Vasa matta you?

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Harriet Wasserman writes:

We just came back from Stockholm where we visited the Vasa ship exhibit. In 1600 something, the king modified plans for his giant ship, to make it bigger and with more guns. His shipwrights (comparable to our engineers) told him he couldn’t add enough ballast and would have problems. He insisted, and they constructed the giant ship, covered with gorgeous carvings and carrying about a zillion guns. It got out into Stockholm harbor, tipped because of too little ballast, all the guns rolled to one side, and it sank. It was retrieved in 1963. The design story is all too familiar.

Core Principle #1 of the KJR Manifesto states that in order to optimize the whole you must sub-optimize the parts. It isn’t original (although I’ve been unable to track down its author). And it raised an objection in the correspondence I received in response to last week’s column that introduced the KJR Manifesto‘s core principles.

The objection was entirely reasonable. Paraphrasing, it’s that optimization never makes sense except in the concept of the larger whole, but that a naive manager, reading this catch-phrase, could use it as an excuse for poor operating discipline.

It’s a fair criticism. It can be applied to nearly any succinct statement of principle. That’s why each core principle is accompanied by explanatory text. It also raises a larger subject that’s well worth exploring: That in organizational design, when it comes to parts and wholes, “whole” is purely a matter of choice.

Consider General Electric. It’s pretty much run as a holding company. The point of optimization for GE isn’t the whole corporation — it’s the individual business units. They aren’t evaluated according to their functional contribution to the larger entity. Each must be one, two or out all by itself. That stands in contrast to Costco or Nucor, whose parts optimize Costco and Nucor, respectively.

Or take the pre-SBC-acquisition AT&T. Its point of optimization was the shareholder, and optimization was defined in terms of the price of a share of stock. It certainly wasn’t the company itself or any of its business units. The word that comes to mind when describing those is “pathetic.”

CEOs are responsible for clearly defining what gets optimized — the enterprise, individual business units, product lines, or what-have-you. Call that the Optimization Unit. Whoever is responsible for each Optimization Unit defines optimization priorities (perhaps cost, then speed, then quality), and aligns systems and structures with them.

Those who manage the divisions that make up an Optimization Unit deal with more complexity than the Optimization Unit manager, because any change … any improvement they might want to make in their own division … could have an impact on one or more of the other divisions in the Optimization Unit, as was the case with the Vasa and its improved armaments. And unlike physical engineering, organizational engineering is an imprecise discipline under the best of circumstances.

This analysis leads to the potential for conflicted IT. Imagine an enterprise that adopts a holding company structure, like GE. Now imagine a central IT organization that tries to support the enterprise. One IT organization that has to support multiple, autonomous Optimization Units won’t be able to sub-optimize its own operations in a consistent rational way.

Which is why, I think, CIOs in this position usually choose to either establish IT as an internal outsourcer, or to structure IT as an “organizational mirror” with separate departments, each aligned to a business unit.

Most managers, up to and including the Board of Directors (and, it appears, some Swedish kings) don’t understand this principle at all, figuring global optimization is nothing more than the sum of local optimizations. So they set up systems that assess the performance of sales, procurement, manufacturing, and distribution in isolation. I know this from personal experience, having been responsible for the manufacturing budget once upon a time. We were to develop our budget in isolation from sales forecasts. Predictably, the CEO pushed Sales to increase their forecast, and simultaneously pushed Manufacturing to reduce its budget. You can guess what happened next.

With all of the above in play, I don’t mind “sub-optimize the parts to optimize the whole” at all. It is catchy. More important, the phrasing requires executives and managers to figure out what constitutes the “whole” and their relationship to it, and to recognize that they can’t make choices in isolation.

A longer essay doesn’t do the job, because they’ll never read it … unless the catchy phrase first grabs their attention.