Category Archives: Governance

Governance from the centre that is not based on knowing better than those at the edge.

What identifications are supported on dispersive ground?

by Philip Boxer

The conditions for triple-loop learning require that the enterprise becomes edge-driven. This places it on dispersive ground.  The identifications that need to be supported on dispersive ground are those involving triple-loop learning.  These identifications keep the organisation on the deliberative ground of politics on which differences can be worked through within East-West dominant forms of governance.[1] Refusal to engage with this leads to three other kinds of competitive behavior (Tai Chi, Sumo and Samurai), the consequences of which become most apparent in warfare.

Consider the balance between the will of the people involved with a membership organisation (ranging from a majority to particular networks of members) and the means acceptable to the people of the organisation (ranging from by-any-means to means restricted by the extent of collateral damage).  This is based on military ways of thinking about the relation between different types of warfare and politics.  It provides an insight into what is at stake for the leadership of an organisation dealing with growing differentiation in the demands of its members. With alignment, there is a symmetry between the will of the members and the means adopted by the organisation.  Without alignment, there is an asymmetry.

Looked at it in this way,

  • Insurgent operations are the consequence of not responding to members’ demands for differentiation of behavior, combining the limited will of a network of members with no restraints by them on the damage they inflict on the ‘others’ who do not agree with them (i.e. being on difficult/bad, serious/deep or frontier ground).
  • Effects-based operations are the response by the majority of the people of the organisation to suppressing the will of those who do not agree with the majority, a highly targeted response that limits collateral damage beyond the networks in disagreement (i.e. being on focal/intersecting, encircled or communicating ground).

The danger of either asymmetric response arises from its enabling the organisation to postpone responding to and providing support for the growing heterogeneity in the way members meet demands. The challenge, of course, is for the organisation only to accept asymmetric responses as being on the way to operating on the dispersive ground of ‘politics’, ground on which growing difference may be lived with and supported – presenting leadership with the task of leading an organisation without boundaries.

These ‘nine-varieties of ground’ make it possible to distinguish three kinds of competitive behavior, depending on the nature of the ground.  The fourth ‘political’ kind involves developing leadership qualities that overcome the North-South bias:

  • Tai Chi – do not confront the other’s organisation on its terms – most appropriate on serious/deep ground  (aka insurgency).
  • Samurai – challenge the other’s behaviour ruthlessly wherever you meet it – most appropriate on encircled ground  (aka effects-based operations).
  • Sumo – dominate the chosen ground by weight of presence – most appropriate on death ground (aka the other’s attrition).

Death ground is ground defined by the organisation’s formation being defined wholly by its affiliation to a past intent and not by its relation to the current situation(s) on the ground – it is as if the organisation has no choice but to fight to the death, which in an environment demanding dynamic alignment is very likely to be its own death!

[1] Deliberative process is not to be confused with consultative process.

  • Deliberative democracy holds that, for a democratic decision to be legitimate, it must be preceded by authentic deliberation, not merely the aggregation of preferences that occurs in voting. Authentic deliberation is deliberation among decision-makers that is free from distortions of unequal political power, such as power a decision-maker obtained through economic wealth or the support of interest groups. If the decision-makers cannot reach consensus after authentically deliberating on a proposal, then they vote on the proposal using a form of majority rule.” This is taken up in Robert’s Rules of Order: “Out of early American legislative procedure and paralleling it in further development has come the general parliamentary law, or common parliamentary law, of today, which is adapted to the needs of organizations and assemblies of widely differing purposes and conditions. The kind of gathering in which parliamentary law is applicable is known as a deliberative assembly. This expression was used by Edmund Burke to describe the English Parliament, in a speech to the electorate at Bristol in 1774; and it became the basic term for a body of persons meeting (under conditions detailed on pp. 1-2) to discuss and determine upon common action.”  (11th edition) page xxix

This is in contrast to consultative process:

  • “A consultative approach is a means of achieving stakeholder involvement and commitment. Decision making remains the responsibility of top leaders, but only after key stakeholders have been consulted. The results and how they are obtained are both important. […] With a consultative style of management, a more paternalistic form is also essentially dictatorial. However, decisions take into account the best interests of the employees as well as the business. Communication is again generally downward, but feedback to the management is encouraged to maintain morale. It shares disadvantages with an autocratic style, such as employees becoming dependent on the leader.”

