Technology-Driven Change

Change tends to be very difficult, but it does happen.  Technology is one of the key drivers of change.  Technologies enable new possibilities, such as typing this post on my iPad early Sunday morning, sipping coffee and listening to the rain. The iPad means that I can be productive any time, any place. This capability has become very popular and Apple’s share price has soared.

Why does this constitute change?  The immediate impact is that my laptop seldom leaves my office at the university. I have not had a home computer for several years. I am questioning whether I really need a smart phone any longer since Wi-Fi is becoming ubiquitous. I read many books and 90% of them I download to the iPad.  I read newspapers this way as well.

So, one device has eliminated my previous inclinations to buy a home computer, a smart phone, most books, and all newspapers.  I imagine the companies who sell these things are quite aware of such changes of buying habits. Employees, or former employees, of these companies are also, I am sure, very aware of these changes. Decreasing demand for products and services means that fewer people are employed to provide these products and services.

This pattern has repeated throughout history, ranging from steamboats to railroads to electricity to automobiles to airplanes and computers. It often takes quite some time for patterns to play out. The transistor was invented and refined in the late 1940s. More than six decades later, the iPad is having the impacts noted above. Of course, there were many steps along the way, and many other technologies were needed in addition to semiconductors.

One cannot help but wonder what is next. Many think that technologies associated with the life sciences and health will be the next drivers of change. Personalized medicine is the current Holy Grail. It is imagined that this will replace mass produced medicine.  Treatments and drugs will be tailored to each individual’s genetic makeup. This means much smaller markets for each type of treatment and drug. This threatens pharmaceutical companies’ penchant for blockbuster, high volume offerings.

Changes on a personal level are likely to be much more profound. Once you are aware of your genetic predispositions, what range of interventions do you entertain?  What increased probability of a health problem will justify intervening?  How will you or your employer or the government pay for these interventions? How will your employer or the government limit the allowable interventions? There are many possible answers to these questions; most of them portend substantial changes to how we live.

Report From the Front

Over the past two semesters, I have been helping Georgia Tech undergraduate teams to contribute to transforming healthcare delivery.  Their senior “capstone” projects have focused on patient in-flow (Emergency Department), in-patient operations (Operating Rooms) and patient out-flow (Discharge and Bed Turnover).  Three eight-person teams addressed each of these areas of hospital operations.

The problems these students faced were excessive waiting time in the Emergency Department, low utilization of Operating Rooms, and delayed Discharge and Bed Turnover.  All three of these problems resulted in inefficient use of capacities, decreased revenues, and excess staffing costs. The students’ solutions focused on improving use of capacities to increase revenues and decrease costs, resulting in net gains in the millions.

In all three instances, the hospitals had many ideas for how to improve operations. However, they did not understand the economic implications of the alternatives. The students used their engineering models; sleuthed down the data they needed; and projected the benefits and costs of alternative courses of action. They presented their results and implications in clearly actionable recommendations.

Perhaps not surprisingly, these projects depended on each other. Most significantly, increased use of the Operating Room capacity depends on improved Discharge and Bed Turnover. Otherwise, where do you put the increased number of patients emerging from surgery? In this way, inefficiencies in one functional area can impose inefficiencies in another area.

These three projects show how highly motivated, well-intended healthcare professionals can promote inefficient solutions due to having to operate within the significant constraints imposed by the rest of the organization.  We have the methods and tools to overcome these limitations. We just need the courage to approach healthcare delivery problems systemically.

Why Transformation Is So Difficult

It is fairly common for the perceived benefits of current market offerings to fade and new value propositions to displace older offerings.  As noted in earlier posts, Schumpeter called this process “creative destruction.”  Steel ships replaced iron ships, which replaced wooden ships.  Microprocessors subsumed transistors, which replaced vacuum tubes. Change happens and creative destruction causes obsolete offerings to be replaced by new innovations.

This process of fundamental change sounds much smoother than it actually is.  The stewards of the “as is” enterprise — in other words, the stewards of the status quo — usually do their best to thwart the emergence of the “to be” enterprise.  In fact, they are likely to do their utmost to undermine the very thought that a new paradigm may emerge and be successful.

