Confronting Business Uncertainty          February 17, 2012           Agile India 2012          Copyright © 2011 Solutions...
Speaker Introduction: Charlie RuddCEO of SolutionsIQAn Agile company thatprovides comprehensiveAgile solutions forconsulti...
How do we get to Agile portfolio management?   • Agile adoption requires a shift in prevailing     attitudes and culture  ...
The case for Agile management principles   • If Agile works well with software development     because its uncertain, then...
Two conceptual pillars: focus onComplexity               Copyright © 2011 SolutionsIQ. All rights reserved.
Traditional business culture: where doesuncertainty fit?                              Work                  Practices &   ...
Frank Knight: Risk vs. UncertaintyFrank Knight (1885-1972), Economist, University ofChicagoDistinguished between risk and ...
Risk• Faced with unknown outcomes but known  probability distributions (e.g., dice roll)• Maximize likely utility by calcu...
Uncertainty• Like risk, faced with unknown outcomes but unlike  risk also unknown probability distributions• Since no way ...
The risk-analytic world view       1900                                                                             200017...
Risk analytic world: uncertainty is lackof knowledgeUncertainty                   Risk                                    ...
Risk analytic world: Knowledge• Objective, enduring facts• That fit into causal  relationships to:   – Estimate risk   – M...
Risk analytic world: people                                   People are pretty much the  +3                              ...
Risk analytic world: social                                                                     $1000000                Co...
Risk analytic world: work                                       Manufacturing is the                                      ...
The risk-analytic world viewWorld: subject to rational inquiry & logicalanalysis. Risk can be measured & managed.Uncertain...
Risk-analytic world view                              Work                  Practices &                  governance       ...
Risk-analytic management principles• Identify best solution• Centralize information &  management decisions• Do it right t...
The risk-analytic business philosophy                                                                                    D...
Risk-analytic world: avoid uncertaintyUncertainty                    Risk                                     CertaintyOut...
Risk-analytic management principles                             Work                  Practices &                  governa...
Risk analytic world: business initiativesUncertainty                   Risk                                             Ce...
Risk-analytic business case1.       Identify a potential opportunity2.       Gather facts, make assumptions, run scenarios...
Risk-analytic program management1.       Set charter2.       Produce comprehensive specification3.       Produce comprehen...
Risk-analytic program management1.       Set charter2.       Produce comprehensive specification3.       Produce comprehen...
Risk-analytic program management1.       Set charter2.       Produce comprehensive specification3.       Produce comprehen...
Risk-analytic program management1.       Set charter2.       Produce comprehensive specification3.       Produce comprehen...
Risk-analytic program management1.       Set charter2.       Produce comprehensive specification3.       Produce comprehen...
The way its supposed to work!1. On budget2. On time3. 100% specification compliant                 Aint it great?         ...
Risk-analytic governance                                                                               Detailed spec & Bus...
Risk-analytic practices & governance                              Work                   Practices &                   gov...
Risk-analytic business culture                              Work                   Practices &                   governanc...
Risk-analytic business philosophyUncertainty                                              Risk           Certainty        ...
But what if it doesnt?• Today we hear a lot about business  uncertainty• U.S. Corporations are sitting on record  amounts ...
What is driving increasing business uncertainty?        Copyright © 2011 SolutionsIQ. All rights reserved.
A brief history of technology                                                         Yi kes!                             ...
Accelerating rate of technology change     Number of Years for New Technology to be       Adopted by 25% of U.S. Household...
Good ole Moore’s law                                         Transistors   1,600,000,000   1,400,000,000   1,200,000,000  ...
As the rate of change goes up…        Rate of Technology Change from        1950-2011 1950                                ...
Product lifecycles shorten        Rate of Technology Change vs.        Product Lifecycle 1950             1971 1974       ...
Adoption rate of MySpace through 2008           MySpace Active Users (per million)     200     180     160     140     120...
Adoption rates: Facebook vs. MySpace               Active Users (per million)      200      180      160      140      120...
Adoption rates: Facebook vs. MySpace                   Active Users (per million)      600      500      400      300     ...
Shorter product lifecycles means shorter  return horizons|--------------------||------------------------------------------...
OK, Technology is accelerating. So what?• Isnt this just progress?• Not too far from what the enlightenment  predicted, ri...
Unintended consequences revisted             Copyright © 2011 SolutionsIQ. All rights reserved.
Unintended consequences revisited • Unintended consequences are   unexpected consequences • By definition they cant be pre...
What causes unexpected consequences?• The platform effect   Stewart Kaufman• People (the pesky  irrational part)   David K...
