politics forum, since the topics
122
and people talking about politics increased to a critical mass, with a request for a separate forum. The
organization in the Virtual Communities is a true proxy for self-organization, which is the spontaneous
organization of the system's elements into coherent new patterns, structure and behaviors.
Influence of Emergence and self-organizationon People
Self-Organization creates groups that have strong affinity on a common issue, and can propose or invent
solutions to these issues. For example, an LonelyPlanet customer traveling in Philippines narrated his
experience of getting swindled in currency exchange. This triggered the other travelers in the region to
look for safe places to exchange their currencies and mentioned these places in the Virtual Communities,
which in turn made it into the travel guide updates as LonelyPlanet recommended currency exchange
places.
Influence of Emergence and self-organization on Products
A mentioned above, LonelyPlanet is able to create updates to their products and even may develop
entirely new products if there is a strong need.
Influence of Emergence and self-organizationon Processes
The process for crating can truly be enhanced by observing the formation of self-organized groups around
some issues. It is easier for the LonelyPlanet employees to notice changes emerging, and they would be
able to take it to the decision-makers, who can see the evidence in real-time. That said, LonelyPlanet
evaluates its new opportunities very thoroughly, it will develop the product if they can see at least 50%
gross profit.
123
Co-Evolution, Fitness Landscapes and Exploration of Space of Possibilities
The Virtual Communities provides a venue for storytelling, where travelers around the world can share
lore, or people from different backgrounds (diversity prevails) communicate with each on issues they all
approach from different directions. The space of exploration is greatly expanded through the interactive
discussion that helps people adjust to others'point of view based on what they learn by communicating
formally and informally over time. This suggests that there is a co-evolution among the Virtual
Communities participants.
Often on the Virtual Communities, somebody asks questions about issues that have already been
discussed, and somebody always replies to the query with a quick answer, but then refers to the archive
on the Virtual Communities where there is lot more information. Therefore Virtual Communities acts as a
living system that not only taps into an existing knowledge base but also continuously generates new
information. This is an excellent example of knowledge management, where people get the information
when they need it from others who have first-hand experience. Such information allows people to then do
their exploration and learning.
Influence of Co-Evolution, Fitness Landscapes and Exploration of Space of Possibilitieson People
The employees of LonelyPlanet appear to be there because this is what they want to do, and they seem to
be having as much fun doing it as the travelers themselves. This also implies that the environment (or
culture) of the company is very open to the diversity of employees' ideas, which they derive from the
diversity of ideas on Virtual Communities community. This is a good example of an open, changetolerant company at every level.
124
When the founder Tony Wheeler 69 was asked the question "Does your company have any tricks for
finding sights off the beaten path?" He reply was, "Walk. Look. The only way you really find new things
is with your own ingenuity and inquiries. Simply following what somebody else has already done isn't
going to produce anything new."
Influence of Co-Evolution, Fitness Landscapes and Exploration of Space of Possibilitieson Products
Something new happening in one place could be an indication of something that will sooner or later have
an effect on other parts of the system. Therefore, taking the cues from one area where a trend is emerging
and packaging them into the products for other relevant parts of the system will have a lot of advantage
for customers. In complexity terms, finding the peak for the fitness landscape becomes easier when the
whole space of possibilities is in view.
Influence of Co-Evolution, Fitness Landscapes and Explorationof Space of Possibilitieson Processes
Even when the peak of the fitness landscape is visible, climbing it can be challenge. This requires a
tolerance for experimentation and failure, i.e., if the peak is no longer visible when well into the journey
the system should let people turn back without undue penalties. At LonelyPlanet the employees
themselves are asked to make the travel trips, so that they will be able to find the adventures themselves
and would really know when there is an opportunity for adventure. In other words, the Virtual
Communities conversations help employees to identifying the peaks in the fitness landscape.
Feedback, Positive Returns and Sensitive Dependence on Initial Conditions
The greatest asset that LonelyPlanet has is its brand name, which was built on the trust given by the
backpacking, low budget, adventure seekers who use the LonelyPlanet tour guides. The guides provide
very useful information, but carefully leave out other information, which the traveler is thrilled to find on
69 Interview with Tony Wheeler by Hillary Geronemus for Travel & Leisure magazine, [Page 2]
125
his/her own. This brand name, or the initial condition in complexity terms, is a double-edge sword for the
company. On one hand, the allegiance to the brand name will make it strongly focused on the core
strengths, and on the other, it will be difficult to diverge into other opportunities. This was evidenced in
the sharp criticism that some member of the Virtual Communities community expressed, when Tony
Wheeler in a recent TV interview suggested that people choose air travel in the comfort of business class.
