Adaptive Managment Adaptive Management THE PAST REENGINEERING THE CORPORATION

Adaptive Managment

Adaptive Management

THE PASTTHE PAST

REENGINEERINGTHE

CORPORATION

DE-DE-ENGINEERINGENGINEERING THE CORPORATIONTHE CORPORATION• A LOOK AT MANAGEMENT IN THEA LOOK AT MANAGEMENT IN THE

TECHNOLOGICALLY COMPLEX NEW TECHNOLOGICALLY COMPLEX NEW MILLENNIUMMILLENNIUM

• AN OPPORTUNITY TO LEAD THE FUTUREAN OPPORTUNITY TO LEAD THE FUTURE OF MANAGEMENTOF MANAGEMENT

THREE MAJOR THREE MAJOR THRUST AREASTHRUST AREAS

• USING NEW MANAGEMENT USING NEW MANAGEMENT APPROACHESAPPROACHES TO HARNESS THE POWER OF TO HARNESS THE POWER OF TECHNOLOGYTECHNOLOGY

– ADAPTIVE MANAGEMENTADAPTIVE MANAGEMENT• PRECISION DEFINITION OF TASK VALUEPRECISION DEFINITION OF TASK VALUE– VALUATED STATE SPACE/ KPIVALUATED STATE SPACE/ KPI

( 2nd level metrics ) ( 2nd level metrics )

• EVOLUTIONARY STRATEGIESEVOLUTIONARY STRATEGIES–EVOLVING SOLUTIONS VICE ENGINEERINGEVOLVING SOLUTIONS VICE ENGINEERING

ADAPTIVE ADAPTIVE MANAGEMENTMANAGEMENT

• EVOLVED FROM THE SCIENCE OF COMPLEXITYEVOLVED FROM THE SCIENCE OF COMPLEXITY

– OBSERVATIONS OF NATURE APPLIED TO OBSERVATIONS OF NATURE APPLIED TO SOLVING COMPLEX PROBLEMS.SOLVING COMPLEX PROBLEMS.

—

PRESIDENT

COMPTROLLERCOMPTROLLER

UNIVERSITYUNIVERSITY

BASEBASE

COMPTROLLERCOMPTROLLER

CO

LET’S LOOK AT ….LET’S LOOK AT ….

HOWHOW

NATURAL SYSTEMS EVOLVENATURAL SYSTEMS EVOLVE

“It’s not the strongest or the most intelligent of the species that survive, it’s the most adaptable.”

Charles Darwin,

FITNESS LANDSCAPESFITNESS LANDSCAPES

PRE-CAMBRIANPRE-CAMBRIAN

SINGLE CELL LIFESINGLE CELL LIFE

=

NO INTERACTION...NO INTERACTION......SIMPLE REPLICATION...SIMPLE REPLICATION

NO MEDIUMNO MEDIUM

POST-CAMBRIANPOST-CAMBRIAN

MULTI CELL LIFEMULTI CELL LIFE

INTERACTION=MUTATION,INTERACTION=MUTATION,EVOLUTIONEVOLUTION

FLUID MEDIUMFLUID MEDIUM

THE EVOLUTION OF INFORMATIONTHE EVOLUTION OF INFORMATION

GOODS AND GOODS AND WANTSWANTS

SERF/FEUDALSERF/FEUDAL

1ST WAVE1ST WAVEAGRICULTUREAGRICULTURE

-- SMALL VILLAGES SMALL VILLAGES-- FARMING FARMING-- LITTLE LITTLE INTERACTIONINTERACTION

• FOOT AND ANIMALFOOT AND ANIMAL

•ECONOMIES OFECONOMIES OF COOPERATIONCOOPERATION

• LITTLE GROWTHLITTLE GROWTH

LABOR /LABOR / MANAGEMENTMANAGEMENT

- - MOVE TO CITYMOVE TO CITY-- MORE MORE INTERACTIONINTERACTION-- MASS PROD MASS PROD

• TELEPHONES / TELEPHONES / TELEGRAPHS /TELEGRAPHS /• MASS MEDIA MASS MEDIA •ECONOMIES OFECONOMIES OF SCALE SCALE • MORE GROWTHMORE GROWTH