Heuristics and Biases: the framing effectFirst case1. You receive $10002. Choose between the following:  A. 50% chance to ...
heuristics and biases: the framing effectSecond case1. You receive $20002. Choose between the following:  A. 50% chance to...
heuristics and biases: risk adversity hard-wired in1. First case: most people choose A2. Second case: most people choose  ...
heuristics and biases: we are not utilityoptimizing machinesPlenty of other examples• The case of the hungry judges• Defyi...
Accelerating rate of tech change, increasesrate of unexpected consequences              Technology                        ...
More unintended consequences leads tomore business uncertainty             Technology                                  Con...
Mounting business uncertainty means…Uncertainty                                              Risk           Certainty     ...
Business uncertainty is inescapable• In the risk-analytic world, uncertainty is caused  by missing information or faulty r...
Business uncertainty is inescapable  So what are we going to do?Well…               Copyright © 2011 SolutionsIQ. All righ...
Why not extend the risk-analytic strategy?Uncertainty                                                Risk           Certai...
The more risk management business case1.   Identify a potential opportunity2.   Gather facts, make assumptions, run scenar...
“More Risk Management” program mgtShaky business case leads to:• Incomplete, flawed specification• Flawed implementation p...
Traditional governance now impedes us1. Spec and plan insufficient as compliance controls2. No good way to modify spec or ...
Final outcome of the “more risk management”strategy1. Out of time and out of money2. Key features missing3. Delivered feat...
When tool does not fit the   problem anymore        Copyright © 2011 SolutionsIQ. All rights reserved.
Risk-analytic business culture                              Work                   Practices &                   governanc...
Risk-analytic business culture                              Work                   Practices &                   governanc...
Risk-analytic business culture                              Work                   Practices &                   governanc...
Risk-analytic business culture                              Work                   Practices &                   governanc...
If the risk-analytic world is wrong then…Uncertainty                                             Risk           Certainty ...
An alternative world view              1927                   1962 1963                            1975 1982   19961900   ...
Weve come along way, baby             Copyright © 2011 SolutionsIQ. All rights reserved.
Complexity is a management Issue        “…the time has come to broaden        the traditional approach to leadership and  ...
Simple, complicated, complex & chaoticUncertainty                                                                     Cert...
Simple, complicated, complex & chaoticUncertainty                                                              CertainChao...
Simple business conditionsUncertainty                                                                 CertainChaotic      ...
Complicated business conditionsUncertainty                                                               CertainChaotic   ...
Congruent with risk-analytic world viewUncertainty                                                                 Certain...
Complex business conditionsUncertainty                                                               CertainChaotic       ...
Chaotic business conditionsUncertainty                                                            CertainChaotic       Com...
Where are the business opportunities?Uncertainty                                                             CertainChaoti...
How different are these two world views?   Risk-analytic                                      Complex-adaptive            ...
Complex-adaptive world: uncertainty Uncertainty                                                            CertainChaotic ...
Complex-adaptive world: knowledge• Few hard facts• Dependence on tacit knowledge• Relevance not self evident• Needs interp...
Complex-adaptive world: people                                  • We are not just  +3                                    i...
Complex-adaptive world: social                                                                   $$$$$$$              Copy...
Complex-adaptive world: work                                 • Knowledge work is the                                      ...
Two business cultures              Copyright © 2011 SolutionsIQ. All rights reserved.
Risk-analytic business culture doubts maybe resolved                             Work                  Practices &        ...
May be resolved by integrating thecomplex-adaptive perspective                             Work                  Practices...
Complex-adaptive: management principles• Iterative progress• Feedback-driven adaption• Empower knowledge workers• Share in...
Different business principles• Identify best solution                          • Iterative progress• Do it right the first...
The risk-analytic business philosophy                                                                                    D...
Complex-adaptive management philosophy    Solution          Evaluation   prototype    (vision)            planning        ...
How do we reconcile these two worlds?   Risk-analytic                                               Complex-adaptive   • O...
The good old days: Business initiativesUncertainty                   Risk                                             Cert...
Today you must traverse both worldsChaotic                                                                     Simple     ...
How do we reconcile these two worlds?Through most of 20th century risk-analyticcarried more weight                 Copyrig...
Have we reached a tipping point?Early in the 21st Century, the alternativeperspective grows more persuasive               ...
Working towards an innovative businessculture                             Work                  Practices &               ...
The more risk management business caseUse real options to open up possibilities1.   Identify a potential opportunity2.   G...
Real Options – Decision tree                                                                               New            ...
Risk-analytic approach: manage variance                                                                   Simple          ...
Innovative approach with real options    Start with many Explore     Refine ideas                           End      possi...