Last week, I spent a night in Bethlehem, Pennsylvania.  The carcass of the Bethlehem Steel Plant dominates the town.  This sprawling facility has been deserted for three decades.  This was once the “as is” enterprise.  There were thousands of people who did their utmost to steward this “as is” enterprise.  I expect that they simply did not believe that a different future was emerging.

This is not at all surprising.  The builders of wooden ships were not intrigued by the capitally intensive emergence of iron and steel ships.  The vendors of oil and gas lamps were not very enthusiastic about the possibility of electric lights.  The owners, managers, and employees at the Bethlehem Steel Plant were not big fans of high-efficiency continuous casting, not to mention low-wage foreign steel production.

Transformation is, to a great extent, very difficult because an enormous number of people are depending on change not happening. They expect the jobs at the steel plant or automobile plant to continue forever, generation after generation. A few members of each generation break out, perhaps becoming engineers after one generation, and lawyers or doctors after two.  However, the ranks of those seeking the factory jobs grow much faster than of those seeking to leave.

Of course, this phenomenon is not limited to factory work.  Teachers and doctors, for instance, argue against new processes and technologies that they perceive will undermine the value of the knowledge and skills they have long invested in gaining and refining. Thus, online education is impugned for not embodying the human skills of the physically present teacher.  Yet, the current generation of young people has mastered Internet-based interactions with people in far-flung other locations.  The trend in this arena is clear.

Transformation would be much easier if everyone were more adaptable in the sense that they would willingly gain new knowledge and skills whenever necessary.  Factory works would quickly become computer programmers.  Teachers would give up lecturing and rapidly refine facilitation skills for guiding students in online education.  Everyone would happily discard skills that are becoming obsolete and eagerly gain newly valuable skills.

Beyond the problem of motivating everyone to act in this manner, there is a more fundamental limit to this idea.  It takes a long time to become really good at something.  As Malcolm Gladwell popularized in Outliers, research has shown that it takes around 10,000 hours to become an expert.  This is five years if done full-time, perhaps ten years if work involves other activities than just focusing on gaining the targeted expertise.

So, it takes the factory worker 5-10 years to become a skilled computer programmer and the teacher 5-10 years to become an expert “guide on the side” rather than a “sage on the stage”.  I may be overestimating the time required, since the teacher, for example, would not be starting with no facilitation skills.  However, the point is that there is a limit to how fast people can adapt, even if they are willing.

A counter argument is that people do not need to be experts to be productive. But, would you want the flight management software on the plane you are flying in to have been programmed by a less than expert programmer?  Would you want to undergo surgery with a surgeon that just a few years ago was in a completely unrelated profession?  Clearly, high levels of expertise and the resulting high levels of performance are often very important.

Dynamic, innovative economies lead to high levels of creative destruction.  This results in needs for frequent and significant transformation of enterprises.  Often people do not want to make the changes transformation requires.  They may be unwilling, but more fundamentally, they are unlikely to be able to change fast enough to maintain their positions — and incomes — in the transformed enterprise. That is one of the basic reasons why transformation is so difficult.

Worst Practices

I have recently been involved with an enterprise that has somehow managed to embrace just about the worst transformation practices possible.  It all started with the vocabulary the leaders chose to employ.  They managed to paint a transformation picture that they apparently had no intention of pursuing.  While they portrayed fundamental change, their actions totally represented those of stewards of the status quo.

They did not “walk the talk” in several ways.  While cutting production staff and freezing salaries, they relentlessly increased the size and payroll of the management staff.  This included changing elements of the leadership team without communicating to those reporting to these leaders.  New bosses just showed up and took over.  It did not seem to matter to the senior leadership that the subordinates involved were totally confused.

They also rolled out policy changes that fundamentally affected people without informing them.  For example, they moved accounts and responsibilities without announcing the policy changes, leaving managers unable to find accounts and manage them.  The resulting confusion among program managers was apparently of no concern to senior leadership.  It did not matter that financial management was now impossible — the issue was power and control, not performance.