2ND WAVE2ND WAVEINDUSTRIALINDUSTRIAL

-- INFORMATION ISINFORMATION IS CENTER OFCENTER OF PRODUCTIVITYPRODUCTIVITY- - TRENDSTRENDS INFO IS POWERINFO IS POWER

• COMPUTER-COMPUTER- CENTRICCENTRIC•ECONOMIES OF ECONOMIES OF PRECISIONPRECISION• NON LINEARNON LINEAR GROWTHGROWTH

TQLTQL

3RD WAVE3RD WAVE

INFORMATIONINFORMATION

NEXT NEXT WAVEWAVEIDEA AGEIDEA AGE

-- NETWORK IS NETWORK IS CENTER OF CENTER OF PRODUCTIVITYPRODUCTIVITY-- COMPLEX COMPLEX ADAPTIVE SYS.ADAPTIVE SYS.

• NETWORK-NETWORK- CENTRICCENTRIC•ECONOMIES OFECONOMIES OF INTEGRATIONINTEGRATION

• EXPONENTIAL EXPONENTIAL GROWTHGROWTH

ADAPTIVEADAPTIVE MANAGEMENTMANAGEMENT

IDEAS AND WANTSIDEAS AND WANTS

99 9699

9593

2534

2439

3

0

20

40

60

80

100

1991

1998

HIGHER TECHNOLOGYHIGHER TECHNOLOGYPercentage of Inc. 500 CEOs using a Percentage of Inc. 500 CEOs using a particularparticular technology in 1998 compared with 1991:technology in 1998 compared with 1991:

LaptopsLaptops NetworkedNetworkedPCsPCs

CellularCellularPhonesPhones

The InternetThe InternetPagersPagers

THE TRAIL OF INFORMATION MEDIUMSTHE TRAIL OF INFORMATION MEDIUMS

• POST CAMBRIAN - FLUIDPOST CAMBRIAN - FLUID

• FIRST WAVE - FOOT AND FIRST WAVE - FOOT AND ANIMALANIMAL

• SECOND WAVE - TELEPHONES / SECOND WAVE - TELEPHONES / TELEGRAPHS / TELEGRAPHS / MASS MEDIAMASS MEDIA

• 3RD WAVE - COMPUTER3RD WAVE - COMPUTER

• 4TH WAVE - NETWORK4TH WAVE - NETWORK

Profound Phase Changes in Business

Industrial Revolution The Quality Revolution Overnight Packages: Fed Ex, UPS E-commerce (KOZMO.COM)

TOTAL QUALITY MANAGEMENTTOTAL QUALITY MANAGEMENT

( TQM )( TQM )

APPLYING QUANTITATIVE METHODSAPPLYING QUANTITATIVE METHODSAND PEOPLE’S KNOWLEDGE TO ASSESSAND PEOPLE’S KNOWLEDGE TO ASSESSAND IMPROVE THE ORGANIZATIONAND IMPROVE THE ORGANIZATION

TQM NORMALIZES SPIKES TQM NORMALIZES SPIKES AND STABILIZES PROCESSESAND STABILIZES PROCESSES

COMPLEXITY & CHAOSCOMPLEXITY & CHAOSBOUNDARY LAYER BETWEENBOUNDARY LAYER BETWEEN

TQMTQMTOOLSTOOLS

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

0

10

20

30

40

50

60

70

80

5 5 . 5 6 6 . 5 7

0

0 . 5

1

1 . 5

2

2 . 5

3

3 . 5

4

2nd Qtr 3rd Qtr

0

20

40

60

80

100

PARETOPARETO HISTOGRAMHISTOGRAM SCATTERGRAMSCATTERGRAM

HITTING THE RIGHT WALLM

OD

EM

ED

IAN

ME

AN

LIMITS TO OPTIMIZATION

PRACTICAL EXAMPLESHRS

4

3

1900 NOW

MALE VS. FEMALE MARATHON TIMES

WHY ARE THERE NO MORE .400 HITTERS?AVG

.400

.300

1890 NOW

GAMES OF RELATIVE PLAY ARE SIMILAR TO BUSINESS

.260

.200

WHY ARE THERE NO MORE .400 HITTERS?

