Challenges of the Interaction Economy (part 1)

Table of contents

Challenges of the Interaction Economy (part 1)

Challenges of the Interaction Economy (part 2) : embracing complexity in the Public sector

Challenges of the Interaction Economy (part 3) : embracing complexity in the Finance sector

Challenges of the Interaction Economy (part 4) : embracing complexity in the Health care sector

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1.     Mastering disruption – embracing complexity

1.1 Introduction

What is it that keeps a manager awake at night? It is either the myriad of snap decisions he[1] has to made every day on a seemingly increasing variety of issues. Or it is one of these far reaching decisions that directly affect people (employees, customers or partners) and the future of the organization? The answer can be ‘both’. Fact is that most of the managers perceive their current environment as becoming increasingly complex. They have a natural tendency to keep control while the circumstances beyond their control evolve with a mind-blowing speed and magnitude that is virtually impossible to keep track with. It is this short term oriented control bias that leads to the creation of seemingly sophisticated solutions that in the end make life even more complicated and disturb the manager’s good night’s sleep.

In this white paper we will address the causes of complexity and how to deal with them in a goal and future oriented way that brings the business back in control and empowers customers, employees and partners. We will illustrate this approach by examples from the public, financial and health sector.

1.2 Change and complexity: a paralyzing combination

Organizations are under constant pressure of social, regulative, economic and technological challenges. They must deliver business effectiveness and efficiency while responding quickly and correctly to changing business conditions. They must deliver more personalized, customized products and services to meet the increasing demands of consumers and reduce costs at the same time. The flood of new regulations on local, national and international level that has to be implemented, increases all the time, despite the efforts to reduce red tape. Business operations are becoming global, distributed and complex and are changing also all the time. Simple ‘step to step’ value chains are transforming into highly dynamic and interactive networks that tap into distributed expertise^[i]and unlock the power of specialization[ii].

Organizations, both public and private, operate in an environment in which change is the new Normal and …… change is continuous. They are in a constant transition from the old to the new. The ones that will dwell to long in the old will become static and ultimately obsolete. The ones that ride the waves of change in time will seize on new opportunities and survive. The ones that catch a wave too early will be praised for their insight, but will not get the rewards.

Figure 1 Continuous change is the new Normal

Moving from one wave to another is in the pubic and business sector even more difficult than on the surfboard in front of the Californian shores. These sectors have to cope with co-existence of the old and the new. They are faced with multi-reality in which old products exist along new ones, old business models along new models, old practices along new practices and old technology along new technology. Dealing with this type of multi-reality and preventing that ‘the old’ paralyzes ‘the new’ is in essence the real challenge in the ‘change game’ for our restless manager.

There are many theories and visions that provide their own interpretation of what causes this change and the complexity we perceive. It all boils down to the fact that we have moved from a manufacturing era in which transformations prevailed into an era in which interactions prevail. A society that is based upon interactions is service oriented and deals predominantly with transactions and interpretations. The processes are knowledge intensive which leads to a strong growth in the number of knowledge workers in the economy of interactions.

Figure 2 Interaction economy[iii]

Of course have interactions been important in every economic age, but were considered a secondary element rather than a primary source of value creation. Interactions in earlier economic eras were largely hierarchical, stable, and predictable, and learning one’s role was more important than learning how to interact between roles. In general, the source of coordination was compliance with the dictates of authority. The vocabulary of the Interaction Economy shows how much all that has changed. Terms such as “cross-boundary initiatives”, “horizontal processes”, “supply chains”, “value networks”, “collaboration”, “connectivity”, “silos versus systems” and the “matrix organization” all denote the prominence of interactions in developing and executing value creation strategies. The source of coordination now is “mutual interest” because we need far more cooperation than we can garner through compliance. Interaction Economy leaders must learn to evoke, connect with, and orchestrate commitment rather than demand compliance[iv].

Information technology did not keep up with the pace of the interactions. Traditional ICT focused on supporting structured activities, like registration of objects or simple straightforward transactions. This type of ICT solutions is not designed for change and is not human centric. The system is leading. This approach is not sufficient to support more complex and decision centric activities in which human interpretation is required or has to be supported. These activities tend to be unstructured and they are in the majority in knowledge intensive processes. It is only recently that new technologies provide the opportunity to support unstructured and less structured processes.

In this hyper dynamic world of interactions and change are private and public organizations challenged by three types of complexity: social, dynamic and emerging complexity^[v].

• Social complexity is about values and their underlying basic assumptions (beliefs, perceptions, thoughts and feelings) that determine a person’s behavior^[vi]. The alternative of not correctly addressing social complexity is irreparable reputation damage and customer, employee and partner drain.

• Dynamic complexity is the product of interdependences between the subcomponents of a system. It is caused by a systematic delay or distance between cause and effect. This delay makes it hard to assess the impact of decisions and to manage processes. This leads to diminishing responsiveness, unnecessary high costs, decreased productivity and increased competition.