It would seem that only the most wooden-headed leadership would expect that these practices could succeed.  Middle management has had endless debates over whether senior leaders are inept or simply do not care.  No one seems to know what the leaders have been thinking.  However, most employees feel that the leadership was simply assuming that employees are lucky to be employed and should put up with anything.  The stewards of the status quo could not imagine that people would do anything other than what they were supposed to do, even when what they supposed to do was never communicated.

I asked several senior mid-level executives how they felt about events of the past year or two.  One of them put it best, “It is like being pecked to death by ducks.”  All sorts of irritating little changes happen, things that might have been acceptable if communicated and discussed. However, these changes – most small but some big – were simply implemented without explanation.  With supervisors unable to explain the source or intent of these changes, staff morale is steadily slipping..

So, what happens next?  Does this organization spiral to oblivion?  The problem is that such incompetency can be embraced for an amazingly long time.  Bloated work processes that provide little value can be sustained and expanded with little scrutiny. Investments can be made in competencies that are no longer needed, or were never needed.  The realization of irrelevance comes much too late.  The leadership is completely at odds with the future, which they consciously ignore seeing.  The message, strategy, and plan are totally at odds with reality.  The severance packages may be much too generous, but the sooner such leaders are gone, the sooner the wonders of creative destruction can commence.

So Who Are the Creators?

So, the game plan, according to me, is to create the future.  Who is on the team?  You might think, based on my last post, that the team is all engineers and scientists.  But, that is not how it has worked in the past.

Regardless of the technology — steamboats to automobiles to computers — the players in the innovation game have included many artisans beyond those with formal educations.  Players have also included many entrepreneurs, investors and, of course, many “high tech” workers where the definitions of “high” and “tech” were and are completely context dependent.

This immediately begs the question of whether we have a large cadre of such people now.  Where are the mechanical (1800s), electrical (1900s), or computer (2000s) artisans for the future?  In the past, we out-paced English workers because our workforce was better educated and ready to contribute to the processes of invention and innovation.  It does not seem that we are ready to out-pace Chinese workers in the same way.

We need artisans in IT, biotech, and energy.  In the past, such folks would have been cultivated in high school classes and labs in computing, biology and chemistry. People who flourished in these labs, but perhaps floundered with theory exams, may have gone to college for a year or two, or skipped college completely, and immersed themselves in creating the future.  Bill Gates, Steve Jobs and Chris Klaus are recent, but by no means unique, examples.

In my case, high school included woodworking, metalworking and foundry.  While math and physics led me to an engineering degree, these labs led me to hands-on experience and a feel for whether something could be manufactured and how to make it.  My understanding is that those days are gone.  Now, it is all about test scores.  SATs predominate, and welding skills are irrelevant.  Math skills completely trump abilities to use a lathe.

Perhaps abilities to deal with abstractions are all that now matter.  The physical world is no longer where things happen.  That’s what other people do — in China, India and Singapore.  But, then what do we do?  We manage things, count things, borrow money and account for returns.  This sounds a lot like England when we were soon to displace them in innovation and economic growth.  All because we are unable — or perhaps unwilling — to create the artisans who can contribute to the processes of invention and innovation.

Creating the Future

I am a student of history, particularly economic history.  Lately, I have been immersed in reading about technological innovation in the late 19th and early 20th centuries.  Transportation was transformed from stagecoaches and steamboats to railroads, automobiles and airplanes.  Electricity transformed communications from mail, telegraph and telephone to radio, television and now Internet.

In the process, there was much creative destruction.  Industries morphed or disappeared, and jobs changed or disappeared.  The stewards of the status quo did their best to stymie these changes, but they inevitably failed and change happened. We are now seeing fundamental change in healthcare delivery, and will sooner or later see fundamental change in higher education — the former being the incumbent poster child for runaway costs, and the latter soon to become the reigning poster child for costs that far exceed the value provided.

While the stewards of the status quo work to thwart change via endless team meetings and glossy strategies and plans, what should the rest of us do?  We could go to these meetings, check our emails or search the web during the interminable discussions, and help wordsmith the slides and brochures.  We could embrace business as usual, hoping the rules of the game are not changed during our watch.

