A Volatile World
We'll also have to get comfortable with volatility. The more richly connected a system is, the more potential it has for volatility, because a signal can propagate through a system very rapidly. If the system has a large number of things connected richly, it has so many potential states that traditional analysis will not reveal everything that might happen. One sign of increased volatility today: Over the past decade, the number of times the stock market has moved more than 3 percent in a day has quadrupled. Another: The number of companies in the S&P 500 declaring negative special items in their earning reportsmeaning they were caught off-guard by eventshas grown from 68 in 1982 to 233 in 2000. In 1978, about 10,000 businesses failed; by the late-1990s, that had gone up to about 75,000 annually.
We can deal with volatility in three ways. First, we can build simulators, and we can try to identify the sources of volatility in a system we care about. What can we do to damp out that volatility? Where is it coming from? Is it suppliers, is it the market, is it technological change? When we identify that volatility, how can we sense it and build a response? Red Lobster realized that the volatile temperature of the Gulf of Mexico affected its business, and so it set up a procedure to manage it.
The biggest organizational change we will need is the mindset that says, "Let's look at what we're getting out of that sense-and-respond loop, ask what we can learn from it, and ask how we can adapt what we do to reflect that." It's a shift from "if it ain't broke, don't fix it" to "how can we do this better the next time?"
What are the first steps toward real time? First, identify what is driving the volatility in your business. Can you identify the things that expose you to risk and change and, therefore, what you need to be able to sense early, respond to rapidly, and adapt to continually?
Second, don't put up boundaries to information flow. A corporate habit is to put up boundaries to keep safe inside. But that creates the risk of not learning. It's like raising a kid in a bubble. If you take that kid and put him in the outside world, he dies of a common cold because he has no immunity. Rely on your judgment to determine what you want to investigate, where you want to be open and where you don't, rather than making rules about what you disclose and what you don't. To manage all this new information, however, we'll need software filters that get smarter and smarter, and tell us where to focus our attention.
Third, shift from directing people to directing evolution. Give people more responsibility for making decisions, not less, and give them feedback on how they're doing. Don't command and control. I don't see how people have time to micromanage. To me, micromanagement comes from having too much time, not from having too much data.
This article was originally published on 11-02-2002
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