Introduction

Our Goal Is To Win

Our goal is to win--to win games, business competitions, markets, or personal goals.  Winning is defining the future that will satisfy us and then making it happen.  It is creating the future you want.  You win by thinking and acting strategically.  Strategy is all about minimizing risk while maximizing reward; or put another way; it is about making sure that the odds are as much as possible in our favor.  It is about achieving long-term success--not about winning a single battle or a single competition.  Long-term success means that you have succeeded in taking advantage of opportunity after opportunity and that you have apportioned our resources correctly to ensure success after success.  Winning one battle and collapsing thereafter is to no avail unless the single battle ensures permanent success--which it almost never does.

You sometimes think that strategy is a luxury, something to be done once every few years in order to have a “strategic plan.”  To the contrary, it is a daily requirement and probably the most important function of a leadership team, for it is strategy that allows tactical efforts to have payoff and to be worthwhile.  Great strategy can succeed in the absence of great tactics, but great tactics in the absence of even mediocre strategy are unlikely to lead to victory.  Strategy, then, is the number one responsibility of all managers--if managers fail to take their strategy responsibilities seriously, they are doing a huge disservice to those below them.  Strategy, however, is not just of interest to managers, but it is--or should be--of interest to everyone in an organization.  To the extent that everyone knows the strategy and takes part in building it, each person is far more likely to make the right small decisions that must be made almost constantly.

The Prometheus Process, a unique approach to creating and executing strategy, has worked well in a variety of business, national security, war, political, and government environments.  It has the highest value when used to create an organization as in a business start-up situation or to plan something like a war or political campaign from the very beginning.  In the event that an organization or campaign did not start with a well-conceived strategy, however, the Prometheus Process is applicable from any point to ensure the best possible outcome given the prevailing circumstances.  Thus, the Process is excellent for contingency planning, crisis management (where the tendency is grasp short term tactical solutions without understanding their long-term strategic impact), forward look assessments, transformation efforts, and campaign planning (product introduction, brand development, and military operations ranging from war to humanitarian).

What is not acceptable is failure to think, plan, and act strategically regardless of position or circumstances.

During our Prometheus Academy discussions of strategy, attendees see many slides and hear many concepts, which may be rather new.  The intent of these Concept Summaries is to provide a simple summation of the main ideas in each of the presentation sections.  The “Concept Overview” part of each Summary will provide a good big picture preview and review.  In many cases, there is also elaboration on some complex ideas or additional illustrations.  In any case, the Summaries should help attendees get as much as possible out of the intense Academy experience during the Academy and thereafter as they want to review some or all of the material.

These Summaries are intended to complement the following additional Prometheus Process literature:

Winning In FastTime, John A. Warden III and Leland Russell, 2002: This book provides a macro look at the Prometheus Process in a business environment.

The CEO Guide To Executing The Prometheus Process (2005): The CEO Guide provides a roadmap for organization leaders as they consider embarking on the Prometheus Process, positioning it within their organizations, and developing and executing Prometheus Process Grand Strategies.

The Prometheus Process Planning And Execution Guide (2006):  The Planning and Execution Guide provides specific “How-To” guidance for developing and crafting each element of the Grand Strategy and techniques for executing the Grand Strategy by Campaign Teams.

The Prometheus Process Planning Session Guide (2007): The Planning Session Guide provides specific instructions to facilitators necessary to conduct the various types of planning sessions associated with the Prometheus Process.

Prometheus Concept Summaries

The Prometheus Process Overview: (Venturist, Inc. Prometheus Process Summary;  Venturist Home Page; Top Of Page)

Concept Overview

There is a huge difference between strategy and tactics, but most of us, when you assume positions that require strategic thinking, tend to extrapolate and scale up our tactical lessons.  This sometimes works just as blind pigs occasionally find truffles, but you don’t want to count on it.  The most important job for a leader or manager is to develop and execute a sound strategy.  A good strategy will allow success even if the organization does not have the best tactical capability (products, sales, etc).  Conversely, a bad strategy can easily overcome the best tactical capability in the world.

There are four words that capture the essence of strategy:  where (do you intend to be in the future); what (are you going to apply your resources against); how (do you intend to apply your resources); and exit (plans available and ready for execution).  The Prometheus Process draws on the natural laws of strategy to provide a methodology for an organization to develop good enough strategy, to understand how it did so, and to get organizational commitment to the strategy.

The Prometheus Process works back from the future as it starts with development of a Future Picture—exactly where the organization intends to be at a point some distance in the future.  To get to the future, it is necessary to change two major systems—your own internal system and external system in which you function—your market.  It is necessary to change both in parallel; failure to do so will significantly reduce the probability of success (Ps).  Planning and operating in the open (a Cardinal Rule) is the best known method to come up with good-enough plans that will be understood and executed appropriately by the organization.  The Prometheus Process is an especially useful strategy planning process because it can be used at all levels of an organization; the same system used in the board room applies equally well for the smallest project.  As people in an organization learn the process and the vocabulary, they find that they have a way to communicate strategically across the whole organization.  In the final analysis, strategy has two overwhelmingly important functions:  raising probability of success and reducing the cost of error.

Creating good strategy can seem overwhelmingly difficult—until you break it down into its component parts and into manageable building steps:

·       Scope the Environment: Understand the major factors in your operating environment that will affect your business

·       Develop a Future Picture:  In this step, you go forward in time (normally 2-7 years but the time frame can be more or less depending on your situation) to describe exactly the future you want for your business.  You will answer 12 questions to ensure that you have a high resolution view of your future.  Then, you will write strategic measures for each aspect of your Future Picture so that you know you are on track and will know when you have arrived

·       Write Guiding Precepts:  You now decide what you want to stand for as a business, what your big philosophical ideas are, and how you want to behave.  Nordstrom’s “the customer is always right” is a good example of a guiding precept.

·       Configure your External System (your market environment):  Determine the confines of your market and decide what it must be if you are going to be successful.

·       Map the External Centers of Gravity: Find, or create, the Centers of Gravity (the leverage points) you will need to affect in order to make the External System do what it needs to do for you to reach your Future Picture

·       Map the Internal Centers of Gravity:  Find, or create the Centers of Gravity that you must address in your Internal System (your business) if you are going to succeed.

·       Build Strategic Impact Plans:  Decide what each of your Centers of Gravity must become (their Desired Effect) and by when to ensure the needed External and Internal system change.

·       Build the Phase Plans:  You are unlikely to have sufficient resources to affect all of your Centers of Gravity simultaneously (the ideal approach) so you need to decide the order of attack which will be based on your understanding of systems and parallel operations (covered in following lessons).

·       Create Campaigns:  In this step you divide up the work on your Centers of Gravity and assign them to teams of people if available or to time periods where you will work on them.

·       Optimize Your Organization:  As you plan and act strategically, you will probably find that you need to change your organization (even if you are a single owner!).  Now is the time to do it.

·       Develop Exit Points and Exit Plans:  If all goes perfectly with no unexpected problems, you will realize your Future Picture.  This would constitute an exit point by definition.  Decide now what your strategic actions will be at this point.  On the other hand, it is possible you will encounter problems along the way or that your products are not selling as you thought they would.  Think now about these contingencies and develop the plans you will follow if the exit points occur.  Of course, this also helps you take actions to reduce the probability of adverse exit points occurring.

·       Red Team:  Step back now from all your planning and look at it with an ultra-critical eye.  Come up with all the things that are weak about your plan, then either fix them or restart your planning.

·       Campaign to Win:  Make the Centers of Gravity do you need them to.  Determine the actions (the tactics) to make them change, then put the people and resources needed against them.  During this step, keep a careful eye on your strategic measures to make sure you are on the right track.

·       Follow the Cardinal Rules:  If you work at following the Cardinal Rules, you really improve your chances of success.  Regularly review how well you are adhering to them.

·       Open Plan, Measure, Review, Modify, Exit:  Keep your operations visible to your team (and to yourself!) by continuing to plan and operate in the open, continually measure your progress and adjust as required, and exit promptly and cheerfully as required.

·       Enjoy the fruits of your labor as you realize your Future Picture—or as you apply your lessons and resources to another endeavor.

Strategy Trumps Tactics

Throughout history, there have been a number of examples of where a state or a group with a good strategy was able to defeat an opponent with significantly greater tactical capability (numbers, weapons, etc).

·       David versus Goliath

·       Alexander versus Persians

·       Julius Caesar versus Pompeii

·       Washington versus British

·       Wellington versus Napoleon

·       MacArthur versus Japan

·       North Vietnam versus United States.

In business, firms with relatively few resources are typically the ones who introduce major innovations that end up disrupting whole industries and markets.  (See Scope the Environment for examples of disruptors.)

The Cardinal Rules: (Venturist, Inc. Prometheus Process Summary;  Venturist Home Page; Top Of Page)

Concept Overview

The Cardinal Rules are a set of guidelines that are invaluable to follow while planning and executing whether at a strategic or tactical level.  If you follow these rules, you are more likely to be successful than if you ignore them.  What follows is a very brief review of each rule with an associated additional illustration of the idea.

·       Think Like an Architect—Not Like a Bricklayer:  Start with the overall big-picture concept, and then work to details.  If you start with the bricks, you will build a brick structure whether or not that is the right choice.   Non-architectural thinking almost always ends up with serial operations (see Parallel Operations) which means a very contorted path forward in time.  Motorola’s introduction of the Iridium satellite phone network failed to follow this rule.

·       Focus on the Future:  Value is in the future, not in the past.  If you don’t focus on the future, you will end up repeating what you did yesterday, albeit with some modification—which tends to be marginal.  The Pennsylvania Railroad violated this rule and went bankrupt in the process.

·       Execute Good-Enough Plans:  The world is changing while you are planning.  If you take too long to plan in an attempt to create a perfect plan, the world will have changed sufficiently to invalidate your initial assumptions, or more likely, someone with an action bias will have stolen a march.  Michael Dell followed this rule as he introduced new computer buying methods quickly and then improved them over time.

·       Go to Rome:  All of us have a tendency to concentrate on the immediate problem without keeping in mind what you really want to accomplish.  Rome may be a place, but more often it is a state of being.  Bill Gates did an excellent job in this area where almost from the beginning, his Rome state of being was a company that had the dominant graphical user interface software and associated applications that were of interest to the majority of computer users.

·       Concentrate for Success:  Although this seems obvious, you frequently deploy our resources to avoid tactical failure rather than to maximize strategic success.  Properly thought through, however, you can deploy our resources in such a way as to improve our chances of success while giving us a mechanism to deal with genuinely strategic threats—which probably means ignoring some of the tactical problems.  Early Japanese automobile makers did a great job here as they focused themselves on markets in which they could succeed—first at home and then in the US.

·       Defend All—Lose All:  This Cardinal Rule is the evil twin of Concentrate for Success.  It says that nobody is powerful or rich enough to defend all their markets and products and that some are worth more than others.  If you try to defend them all, you end up losing them all.   The famous department stores of yesterday violated this rule by trying to be all things to all customers—something they simply were not able to do in the face of specialty stores and the big box discounters.

·       Stay Out of the Balkans:  Don’t sink scarce resources into projects that will not have much if any impact on strategic success even if they are successful.  Balkans are projects that make look great on the surface and may be quite well run but which consume resources and management time that should be spent on strategic issues.  British Petroleum in 2006 seemed to become so mesmerized with its environmental crusades that it forgot to pay attention to strategic interests such as its Alaskan pipelines.

·       Maximize Friends, Minimize Enemies, Choose Wars:  You can never have too many friends whereas even a single enemy creates a potential problem.  Even if you are very strong, many enemies will eventually destroy you just as the tiny Lilliputians were able to enslave Gulliver.  Wars (think competitors) are very expensive and chancy.  The ideal world is one where you have no competitors and your major chore is to find new customers and sell to them.  This is sometimes thought of as finding blue water opportunities (see Blue Ocean Strategy).  Cirque de Soleil created a market between the circus and the Broadway show where it basically had no competitors.

·       Don’t Underestimate What It Takes To Win:  Few endeavors turn out to be as inexpensive in money and energy as original prognostications predict.  Unfortunately, great enterprises in war and business start out grossly underestimated.  The frequent result is failure with concomitant loss of the entire investment.  Careful, conservative estimates of cost may keep you out of some good projects, but you are far more likely to succeed with the ones you do undertake.  In addition, conservative funding of a project probably means that you will automatically have something in reserve—which will mean that you are following another Cardinal Rule—Maintain and Use Reserves.

When developing a business plan for a new company, product, or project, planners typically make cost estimates in order to assess whether revenues/benefits will cover costs (see cost-benefit analysis). This is done in both business and government. Costs are often underestimated resulting in cost overrun during implementation. Main causes of cost underestimation and overrun are optimism bias and strategic misrepresentation (Flyvbjerg et al. 2002).[1]

In the home improvement area, the author has adopted the “rule of 9” for estimating time.  Decide how long a project will take, multiply by three, then multiply by three again.  This is generally accurate and helps avoid taking on projects where the time to do them is simply not available.

·       Don’t Deceive Yourself:  The terms “articulated” and “axiomatic” to describe different approaches to strategy may seem overly complex, but there do not seem to be any better words to describe the common phenomenon of where the leader of an organization announces a bold new plan (articulated), then promptly continues doing everything the old way (axiomatic).  People and organizations frequently (mostly?) confound themselves by failing to force change in axiomatic behavior to match the new articulated policy.  The default is for people to revert rapidly to their old way of doing something (axiomatic) and that is exactly what will happen absent strenuous and open efforts to prevent it.  This rule applies not only to new policies but also to maintaining old ones.  For example, Home Depot was well known for its successful emphasis on customer service when Bob Nardelli left General Electric to become Home Depot’s top man.  He immediately devoted himself to establishing cost controls and other techniques that had been successful with GE’s business-to-business operations.  Not surprisingly, customer service began to collapse and finally became so bad that it led to Nardelli’s departure in early 2007.  Conversely, Nordstrom’s has long had an articulated policy of customer service, but knows that it needs to back it up with constant hiring, training, and incentive programs lest even its legendary service collapses.  If you say you are going to do something, mean what you say, then demonstrate it by your own actions to include building the support programs necessary to align organizational behavior.

·       Maintain Momentum—Bypass Barriers:  Time is the most precious strategic asset.  When an organization gets hung up on a barrier, it loses time which can never be replaced.  To avoid losing time, make it part of the organization psyche always to look for ways to maintain forward velocity.

·       Be Offensive—When In Doubt Attack:  This “When in Doubt” part of this rule flows from a 19th century Prussian military observation that if a commander was in doubt whether to attack or not, the situation was probably close to equilibrium which meant that whoever moved first could probably tip it in his direction.  The reason behind this is clear:  if the other side is retreating or attacking, then you have no doubt about what you must do.  If nothing is happening, it almost certainly means that both commanders are in doubt.  When a situation is roughly balanced, a little effort can go a long way just as it doesn’t take much to move one end of a centered seesaw.  In other words, the injunction to attack when in doubt is not gun slinging.  In the commercial world, you have a good chance of success in going into a new market if you are in doubt about whether to do it or not.  The fact that you are in doubt probably means that the situation looks reasonably attractive and either that someone else doesn’t already own the market or someone who is in the market is not doing much with it.

·       Maintain and Use Reserves:  It is not possible to forecast the details of the future with much precision.  You do know with near certainty, however, that something either good or bad will arise with which you need to deal.  Reserves are the things that give you the ability to deal with threats and opportunities without destroying everything else that you are doing.  Reserves can be people, money, equipment, facilities, or even a little time left open on your daily schedule.  If you try to operate everything at 100% of capacity, something will break with frequently catastrophic results.  Unfortunately, human nature drives us away from reserves because you think that something not fully committed is being wasted or you believe that it is better to bet everything up front rather than to hold something back.  Both ideas are demonstrably false which becomes clear when you think about probabilities—that are always less than 1.  Financial planners typically advise people to have an emergency fund that covers six months of expenses in the event that they lose their job.  This is a good example of maintaining reserves where having the reserve means that you don’t lose your house when you lose your job.