Evaluating platform architectures within ecosystems: modeling the supplier’s relation to indirect value

by Philip Boxer, PhD

I have completed a PhD by publication at Middlesex University’s School of Engineering and Information Science under the supervision of Professor Martin Loomes.  Here is its abstract:

This thesis establishes a framework for understanding the role of a supplier within the context of a business ecosystem. Suppliers typically define their business in terms of capturing value by meeting the demands of direct customers. However, the framework recognises the importance of understanding how a supplier captures indirect value by meeting the demands of indirect customers. These indirect customers increasingly use a supplier’s products and services over time in combination with those of other suppliers . This type of indirect demand is difficult for the supplier to anticipate because it is asymmetric to their own definition of demand.

Customers pay the costs of aligning products and services to their particular needs by expending time and effort, for example, to link disparate social technologies or to coordinate healthcare services to address their particular condition. The accelerating tempo of variation in individual needs increases the costs of aligning products and services for customers. A supplier’s ability to reduce its indirect customers’ costs of alignment represents an opportunity to capture indirect value.

The hypothesis is that modelling the supplier’s relationship to indirect demands improves the supplier’s ability to identify opportunities for capturing indirect value. The framework supports the construction and analysis of such models. It enables the description of the distinct forms of competitive advantage that satisfy a given variety of indirect demands, and of the agility of business platforms supporting that variety of indirect demands.

Models constructed using this framework are ‘triply-articulated’ in that they articulate the relationships among three sub-models: (i) the technical behaviours generating products and services, (ii) the social entities managing their supply, and (iii) the organisation of value defined by indirect customers’ demands. The framework enables the derivation from such a model of a layered analysis of the risks to which the capture of indirect value exposes the supplier, and provides the basis for an economic valuation of the agility of the supporting platform architectures.

The interdisciplinary research underlying the thesis is based on the use of tools and methods developed by the author in support of his consulting practice within large and complex organisations. The hypothesis is tested by an implementation of the modeling approach applied to suppliers within their ecosystems in three cases: (a) UK Unmanned Airborne Systems, (b) NATO Airborne Warning and Control Systems, both within their respective theatres of operation, and (c) Orthotics Services within the UK’s National Health Service. These cases use this implementation of the modeling approach to analyse the value of platforms, their architectural design choices, and the risks suppliers face in their use.

The thesis has implications for the forms of leadership involved in managing such platform-based strategies, and for the economic impact such strategies can have on their larger ecosystem. It informs the design of suppliers’ platforms as system-of-system infrastructures supporting collaborations within larger ecosystems. And the ‘triple-articulation’ of the modelling approach makes new demands on the mathematics of systems modeling.

The following summarises the argument in terms of Value for Defence:

Value for Defence View more presentations from Philip Boxer

Investing in e-Government: evaluating ROI without direct revenues

by Philip Boxer

The goal of e-Government is to enable government to become more responsive to its citizens while at the same time reducing its costs.  We did a study for a government that wanted to invest in the use of on-line search capabilities. The problem the government faced was that there were insufficient direct revenues or savings to set against the value of such an investment, so that the normal approaches to establishing Return on Investment (ROI) would not work.  The approach we took was to approach the demand for on-line search capabilities as multi-sided, in order to establish the indirect value of the investment.

We considered four different types of search, corresponding to rcKP types of relationship to demand (the examples are taken from a presentation relating to this case):

  • r-type: wholly standardised responses, usually in the form of Frequently Asked Questions (e.g. where and when do I get a vaccination)
  • c-type: responses that have to be customised to the particular circumstances of the querent (e.g. why is there not enough vaccination available at my hospital)
  • K-type: responses dependent on specialist knowledge from more than one source that has to be brought together to answer the particular problem presented by the querent (e.g. what are the contraindications of the vaccination given my condition)
  • P-type: responses needing wholly new kinds of response, frequently requiring collaboration with organisations outside government (e.g. what precautions do we need to take for our school excursion).