1990

1890

VARIATON OF BEST TO WORST BATTER

.25 .40 .50

GENERAL PLAY IS BETTER

EFFECTS OF DECREASED VARIATION

INF

OR

MA

TIO

N V

AR

IAT

ION

1900 NOW

PEERS

US

REDUCED OSSORTUNITYS

The double edge sword

We need increased levels of information to get better.

As we get better, so does the competition What happens when we hit the right wall? Phase state change; Chaos! How do we organize to take advantage?

Break time!

TIME

SY

ST

EM

ST

AT

ENON

EQUILIBRIUM

MORE COMPLEX

GREATER / BETTER INFO

HIGHER ORGANIZATION LEVELS

DYNAM ICSTABILITY

BIFURCATION

NEW DYNAMICSTABILITY

CRITICALINSTABILITY

INTRODUCTIONOF PERTURBATION

EQUILIBRIUM

HOW DO WE HOW DO WE MANAGEMANAGE

THE TRANSITION....THE TRANSITION....• FROMFROM managing stabilized processes managing stabilized processes

• TO TO managing dynamic complex systemsmanaging dynamic complex systems

BasesBases Stock MarketStock MarketShipsShips CombatCombatBusinessBusiness

ADAPTIVE MANAGEMENTADAPTIVE MANAGEMENT

LET’S LOOK AT SOME . . .LET’S LOOK AT SOME . . .

• • BACKGROUNDBACKGROUND • • THEORYTHEORY • • EXAMPLESEXAMPLES

C H A O S

• CHAOS - MINOR PERTURBENCESCHAOS - MINOR PERTURBENCES CAUSE CATASTROPHICCAUSE CATASTROPHIC CONSEQUENCESCONSEQUENCES

- EDWARD LORENTZ - MIT- EDWARD LORENTZ - MIT

CHAOS EXISTS BECAUSE WE CANNOTCHAOS EXISTS BECAUSE WE CANNOTPRECISELY CALCULATE THE INITIALPRECISELY CALCULATE THE INITIALSTATE OF ANY SYSTEM.STATE OF ANY SYSTEM.

– TRAVELING SALESMANTRAVELING SALESMAN

THETHE TRAVELING TRAVELING SALESMANSALESMAN

5 CITIES = 12 POSSIBILITIES5 CITIES = 12 POSSIBILITIES10 CITIES = 181,440 POSSIBILITIES10 CITIES = 181,440 POSSIBILITIES24 CITIES = A COMPUTER THAT EVALUATES 1 MILLION24 CITIES = A COMPUTER THAT EVALUATES 1 MILLION POSSIBILITIES PER SECOND WOULD TAKE 9.8POSSIBILITIES PER SECOND WOULD TAKE 9.8 BILLION YEARS OR 2/3 THE AGE OF THE UNIVERSEBILLION YEARS OR 2/3 THE AGE OF THE UNIVERSE

CityCity AA

CityCity BB

CityCity CC

CitCityy DD

COMPLEXITYCOMPLEXITY

• OPPORTUNITY TO LOOK AT GLOBALOPPORTUNITY TO LOOK AT GLOBAL IMPLICATIONS OF FUNDAMENTAL UNITIMPLICATIONS OF FUNDAMENTAL UNIT INTERACTIONS.INTERACTIONS. - ATOMS- ATOMS

- GENES ( DNA )- GENES ( DNA )

COMPLEXITYCOMPLEXITY

. . . . TO CREATE A SYNTHESIS THAT. . . . TO CREATE A SYNTHESIS THAT CROSSES THE BORDERS OFCROSSES THE BORDERS OF STOVEPIPED DISCIPLINES TO SEE . . .STOVEPIPED DISCIPLINES TO SEE . . .