·       Impose Your Plan:  As Captain Jean-Luc Picard says in Star Trek: The Next Generation, “make it so!”  If you are going to the trouble of planning, you really ought to do everything to ensure that your plan works as written.  If you have done a good planning job, there is no reason why you should not get quite close.  If, on the other hand, you fall back on the really stupid bromide “no plan survives first contact with the enemy,” you give yourself every possible excuse to do lousy planning—which will not survive first contact with the enemy!  If you don’t make every effort to impose your plan on the competition whether it be a market or a state, the competition will thank you profusely and do what it thinks is best, which is highly unlikely to be good for you.  In the ideal world, your plan is so good and so well executed that no one has the ability to react.  Get as close to that ideal as possible and recognize danger whenever the competition has the opportunity to react to your actions.  At a detail level, even if you can’t dominate the entire spectrum, try to do things that are difficult to counter.  When Braniff tried to counter upstart Southwest Airline’s low fare flights between Houston and Dallas with its own fare reductions, Southwest began offering its passengers a free bottle of Scotch.  It worked because Braniff, as a big established airline, was unlikely to be able or want to deal on this level.  Southwest imposed its plan.

·       Make Time Your Servant:  The Time Value of Action (see Parallel Operations) is a strategic observation of the highest importance.  If you take a long time to do something and you do it one step at a time, your costs will be high and your probability of success much lower than if you did it fast.  You must understand and control time.  If you don’t, time and your opposition will control you. Airbus, as of early 2007, is paying a huge price for being so slow and serial in the introduction of its new aircraft.  Costs have skyrocketed while customers have cancelled orders in favor of Boeing.  Failure to make time its servant has cost Airbus far more than it would have cost to have bought the capability to the job correctly in a minimum amount of time.

2b

Figure 1 - A representative sample of the many people who participated in the Gulf War I Open Planning—Taken Shortly after the war ended in early March 1991.

·       Plan and Operate In The Open: When the opportunity arose to put together a Gulf War plan for General Schwarzkopf’s consideration in August 1990, John Warden briefly considered gathering a very small group of people around him, closing the doors, and doing it all in great secrecy.  Quickly, however, he realized that this did not make much sense—there was little time, and neither he nor any of his close associates were experts on Iraq.  He needed a lot of help, and did not even have a way to know who or what was needed.  The decision was to open the doors of a big briefing room in the basement of the Pentagon and rapidly involve many people—eventually to include people from the White House to operating command personnel.  It worked splendidly! With many people involved  in  almost everything right from the start, everyone understood not only the decisions but also the thinking and discussions associated with them.  Consequently, they were able to do most of their work then and later without reference to any higher authority secure in the knowledge that they were doing the right thing. In addition, John found that it was rare that someone in the room did not know something valuable but would not know its value until there was a context for it.  Whenever a team reported on something, there was always an effort to get people to stop what they were doing and listen in.  Invariably, somebody would be able to tell the team something it did not know or correct an error it had made.  The first time this happened, the team captain became a little irate with people kibitzing from the side.  They rapidly learned how valuable it was, however, and institutionalized the process.  In addition, it did not make any difference what the rank or background was--all that counted was the quality of ideas. Most people have grown up in an organizational environment where only certain people participate in important discussions.  Among the many problems with this approach is that the results of the meetings rarely get translated in enough detail and with enough nuance to allow those who did not participate to understand enough about the decisions to be able to make smart decisions on their own – which they must do if movement is not to be glacial.  Open the Doors!

Scope The Environment: (Venturist, Inc. Prometheus Process Summary;  Venturist Home Page; Top Of Page)                      

Concept Overview

Before beginning or continuing any strategic endeavor such as starting a new business or introducing a new product, it is worthwhile to take a few minutes to think about the environment in which you will be operating.

Figure 2-  NGC 4414, a typical spiral galaxy in the constellation Coma Berenices, is about 17,000 parsecs in diameter and approximately 20 million parsecs distant. Credit:NASA/ESA Hubble Space Telescope[2]

Understand and take into account laws of competition and macro trends that will have an impact on planning and execution.  It is imperative to understand that there are four factors at the highest level that will have an impact on strategic endeavors:  inevitability of change, of which some will be disruptive; operating environment cycles; risk; and relative immutability of human behavior.

Inevitability of change:  Within seconds of the time you decide to act, the environment in which the action will take place becomes different from what it was at the time of the decision.  Compounding the problem is our inability to define even the current state of a complex operating environment with much accuracy.  Although you can reduce the danger inherent in change somewhat by acting very quickly and in parallel (see Parallel Operations chapter), you must accept the necessity for rapid adaptation and you must have the ability to react appropriately to unexpected events that will occur—when they are least expected!  Within the general category of change are events that will be disruptive.  Disruptive change is the kind of change that creates an entirely new operating environment at levels ranging from the macro to the micro.  As an example of the latter, a new ice age would be disruptive to human activities.  At a more modest level, the introduction of the automobile disrupted many businesses and many aspects of society.  Change, whether slow or disruptive, is central to progress.  You do know, however, that you are generally somewhat more accurate about circumstances tomorrow than about those a year, or ten years from now.  This in part accounts for the concept of the time value of money—which simply says that a real dollar in hand today is worth more than a maybe dollar tomorrow.

Cycles pervade the universe at all levels and over all time frames:  In the history of the earth, you have seen periods of cold and ice interspersed with periods of warmth; you have seen sea levels rise and fall dramatically; and you have seen the emergence and subsidence of land masses.   On a more everyday scale, you live with business cycles, with booms and busts, and with the rise and fall of power centers.  As you learn from the theme song from Those Magnificent Men in Their Flying Machines, “they go uppity up up, they go down-diddy down!”  In other words, what is booming today will be crashing tomorrow.  You can manage cycles as long as you don’t deny them and believe that they have somehow or other disappeared from our world.

There Ain’t No Such Thing As A Free Lunch (TANSTAAFL):  In other words there is risk and cost in every venture, as well as possible reward.  The one thing you know for certain is that the probability of success in any endeavor will be less than 1 (Ps<1).  You also know that in general, the degree of possible reward is associated with the degree of risk.  Thus, Treasury Bills have relatively low risk—and correspondingly low associated rewards--while speculation in pork belly futures has huge risk but with the possibility for very large rewards.

La plus ca change, la plus c'est la meme chose''. (''The more things change, the more they remain the same''.):  On the surface this would seem to contradict the discussion above about the inevitability of change.  The one place, however, where change does not seem to take place is in human nature.  You can read the oldest accounts of human behavior from the Bible to Homer to Cicero without finding anything surprising or different from what it is today.  In other words, you can count on people in general behaving like people.  The problem arises, however, when you move from a very large population to an individual.  At a large population level, behavior is very predictable.  At an individual level, however, behavior can become completely random.

In our presentations on Scoping the Environment, there are short references to complex ideas.  What follows is some elucidation on these concepts for those who would like to go a bit deeper.

Cycles:  Over a long enough period of time, the cycles you experience take on the general characteristics of the sine wave.  Although you would not expect to see exact sine waves in complex systems, you can expect to see approximations and the concept reminds us that things in fact go up and they go down.

Sine waves:  “ANY REPEATING WAVE IS MATHEMATICALLY (AND PHYSICALLY) EQUIVALENT TO THE RESULT OF ADDING JUST THE RIGHT COLLECTION OF SINE WAVES TOGETHER.”  C.S. Williams

Reversion to the Mean:

Reversion to the mean, also called regression to the mean, is the statistical phenomenon stating that the greater the deviation of a random variate from its mean, the greater the probability that the next measured variate will deviate less far. In other words, an extreme event is likely to be followed by a less extreme event.[3]

This concept is very helpful in helping us to cure the disease of linear projections where you observe phenomena over a short period of time and then extrapolate it over a long period of time.  The Malthusian hypothesis about population and starvation is an excellent example.

Although this phenomenon of regression to the mean appears to violate the definition of independent events, it simply reflects the fact that the probability function P(x) of any random variable x, by definition, is nonnegative over every interval and integrates to one over the interval. Thus, as you move away from the mean, the proportion of the distribution that lies closer to the mean than you do increases continuously.[4]

Discounted Future Value (Time Value Of Money):

In finance, the '''discounted cash flow''' (or DCF) approach describes a method to value a project or an entire company using the concepts of the time value of money. The DCF methods determine the present value of future cash flows by discounting them using the appropriate cost of capital. This is necessary because cash flows in different time periods cannot be directly compared since most people prefer money sooner rather than later (put simply: a dollar in your hand today is worth more than a dollar you may receive at some point in the future). The same logic applies to the difference between certain cash flows and uncertain ones, or "a bird in the hand is worth two in the bush". This is due to opportunity cost and risk over time.[5]

Information Explosion (Near Instantaneous Information Flow):

Metcalfe's law states that the value of a telecommunications network is proportional to the square of the number of users of the system (N2) First formulated by Robert Metcalfe in regard to Ethernet, Metcalfe's law explains many of the network effects of communication technologies and networks such as the Internet and World Wide Web.[6]

Although there may be other reasons for the Information Explosion, you are in it and it at once provides huge opportunities at the same time it presents real dangers to procrastinators.

Disruption

A disruptive technology or disruptive innovation is a technological innovation, product, or service that eventually overturns the existing dominant technology or product in the market. Disruptive innovations can be broadly classified into lower-end and new-market disruptive innovations. A new-market disruptive innovation is often aimed at non-consumption, whereas a lower-end disruptive innovation is aimed at mainstream customers who were ignored by established companies. Sometimes, a disruptive technology comes to dominate an existing market by either filling a role in a new market that the older technology could not fill (as more expensive, lower capacity but smaller-sized hard disks did for newly developed notebook computers in the 1980s) or by successively moving up-market through performance improvements until finally displacing the market incumbents (as digital photography has begun to replace film photography).

By contrast, "sustaining technology or innovation" improves product performance of established products.  Sustaining technologies are often incremental however they can also be radical or discontinuous.

History and usage of the term

The term ''disruptive technology'' was coined by Clayton M. Christensen and introduced in his 1995 article “Disruptive Technologies: Catching the Wave”, which he coauthored with Joseph Bower. He describes the term further in his 1997 book “The Innovator's Dilemma'”. In his sequel, “The Innovator's Solution”', Christensen replaced ''disruptive technology'' with the term ''disruptive innovation'' because he recognized that few technologies are intrinsically disruptive or sustaining in character. It is strategy that creates the disruptive impact.

The theory

Christensen distinguishes between "low-end disruption" which targets customers who do not need the full performance valued by customers at the high-end of the market and "new-market disruption" which targets customers who could previously not be served profitably by the incumbent.

"Low-end disruption" occurs when the rate at which products improve exceeds the rate at which customers can adopt the new performance. Therefore, at some point the performance of the product overshoots the needs of certain customer segments. At this point, a disruptive technology may enter the market and provide a product which has lower performance than the incumbent but which exceeds the requirements of certain segments, thereby gaining a foothold in the market.

Figure 3 - How Low-End Disruption Occurs Over Time

In low-end disruption, the disruptor is focused initially on serving the least profitable customer, who is happy with a good enough product. This type of customer is not willing to pay premium for enhancements in product functionality. Once the disruptor has gained foot hold in this customer segment, it seeks to improve its profit margin. To get higher profit margins, the disruptor needs to enter the segment where the customer is willing to pay a little more for higher quality. To ensure this quality in its product, the disruptor needs to innovate. The incumbent will not do much to retain its share in a not so profitable segment, and will move up-market and focus on its more attractive customers. After a number of such encounters, the incumbent is squeezed into smaller markets than it was previously serving. And then finally the disruptive technology meets the demands of the most profitable segment and drives the established company out of the market.

"New market disruption" occurs when a product that is inferior by most measures of performance fits a new or emerging market segment. The Linux operating system (OS) when introduced was inferior in performance to other server operating systems like Unix and Windows NT. But the Linux OS distributed through Red Hat is supposed to be inexpensive compared to other server operating systems. After years of improvements in this easily available operating system, the functionality has improved so much that it threatens to displace the leading commercial UNIX distributions.

Not all disruptive technologies are of lower performance. There are several examples where the disruptive technology outperforms the existing technology but is not adopted by existing majors in the market. This situation occurs in industries with a high investment into the older technology. To move to the new technology, an existing player not only must invest in it but also must replace (and perhaps dispose of at high cost) the older infrastructure. It may simply be the most cost effective for the existing player to "milk" the current investment during its decline - mostly by insufficient maintenance and lack of progressive improvement to maintain the long term utility of the existing facilities. A new player is not faced with such a balancing act.

Some examples of high-performance disruption:

o   The rise of containerization and the success of the |Port of Oakland, California, while the port of San Francisco neglected modernization - perhaps wisely due to its inconvenient location at the end of a peninsula not oriented with the prevailing freight traffic. Rather than attempt to compete in the oceanic freight terminal business, the city's resources were directed elsewhere, primarily toward becoming the leading financial center on the west coast through the encouragement of the construction of high rise buildings for office space.

o   VoIP phone technology is a disruptive innovation. The quality of voice that is available over this phone system is at least as good as that has been offered by traditional players.

Examples of disruptive innovations

Disruptive Innovation

Displaced or Marginalized technology

Notes

Steam Engines And Internal-Combustion Engines

Horses And Humans (For Powering Machines)

The new engines took centuries to establish themselves, but eventually rendered animal/people power obsolete on their ability to scale up to much higher power outputs and offer greater reliability.

Automobiles

Horses (For Transport)

Early roads were designed for horses, not cars. Nevertheless, the potential for greater convenience, reliability and speed offered by the motor car meant that the road system was eventually redesigned in its favor, after overcoming many obstacles, both technical and political (such as the Red Flag Act).

Hydraulic Excavators

Cable-Operated Excavators

 

Mini Steel Mills

Vertically Integrated Steel Mills

By using mostly locally available scrap and power sources these mills can be cost effective even though not large

Minicomputers

Mainframes

Though mainframes survive in a niche market which persists to this day, minicomputers have themselves been disrupted into extinction.

Container Ships And Containerization

"Break Cargo" Ships And Stevedores

In addition to efficiency these also provide a great reduction in opportunities for pilferage and integrate well with both rail and truck transport.

Desktop Publishing

Traditional Publishing

Early desktop-publishing systems could not match high-end professional systems in either features or quality. Nevertheless, they lowered the cost of entry to the publishing business, and economies of scale eventually enabled them to match, and then surpass, the functionality of the older dedicated publishing systems.

Digital Photography

Originally, Instant Photography, Now Increasingly All Chemical Photography

Early digital cameras suffered from low picture quality and resolution and long shutter lag. Quality and resolution are no longer major issues and shutter lag is much less than what it used to be. The convenience of small memory cards and portable hard drives that hold hundreds or thousands of pictures, as well as the lack of the need to develop these pictures, also helped. Digital cameras have a high power consumption (but several light weighted battery packs can provide enough power for thousands of pictures). Cameras for classic photography are stand-alone devices.

Personal Computers

Minicomputers, Workstations

Workstations still exist, but are increasingly assembled from high-end personal computer parts, to the point that the distinction is fading

Semiconductors

Vacuum Tubes

Electronic systems built up with semiconductors require less energy, are smaller and more reliable than such with tubes. However for high power device semiconductor solutions are not always available (or from more complicated design)

"Bug Logic'"

Discrete Components

Medium Scale Integration (MSI) - electronic circuits (such as a flip-flop) built upon a single substrate require less energy, are smaller and more reliable than such built upon circuit boards.

Large Scale Integration (Lsi)

"Bug Logic"

Complete electronic systems upon a single substrate require less energy, are smaller and more reliable than such built by mounting simpler Integrated circuits ("bug logic") upon complex circuit boards, extending to the current implementations of entire central processing units, memory, and supporting logic on a single chip.

High Speed CMOS Video Sensors

Photographic Film

When first introduced, high speed CMOS sensors were less sensitive, had lower resolution, and cameras based on them had less duration (record time). The advantage of rapid setup time, editing in the camera, and nearly-instantaneous review quickly eliminated 16 mm high speed film systems. CMOS-based cameras also require less power (single phase 110 V AC and a few amperes of current versus. 208 V single, double and even triple phase cameras requiring 20-50 A for film cameras. Continuing advances have overtaken 35 mm film and are challenging 70 mm film applications.

