Learning Climatic Patterns
Lets explore the key climatic patterns that impact business and technology, including how components evolve over time, how characteristics change, and how efficiency enables innovation. It also discusses the challenges of managing multiple methodologies and the importance of understanding the past to anticipate the future.
Everything Evolves
Climatic patterns are the changes that occur regardless of your actions, such as economic trends or competitor moves. Understanding these patterns is crucial for anticipating change, much like understanding the rules and likely moves in chess. While you can't stop climatic patterns from happening, you can influence, use, and exploit them. One key climatic pattern is that all components on your map, including activities, practices, and mental models, are constantly evolving from left to right under the influence of supply and demand competition. For example, the platform component that was once a custom-built product has evolved to become more of a commodity, just as compute has become a utility over time.
Characteristics Change
As components evolve, their characteristics change dramatically. In the early stages, an activity may be scarce, poorly understood, and rapidly changing, but also a source of competitive advantage. Over time, it becomes more commonplace, well- defined, and a standard cost of doing business. For example, early computing infrastructure was custom-built and seen as a marvel, but eventually became standardised racks of servers, with virtual machines created and discarded as needed. Similarly, the behaviour around digital images shifted from precious and limited to abundant and disposable as the format became a commodity.
No One Size Fits All
Large systems, whether a business, government, or IT project, contain multiple components that are evolving at different rates. To manage this, organisations need to use a variety of methodologies suited to the characteristics of each component. In the uncharted, exploratory domain, an Agile approach focused on experimentation and change is most appropriate. As components become better understood, a Lean focus on reducing waste and creating a minimal viable product is more suitable. And in the industrialised domain, Six Sigma and formalised frameworks like ITIL are better suited to mass production and reducing deviation.
Efficiency Enables Innovation
The evolution of components not only changes their own characteristics, but also enables the creation of new, higher-order systems. As activities become more standardised and commoditised, they act as building blocks that allow for faster implementation and greater agility in constructing novel systems. For example, the standardisation of electricity supply enabled the development of televisions, computers, and other technologies that would have been impractical or impossible without a reliable, ubiquitous power source. This cycle of genesis, evolution, and the creation of new higher-order systems continues, with each stage enabling the next.
Higher Order Systems Create New Worth
As components evolve and become more industrialised, their economic value tends to decrease, while their role as building blocks for new, higher-order systems creates new sources of worth. The transitional domain, where an activity is well-understood but still differentiated, is often the most profitable stage. However, the future lies in the new higher-order systems, and predicting which of those systems will be successful is difficult.
No Choice on Evolution
As components within a value chain evolve, competitors will inevitably adapt to use the new, more efficient and effective options, whether it's utility computing, standardised mechanical components, or electricity. The benefits of efficiency, faster creation of higher-order systems, and new potential sources of worth create pressure on others to adapt. This process, known as the "Red Queen Hypothesis", means that organisations have no choice but to evolve along with the changing landscape. Failing to adapt will result in being left behind by competitors who do.
Past Success Breeds Inertia
While the Red Queen Hypothesis forces organisations to adapt, this process is rarely smooth due to the problem of past success. Companies and industries that have profited from the transitional, product-focused stage of a component's evolution are often resistant to its industrialisation and commoditisation. This resistance to change, known as inertia, is usually exhibited by both suppliers and consumers who have become accustomed to the previous, more profitable model. It is often new entrants, unencumbered by past success, who initiate the change that eventually becomes a "raging flood" as the Red Queen takes effect.
Climatic Patterns in Action
In the early days, computing infrastructure was scarce, poorly understood, and rapidly changing, but also a source of competitive advantage. Custom-built systems like the LEO were the norm. Over time, computing infrastructure became more commonplace, with racks of fairly standardised servers treated as a commodity. The industrialisation of computing infrastructure, with the rise of utility computing and cloud services, has enabled the creation of new, higher-order systems and applications that would have been impractical or impossible without this underlying commodity.
Climatic Patterns and Purchasing
The principles of climatic patterns and evolution don't just apply to technology - they impact other areas of business as well, such as purchasing and procurement. In the uncharted, exploratory domain, a venture capital-based approach to purchasing is more appropriate. As components become better understood during the transitional stage, a more outcome-focused and COTS-based purchasing approach is suitable. In the industrialised domain, a unit-based purchasing approach focused on efficiency and cost control is more effective. A one-size-fits-all purchasing strategy is not appropriate for a large, complex organisation.
Climatic Patterns and Organisational Structure
The need to manage both the uncharted, exploratory domain and the industrialised, efficient domain creates a paradox for organisations. Coherence, coordination, and stability are required for the industrialised components, while the uncharted domain demands experimentation and flexibility. In the uncharted domain, agile and lightweight approaches enable exploration and discovery. In the industrialised domain, formalised frameworks and processes ensure efficiency and stability. Organisations must find a way to manage both domains simultaneously - failing to recognise and adapt to the different needs of components at different stages of evolution can lead to suboptimal performance and internal conflicts.
Climatic Patterns and the Future
The cycle of evolution, componentisation, and the creation of new higher-order systems is an ongoing process. As we look to the future, we can anticipate that even the most advanced technologies of today, such as intelligent machine agents, will eventually become commoditised and enable the development of even more novel and transformative systems.
Genesis
Emerging technologies start as rare, poorly understood, and rapidly changing, offering high potential for competitive advantage.
Industrialisation
Technologies eventually become commonplace, standardised, and a cost of doing business, enabling efficiency at scale.
Enabling Innovation
The industrialisation of technologies enables the creation of new, higher-order systems and applications.
Anticipating the Future
Understanding climatic patterns can help organisations better anticipate change, adapt their strategies, and position themselves to thrive.
Climatic Patterns and Competitive Advantage
The evolution of components and the creation of new higher-order systems have significant implications for how organisations can achieve and maintain competitive advantage. In the uncharted domain, high production costs and uncertainty are offset by high future opportunity and differential value. In the transitional domain, declining production costs and increasing volumes lead to the highest profitability. In the industrialised domain, low production costs and low unit margins make it a cost of doing business with no differential value. Understanding where a component lies on this spectrum is crucial for organisations seeking to create and sustain competitive advantage.
Climatic Patterns and Organisational Transformation
The principles of climatic patterns and evolution have significant implications for how organisations approach transformation and change.
Conclusion
In this document, we've explored the key climatic patterns that shape the business and technology landscape, including the evolution of components, the changing characteristics of activities, the role of efficiency in enabling innovation, and the creation of new sources of worth. By understanding these patterns, organisations can better anticipate and adapt to change, manage the paradox of innovation and efficiency, and position themselves for long-term success. Embracing the principles of climatic patterns is essential for navigating the complex and ever-evolving business environment.