Even though he was referring to baby boomers who can afford the business class airfare and who might
be looking for the perception of adventure travel, the Virtual Community was sharp in its criticism, saying
that Tony Wheeler had shifted his motto of 'providing low-cost adventure travel' and that they would not
allow it. This is an example of customer bonding that Hax [2001] has discussed, where customers are in
love with your products and provide unsolicited feedback.
Influence of Feedback, Positive Returns and Sensitive Dependence on Initial Conditions on People
There is a danger of a band-wagon effect that can happen on the Virtual Communities, where a
provocative suggestion (a lead-user idea), like the one in the quote at the beginning of the chapter
referring to the traveler who wants to travel world-wide on cargo ships, can seem a great thing to do the
encouragement by members of the Virtual Communities can be blown out of proportion. Another
example is if the members reject an idea by observing that it is not possible to do, naming all sorts of
problems for achieving it.
Influence of Feedback, Positive Returns and Sensitive Dependence on Initial Conditions on Products
If the bandwagon effect is powerful enough, LonelyPlanet can create products that can make the cargo
ship travel across the world the next in-thing to do for the adventure travelers.
Influence of Feedback, Positive Returns and Sensitive Dependence on Initial Conditions on Processes
126
The prototypes for the products are thoroughly tested by the customers. As LonelyPlanet is able to
incorporate feedback from the lead-users of its products, the company is able to provide much better
products to its wider population.
Conclusion
LonelyPlanet is a very good example of a Complex Evolving System, which has all the attributes of a
'Learning System' and which in turn influences the elements (Products, Processes and People) of the
system to a great degree. This is summarized in Figure 5.2.
All the elements of the LonelyPlanet system and the system it interacts with have the characteristics (in
the dotted boxes) that will not allow LonelyPlanet to go back to a complete order (the bold contour on the
complexity map is in the bounded stability region is every aspect). In other words, it is very
interconnected and influenced by and even influences the adventure travel system, therefore change is
constant in the system and stability (or complete order) would not be possible by virtue of its organizing
or system architecture as shown and described in Figure 5.3
127
Figure 5.2: Complexity Map of Lonely Planet
Low budget, Adventure
Seeking Travelers and
Employees
I
Story-telling travelers and
open-minded employees
LonelyPlanet free
t-------------
Connectivi
Interdepence
ition
itness
dsca
s
----------
-
Far-from-equilibrium,
Dissipative Structures
Info-seeking, Issues
discussion,
Complexity in Organizational
Context
Disorder
Feedback, Po
ive Returns,
Sensitive Dep
dence
e, Self-
ition
on
Initial Con *tions
Bonded customers, Lead users,
practice fields for prototypes
Customer organized around
concerned issues, provide
solutions sometimes
i
Variety of travelers, Variety of destinations,
Variety of ideas for adventure, LonelyPlanet
people Listen well, Experimentation and
Learning part of the Job.
128
Figure 5.3: System Architecture of Lonely Planet
SubSet of
traveler
needs
Virtual
Conununity
Monitors at this level
Health Issues
alai
topics
Geographical
Regions
Sells at t s level
Lonely Planet
Virtual Conununities<->Travel Guides <-i
....
Phone Cards ...
Summary of the characteristics of LonelyPlanet system architecture that makes it possible to be a reliable,
robust and responsive (R-cube) system:
*
*
*
*
*
*
"
The forums are self organized by members based on the relevant issues
LonelyPlanet provides at the level of the travelers.
It monitors the behavior one-level up at the Forum level
It caters to only a subset of the travelers needs, but provides a common platform for users to find
out and discuss about other needs that other vendors address, such as currency exchanges,
restaurants etc.
By incorporating the information about needs provided by other vendors in its updated products,
LonelyPlanet influences on those vendors, essentially making them complementors. (For
example, Restaurant's advertise themselves as LonelyPlanet recommended)
Monitoring, sensing and changing with the emergence of new patterns among the travelers before
it becomes apparent to the competition and the general public helps LonelyPlanet to build a
strong bond with its customers.