Complex-adaptive governance                                                                              Agile    Real    ...
Governance for innovative initiatives              Emergent              Business                Case                     ...
The innovative enterprise: strategy             • Dynamic business conditions               means               – Constant...
The innovative enterprise: budgeting              • Annual planning needs to be                modified to adapt to intra-...
Agile portfolio management is activeportfolio management               • All investments (projects) reviewed              ...
The Innovative enterprise               Capital                           Real                            BusinessStrategy...
Working towards an innovative businessculture                             Work                  Practices &               ...
Governance designed for innovation                             Work                  Practices &                  governan...
Facilitates rather than impedes progress                              Work                   Practices &                  ...
Questions? Copyright © 2011 SolutionsIQ. All rights reserved.
Thank youCopyright © 2011 SolutionsIQ. All rights reserved.
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Business uncertainty agile india

  1. 1. Confronting Business Uncertainty February 17, 2012 Agile India 2012 Copyright © 2011 SolutionsIQ. All rights reserved.
  2. 2. Speaker Introduction: Charlie RuddCEO of SolutionsIQAn Agile company thatprovides comprehensiveAgile solutions forconsulting, training,development andrecruiting. Copyright © 2011 SolutionsIQ. All rights reserved.
  3. 3. How do we get to Agile portfolio management? • Agile adoption requires a shift in prevailing attitudes and culture • The big payout of Agile adoption is Agile portfolio management • Agile portfolio management requires that IT and the business are super-aligned • Alignment requires shared values and cultureAgile Values Traditional Values Copyright © 2011 SolutionsIQ. All rights reserved.
  4. 4. The case for Agile management principles • If Agile works well with software development because its uncertain, then maybe Agile can help us manage other kinds of uncertainty, including management or business uncertainty • To achieve that aim we would need to abstract Agile management principles Copyright © 2011 SolutionsIQ. All rights reserved.
  5. 5. Two conceptual pillars: focus onComplexity Copyright © 2011 SolutionsIQ. All rights reserved.
  6. 6. Traditional business culture: where doesuncertainty fit? Work Practices & governance Management principles World view Copyright © 2011 SolutionsIQ. All rights reserved.
  7. 7. Frank Knight: Risk vs. UncertaintyFrank Knight (1885-1972), Economist, University ofChicagoDistinguished between risk and uncertainty Risk Uncertainty Copyright © 2011 SolutionsIQ. All rights reserved.
  8. 8. Risk• Faced with unknown outcomes but known probability distributions (e.g., dice roll)• Maximize likely utility by calculating expected value• Basis of classic risk management techniques• Basis for “rational” decision-making• Basis for traditional business case decision-making Copyright © 2011 SolutionsIQ. All rights reserved.
  9. 9. Uncertainty• Like risk, faced with unknown outcomes but unlike risk also unknown probability distributions• Since no way to quantify expected value, classic risk management does not apply• Avoiding uncertainty is prudent• Embracing it is irrational Copyright © 2011 SolutionsIQ. All rights reserved.
  10. 10. The risk-analytic world view 1900 20001776 1921 1944 1971 1911 Copyright © 2011 SolutionsIQ. All rights reserved.
  11. 11. Risk analytic world: uncertainty is lackof knowledgeUncertainty Risk Certainty ?? ? ? ? ?? ? ? ? ?? ??? ? ? ? ? ? ?Unpredictable Predictable Known outcomes outcomes Copyright © 2011 SolutionsIQ. All rights reserved.
  12. 12. Risk analytic world: Knowledge• Objective, enduring facts• That fit into causal relationships to: – Estimate risk – Make predictions• There is one and only one right answer• Different people will draw the same conclusion Copyright © 2011 SolutionsIQ. All rights reserved.
  13. 13. Risk analytic world: people People are pretty much the +3 same -1 • Rational +2 • Self-interested • autonomous agents • Utility optimizing machines Sources of variance • Individual differences • Emotion Copyright © 2011 SolutionsIQ. All rights reserved.
  14. 14. Risk analytic world: social $1000000 Copyright © 2011 SolutionsIQ. All rights reserved.
  15. 15. Risk analytic world: work Manufacturing is the operating paradigm Labor • commoditized • fungibleThe fungible work machine Copyright © 2011 SolutionsIQ. All rights reserved.
  16. 16. The risk-analytic world viewWorld: subject to rational inquiry & logicalanalysis. Risk can be measured & managed.Uncertainty should & can be avoided.Knowledge: facts endure and accumulate;uncertainty is the absence of facts.People: rational agents bent uponoptimizing utilityWork: manufacturing, production-oriented;fungible; focused on optimization (AgileProject Management, Jim Highsmith) Copyright © 2011 SolutionsIQ. All rights reserved.