On the other hand, we could embrace the ambiguous, uncertain future.  How?  Well, I am not a fan of crystal balls or dice.  There is another choice.  We could focus on creating the future.  We could imagine a different future and work to make it happen.  We could create products and services that might transform people’s lives. How about teleportation or mind reading?  Too much?  How about cars that cannot run into things, due to sensing and control technologies, and hence can weigh 70-80% less than current cars?  How about natural chemical agents that can track down cancer cells and convince them to die?

Much of what we take for granted — for example, this iPad on which I am typing — would be seen as pure magic by people of 50 to 100 years ago.  We have created a future most could not have imagined.  Now, we should imagine a future that no one believes is possible — and then go make it happen.  Creating the future is much more productive and satisfying than waiting for the future.  It is much more fun than being a steward of the status quo.

Market Forces

Change happens when it is forced.  The force can be an opportunity or a threat, perhaps embodied in a crisis.  In many domains, the forces for change are manifested as market forces.  Competitors, large or small, recognized or unrecognized, are the sources of market forces.  Thus, change happens when there is competition to meet market needs with better performance, quality, service and/or prices.

Change is much less likely to happen when there is little or no competition.  The stewards of the status quo can then argue that everything is great — as good as it can be within the prevailing constraints.  If competitors are not offering viable alternatives, it is difficult to convincingly argue that the stewards of the status quo are wrong.  Consequently, all investments are focused on preserving the status quo.

Healthcare is currently in crisis.  New alternatives are being driven by information and incentives.  Information will improve overall efficiency, but also enable health consumers to know the best providers, the best treatments, and the best pricing. Changing incentives focused on pay for outcomes will cause providers to focus on procedures that improve outcomes because those are the only ones for which they will be paid.

Higher education is a crisis in waiting.  Costs of administration (per student) have soared while expenditures on education and research (per student) have steadily declined.  At the same time, the merits of the old argument that a college education is always worth it have faded.  Unfortunately, there is a dearth of viable alternatives.  Online education has some benefits, but campus-based education provides a much richer growth experience.

What we need is an alternative that retains the benefits of campus-based education with much less overhead.  How about a university with a president, provost, deans and department heads, with NO vice presidents, vice provosts, associate vice presidents, associate vice provosts, etc.?  How about a university where the faculty members are the majority of employees?  Those two rules alone would constitute a dramatic change.

No mainstream university would agree to these rules.  There are far too many stewards of the status quo to allow this to happen.  But, there could be new universities, perhaps populated by faculty disaffected with the mainstream, which could operate this way.  The result might be a first-rate education for less than $10,000 per year — no fees added, no hidden charges.

This type of alternative would force change.  The best students would opt for this new alternative.  The mainstream universities, with increasingly bloated costs, would attract mediocre students from financially well-off families.  These students and their families would be more attracted to suites at the football stadium than science labs.  This would enable mainstream universities to cut back expenditures on the more academic side of things to focus on campus amenities and intramural enrichments.

How would we convince students — and their parents — that the degree from Alternative U is as valuable, or more valuable, than a degree from Mainstream U?  There are two key elements of making this case.  First, the quality of the faculty could be superb due to the enormous savings from salaries of non-faculty. Faculty members could be paid quite well since the typical five university staff members per faculty member would not exist.

Second, close alliances with industry and, to an extent, government would create great opportunities for internships and virtually guaranteed employment upon graduation.  There would be no graduates from Alternative U with marginal work knowledge and skills.  Everyone would be really good at something, ranging from design and engineering to journalism, theatre and media.  The graduates of Alternative U would run the world, and the students at Alternative U would know this.

Mainstream U could pursue the Alternative U mission, actually much easier than those who would have to start from scratch.  But, Mainstream U will not pursue this opportunity to innovate — they are much too busy.  There are hundreds of faculty members to manage and thousands of staff members to pay and promote.  The administrative assistant to the Deputy Associate Vice Provost has filed a complaint requesting the title of Assistant Deputy Associate Vice Provost and the university’s legal counsel has advised that this be settled out of court.