Since it caters to travelers who go to the edges, i.e. 'lead users' who find unbeaten paths to new
destinations, the other customers are confident that LonelyPlanet guides will at least give them
the sense of adventure.
129
*
Therefore, LonelyPlanet not only provides travel products, but can also influence the behavior of
the travel system, the way the adventure seekers travel.
*
Too much interdependency between the two systems can throw LonelyPlanet into a state of
disorder; therefore LonelyPlanet has metrics (at least 50% gross profit) for evaluating the new
patterns before they become new business opportunities.
In Virtual Communities there is a danger that the discussions might get stratified and people will
tend to stay in their specialty area. But, in the LonelyPlanet's Virtual Communities the
participants, by the nature of their travels tend to move around the forums, therefore maintaining
the diversity that is needed for patterns to emerge that cut across diverse influences, opinions, and
requirements.
*
130
Chapter
6
CONCLUSION
Problem Statement Revisited
In this thesis, I wanted to examine disruptions faced in business can be mitigated, not by crisis
management (which is how it is usually done with deleterious effects on every facet of organizations) but
by designing organizations differently from the ground up, so that they will be able to perform with
reliability, robustness and be responsive to external conditions even to the point of changing their basic
structure. In other words, I want to explore a system design (architecture and design characteristics) that
has the characteristics of a Complex Adaptive Systems; one which is adaptive and self-organizing, with
its components free to co-evolve in response to changes in each other, and able to change as a whole in
response to external conditions.
The thesis focused on contemporary organizations to explore the common attributes of systems that are
trying to accommodate shifts from one technology to another, one product to another, one kind of service
to another, one kind of processes to another. In other words, these systems are trying to become evolvable
systems, as illustrated in the Figure 6.1. The magnitude of the 'tails' in the continuous curve represent the
level of change efforts within the same system.
131
Figure 6.1: Continuous or Adaptive Curves vs. Disruptive Curves
Adaptive or
Continuous Curves,_
U
Tail
+*
Disruptive Curves
Performance
Maturity
*.
Disruption
Takeo
Ferment
Time
In order to study such systems, I first examined the main characteristics of an evolvable system, as
derived from complexity theory and then applied these characteristics to social systems. The resulting
framework, which I termed, 'Learning System Framework' was then used to analyze the case studies
(NTT DoCoMo, Vodafone, Xerox LAKES, and LonelyPlanet.com) and the placement and attributes of
these systems' constituent elements were examined.
Synthesis of Case Studies
If there is one thing that is truly common across all the four cases, it is that all of them are trying to
change internally to deliver their products as a service and to view the customer as a relationship rather
than a one-time transaction. The relationship between 'product as service' and 'customer as relationship'
is very important in examining these companies and is represented as a framework (see Figure 6.2:
Offering/Market Framework) in the thesis to examine the state of the change efforts of the companies. To
better articulate the use of the framework, Figure 6.2 takes the Xerox LAKES project as an example and
132
examines the its placement on the 3x3 matrix and the movement associated with its change efforts. Each
box in the framework is explained to better understand what it represents.
Figure 6.2: Offering/Market Framework as applied to Xerox LAKES project
Offering
Service
Augmentea
A
Sell copy services, e.g., set
up your shop at customer
site
Product
Sell copier with extra
features than the
competition.
..--.
Product
se
On time pu
e.g-.$.$W- Copier
.... '''
Transactional
Service shop setup at the
customer site, but
competition catches up with
the same kind of services.
Sell copier with ex;ga.
features than $hecompetition
over a pvr,&l of time
Sell Copiers to the same
customer over a period of
time.
Anticipate and create
solutions; influence pid even
change their v
to creatraffpctive ways of
d hrebusiness.
Sell copier with extra
features all the time than the
competition.
Market
Customer always buys from
you since you sell the most
economical product
Time-valued
Relationship
In order for companies to become dominant players in the industry, cater to growing customer segments,
keep up with the industry trends, while also retaining image and brand name is a balancing act. We will
see what is needed to move companies in the horizontally, vertically or diagonally paths.
