Pivoting without going in circles


Figure 1

Businesses are busiest when significant changes in their operating environment must be adapted to, since they impact multiple parts of the business simultaneously. Such changes force a selective and urgent reallocation of scarce resources, typically from investments with lower priorities than the precious few which make up the most important needs of the business. The competition for these resources introduces a strong political overtone to participants, since it forces necessary pivots across a delicately woven balance across time horizons, between multiple interests, against prior commitments, and unraveling compromises which are no longer relevant to the situation at hand.

The volatility of these business aspirations can be especially dynamic within competitive markets, since households are likely to reduce their consumption of resources at the same time as there is decreased demand in resource markets for labor, land, or capital. These dynamics lead to reduced revenue at the same time as other costs are going up. Under such pressures, decision-makers tend to follow their gut instincts first, and then look for facts they can use to justify these decisions.

Decision-makers often have little time to react to these changes. Despite that, such pivots should still be made with an eye to the future, and should be translated across the entire stock of resources that are served by the parties in question. Once they decide to act, decision-makers tend to follow their gut instincts first, and look for facts which will justify these decisions. Unfortunately, it is hard to systematically define an adequate set of rules that can be applied to all situations. These rules must work within environments in which resources are abundant and those in which they are scarce. Under conditions of scarcity, people pay a lot closer attention to how much people are using resources, and what they are using them for. This attention can lead to resentment, rather than cooperation, from resource managers. In times of scarcity, it is generally more effective to implement a rapid response system than it is to position enough resources to address each demand on resources, since this peak may only occur at the pace of a 100-year flood event. In The Brain of the Firm, Stanford Beer describes how the six interactions across internal and external sensor and motor events:

Both the sensory and motor activities of the brain, which are represented in distinct and different locations of the cerebral cortex) handles accounts of both internal and external eents.l Organisms, whether bodies or firms, maintain a clear distinction between all four groups. To muddle internal and eternal affairs, or to confuse passive sensibility with sensations of action in regard to either,k means a major pathological condition. Then the switching center at the thalmic level has an over-riding task - to match, without confusing them, the current state of all four groups. When two such systems are coupled together, the concept of their joint homeostatis may be invoked. Restabiliztion may take a very long time, losing control of equilibrium at a rate faster than this apparently random technique of trial-and-error government can operate to restore equilibrium. The analogous situation in the firm [results in] both systems out of control - a classic hunting situation.

There is never requisite variety, never adequate channel capacity, and never enough time, to reach homeostatis at this level simply by inducing variations. The whole switch is in danger of losing its flexibility and selectivity. It will become set in its ways... It leads to stereotyped behavior, to taboos, to a lack of adaptivity as an outcome of to facile an adaptation.

As an example of the challenge of rapidly responding to an unexpected demand for services, consider the Transportation Security Agency. As reported in the Washington Times, TSA has a dual mission: to provide security and avoid delaying passengers unnecessarily:

In the days immediately following 9/11, the government called the airlines in to tell them that their mission was to make sure no airplane was ever again seized and used as a weapon by terrorists, “and if that means no plane ever flies again, that’s how it will be.” The man who made that statement, no doubt reaching for something dramatic to say, was quickly replaced by the Bush White House because the president understood that the government’s job was not to eliminate air travel, but to make air travel as safe in a way that strengthened security without sacrificing passenger convenience.

Fifteen years after its formation, the level of TSA's contributions to airport security remain controversial. For some, minor inconveniences and contributions are acceptable as commercial aviation remains relatively free of bombings or hijackings; others such as National Review describe TSA's screeners as 'incompetent, hostile, abusive, and a den of thieves'. In a recent test, TSA failed to detect 95% of explosives and weapons which had intentionally been sent through their detection systems, though TSA argues that the tests weren't fair, claiming they probed weaknesses that only insiders were aware of. Throughout its history, TSA has made major investments to search for and exploit technologies which have shown promise, only to disappoint. For example, full body scanners are now used widely, even after they have been shown to have limited effectiveness.  At 5:30 on the morning of May 14, 2016, a large batch of passengers arrived at the security gate in the American Airlines terminal in Chicago. This demand caused the demand for screeners to quickly grow from four to ten. TSA generally tries to not have that many extra agents standing around, and in the absence of adequate reserves for such surges, it took three hours for these passengers to get through security, which caused many of these passengers to miss their flights.

