Category Archives: Value Stairs

The progression in competitive responses to the three asymmetries.

Changing the value equation in engineering and acquisition to align systems of systems with dynamic mission needs.

by Philip Boxer

This paper was presented in conjunction with Suzanne Garcia, Bill Anderson and Pat Kirwan at the 11th NDIA Systems Engineering Conference in San Diego.  The abstract was as follows:

New kinds of threat and much wider varieties of demand on mission capabilities are requiring the military to achieve unprecedented levels of agility and responsiveness, and are driving the transformation of military capabilities. The great benefit of net-enablement in this new strategic environment is that it enables mission capabilities to be orchestrated and composed from constituent capabilities within the context of systems of systems.

The presentation outlines three essential ways in which the foundational nature of the systems engineering task needs to be transformed to take advantage of these new possibilities, and uses examples from various military contexts to illustrate their applicability. First, it discusses how the definition of systems-of-interest has to be extended to include their socio-technical nature. Second, the definition of systems-of-interest also has to give an explicit account of the contexts-of-use from which emerge new forms of demand for mission capability. Third, it has to be possible to analyze how these new forms of demand translate into new patterns of interoperability (geometries-of-use) across systems of systems, thus defining the agility of systems of systems in terms of the required varieties of geometry-of-use that they must support. The presentation concludes by considering the impact this has on the suppliers’ role, the acquisition process, and in particular the changes it introduces into how value is defined.

The hole-in-the-middle

by Philip Boxer

The blog on the health service distinguished between three levels of involvement with the patient moving from (1) being centred on providing specific treatments, to (2) being centred on episodes of care, to (3) being centred on the patient’s experience of care over time. These are levels originally separated out by the paper by Prahalad and Ramaswamy on The New Frontier of Experience Innovation. They made the more general distinction between competing in a product space, a solution space and an experience space.

The point they were making was that the third of these required a fundamentally different approach to the relationship to the customer, which I have described in terms of rcKP and the third asymmetry.

The blog gave an account of this difference in terms of changes in level of governance architecture – from the relatively internal concerns of the first two levels with the governance of care provision and of clinical referral pathways, to the through-the-life-of-the-condition concern with the patient’s care at the third level. It then concluded that this third form of governance:

“… in turn requires forms of support and transparency that can 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 is accountable.”

Putting this together into a 3 x 3 creates a value stairs – establishing where you are and where you need to be on this value stairs, given the competitive asymmetries in force, is fundamental to deciding how to exploit the three potential asymmetries. Working with another client gave another perspective on the challenges involved – a telecommunications service provider whose role it was to provide just such forms of support and transparency.

In this case the levels in the value stairs were expressed in terms of the contractual framework within which the relationship with the customer unfolded over time. What characterised the resultant space as a whole was that the bottom-left three squares were very efficiently occupied by the enterprise on the basis of commodity services, while the top-right three were provided on a cottage industry basis by a high value-adding consultancy and bespoke services to relatively small numbers of large enterprises.

hole-in-middle.jpg

Given that competitive forces were driving the enterprise up the value stairs, the challenge had become the hole-in-the-middle. This was too expensive to satisfy by using the bespoke approach used top-right, and the variety of demands too complex to be satisfied using the bottom-left commoditised basis. In terms of what we need to learn about complex systems, the challenge was to find ways of operating in the collaborative quadrant below:

What was the answer? To start with, the whole business infrastructure had to be digitised so that it could be offered on a service-oriented basis. Then to leverage this capability, different ways of managing the relationship with the customer had to be found – the enterprise had to develop an approach to managing this infrastructure that could be dynamically customised from the edge of the business. This they are still in the process of doing.

Separating the supply-side from the demand-side

by Philip Boxer
Charlie, Thank you for your thoughts on value-driven architecture relating to the Governance paper, and for drawing my attention to your paper on linking product strategy with architecture. Your use of “context-specific challenges” nicely identified the nature of the challenge presented by asymmetric forms of demand. A close look at your paper identified a number of other points of connection – particularly since you start from Michael Porter’s Competitive Advantage (M.E. Porter, Free Press, 1985). Porter’s concepts have been a jumping off point for me too, although I think there are a number of difficulties in using his concepts in relation to our third (demand) asymmetry.
I have always found his use of ‘horizontal’ and ‘vertical’ confusing (horizontal linkages = vertical integration = integration along the whole length of the value chain viz aluminum foil). The use of vertical linkages between entities in different systems corresponds much more to Christensen’s concept of ‘value network’ (The Innovator’s Challenge, Harvard Business School Press, 1997), i.e. the particular way in which technologies organize the design of products and services, and which I refer to as an ‘effects ladder’ (viz the way we all used to agree how to use disc drives).
In a stable industry, because the variations in value context can be ignored (there used not to be much variation in the way disc drives were used), the effects ladder defines the organization of the value cluster, describing its business model. But as the levels of variation increase, so that the value models within the value cluster become increasingly heterogeneous, so too does the variation increase in the organization of the effects ladders within the value cluster. Our question is whether it is useful to look at the demand-side variation independently of the supply-side.
What is interesting about your paper is that the organization of a value cluster is a response to the value drivers – “a value model captures the drivers that determine how satisfied a particular market segment is, and how difficult it will be to satisfy them.” At the level of the particular demands facing a value model, I can see how this enables you to concentrate on the particular architecture challenges presented (viz designing a car that stops under differing conditions of use).
In contrast, we have placed much greater emphasis on defining the effects ladder for the customer – i.e. the customer’s value model – independently of the value model of the supplier (viz how can customers define how they want to use ICT within their business independently of the particular technology solutions they might subsequently use). Hence our approach of separating out the demand-side risks associated with embedding services in the customer’s value model, and considering the supply-side risks of delivering particular services out of an infrastructure separately. This is because we have wanted to see to what extent the demand-side value drivers (idiosyncratic ways in which users define their needs) diverge from supply-side value drivers (limitations in the way the technology can be used).
Of course, both approaches are needed, depending on how tightly coupled are the architectures of the supply- and demand-sides. But the whole separating out of the transactional and transformational elements of the value model from its tacit elements (The next revolution in transactions, McKinsey Quarterly No 4, 2005) suggests that this uncoupling process is increasing. What is your sense of this?
Happy Christmas!
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