  17. 17. Risk-analytic world view Work Practices & governance Management principles Risk-analytic world view Copyright © 2011 SolutionsIQ. All rights reserved.
  18. 18. Risk-analytic management principles• Identify best solution• Centralize information & management decisions• Do it right the first time• Apply external constraints Copyright © 2011 SolutionsIQ. All rights reserved.
  19. 19. The risk-analytic business philosophy Do it right the1 – Centralized Best 2 – Centralized first time Evaluation Solution planning 3 - Production Facts Facts EconomiesObjective: optimize of scaleStyle: algorithmic Copyright © 2011 SolutionsIQ. All rights reserved.
  20. 20. Risk-analytic world: avoid uncertaintyUncertainty Risk CertaintyOutside the Inside the zone ofzone of rational rational inquiryinquiry Copyright © 2011 SolutionsIQ. All rights reserved.
  21. 21. Risk-analytic management principles Work Practices & governance Management principles Risk-analytic world view Copyright © 2011 SolutionsIQ. All rights reserved.
  22. 22. Risk analytic world: business initiativesUncertainty Risk Certainty Start End • Start at a position of manageable risk • Path to business value is clear • Outcome obtained is the one predicted Copyright © 2011 SolutionsIQ. All rights reserved.
  23. 23. Risk-analytic business case1. Identify a potential opportunity2. Gather facts, make assumptions, run scenarios3. Estimate likely return, if threshold met4. move forward I I I I I I Copyright © 2011 SolutionsIQ. All rights reserved.
  24. 24. Risk-analytic program management1. Set charter2. Produce comprehensive specification3. Produce comprehensive plan4. Implement plan $6 m $1.5 m $1.5 m $1.5 m $1.5 m I I I I I .5 years 1 year 1.5 years 2 years Copyright © 2011 SolutionsIQ. All rights reserved.
  25. 25. Risk-analytic program management1. Set charter2. Produce comprehensive specification3. Produce comprehensive plan4. Implement Plan $6 m $1.5 m I I I I I .5 years 1 year 1.5 years 2 years Copyright © 2011 SolutionsIQ. All rights reserved.
  26. 26. Risk-analytic program management1. Set charter2. Produce comprehensive specification3. Produce comprehensive plan4. Implement Plan $6 m $1.5 m $1.5 m $1.5 m $1.5 m I I I I I .5 years 1 year 1.5 years 2 years Copyright © 2011 SolutionsIQ. All rights reserved.
  27. 27. Risk-analytic program management1. Set charter2. Produce comprehensive specification3. Produce comprehensive plan4. Implement Plan $6 m $1.5 m $1.5 m $1.5 m $1.5 m I I I I I .5 years 1 year 1.5 years 2 years Copyright © 2011 SolutionsIQ. All rights reserved.
  28. 28. Risk-analytic program management1. Set charter2. Produce comprehensive specification3. Produce comprehensive plan4. Implement Plan $6 m $1.5 m $1.5 m $1.5 m $1.5 m I I I I I .5 years 1 year 1.5 years 2 years Copyright © 2011 SolutionsIQ. All rights reserved.
  29. 29. The way its supposed to work!1. On budget2. On time3. 100% specification compliant Aint it great? Copyright © 2011 SolutionsIQ. All rights reserved.
  30. 30. Risk-analytic governance Detailed spec & Business plan Project 2 – Centralized case charter planning decision 3 - Production Facts Facts Big bangRisk: Manage releaseUncertainty: Avoid Copyright © 2011 SolutionsIQ. All rights reserved.
  31. 31. Risk-analytic practices & governance Work Practices & governance Management principles Risk-analytic world view Copyright © 2011 SolutionsIQ. All rights reserved.
  32. 32. Risk-analytic business culture Work Practices & governance Management principles Risk-analytic world view Copyright © 2011 SolutionsIQ. All rights reserved.
  33. 33. Risk-analytic business philosophyUncertainty Risk Certainty Start• Competition gradually eliminates low risk opportunities• Prudence dictates: avoid business uncertainty• Exploit business opportunities where risk & opportunity can be quantified• Objective inquiry generates business opportunities Copyright © 2011 SolutionsIQ. All rights reserved.
  34. 34. But what if it doesnt?• Today we hear a lot about business uncertainty• U.S. Corporations are sitting on record amounts of cash because• Prudence dictates they avoid uncertainty• Why is more investigation not leading to more risk-managable opportunities?• Are we experiencing an anomoly or something else? Copyright © 2011 SolutionsIQ. All rights reserved.