• Emerging complexity is characterized by disruptive change and the uncertainty that these disruptions create. Organizations that are not able to deal with uncertainty risk to be outperformed by new entrants and existing competitors. They also risk claims for not being compliant to changing regulations and face high transformation costs of legacy operations and systems.

What keeps a manager awake at night is how to act in a hyper-complex environment in which change is the new normal and in which complete control of the dynamics and interactions in the networks in which he operates has become a fixed idea. He feels powerless and as a result he focuses his actions on short term improvements that fit within the traditional ICT and management paradigm.

The result of this approach is devastating. Driven by the conviction of reducing complexity he in fact accumulates complicatedness. Not being able to handle exceptions because of rigid IT-systems and creating therefore additional isolated processes and systems is an example of this behavior. Instead of becoming more empowered, the organization and its actors become more dependent on short term solutions and accompanied silo behavior. The level of complexity seems to be risen, while in fact sight is only blurred by self-generated complicatedness.

1.3 Coping with complexity

What the manager actually wants is a vision and methodology how to empower people, be customer centric, create operational excellence, and be and remain innovative and adaptive at the same time. This will only be possible if he embraces complexity, because complexity is going to stay. There is no way to avoid or circumvent complexity. Complexity is a natural given and has always existed. The present scale and speed of change makes it today more urgent to find a way of coping with complexity. To be able to deal with complexity requires acceptance of changeability, the simplification of processes and the facilitation, rather than control, of new options and trends. In this context, efficiency should no longer be sought in the 'one best way', but in 'any way, all the way'.

The manager needs, as a matter of speaking, to set up his painter’s easel and put a blank canvas on it. On this frame he can draw a design that is built for change and for people. A design for the essence of the organization and its operations. A design that fits within a dynamic environment and that enables optimization and innovation at the same time. A design that can balance between flexibility and control, between structured and unstructured activities, between situational awareness and uncertainty. He has also to draw the lines between the old and the new and to visualize how they will interoperate.

The blank canvas does not mean that the manager has to re-invent the corporation from scratch on. It basically means that he has to take a step back and look at the organization from another, more holistic, viewpoint. This approach will clarify in which areas unintentional complicatedness has been created and how it can be removed. Reducing the complicatedness of procedures, systems and services helps organizations to gain in terms of customer friendliness, operational efficiency, and productivity. It also creates room for professionals to focus on challenging, complex issues. It increases their motivation and organizations consequently gain in terms of creativity and responsiveness[vii].

An important design concept in the blank canvas approach is the use of what analyst firm Forrester calls dynamic case management. If reality changes, the old “best practices” don’t hold anymore. The reality of business processes has significantly shifted. To deal with business megatrends such as mass customization and customer self-service, administrative processes have become more knowledge intensive. Next to traditional business process management techniques and technologies, new practices and technologies are needed. It is necessary to move from a process-based approach in operations to a more case-based focus.

The great leap forward comes from abandoning the central concept of the old S-curve: the process-centric approach. This approach dictates that transactions need to follow the process and the moment transactions do not fit with the process, the process needs more hardcoded exceptions. In more formal terms, this is called a prescriptive approach. The case-based approach proves that If you turn it around, the complexity problem disappears: put the case at the heart, not the process. A case can be defined as all the work that needs to be done to achieve a certain result regarding for instance a customer, or an object such as a building. The context of the case describes which activities are needed in order to complete the case, and nothing else. There is no predetermined sequence or set of activities that needs to be completed, there are no unnecessary steps. Using a more formal term, this is called a declarative approach.

A second important design concept is the use of a model driven approach. In this approach stands the model in the middle of the new design. It connects business objectives and structures (products and services and organizational groups) to customers (or partners) and their requirements in a specific context. The rules that apply in this situation, based upon procedural and legal regulations, are infused into this connection. And last but not least enables the model driven approach to deal with market trends, for instance the instant configuration of new products based upon existing components or adapting risk profiles for specific groups or activities due to unforeseen incidents.

Figure 4 The model as connector

Changes in the model have to be applied only once and can become instantly active in all combinations in which the model is used to generate services to empower customers, partners and employees. The model driven approach enables the use of dynamic case management, because it does not model the process. It just models the activities and dependencies, so that each transaction can have its unique flow. In this approach is everything a business rule. Even exceptions are business rules. This allows many knowledge-intensive, complex transactions to be handled by a single process. The business rules, the 'know' are not hard coded or stored within a business system, but stored and managed separately, so they can be reused. And if a business rule changes, the system changes automatically with it. The complexity that users perceived in the past was created by embedding, often in a hardcoded way, business rules in information systems. By separating 'know' from the 'flow', only a very simple process remains with just a few phases and states.

Last but not least allows the model driven approach in combination with dynamic case management organizations to create a continuous loop of improvement. By using the policy of a ‘Model – Run – Improve ‘-sequence, they can embed continuous change and innovation in their running operations.

In the next section we will illustrate how complexity can be embraced and users can be empowered in the Public, Finance and Health care sector.