We examined actual queries, establishing their variety and frequency and how these factors changed as the knowledge relating to any given domain of query matured (e.g. for swine flue in this case). We represented these queries in a multi-sided matrix, in which the columns represented individual services provided by different departments and organisations; and the rows were the different types of query.  A pattern of X’s along a row thus represented the collaboration between services needed to respond to the query in that row.  The matrix as a whole represented the variation in forms of collaboration needing to be supported by the architecture of the search platform.

Based on this matrix, we then modeled the way the organisation responded to it, identifying its associated costs:

In the case of the r-type and c-type queries, direct benefits flowed from the direct costs of using on-line search.  But in the case of K-type and P-type queries, the indirect benefits that flowed from the impact of these direct costs were based on the government’s costs of alignment across the variety of collaborations.  We were able to analyse the value of these indirect benefits based on Monte-Carlo simulation of the change in the way the organisation could work using the search platform.

The architecture of the platform itself had to be able to support dynamic alignment processes, resulting in a solution that was 20% of the cost of the investment that had been proposed initially by the government.  The indirect benefits that flowed from the impact of this platform on costs of alignment were then further increased as the tempo of variation in the domains of query themselves increased, resulting in savings being generated of the order of 50% of the total savings over a static solution.   The conclusions we drew were that:

  • The multi-sided character of the demands that queries made on the government departments created a clear need to take into account the government’s costs of alignment.
  • These costs of alignment depended on the way the governance processes that the government used could dynamically align responses to changing and evolving queries (i.e. using distributed or collaborative approaches).

This meant that the government could continue to consider the traditional economies of scale and scope available from any particular supporting department and systems platform.  But it also meant that the government needed to develop a governance approach appropriate to e-Government – one that assumed variability in the needs of citizens creating multi-sided demands on government.  Thus government had also to consider the economies of alignment it could secure in the way it responded to the resultant variation in the forms of collaboration demanded of it.

In effect, the government had to change the way it was able to respond to its citizens.



The impact of Governance Approaches on System-of-System Environments

by Philip Boxer

This paper was presented in collaboration with Pat Kirwan and Hans Sassenburg at the 4th IEEE International Systems Conference in San Diego , 2010. It had the following abstract:

Governments worldwide are turning to Information and Communication Technology (ICT) based systems of systems, commonly termed Electronic Government (eGovernment), to enable more timely, efficient and effective interaction with their citizens and with the business community. Citizens and businesses have dynamic and evolving demands related to the complexity of their lives and operational environments, respectively. A major challenge for government is to be able to understand the value derived from investment in eGovernment in order to improve its consequent ability to respond to the variety of demands of its citizens and businesses. To be able to understand the value derived from planned investments in eGovernment, their analysis needs to extend beyond the familiar approaches that address economies of scale and scope to encompass economies of alignment. These economies of alignment arise from being able to reduce the costs of the multiple forms of collaboration needing to be supported by systems of systems in providing greater responsiveness.

The paper was based on a more detailed report on the work itself.

Why is a stratification not a universal hierarchy?

by Philip Boxer

In describing the 3 asymmetries, Richard establishes a six-layer stratification relating underlying technologies to ultimate contexts-of-use. Thus in the case of orthotics, if we approach it from the point of view of a manufacturer of orthotic footwear, these layers look like increasingly general descriptions of the contexts within which the underlying technology will come to be used: technology=soles, product=footwear, business=footwear-to-order, solution=fitted footwear, customer demand=orthopedic patients, customer experience=difficulties in mobility. Is this therefore not just a hierarchy moving from the particular of the technology to the general of its uses?

If, as a supplier, we want to take a symmetric view of demand, then this is true – ‘orthopedic patients with difficulties in mobility’ is a general definition of the footwear manufacturer’s market.