  35. 35. What is driving increasing business uncertainty? Copyright © 2011 SolutionsIQ. All rights reserved.
  36. 36. A brief history of technology Yi kes! Ancient Greece Renaissance Stone Age Enlightenment Copyright © 2011 SolutionsIQ. All rights reserved.
  37. 37. Accelerating rate of technology change Number of Years for New Technology to be Adopted by 25% of U.S. Households3025201510 # of Years 5 0 Copyright © 2011 SolutionsIQ. All rights reserved.
  38. 38. Good ole Moore’s law Transistors 1,600,000,000 1,400,000,000 1,200,000,000 1,000,000,000 800,000,000 Transistors 600,000,000 400,000,000 200,000,000 0 1970 1972 1974 1978 1982 1984 1989 1993 1996 1999 2000 2003 2004 2007 Copyright © 2011 SolutionsIQ. All rights reserved.
  39. 39. As the rate of change goes up… Rate of Technology Change from 1950-2011 1950 2011 Copyright © 2011 SolutionsIQ. All rights reserved.
  40. 40. Product lifecycles shorten Rate of Technology Change vs. Product Lifecycle 1950 1971 1974 2004 2007 2011 Copyright © 2011 SolutionsIQ. All rights reserved.
  41. 41. Adoption rate of MySpace through 2008 MySpace Active Users (per million) 200 180 160 140 120 100 MySpace 80 60 40 20 0 2004 2005 2006 2007 2008 Copyright © 2011 SolutionsIQ. All rights reserved.
  42. 42. Adoption rates: Facebook vs. MySpace Active Users (per million) 200 180 160 140 120 100 Facebook 80 MySpace 60 40 20 0 2004 2005 2006 2007 2008 Copyright © 2011 SolutionsIQ. All rights reserved.
  43. 43. Adoption rates: Facebook vs. MySpace Active Users (per million) 600 500 400 300 Facebook MySpace 200 100 0 2004 2005 2006 2007 2008 2009 2010 2011 Copyright © 2011 SolutionsIQ. All rights reserved.
  44. 44. Shorter product lifecycles means shorter return horizons|--------------------||--------------------------------------------------------------------------|Investment Expected Return|--------------------||--------------------------------------------------------|Investment Return horizon shrinking|-----------|  |-------------------------------|Investment Expected Return Copyright © 2011 SolutionsIQ. All rights reserved.
  45. 45. OK, Technology is accelerating. So what?• Isnt this just progress?• Not too far from what the enlightenment predicted, right?• New technology just improves the playing field and raises expectation for performance. Whats wrong with that?• But then…why are things more uncertain rather than less uncertain Copyright © 2011 SolutionsIQ. All rights reserved.
  46. 46. Unintended consequences revisted Copyright © 2011 SolutionsIQ. All rights reserved.
  47. 47. Unintended consequences revisited • Unintended consequences are unexpected consequences • By definition they cant be predicted • Generally not part of the business case calculation • This is different kind of uncertainty than what Adam Smith predicted Copyright © 2011 SolutionsIQ. All rights reserved.
  48. 48. What causes unexpected consequences?• The platform effect Stewart Kaufman• People (the pesky irrational part) David Kahneman & Amos Tversky Copyright © 2011 SolutionsIQ. All rights reserved.
  49. 49. Heuristics and Biases: the framing effectFirst case1. You receive $10002. Choose between the following: A. 50% chance to win $1000 B. $500 for sure Copyright © 2011 SolutionsIQ. All rights reserved.
  50. 50. heuristics and biases: the framing effectSecond case1. You receive $20002. Choose between the following: A. 50% chance to lose $1000 B. Lose $500 for sure Copyright © 2011 SolutionsIQ. All rights reserved.
  51. 51. heuristics and biases: risk adversity hard-wired in1. First case: most people choose A2. Second case: most people choose B3. Yet from a maximize utility perspective there is no difference4. People hate to lose more than they like to gain Copyright © 2011 SolutionsIQ. All rights reserved.
  52. 52. heuristics and biases: we are not utilityoptimizing machinesPlenty of other examples• The case of the hungry judges• Defying logicDavid Kahneman, firstpsychologist to receive thenobel prize for Economics Copyright © 2011 SolutionsIQ. All rights reserved.
  53. 53. Accelerating rate of tech change, increasesrate of unexpected consequences Technology Conditions change Change Unexpected consequences Competition Platform responds effect People react Copyright © 2011 SolutionsIQ. All rights reserved.