Muskets

Crossbows, Longbows And The Knight Military Unit

 

Steamships

Sailing Ships

 

Telephones

Telegraphy

 

Table 1 - Examples of Disruptive Innovation

Not all technologies promoted as disruptive innovations have actually prospered as well as their proponents had hoped. However, some of these technologies have only been around for a few years, and their ultimate fate has not yet been determined.[7]

The Future Picture: (Venturist, Inc. Prometheus Process Summary;  Venturist Home Page; Top Of Page)

Concept Overview

The Future Picture, to be useful, must convey in high resolution a condition that will exist in the future.  Before adopting it, you must be sure that you will be happy with it; you must carefully consider any unintended consequences that may be associated with it; and you must be able to measure it.   In the Prometheus Process, the 12 Key Descriptor statements provide the requisite level of resolution by allowing you to focus on each component of your future state.  The overall idea is to plan back from the future starting with your Future Picture.  Once a Future Picture is written and agreed upon, it should not change much over time unless a seismic event forces reconsideration.  The people at the very top of an organization may be able to survive and function with frequent changes to a Future Picture, but those in lower echelons become rapidly discombobulated and simply stop trying to make smart decisions without explicit instructions from the top.  Don’t change Future Pictures—your beacon—unless you have realized it or a seismic event takes place.  In either of these cases, change!

An example of a forward-looking geopolitical Future Picture:  The Congress of Vienna (1814-1815) produced the agreements that brought an end to the Napoleonic Wars.  It was a very successful effort in that it led to a period of almost 100 years without any general European conflicts. Unlike most peace treaties, it did not attempt to extract huge reparations from the French, thus avoiding the revanchism that so frequently kindles a new war even as the sparks of the old are dying.  It is an excellent example from the geopolitical world or establishing a good future picture and then working backwards on the details to make it a reality.  The drafters, who included representatives from the major powers including France itself,  were confident that they had crafted a future with which they would be happy, that possible unintended consequences would be very far in the future, and that was basically self-measuring.

An example of a backward-looking geopolitical Future Picture:  The Treaty of Versailles (1919) formally closed World War I in such a way as to make another great war very likely.  It was a revenge-oriented treaty that started with the past (who was “guilty”) and then decided how to exact retribution.  Unlike the Congress of Vienna, negotiations to write the treaty did not include Germany, Austria, or Hungary so it became a treaty of the victors to be imposed on the vanquished.  Likewise, it did not include Russia. The participants did not give much thought to whether they would be happy with their work years into the future nor with the possibility of unintended consequences. All they wanted was revenge and reparations to requite the passions of the moment.  The Treaty of Versailles collapsed just 17 years after it was signed when the Germans remilitarized the Rhineland.  World War II began four years later.

An example of a poor business Future Picture:  In the 1950’s the Great Atlantic and Pacific Company owned and operated the largest grocery chain in the United States, for a time was America’s largest retailer, and for a short period in the 1950’s had sales revenue second only to General Motors.  Until this time the company had grown spectacularly since its founding in 1859.   During that time, it had been a forward looking company with a corporate culture stressing change to capitalize on new market opportunities.  Descendants of one of the founders had actively managed the company into the 1950s but when the last of these, the Hartford brothers, passed from the scene by mid-decade, control of the newly public company passed to foundations and distant heirs with no direct involvement in running the company.  Their Future Picture was one-dimensional:  continue to pay high dividends by sucking as much as possible out of stores heavily concentrated in urban areas that were losing their customer base as a function of the suburban boom that was in full swing.  As a result, the company began to lose business and saw its stock price collapse and never recover.  The controlling stockholders and board failed to create a new high resolution Future Picture, failed to scope the environment to understand that the business approach that had weathered the Depression and WWII was no longer germane, and failed to ask themselves about unintended consequences.  On the positive side, their Future Picture was very measurable—were the dividends paid or not?  Note that the company also failed to change when a seismic event occurred—the dramatic migration to the suburbs.

An example of a good business Future Picture (and of changing in response to seismic events):  In 1985, Gordon Moore and Andy Grove, Chairman/CEO and President respectively of Intel, decided that seismic changes in the market environment meant that Intel had little chance of succeeding if the core of its business continued to be memory chips.  They rapidly changed their Future Picture to one emphasizing central processing unit chips and getting out of memory; by so doing they created huge value for the investors and employees of the company for the next quarter century.  This is a rare case of where a company recognizes that its core business is no longer viable, does not get caught in the sunk cost trap (“you can’t leave memory because you have too much invested in it”), and moves in parallel to do what is necessary in a remarkably short period of time.

An example of a steady beacon:  If General Electric had written a formal Future Picture when Jack Welch became CEO in 1981, in its Market Position Key Descriptor, it would have said that it intended to be #1 or #2 in all of its portfolio businesses or on a clear track to becoming so.  GE used this Future Picture statement effectively for over 20 years where it played a major role in helping the company make acquisition decisions, and of equal importance, divestiture decisions.

An example of a changing beacon:  Sears, Roebuck and Company (now Sears Holding Company) had an illustrious record of success going back to its founding late in the 19th Century.  In the 1960’s however, it began to lose track of its long-standing Future Picture that focused on reputations (Insider and Outsider Perception), it Business Areas, and its Corporate Culture.  All of these changed in an environment largely devoid of Open Planning and depended on a measurement system that apparently met the needs of senior management but confused everyone else.  In Business Areas, Sears went well outside its previous businesses by buying stockbroker Dean Witter and real estate company Coldwell Banker, introducing the Discover credit card, becoming a joint venture partner with IBM in the Prodigy online service, and taking a fling at competing with upscale department stores.  There was nothing intrinsically wrong with any of these (Sears had started Allstate Insurance in the 1930’s), but together they made it extremely difficult for the overwhelming majority of employees to understand what they were or what they were supposed to do.  In addition, the almost randomly changing Future Picture led to customer confusion, dissatisfaction and loss. The combination of rapidly changing business areas along with a collapse in customer service led to terrible financial results for over a quarter century.

An example of a catastrophic failure to change in the face of a seismic event:  Since their founding in the early 19th Century, American railroads had carried a continually increasing share of American goods and in the process drove the majority of canal companies into collapse.  Just as the advent of the railroad had been a seismic event for the canal companies, the initiation of the National System of Interstate and Defense Highways (now the Interstate system) in 1956 became a seismic event for the Pennsylvania Railroad, a railroad that had called itself and was acknowledged by most to be the “standard of the world.” Fourteen years later a grand chapter in American history closed with the railroad ending in the largest bankruptcy to that date.  In the simplest of terms, the PRR failed to review and change its Future Picture in response to a seismic event that was represented by the Highway Act of 1956.  The interstate system made truck competition effective and also represented the shift of population and wealth outside the northeast home of the railroad.  The PRR ignored the seismic shifts and continued doing business the way it had for decades.  Unfortunately for the railroad, its old way of doing business was encumbered with outmoded union rules, high labor costs, and high transport prices.

Key Descriptors In Context

The Business Future Picture has 12 Key Descriptors which give it the resolution necessary to ensure that had an organization has a complete picture from which it can work back from the future.  At the corporate level, all of these Key Descriptors must be considered, but if the intent is to develop a Future Picture for something less than a full corporate Grand Strategy, it will normally not be necessary to use all 12.  There are, however, four Key Descriptors that should be used to some degree in virtually all instances:  Financial Position (cost and return on cost, budget), Business Areas (scope), Innovation (acceptable methodology), and Corporate Culture (operating rules).  If you are writing a Future Picture for a state, an enemy, or a government bureaucracy, you can change the labels for the Key Descriptors but you should ensure that you address the concept of each.  The following table provides an example of modified labels.

High Level Generic

Business

Geopolitical

Government (Cabinet Level)

Assets

Financial Position

Economic Position

Budget

Power

Market Position

Power Position

Influence

Scope

Business Areas

Approach To World

Scope

Change Management

Innovation

Change Management

Innovation

Insider View

Insider Perception

Domestic Opinion

Insider View

Outsider View

Outsider Perception

Foreign Opinion

Outsider View

People

Workforce Characteristics

Citizen Characteristics

Workforce Characteristics

Image

Brand

Image

Brand

Operating Culture

Corporate Culture

Philosophy of Government

Operational Culture

Philanthropy

Corporate Citizenship

World Citizenship

Philanthropy

Ownership

Ownership

Participation

Ownership

Incentive Philosophy

Incentive Philosophy

Incentive Philosophy

Incentive Philosophy

Table 2 - Key Descriptors For Different Contexts

Summarizing Your Future Picture

After completing the Key Descriptors, it is useful to write a summary statement that captures the main ideas in a paragraph or even a sentence or two.  Think about the summary as the elevator speech version of your Future Picture.  Don’t try to write the summary first, however, because doing so makes it much harder to complete all the Key Descriptors which means you will end up with a low resolution or unfocused beacon.

The Competition Cases: (Venturist, Inc. Prometheus Process Summary;  Venturist Home Page; Top Of Page)

Concept Overview

Scoping the Environment is an exercise in understanding the world around us to include the macro-trends that have an impact on our business.  In a similar way, Competition Cases help us understand the general competitive environment from the standpoint of Centers of Gravity.  With an understanding of Competition Cases, you can go into competitive environments with our eyes open and cognizant of the advantages and disadvantages attendant on each case.  There are five different cases that are of interest to us.   (Note that for simplicity you assume two competitors that can be either two states in geopolitical situations or can be a specific company and a market in business situations.  In both situations, you refer to the protagonists as “sides” whether they are single entities or markets).

·       Case I:  Both sides have the ability to attack each other’s strategic centers of gravity.  In the modern military world, the two participants would be known as peer competitors.  From the rise of the modern nation-state at the end of the Medieval Period until the post World War II period, there have normally been three or more states that could be called Great Powers who were peer competitors.  In the Cold War period there were just two superpowers, the United States and the Soviet Union whom most were roughly peer competitors.  Since the collapse of the Soviet Union, the United States has been the sole superpower and has no peer competitors.  The same general concept can be applied to business situations where peer competitors examples would include Coke and Pepsi, General Motors and Toyota, and Boeing and Airbus.  When peer competitors engage each other, the outcome is always in doubt while the cost to each tends to be quite high.  There is generally an advantage in making the first move.  If one competitor has parallel attack capability and uses it, the parallel attacker may be able to win quickly as low cost because the competitor will be unable to respond.  Geopolitical peer competitions include:  Napoleonic Wars; American War Between the States; and World War I.  In all of these cases, each contender could attack the other’s strategic centers of gravity.  In each case, the struggles were long and expensive for eventual victor and loser alike.  In the business world, recall the 2005 automobile price wars.

·       Case II:  In Case II, one side has the ability to attack the strategic centers of gravity of its opponents or competitors whereas without those competitors being able to attack its own.  This is the ideal situation for it gives the possessor the ability to accomplish as much as it desires with little direct risk.  In the military world, the United States largely enjoyed this situation in World War II where it could attack strategic centers of gravity in Germany and Japan whereas its enemies could do little more than try to defend their own territory or interfere with American and allied shipping.  Note that interference with shipping was certainly troublesome for the United States but it was not strategically debilitating.  In other words, shipping was not a real strategic center of gravity for the United States.  Conversely, for a nation such as Great Britain, shipping was a real center of gravity as the country could not survive without it.  For Germany and Japan, strategic centers of gravity included power production, transportation, and petroleum supply and refining all of which the United States was able to attack from the air.  In the business world, Standard Oil, Microsoft, and Wal-Mart have all occupied Case II strategic positions where they were able to operate at will with little concern for their own centers of gravity.  For Standard Oil and Microsoft, their centers of gravity were nearly immune from conventional business assault, but not immune to attack from federal government.  In both instances, the companies thought they were so much better than everyone else that they could never lose.  They were right as long as they only saw their operating system to be composed of customers and business competitors whereas in fact the government overshadowed everything else.  Their error was in not dealing in some way with the government before the fact to preempt the actions that cost each so dearly.  Although Wal-Mart has yet to suffer quite so direct an attack by the government, its enemies are probing with some success at centers of gravity that the government can attack such as employment practices.  If you can move to a Case II situation (which can actually apply for at least short periods for even a local market and business), you need to use the window of near invulnerability to best advantage while very carefully considering what might interfere with your Case II situation and then doing something to preempt it.

·       Case III:  This case is the opposite of Case II for here you are looking at the situation from the standpoint of a state or a company whose own centers of gravity are vulnerable but it unable to have much of an effect on the centers of gravity of its main competitors.  This is an extremely dangerous situation where peril is constant and grave.  The extreme geopolitical examples include all the many tribes and nations that no longer exist because they were in a Case III situation.  The timing of their fate was dependent on when their opponents decided to do something.  An interesting recent example took place in 1990-1991 in the Persian Gulf.  Iraq, a Case II state vis a vis Kuwait, rolled over that country in hours.  Its position was then relatively secure because its regional neighbors were all part of a Case I local system where attacks on Iraq were simply too dangerous to contemplate.  Then the United States entered the region and immediately converted Iraq into a Case III state that was now at the mercy of the US.  The US could attack every Iraqi strategic center of gravity while Iraq had almost no capability to attack any American center of gravity.  The result was as anticipated (although the methodology that the United States employed made the duration and cost of the conflict dramatically lower than was predicted or that had been the historical norm).  Was there anything that Iraq could have done to avoid the fate it suffered in early 1991?  The answer is that it was doomed once the US made the decision to go to war.  Iraq’s strategic imperative then was to try to do something to keep the US from making that decision.  It might, for example, have tried to influence American public opinion and thus the Senate of the United States beginning well before its invasion of Kuwait.  Although the chances of success would probably have been much lower, it might also have tried to influence world public opinion and thus the UN such that the US would have had difficulty in making or executing a war decision.  The point here is that a Case III situation is so dangerous that every state or organization so threatened should do its best to avoid the situation.  In the business world, you know anecdotally about thousands of rural general stores that no longer exist because there centers of gravity were highly vulnerable while those of the Wal-marts and Home Depots were not.  The overwhelming majority simply went out of business—but not all.  Those that did survive did so by shifting their business to a world that was not of interest to the Wal-Marts of the world, especially the world of high touch.  The high touch space constituted one where large opponents had neither interest nor much capability to attack.  The survivors changed the game.  At a more complex level, companies that find themselves in a Case III situation may survive if they move rapidly into a free (perhaps even a “blue ocean”) area of competition.  Intuit found itself in a Case III situation when Microsoft introduced “Manage Your Money” in direct competition with “Quicken.”  Intuit could have confined itself to a desperate attempt to defend itself on a features or price basis but could not have been overly sanguine knowing that Microsoft had nearly infinite resources and no centers of gravity that Intuit could exploit.  In the face of this problem, Intuit put up a spirited and so-far successful defense while using its brand recognition and online expertise to move into the mortgage business—an area in which Microsoft had no apparent interest.  When you find yourself in, or approaching, a Case III situation, you need to recognize your peril and do something smart as quickly as possible.

·       Case IV:  Case IV is the situation where all the contestants choose for whatever reason to operate on a strictly tactical level and normally without much interest in a strategic solution.  These situations become pure examples of attrition war where the expenses are terrible and rewards meager at best.  It is a nasty situation, but one in which states and businesses frequently and deliberately place themselves.  An excellent geopolitical example is the behavior of the Chinese and Americans in the Korean war where all the fighting was confined to a frontal area in Korea with no attacks on either’s strategic centers of gravity.  In this instance the United States chose not to conduct strategic operations and the Chinese had no capability to do so.  The was very expensive for both sides and for the United States produced a return to the status quo ante.  Grocery store chains typically compete in a Case IV world where their primary “front” is that of price.  To survive at all, each chain must meet basic quality, quantity, and esthetic criteria.  Within these criteria, even huge changes would be unlikely to make much of a difference simply because they are already at more than acceptable levels.  On a national basis, then, the only major front of long-term competition is the price front back and forth across which is fought a daily attrition war—just look at the newspaper supplements on any given weekend from the stores in a local area.  Now it is true that in some wealthy areas, a few stores can be successful by offering lots of high touch as well as many products (such as caviar, for example) that are not bought on a price basis.  These stores have simply chosen to play a different game but a game that is not feasibly on a national chain basis.  It is possible to avoid losing an attrition war but it is very difficult to be successful over a long period of time or to get very good returns on investment.  In the grocery business, net after tax returns tend to be in the 1-2% area and the business is brutal.