Disrupting the Status Quo

A few months ago, a colleague asked me, “What if our big idea does not get approved by the powers at be?”  I said, “We will start an insurgency and just do it anyway.”  We are still waiting for approval, and may get it, but we are quickly progressing despite the lack of formal blessing.  Our idea may be too disruptive for the stewards of the status quo to fully support it, but we are determined to prove the benefits of this idea and create a tipping point of demand for these benefits.

These experiences, combined with my recent posts, caused me to ask whether there are limits to the benefits of disrupting the status quo.  Either extreme will, obviously, not work. If everything changed all the time, chaos would result.  If nothing ever changed, complete stasis would be the result.  So, is there some intermediate level of disruption that balances creativity and continuity?

The stakeholders seeking continuity usually far outnumber those pursuing creativity.  The political, business, social, and personal interests associated with the status quo are often strong and compelling.  The interests associated with creative change may be quite energetic, but typically involves far fewer stakeholders.  Thus, the default reaction is often watered down change or no change at all.

One way to pursue the question of the appropriate level of disruption is to consider the extent to which an enterprise is open to entertaining and pursuing change.  Two factors, at least, affect the openness of an enterprise to transformation.

First, to what extent is the enterprise facing crisis or opportunity?  Much fundamental change is driven by crisis.  The crisis in healthcare spending is widely acknowledged because the largest payer has balked.  Medicare and Medicaid have restricted what they will pay in order to limit spending growth.  Employers are also very unhappy.  The broadly defined healthcare enterprise is paying attention.

In contrast, the crisis in higher education is only seen by millions of individual payers who, in general, have little if any leverage.  For the higher education enterprise, the status quo is powerful and hunkered down.  Acknowledgement of the crisis will require a systemic jolt.  One possibility would be the federal government’s limiting of students loans.  The current loan program provides universities with a license to raise tuition and fees.

The flip side is opportunity.  In health delivery, medical knowledge and information infrastructure are enabling enormous possibilities for prevention and wellness, chronic disease management, and patient empowerment in general.  This is driving many ideas and inventions, some of which will surely become innovations — fundamental changes in the marketplace.

There is no lack of opportunities in higher education, many technologically enabled. However, institutional leaders are not pursuing these opportunities.  Instead, they tend to be framed as research projects, typically outside of the mainstream and funded, often marginally, by external sources.  Transforming these inventions into innovations is an uphill battle.

The second factor is the extent to which an enterprise’s dominant stakeholders feel threatened by change. In healthcare, the acknowledged crisis has resulted in the primacy of the physician being redefined, in part due to the opportunities noted above.  There are many ongoing attempts by institutional leaders to disrupt the status quo and it is quite likely that a few will succeed to transform the healthcare enterprise.

In higher education, the primacy of the professor is steadfastly maintained, and faculty governance models strongly limit the extent and pace of change.  With no acknowledged crisis, attempts to disrupt the status quo are not led by institutional leaders.  Instead, these leaders are usually recruited to be stewards of the status quo.

Change is most difficult when the role of the dominant stakeholder is threatened, whether they are physician or professor.  Institutional leaders, usually drawn from the dominant stakeholder group, are very hesitant to alienate their former peers.  Indeed, they may be oblivious to the reality of the threat.

I have encountered this phenomenon in domains beyond healthcare and higher education.  In my many years working with the U.S. Air Force, I was often amazed at how pilot-centric decision making was.  However, given that almost all the senior leadership came from the pilot ranks, it should not have been surprising that the solution of every problem was seen to be an airplane.  In fact, problems obviously not addressable by weapon systems often received little enthusiasm and attention, e.g., enterprise efficiency.

The history of change in politics and religion has also been heavily politician-centric and priest-centric, respectively. Attempts to disrupt the status quo in those domains have resulted in purges, inquisitions and many other bloody reactions.  People who have worked hard to gain knowledge, resources and status are, in general, very reluctant to relinquish power.

Returning to the question of how much disruption is enough, it is clear that the answer depends on the situation.  If the dominant stakeholders in a domain are open to change, perhaps motivated by a recognized crisis, then quite a bit of disruption may be welcomed and productive.  In contrast, if the dominant stakeholders have chosen stewards of the status quo as leaders, then investing energy and emotion in disruption is quite likely to be a very frustrating and unproductive experience.