But in distinguishing the third asymmetry we define the relationship to demand as being to a particular context-of-use that demands a particular form of orchestration and composition of services and products in order to satisfy it. Thus if we take up the perspective of the customer experience=the patient’s experience of living with their condition through its life, then the customer demand=that treatment for my condition that will have the greatest impact on my through-life experience at this time, and the solution=the treatment that is fitting for the current situation within its through-life context. Not surprising, then, that one of the major issues faced when insourcing clinicians employed by the manufacturers was how to reflect the through-life dimension of performance in the way the clinical service was contracted.

In finding the edge, we describe the particular form of orchestration and composition needed in response to asymmetric demand in terms of a wedge of services that needs its own four-colour model of how it is aligned to demand. Thus for our patient, the customer experience is in the black quadrant, the customer demand and its particular solution in the red quadrant, the business and its product(s) in the white quadrant, and the technology in the blue quadrant. East-West dominance means having a business agile enough to support the particular white-red organisation needed to sustain a relationship to the distinct forms of demand arising at its edges. But now the 6-layer stratification can no longer be thought of as a hierarchy, but rather as a particular structuring of the alignment between supply and demand – something more horizontal than vertical.

The way we understand the four-colour model is therefore central to the way this alignment is defined. In order to be able to construct it, three distinctions have to be made:

  • Internal//External: what is internal to the way we do business vs what is not. This distinguishes the provider of the insourced clinical service from the environment into which the service is being provided.
  • Viability//Identity: the way things work vs what determines the shape of the way things work. Clinicians learn about how orthoses are made and how they can be used on the musculo-skeletal system (the way things work), but the particular ways these are shaped depend on the patients’ characteristics and the way the manufacturer chooses to do business.
  • Addressed//Ignored: the domain of reality (later called the domain of relevance) being addressed vs not addressed. The domain defined from the point of view of the manufacturer is going to be much narrower than that defined from the point of view of the patient’s needs. The way the domain is defined is fundamental to governance-at-the-edge, and implicates the ‘I’ of the beholder. Thus when demand is assumed to be symmetric, the ‘I’ can be the view from the top/centre of the supplying business. But when it is assumed to be asymmetric, the ‘I’ must be defined collaboratively through the way the relationship at the edge is itself constructed.

The 3 asymmetries and their associated economies correspond to the relationships between the blue-white, white-red and red-black quadrants, accounting for the particular way the quadrants are held in relation to each other. By including the third asymmetry, the stratification can no longer take the form of a universal hierarchy, but instead must be particular to the relationship to demand. It is this which presents the business with its double challenge, and the necessity to shift from an object-oriented to a subject-oriented approach to modeling the relationship of the enterprise to the demands of its clients.

Managing the SoS Value Cycle

by Philip Boxer

The traditional ‘V’ of the software verification cycle is described in PSS-05-10 by the European Space Agency as follows:

“Software development starts in the top left-hand corner, progresses down the left-hand ‘specification’ side to the bottom of the ‘V’ and then onwards up the right-hand ‘production’ side. The V-formation emphasises the need to verify each output specification against its input specification, and the need to verify the software at each stage of production against its corresponding specification.” (March 1995)

Work within INCOSE by Jack Ring and others on ‘Intelligent Systems Engineering’ makes this ‘V’ the lower part of a System Value Cycle that seeks to align its focus on System with an upper inverted ‘V’ focused on Value with the problem to be addressed at its apex, and the relationship between the two ‘V’s focusing on Purpose. In our terms, the bottom ‘V’ is about designing a structure-determined system (of systems), while the top ‘V’ describes the structure-determining processes by which such a system is itself composed with other systems to useful ends.

Hillary Sillitto in the INCOSE 2006 conference relates this cycle to the way the scope and boundaries of the resultant system emerge from this cycle through the way four different kinds of question about degrees of freedom are answered:


Each of these questions relate to different constituencies with differing vested interests in how they are answered. How, then, is this cycle to be managed as a whole? What happens if we approach this cycle not from the point of view of the systems, but from the point of view of the demands?

As long as the problem remains a generic one based on symmetric assumptions about the nature of demand, the top ‘V can be addressed independently of the bottom ‘V’. But as soon as the demand situation is such that the demands emerging from it are necessarily asymmetric and dynamic (as described here), this is no longer possible – the systems have to be understood as more than socio-technical, and it becomes necessary to model the structure-determining as well as the structure-determined processes.