Move in the Horizontal - This requires companies to concentrate a lot on the Customer Relationship
Management (CRM), invest heavily in call centers and hire employees who are dedicated and enthusiastic
about that particular industry and can empathize with the customer. This will increase the brand image
and will not need a shift in the basic business model or structure of the company.
133
Move in the Vertical - This kind of movement also needs a moderate investment in CRM, but needs coordination with many other related industry players, i.e., this will shift the business model towards
providing a suite of services (For example, all the communication needs at organizational level for the
current Xerox customers). This represents challenges to management in terms of maintaining
relationships and payment contracts with other players and also requires IT investments to co-ordinate
activities with other players. A caveat to this is that the other players chosen may have different cultures
so companies can be influenced to learn and change their own ways, but at the same time they should not
undermine their relationships with current and loyal customers.
Moving in the Diagonal- As companies move from the Transactional-Product space to the Time-valuedAugmented Product space in the diagonal, they will need a lot of learning in building new products and
delivering customer service (It takes visionary leadership to do this as we have seen in the LAKES case).
Companies are then able to internalize the lessons learnt in their organizations, and can experiment with
their business model (or structure) so as to minimize from any image-damaging maneuvers. Form there,
moving towards the Service-Relationship space will require further experimentation and learning and
making small maneuvers with infrastructure as well as internal processes, to proactively shift offerings
towards any emerging trends in the industry. The importance of viewing process as experimentation and
learning is shown in the Figure 6.3.
In Figure 6.3, the smaller steps taken when moving in the diagonal will ensure that the risks are minimize,
that failure in products and services can quickly be corrects, as shown in the LonelyPlanet where they are
able to introduce updates to their products, which incorporate learning from the previous release of the
product. Whereas, companies making large investments for a complete overhaul of product line can put
134
many resources at risk and can face failure if the products are not well received in the market, this is
represented by the thin line in Figure 6.3.
Figure 6.3: Importance of Viewing Processes as Experimentation and Learning in the Longterm
Recommended
action steps
Learning and
Success
Large Untimely
actions
Time
Organizations viewed using the Offering/Market Framework
As see from Figure 6.2 it is better for the companies to move in the diagonal, which provides the least
distant path from Product-Transactional Space to the Service-Relationship space that the four companies
examined in this thesis are trying to move towards, and also, as seen from Figure 6.3 moving in the
diagonal with smaller steps to incorporate the learning would provide a faster pace to move to the
Service-Relationship space. Whereas, the companies away from the diagonal will require major efforts
that are untimely (LAKES was proposed in 1991 before there was even the evidence of Internet in the
public arena) and will cause a lot of disruption to the normal business and might be a risky proposition to
the whole company. But, these moves are required to stay competitive and satisfy the emerging trends in
customer requirements. These moves by the different companies are shown in the Figure 6.4 and
explained in the subsequent paragraphs.
135
Figure 6.4: Placement of the Organizations on the Offering/Market Framework
Offering
Service
Ak
NTT DoCoMo
(wnru..widp)
Anticipate and create
solutions; influence aud6 en
change their wqk-irocesses
to create .eff'tive ways of
dpiag'business.
Vodafone
Augmented
Product
Lonely Planet
....'L
A KES
Product
Market
Transactional
Time-valued
Relationship
NTT DoCoMo's i-mode service has a very loyal customer base in Japan and they are truly on the
diagonal (experimentation-learning) curve in Japan, where they supply communication services that are
on the forefront of the emerging trends and even to some extent influence the customer communication
behavior. But, the company's attempt to move the to worldwide services is really challenging and they are
trying to down-grade their services in order to understand and cater to less developed markets. As a result,
the trend is downward towards the diagonal (experimentation-learning) curve.
Vodafone on the other hand, does not have a good services platform as compared to NTT DoCoMo, but
has truly diverse market segments both geographically and demographically. Therefore it is changing its
service to a lesser extent by moving onto the diagonal.
136
The LAKES program at Xerox took on a major effort to move from a Product-Transactional space to the
Augmented Product- TimeValued space. Visionary leadership was needed to see the emergence of a new
pattern in the office communications behavior well ahead and had to start work on LAKES very early on,
so that it was ready when the new patterns in the office communications space emerged.
