The Upward Shift of “Prime”

According to Adizes, “Prime” is defined as the optimal condition in an Organization’s lifecycle, which results in the achievement of a state of balance between Flexibility and Control. To better understand Prime we must start by defining Control and Flexibility:

Control: can be described as revising performance against a pre-established and orderly Plan1. Both order and plan are key in the definition of Control, since a plan is a set of actions needed to reach a goal while order is needed to execute such plan in an efficient manner.

Flexibility: is the ease with which a system can respond to uncertainty (change) in a manner to sustain or increase its value delivery.

By understanding both definitions one can visualize where the incompatibility lies; while Control needs an orderly plan to monitor; Flexibility needs the ability to change (the plan) with uncertainty. While one needs “Orderly Management” the other need “Chaos Management”. It is not until this equilibrium is found within an Organization that “Prime” is obtained.

Understanding that change is not only here to stay, but is accelerating, it is well founded to ask how has “Prime” changed through time. For illustration purpose let us suppose a company has been able to maintain itself in Prime for the last forty years. To be more specific in its description, this fictitious uniquely well-run company (any similarity with any company is pure coincidence), let’s call it “Prime Goods” (PG), is a multi-national, multi-product, consumer goods company.

Let’s start in the 1970’s:

PG has grown from a small family business into a large corporation listed in the S&P. It has developed markets in North America and Europe in more than 10 countries. Through excellent administrative, production and sales processes has attained a superior market position against its competition. Its product innovation and marketing strategies have transformed PG into a customer oriented and profitable organization.

Though hard work, PG has attained the correct balance between flexibility and control. It has established a distribution system that delivers its product to different Grocery Stores from the factories located in each of the countries it participates. Feedback from the clients and grocery stores is retrieved from a large network of salesmen in each country that visit the different points of sale.

PG has been able to retrieve financial information from all its subsidiaries throughout the world through its Telex network which consolidates financial information which is then fed into its IBM Mainframe computer. This has permitted top management to have up to date information within 20 days of month’s end. Its budgeting process is in development, it is still decentralized and it does not take into account much detail.

1 A plan could be a guideline, a policy,a procedure, a Budget or even a full business plan. Nevertheless is a set of pre-established actions geared towards a common objective.

Graph 1

Prime

“Prime Goods” in the mid-1980s:

PG has continued to grow; it has now penetrated into South America and Asia and now has more than 30 different brands throughout the world.

Communication and Logistics: It has now replicated Wal-Mart by setting up a satellite network to be able to communicate with all its international offices while at the same time tracking its inventory levels in its production facilities as well as with its major vendors.

Administration Processes: PG joined forces with SAP in order to implement a worldwide ERP system which facilitate accounting processes and provide up to date information for better decision making. Its annual budget is now a very detailed process which takes 5 months of the year and it includes a group of people of more than 100.

Market Research: PG has implemented Focus Groups to better understand its clients’ needs and refocus its marketing strategy to become more efficient in its Marketing campaigns.

Cost Reduction: PG has expanded in its knowledge in synthetic food preservatives that have enabled its product to increase shelf life while at the same time reduced its productions costs.

Technological advances in communication, administration processes, market research and product research has enabled PG to gain market share by being more Flexible than its competition while at the same time maintaining Control of a much larger and more complex organization, thereby shifting Prime in a north-western direction as shown in Graph 2

2010s; a new era for “Prime Goods”:

PG’s growth and market share has continued exponentially, to a point that today only 10 multinationals control all consumer goods throughout the world. Through acquisitions the company has been able to grow worldwide, by buying market share and at the same time through an assimilation process of these companies into its platform gaining significant efficiencies and control.

Communication and Logistics: The advent of the internet has converted information from a luxury into a practically unlimited and cheap commodity. This change has not only assured real time communication with its suppliers, vendors, internal operations, but has opened a direct communication channel with its end user through social networks. All information is real-time which has given PG great control and flexibility to react to any changes in demand immediately.

Administration Processes: PG has not only been able to obtain real time financial results from all its operation, but has introduced other systems such as CRM and SCM which in conjunction with Business Intelligence tools has been able to exploit enormous amounts data. The complexity of the business is so large that company has setup a team composed of Aerospace Engineers that have designed complex algorithms which convert the information into expert systems that enable top management to make the best decisions.

PG is no longer producing a full blown annual budget, understanding that a one year plan is too rigid for the ever changing environment; the company has implemented 4 quarter rolling forecasts together with KPIs that compare themselves against their competition and against their past performance.

Graph 2

Market Research: PG has changed drastically its approach of marketing. The better understanding of human behavioral sciences has opened the door on how to influence the preferences of its customers. Through MRI scans, PG can predict fairly accurately which product consumers will choose by studying their brain activity.