“ “ THE MACRO VIEW” THE MACRO VIEW”

““

EXAMPLES OF EXAMPLES OF COMPLEXITY IN BUSINESSCOMPLEXITY IN BUSINESS

“ EVOLVING SOLUTIONS VICE ENGINEERING THEM ”

• GENERAL MOTORS SAVES 1.5 MILLIONGENERAL MOTORS SAVES 1.5 MILLION PER YEAR IN PAINT COSTS ALONE.PER YEAR IN PAINT COSTS ALONE.

• SCIENTISTS USE COMPLEXITY TO SCIENTISTS USE COMPLEXITY TO CALCULATE DRY TIME OF CALCULATE DRY TIME OF CONCRETE.CONCRETE. - CALIFORNIA EARTHQUAKE - CALIFORNIA EARTHQUAKE 1993 1993

• JOHN DEEREJOHN DEERE - WORK SCHEDULES- WORK SCHEDULES

AN ANALOGYAN ANALOGY

• THE NEW YORK TAXI CABTHE NEW YORK TAXI CAB– HOW WOULD YOU SIMULATE ITHOW WOULD YOU SIMULATE IT IF YOU WERE FROM MARS?IF YOU WERE FROM MARS?

° BIG DISPATCHER THEORYBIG DISPATCHER THEORY

• COMPLEX ADAPTIVE SYSTEMCOMPLEX ADAPTIVE SYSTEM

– SIMPLE RULESSIMPLE RULES

° STOP FOR ANYTHING THAT WAVESSTOP FOR ANYTHING THAT WAVES° GO WHERE IT SAYSGO WHERE IT SAYS° GET PAID !GET PAID !

• RANDOMNESS LEADS TO EVOLUTION AND SOLVING OF RANDOMNESS LEADS TO EVOLUTION AND SOLVING OF DIFFICULT PROBLEMSDIFFICULT PROBLEMS• EVOLUTIONARY STRATAGIESEVOLUTIONARY STRATAGIES

COMPLE

COMPLE

XX

ADAPTIVEADAPTIVESYSTEM

S

SYSTEMSLL

II

NN

EE

AARR

RR

AAEE

NNIILL

NNOO

NN

CCHHAAOOSS

MM

CCOO

PPLLEEXXIITTYY

TWO QUALITIES OF TWO QUALITIES OF COMPLEX ADAPTIVE COMPLEX ADAPTIVE

SYSTEMSSYSTEMS

• SELF ORGANIZING SELF ORGANIZING • EMERGENT BEHAVIOREMERGENT BEHAVIOR - - ANTSANTS

- - AIRPORT LAVATORY AIRPORT LAVATORY

-- AIRLINE SEATING-- AIRLINE SEATING

_ Audience Participation_ Audience Participation

TWOTWO REQUIREMENTS REQUIREMENTS FOR COMPLEX FOR COMPLEX

ADAPTIVE SYSTEMSADAPTIVE SYSTEMS

• NON - LINEARITY NON - LINEARITY

• FEEDBACKFEEDBACK

• USING REFINED METRICS TO ENHANCE THEUSING REFINED METRICS TO ENHANCE THE MACRO VIEWMACRO VIEW

FEEDBACK - VALUATED STATE SPACEFEEDBACK - VALUATED STATE SPACE

NON-LINEARITY - NON-LINEARITY - EVOLUTIONARY STRATEGIESEVOLUTIONARY STRATEGIES

• BIOLOGICAL APPROACH TOBIOLOGICAL APPROACH TO INFORMATION MANAGEMENTINFORMATION MANAGEMENT

• QUANTIFYING TO DISCRETE LEVELS WHATQUANTIFYING TO DISCRETE LEVELS WHAT EACH TASK IS WORTH AS IT RELATES TOEACH TASK IS WORTH AS IT RELATES TO MISSION.MISSION.

VALUATED STATE SPACEVALUATED STATE SPACE

– DOES 16 MINS HAVE VALUE ?DOES 16 MINS HAVE VALUE ?

