Category Archives: Governance

Governance from the centre that is not based on knowing better than those at the edge.

East-West Dominance

by Philip Boxer
The blogs on the three agilities and Type III Agility ask what is required to deliver Type III Agility – the ability of the organisation to respond to new unanticipated forms of demand i.e. asymmetric forms of demand. This is identified as a challenge to 21st Century leadership because it necessitates holding power to determine the form of the organisation’s response to demand at the edge of the organisation instead of at the centre (i.e. taking power-to-the-edge).

Richard and I have written about this at greater length in our paper on taking governance to the edge, and the concept of asymmetric governance. This is a form of governance in which those at the centre can no longer assume that they are able to know better than those at the edge what needs doing (there is more about how this relates to symmetric forms of governance in the blog on the governance cycle).

How is this to be understood? In the diagram below the points of the compass are used to distinguish four different aspects of what is being governed:

  • North – the direction of the organisation as a whole,
  • South – the operational capabilities available to be used by the organisation,
  • East – the particular relationship to demand at the edge of the organisation, and
  • West – the problem-solving know-how that is able to organise the operational capabilities together in such a way that they satisfy the demand to the East.

n-s-e-w
This now allows two forms of governance to be distinguished:

  • North-South dominance, in which the E-W response to demand is subordinated to the N-S axis, so that the centre’s top-down strategies (N) for how business capabilities (S) are to be used determine the way demands are identified and responded to.
  • East-West dominance, in which the role of the N-S is to create the conditions in which the E-W axis can be dominant, so that the identification of demands (E) and the formulation of effective responses to them (W) can determine the way business capabilities are directed and deployed.

With it is apparent that what characterises N-S dominance is the presumption that the environment can be assumed to be symmetrical to the centre’s assumptions about it. This makes it possible to distinguish the faustian pact that can emerge when this in fact is not the case. This pact arises when the people on the E-W axis present what they are doing as if they are complying with N-S strictures in order to cut themselves some slack within which to do what is actually needed E-W. This can create a dangerous collusion between the people aligned to the different axes which ends up preventing the organisation from adapting to change. (I wrote about this under the heading of ‘facing facts: what’s the good of change’ within the context of the UK’s National Health Service, where doctors often find themselves having to ‘play the system’ in order to deliver appropriate care to their patients).

East-West dominance requires networked forms of organisation that can hold ‘the edge’ accountable for the way it uses the resources of the supporting organisation, but in relation to the situation in which the demand is arising. This contrasts with the hierarchical forms associated with N-S dominance. What is at stake is the performativity of what is done in relation to the demand at the edge, rather than the performance of what is done against centrally (symmetrically) defined criteria. It is not that hierarchy isn’t still necessary, but rather that it has to be situationally rather than universally defined. That’s where asymmetric design is needed.

Knowledge and Culture

by Richard Veryard
Philip’s post on Managing over the whole governance cycle draws on some important work by Max Boisot, and I wanted to expand on this a little.

In his book Information and Organization, Boisot identifies four stages in the knowledge cycle, which he associates with four organizational cultures. These can be associated in turn with different strategies.

Knowledge
Diffused
Codified
Culture Industry
Cycle
Typical
Strategy
Public
Yes Yes
Market
Competition
Cost-Based (Sub-
Contract, Outsourcing)
Proprietary
No
Yes
Hierarchy
Monopoly
Product-Based
(Licensing, Hoarding)
Personal
No
No
Network
Start-Up
Problem-Based (Trading,
Intention Economy)
Common-sense
Yes
No
Clan
Oligopoly
Service-Based (Joint
Venture, Mashups)

Philip characterizes Microsoft as following a product-based strategy. I think this characterization is supported by the comments made by Bill Gates in his Mix06 keynote – for example, his idea that Microsoft customers benefit from the existence of other Microsoft customers because a large user base helps Microsoft to improve the product.

Meanwhile, companies like Google and Amazon are following a service-based strategy, and the evidence from the way they are used in mashups shows others are using their services to make the ‘jump’ to start new cycles (see interoperability landscapes). Can they also make this ‘jump’ – to start a new cycle at the next level up? Should they? How would such a strategy be accounted for commercially?

Managing over the whole Governance Cycle

by Philip Boxer
In the chapter with Richard Veryard on Taking Governance to the Edge, I introduced a model of the WHAT, HOW, FOR WHOM and WHY of the relationship between a business and its environment:

The concept of a governance cycle was based on four different ways in which the supplying ‘inside’ could be related to demands on the ‘outside’, in which the movement around the cycle was driven by standardization or customization of supply and demand models.  Thus in the move to ‘comparison’, demand is standardised, in moving to ‘cost’ supply is also standardised, and in taking up a ‘custom’ relation to demand, there is sufficient flexibility in standardised supply model to be able to customise its relation to demand in different contexts:

The names for two of these four ways came from research on shopping behaviour by Gary Davies in which he distinguished ‘cost’ convenience (choosing between similar standardised offerings) and ‘comparison’ behaviours (choosing between different solutions to the same demand). The other two separated out circumstances where there was a demand particular to the customer, distinguishing offerings in which there was only one place for the customer to go ( ‘destination’), or in which the supplier would adapt the offering to the customer’s requirement ( ‘custom’) within their context-of-use. The point being made, however, was that the ‘destination’ form of offering required asymmetric governance because of the need to hold power at the edge of the organisation. What distinguishes this position in the cycle?