Stewards of the Status Quo

There are many impediments to addressing and solving executives’ toughest problem – see my last post.  Resource limitations – time, money, and people – can obviously be impediments.  Less obvious, and often much more troublesome, are the stewards of the status quo.  These stewards include people and organizations who are determined to keep everything as it is – markets, products, salary structures, pensions, tenure and so on.  They want all entitlements – legally mandated or socially perceived – to remain just as they are.

Such responses are not unexpected.  Getting people and organizations to buy into and support fundamental change often requires great creativity and compromise.  Often, this creativity is focused on inspiring a sense of urgency or precipitating a “burning platform.”  Once people truly believe that change is inevitable, they will usually constructively engage in deliberations on the nature of change and how it should be implemented.  A good example of this is the healthcare delivery system in the U.S.  There is much valuable dialog going on currently among a wide range of stakeholders.  Few people still believe that this system is fine just the way it is.

Perhaps the biggest impediment to change is when the stewards of the status quo are in charge.  When the leaders of the organization constrain thinking to business as usual, perhaps on steroids, fundamental change becomes very difficult if not impossible.  It is common for such leaders to use the vocabulary of change, e.g., new directions, strategic leaps, and enterprise transformation.  However, this is just rhetoric.  Their real goals are to keep the troops fed, make sure the trains run on time, and avoid rocking the boat.

This form of leadership is most common in enterprises that are shielded from market forces.  Government, education and religion, for example, typically attract and recruit these types of leaders.  The process of searching for new leaders in these types of enterprises places enormous emphasis on identifying candidates that will not be disruptive.  This does not always succeed and occasional change agents will secure major leadership roles.  Frequently, their tenure in these positions is relatively brief.

Stewards of the status quo thwart change to such an extent that the roots of change typically emerge outside of the mainstream.  People such as Alexander Graham Bell and Thomas Edison, and more recently Steve Jobs, formed new types of businesses and, over time, fundamentally changed our day-to-day lives.  The phone business, lighting business, and portable device business were not just business as usual on steroids.  These men and, of course, many other men and women invested little energy in preserving the status quo.

In general, change happens when market forces drive it.  When forces for change are prevalent, enterprises led by stewards of the status quo, suffer, fail and disappear.  Such forces may emerge in education, but are unlikely in government and religion.  If forces for change become prevalent in education, one can expect to see many leaders who are ill prepared to be other than stewards of the status quo.  Then, slowly and painfully, change agent leadership will become more the rule than the exception.

The Toughest Problem

Over the past two decades, I have often asked executives about their toughest problem.  Not surprisingly, they use many different words to answer this question.  However, there is quite a consensus around, “Running the enterprise I have while trying to create the enterprise I want.”

Keeping the existing enterprise running tends to be a very demanding job.  Enormous human and financial resources are needed to stoke the fires of the business.  Pressures to “stick to the knitting” are usually compelling, both financially and within the social network of the enterprise.

As a consequence, I have found that even enterprises that entertain a broad range of future scenarios will, in the end, focus on the “business as usual on steroids” scenario or the equivalent.  This is especially true when resources are tight and time pressures enhanced.  The need to support the reigning business model becomes heightened, regardless of whether or not this model is obviously becoming obsolete.

Nevertheless, there are usually executives that realize that the reigning business model is threatened.  Often, this possibility has been discussed long before the resource constraints and time pressures mounted.  However, it often was the case that it was socially unacceptable to openly recognize the need for change, much less attempt any fundamental change.  The stewards of the status quo would vociferously defend the viability of the current business model.

One or more possibilities for enabling change might emerge — for example, a new product line or new market channel.  However, this nascent solution would whither, subject to Christensen’s innovator’s dilemma.  The near-term revenues and profits associated with these alternatives would invariably be too small to provide the silver bullet everyone was seeking.  Instead scarce resources were sunk into the status quo.

Eventually, Schumpeter’s creative destruction emerges and many enterprises share the fate of the 1,000 companies who have departed the Fortune 500 in the past 25 years. This is great for the economy, but a defeat for each enterprise, all because the executive team could not solve the enterprise’s toughest problem.