·       Case V:  In Case V, the strategic centers of gravity of both sides may even be mutually vulnerable, but neither side has the means, especially the technical means, to do much about them.  A great example is the situation that confronted the British when they assumed control in 1919 of Mesopotamia (now Iraq) under a League of Nations mandate.  At first, the Iraqis welcomed the British assumption of power from the Ottomans who had ruled the area for hundreds of years from Constantinople (now Istanbul), but very shortly decided they didn’t like the British and began attacking British officers.  Within a year, the area was aflame with tribal groups (frequently called militias today) making sporadic  attacks on each other, on the infrastructure, and on the British.  Neither side had the capability to do much damage to each other and both actually employed camels for movement and attack.  The British faced an expensive and exasperating situation whereas the insurgents could only hope that their opponents might eventually get tired and go home.  The situation persisted in this manner for several years before the British decided to change the game by using airplanes to fight the unruly tribes.  Airplanes gave the British a game-changing advantage because they provided a 50x speed advantage, provided visibility into enemy operations, and provided a means to make effective attacks on strategic centers of gravity.   By changing the game, the British converted a very unsatisfactory Case IV situation into what was very close to a Case II.  In the business world, a good example may be Branson’s venture into space tourism.  Every other transport company is operating with identical technology that only allows voyages to known places with roughly equal conveyances.  Branson is introducing a technology, Rutan’s Spaceship 1, that can do what nothing else can do to provide out of this world experiences for his customers.  Nobody else can affect those centers of gravity.

Measures Of Merit: (Venturist, Inc. Prometheus Process Summary;  Venturist Home Page; Top Of Page)

Concept Overview

Measures of Merit are the measurements used to determine success.  They can be either tactical or strategic; however, our main interest is in the strategic level.  The most important Measures of Merit are those associated with the Future Picture for they are the ones that show achievement, or non-achievement of strategic success.  In simple terms, strategic measures are those associated with desired future outcomes like winning the peace following a war or realizing high value and profits after a number of business campaigns.  In equally simple terms, tactical measures are those associated with the actions an organization undertakes.  In the geopolitical sphere, winning the peace might be defined by such measures as economic prosperity and standard of living, extent of diplomatic relations, tourism between the previously contesting states, trade between the states, and even polls in the former enemy state capturing the views of the citizenry about their erstwhile conqueror.  These would all be strategic measures that would tell us that you had won (or lost) the peace.  Presuming that a war was the methodology to get to the desired peace, our strategic measures of the war would need to link closely with the peace measures.  Thus, high level measures of the war would probably include immediate postwar state of the infrastructure, civilian casualties and property damage, and wartime attitude of the citizenry about the enemy and about the future.  As you move closer to war actions, it is necessary to measure each one in the context of the higher level set of measures.  For example, capture of the enemy capital that came about as a result of destroying the country en route and treating civilians harshly would be seen as a failure even if the march itself was impressive.  At the lowest tactical level, you are obviously interested in the accuracy of projectile delivery whether the projectile is a bomb or a bullet.  But is should be clear that you could have perfect accuracy and not have a clue as to whether you were winning the war en route to winning the peace.  Likewise, if you were to measure our progress by the numbers of bombs dropped, the number of enemy military casualties, or the territory captured, you could easily think you were doing a great job when in fact you not progressing at all toward winning the war that would lead to winning the peace.  Do countries make these kinds of mistakes?  The answer is:  Yes!  Almost without fail.  What about businesses?

The same concept applies in the business world as applied in the geopolitical world.  Again, the highest level measures are associated with the Future Picture (winning the peace).  Our strategic measures will probably include company net value, profit, debt, market response to the company, business interests, new valuable products or services, employee devotion, market admiration, and brand recognition.  If all these are at desired levels at the Future Picture horizon, the company has been successful.  To get there, it will have participated in one or more campaigns (equivalent of geopolitical wars).  The measurement of those campaigns must complement the Future Picture measures.  You would want measures to ensure that our campaigns were directly or indirectly supporting each of our overall strategic measures.  If they did not, you either chose the wrong campaigns or failed in their execution.  As in war, you can look at the lowest tactical level where you would see things like machine up-time, number of sales people, number of sales calls, number of products sold, and share of the market.  Note that all of these could be quite impressive, and tell us nothing about progress to our Future Picture.

The big idea is this:  carefully develop your Future Picture (grand strategic) Measures of Merit, then keep them in front of you as you move to systems and centers of gravity and eventually to tactics (actions).  Make sure all these measures are in consonance with your highest level measures.  If you already have a lot of tactical measures, start a program to review them against your Future Picture and Center of Gravity measures.  Go to great lengths to avoid having tactical measures that don’t relate to strategic success, or even worse, actually reduce your chance of success because they drive non-strategic behavior.

Measuring the right things with the right timeframes:

Strategic measure ideally starts from the top and focuses on ensuring good measurements for the things that count when they count.

High level measures: Always remember, that any engagement, any battle, any war is irrelevant unless you are better off afterwards--did you win the peace?  Recall that the North Vietnamese lost virtually every battle they fought against the Americans, yet they won the peace for which they fought.  Your measurement, your concentration, and your efforts must be focused on winning the peace, not on individual battles.  As in war, it is essential to understand the high-level ideas about measurement.  Failure to do so will prejudice, if not destroy, your chances of success.  Let us now look at the business implications of the ideas you just discussed in the military context.

Process:  War is a part of a process.  That is, the kind of war that you fight is almost invariably heavily influenced by the preceding peace, and the way you fight the war has a significant impact on the peace that follows.  Those who wage brutal wars end up with an expensive, brutal peace whose duration is normally limited.  Business campaigns can change the market.  For example, Wal-Mart changed the entire rural retail market by introducing large stores in areas previously thought only fit for the small business store and instituting constant, deep discounting.  Once the change is made, it is virtually impossible to go back.  Consider a similar phenomenon in the airline industry; when one airline introduces low prices, it forces the other airlines to follow suit, and reversing the price trend is quite difficult because the “campaign,” as part of a process, has created a new situation, a new state of the market.

Ultimate Measure:  The value of the peace that follows is the ultimate measure of success.  That means it must be the focus of all planning.  Take this concept to the extreme.  For example, an air planner should be able to tell you the relationship between every bomb and target and the peace which will follow the war.  If the planner cannot do so, he has not done his job well.  In business, the ultimate measure of success is whether you are more valuable (moved closer to your Future Picture) after a campaign or other activities.  If this is the ultimate measure of success, then you ought to be able to explain the connection between everything you are doing and its expected contribution to making the company more valuable.  If you cannot do so, you have a problem.

Measuring the right thing for the right reason:  In World War II, to have a 90% probability of putting a single bomb on a target about a third the size of a football field, it took 1,000 B-17s dropping 10,000 bombs, manned by 10,000 men.  By the time of the first Gulf War to achieve a 90% probability of a hit in a much smaller target required one bomb dropped by one airplane flown by one man.  The logistics to support one man and one airplane are significantly different than the logistics to support a thousand airplanes and ten thousand men.  Even though a B-17 cost virtually nothing in modern dollars, the cost to accomplish the mission is far lower, even when you pay a lot for the F-117 airplane, and even if you pay a lot for the bomb.  Even though you may pay a lot for the F-117, if you measure the cost in terms of effect, the one-man/one bomb/one target approach is very cheap.  There are multiple analogies in the business world, but one should suffice to make the point.  In the old world, a bookseller would build many bookstores in many different locations and stock them with many different kinds of books in the hopes that someone would come into the store and that one of the books would “hit” the right thing to cause a sale.  In today’s world, Amazon.com has a virtual facility that employs search engines to hit a customer precisely.  The Amazon.com facility costs far more than an old style bookstore, but it hits thousands of times more customers than the best of the old could ever reach. Much of the problem is really one of measure: is the right measure the cost of the tool or is it the benefits that flow from using the tool?  The right answer has always been the latter, but now it is not only right but also urgently imperative to act on the idea.

In concluding this section, recall that wars and campaigns are means to an end, not ends in themselves.  Frequently, however, people expect that as soon as the war starts the politicians have got to get out of the way and leave it to the generals.  That is wrong, but it is equally wrong that the generals ought to get out of the way and leave it to the politicians.  There needs to be continuous focus on the endgame, the Future Picture, the peace that will follow the war.  War is merely one method for getting there and should never be allowed to become a thing in itself.  A business campaign, like a military campaign, is a means to an end, not an end in itself.

Market Share: (Venturist, Inc. Prometheus Process Summary;  Venturist Home Page; Top Of Page)

Territory capture in the geopolitical world and market share in the business world are measures that on the surface look as though they should be important and strategic.  Although they can have strategic value, they are classically misused to the point where they become dangerous. In fact, generals and nations who pursue territory capture rather than centers of gravity normally lose.  In the geopolitical world, the Germans were sure they were winning when they had captured a third of the Soviet Union and were standing in front of Moscow and Stalingrad.  Likewise the Japanese believed they were masters of the east after occupying great swaths of China and extending their control over the western and southwestern Pacific and southeast Asia into India itself.  In both cases, disaster began to befall both when they were congratulating themselves on their success and their very successes blinded them to the realities that confronted them, namely a United States whose strategic centers of gravity were untouched, and well-functioning and capable enemy governments still in place in China, the Soviet Union, and Great Britain.  Territory capture is a dangerous measure because: as you capture more territory, the cost of controlling it goes up as do the logistical difficulties associated with supplying the combat front; and as the territory capturer, your lines grow longer while your opponent’s grow shorter.  These two combine to tell you that the first mile of territory capture is frequently relatively easy and cheap, but getting more becomes progressively harder and more expensive.  Finally, territory capture is a backward looking measure—you have something today you did not have yesterday, but it tells you nothing conclusive about the future which is where value lies. The main reason behind these observations has to do with centers of gravity; an opponent’s strength lies in his centers of gravity and he will remain strong so long as he has a sufficient number in working order.

The situation is very similar in the business world where you think about market share—that is really quite similar to territory in war.  The more you get, the harder and more costly the next increment becomes as your competitors become more concerned ; the value of increments tends to fall as your customers become more and more transactional; and as you proudly report your market share gains, outsiders increasingly come to value you, or unvalued you, based on small changes.  Businesses that have made market share a primary strategic measure set themselves up for disaster for big, sometimes fatal, problems.  The following are illustrative:

·       Model T Ford:  Had around 70% of the US auto market in the post WWI period.  Henry Ford used this fact to resist replacing the Model T and offering more options.  General Motors saw that the market had changed, that people wanted more options and luxury, met market demands, and rapidly overtook Ford to become the dominant manufacturer.  Ford almost went out of business in the 1920’s because it was making strategic decisions based on its share of yesterday’s market—which told it nothing about tomorrow’s market.

·       Xerox Copiers:  In the 1970’s Xerox owned the copier business, but what it owned was the market of centralized copy machines controlled by corporate IT departments.  Because it owned the market (yesterday’s market), it failed to understand the new copy market that the Japanese desktop copiers created.

·       Word Perfect:  Had the dominant share of word processing—in the DOS world.  The success of Microsoft’s graphical user interface operating system, however, made the DOS market obsolete but Word Perfect continued to bask in its market share glory.

Other examples include the following with which most of us are generally familiar.  All thought they had long and bright futures in front of them because of their market share

·       IBM:  Mainframes

·       Kodak:  Film

·       DEC: Mini-computers

·       K-Mart:  Urban Discount

·       A&P;  Groceries

·       United Airlines:  Airlines

·       Intel: Memory Chips early 1980s

·       US Steel:  American steel market

·       General Motors:  US auto market before the Japanese invasion

·       Boeing:  Big jets before Airbus

·       Sears:  Retailing to middle America

Market share is not without its uses:  some percentage is usually necessary to allow efficient manufacturing; analysts do rate public companies based on market share; and changes may show trends.  Just be sure to use it carefully and not make it your primary measure of strategic success.

Guiding Precepts: (Venturist, Inc. Prometheus Process Summary;  Venturist Home Page; Top Of Page)

Concept Overview

Left to own devices, people will behave in remarkably different ways and what seems bizarre behavior to one person may appear quite normal and proper to another.  If an organization wants to channel behavior in a certain way, it needs to be explicit about what behavior it wants.  In other words, it needs to have Guiding Precepts.  Guiding Precepts tell the people in an organization what they should and should not do and the reasons behind either.  To get the highest level of acceptance and adherence, Guiding Precepts should be developed (or discussed extensively after the fact) in an Open Planning environment.  For simplicity, you divide Guiding Precepts into two categories:  Prime Directives and Rules of Engagement.  The former are the very high level behaviors that an organization sees to be at its very core.  Members will do whatever it takes to follow positive Prime Directives and face extreme censure if they violate those that are negative.  Prime Directives help move people in the right direction and help keep them from moving in the wrong direction.  They apply generally and are independent of time and place.

Rules of Engagement are similar to Prime Directives but are somewhat more flexible and may only apply to certain circumstances.  They may also change over time as circumstances change as opposed to a Prime Directive which should not change unless the organization consciously decides to make major changes in its strategy to include its culture.

If Guiding Precepts are to be effective, everyone in an organization must know them and they must be enforced—either positively with rewards for positive precepts or with punishment of negative precepts.

To be effective, the senior people in an organization must follow the Guiding Precepts of the organization.   “Do as I say, not as I do”  behavior will destroy precepts very rapidly.

Figure 4 - Statue of Leonidas I of Sparta[8]

Prime Directives

One of the most famous of Prime Directives of all time comes from the world of ancient Greece where Spartan wives and mothers routinely said to their husbands and sons who were departing for battle, “Come back carrying your shield or be carried upon it.”  Queen Gorgo’s exhortation to Leonidas in the 1997 movie “300” illustrates use of the precept.  The Prime Directive was simple: no Spartan would ever run from battle or danger.  The penalty for not adhering was permanent exile from Sparta and rejection by the deviant’s family.  Obviously, this was not an easy precept for humans to follow so the Spartans developed and maintained harsh training programs beginning at an early age to give their men the ability to overcome fear in battle.  Whether this was a strategically smart Prime Directive is another issue, but the Spartans believed in it and followed it for nearly 200 years.  It helped them establish the “brand” as the toughest, best soldiers in Greece and that brand recognition stood them in good stead.

Another example, of a very powerful Prime Directive is Nordstrom’s “the customer is always right.”  Nordstrom’s chooses it employees for their ability to make good on this precept and it bestows lavish praise on those who follow it above and beyond.

Note in these examples how seriously both organizations took these precepts and how they backed them up in word and deed.  In the former case, there was a harsh penalty for those who failed; in the latter case, there would normally be great rewards for those who carried the idea to its highest form.

“Act like your Mama’s is on the table:”  This is a Prime Directive created by a very innovative medical services company, Integrated Medical Systems International, Inc., that developed its strategy using the Prometheus Process.  It is an excellent example of a good Prime Directive.  Its language works across the breadth of the company from highest to lowest and the message applies to everyone.  If you work in the stock room, you put in the extra effort to make sure the package with medical equipment makes that day’s FedEx run.  If you are a salesman for the company, you put work even harder to make a sale because you believe so intensely in the value of the product.  After all, in both cases, it is for your “mama.”

 “No bet-the-farm operations:”  This Prime Directive, first written by The Bama Companies, Inc. and subsequently adopted by other organizations, is a good example of the genre.  It helps guide people who are thinking about an acquisition or a new business line.  It tells them they can be innovative and that some risk is allowable, but that the risk no never put the company in mortal peril.  It can be used before the fact and after the fact to evaluate a proposal that someone has made who might not have been in a position to analyze the whole risk picture.

Rules of Engagement

Rules of Engagement (ROE) are important but don’t carry the same weight as a Prime Directive.  You may have one set of ROEs today that may be gone tomorrow because the situation has changed.  It is especially easy to see this temporal application in military operations where the first part of a conflict may be dramatically different from the last part.  An ROE normally will not have the same degree of enforcement either positively or negatively as would a Prime Directive.  A good example was how Ray Kroc of McDonald’s would give people second and third chances (after a little sweating) when they violated his ROE dress code.

“Own the call”  Integrated Medical Systems International, Inc., developed another good precept in the form of this ROE.  Again, it has wide application from the CEO down to someone who may pick up the phone after hours.  It tells everyone to take responsibility but it does it in a little less dramatic way than the Prime Directive.

“You will not jeopardize our relationships with our primary customer.”  This is a good ROE by a manufacturing company that at the time had one customer who accounted for over 50% of their business.  It was easy to imagine that someone could make a representation to a competitor of the big customer that would make the big customer unhappy with the company.  This ROE was obviously important but it could easily change over time if the current big customer became less significant for a variety of reasons.  In the meantime, it focused people and told them to think what they were doing.

