Business Management: How To Scale A Business Sustainably

Liberation from the tyranny of silos, the path out of the exile of the mind that functional hierarchies have pummeled us into, the way “out of the crisis”, is not through the fog of the mind that Deloitte trumpets with their Adaptable Organization.

It is, instead, the long overdue understanding that what humans offer to organizations, besides their intelligence and desire to do good, are competencies, all the many (and often overlooked) skills that they bring to the table. The starting point, then, is to look at how these competencies can be fruitfully put to work.

Critical Chain project management (CCPM), with its finite capacity scheduling algorithm, opened up a completely new realm of possibilities because it made the coordination of activities via projects realistic. But, we asked ourselves, what do we really schedule, when we schedule?

Project tasks gain predictability of outcome if they are steeped in the execution of well-defined processes. When executing tasks, what people really do is deploy a competence that they have. So, it makes sense to schedule competencies.

And here lies one of the still untapped transformational aspects of the work of Dr. Goldratt, one that has the potential to redefine and give true operational meaning to the role of human resources.

As mentioned before, organizations are systems, networks of processes, webs of conversations directed at one agreed-upon goal. When we schedule projects, what we really do is focus these conversations towards the execution of a precise process, what we can call a project task.

In order to govern this process, we cannot resort to a functional, vertically superimposed control mechanism as it would immediately clash with the flow nature of the project. This is why company functions cannot continue to have a control role, invariably tied to power and status. They must, instead, regain their original role of competence centers.

Company functions must become custodians of the knowledge required to execute tasks. Resources must not be seen as part of a function; resources, and the competencies they bring, belong to the organization and must be available to those who are called to manage projects – yes, we can now finally call them project managers. The role of top management then becomes to choose strategically the mix of projects that maximizes the throughput of the company. Head of functions become leaders of knowledge, those who prepare individuals and groom their competencies for the good of the company.

If projects finally become the focus of top management (as they should because they are what generate revenues) how do we then control such flow-based, revenue-generating activities?

The key ingredients of an organization re-design

Since the industrial revolution, the idea of control has been connected to a Newtonian, mechanistic worldview: to understand the whole all you need to know are the parts that make it up. Coherently, a gargantuan and incredibly complex measurement edifice has been built that rests on the concept that the more I understand the nature of the product cost, the more I can control my organization and steer it towards productivity. The conventional hierarchies (functional silos) were built precisely for this reason: the more I can break it down, the more I can control it.

And it worked for many decades, basically from the industrial revolution all through the ‘60s. Accordingly, very many generations of leaders have been groomed by business schools to understand the whole as a sum of its parts.

Then, in the ‘70s everything started to crumble and by the end of the decade all the major American (and Western) corporations were on their knees.

What happened?

Simply speaking, after WWII, Japan, who had nothing to lose, started to heed Dr. Deming and his cry for a more evolved, systemic approach to the increasing complexity of the world we were living in. (Sadly, “Reaganomics” disguised all the industrial issues facing American industry with its financial gimmickry and the illusion that something can be created out of nothing, perpetrating for 30 more years an utterly distorted message on how sustainable wealth can be created.)

The way “out of the crisis”, Deming said, is paved with quality and its approach to complexity. Such an approach rests on the understanding that organizations are systems, what we have come to see as oriented networks of interdependent components, and that such interdependencies have to be taken into account if we want to really govern and manage the system.

Accounting, an approach to, well, counting, that was developed in Italy hundreds of years before the concept of speed had been mathematically tackled by Galileo and Newton, simply has no answer to how to measure the effect of interdependencies.

Such an answer, Deming argued, can be found, instead, in a body of knowledge called Theory of Variation (developed in the first part of the last century by Walter Shewhart). The effect of interdependencies, i.e. what emerges from our conversations, when we do something together like scoring a sale, designing a new product, etc., can only be understood in terms of the statistical fluctuations that characterize the output of these interactions.

Unfortunately, the study of statistical fluctuations (largely captured by a method and thought process called “Statistical Process Control”) is not part of the curriculum of any business school and is largely ignored by the vast majority of decision makers. Yes, it is damning.

The “New Economics” advocated by Dr. Deming can only take hold if we embrace complexity (instead of trying to break it down) and equip ourselves with the necessary knowledge.