The need for Through-Life Capability Management (TLCM) is one such situation. The acquisition framework needed to support it is still emerging, but it represents a step-change in the relationship between purchaser and provider that involves both parties in the whole cycle. We can expect to see the need for it emerging elsewhere as the asymmetric and dynamic nature of demand becomes increasingly insistent, for example:

TLCM is an emerging form of asymmetric governance.


by Philip Boxer

The collaborative approach depends on there being a service infrastructure agile enough to be under-determining of the way the customer’s demands can be responded to. Put another way, the supplying business needs to find its edge where it can be structure-determining in how it responds to the customer, rather than being structure-determined by its infrastructure. At this edge, it is in a position to offer cKP services that can be responsive to the customer’s context-of-use. But how is it to work collaboratively with the customer in agreeing the nature of those cKP services?

The example below comes from working with a computing services business with banking customers. The customer was operating in a problem domain in which the fundamental concern with managing risk required them to manage two kinds of problem – looking for market inefficiencies that could create investment opportunities for the bank, and managing the ‘value at risk’ associated with existing investments:


At the bottom of the diagram is ‘data warehousing’, understood to be a generic service that can be provided in a way that does not require knowledge of the specific bank’s situation, and ‘c-level‘ (it is always rising) is the level above which the bank’s specific context-of-use can no longer be ignored. In between c-level and the problem domain is a knowledge domain, in which knowledge about the bank’s context-of-use enables cKP-type services to be offered. The situations within this knowledge domain then identify opportunities for the supplier to provide services that cumulatively build on each other to meet their larger need in the problem domain.

This is an effects ladder, and it provided the bank customer and the computing services supplier with a framework within which to build a shared picture of the bank’s context-of-use. In the diagram below you see this generalised, with the relationship of rcKP services to the ladder. This adds the concept of a ‘knowledge ceiling’, being the level above which problems become too large to solve.  An effects ladder is therefore a way of thinking through how such problems can be made tractable by bringing aspects of them below the knowledge-ceiling and/or raising the ceiling by becoming able to take on more of the complexity of the problem.


Strategy-at-the-edge requires that a double challenge be met which balances internal changes with external opportunities. The effects ladder provides the means of agreeing with the customer how effects need to support their demand situation within their context-of-use.

Meeting the challenge of Health Care Reform

by Philip Boxer

Health Care Reform presents governments everywhere with a challenge. Richard Veryard raises the question here of whether the latest round of changes in the UK will be any different. Between 2002 and 2004 I was involved with colleagues in pathfinder projects, aiming to address these issues in the UK, the report on which can be found here. What follows is a summary of the nature of this challenge as we came to understand it.

The pathfinder projects were aiming to generate three kinds of benefit in order to deliver step-change improvements in the orthotics service across the UK’s NHS as a whole:

  • Type I – defining current demand and realigning product/service protocols to it.
  • Type II – re-organising referral protocols and configuration of clinics to improve delivered health care within existing catchments.
  • Type III – extending the organisation of the clinical service to include re-organisation of the catchments within the Primary Care Trusts.

The pathfinders established that the scale of Type II benefits were significantly greater than Type I benefits because of the role of the clinic within the larger Primary, Acute and Long Term Care contexts. It was expected that this would be even more true for Type III benefits, but the pathfinder projects only got as far as delivering Type II benefits.  But how could these different levels of benefit have been achieved across the NHS as a whole? To answer this question we needed to understand the role of Architecture.

The role of Architecture
We discussed here a way of thinking about ‘Architecture’. When applied to the context of Health Care, we wanted to understand the way the different kinds of Trust determined the way that care was provided in response to patients’ demands.

The traditional approach to improving patient care was to focus on the patient journey through a succession of care pathways relating to the patient’s need for various treatments. For well-defined patient conditions, this meant optimising and aligning the process steps along care pathways in a way that was focused on the effective provision of treatments (i.e. a treatment-centric approach mirroring the way the NHS payment system focused on paying for treatments). These improvements affected the care pathway architecture within which treatments could be offered. Type I benefits were achieved by changing the care pathway architecture of the Orthotics Clinics, through such things as implementing clinical delegation and treatment protocols.