Lonely Planet had created a strong brand image and loyalty by its customers through its travel guides that
were written to provide adventure travel, when this phenomenon was just emerging. Apart from the brand
image, they were able to create other products (phone cards, maps, etc.) that were needed by their
customers. They created their system structure to not only respond to emerging trends, but also to
influence the behavior of customers.
The change efforts made by all these organizations (as shown in Figure 6.4) can also be viewed in terms
of S-curves as shown in Figure 6.5.
Figure 6.5: Change Efforts Shown as S-curves (Note: X-axis is not time)
Small Tails represent the
structure has built in
change capability
Performance
I
LonelyPlanet
Tail in the middle of the Scurve represents changes in
the structure that helped it to
takeoff
Large Tails represent
major change efforts
J
LAKES
NTT DoCoMo
Vodafone
Tail in the middle of the Scurve, but a smoother
transition to another Scurve represents changes
in the system by
experimentation and
learning
AW
J
137
Form Figures 6.4 and 6.5 above we can see that all four organizations are trying to move to the diagonal
and get to a smother S-curve. They are creating or changing their system structure in order to
accommodate a shift in their businesses towards an R-cube system. The system structures that and the
design issues for the elements for creating such a system are examined below.
System Structure and Design Issues
The trends that we have seen in the previous section can be summarized as the following shifts:
a)
Product as Service
b)
Customer as Relationship
c)
Process tolerant to Failure (Experimentation and Learning).
For these trends to become integrated into organizations, structures are need that can evolve with the
customer. This is termed as the Circular Architecture (evolvable system) to deliberately show the
interconnectivity and interdependence with the customer, which is also explained in the paragraphs
following Figure 6.6
Figure 6.6: Circular Architecture: Monitors Emerging Behavior from One-Level-Up to Where it Sells is
Built into the Architecture
tonitor
Emerging Solutions
Emerging Behavior
Sell
Customer Behavior
Organizational System Structure
138
We will examine how the organizations we have studied have deliberately created methods and tools as
part of their products or services to monitor and respond to the emerging behavior of customers. The
monitoring of the emerging behavior becomes built-in because of the nature of the solutions provided.
The characteristics (design issues) needed to create emerging solutions within the organizations at various
levels are also shown.
LonelyPlanet: The best example of a system that has done this well is LonelyPlanet. The company
started with a strong product (sensitive dependence on the initial condition) and created a platform
(Virtual Communities) for their customers to talk about products and issues related to their needs
(adventure travel). The positive returns (as we talked about in chapters 2 & 5) between the customers take
place to create emerging patterns; the positive interaction between the Virtual Communities and the
LonelyPlanet products take place to create emerging solutions.
LAKES: This project integrated six elements (manufacturing, service, operations, marketing, sales and
environment) of the system and evaluated each element's roles and functioning to delivering solutions to
the workplace. To evaluate the emerging behavior at the workplace team members performed a user-need
study by asking what processes take place at customers sites. They studied how to increase the value of
the processes that take place in an office, rather than just focusing on making copies. The LAKES
products actually attempt to redesign the workplace - copy from the PC, deliver to another building, etc.
By redefining the environment in which the products would work, if not deliberately architecting onelevel from the users environment, LAKES influenced the workplace architecture one level up.
In order to monitor and respond to the behavior at one-level up the team changed its system elements as
follows,
139
a)
The products had Customer Replaceable Units (CRU's), so that the customer can maximize up
time, and Xerox can learn which CRU's are being replaced more so that they can increase their
reliability in future versions.
b) The service personnel can diagnose remotely and take care of the problems remotely or with just
one visit, requiring less time in repairing and adjusting. Service personnel will get comments on
what better services Xerox provides them rather than complaints that the machine is down. When
the customers perceive the product as simple, they learn to do thing with it quickly and can
quickly reach the limit of its capabilities. At such time, they will be ready for some more
functionality that the product can provide.
c)
LAKES can provide extra functionality on the same product using the capabilities of the software
layer. Or, if the customer's requirements have scaled up, LAKES can take back the old product
and give the customers a scaled-up product that looks and feels like the old product, but with
more capabilities. In this way, the customers will not have to relearn the functionality of the
scaled-up LAKES product.
