Get the Drag Out

Get the Drag Out

Moving to real time is a competitive necessity. Is there any way to avoid it? I don't think so, because if the other guy does it, he's got a better cost position than you do. Imagine a real-time supply chain. It senses that a carton of inventory in the logistics system is going to customer A's back-up stocks, whereas customer B is completely out of stock. The system responds by rerouting the carton to customer B. And what have we done? We've seen to it that both customers have our product, instead of one sitting there without it. So rather than someone at the factory putting a label on a package and sending it off through a preplanned set of transportation steps—that's the current way—you think about your package as a packet in a data network. Every time it gets to a node, it looks around and asks, what's the best next step? First, it could route itself around any bottlenecks in the transportation system. Second, it could react to real-time information about where it was most valuable—the customer without inventory—and go there on its own. You therefore have more "face to the market"—more potential sales—with the same amount of inventory. Real-time resource reallocation is one of the ways we're going to get drag out of our economic system.

As a real-time enterprise, you can operate better, faster, cheaper. Your assets will work harder for you, because you can make real-time decisions about the best ways to deploy them or the best price to charge an individual customer online. Second, the more you build sense-and-respond and learn-and-adapt into the way your business works, the less you're going to have to change the infrastructure of the business, because it will be changing itself. Look at Amazon. Its philosophy is to do everything on the Web. Every phone call from a customer is a failure, because it indicates the customer couldn't do something on the Web. So every phone call from a customer is a chance to make the system better. Amazon is continually upgrading its capability based on the continual input from customers, and its site evolves quite rapidly with new features and approaches.

This kind of adaptability is how companies can cope with rapid change. Our research shows it doesn't just feel like change has accelerated, it has accelerated. So if the challenge is to keep up with accelerated change in the environment, then becoming more adaptive is the answer. The more information you're taking in and incorporating into how your product works, how your processes work, how your relationships with your economic system work, the more the business will be changing itself rather than requiring you to change it. Otherwise you're constantly rolling out the next system, and you're always shooting behind the duck.

Of course, this is not easy to do today, and trying to do it everywhere is neither possible nor desirable. The customer isn't always going to be willing to pay for it, or the business case just isn't there. This introduces the question of what constitutes real time. What's the decision being made, and what is an effective decision-making cycle? If you're a monthly magazine, how fast should your change-of-address system work? Real time for you is before the customer gets the next issue, so maybe you only have to run your change-of-address system once a month.

Organizations will have to work differently. They will have to learn to love surprise. In a real-time environment, the thing you thought you knew isn't true anymore. You have to reduce your estimate of the half-life of knowledge. It's going to be harder to anticipate or control or know everything about the evolution of the system. People are going to be surprised more often, they're going to feel less mastery, and they will need to get comfortable with that.

How should we manage this uncertainty? In essence, the leader's new role is to stop directing people and start directing evolution. Biologists would call that directed evolution, a new technology used to breed a better tomato or a more effective therapeutic. So it is the leader's role to say, "This is what we want—we want faster horses, and how the evolution actually works is up to all of you guys." And they're making a lot of decisions, some of them in real time, about what will get them a faster horse.

Here's an example. Jim Donehey, the former CIO at Capital One, had a conversation with us about anthills. Think of an anthill. You can't teach an anthill to fetch. The anthill somehow feeds itself, but no single ant knows how the whole thing works—each ant is just following a few simple rules that will lead it to food. Donehey realized that from the perspective of his IT shop, there were four rules that fed his anthill: Align IT with business, spend money wisely, be flexible and have empathy for others. So he gave the internal customers of his IT group poker chips of four different colors and asked them to give his guys chips when they successfully furthered any of those principles. Then the IT guys could cash in the chips they earned for bonuses. He said to his people, "You figure out what to do, just get all the chips you can." And that's how he ran his 1,800-person organization. He abandoned command-and-control for rules that would get everyone working toward the same goals—directed evolution.

This article was originally published on 11-02-2002
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