  54. 54. More unintended consequences leads tomore business uncertainty Technology Conditions change Change Unexpected consequences Competition Platform responds effect People react Copyright © 2011 SolutionsIQ. All rights reserved.
  55. 55. Mounting business uncertainty means…Uncertainty Risk Certainty Start Start• Fewer and fewer good bets• However, doing nothing does not protect you• No choice to but to begin investments under conditions that previously were considered unsafe Copyright © 2011 SolutionsIQ. All rights reserved.
  56. 56. Business uncertainty is inescapable• In the risk-analytic world, uncertainty is caused by missing information or faulty reasoning.• This is different kind of uncertainty.• This is an irreducible uncertainty;• It cant be avoided because it cant be predicted• As technology accelerates unintended consequences breeds uncertainty like rabbits• disrupting rational-analytic ecology Copyright © 2011 SolutionsIQ. All rights reserved.
  57. 57. Business uncertainty is inescapable So what are we going to do?Well… Copyright © 2011 SolutionsIQ. All rights reserved.
  58. 58. Why not extend the risk-analytic strategy?Uncertainty Risk Certainty Start• Calculating risk has served us well• Let’s apply same techniques but with greater magnitude and sophistication• Thereby reducing the zone of uncertainty• This is consistent with the degrees of information perspective Copyright © 2011 SolutionsIQ. All rights reserved.
  59. 59. The more risk management business case1. Identify a potential opportunity2. Gather facts, make assumptions, run scenarios3. Stop before all is known4. What’s riskier? Doing nothing or something? Business case shaky I?? ? because instability of key I I I variables ? Copyright © 2011 SolutionsIQ. All rights reserved.
  60. 60. “More Risk Management” program mgtShaky business case leads to:• Incomplete, flawed specification• Flawed implementation plan ? $6 m $1.5 m $1.5 m $1.5 m $1.5 m I? ?? I I? .5 years 1 year 1.5 years 2 years Copyright © 2011 SolutionsIQ. All rights reserved.
  61. 61. Traditional governance now impedes us1. Spec and plan insufficient as compliance controls2. No good way to modify spec or plan or respond to emerging conditions3. No easy way to revise contracts and agreements Yet all the money is spent $0.0 m $1.5 m $1.5 m $1.5 m $1.5 m .5 year 1 year 1.5 years 2 years Copyright © 2011 SolutionsIQ. All rights reserved.
  62. 62. Final outcome of the “more risk management”strategy1. Out of time and out of money2. Key features missing3. Delivered features not desired (waste built in)4. Desired technical quality not delivered Copyright © 2011 SolutionsIQ. All rights reserved.
  63. 63. When tool does not fit the problem anymore Copyright © 2011 SolutionsIQ. All rights reserved.
  64. 64. Risk-analytic business culture Work Practices & governance Management principles Risk-analytic world view Copyright © 2011 SolutionsIQ. All rights reserved.
  65. 65. Risk-analytic business culture Work Practices & governance Management principles Risk-analytic world view Copyright © 2011 SolutionsIQ. All rights reserved.
  66. 66. Risk-analytic business culture Work Practices & governance Management principles Risk-analytic world view Copyright © 2011 SolutionsIQ. All rights reserved.
  67. 67. Risk-analytic business culture Work Practices & governance Management principles Risk-analytic world view Copyright © 2011 SolutionsIQ. All rights reserved.
  68. 68. If the risk-analytic world is wrong then…Uncertainty Risk Certainty Start What might be right? Copyright © 2011 SolutionsIQ. All rights reserved.
  69. 69. An alternative world view 1927 1962 1963 1975 1982 19961900 2000 Copyright © 2011 SolutionsIQ. All rights reserved.
  70. 70. Weve come along way, baby Copyright © 2011 SolutionsIQ. All rights reserved.
  71. 71. Complexity is a management Issue “…the time has come to broaden the traditional approach to leadership and decision making and form a new perspective based on complexity science.”“A Leaders framework for Decision Making,” HBR – David Snowden and Mary E. Boone Copyright © 2011 SolutionsIQ. All rights reserved.
  72. 72. Simple, complicated, complex & chaoticUncertainty CertainChaotic Complex Complicated SimpleUncertainty Risk Certainty• Like the risk-analytic world view, each domain has a different position along the certain/uncertainty continuum• But they also represent different ontologies Inspired by David Snowden’s Cynefin framework Copyright © 2011 SolutionsIQ. All rights reserved.
  73. 73. Simple, complicated, complex & chaoticUncertainty CertainChaotic Complex Complicated Simple• Like the phase changes of water (solid, liquid, gas), each domain has different properties• Tools designed for one set of properties may not work so well in a different domain Copyright © 2011 SolutionsIQ. All rights reserved.