The pathfinder projects made a fundamental separation between care pathways and referral pathways. Care pathways defined the way treatments were provided, while referral pathways defined the way patients were enabled to find the treatments that they needed for their particular condition through the way their conditions were defined by doctors subject to processes of clinical delegation. The referral pathway architecture was affected both by the way care was funded – affecting the way the funding of clinics related to clinical specialisms, and also by the way clinicians themselves delegated clinical accountability in how they made use of each others’ specialisms in responding to a patient’s treatment needs. Such clinical accountability was exercised in relation to patient episodes of care focused on particular patient conditions (i.e. an episode-centric approach as defined by the ‘senior’ clinician involved).  Type II benefits were achieved by changing the referral pathway architecture governing the way patients reached the Orthotics Clinics, including such things as direct referral and universal review processes, both of which meant changes to the way clinical accountability was delegated.

Achieving both Type I and Type II benefits were essentially about how the Healthcare system responded in aggregate to patients. Not all patients could be responded to solely in terms of the condition that they presented with, involving multiple interacting conditions developing in ways that were specific to the patient’s particular context-of-life, for example being old! The multiple interacting conditions experienced by such patients could be reduced in their effects if approached on a through-life basis. Thus (for example) the screening of diabetic patients or of children with special needs could reduce the risk of later complications arising. To respond to such patients, pathways needed to be not just realigned to be more appropriate to current aggregate patterns of patient need.  They needed to be capable of being dynamically aligned in response to individual patients.  This involved creating a health risk governance architecture through which the different Trusts collaborating in the provision of care could make such dynamic alignment possible through the way budgets and clinical accountabilities were managed.

Each of these architectures depended on the excellence of the architecture at the level below it, and progressively changed the relationship to the recipient of healthcare from being passive recipients to becoming actively involved. Thus without improvements in care pathways, improvements in referral pathways could not be supported. Equally, without greater precision in the way referral pathways responded to patients, they could not support more dynamic approaches to managing individual patients’ complex of conditions on a through-life basis.

In other words, the levels of benefit needed to progressively build on each other as the architectures were progressively developed. In these terms we could distinguish three different kinds of approach to the provision of services to patients, each one of which delivered a progressively more complex type of benefit:


  • being treatment-centric required excellence in the way care pathways delivered treatments.
  • being episode-centric required clinical teaming built around the patient’s presenting condition founded on mutual respect for treatment excellence; and
  • being care-centric required innovation in the way care was delivered over time within the context of patients’ lives. Managing the patient’s health risk in this way had to be supported by an approach focused on multiple episodes of care provided through the life of the patient’s condition.

So how was architecture to be intervened on in such a way as to achieve these benefits?

The conclusion we reached was that a proactive, demand-driven East-West dominant approach was needed to achieving step-change; and that a North-South dominant approach, based on encouraging Trusts to make step-changes through implementing published best practice guidelines, would not work. Understood in terms of the following diagram, moving ‘across’ to the right involved responding increasingly to the particular needs of the individual patient, while moving ‘up’ involved changing the organisation of the architectures within which this responsiveness could be made affordable and practicable on a sustainable basis.


  • In a North-South dominant approach (up-and-over), new architectures were designed by top management, and then ‘implemented’ through imposing step-changes on the way clinicians could use them to respond to patients. This was the ‘command-and-control’ approach to change, which, to be successful had to be successful at anticipating the full complexity of behaviours involved in responding to patients. This was never possible in practice.
  • In contrast, an East-West dominant approach (across-and-up) rested on clinicians being expected to provide greater responsiveness in the way they meet their patients’ needs, the sustainability of this responsiveness depending on their being provided with the means of dynamically aligning the supporting architectures. This approach to change could be successful because it was able to work with the full complexity of the patient situation ‘at the edge’ of the Healthcare system.