Systems: (Venturist, Inc. Prometheus Process Summary;  Venturist Home Page; Top Of Page)

Concept Overview

Everything happens in the context of a system.  One action in one part of a system will have some impact on the overall system.  If you really want to be successful in business or war, you should think in systems terms.  Systems are collections of people, processes, and things that interact with each other.  You are always dealing with at least two systems—one internal and one external.  In order to succeed, you must make appropriate changes in both of these systems, but systems resist change either actively or through inertia, exhibit the hysteresis effect, and have energy.  Manage systems by affecting their centers of gravity—the high value, leverage points in the system.

Figure 5 - Major features of the Solar System (not to scale, from left to right): Pluto, Neptune, Uranus, Saturn, Jupiter, the asteroid belt, the Sun, Mercury, Venus, Earth & Moon, and Mars. A comet is also seen on the left.[9]

The first step in working with systems is to define their scope where it is better to err on the expansive side.  If you define your systems too narrowly, you will frequently find that something outside the system has a huge impact on you.  Had you identified it in advance, you could have taken appropriate action up front.  The next step is to determine the desired system effects.  (This step applies primarily to your external system as your Future Picture defines your internal system.)  The Desired System Effect is what the system must become to give you a good probability of reaching your Future Picture.  The logic of this is clear:  your Future Picture always calls on the external system to give you something—normally more than it is giving you when you start planning.  If it is going to give you something, more dollars in business or its suzerainty in war, the external system by definition must change.  The clearer you define the Desired System Effects, the easier it will be to determine the centers of gravity needed to realize them.  After determining desired system effects, use the Five Ring Model to help find and evaluate centers of gravity.  Once the centers of gravity are identified, decide what needs to happen to them (center of gravity desired effects) and when.  Finally, figure out the tactics (the actions) necessary to make the centers of gravity get to their desired effect in the allocated timeframe.

System energy:  Changing system energy is normally necessary to realize Desired System Effects.  You tend to think of war as reducing the energy of an opponent, but confining ourselves to thinking this way is a big error.  In war, part of your effort should be directed toward reducing the energy of some parts of the system while increasing that in other parts.  A good example was the first part of the Afghanistan War where the US significantly reduced the energy of the Taliban and its support structure while increasing the energy of the Northern Alliance and of tribal groups that would abandon the Taliban if they could.  In business, almost all of our efforts should be oriented to increasing energy favorable to our designs; spending efforts directly attacking competitors is rarely useful in the long term.

More targets than resources to affect them:  There are always more targets (centers of gravity) than resources available to attack them:  Affecting the wrong “targets” wastes effort at a minimum and may doom chances for success.  Multiple choices present themselves whenever you take on a new task or project; the more complex, the higher the number of choices.  What are the most important things to do?  What must be done?  What is the right order?  What happens if you miss something?  In essence, when you talk about things to do, you are really talking about what “targets” to affect.  Simple logic tells us that if there are very many targets (and there always will be), some are almost certain to be more important than others.  Just as there are potentially a lot of targets, you know that there are never enough resources to attack them.  Not only do you need to choose which targets to affect, you must also choose where to use scarce resources. Even in the first Gulf War (the real test forerunner of the Prometheus Process), despite appearances, there were far fewer airplanes, bombs, and missiles than would have been required to attack very many of the hundreds of thousands of potential targets associated with Iraq and its military forces.  Had you tried to attack all those targets, it would have taken forever--and if something takes forever, it does not work.  Again, if you do not get the targets rights, by definition you will be expending scarce resources against the wrong things.

Targets are part of a system:  Targets are not things unto themselves; rather, they are part of a system.  Everything is part of a system, and every action takes place in a system.  That means that affecting one target will have some impact on other targets.  What you really want, however, is to make a major change in an entire system.  In the first Gulf War, you wanted to reduce Iraq’s energy level to a point where it would no longer constitute a strategic threat to its neighbors but could still defend itself against local powers.  When you introduce a new product, you want to change a whole market system so that the energy you create flows in our direction.  When you want to change an organization, you want the whole organization to move in the same direction.  All this says that our efforts are always focused against systems and that you then choose the targets—the centers of gravity—that will create the fastest, most long-lasting, most economic, most satisfactory system change.

The Enemy Is the System:  The “enemy” is never a particular competitor in the market or someone advocating the status quo within your organization.  The “enemy” is the current system as a whole--or the system that you are going to create.

Systems resist change and exhibit the hysteresis effect:  All systems resist change.  When you put pressure against something, its shape will change a little--even if you cannot see the change.  Normally, however, when you release the pressure, the thing against which you were pushing will tend to return to about where it was before you pushed on it (the hysteresis effect).  In other words, most “pushes” do not produce very significant or long-lasting results.  If you want significant and long- lasting results to overcome the hysteresis effect, you need to push something beyond its elastic limits.

The Five Ring Model

Knowing that there are Centers of Gravity is the first step toward effective and efficient operations, but you need a methodology to help us figure out how to find the true Centers of Gravity.  Fortunately, all systems have the same organizing template which you call the Five Rings.  The Five Rings Model was originally designed to help national defense specialists to understand that they needed to deal with their opponent as a system and then to help find the Centers of Gravity—the things worthy of affecting—in the system under consideration.  The Five Rings Model depicts the fact that all systems have five divisions:  Leadership, Processes (earlier called System Essentials in the military version), Infrastructure, Population, and Action Units (called Fielded Forces in the military version).  This model applies to all systems whether they be companies, markets, countries, or entities within any of these groups such as a military force or a company division.  Knowing and using this model greatly simplifies the crucial act of targeting.

 

Figure 6 - Five Ring System Model

System Every system has similar attributes which include leadership that sets direction for the system; processes that allow the system to function; infrastructure that holds the systems together; groups of people (not individuals) who make the system function; and action units active in defending the system, repairing the system, or interfacing with other entities inside or outside the system.  If you look at a human being, a country, and or a company, you will note that each one has the five components of the Five Rings.

Human Body

·       Leadership:  In the human being, the brain is the leadership component; the brain tells the rest of the body where to go and what to do.

·       Processes:  (often called "system essentials" in military literature).  Processes convert energy from one form to another.  In the body, the circulatory system converts oxygen and food into energy for the muscles and the brain.

·       Infrastructure:  Bones provide the scaffolding for the body.  They constitute its infrastructure.

·       Population:  The body has populations (groups) of all kinds of cells--skin cells, bone cells, nerve cells, etc.  You would not normally be interested in a single individual cell, but you can think about them and work with them as a group.  For example, you might be concerned because a person has fewer white blood cells than normal.  You would do something to affect white blood cells as a population group and you would only rarely be interested in one particular white blood cell which you might name Cell 54, or something similar, to distinguish it from the millions of other white blood cells in the body.

·       Action Units:  (often called "Fielded Forces" in military circles): Action Units propagate the system or defend it from attack.  In the body, there are groups of cells that work together as an action unit to deal with problems.  For example, leukocytes as a group take on invading germs while others make the blood clot in response to a wound.

State (Country)

·       Leadership:  The leadership of a state certainly includes the senior official like a president or prime minister.  In a state, however, even in a dictatorship, leadership is never just a single person.  The leadership of the United States is not only the president, but also other people and institutions like the media, the Congress, financial powers, and the courts.  Their respective “decisions” give direction to the country.

·       Processes:  There are key energy conversion processes like energy production and communication.  If there is no communication, there is no state.  If there is no way to move energy from one place to another--the electrical system, for example--there is no state.  If there is no governing process, then again, there is no state.

·       Infrastructure:  A state has highways, railroads, airways, canals, and a variety of other things that are generally fixed and hard to change in a short time.

·       Population:  There are many different groupings of the citizens of a state.  Each group has a certain similar identity in that it wants somewhat similar things and reacts in a somewhat similar manner.  In a state, population could be broken down into groups like men, women, ethnicity, and educational attainment.

·       Action Units:  Included in Action Units would be the military and police, but also companies and government agencies that are either defending or doing something outside the system.

Universality of system design:  All systems have the components of the Five Rings.  Once you know about these components, you can easily look deeper to put specific names of individuals and organizations into each of the categories.  Note that systems can easily be part of other systems; for example, companies are in state systems, and individuals are in company and state systems at the same time.

The Five Rings Model has multiple uses:  First, at the highest level, it reminds us that you are always dealing with a system whether that system be a country, a market, or our own organization.  Second, the Model gives us an idea on relative value of system components.  If you wanted to establish a brand new product in the women’s fashion world, for example, you would benefit far more by having Nordstrom’s carry it than you would by having it featured in Betty’s House of Discounts—even if the total dollar sales were the same.  Nordstrom’s is a market leader and its acceptance of your product will have an impact on the rest of the market whereas Betty’s is far from being widely known or considered a power in the industry.  you might find that the effort to sell Betty’s took entirely as much energy as the effort to sell Nordstrom’s.  The former only yields sales dollars while the latter yields a market impact.  Effort aimed at Centers of Gravity in the center—the first ring--of the system almost always produces far more impact than the same amount of effort aimed at outer rings.  Third, the Model helps you to understand why attacking just one thing in the system rarely accomplishes much nor lasts very long.  When you attack just one thing, the rest of the system is completely intact and is able to resist your incursion.  If you want lasting change, you must attack enough Centers of Gravity to shock the system into moving rapidly in the direction you desire.  (See discussions Parallel Attack, and the Master Effect Plans for more detail.)  Fourth, the Model tells you that there are five sets of components.  If, for example, you were determining Centers of Gravity and you saw that you had nothing from the Leadership Ring, you would know that you had overlooked something important.  And fifth, the Model guides you in finding the right Centers of Gravity.

Using the Five Rings—a Contemporary Example

Figure 7 - Five Ring System - Contemporary Example

The graphic above depicts a not so hypothetical terrorist organization.  Suppose that you spend a great deal of effort to attack one of the training camps, that you capture a hit-team, and that you bomb a pharmaceutical plant where the organization is making explosives.  When you look at this graphic, it immediately strikes us that doing just those three things (which is a rather common approach) is unlikely to have much impact on the terrorist organization system—as clearly demonstrated in the aftermath of exactly this kind of operation by the United States in the late 1990s.  Not only did it fail to have any significant impact on Al-Qaeda, but it resulted in the attacked system doing what systems always do—self-repair and counter attack.  Why?  Cursory analysis would lead us to suspect that you did not do anything that could not be easily fixed.  The same analysis suggests that you probably did not do much to preclude the organization from counterattacking in some form (which it did in 2001).  In other words, you did not hit the Centers of Gravity necessary to produce real system change; until you see real system change, the threat from this organization will be little diminished--and may actually increase!

Conclusion:  Our normal inclination is to solve problems where they manifest themselves.  Paradoxically, the most difficult and most impermanent place to solve problems is at their point of manifestation.  Despite the rather common observation that someone is just treating the symptoms, not the cause, you normally treat symptoms.  The system concept significantly simplifies the job of finding the best place to solve problems--or more importantly, to realize opportunities.

System Effects versus Target Effects

Figure 8 - Five Ring System - System Effects Versus Target Effects

The graphic above looks suspiciously like the one you just discussed.  In fact, it is identical.  This time, however, you are going to solve our problem by attacking the terrorist organization leadership (you know it is there because all systems have leadership), some of its processes, and maybe its population.  You might even want to do something about its infrastructure.  You probably would not worry too much about the hit squads and training camps, for they will tend to take care of themselves if you are successful with the Centers of Gravity you chose to affect.  (Of course, when you are looking at our own system at the same time, you will take measures to defend our own Centers of Gravity against the enemy’s Action Units.  Don’t forget, however, that only an offense changes an environment and that defense is problematical at best.  See especially the Cardinal Rules:  Impose Your Plan and Be Offensive.) Remember, our objective is to affect the whole system sufficiently to overcome the hysteresis effect, to exceed its elastic limit, and to fix it so it will not bother us for a long time.  Again, cursory analysis would suggest that if you have fair success with these operations, the terrorist organization system will change the way you want it to change.

If you want to reduce the threat for some reasonable period of time, you must affect the whole system, which probably means affecting leadership, processes like communications and finances, and perhaps population if you can find a way to alienate some of the terrorist organization’s supporters.  Note that you might be able to achieve all the change necessary without ever attacking the numerous groups in the Action Units ring!

Organization As A Strategic Tool: (Venturist, Inc. Prometheus Process Summary;  Venturist Home Page; Top Of Page)

Concept Overview

Organization is a very important strategic tool.  Properly employed, it can make major contributions to reaching the Future Picture.  Poorly applied or ignored, it can keep an organization from its Future Picture.  It is important to see organization as a tool and modify it as required.  Companies create an organization structure in order to manage internal and external operations at a certain point in time.  At that point in time, organizers have a set of ideas about technology, management concepts, economic and political states, market conditions, and their own predilections.  All of these input conditions change over time with some altering very quickly and others only slowly.  This tells us that by definition, an organization created in the past needs to adjust itself merely to keep up with environmental change even if it wanted its business to be static.  If you now consider changes to strategy, which obviously come on top of environmental change, it becomes clear that organization modification is quite important.  The change (or establishment of organization for a new entity) must satisfy internal and external drivers.  Internally, organization needs to be adequate for the organization to accomplish its primary business and externally, it needs to match the requirements imposed by its markets or those it wishes to impose.  The advent of disruptors creates an emergency situation for organizations; it is very difficult to defend against disruptors and it is very difficult to introduce disruptors with a pre-disruptor organization.  In the event of disruptors, the time element becomes a real player; in modern times, disruptors move from appearance to acceptance (or rejection) in generally shorter periods of time than would have been the case some decades ago.  Thus, not only does organization need to change to accommodate disruptors, it needs to do it quickly.  Organization change can be serial over time or it can be parallel and compressed in time.  The literature has proponents for both, but the theory of system change and the Time Value of Action argue strongly for a parallel approach.  Intuitively, this makes sense for organization change is always painful and you know from everyday experience that it is almost always better to get the pain over with quickly than to stretch it out.  That is why you rip a bandage tape off rapidly rather than just a little at a time.  Organization change can take place behind closed doors with very limited participation or it can be done following the precepts of Open Planning.  The latter is preferable because it involves more people and allows everyone to deal with fact rather than the rumor, innuendo, and suspicion that flow from the inevitable leaks in closed-door planning.  Finally, if you really want to do or be something different tomorrow, consider breaking as many organizational connections with the past as possible.  If you do not, the unbroken aspects will generally continue doing business as usual as they follow their axiomatic dictates.

Examples of organization affecting strategic outcomes

Whenever you are confronted with a new objective, new situation, or new technology, you have two choices: make the old organization work or create a new organization.  Most people opt for the former, and it normally fails.  Conversely, people who create new organizations, even if they are not necessarily very good, have a tendency to be successful.  Consider two examples, one from the military world and one from the business world.

In the 1930s, both the Germans and the French were developing new technology, including new tanks and new airplanes.  On balance, the French technology was probably a little bit better than the German.  The French, however, made a decision to put the new tanks and airplanes into the old organization (little changed from the when it was introduced under Louis XIV), which essentially simply spread them out all over France.  The Germans, on the other hand, decided to create an organization specifically for tanks and airplanes, and let them work together.  When the Germans invaded France in May of 1940, their new organization overwhelmed the old French organization.  A large part of the German success was due to the superiority of their organization, not to better soldiers or equipment.

Hewlett-Packard in the early 1990s made a decision to go into the inkjet business.  At the time HP dominated the laser printer business and was making a good profit.  HP, however, believed that inkjet technology had real potential and might even displace laser technology.  The company decided it needed to find out.  The logical answer was to make inkjet a part of the laser printer division, which would have been perfectly normal.  HP, however, was smart enough to know that the laser division would inadvertently kill the inkjet because it was such a different thing: high resolution laser printers sold into the business market, while the low margin, low resolution (then!) inkjet sold into a low-end consumer market.  The laser people would measure inkjet by their standards and find it wanting in every measure.  HP decided to set up the inkjet operation in a completely separate division in another city hundreds of miles away.  There, the new “company” was to develop its product, its measures of success, and its market.  If the inkjet ended up killing the laser business, that was all right because HP would win in any event.  As it turned out, inkjet became wildly successful while lasers continued to prosper.  HP had made a great decision, and you suspect, the only workable decision.  (See the Innovator’s Dilemma for more detail)

Breaking Connections With The Past—An Illustration:

Figure 9 - Breaking Connections With The Past - Traditional Organization

When John Warden assumed command of the Air Force’s Air Command and Staff College in 1992 following a yearlong tour (after the Gulf War) as a Special Assistant to the Vice President of the United States, his instructions from Washington were simple: make the Air Command and Staff College a 21st century academic institution.  The College was (and is) a one-year advanced course in residence for officers identified as having substantial future potential.  Its nearest civilian equivalent in level of material and quality of attendees would be one of the well-known business school MBA programs.