Some connect these delays to institutional blindness, as they demonstrated in their unrealistic estimates of how many people would pay $85 to sign up for their PreCheck program. Since 2004, Congress has limited the level of staffing of Transportation Security Officers at 45,000. In a report issued in 2008, the General Accounting Office studied the fidelity and accuracy of the Staffing Allocation Model (TAM) which is used to plan resources, which projected a peak demand for 49,000 people, or about 5.5 screeners per lane. This TAM model is used to allocate headcount across the over 400 commercial airports in the country. TSA is authorized to make up the differences between allocated staffing and local needs made up by using contingent labor and introducing new technologies. Following what must be the standard bureaucratic script for such situations, within a week, TSA had asked Congress for more money.


Figure 2

Trying to centralizing decisions usually does not position an endeavor well so they can respond to rapidly changing conditions, especially when something as drenched in meaning as 'safety' are in play. Most fliers don't even think twice about how to responsively provide adequate staff until something goes wrong. Those affected by these dynamics are caught up in a classic system archetype known as the tragedy of the commons. Large batch sizes confound the flow through any production system, regardless of whether it is batch production, job production, or mass production. Like a snake eating a mouse, when the available resources cannot keep up with demand, queues inevitably form. As these batches move through the system, important feedback can be delayed. more and more people scramble for priority service. 

Figure 2 reveals how unfortunate consequences can result from even the best intentions. When inevitably lags, triggering and reinforcing bad behaviors, such as rent-seeking. In the long run, these behaviors lead to no-win situations for the overall business, efficiency is lowered, which in turn leads to less and less being produced. Participants do what they can to game the system. For example, adopting single criteria methods such as selecting the highest priority just results in everyone arguing why their work is in fact exactly that priority. This results in all kinds of bad behavior being reinforced, including stalling, misrepresentation, avoidance, and obfuscation. The next thing you know, things previously affordable become prohibitively expensive.

Airlines have banded together to endorse the Smart Security program that has been introduced by IATA. Others have suggested airlines could finance and run the checkpoints more efficiently than the government, and would be motivated to do so since they have the largest financial stakes. 

Throwing people at problems rarely confronts the root constraints of throughput, since all urgent focus demands improved outcomes immediately. Instead, systems have to be designed to absorb such shocks. The quick cure deployed in Chicago shows that resources can be rapidly re-purposed when they all are used to similar procedures, technologies, and roles. Just as under water shortage conditions, at any point in time, there are more than enough qualified security officers available; they are just at the wrong place, or are working on the wrong things.

A load shedding plan can help organize team so they can quickly and deliberately offload resources. During each cycle of staffing reductions, the excess personnel must be identified for redeployment, which involves notifying all individuals exposed to such layoffs. Once such shortages have emerged, it is too late to develop and deploy robust prioritization schemes; any process and criteria that is sketched out is likely to be subjective, labor-intensive, and inconsistently interpreted. These are exactly the kinds of situations which are susceptible to gaming by the interests being represented.

As Reinertsen sees it:

Any sub-process within product development can be viewed in economic terms. The total cost of the subprocess is composed of its cost of capacity and the delay cost associated with its cycle time. If we are blind to queues, we won't know the delay cost, and we will only be aware of the cost of capacity. Then, if we seek to minimize total cost, we will only focus on the portion we can see, the efficient use of capacity... This explains why today's product developers assume that efficiency is desirable, and that inefficiency is an undesirable form of waste. This leads them to load their processes to dangerously high levels of utilization...

The damage done by large batches can become regenerative when a large batch project starts to acquire a life of its own. It becomes a death march where all participants know they are doomed, but no one has the power to stop. After all, when upper management has been told a project will succeed for 4 years, it is very hard for anyone in middle management to stand up and reverse this forecast...