  74. 74. Simple business conditionsUncertainty CertainChaotic Complex Complicated Simple Asphalt Distributor• Causal relations are self-evident• What you see is what you get Copyright © 2011 SolutionsIQ. All rights reserved.
  75. 75. Complicated business conditionsUncertainty CertainChaotic Complex Complicated Simple Oil Exploration• Domain of expert knowledge• Analysis yields objective path to success• Reliable predictive models• Realm of traditional business opportunities Copyright © 2011 SolutionsIQ. All rights reserved.
  76. 76. Congruent with risk-analytic world viewUncertainty CertainChaotic Complex Complicated Simple Oil Asphalt Exploration Distributor• Rational business decisions• Knowledge is explicit• Analysis yields optimal results Copyright © 2011 SolutionsIQ. All rights reserved.
  77. 77. Complex business conditionsUncertainty CertainChaotic Complex Complicated Simple Green Energy• Solution emergent not predictable• Must learn as you go• Plan evolves with emerging solution• Uncertainty is irreducible & inescapable Copyright © 2011 SolutionsIQ. All rights reserved.
  78. 78. Chaotic business conditionsUncertainty CertainChaotic Complex Complicated Simple Fail• No causality or order• Unrelenting turmoil• Opposite of a business opportunity Copyright © 2011 SolutionsIQ. All rights reserved.
  79. 79. Where are the business opportunities?Uncertainty CertainChaotic Complex Complicated Simple• Simple business opportunities are long gone or are quickly displaced by competitive forces• Chaotic is the opposite of opportunity• That leaves the complex and the complicated Copyright © 2011 SolutionsIQ. All rights reserved.
  80. 80. How different are these two world views? Risk-analytic Complex-adaptive Copyright © 2011 SolutionsIQ. All rights reserved.
  81. 81. Complex-adaptive world: uncertainty Uncertainty CertainChaotic Complex Complicated Simple• The root cause of uncertainty may not be lack of information or faulty reasoning• Emergent phenomena have unknowable outcomes• The accuracy of predictions cannot be quantified• No amount of research can discover the “best solution” Copyright © 2011 SolutionsIQ. All rights reserved.
  82. 82. Complex-adaptive world: knowledge• Few hard facts• Dependence on tacit knowledge• Relevance not self evident• Needs interpretation• Value of information is tentative and transient• Different perspectives integrated through collaboration Copyright © 2011 SolutionsIQ. All rights reserved.
  83. 83. Complex-adaptive world: people • We are not just +3 imperfect computers -1 ? +2 – Biases & heuristics – Expert systems • Cant always anticipate what we will do • And that aint all bad – multiple perspectives – Emergence of new ideas Copyright © 2011 SolutionsIQ. All rights reserved.
  84. 84. Complex-adaptive world: social $$$$$$$ Copyright © 2011 SolutionsIQ. All rights reserved.
  85. 85. Complex-adaptive world: work • Knowledge work is the operating paradigm • Designing rather than manufacturing • Individual differences – Tacit knowledge shared through collaboration – Team output not fungible • Human part is where you find value Copyright © 2011 SolutionsIQ. All rights reserved.
  86. 86. Two business cultures Copyright © 2011 SolutionsIQ. All rights reserved.
  87. 87. Risk-analytic business culture doubts maybe resolved Work Practices & governance Management principles Risk-analytic world view Copyright © 2011 SolutionsIQ. All rights reserved.
  88. 88. May be resolved by integrating thecomplex-adaptive perspective Work Practices & governance Management principles Complex-adaptive world view Copyright © 2011 SolutionsIQ. All rights reserved.
  89. 89. Complex-adaptive: management principles• Iterative progress• Feedback-driven adaption• Empower knowledge workers• Share information• Facilitate self-organization & collaboration• People are idea incubators• Deliver early and frequently Copyright © 2011 SolutionsIQ. All rights reserved.
  90. 90. Different business principles• Identify best solution • Iterative progress• Do it right the first time • Feedback-driven adaption• Centralize information & • Empower knowledge management decisions workers & share• Apply external constraints information• People are labor • Facilitate self-organization production units & collaboration• Leverage economies of • People are idea incubators scale • Deliver early and frequently Copyright © 2011 SolutionsIQ. All rights reserved.
  91. 91. The risk-analytic business philosophy Do it right the1 – Centralized Best 2 – Centralized first time Evaluation Solution planning 3 - Production Facts Facts EconomiesObjective: optimize of scaleStyle: algorithmic Copyright © 2011 SolutionsIQ. All rights reserved.