At the time, the College had a very traditional organization (as depicted above) that was not too different from most educational institutions.  Professors and students all felt they were working hard and that the College had a good curriculum.  John’s assessment of it, however, suggested that the curriculum may have been good for a rather un-dynamic Cold War period but was inadequate to meet the demands of a very dynamic and unpredictable future.  After working with faculty, staff, and students to develop a Future Picture and Centers of Gravity that included the curriculum, teaching methodology, technology, and staff organization, it was time to start rapid change.  Focusing on the future, he and the entire resident staff of well over a hundred instructors and administrators worked together to construct a new organization.

Figure 10 - Breaking Connections With The Past - New Organization

In order to break connections with the past and allow everyone to focus on the future, the group created the organization shown above.  Rather than keeping the Department of History and other similar traditional departments, it formed three groups called "Beams", each one of which would have responsibility for developing and teaching about a third of the new integrated curriculum under simultaneous development.  The chiefs of these groups were called “Beam Heads".  When you are a Beam Head, your only choice is to focus on making the future rather spectacular because you cannot rest on the laurels associated with an old name like History Department Head.  Next, the group developed three smaller units of instructors to work under each of the Beams.  These groups had responsibility for alternating parts of the curriculum through the year.  They were called "Blocks", so their chiefs were then “Block Heads".  All this may seem a bit whimsical, but to succeed with a revolutionary attempt to make the, it was imperative to break connections with the past and focus all the efforts on the future.  The revolutionary change program worked:  in less than six months, the College had designed and started teaching a radically new program with a radically different organization.  The College began winning accolades almost immediately and continued to do so for the remainder of the decade.  When you do organizational change, do not hesitate to have fun.  Do what is necessary to make it easy for people to let go of the past and focus on the future.  Make sure everyone is participating right from the start, and be willing to spend countless hours educating, helping, and cajoling as required to make change happen fast.

Centers Of Gravity: (Venturist, Inc. Prometheus Process Summary;  Venturist Home Page; Top Of Page)

                                   

Concept Overview

It is clear that internal and external systems must change to realize a Future Picture.  Systems as an entity, however, are very complex and daunting.  If you were told to change your company, market, or country, you would immediately be struck by the difficulty of the task and might easily conclude that it was simply too hard.  If, however, system change is a necessity, the fact the job is does not relieve you of the responsibility.  Fortunately, centers of gravity offer the secret to managing complex systems.

Centers of gravity are the relatively small number of things within a system that have greater impact on the overall system when they change than do the overwhelming majority of other things within a system.  A center of gravity provides high leverage and good return on your energy investment.  When combined with the concept of parallel operations (making many things happen in a suitably short period of time), centers of gravity make possible the seemingly impossible job of changing systems.

Centers of gravity found through using the Five Rings model are the things that are good targets for your resources.  It makes little sense to spend scarce resources against anything other than good targets, yet the majority of planners in both the military and the commercial world spend little or no time identifying the Centers of Gravity.  Instead, they rush to action thinking that if they strike at enough targets, something positive is bound to happen.  For the very lucky or for those with infinite resources, something positive may indeed happen.

Use the Five Ring Model to find centers of gravity.  Start in the center, Leadership, ring  and work your way to the outside.  Centers of Gravity in the inner rings will generally have far more effect on the system than those in the outer rings.

Centers of gravity may already exist in which case the problem is identifying the right ones.  On the other hand, it is entirely possible that while using the Five Ring Model, you will discover that you need to create a center of gravity.  For example, if you were trying to develop a market for new product that required a new retail model, you might want to create a center of gravity called “new product retailer sellers association.”

Centers of gravity in the middle two rings tend to have more impact than those in the outer rings.  This does not mean, however, that you can necessarily ignore completely outer ring centers of gravity, although sometimes you can.  What it does mean it that you want to concentrate your resources on the inner rings because they will give you a higher return on your investment than will the others.  In general, you will normally want to select a cross section of centers of gravity with the two inner rings significantly over-represented.  If you find that you are spending much of your time on the three outer rings, you have probably missed some big opportunities closer to the center.  If you simply cannot operate against inner rings for whatever reason, realize that you are going to have a tough time creating and maintaining system change.  Think about the terrorist example earlier cited.  If you spent all your time in the fifth ring trying to capture individual terror action units, you would face a potentially infinite task for as you eliminated one, the system would train and equip a replacement.  To be successful at a reasonable cost and in a reasonable time, you would need to reduce system energy and capability which means operating against the inner rings.

Understanding centers of gravity through network theory:  In a free-scale network, a small number of the nodes (centers of gravity) in a system will have links to many other nodes whereas the majority of nodes will have few connections to other nodes.  If you do something to a node with few links, the only result will be whatever you do to that node.  Conversely, if you do something to a node with lots of links, your efforts will reverberate through the system.  As an example, choose a random name in the phone book and ask that person to make a statement about something for the newspaper.  The statement will have little impact because the person in all likelihood only had links to a few other people so it his comment was immaterial to the majority of readers.  On the other hand, if Clint Eastwood had made the same statement, it would have had an effect (positive or negative) on people around the world as Mr. Eastwood has many links.  Likewise if you were General Motors and sold your first Hummer H-1 to Joe Smith in Podunk, you could pocket the check and then find it took just as much work to sell the next one to Bill Jones in Topeka.  If, however, you had sold the first one to Arnold Schwarzenegger, selling the next few would have been much easier.  The following Wikipedia article on scale-free networks provides a good overview of this theory and concepts that were well expressed by Barabassi and Bornabeau.

Scale-free network

A scale-free network is a noteworthy kind of complex network because many "real-world networks" fall into this category. For purposes of this article, "real-world" refers to any of various observable phenomena which exhibit network theoretic characteristics  (see e.g., social network, computer network, biological neural network, epidemiology).

In scale-free networks, some nodes act as "highly connected hubs" (high degree (graph theory)) although most nodes are of low degree. Scale-free networks' structure and dynamics are independent of the system's size N, the number of nodes the system has. In other words, a network that is scale-free will have the same properties no matter what the number of its nodes is. Their most distinguishing characteristic is that their degree distribution follows a power law relationship  where the coefficient y may vary approximately from 2 to 3 for most real networks.

Highlights

o   Scale free networks show a power law degree distribution like most real networks.

o   Network growth and preferential attachment have been shown to create networks with power law degree distributions.

History

Using a Web crawler, physicist Albert-László Barabási and his colleagues at the University of Notre Dame in Indiana, USA, in 1999 mapped the connectedness of the Web. To their surprise, the web did not have an even distribution of connectivity (so-called "random connectivity"). Instead, some network nodes had many more connections than the average; seeking a simple categorical label, Barabási and his collaborators called such highly connected nodes "hubs". In physics, such right-skewed or heavy-tailed distributions often have the form of a power law, i.e., the probability ''P(k)'' that a node in the network connects with ''k'' other nodes was roughly proportional to k−γ, and this function gave a roughly good fit to their observed data.

After finding that a few other networks, including some social and biological networks, also had heavy-tailed degree distributions, Barabási and collaborators coined the term "scale-free network" to describe the class of networks that exhibit a power-law degree distribution. Soon after, Amaral et al showed that most of the real-world networks can be classified into two large categories according to the decay of P(k) for large k.

Barabási et al then offered a simple generative mechanism called "preferential attachment" (see below) that created networks with a power-law degree distribution. The first analytic solution for this mechanism was presented in 2000 by Dorogovtsev, José Fernando Ferreira Mendes|Mendes and Samukhin (Structure of Growing Networks: Exact Solution of the Barabási--Albert's Model), which was later confirmed by the mathematician Béla Bollobás. Notably, however, this mechanism only produces a specific subset of networks in the scale-free class, and many alternative mechanisms have been discovered since.

Although the scientific community is still debating the usefulness of the scale-free term in reference to networks, Li et al (2005) recently offered a potentially more precise "scale-free metric". Briefly, let ''g'' be a graph with edge-set ε, and let the degree (number of edges) at a vertex ''i'' be “di”. Define

This is maximized when high-degree nodes are connected to other high-degree nodes.  Now define

where ''smax'' is the maximum value of ''s(h)'' for ''h'' in the set of all graphs with an identical degree distribution to ''g''.

This gives a metric between 0 and 1, such that graphs with low ''S(g)'' are "scale-rich", and graphs with ''S(g)'' close to 1 are "scale-free". This definition captures the notion of self-similarity implied in the name "scale-free".

Characteristics and examples

Figure 11 - Random network (a) and scale-free network (b). In the scale-free network, the larger hubs are highlighted.

As with all systems characterized by a power law distribution, the most notable characteristic in a scale-free network is the relative commonness of vertices with a degree that greatly exceeds the average. The highest-degree nodes are often called "hubs", and are thought to serve specific purposes in their networks, although this depends greatly on the domain.

The power law distribution highly influences the network topology. It turns out that the major hubs are closely followed by smaller ones. These ones, in turn, are followed by other nodes with an even smaller degree and so on. This hierarchy allows for a fault tolerant behavior. Since failures occur at random and the vast majority of nodes are those with small degree, the likelihood that a hub be affected is almost negligible. Even if such event occurs, the network will not lose its connectedness, which is guaranteed by the remaining hubs. On the other hand, if you choose a few major hubs and take them out of the network, it simply falls apart and is turned into a set of rather isolated graphs. Thus hubs are both the strength of scale-free networks and their Achilles' heel.

Another important characteristic of scale-free networks is the clustering coefficient distribution, which decreases as the node degree increases. This distribution also follows a power law. That means that the low-degree nodes belong to very dense sub-graphs and those sub-graphs are connected to each other through hubs.  Consider a social network in which nodes are people and links are acquaintance relationships between people. It is easy to see that people tend to form communities, i.e., small groups in which everyone knows everyone (one can think of such community as a complete graph). In addition, the members of a community also have a few acquaintance relationships to people outside that community. Some people, however, are so related to other people (e.g., celebrities, politicians) that they are connected to a large number of communities. Those people may be considered the hubs responsible for the small world phenomenon.

At present, the more specific characteristics of scale-free networks can only be discussed in either the context of the generative mechanism used to create them, or the context of a particular real-world network thought to be scale-free. For instance, networks generated by preferential attachment typically place the high-degree vertices in the middle of the network, connecting them together to form a core, with progressively lower-degree nodes making up the regions between the core and the periphery. Many interesting results are known for this subclass of scale-free networks. For instance, the random removal of even a large fraction of vertices impacts the overall connectedness of the network very little, suggesting that such topologies could be useful for network security, while targeted attacks destroys the connectedness very quickly. Other scale-free networks, which place the high-degree vertices at the periphery, do not exhibit these properties; notably, the structure of the Internet is more like this latter kind of network than the kind built by preferential attachment. Indeed, many of the results about scale-free networks have been claimed to apply to the Internet, but are disputed by Internet researchers and engineers.

As with most disordered networks, such as the small world network model, the average distance between two vertices in the network is very small relative to a highly ordered network such as a lattice. The clustering coefficient of scale-free networks can vary significantly depending on other topological details, and there are now generative mechanisms that allow one to create such networks that have a high density of triangles.

It is interesting that Cohen and Havlin proved that uncorrelated power-law graph having 2<γ<3 will also have ultra small diameter d ~ ln ln N. So from the practical point of view, the diameter of a growing scale-free network might be considered almost constant.

Although many real-world networks are thought to be scale-free, the evidence remains inconclusive, primarily because the generative mechanisms proposed have not been rigorously validated against the real-world data. As such, it is too early to rule out alternative hypotheses. A few examples of networks claimed to be scale-free include:

o   Social networks, including collaboration networks. An example that has been studied extensively is the collaboration of movie actors in films.

o   Protein-Protein interaction networks.

o   Sexual partners in humans, which affects the dispersal of sexually transmitted diseases.

o   Many kinds of computer networks, including the World Wide Web.

Generative models

These scale-free networks do not arise by chance alone. Erdős and Rényi (1960) studied a model of growth for graphs in which, at each step, two nodes are chosen uniformly at random and a link is inserted between them. The properties of these random graphs are not consistent with the properties observed in scale-free networks, and therefore a model for this growth process is needed.

The scale-free properties of the World Wide Web have been studied, and its distribution of links is very close to a power law, because there are a few Web sites with huge numbers of links, which benefit from a good placement in search engines and an established presence on the Web. Those sites are the ones that attract more of the new links. This has been called the '''winners take all''' phenomenon.

The mostly widely known generative model for a subset of scale-free networks is Barabási and Albert's (1999) '''rich get richer''' generative model in which each new Web page creates links to existent Web pages with a probability distribution which is not uniform, but proportional to the current in-degree of Web pages. This model was originally discovered by Derek J. de Solla Price in 1965 under the term '''cumulative advantage''', but did not reach popularity until Barabási rediscovered the results under its current name (BA Model). According to this process, a page with many in-links will attract more in-links than a regular page. This generates a power-law but the resulting graph differs from the actual Web graph in other properties such as the presence of small tightly connected communities. More general models and networks characteristics have been proposed and studied (for a review see the book by Dorogovtsev and José Fernando Ferreira Mendes).

A different generative model is the '''copy''' model studied by Kumar et al. (2000), in which new nodes choose an existent nodeat random and copy a fraction of the links of the existent node. This alsogenerates a power law.

However, if you look at communities of interests in a specific topic, discarding the major hubs of the Web, the distribution of links is no longer a power law but resembles more a normal distribution, as observed by Pennock et al. (2002) in the communities of the home pages of universities, public companies, newspapers and scientists.

Based on these observations, the authors propose a generative model that mixes preferential attachment with a baseline probability of gaining a link.

The growth of the networks (adding new nodes) is not a necessary condition for creating a scale-free topology. Dangalchev (2004) gives examples of generating static scale-free networks. Another possibility (Caldarelli et al. 2002) is to consider the structure as static and draw a link between vertices according to a particular property of the two vertices involved. Once specified the statistical distribution for these vertices properties (fitnesses), it turns out that in some circumstances also static networks develop scale-free properties.

Recently, Manev and Manev (Med. Hypotheses, 2005) proposed that small world networks may be operative in adult brain neurogenesis. Adult neurogenesis has been observed in mammalian brains, including those of humans, but a question remains: how do new neurons become functional in the adult brain? It is proposed that the random addition of only a few new neurons functions as a maintenance system for the brain's "small-world" networks. Randomly added to an orderly network, new links enhance signal propagation speed and synchronizability. Newly generated neurons are ideally suited to become such links: they are immature, form more new connections compared to mature ones, and their number but not their precise location may be maintained by continuous proliferation and dying off. Similarly, it is envisaged that the treatment of brain pathologies by cell transplantation would also create new random links in small-world networks and that even a small number of successfully incorporated new neurons may be functionally important.[10]

Center of Gravity Desired Effects: (Venturist, Inc. Prometheus Process Summary;  Venturist Home Page; Top Of Page)

Concept Overview

You are primarily interested in centers of gravity because they allow us to understand and manage complex systems in such a way as to have an idea what is happening and why.  Although some systems are much larger and more complex than other, virtually every system displays complexity—and perversity of behavior.  As a simple example, think about your own family—a rather small system in the greater scheme things.  And yet everyone who has one recognizes how complex they are and how difficult to manage or deal with.  Centers of gravity give us the tools to deal with this complexity.

Figure 12 - Desired Effects Derive From Future Picture

After you identified the systems that were of interest to us with respect to our Future Picture, you next determined the Desired System Effects—what the overall system needed to become if you were to realize our Future Picture.  Knowing what the system needs to become and knowing the centers of gravity in it, you now need to determine what the centers of gravity themselves need to become if they are going to do their part in driving the system to our Desired System Effect..  you call this future state for the centers of gravity the center of gravity Desired Effect.  It becomes part of the Impact Plan for the center of gravity.  An Impact Plan has four components:  Desired Effect (the required end state for the center of gravity); Measure of Merit (the measures that tell you that the Desired Effect has been realized); Timeframe (when the Desired Effect must happen); and Actions (the steps and tactics necessary to make the center of gravity move).  A center of gravity may have more than one Desired Effect, especially if it is needed in more than one phase (see chapter on Parallel Operations and Master Effect Plans).  If it has more than one Desired Effect, it would also have complementing measures, timeframes, and actions.