– IN A BINARY SYSTEM, ANYTHINGIN A BINARY SYSTEM, ANYTHING GREATER THAN 16 HAS NO VALUE. GREATER THAN 16 HAS NO VALUE.

( SECOND LEVEL METRICS )

EXAMPLE:EXAMPLE: FUEL TO A / C WITHIN 15 MINS. FUEL TO A / C WITHIN 15 MINS.

EXAMPLEEXAMPLEFUEL TO AIRCRAFTFUEL TO AIRCRAFT

MINUTES VALUEMINUTES VALUE 2020 95 95 1919 96 96 1818 97 97 1717 98 98 1616 99 99

15 15 100 100 1414 101101 1313 102102 1212 103103 1111 104104 1010 105105

GOAL GOAL STATSTATEE

MINSMINS --------------- --------------- VALUE STATEVALUE STATE

DIGITAL DARWINISMDIGITAL DARWINISMEVOLUTIONARY STRATEGIESEVOLUTIONARY STRATEGIES

INITIAL STATEINITIAL STATE IDEASIDEASPOSSIBILITIESPOSSIBILITIESMEASURESMEASURESMETRICSMETRICS

ASSESS THE FITNESS OFASSESS THE FITNESS OFEACH SOLUTION ON THEEACH SOLUTION ON THELANDSCAPELANDSCAPE

KILL POOR PERFORMERSKILL POOR PERFORMERS

RANDOM MUTATIONRANDOM MUTATION STOPSTOPWHEN ONE WHEN ONE SOLUTION SOLUTION ACHIEVES ACHIEVES PREDETERMINEDPREDETERMINEDFITNESSFITNESS

OR A GOALOR A GOALVALUATED STATE SPACEVALUATED STATE SPACE.

FITNESS LANDSCAPESFITNESS LANDSCAPES

S 0 . . . . .S 0 . . . . .

• MANAGEMENT IN A CHANGING LANDSCAPEMANAGEMENT IN A CHANGING LANDSCAPE MUST BE MORE ADAPTIVEMUST BE MORE ADAPTIVE

• THE THE NETWORK NETWORK WILL BECOME THE WILL BECOME THE CONTROL TOOL FOR MANAGERSCONTROL TOOL FOR MANAGERS

TWO ASPECTS OF NETWORKSTWO ASPECTS OF NETWORKS - - COGNITIVECOGNITIVE - PHYSICAL- PHYSICAL

• THE MANAGEMENT STRUCTURE MUST BETHE MANAGEMENT STRUCTURE MUST BE

- SELF-ORGANIZING- SELF-ORGANIZING - ADAPTIVE- ADAPTIVE

Changes in organizational structures equal changes in speed

of adaptation. Sears- top down structure, offices in one of

the tallest buildings in the world. Information flow followed structure

Wal-Mart- Same old flat building, information flow moves via network, business moves and adapts at the speed of light. Second only to DOD in the use of supercomputers.

DataData DataData

KnowledgeKnowledge DecisionDecision

DataData

DataData

ExecutionExecution

KNOWLEDGEDECISION EXECUTION

Norman AuginstineCEO, BOEING

“Layer upon layer of bureaucracy will not leave the demise of the organization to chance”.

S O M E D E M O S . . . .S O M E D E M O S . . . .

ADAPTIVE MANAGEMENTADAPTIVE MANAGEMENT SOFTWARESOFTWARE

ADAPTIVE MANAGEMENTADAPTIVE MANAGEMENT- SIMPLE RULES GOVERN COMPLEX SYSTEMS- SIMPLE RULES GOVERN COMPLEX SYSTEMS

DEMANDDEMAND RESPONSERESPONSE

TASK 1TASK 1

MAGICMAGICNUMBERNUMBER

VALUATED STATE SPACEVALUATED STATE SPACE

STOPSTOP

RESOURCERESOURCESS

PEOPLEPEOPLETIMETIME$$$$$$EQUIPMENTEQUIPMENT

TRNGTRNGMANNINGMANNINGQUALIFICATIONQUALIFICATION

0102030405060708090

100

Your Org

Your Org.com (AGGGREGATE)Your Org.com (AGGGREGATE)

