As the year is coming to an end, I’ve been reflecting on my experiences from all the companies that I have worked with during the last 12 months. One reflection that I had was that many companies tend to be stuck in the past and that my role often is to make the people I work with understand that and then help them change. Let me illustrate with an example.
Companies that build physical products (that increasingly contain software) sell these products using a transactional model, meaning that the product is bought by a customer and the company, by and large, abdicates responsibility after the transaction. When using this business model, the focus of systems engineering is on minimizing the bill of materials (BOM) as every penny saved, repeated over hundreds, thousands or millions of product instances, adds up to significant savings and positive impact on the margin.
Many of these companies, however, start to employ new business models where they become responsible for service and maintenance and the customer, for instance, pays a fixed subscription fee. In this case, the focus of systems engineering should be to minimize the life-time cost and maximize the life-time value that the product can deliver. One of the most effective ways to accomplish this is by deploying new versions of software throughout the life of the product. Also, replacing electronics when the computational and memory resources are no longer sufficient can be an effective way to extend the lifetime of the physical product.
In practice, however, systems engineering, and R&D in general, often continues to optimize for bill-of-materials and, as a consequence, actively harms the interests of the company. The point here is that some or multiple functions in the company are optimizing for a business reality and business model that is no longer in the present, but rather lives in the past.
I have experienced similar situations with sales people, who prefer to sell pallets of physical goods rather than, often more valuable, services with associated recurring revenue, as well as general managers and executives who fail to realize that the world they grew up in no longer exists.
My point is that in many companies, most functions are optimizing for a business strategy and business model that no longer exists. Companies tend to be highly reactive and only when the pain associated with failing to change becomes so high (and margins and revenue are under pressure) will the first, reluctant, steps be taken.
So, how do you, and your company, stop living in the past? In my experience, I have seen three, complementary, strategies that seem to work well, i.e. experimentation, strategic alignment and civil disobedience.
First, innovation and change always break the rules of the status quo. This means that it is incredibly easy to reason with yourself why something new will never fly and result in unmitigated disaster. The shadow-beliefs underlying this need to be constantly challenged and this is achieved by experimentation. At any point in time, a company should have a number of innovation experiments ongoing to test and verify if the market is shifting or if a tipping point has not yet been reached. Here, the challenge is that most experiments will fail and that is a good thing because it means that the market isn’t (yet) ready to adopt the change and that you can continue as you were a little longer.
Second, functions in companies operate based on outdated principles because they have gotten out of sync with the business reality and the company strategy that, hopefully, has been defined in response to it. In almost every workshop that I facilitate, during the feedback round, people comment on the fact that they hardly ever meet people working in other functions. Marketing doesn’t talk to R&D. R&D doesn’t talk to the strategy department. The strategy department doesn’t talk to customer support. Etcetera. Putting effort into cross-functional and cross-disciplinary alignment goes a long way to ensure that when change happens, everyone in the company is ready to act.
Finally, although strategic alignment is critically important, there are times when individuals in the company see the change happen and the company as a whole is about to miss the boat. Successful companies allow for a certain level of “civil disobedience” where individuals at different levels in the organization break the rules, go against strategy or agreed upon practices because they believe wholeheartedly that the company is on the wrong path. Rather than stopping and punishing these people, we should remember how hard it is to go against the grain and how much one has to put him- or herself out there and take significant risk. Even when the individual turns out to be wrong, we should celebrate the attempt rather than use the normal social harmonization tools such as ridicule and shaming that often tend to be the rule.
Concluding, companies, functions and individuals have a tendency to live in the past. As you’re getting ready for a new year, make sure that you’re not falling into that trap. Instead, focus on experimentation, strategic alignment and civil disobedience to ensure that you live in the present and are ready to shape the future, rather than being an out-of-touch victim of it!