As you are writing Desired Effects, it is very important to make them strategic descriptions of the center of gravity end-state.  Be very careful to avoid writing how (actions) you would affect the center of gravity.  Also, be very clear in your description as there is a good chance that some individuals will work on this center of gravity who might not have been part of the drafting or may simply have forgotten the discussion that might illuminate something cryptic.

As you continue to think about Desired Effects (and how you will measure your progress), keep focusing on changing the system.  Likewise, keep in mind that you want the system to behave in a different way after you have done something to it.  you are going to want the system to function either better or worse than previously--generally better in the business situation and generally worse in the military situation.  The focus in Prometheus is on changing the Centers of Gravity to make them consonant with the Desired Effects you have assigned them.  Put another way, the focus is on results—and the whole incentive system should reflect this focus.  The objective is not to make a thousand sales calls; rather, it is to sign up the customer identified as a Center of Gravity whose business will have a positive effect on your market system.  You certainly want to recognize hard work by people in your organization, but the real rewards (monetary and non-monetary) must be based on results, not effort.  When it comes to measuring your progress or ultimate success, remember all that counts is whether the Center of Gravity and the system changed as desired.

Gulf War I Impact Plan example:

In the Gulf War, the plan was to make Iraq as a system change to meet the Desired System Effects:  out of Kuwait; internally functional; unable to make strategic attacks on its neighbors, but able to defend itself.  To force the system change, the Coalition attacked Iraqi Centers of Gravity in accordance with an Impact Plan for each one that looked roughly like those below.

Table 3 - Example Desired Effects - 1st Gulf War

Note that all of the Desired Effects are stated in such a way as to capture the highest reasonable, least restrictive future for each of the Centers of Gravity.  For example, one might have been tempted to call for the destruction of the Iraqi electrical system, but that would have been too restrictive (and would have generated a lot of unnecessary activity) and was not in consonance with the Desired System Effects and Future Picture which called for an Iraq that would resume non-military life quickly after the war.  By putting the Desired Effect in the terms shown, the planners also gave themselves significant options on how to achieve their ends.  Note next the Measure of Merit for the electric system:  lights out in Baghdad.  A good measure of merit is one that is easy to observe and is clearly related to the Desired Effect.  (Someone might object that the Iraqis could have imposed a blackout on their cities—but that would have been easy to detect.)  Next, note the timeframes.  At the strategic level, you try to establish timeframes to achieve the Desired Effect that will contribute to creating rapid overall system change.  In the case of electricity, it was quite important for it to be off at least in Baghdad, the military and political center of the country, in the first few hours in order to make a coherent response as difficult as possible. The first three parts of the Impact Plans should be short and concise and should be done and vetted by as large a planning group as possible in order to ensure that everyone understands and is comfortable with the strategic part of the Impact Plans.  As long as this part is clear, subsequent planning and execution will follow with little danger of a strategic disconnect.

Parallel Operations: (Venturist, Inc. Prometheus Process Summary;  Venturist Home Page; Top Of Page)

Concept Overview

There are two basic approaches to any strategic operation—serial or parallel.  In the former, you attack strategic issues sequentially, one step at a time which gives the system under attack ample opportunity to resist.  In the latter, you affect as many parts of the system in as short a period as required in order to overcome system resistance.  Serial operations appear conservative and low cost to start, but examined over the time required to accomplish a strategic objective turn out to be far riskier and more expensive than parallel operations.  Additionally, because of system resistance, the probability of success in serial operations is far lower than with parallel operations.

The ideal parallel operation is one that happens within a timeframe less than system reaction time.  In absolute terms, this could be hours or days in a military situation or months and even years in a business situation.  If you do not have sufficient resources to operate ideally within the parallel timeframe, then you should phase your center of gravity attacks with the idea of creating a degree of system effect that will retard overall system reaction and that will give you a platform for your next phase.  Probability of success will be lower than with an ideal parallel attack, but it will be higher than could be attained with serial attack.  In addition, by the end of each phase you will have learned important strategic information that will inform your decision as to whether you should proceed.  In serial operations, strategic information is rarely available until you are well downstream in time and cost.  You should begin phase planning by working backward from your Desired System Effects.

 

 

Amplifying Ideas

Serial versus Parallel War Operations:  The United States Air Force began daylight bombing attacks on Germany in January of 1943.  In all of 1943, the responsible command, Eighth Air Force, was only able to hit approximately 50 targets (most of which were in the 3rd to 5th Rings)  and did so at a rate of about one target complex per week.  As you can well imagine, the Germans simply assembled all of their resources to fix each bombed target.  Being smart people, while they were repairing damage, they worked on ways to make themselves less vulnerable--like dispersing some of their industry.  They rapidly learned how to shoot down more American bombers.  The system under attack by the American forces was actually getting smarter as the attacks progressed.  Obviously, the American side was getting smarter too, but nothing changes very much in this kind of a scenario.  What you saw in the 1943 skies over Germany was a replay of a million serial operations that had preceded it.  At the end of 1943, Germany was still functioning well as a system, although it had paid a very high price, especially in opportunity costs, to ensure its system survival.  Serial operations had their predictable outcome.  (Note:  Aerial bombardment turned out to be extraordinarily effective, but not before it became parallel in the fall of 1944—after it had been diverted to support the Normandy invasion during the winter, spring, and summer of that year.)

The opposite of the 1943 serial attacks against Germany took place over almost fifty years later.  At 3:00 AM on the 17th of January 1991 (Baghdad time), Iraq came under an attack that was unprecedented in concept, in technology, and in scope.  Instead of trying to deal with Iraq serially as you would have in the past, you brought the whole Iraqi system under parallel attack by hitting a number of strategic Centers of Gravity almost simultaneously.  The results were spectacularly different from the serial case.  In a very short period of time, important facilities and functions all around the country were no longer operable.  Communications between government and military officials was difficult to impossible; electricity was no longer generally available to do all of the seemingly mundane (but really critical) things it does; and senior military officials themselves were not available to make crucial decisions.  The totality of what happened to Iraq as a result of parallel operations was incipient strategic paralysis.  In other words, Iraq was unable to repair itself, unable to learn, and unable to respond in any meaningful way.  Of almost equal importance is this: You actually missed some important targets.  Unlike missing in the serial case, however, missing when you are conducting parallel operations against a system does not make too much difference, because hitting one target does not depend on another target being previously hit.  The difference between serial and parallel operations is stark: the former is risky, chancy and takes a long time; the latter is low-risk, predictable, and takes a short time.  Given a choice, and there is almost always a choice, anyone who would do serial operations rather than parallel is not serious about winning.

In the first Gulf War, the Allies (primarily the United States) struck about 150 targets (most of which were in the 1st and 2nd Rings) that represented critical Centers of Gravity in the Iraqi system.  One hundred and fifty targets in 24 hours means that the rate of target attack was 1,000 times faster than the 1943 attacks against Germany.  The German system under serial attack had learned and had managed to keep itself functional; the Iraqi system under parallel attack simply went into shock; it could not deal with what was happening to it, because so many things broke in parallel that the system simply lost its ability to react.

The Master Effects Plan:  Most organizations will not have enough resources to attack all the relevant centers of gravity simultaneously.  Not attacking them nearly simultaneously, however, drives the organization toward the serial domain with its attendant lower probabilities of success and higher cost of operations.  The best solution for the limited resource problem is to make attacks on centers of gravity as parallel as possible; if an organization has the resources to affect more than one center of gravity, it has a parallel option and being a little parallel is far better than not being parallel at all.

If an organization could attack everything nearly simultaneously, there would be only one phase of operations and all the attacked systems would respond very quickly.  With limited resources, however, an organization divides its attacks into phases with each phase designed to have as much system impact as possible.  The idea is to give the system as much of a shock as possible in the first phase to get it moving in the right direction as quickly as possible.  Subsequent phases should accelerate the movement to a successful conclusion.

As discussed previously in the section on impact plans, the timeframe for a center of gravity Desired Effect should be based on its impact on the system, not on when it might be convenient to make it happen.

The vehicle for deciding the order of attack is the Master Effects Plan.  The Master Effects Plan provides a schedule for realizing each Desired Effect associated with each relevant center of gravity.  Many centers of gravity have more than one desired effect with associated timeframe, so the Master Effects Plan is really for desired effects, not the center of gravity per se.  A Master Effects Plan will show each Desired Effect in chronological order by phase.

The first step is to decide how many phases of operation are desired and their approximate durations.  You will generally have at least three. The initial decision on the number of phases is based on a rough estimate of how many centers of gravity the organization believes it can manage at one time.  As in the rest of the Prometheus Process, here also you work backward.  Consider what the relevant systems must be at the time of Future Picture realization (Future Picture describes the internal system and Desired System Effects describes the external system).  Decide what these systems would need to be in the prior period.  For example, if our Future Picture was to be making money on Moon tourism, the period before the Moon Hotel opened would include available transport, construction, certifications and so on.  Follow the same sequence until you arrive at the present.  You now have your Master Effects Phases and you can populate them with the centers of gravity needed to make the phases a reality. The duration of the phases is based on a rough estimate of how quickly something must begin to happen (Phase I) and how quickly remaining Desired Effects must be realized to make the Future Picture a reality in the time allotted.  Phases will probably not be of equal duration.  The Forward Look Assessment where you determine how long you have to operate in a parallel world should also help in establishing phase times and requirements.

Systems Attack In Business And War:

The theory of parallel war had its birth in military operations, and it is easier to explain with military examples than with business examples.  To some people, this will cause a problem, because they have difficulty understanding how bombing a target could possibly have any relevance to the business world.  It does not--until you grasp two ideas: you must change systems (markets, companies) and keep them changed if you want sustained success; to change a system, you focus energy against the system’s Centers of Gravity.  In the military example, the focused energy was negative--that is, it took something away from Iraq, and it decreased the system energy of the state.  In the business case, you deliver positive energy in the form of products, ideas, advertising, sales calls, and money to increase the energy of the market you are trying to change in your favor.  In the military case, your reward for decreasing your opponent’s energy is realization of your grand strategy goals that require your opponent to be no threat to you or at least less of a threat.  In the business case, your reward is the profit, recognition, and higher value that the markets bestow on you for increasing the energy of your target market.  As you think about these ideas, make sure you are addressing them at the right high level, and do not try to do literal translations from military to business.

The Art of Generalship—in war or business:

As you are thinking about how to create system effects en route to your Future Picture, you need to think about the leadership side of the equation.  You earlier discussed the importance of targeting.  In fact, it is so important that the second Imperative is Target for Success.  At some point, however, you need to decide on the methodology of affecting the targets--not the specifics, but the basic ideas.  The art of generalship, the art of leading a company or a component of it is simple--you must overwhelm Centers of Gravity when and where it counts.  In the old days in the military and business world, the only way feasible approach was to mass forces and throw enough projectiles—or products, or ads—to overcome the problems of imprecision.  You now have different options.  You do not need to worry about numbers, because there is technology available to allow us to conduct parallel operations with precision in order to overwhelm the centers of gravity rapidly and economically. You can use old methods and technology to affect centers of gravity to change systems, but you will not be as happy with the outcome (and it may not work) as you will be if you use the best reasonably available technology and parallel concepts to do the job.

Energy and information needs in the parallel world:  Frequently people think that there will be an increase in information, energy, and resource needs for parallel operations.  Paradoxically, exactly the opposite is the case.  For example, when you are doing things serially, you really must have the right information about each target.  If you attack the wrong place at the wrong time, and you are only doing one thing at a time, it simply stops you.  You must get it right before you can go on--that is the whole concept of serial operations.  In contrast, for parallel operations, the importance of perfect knowledge or perfect execution against any given target is less.  That is true because your goal is to have systemic effect versus the single-point effect that is mandatory in the serial world.  There are really not many good excuses not to think and act in parallel.  Parallel is cheaper, faster, and more effective.  Parallel requires fewer resources.  On the other hand, it requires a different way of thinking, one to which you are not accustomed.

Concurrent engineering workflow:

This is a workflow that instead of working sequentially through the stages a number of tasks is carried out in parallel.

For example starting tool design before the detailed design of the product is finished; or the engineer started on detail design solid models before the concept design surfaces models are complete. Although this does not necessarily reduce the amount of manpower required for a project it does drastically reduce lead times and thus time to market.

Feature based CAD systems have for many years allowed the simultaneous work on 3D solid model and the 2D drawing by means of 2 separate files with the drawing looking at the data in the model, when the model changes the drawing will associatively update.

Some CAD packages also allow associative copying of geometry between files. This allows, for example, the copying of a part design into the files used by the tooling designer. The manufacturing engineer can then start work on tools before the final design freeze, when a design changes size or shape the tool geometry will then update.

Concurrent engineering also has the added benefit of providing better and more immediate communication between departments, reducing the chance of costly, late design changes. It adopts a problem prevention method as compared to the problem solving and re-designing method of traditional sequential engineering.[11]

Orchestration: (Venturist, Inc. Prometheus Process Summary;  Venturist Home Page; Top Of Page)

Strategy Execution

“Only 3 percent of executives say their companies are very successful at executing corporate strategies, according to a global survey of 1,526 managers and human resource experts commissioned by the American Management Association (AMA), and conducted by the Human Resource Institute. Sixty-two percent of respondents say their organizations are only moderately successful—or worse—at strategy execution. "The findings show that strategy execution will improve as executives learn how to focus and align daily activities to strategic goals," says Edward T. Reilly, AMA's president and CEO. "To ensure this, top leaders must be committed to clear, direct, and constant communication."

Concept Overview

Figure 13 - Orchestration[12]

Orchestration is about application of resources, with an emphasis on people, to realize a Future Picture by changing internal and external centers of gravity in parallel.  In the Prometheus Process, the campaign is the vehicle used to attack centers of gravity.  A campaign consists of one or more people responsible for making one or more centers of gravity move to their Desired Effect within the timeframe specified.  Normally, a campaign will have a number of people and centers of gravity assigned to it.  The person in charge of each campaign is the campaign director.  In most organizations, there will also be an Orchestrator who is responsible for coordinating the work of campaigns and ensuring that timelines are met.  The CEO or COO could be the Orchestrator but normally have too many outside responsibilities to ensure their timely availability and focus.  The Orchestrator’s job is a full-time position.  Orchestration is making sure that the right things happen at the right time to move the centers of gravity as specified.  (See the Planning and Execution Guide for campaign formation and execution details).  Organization imperatives are:

·       Keeping focus on the centers of gravity

·       Measuring progress faithfully and regularly

·       Aligning incentives of organization members

·       Ensuring effective communication across and up and down the organization

·       Maintaining and using reserves

·       Focusing on success, not failure

·       Getting out of underperforming operations as quickly as possible using a concept called Fast Fail

Thinking and acting strategically is not always easy and is not the existing practice in many organizations.  The transition from a tactical focus to a strategic focus will be difficult and trying, but it does not last forever.  The organization that makes the successful transition becomes significantly more productive and better able to succeed in a dynamic environment and that members of the organization get better returns from their work.

Aligning incentives:  People will tend to do what earns them a reward and they will avoid doing things that cause pain or loss.  When an organization shifts to a strategic focus and asks it members to work on campaigns to affect centers of gravity, they will normally be willing to do so—unless doing so jeopardizes their bonus or their next performance report.  If you want people to work on campaigns, it is important to ensure that there are positive incentives for doing so and no negative incentives in terms of otherwise lost opportunities.  One way to accelerate the process is to make sure that success earns more than failure costs.  As an example:

Joseph Tippens, Universal Chemical Technologies, described one extreme when he spoke of the entrepreneurial efforts supported by venture capitalists. In the venture capital experience, 80 percent of high-risk investments are expected to fail. However, the 20 percent that succeed are predicted to have very large returns on investment. incentive model charts in presentation demonstrates the high value of success and the relatively low penalty for failure on a particular technology. As the success level increases, the reward increases rapidly. However, the penalty for failure, while present, is not as severe as the rewards for succeeding. This approach gives a very strong incentive to attempts to create successes, and it is accepting of failures as a part of the process. This pull is key to rapid technology transition.[13]

Reserves:  Military commanders for years have been aware of the value and necessity of maintaining reserves to meet unexpected situations, but the idea is relatively unknown in the business world except in the case of financial reserves.  Let us look at the theory of reserves and some examples from the military and business worlds.  Maintaining reserves is of paramount importance.  Reserves are very simply forces, or assets, deliberately withheld until there is a critical juncture in a campaign, at which point they are committed in order to have a dramatic impact on the strategic outcome of whatever it is that you are trying to do.  You commit reserves to make a fundamental change in a situation.  One of the best military examples of recent times is the Battle of Britain.