PERCENT PERCENT VALUATEDVALUATEDSTATE SPACESTATE SPACE

0102030405060708090

100

Your Org

Your Org.com(AGGREGATE)Your Org.com(AGGREGATE)

PERCENT PERCENT VALUATEDVALUATEDSTATE SPACESTATE SPACE

0102030405060708090

100

SUPPLY OPS AIMD

DEPARTMENTDEPARTMENT

PERCENT PERCENT VALUATEDVALUATEDSTATE SPACESTATE SPACE

0

10

20

30

40

50

60

70

80

90

100

SUPPLYSUPPLY

PERCENT PERCENT VALUATEDVALUATEDSTATE SPACESTATE SPACE

IS CBQ FUELS ASD GALLEY

0

20

40

60

80

100

Demand Response

ASDASD

PERCENT PERCENT VALUATEDVALUATEDSTATE SPACESTATE SPACE

Rotable Pool Effectiveness

SUPPLSUPPLY Y A S DA S D

ROTABLE ROTABLE POOLPOOL

AIMD EXREPAIMD EXREP

0102030405060708090

100

EXREPS BENCHES GSE

AIMDAIMD

PERCENT PERCENT VALUATEDVALUATEDSTATE SPACESTATE SPACE

0102030405060708090

100

100 Div 200 Div 400 Div 600 Div

AIMDAIMD

PERCENT PERCENT VALUATEDVALUATEDSTATE SPACESTATE SPACE

0102030405060708090

100

BENCH 1 BENCH 2 BENCH 3

DIVISION 600DIVISION 600

PERCENT PERCENT VALUATEDVALUATEDSTATE SPACESTATE SPACE

SO . . SO . . ..

WHAT DOES ADAPTIVE MANAGEMENTWHAT DOES ADAPTIVE MANAGEMENTMEAN TO MEMEAN TO ME

HELPS YOU TO UNDERSTAND THE HELPS YOU TO UNDERSTAND THE LANDSCAPELANDSCAPE

DE-ENGINEERS YOUR BUSINESS SPACEDE-ENGINEERS YOUR BUSINESS SPACE IDENTIFIES “ THE SIMPLE RULES “IDENTIFIES “ THE SIMPLE RULES “ DEVELOPS A VALUATED STATE SPACE DEVELOPS A VALUATED STATE SPACE

FOR EACH MISSION/COMMODITYFOR EACH MISSION/COMMODITY

WHAT LIES AHEAD?WHAT LIES AHEAD?

THE SPEED OF BUSINESS WILL INCREASE THE SPEED OF BUSINESS WILL INCREASE INNOVATION WILL DISPLACE QUALITYINNOVATION WILL DISPLACE QUALITY““ADAPTIVE” IS ANOTHER WORD FOR ADAPTIVE” IS ANOTHER WORD FOR

INNOVATIONINNOVATION

SUMMARSUMMARYY

DEVELOP TOOLS TO MANAGE IN A DEVELOP TOOLS TO MANAGE IN A DYNAMIC ENVIRONMENTDYNAMIC ENVIRONMENT

$$$ SAVINGS$$$ SAVINGS OUTPACE THE COMPETION

THROUGH INNOVATION

OVERALL OBJECTIVESOVERALL OBJECTIVES

INNOVATION

THE DEFINING MEASURE OF SUCCESS IN BUSINESS IN THE

FUTURE

“INCREMENTALISM IS THE WORST ENEMY OF INOVATION”

Reading List

Complexity- Roger Llewen

At Home in the Universe- Stuart Kaufman

QUESTIONS ?QUESTIONS ?

QUESTIONS ?QUESTIONS ?QUESTIONS ?QUESTIONS ?

QUESTIONS ?QUESTIONS ?QUESTIONS ?QUESTIONS ?

QUESTIONS ?QUESTIONS ?