If a new leadership has to emerge, it can only happen if it is guided by new measurements for sustainable wealth creation, a coherent management style and an appropriate organizational re-design.

All through the ‘80s and the ‘90s, Dr. Goldratt created the vessels and the thought processes to sustain wealth creation. The centrepiece of his work is the concept of constraint, the strategically chosen leverage point where the organization generates the maximum value for the customer.

Basically, Dr. Goldratt argues, if you choose your constraint strategically (what you want to leverage, what provides the maximum value in the eyes of the market you want to serve), then it only makes sense to build the whole organization to serve best the constraint.

And what, then, is the constraint of a project? What is a project constrained by? I will leave the answer to your eagerness to learn from reading Dr. Goldratt’s books, a truly life altering experience; here it will suffice to say that the Theory of Constraints (TOC) calls the constraint of a project its critical chain: The longest sequence of dependent events once the availability of resources has been taken into account.

In order to build an organization around this chain it is then necessary to maximize the speed at which this chain is operated. Yes, like in (American) football, we need to move the chains fast if we want to “score”.

And how do we do that? Answering this question has been our journey over the last ten years. It is our little, yet, we like to believe, not negligible contribution to the development of a form of management that makes sense. We call it “Intelligent Management”.

Competencies as the engine for transformation

As declared in several publications over the years, our goal at IM is the transformation of the prevailing, silo-based, organizational design and management style into one of whole system optimization.

Deming and Goldratt have provided all the elements of science, method and thought process to enact this transformation. We decided to use them to guide the next step: redesign the organization for quality, enhanced flow and greater involvement of people.

If quality (the management of interdependencies) and flow (what determines the pace at which we achieve the goal we set for ourselves) are the cornerstones of sustainable competitiveness, how can we create a genuine involvement in the organization and put all the good intentions of HR to work? How can our human resources be valued and their resourcefulness enhanced, exactly? How can we, at last, reconcile a successful local performance with the overall goal of the organization, its bottom line?

The two driving needs of the inherent conflict in the development of human resources are individual accountability and performance of the system. These arguably non-conflictual needs invariably lead on the one hand to an organization design that is intrinsically hierarchical (siloed) and on the other hand to a different, flow-based, interdependency-focused design.

How can we reconcile these positions, satisfy both needs and achieve the goal? How can we break free from this conflict? How can we escape the excruciating “teamwork empowering” sessions that inevitably become shipwrecked on the rocks of the year-end individual performance assessment?

Let’s ask: what must people be accountable for? What is it that we really want from our people? And, even more importantly, what are people really seeking when they go to work, besides a healthy, safe and caring environment?

People, all of us, as Dr. Deming explained very clearly long before nebulous development programs became fashionable and the new silo called HR was created, are intrinsically motivated by learning and belonging. People, unlike any other form of earthly life, have the desire to be part of something bigger than themselves. Any successful organization does precisely that: fosters in people the desire to belong and provides the environment for people to develop.

Develop what, precisely?

As far as the life of an organization goes, people are recruited for their competencies, not their skin colour, not their looks, not their faith, not their family background (yeah, right…. this is for another discussion…).

These competencies are only marginally captured by the CV and almost completely frustrated by the silo where they are hosted. In other words: individuals bring to the table a much more varied and rich set of competencies than the CV reveals and many of these competencies are nullified or frustrated through the myopic functional lens.

This is the hidden treasure, the untapped trove of energies that needs to be unleashed by the suitable organizational design – step 7 of The Decalogue.

Resources are not the property of a silo, they belong to the organization (and, in a more visionary way, to the supply chain they are part of) and so do their competencies. The more competencies a person has (and develops) the more they can be part of the activities that make up the life of the organization.

The orchestration of competence-based activities geared towards an identified goal is the very definition of a project. The coordination of all these projects is made far easier by having a larger pool of competencies to draw from; the number of projects that can be handled in a given period increases and all the talents available can contribute fully. In the next and final instalment of this series, we will look at a practical way to schedule competencies to transform any organization into a synchronized network of projects and unlock its potential.

This is the third article in a series! If you would like to read the next one, click here. If you would like to read the first one, click here.