  92. 92. Complex-adaptive management philosophy Solution Evaluation prototype (vision) planning Production Iterative progress Production incrementObjective: Innovate Early &Style: Heuristic frequent delivery Copyright © 2011 SolutionsIQ. All rights reserved.
  93. 93. How do we reconcile these two worlds? Risk-analytic Complex-adaptive • Optimize • Innovate • Algorithmic • Heuristic • Uncertainty closes • Uncertainty things down opens things up Copyright © 2011 SolutionsIQ. All rights reserved.
  94. 94. The good old days: Business initiativesUncertainty Risk Certainty Start End • Start at a position of manageable risk • Path to business value is clear • Outcome obtained is the one predicted Copyright © 2011 SolutionsIQ. All rights reserved.
  95. 95. Today you must traverse both worldsChaotic Simple Start End • Start in an uncertain position • Navigate through uncertainty • As you learn more revise risk calculations • Outcome obtained is the one that emerges Copyright © 2011 SolutionsIQ. All rights reserved.
  96. 96. How do we reconcile these two worlds?Through most of 20th century risk-analyticcarried more weight Copyright © 2011 SolutionsIQ. All rights reserved.
  97. 97. Have we reached a tipping point?Early in the 21st Century, the alternativeperspective grows more persuasive Copyright © 2011 SolutionsIQ. All rights reserved.
  98. 98. Working towards an innovative businessculture Work Practices & governance Management principles Complex-adaptive world view Copyright © 2011 SolutionsIQ. All rights reserved.
  99. 99. The more risk management business caseUse real options to open up possibilities1. Identify a potential opportunity2. Gather facts, make assumptions, run scenarios3. Stop before knowledge reached4. And… Business case shaky I?? ? because instability of key I I I variables Real Options ? Copyright © 2011 SolutionsIQ. All rights reserved.
  100. 100. Real Options – Decision tree New Assumption Yes Assumption two No YesAssumption one No STOP Real STOP Options Copyright © 2011 SolutionsIQ. All rights reserved.
  101. 101. Risk-analytic approach: manage variance Simple Start with expectation End Of ideal solution Copyright © 2011 SolutionsIQ. All rights reserved.
  102. 102. Innovative approach with real options Start with many Explore Refine ideas End possibilities new options RealOptions Copyright © 2011 SolutionsIQ. All rights reserved.
  103. 103. Complex-adaptive governance Agile Real Business Project Options Case ManagementSmall bets help If business case Apply agile project determine emerges proceed; management direction but keep it open They work together as a system Copyright © 2011 SolutionsIQ. All rights reserved.
  104. 104. Governance for innovative initiatives Emergent Business Case Agile Project Management Evaluation planning Real Options Production• Heuristic• Adaptive Early & frequent delivery Copyright © 2011 SolutionsIQ. All rights reserved.
  105. 105. The innovative enterprise: strategy • Dynamic business conditions means – Constant innovation – More course corrections Strategy • Feedback, information sharing and collaboration needed to integrate learning as you go Copyright © 2011 SolutionsIQ. All rights reserved.
  106. 106. The innovative enterprise: budgeting • Annual planning needs to be modified to adapt to intra-year changes • Capital budgeted by sectors, Capital Budgeting according to degree of uncertainty Copyright © 2011 SolutionsIQ. All rights reserved.
  107. 107. Agile portfolio management is activeportfolio management • All investments (projects) reviewed quarterly (new and funded) • Investments are “uncertainty” adjusted Agile Portfolio • Persistent teams are leveraged to Management retain collaboration power and tacit knowledge integration • Capital deployment is based on portfolio—not project— optimization Copyright © 2011 SolutionsIQ. All rights reserved.
  108. 108. The Innovative enterprise Capital Real BusinessStrategy Budgeting Options CaseActive Portfoliomanagement is the Active Portfolio Managementcenter of continuouscollaboration & adaption Agile Projectto emerging conditions Management Copyright © 2011 SolutionsIQ. All rights reserved.
  109. 109. Working towards an innovative businessculture Work Practices & governance Management principles Complex-adaptive world view Copyright © 2011 SolutionsIQ. All rights reserved.
  110. 110. Governance designed for innovation Work Practices & governance Management principles Complex-adaptive world view Copyright © 2011 SolutionsIQ. All rights reserved.
  111. 111. Facilitates rather than impedes progress Work Practices & governance Management principles Complex-adaptive world view Copyright © 2011 SolutionsIQ. All rights reserved.
  112. 112. Questions? Copyright © 2011 SolutionsIQ. All rights reserved.
  113. 113. Thank youCopyright © 2011 SolutionsIQ. All rights reserved.

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