If we think of the original development of pc-based spreadsheet programs in-house (destination), they soon became a limited number of alternative branded solutions (comparison) that in turn became dominated by the one offering all the others’ features in one package (cost). From here we have seen an increasing ability to customise the ways it can be used (custom) to the point where we are now looking at a new cycle of web-based solutions that we can build one-by-one (destination).

An answer can be found in Max Boisot’s book on Information and Organisations (HarperCollins 1994) in which he distinguishes two axes, one giving an account of the codification of a domain of knowledge, and the other an account of the diffusion of that knowledge across a population. Four different kinds of knowledge are described by him as a result:

  • Public knowledge, such as textbooks and newspapers, which is codified and diffused.
  • Proprietary knowledge, such as patents and official secrets, which is codified but not diffused. Here barriers to diffusion have to be set up.
  • Personal knowledge, such as biographical knowledge, which is neither codified nor diffused.
  • Common sense – i.e. what ‘everybody knows’, which is not codified but widely diffused.

With this comes a knowledge diffusion cycle, which we can approach in the same way as the cycle above, with the ‘solution’ being offered lying along the codification axis, and the customer’s ‘problem’ to which the supplier is offering a solution lying along the diffusion axis:

The result is a cycle showing the initial (problem-based) response as being a personal one to a particular demand in its particular context. A knowledge engineering process of codification can then transform this into a ‘product’, which can remain proprietary for as long as the codification can itself be protected (hoarded). Insofar as it cannot, it becomes public knowledge, so that competition is in terms of the cost of its provision. Finally, the process of embedding this public knowledge back into particular contexts through engineering use value takes us into the ‘custom’ quadrant. From here, the ‘jump’ is about starting a new cycle in relation to a new problem-based response.

It is easy to see in the ‘hoarding’ response a way of describing Microsoft’s defence of its market-leading position. In contrast, the Google approach has sought to accelerate the diffusion and embedding of its technology into others’ mashups to create competing ecosystems (and their associated landscapes) – a strategy of riding the cycle as a whole instead of seeking to hold position within it.1

We see now how it is the personal nature of this problem-based response that distinguishes taking power to the edge of the organisation. It used to be sufficient to rely on the ‘free’ market to incubate such innovations. All business then had to do was to buy the idea, and manage the rest of the governance cycle. The point we make in our paper, however, is that this is becoming more difficult not only because the rest of the cycle is speeding up, but also because demand itself is becoming increasing asymmetric: everyone wanting something different. So in the 21st Century the whole cycle is having to be managed, with the balance between the stages in the cycle changing. This presents those leading at the edge with a double challenge, but it also presents those at the centre with the leadership challenge of developing a capacity for asymmetric governance.

Notes
[1] An interesting example of this is to be found in on of the essays in Platform Economics, called “Two-Sided Markets” by David Evans.  To quote from pp145-146:

Two-sided platforms coexist and compete with other business models to fulfill customer needs. Market definition must consider the diverse ways in which a two-sided platform may face rivalry, taking into account the market participants’ reactions to price changes. These reactions are more difficult to predict when the firms are following different business models.
First, a two-sided platform may face single-sided competition on one or both sides. For example, a shopping mall developer faces competition from single stores for the attention of shoppers, as well as from real-estate investors that rent single-store locations. The degree to which these single-sided alternatives constrain the two-sided mall’s conduct is an empirical question.

An example of this is the Microsoft Office Suite competing with the (originally) separately sold word-processing and spreadsheet packages. But now consider Evans’ second type of situation (he goes on further, but these two types serve my purposes here):

Second, a two-sided platform may compete with a three-sided platform. The three-sided rival produces another product which could, for example, have below-cost prices on both sides served by the two-sided platform. A two-sided platform is particularly vulnerable to competition by a three-sided platform that uses its third side to subsidize both of the other sides. This asymmetric competition is potentially lethal to a platform that does not provide the third side. A multi-sided platform can therefore use “envelopment” to challenge platforms that provide a subset of the services it provides. It adds another group of customers to the platform and uses revenues from
this group of customers to lower the price—possibly to zero—of the key profit-generating side of the other platform.
For example, Google gives away office productivity software that competes with Microsoft’s software to users and software developers.44 By doing so, Google attracts customers and profits by selling access to those customers to advertisers. Google can use its advertising revenue
to compete with Microsoft in software. Competition from this advertising-supported software model has led Microsoft to enter into advertising to ensure that it also has a stream of advertising revenue available.

The example here is of Google building targetable traffic by accelerating the diffusion and embedding of the (in this case) office productivity technologies, subsuming Microsoft’s pursuit of direct value by its own pursuit of indirect value. (For more on this distinction, see what distinguishes a platform strategy).