Guardrails for Empowerment and Collaboration

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Guardrails for Empowerment and Collaboration

• Turning Chaos Into Strategic Alignment

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What Keeps Me Up At Night?

• Blockbuster Video
• In 2002, stock at 30. Today, 4
• In 2005, losses of 600M (down from losses of
  1.2B in 2004) on revenue of 5.7B (2006 YTD,
  21M on 1.7B)
• Market cap of 713M, P/E of 16

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In the Meantime . . .

• Netflix
• Went public in 2002
• Stock price of 28
• In 2005, operating income of 8M on revenue of
  680M (2006 YTD 46M on 720M)
• Market cap of 1.9B, P/E of 30

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What Keeps Me Up At Night?

• While Blockbuster battled Hollywood Video and
  sorted out how to battle video-on-demand,
• Netflix introduced an entirely new model (pay a
  monthly fee, keep what you want as long as you
  want, send back to get new DVDs).
• This model seems to be making Blockbusters model
  obsolete.
• Who is trying to make my business model obsolete?

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What Can I Do To Sleep?

• As an organization
• Be able to respond to market dynamics quickly
  (minimum).
• Be able to drive market dynamics (nirvana).
• As an IT organization
• Be able to respond to changing external and
  internal customer needs (minimum).
• Be able to anticipate market dynamics (nirvana).

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Sounds Nice But How?

• The Agile Enterprise!
• What must be true?
• Agility requires innovation.
• Innovation requires collaboration.
• Collaboration requires focus and guidance
  (otherwise, it might devolve into chaos).
• Focus and guidance requires Intent / Strategy /
  Purpose (guardrails)

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Innovation and Collaboration

• Talk to Pollyanna
• But . . .will chaos follow?

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Guardrails

• Aligned with strategy.
• Aligned with purpose.
• Once defined, empower teams.

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Proposed Guardrails

• Strategic Intent (to help guide strategy).
• Strategy (to help guide purpose).
• Purpose (to help guide design and resource
  allocation decisions).

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Strategic Intent

• Treacy and Wiersema / Porter

Competitive Position
Cost
Differentiation
Cost Leadership
Product Leadership
Broad
Strategic Scope
Best Customer Solution
Narrow
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Strategy

• The essence of strategy is competitive advantage.
• Inside of our strategic intent, how do we create
  and sustain competitive advantage?
• Use SWOT (strengths, weaknesses, opportunities,
  threats) to connect intent and strategy.

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Purpose
High
Differentiate, Innovate
Do We Take This On?
Market Differentiating
Achieve and Maintain Parity, Mimic
Who Cares?
Low
High
Low
Mission Critical
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To Define Guardrails . . .

• Establish high level decision filters based on
• Strategic intent (price leader, product leader,
  best customer solution leader).
• SWOT (strengths, weaknesses, opportunities,
  threats) to define strategy.
• Use these filters to build our purpose-based
  alignment model.

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Headwaters Example Fly Ash

• Two customers power plants and concrete
  companies.
• What is our strategic intent? Best customer
  solution to the power plants.
• Strategic intent and SWOT produced a decision
  filter
• We engage in activities that lock-up long term
  supplies of quality fly ash.

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Fly Ash Guardrails

• Which of our business activities ensure that we
  lock up supplies of quality ash (i.e.
  Differentiating and deserving of Innovation /
  Collaboration)?
• Technology development.
• Service development.
• Customer intimacy.
• Which activities are at parity? Everything else
  (business rule standardization, product
  simplification, eCommerce, et cetera).

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Case Study Financial Services
Company provides merchant account services to
micro-merchants. Legacy IT is primarily
home-grown that has evolved with the company
(i.e. heterogeneous, minimal architecture,
difficult to relate cause and effect, inflexible,
expensive to maintain and support). Project to
replace IT was budgeted at over 1M and 16
months.
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Case Study Before
High
System reliability, System performance, CRM
Market Differentiating
Low
High
Low
Mission Critical
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Case Study After
High
Automated, rapid underwriting (i.e. Speed)
Processing Bank
Market Differentiating
System performance, System reliability, CRM
Low
High
Low
Mission Critical
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Case Study - Results

• Revised plan added innovation to automate risk
  assessment and underwriting.
• Revised plan eliminated design of functionality
  to improve reliability, performance, transaction
  volume, and CRM (mimic other designs, vanilla
  implementation of CRM).
• Accelerated growth, final project budget of 650K
  and 9 months.

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Caveats and Lessons Learned

• Purpose is not priority (in the case study, the
  highest priorities were the parity projects).
• Differentiating activities tend, over time,
  toward parity. On-going innovation is essential.
  Operationalize innovation and collaboration.
• There are no complexity initiatives!

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Caveats and Lessons Learned

• Taking this approach is likely different from how
  things are being done (but seems to be a common
  characteristic of successful organizations).
• To reduce change management issues, emphasize the
  mission critical nature of parity activities.

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Practice, Practice, Practice

• To get good at innovation and collaboration,
  practice.
• Use iterative methods
• Minimize bureaucracy (lean / six sigma)
• Benchmark

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Final Reminder
High
Innovate (unique might be good, these will move)
Form Relationships
Market Differentiating
Keep Pace, Mimic (unique is probably bad)
Who Cares?
Low
High
Low
Mission Critical
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Questions?

• nnickolaisen_at_hdwtrs.com