So what made this East-West dominant approach to change difficult for National Governments to implement?

There had of course to be sponsorship for the changes needed, both at the Trust level and at the National level, in order to create a context within which change could take place. But even given this, the demand-led focus on the need for change then had to be driven from the ‘edge’ by the specific needs of the patient through the life of his or her condition. This in turn required forms of support and transparency that could enable such change to happen, by providing funding for the transition, by providing support for this way of working out how to effect change, and by ensuring that the changes made can be sustained in a way that can be held accountable.

This meant being able to sustain power at the edge, and this was a 21st Century Challenge that Governments had not yet learned how to meet.

Managing to Relationship

by Richard Veryard

Masood Mortazavi uses Transaction Cost Economics to explain the difference between Managing to Contract vs. Managing to Relationship. In this post, I want to link this discussion to the key notions of Asymmetric Demand and Asymmetric Governance.

“Managing to contract” implies a two-phase procurement process. In the first phase, all possible scenarios are identified, and a contract is negotiated that defines rights and obligations for each scenario. In the second phase, the emphasis is on compliance with the agreed rights and obligations. Unfortunately, it is hard to find good sources for this phrase on the Internet. Most of the hits lead to the antique humour of “managing to contract disease“. In contrast, “managing to relationship” implies a degree of trust between the parties, and an expectation that issues will be resolved to mutual advantage. Under certain simplifying conditions, there may be no observable difference between managing to contract and managing to relationship. The greatest observable difference can be found in highly complex procurement arrangements, involving either long-running contracts, or a series of separate contracts within a long-running relationship.Managing to relationship may still involve detailed contractual negotiations, but the emphasis is often upon establishing a collaborative governance process, rather than an attempt to anticipate all possible scenarios.

Masood draws three axioms from Transaction Cost Economics:

  1. open, competitive markets cannot always provide goods and services that are needed (asymmetry)
  2. contracts are inherently incomplete (bounded rationality, uncertainty)
  3. relationships as safeguards against opportunistic defections (game theory?)

Drawing on these axioms, we can see that the limitations of managing to contract are not just based on economic inefficiency (excessive transaction costs) but on ethical asymmetry – including asymmetric information and moral hazard. Managing to contract can produce destructive tactical behaviours such as chicken.

Chicken: the first party to flinch is the loser. So when a project is going off track, each party tries to ignore the evidence that things are going wrong, in the hope that the other party will bail out first and bear all the costs.

So there are some basic structural problems with traditional procurement arrangements, and managing to relationship won’t solve these problems alone.

The Faustian Pact

by Philip Boxer

North-South dominance works when the environment can be assumed to be symmetrical to North’s assumptions about it. As the variety of actual demands on the organization increase, making this assumption increasingly less valid, it is useful to distinguish the faustian pact. This pact arises when the individuals at the ‘Easterly’ edge of the organization present what they are doing as if they are complying with North-South strictures in order to cut themselves some slack within which to do what is actually needed East-West (and perhaps also to protect their personal stake in the way they do their jobs).

This can create a dangerous collusion which ends up insulating the North from the increasing complexity of demands the East is actually responding to because they are doing it within informal systems ‘under the radar’, for example through horizontal barter between budgets, or calling in personal favors.  As a result, the Faustian pact delays the moment when the North learns from what is actually going on until presented with catastrophic breakdown of its North-South dominance. (I wrote about the effects of this delay under the heading of ‘facing facts: what’s the good of change’ within the context of the UK’s National Health Service, where doctors often find themselves having to ‘play the system’ in order to deliver appropriate care to their patients).

East-West dominance requires horizontally networked forms of organization that can hold ‘the edge’ accountable for the way it uses the resources of the supporting organization, but in relation to the way West’s know-how is used to respond to the particular demands arising in the East. This contrasts with the hierarchical forms of control associated with North-South dominance. What is at stake is the performativity of what is done in relation to the different demands at the edge, rather than the performance of what is done against centrally (symmetrically) defined criteria. It is not that hierarchy isn’t still necessary, but rather that it has to be pragmatically rather than universally defined. That’s where asymmetric design is needed.