Our problems grow even bigger when a large project attains the status of the project that cannot afford to fail. Under such conditions, management will almost automatically support anything that appears to help the "golden" project. After all, they want to do everything in their power to eliminate all excuses for failure.

Have you had trouble buying a new piece of test equipment? Just show it will benefit the "golden" project and you will get approval. Have a feature that nobody would let you implement? Find a way to get it into the requirements of the "golden" project. These large projects act as magnets attracting additional cost, scope, and risk...

At the same time, large batches encourage even larger batches. For example, large test packages bundle many tests together and grow in importance with increasing size. As importance grows, such test packages get even higher priority. If engineers want their personal tests to get high priority, their best strategy is to add them to this large, high-priority test package. Of course, this then makes the package even larger and of higher priority.

It is hard to systematically define a set of rules that can be applied to all situations. One must start by recognizing that rules must work within environments of both resource abundance and scarcity. Under conditions of scarcity, everyone starts paying a lot closer attention to who is using resources, and what they are using them for. This scrutiny can produce more heat than light, especially if the baloney is sliced too thick or too thin. 

Figure 3

This requires sharpening your business acumen, assuring that statements of work are in line with master agreements (assuming you have these), and verifying that work breakdown structures are understood, accepted, and supportable by performing organizations. Western cultures are primed do such exercises from their lens of individual self interest. Non-western cultures are more inclined to promote the collective good. Unfortunately, delays or stalling by some decision-makers can lead us into ever more severe (and thus more risky) positions.

A 'tear-away jersey' strategy can be adopted which discourages bad behavior and enhances accountability. The following these steps highlight how such a strategy can be implemented:

  1. Document assumptions for the exercise
  2. Validate assumptions have been clearly defined by asking a random selection of participants to provide feedback on how the assumptions are to be interpreted - what do those assumptions enable and what do they preclude?
  3. Delegate decision authority to responsible parties
  4. Provide everyone the opportunity to offer suggestions
  5. Each group to bring forward their zero-based budget at the granularity of their existing staffing, rather than speculation up numbers.
  6. Determine activities already underway which could or should be sacrificed or delayed
  7. Lay out a schedule for facts, data, and reviews necessary to achieve business planning
  8. Suspend all efforts launched within the last 60 days, investments exceeding defined thresholds, and external hiring. These tactics are necessary to have a stable baseline for subsequent prioritization.
  9. Explain the business situation to the employees. Keep it short and sweet, and lay out the above plan. Rumors can create unnecessary fear, and you don't need the best people jumping ship.
  10. Identify the critical constraints in supporting
  11. Determine the minimum viable reductions to be met as a percentage of committed business plans.
  12. Capture under-runs in each budget across the board, and move into a pool for resource reallocation.
  13. Identify which projects are necessary to meet the  and assure that their business milestones and value propositions are well defined, and can be achieved within existing resource allocations
  14. Inventory specific, written authorizations that the organization has committed to within the intermediate time horizon.
  15. Force each producing and consuming organization to rank order all projects already at least 25% complete, from the project they see as most important to the overall business to what is least important.

According to game theory, self-organizing teams form coalitions around self-interests. Teams must tease out a viable system model that captures each situation. In a perfect Bayesian network, influence diagrams can be used to collectively characterize a set of behaviors that can pursue of mutually successful outcomes. The interest of each individual are to protect their position, and attempt to force others to absorb the changes. Business leaders have an additional fiduciary responsibility to protect the business's assets, including continuing to invest in critical infrastructure. This doesn't mean going on a spending spree; the costs should be limited to what it takes to replace the original capability, not provide a nice upgrade. Such maintenance should be billed at cost, and should keep the assets in working order. Investing in regulatory compliance and such maintenance should take roughly 20 percent or so of the firm's total resources, depending upon the number of assets, their condition, how often the assets need to be refreshed. and what they are required for.

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