Cost Reduction and Pricing strategies: Production and distribution efficiencies have continued throughout the last 2 decades, outsourcing in addition to technological advances in bio technology have enabled PG to continue to reduce its production costs. On the other hand Pricing schemes have also changed drastically. With the new processing capacity together with demographic information, PG has the ability to price its products by the market it wants to penetrate together with pricing information of competitors, therefore extracting the largest amount of profit from its broad range of customers in the different geographies and social segments.

The 21st century has brought great opportunities to PG, it has become a well-oiled machine; the perfect combination of control and flexibility that enables it to change with its fast changing environment without losing control of its operations.

Where are we now?

An organization in “Prime” forty years ago has different characteristics from one today. The PG case is a good illustration of the change of Prime through time. As we can see in Graph 3, the intersection point for Control and Flexibility has shifted upward. Today, organizations have been able to attain much more Control without threatening Flexibility. In consequence, as we have seen in the markets today, organizations that do not attain this level of Control and Flexibility cannot react to market changes and will die faster. We have seen this phenomenon in many of the companies today such as RIM, Blockbusters, etc.

To better understand why the incompatibility of these two roles has been reduced through time, we have to go back to the definition of Control.

1- Control exists if a system is established to revise performance

against a Pre-established Plan

2- Once a Plan is defined, flexibility is

reduced significantly

3- As Change has increased its speed,

companies have evolved to make

Plans more flexible

By modifying many of their processes and plans to be more flexible successful companies have been able to react more quickly to the market and gain a competitive advantage in their markets.

To better identify the factors that have influenced Change through time, one must dissect the Adizes’ cycle of Change.

Graph 3

1. Once Change affects a part of a system, a Disintegration process of the whole system commences. This is primarily due since the connections of this specific sub-system with regards to the rest of the system are modified or broken.

2. Once system Disintegration starts, Problems within the system start to arise. Problems can be defined as “obstacles to reach a desired objective”.

3. These obstacles or Potential Improvement Points (PIP) could be treated as Opportunities or Threats by the person or organization that has been affected.

4. To better identify and solve the PIP, Information is required to better understand what has been affected in the Sub-system and what are its connections within the global system.

5. Once acquired, the Information has to be Processed to have sufficient elements to make the best decision.

6. Once all the required information and CAPI has been gathered, the Implementor must Make a Decision regarding what direction to follow.

7. Once a decision is made actions are to be taken to Implement the Decision, and therefore generate more Change.

8. If the correct decisions and the correct implementation are achieved, the organization will be exposed to Continuous Innovation which will permit it to continue to advance towards Prime (or maintain itself in Prime).

There are 2 elements of the model of change that have changed through time:

Speed of Information Flow: in the 70’s, all information had to be transferred through inefficient platforms, therefore the feedback loop of actions taken previously was slow. Today information is in real time, therefore new decisions to counteract Sub-system Disintegration can be taken quickly

Improvement in Data Processing Capabilities: in the 70’s, computers where merely used for ordering large amounts of data through simple operations, information had a low value added to decision makers. Today, data is not only ordered, it can now be cross referenced with a variety of Market and Operational information, which together with expert systems (algorithms) are invaluable to making better decisions.

The combination of a faster feedback loop in conjunction with better Information for the decision making processes have increased the rate of change which in turn has increase the amount of Continuous Innovation in the organizations.

Graph 4

A comment on Interdependency and Specialization

To start my comment, I would like to define the System as the collection of every individual and organization (sub-systems) throughout the world. Each Sub-system is part of the System as a whole; nevertheless, the different sub-systems do not need to have a direct relationship with each other. I believe the tremendous increase in flow of information during the past 20 years (primarily by the introduction of the internet) have increased and facilitated the connectivity between the different subsystems. Today the search for technology, products, services, information and knowledge around the world has increased significantly, by which the connectivity between the different sub-systems has increased.

Today, the access to global information is at the tip of everyone’s fingers. To exemplify this we can use “neuromarketing research” which is basically the use of a MRI (Magnetic Resonance Imaging) for market research purposes. Even though the research in MRI has been focused mainly for medical uses, a group of entrepreneurs started to investigate how brands and consumer preferences affect the brain and how this can be identified with an MRI machine. A paper was published in 2004 and was rapidly disseminated throughout the world. This in turn has prompted large marketing and consumer goods firms to inject part of their resources into this area of research.

The immediate dissemination of information together with an efficient capital market permits the specialization of individuals and organizations while at the same time generate more subsystem connectivity which generates more interdependency. For illustration purposes see Exhibit 1. My conclusion is that:

The increase in Flow of Information and Improvement in Data Processing has increased the rate of Innovation within the organizations.

On the other hand, the increase of connectivity between sub-systems has increased the rate of interdependence, as shown in the following diagram.

Therefore the increase of speed in the cycle of change in conjunction with the increase of Interdependency of the subsystems due to a better connectivity have increase change in our world.