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Simon Wardley recently gave a talk at the Butler Group on innovation & commoditization of IT.

I've talked to Simon a number of times on the subject, and indeed, he's talked at a number of conferences on it. What I find particularly interesting about this one is his foray into the management of organizations. I quite like his S-curve visualization of the type of activities an organization goes through as they progress from the innovative and transition to the ubiquitous. He makes the key point that:

    "[An organization] need[s] to use different methodologies for different stages of an activity's lifecycle."

Interestingly, I've seen this a number of times in IT startups I've worked for - as they become successful and grow, they always change irrevocably. This is simply because the nature of their activities change. From my experience, here's a quick overview of a typical startup building a SaaS product going through Simon's 3 stages:

  • Innovation: They typically start off with the bare minimum needed to build an innovative v1.0. Half of the time, the founders are helping to build the product, if not then you can bet they're working directly with those who are. Management structure is pretty flat, and development methodology is typically Agile (or non-existent).
  • Transition: As the product grows & becomes more successful, the company hires more employees. Different teams are created, and inevitably middle management is introduced, along with some sort of formal management methodology. The new management structure can take many attempts to become establish, eating up several months to several years. In some cases Waterfall may replace Agile. During this time some of the older employees will become fed-up with the new bureaucracy and leave.
  • Commodity: The product line is well established, highly used, and doesn't change much. Overall management structure is well-established and doesn't change much. In general, the cost of change is high, and the business' goals are focused on getting the most out of their existing products. Management will likely have introduced PRINCE2 to start running larger projects for their clients.

I believe the Transition phase is the most challenging for a startup - it can make or break a company. For example: one growing SMB I worked for was in its transition phase and had recently adopted an overall organizational management structure that was good for its existing activities, but unfortunately stifled innovation and seriously threatened the company's future. It was only through an external source of innovation that the company succeeded.

Needless to say, at large companies this lesson is potentially gold dust. Indeed, some have already learned - as Marissa Mayer, Google's VP of Search & UX, noted in an interview with Fortune Magazine in 2006:

    "Most of the teams at Google are three to ten people. ... They operate like small companies inside the large company. Google is a lot like managing a VC firm, because you're placing bets on different teams. Our organization mirrors the Internet. It looks more like a network than a hierarchy."

Certainly a valuable lesson for all those employed in IT & involved in change. Which is pretty much all of us.

Comments

( 4 comments )
(Anonymous)
Mar. 14th, 2008 08:02 pm (UTC)
RE: organisational description

Hi Steve,

Actually, when it comes to an activity I'm talking about a process, sub-process or result thereof as opposed to an overall organisation. For example, an activity such as CRM has made the transition from once novel and barely understood (more of an innovation) to something common and well defined (more of a commodity).

An organisation contains a mass of different activities all on the S-Curve, obviously this doesn't describe an organisation which is instead an intersection between activities and actors.

At any one time, if you take a snapshot of an organisations activities you will find it contains a mix of innovation, transition and commodity like activities.

Of course there is a difference between what it contains and how it treats its activities. An organisation can for example create its own processes and methods for dealing with payroll despite the fact that this is a ubiquitous and well defined task.

Furthermore, an organisation can also apply simply control methods to innovative activities in the mistaken belief that this will improve performance. How an organisation deals with its different activities, how it deal with complexity and how it copes with the innovation paradox is a sign of organisational maturity.

I just wanted to make it clear that I use these categories to describe activity lifecycle and not organisational maturity. That said, I do you think you raise some very interesting points in your blog post.

As organisations grow the complexity within the organisation increases as well. From cybernetic principals, the process of regulation needs as much variability as the inputs in order to effectively control it. In other words, as organisations become more complex they are more difficult to manage. Hence the tendency to apply simplifying control mechanisms where possible. The application of such mechanisms to activities which are commodity like (such as payroll) but may not have been treated as such, shows immediate results and success. Hence, it is more than possible that a growing organisation will extend such methods to all activities, on the assumption that the same results will be achieved.

Which they won't.

Especially when it comes to innovation.

Hope that helps.

Simon Wardley

spurkis
Mar. 15th, 2008 06:15 pm (UTC)
Re: organisational description
Hi Simon,

Thanks for your comments!

I do understand what you mean by an activity, particularly that it is not the same as an organization. I didn't mean to suggest they were, though on re-reading my post I can see why it comes across like that. I was originally talking about a startup's product evolving from innovative to commodity. I figured that by examining where the product was on the S-curve and making generalizations from my own experiences I could gleam some useful information. I think this is where I confused the point - you weren't really talking about products moving from innovative to commodity, but activities.

I should have also mentioned a startup's key activities - say building, running & maintaining and perhaps marketing a product, rather than the supporting activities like accounting, payroll, office management, etc. I believe as a product evolves these key activities change as you suggest, and that new key activities arise at both ends of the S-curve. This in turn forces the organization to change. In the case of a growing startup, I believe there is definitely a link between its key activities and organizational maturity.

Finally, something I forgot to mention in the original post: As a manager, part of your job is to determine the best process to use for a given situation. I remember I instinctively opted for Agile on internal projects and Waterfall for changes to well-established products for external clients at Fotango. I find your S-curve innovation/commodity model has helped me understand why I did that. I'm hoping it will help me make the right decisions again in the future!

(Anonymous)
Mar. 26th, 2008 04:00 pm (UTC)
thank you
i am gonna show this to my friend, brother
(Anonymous)
Apr. 5th, 2008 11:08 pm (UTC)
well done
thats for sure, bro
( 4 comments )