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Book Review – The only sustainable edge


The Only Sustainable Edge: Why Business Strategy Depends on Productive Friction and Dynamic Specialization

In this book John and John discuss how recent changes in the world will force, indeed are forcing, companies to change how they think about offshoring and outsourcing, innovation and even their core business processes. They describe how a combination of “Converging forces generate margin squeeze” where those forces are digital technology (driving down interaction costs) and public policy (deregulation, trade and market liberalization and globalization). These trends are certainly real and visibly changing our world as we watch. Not only can “Customers can access more information about more vendors, negotiate more effectively with still more vendors, and switch from one vendor to another whenever they find greater value” but companies have more options for how to piece together the resources they need to do business. These new conditions and options, though, require companies to change the way they plan, operate and turn a profit and it is these changes that the book mostly discusses. The authors argue that these trends and opportunities are actually changing what it means to be a company. Redefining the role of the firm from economizing on market transactions, the original raison d’etre of most companies, to one of accelerating knowledge and capability growth.

In terms of practical steps the authors suggest measuring the actual and planned behavior of your organization (by considering budget dollars and management time invested) and mapping them to four areas:

  • Efficiency to eliminate costs and waste
  • Specialization to focus on a smaller number of areas where the company can excel
  • Coordination of third party resources to fulfill the rest of the company’s needs
  • Accelerating capability building to get and keep ahead

They identify a number of techniques for this. Firstly loose coupling of which they say “Loose coupling represents a more modular approach to process management”. This means creating independent activities with clear owners and interfaces and performance guidelines. Thee activities can then be assembled and disassembled more easily to meet changing needs. Such an approach implied very tight business relationships (particularly strong in terms of trust) so that these process components can be loosely coupled. Decision management plays a role here for two reasons. Firstly companies assembling these loosely coupled processes for a variety of customers will want to allow those customers to change how decisions are made within the process – many decisions will have to be automated to meet the real-time nature of most of these processes. Thus some of the activities will be decision-centric and controlled by the customer of the process while still remaining tightly integrated. Secondly decision management helps generate the kind of audit trails and decision outcome logs that build trust both between companies and between companies and their regulators.

Secondly they discuss process outsourcing and offshoring and talk about the new outsourcers who “address the core operating processes of the firm”. Indeed the move from looking for commodity services to reduce costs to looking for world class capabilities elsewhere in the world. In this new world, specialization trumps savings.

Thirdly they talk about productive friction and how to turn it into innovation. For example, handling exceptions can be costly and inefficient and often people are brought together once, solve the problem and then all record is lost. They suggest the use of social software to capture this ad-hoc behavior and learn from it. As they say “Exceptions are a rich seedbed for business innovation. They force employees to address unexpected challenges and opportunities and to push their practices into new directions” and ultimately they change processes. While this may seem unrelated to decision automation, think about what the people who are needed for this exception handling are doing in your company. Well they are probably grinding through large numbers of repeatable decisions. If you automated those decisions you could free up this expertise to handle exceptions, look for broad patterns, help third parties work with you better and so on. Decision Automation may not create “productive friction” but it can free up the resources you need to generate it. They also note that “In particular, effective resolution of these exceptions requires a rich understanding of the context of the exception by all the stakeholders” and one of the attractions of decision automation is that when there is an exception the decision service can explain exactly why there is one – which rules fired or did not fire, which models return which results etc. This kind of context can help greatly in developing a resolution. Lastly, of course, decision automation gives you another way to learn from the exceptions as you process them – you can go and add more rules to the decision. Indeed in a recent post John Hagel discusses Automation vs. amplification and argues that “Too many companies have concentrated their IT investment on initiatives to automate processes – removing people wherever possible – rather than exploring how IT might be better used to amplify the talent of the people left.” While decision automation can remove people from a process it can also “amplify” the value of your staff, for instance by allowing underwriters to focus on agency management and geographic trends not rubber stamping policies.

Two final notes:

  • I think that companies doing the kind of diagnostics they suggest could consider the use of decision yield to see how they are doing in improving all aspects of their critical decisions
  • The authors talks a lot about building shared understanding for people but it is also true for systems. Decision management technology and an Enterprise Decision Management approach can make it possible to build “shared understanding” for all your information systems and for information systems outside the enterprise.

The book does a good job of showing how some companies are competing in ways that would be unimaginable just a few years ago and the authors lay out a compelling case that companies who do not respond to these new threats and opportunities are taking an enormous risk. Whether or not you believe the change will be as widespread as the book implies, the changes are real and will impact your business to at least some degree and this makes the book worth reading. You can buy it here.

Originally published on the EDM blog.