Vodafone and NTT DoCoMo: Both these companies are creating platforms as the nodal place for the
customer to buy communication services and are thus able to monitor their activities and respond to
emerging patterns in consumer wireless needs. As seen in chapter 3, Vodafone by the nature of its
alliances will be able to get diverse feedback from its customers across the globe and will be able to
customize solutions to local needs, while being based on a global platform. In contrast, NTT DoCoMo is
assuming that the same patterns that emerged in Japan will also emerge in other parts of the world, and is
thus trying to sell its solutions to local markets by forming marketing alliances.
140
Building automatic monitoring into the products will only be useful if the companies are able to respond
to emerging patterns. The characteristics (design issues) that are needed in the systems to respond to
emerging patterns and create emerging solutions within the organizations at various levels are shown in
Table 6.1. These characteristics were derived from the case studies examined in Chapter 3, 4 and 5.
Table 6.1: Design Issues of and Evolvable System
Characteristics of
Complexity
Evolving Systems
Design Issues that are relevant to all the Levels of the organizations
(Language relevant to the organizational context)
(Language based on
complexity theory)
Connectivity and
Interdependence
0
Alliance should be formed with companies that can contribute to the solution package that the customer needs.
*
All the top elements (PD, Mfg, Mkt, Service) of the organization are equal partners in providing solutions and should be viewed
as an integrated whole when designing major new solutions.
*
The product platforms are made up of modules that are connected through defined interfaces.
"
Design For Environment is a very important tool for realizing the connectivity of all the system elements.
"
System engineering processes are used to manage the interfaces between the modules.
*
People interact and interface within their module teams more and limitedly with other teams.
*
The alliance partners can interact through the defined interfaces and should be free to come up with solutions than they had
envisioned before.
*
The product is organized according to layers with modules within each layer can individually or collectively be scalable and reconfigurable to provide customizable solutions.
*
The module teams should be free to customize or even create new engineering processes.
*
Teamwork and bounded empowerment of the module team are critical to the finding innovative solutions.
Co-Evolution,
Fitness Landscapes
and Exploration of
Space of
Possibilities
0
Each player will limit the interaction from 3 to 5 other partners to reduce the danger of too many conflicting requirements.
0
Should be open to the possibility of changing their internal structure or the corporation based on the premise that the emerged
solution needs to be 'fit'.
*
The long-term view of product platform that can out many derivative products will open up a large design space to the
designers that can be explored to finding the solutions that last in the long-term.
Feedback, Positive
Returns and
Sensitive
Dependence on
Initial Conditions
-
Platform developmental efforts should be open to the influence of the local market needs and provide solutions should to those.
e
Over dependence on your core competencies (at any level) to provide solutions can be detrimental to the whole system.
0
Managing from heart (as shown in the LAKES program) is a pre-requisite to crate the positive returns needed to explore, see
and act on new patterns.
Emergence and Selforganization
141
Concluding Remarks:
The changes needed in an organization toward falling on the path of a Learning Organization are very
specific to its context. The hope of this thesis is that through the study of the results the reader will be able
to find the direction towards incorporating the needed changes in their products, processes and the people
towards realizing a 'learning system'. Also, the reader will be able to perform his/her own analysis using
the 'Learning System Framework' of their organizational situation and would be able to 'see' the 'details'
that are needed for laying the path for their organization towards becoming a 'Learning Organization'.
The five elements of the system - Products, Processes, People, Economics and the Environment are to be
considered as a whole when planning a system design and the interdependence of each other towards
realizing the properties of an evolving system need to be kept in perspective all the time by all the people
involved in the system design.
The understanding of and dealing with the 'step-change' required by most of the current systems to be
placed on the path towards an evolvable system is crucial to the management. The change effort requires
an integrated (design, Suppliers, Manufacturing, Sales, Service, End user and the Environment) approach
to the system design. The management of this integrated/re-engineered process requires strong system
skills, work process and teamwork. System skills (system engineering practices) to manage the interfaces;
work processes that are tolerant of failure; and teamwork that emphasizes creativity and innovation will
form an integral part of the development of a complex adaptive system
Limitations of the Study and Future Research
The main limitation of the study is the lack of quantitative models to substantiate and compare the change
efforts. Even though the quantitative models itself might have limitations they can provide avenues to
study deeper the characteristics of complex social systems required to change constantly.
142
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