After conquering France in the early summer of 1940, the Germans decided to mount a cross-Channel invasion of Great Britain.  Before doing so, however, they needed to win air superiority over the Channel and over Britain itself.  Thus, the Germans began an intense air campaign to accomplish their objectives and make possible an invasion.  The Germans concentrated all their forces against Britain and flew their pilots and aircraft at the maximum possible rate.  Meanwhile, the British, although in mortal peril, deliberately held back almost a quarter of their pilots and aircraft.  In other words, they held them in reserve.  On September 14th, 1940, the Commander, RAF Fighter Command, Air Chief Marshall Load Hugh “Stuffy” Dowding decided that the air war had reached a culmination point--a point at which a little more effort one way or another will have a greater impact than that same effort before the culmination point.  On this day, when the Germans were nearing exhaustion but thought they had beaten the British, Dowding committed his reserves.  Imagine the shock on the part of the Germans when suddenly confronted with far larger forces than they had previously seen and when they thought their opponent was on the ropes.  Not only was there a psychological shock, but there was also a huge physical shock, for the British imposed unprecedented losses on the Germans.  The Germans, who had no reserves, on the following day called off the planned invasion of Britain and instead shifted their attention to the Soviet Union.  (See The Breaking Wave, Telford Taylor)  The British had won one of the most important battles in their history and the tide of war changed dramatically--all because an air commander had maintained reserves and committed them brilliantly.

You can use reserves to reinforce success or to check failure.  Which you choose depends on your mindset.  Do you see problems or do you see opportunities?  An excellent example of both viewpoints is illustrated by the Allied response to the German attack on the Ardennes in December, 1944.  The Germans, who were able to make this attack only because they had carefully built up a reserve, despite being in a perilous situation on all fronts, surprised the Allies and drove deep into Luxembourg and Belgium at a time when the Allies thought the Germans incapable of serious counter-offensive operations.  The Allied high command's reactions to this attack are instructive.  George Patton, commander of U.S. Third Army (which was inactive at the time, and thus for practical purposes in reserve), immediately saw the German attack as a great opportunity; if they were attacking north of his position, there could not be very many defending in front of him.  His recommendation was to launch an immediate attack into the heart of Germany and drive rapidly toward Berlin.  He thought he could win the war in the next few weeks.

Patton’s superiors, Omar Bradley and Dwight Eisenhower, however, saw the situation a different way; to them, they had to solve the problem of the German attack and could not think of anything else until it was ended.  Patton saw opportunity; Eisenhower and Bradley saw danger.  Since the latter were in command, they treated Patton’s Third Army as a reserve and committed it against the flank of the German attack.  Several weeks later, after much hard fighting, the lines were back to where they were when the Germans made their surprise move.  All the effort and blood on the Allied side had simply restored the status quo ante, and it would be another four months before the European war ended.

Now, look at an example of a failure to maintain reserves in the business world.  Hewlett-Packard, in 1991, decided to develop a new 1.3 inch disk drive for computers; HP had watched the progression of continued miniaturization of disk drives for laptop computers and thought their new drive would position them well to capitalize on the opportunities. Unfortunately for HP, disk drives for laptop computers leveled off at a higher size, so the expected market failed to materialize.  HP, thus, had to disband the project because there were no more funds available for it.  Two years later, makers of play stations showed up at HP interested in buying the miniature drive, which was perfect for their purposes.  HP, though, had disbanded the team and could not meet the new demand.  It had not maintained reserves and when the situation failed to develop as forecast, the company had no options. (See Clayton M. Christensen, The Innovators Dilemma, for the whole story.)

Unless you are certain that you can perfectly predict the future, you should develop an organization structure that allows you to maintain and commit reserves with ease.  Likewise, you should develop a mindset in advance about whether you are more comfortable with using reserves for opportunity or to deal with setbacks.

Three Down Communication And Planning

There are many reasons why even good plans sometimes fail in execution but one of the most common, and perhaps the one easiest to fix, is communications.  People in general do a very poor job of communicating instructions to people who work for or with them.  Think of how many times you have been in a long staff meeting where the majority was not taking notes.  You listened to intense conversations, and decisions made were either murky, conditional, or based on nuance.  When those attending the long planning meeting returned to tell their subordinates what had taken place, they provided a two-minute summary, which was probably not quite correct in any event.  Shortly thereafter, one of the subordinates found he did not understand why something was to be done so he asks the person who attended the meeting.  That person does not really know, but is unwilling to get back to the people at the meeting for fear of looking silly.  Consequently, the subordinate goes off and does the best job possible.  It will probably be a good job, but it may not be at all what the original planning group had expected or wanted.

Well over a century ago, the Prussian military solved this problem by developing and putting into effect what you call the Three-Echelon Rule.  The Three-Echelon Rule tells you to have at least three organizational echelons present anytime you are doing any serious planning or are about to make any decisions.  If people are present at a meeting, they pick up the nuances and the implications far better than anyone can report them orally or in writing.  Later, when these lower echelon people find themselves confronted with a situation not anticipated at the planning meeting, they understand enough of the intent and the thinking to make a smart decision that is in consonance with the desired goals.

Some groups are reluctant to use the Three-Echelon Rule because “it takes too much time to get everyone together.”  These, of course, are the very people who cannot understand why their subordinates can never seem to do things right or why no one will make a decision.  In actuality, the Three-Echelon approach is far faster and cheaper than the other approaches--especially when you measure against results.  For a fast moving, dynamic organization, Three-Echelon communication is a necessity.

Transition To Strategy

The transition from a tactical to a strategic focus is not easy, but it well worth the effort.  The initial stages of the transition are the most challenging because the strategic work involved in moving centers of gravity is additive to the work that was previously underway.  People will probably not be working twice as hard or long, but they may feel as though they are.  The good thing about this transition is its transient nature; it will last for weeks or perhaps months and then the rewards of a strategic focus will manifest themselves.  Workloads will level out, but of most importance, everyone will begin to see that they are getting more results for their energy investment and that they are getting more satisfaction out of their efforts because it is strategically focused.

To help ease the transition, make it a point to review legacy work.  If you find that the work or the reports associated with it are no longer relevant because of the strategy focus, dispense with it.  In addition, the sooner you begin searching for Balkans, the more opportunity you will have to shift resources to truly strategic efforts.  A simple rule to follow in this period is to stop doing things for which there is no clear strategic requirement.

Red Team Concepts: (Venturist, Inc. Prometheus Process Summary;  Venturist Home Page; Top Of Page)

Concept Overview

A Red Team is a cross-check mechanism to give an organization as much confidence as possible in its strategy and to mitigate the likelihood of errors in strategic fact and logic.  The Red Team is also a good mechanism to reduce the chance of falling into a group think mode.  There are three major approaches to Red Teaming:  use an outside group that looks at the final product without any exposure to the planning process; use an outside group that is reasonably conversant with the actual planning process to include the associated discussions; shift the planners from creation mode to attack mode by having them take off their blue planner’s hat and put on their red attack hats.  The first is the least desirable and the last is the most desirable with the middle one closer to the third in desirability than to the first.  Whichever approach is used, however, the idea is to approach the plan from the negative side with the objective of finding every possible reason why it will not work.

After a thorough red attack on the plan and capture of all the problems and weaknesses, the next step is to review each one of the objections dispassionately to determine their validity and the likely impact of those that are valid.  In the latter case, the organization should correct valid problems or agree on a method and timeframe to do so.  In the event that red teaming has disclosed problems that cannot be solved and that are fatal to the plan, the only recourse is to start over in order to come up with a new strategy—or in some cases to abandon the enterprise all together.  Abandonment will not be indicated in most cases, but if it is indicated, the time to do so is in the planning stage, not after resources have been committed against a strategy that is doomed before it begins because of flaws in its logic or facts.

Red Team use in planning the first Gulf War:  An area of major concern as you were rapidly planning the Gulf War air campaign was a fear that you would fall into a “groupthink” mode where you would accept a course of action merely because no one wanted to stand in the way of progress and perhaps thought one objection was enough.  Of course, you also wanted to make sure that you were getting it right and that you had not overlooked anything; after all, you were working on something which would have life and death consequences for many people.  To avoid inadvertent error and groupthink, you created a Red Team, and institutionally charged them with telling the planning team everything it are doing wrong.  In this case, you chose to establish a dedicated team that did not take part in the planning but was fully conversant with everything that went on  In this instance you asked the Red Team to put itself in the place of the world’s smartest opponent and show how that opponent would defeat our plan.  The first few times the Red Team challenged what had spent hours or days putting together, the tendency was to bristle and reject.  Quickly, however, you learned to accept comments dispassionately, to evaluate the Red Team’s conclusions objectively, and to change our plan without hesitation when so indicated.  Whenever the Red Team comes up with something that the world’s smartest opponent could do, the right response is to change your plan in order to preempt the opponent’s ability to do it. By the time the war started in January 1991, you had spent far more time defending against our plan than had the Iraqis.  As you had predicted, there was little they could do that would have any significant impact on our operations and you had preempted much of what they might have done and prepared to deal with the rest.

The hat changing approach to red teaming:  In the Gulf War, you used the dedicated team approach where the team exercises free access to all of the blue planning.  Some organizations either cannot or choose not to create a standing Red Team that does only Red Team duties.  An alternative in this case is to tell everyone on the planning team to put on their figurative Red Team hats and challenge everything to which they have just agreed.  At this point, people bring up the concerns that they might not have previously expressed.   After a short while, most will be resolved satisfactorily.   Of great importance, everyone has had an opportunity to voice a concern that must be answered, everyone see the concerns of their associates, and everyone sees a big picture view of the challenges associated with the project.  Although this hat switching approach to red teaming may not produce the exotic observations that tend to surface when an isolated red team is used, its coverage is informed by an understanding of the nuances behind decisions and is actually quite broad.  Our experience leads us to much prefer this approach over the other two, especially over the isolated red team methodology.

Finish With Finesse: (Venturist, Inc. Prometheus Process Summary;  Venturist Home Page; Top Of Page)

Concept Overview

You know with certainty that all things end, yet emotionally you typically behave as though things to which you are closely attached will be an exception.  In wars, you persist well past what you can sustain, in business you assume that our model will last indefinitely, and in our personal lives you hold on to stocks as they plummet from their highs.  As humans, you just are not naturally good about exiting anything.  Part of the reason may be that so much or our lives have depended on tactical success;  in the tactical world trying again and again to do something or routinely forcing ourselves to get up quickly when knocked down on the sports field are necessities and frequently pay off nicely.  Like some many things in the tactical world, however, these ideas do not extend well into the strategic world.  In the strategic world, you really need to operate on the basis of probabilities and risks versus rewards.  In the strategic world, there is never a 100% probability of success, there is always a risk in any venture, and there are always associated costs.  Our planning methodology is designed to give us the best possible chances for success at the lowest cost, but even with great planning, you will still find that what works well today will not work so well tomorrow and that changing circumstances have dramatically reduced our probability of success while escalating our costs.  Regardless of the reasons, you will find it necessary to exit projects and concepts at the right time.  Some you will exit because they have been quite successful and it is now time to move on to greater heights while you will exit others to minimize our losses so as to give us another strategic opportunity.  Remember:  exits apply to success and to failure.

Figure 14 - Douglas MacArthur and Emperor Hirohito, Postwar Japan[14]

In the world of strategy, the probability of failure seems to be higher than the probability of success.  Businesses routinely fail, countries lose far more wars than they win, and most speculators lose money.  If you lose too much in business or war, you are out of the game.  If you want to stay in the game, and do so smartly, you find rather paradoxically that you are better off pulling the exit trigger too soon rather than too late.

Strategic endeavors are highly emotional because you invest so much of ourselves into them and because they normally last a lot longer than a tactical event.  you know from everyday experience that emotion clouds rational thought and decision which explains why so many people do so many stupid things when another driver annoys them on the highway.  When a war fails to go as planned or a business venture starts south, emotion levels skyrocket—and our ability to think and act rationally move inversely to the emotion levels.  This tells us you simply cannot count on making smart decisions when they are most needed.  The time to make smart decisions is when the emotion levels are manageable which means early on in our planning processes.  You can deal with exit thinking rather easily before the fact and that is what you need to do.  Well in advance of strategic successes or failures, you need to decide what you are going to do when either of these take place.

Exit Planning

You begin the exit planning process by identifying exit points.  Exit points are data points that describe a situation where an exit is indicated.  On the success side, our Future Picture with its related Measures of Merit clearly define an exit point.  When you have met these objectives, you need to exit into a new strategic plan using what you have earned and learned to do something new.  If you failed to meet our Future Picture objectives, you would obviously create a new strategic plan but almost certainly without the assets that accompanied success.  Clearly, however, you do not want to wait until our Future Picture horizon to discover that you have failed.  Thus, you create exit points in advance that tell us as soon as possible that you had made serious mistakes or that the outside world did not respond as it needed to respond.

Once Exit points are identified, you can now build exit plans.  An exit plan is a very simple statement that says if exit point “x” occurs, you will take “y” action.  You need to give our actions serious thought, and as an organization, you need to commit in advance to execute the agreed strategic actions when an exit point occurs.  If you follow this concept carefully, you may experience some premature withdrawals, but on balance you will significantly improve our probability of strategic success while reducing both cost and risk.



[1] Cost. (2007, March 10). In Wikipedia, The Free Encyclopedia. Retrieved 13:24, March 21, 2007, from http://en.wikipedia.org/w/index.php?title=Cost&oldid=114171474

[2] Galaxy. (2007, March 22). In Wikipedia, The Free Encyclopedia. Retrieved 17:42, March 22, 2007, from http://en.wikipedia.org/w/index.php?title=Galaxy&oldid=116979834

[3] Weisstein, Eric W. and Weisstein, Tony. "Reversion to the Mean." From MathWorld--A Wolfram Web Resource. http://mathworld.wolfram.com/ReversiontotheMean.html

[4] Ibid

[5] Discounted cash flow. (2007, March 18). In Wikipedia, The Free Encyclopedia. Retrieved 13:41, March 21, 2007, from http://en.wikipedia.org/w/index.php?title=Discounted_cash_flow&oldid=115992167

[6] Metcalfe's law. (2007, March 19). In Wikipedia, The Free Encyclopedia. Retrieved 13:45, March 21, 2007, from http://en.wikipedia.org/w/index.php?title=Metcalfe%27s_law&oldid=116280768

[7] Disruptive technology. (2007, March 16). In Wikipedia, The Free Encyclopedia. Retrieved 13:58, March 21, 2007, from http://en.wikipedia.org/w/index.php?title=Disruptive_technology&oldid=115582309

[8] Leonidas I. (2007, March 22). In Wikipedia, The Free Encyclopedia. Retrieved 20:14, March 22, 2007, from http://en.wikipedia.org/w/index.php?title=Leonidas_I&oldid=117094353

 

[9] Solar System. (2007, March 22). In Wikipedia, The Free Encyclopedia. Retrieved 20:18, March 22, 2007, from http://en.wikipedia.org/w/index.php?title=Solar_System&oldid=117101727

 

[10] Scale-free network. (2007, March 10). In Wikipedia, The Free Encyclopedia. Retrieved 14:26, March 21, 2007, from http://en.wikipedia.org/w/index.php?title=Scale-free_network&oldid=114091311

[11] Product lifecycle management. (2007, March 13). In Wikipedia, The Free Encyclopedia. Retrieved 14:55, March 21, 2007, from http://en.wikipedia.org/w/index.php ?title=Product_lifecycle_management&oldid=114744692

[12] Conducting. (2007, March 1). In Wikipedia, The Free Encyclopedia. Retrieved 12:34, March 23, 2007, from http://en.wikipedia.org/w/index.php?title=Conducting&oldid=111839876

[13] (ACCELERATING TECHNOLOGY TRANSITION: Bridging the Valley of Death for Materials and Processes in Defense Systems, page 25, National Academy of Sciences, 2004.)

[14] Douglas MacArthur. (2007, March 23). In Wikipedia, The Free Encyclopedia. Retrieved 12:44, March 23, 2007, from http://en.wikipedia.org/w/index.php?title=Douglas_MacArthur&oldid=117188142