All Posts in Organizational Design

|In: Leadership|Last Updated:

Among the strange quirks of human psychology is this: While most people know that argument by analogy is invalid, we’re universally vulnerable to how the analogies we choose influence our thinking. For example, those describing corporations and their behavior have, among other metaphors, likened them to jungles, predators, economies, giant human beings, prosthetics, robots, factories, plants, farms, computers, and amoebas.

If you envision your employer as a prosthetic — as a mechanical extension of the will of its owner — you’ll have very different expectations of how it will and should behave than you will if you think of it as a self-directed machine. Among the differences in perspective is how you’ll think about optimization — the subject we’ve been pursuing (beating to death?) the past several weeks. If you consider the enterprise to be a machine, you’ll think about optimization and wonder how many decimal places you can take it to. If you figure it’s an economic system you will, Adam Smith fashion, establish a network of charge-backs and expect the invisible hand to optimize everything without anyone having to worry about it very much.

What’s the best way for you to think about the part of the enterprise you lead? Personal opinion: Push all metaphors out of your head. Relying too much on metaphors is like wearing blinders.

Oops.

As pointed out in last week’s column, few situations allow you to optimize for just a single variable. Imagine you’re running a small company that manufactures a single product. Imagine, for the sake of argument, that you know, with a certainty, exactly how variations in each of your product’s attributes — price, durability, performance and so on — will affect its attractiveness to the universe of potential customers. And finally, to prove it’s a fictional scenario, imagine you’ve created a system of simultaneous equations that perfectly accounts for all aspects of your business, including the cost of manufacturing and distributing your product and how the cost changes with each variation in the product’s attributes.

By manipulating your system of simultaneous equations you can posit any number of product variations, predict exactly how much each will cost to manufacture, and what selling price will maximize your profits for that product variation. With this excellent command of your enterprise you’ll have no trouble formulating the exact situation that maximizes your profits (I’ll leave the math as an exercise for the reader).

Except ,,, even if you do end up with a single solution that maximizes profits, that solution might not do much to position your company for future success. And since the future is intrinsically unpredictable, you’re still making guesses, even in this idealized scenario.

So much for fiction. No company has this level of understanding. No company has anything remotely resembling this level of understanding, and there’s no point in pretending any company does.

How does this relate to your situation? You don’t run a whole company — you run a department or division in the company. The company doesn’t have a system of simultaneous equations that shows exactly how changes to different departments affect overall profitability. All it has is a budget, and nobody even understands that.

So to take the first step toward optimizing your part of the company, forget about the whole notion of optimization. It’s a chimera.

But don’t give up entirely. Just because you don’t have a system of simultaneous equations to optimize doesn’t mean you have to sit on your hands doing nothing.

Here’s a sane starting point, which I learned from my research advisor back in my electric-fish days: Understand your subject at three levels of description. Learn your personal level of responsibility in depth. Develop a working knowledge of the levels above and below. I studied behavior, which meant I had to understand behavioral theory in depth while developing a working knowledge of neurobiology and sociobiology. Three levels of description.

In a business situation (I’m guessing you aren’t all that interested in the behavior of electric fish) it means you should thoroughly understand what you’re personally responsible for while developing a working knowledge of the responsibilities of those reporting to you (level below) and how your organization contributes to the ones it directly connects to (level above). This more limited understanding of the universe and your place in it won’t let you achieve global optimization. Understanding the level above will, however, help you develop plans to improve your own organization in ways that are likely to contribute positively to the company as a whole.

Understanding the level below means you won’t make those who have to make it happen burst into hysterical laughter.

I’ll wrap up this subject next week … I hope!

Comments

|In: Organizational Design|Last Updated:

Optimize” is such an easy word to say. Putting it into practice is more slippery.

Since we’ve been talking about optimization and sub-optimization for the past couple of weeks, we need to be clear on the concept. As a starting point, here’s what I want you to do: Whenever you talk about optimizing anything, follow “optimize” with the words, “with respect to.” Optimization in any system is … must be … about a single variable.

Imagine you’ve been assigned responsibility for optimizing your company’s order processing operation. “You have full authority,” the CEO tells you. “Do whatever you have to do — kick shins and take names.”

Head spinning from your newfound authority and status, you head back to your office, which is where you realize: The CEO didn’t follow the “with respect to” rule. He didn’t clarify whether optimization is supposed to be for total cost, marginal cost, overhead cost, throughput, cycle time, accuracy, or up-selling success. (As a long-time reader of Keep the Joint Running and its predecessors you realize that “quicker/cheaper/better — pick two” is a serious oversimplification.) You do know that your CEO isn’t a fine-distinctions/make-hard-choices kind of guy — that if you were to raise the subject at all, he’d answer, “All of the above.”

But “all of the above” is mathematically impossible. Increasing up-selling success requires longer interactions between the buyer and your order-taking staff, and a shift away from your e-commerce site to the order-entry call center. That increases costs. Often, a reduction in cycle time can result in a decrease in throughput (see “Quicker isn’t as simple as it looks,” if this point isn’t clear). Improving accuracy can slow things down. And so on.

It’s a good thing the CEO gave you full authority. With luck, that will include the authority to decide what you’re going to optimize. Here’s the hard part: Just because you can doesn’t mean you should. Engineers prefer to optimize for a single variable, or failing that to create a hierarchy of optimization priorities (throughput, then cycle time, then cost …). Doing so makes the engineer’s job easier. That doesn’t mean it’s the right answer. While it’s tough to acknowledge the point, our fictional CEO was onto something.

Don’t believe me? When in doubt, I always say, use an automotive analogy to illustrate:

Road & Track magazine used to define a sports car as a car with nothing in it that doesn’t make it go faster. Road and Track sacrificed accuracy for cute phrasing, though, because it’s a drag racer that has nothing in it that doesn’t make it go faster (except for the parachute). A sports car has nothing in it that doesn’t help it drive more responsively.

Dragsters have fewer design trade-offs than sports cars because dragsters have a simpler job to do. “Going faster” translates to accelerating as fast as possible, obtaining the maximum speed possible, driving in a straight line without loss of control, and stopping in a way that allows the car to race again and doesn’t kill the driver.

In contrast, driving responsively — the job of a sports car — requires:

  • Accelerating in as close accordance to the driver’s wishes as possible (acceleration must be calibrated).
  • Achieving a very high velocity.
  • Driving in a straight line without loss of control.
  • Driving around the tightest possible curve at the maximum possible speed without loss of control.
  • Decelerating as fast as possible, or, in other circumstances, in as close accordance to the driver’s wishes as possible (deceleration must also be calibrated).
  • Providing drivers with tactile and visceral feedback — letting them “feel” the road.

Designers of sports cars have a more complex job than designers of drag racers, and inevitably end up with design tradeoffs. The suspension, brakes, and tires needed to satisfy handling requirements, for example, add weight that reduces acceleration and maximum speed.

And sports-car designers have it easy compared to the folks who design minivans, because the function of a minivan — hauling a family and its stuff around — leads to a list of requirements that isn’t just longer, but is also rife with contradictions. The need for removable seats, so owners can substitute cargo for passengers, conflicts with the need to make the seats comfortable. The need for fuel economy in a vehicle of minivan dimensions requires engine features incompatible with easy maintenance. The minivan needs to be big enough to carry eight passengers but you still need to park the sucker.

Business process design has more in common with minivans than drag racers. That doesn’t make the task hopeless. It simply makes it more interesting.

It also gives me a topic for next week’s column — how to go about it — and that isn’t a bad thing either.

Comments