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The Second Cycle: Winning the War Against Bureaucracy

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"The Second Cycle: Winning the War Against Bureaucracy," has a lot of variety and its title containing the term "bureaucracy" may be misleading to some. "Innovation" is in the title also, and much more prominent on the cover, and the book.

Chapters:

1. The first cycle: Why Success Breeds Failure
2. The Second Cycle: A New Paradign
3. Meaning
4. Partnership
5. From Hierarchy to Collaboration
6. Leadership
7. The Toolbox
8. Three Live Case Studies
9. Conclusion

Appendix: how Oticon entered The Second Cycle.

Each chapter has sub-chapters that reinforce the chapter topic.

As a contemporary business book, it's for companies of all sizes and every industry. Author Lars Kolind provides numerous case studies, tables, some theory, and figures, for the work and business model of today where "most of those straightforward and well-defined jobs are gone" (Kolind, 67). These jobs have been relocated to countries with cheap labor. Robots and machines are now performing many of the tasks of what these low-cost workers are doing. This book also has a self-assessment profile and a questionnaire. Items detailed are the recruitment process, individual development of the employee, manager development, and org. development. Where is the best place for the innovative mentality to be nurtured and promoted today? Education: Kolind aptly notes it's the schools, and it starts with Primary Education. Focusing on individuality, finding strengths, creativity, and yes, "fun."

Enter the "Knowledge Worker." This worker's job isn't narrowly defined, tasks are less controlled by management, individuality, creativity, and flexibility is a must. And, for this knowledge based worker, we need the KBM: Knowledge Based Management. People- management is not always knowledge management based. Kolind also provides a case study on labor unions (although they're declining) and notes union importance in our knowledge-based society. As the worker becomes an independent contractor we are again reminded that:

"Employers are capitalists that look upon workers purely as production factor. Employers will use any means to maximize profit. They will hire and fire employees according to short-term need, and they will strive to pay minimum amounts per working hour" (Kolind, 161). And yes, the workers have their interests, also. It's a two-way relationship, but often not symbiotic in today's global world, that is flattening before us.

Kolind gives specific examples of changing organization styles starting with the old Line Staff Organization style of the U.S. auto industry in the early 20th Century. From heuristic bureaucratic theorist Max Weber, line staff separates employees and specialists in a hierarchical relationship. The benefits of line are: constant, high-quality output, minimal training cost, etc. Obviously in some industries this is most optimum. For other industries, it isn't. The 'Innovation and Mass Customization' style is for R&D, customer service, business development, and tech, today.

One concept in the Meaning Chapter was the "Acid Test." You ask, "what if our organization didn't exist." Another concept is the "Obituary Test." What would be written in your organization's obituary if: a) your customers wrote it? b) competitors wrote it? c) what would this industry be like if your org. died? d) has your company made a real difference to the people it affects?

Kolind notes the common perception that upward cycles inevitably lead to downward cycles not only in business but in civilization in general. The rise and fall of the Roman Empire, Soviet Union, British Car Industry, Enron, and other industries. There are reasons for these declines and subsequent extinction.

Large, older, established, and successful organizations that are declining often can show favorable financial statements because they downsize and do Mergers & Acquisitions. But when organizations are in this mind-set they can be maintaining their position instead of questioning it.

Informative, well-written, great read.

Many have wondered how once nimble and creative organizations transform themselves into complacent, bloated bureaucracies.

The bigger question is why managers remain blind to the deterioration long after it is obvious to many.

Lars Kolind, the driver of Oticon's turn-around that lead to its assuming leadership in the world's hearing aid market, offers four thoughts to avoid bloat in this well-written book. He:

1. Analyzes the mechanism of the conventional corporate lifecycle.
2. Proposes four pillars for a new platform of innovation and growth that he calls the second cycle: Meaning, Partnership, Collaboration and Leadership.
3. Offers a grab bag of seven tools he used to diagnose your organization and establish a new foundation for it.
4. Illustrates his points with three case studies.

The book is readable, actionable, specific and actionable. You cannot ask for much more from a book that retails for less than $18.00.

Lars Kolind became CEO of a company that desparately needed turning around, and as CEO he was able to do just that. In doing so he came up with a method of analyzing companies that takes into account their products, customers, workers, and several other aspects. All in all this seemed like an excellent approach.

Then he applied these techniques to three 'industries' badly in need of turning around: the primary school system, labor unions, General Motors. I find myself wondering if his techniques are capable of such monumental changes. Indeed I wonder if any techniques are capable of fixing these three areas.

I find myself continuing to think more about General Motors than I do the other two. If you were CEO of GM, what could you do to fix it. He says the challenge for the U.S. automobile industry is to produce transportation that is environmentally sustainable, yet safe, fast, reliable, comfortable, and fun!

That's a pretty tall order. One thing he says is that by 2020 automobiles will be hydrogen powered. If that is true, then the obvious is to start pouring research money into hydrogen power, to get some of the crucial patents, processes and procedures developed, etc.

But suppose that hydrogen power doesn't turn out to be the answer (big problem - where do you get the hydrogen), then all of your research and planning effort is waste.

The problems with turning around GM are huge. There's a $2,000 per car cost in paying the retirement/medical/social costs for employees. Can any company sustain that in face of world competition? What about producing a 100 mpg car, a really light, gasoline/electric car? Rail travel is 3 to 5 times more efficient than road travel, should GM work to develop new techniques of rail travel, i.e. piggyback truck/automobile? But then again, GM just sold their locomotive division. What about moving production overseas? I understand they have big plans for Chinese factories. The real question is: In the face of running out of oil, is there a future for the automobile industry at all? If not, then how do you take the tremendous resources that GM has and develop an entirely new business?

Applying Mr. Kolind's techniques to change GM requires some real effort at predicting the future. The techniques themselves are good, but sometimes there are fundamental swings in the market. GM was a major supplier of locomotives, but what happened to those big, well managed companies that made steam locomotives? Could they have been changed?

Not too surprisingly, the perpetual dilemma faced by mature companies is stagnation. Author Lars Kolind, a former CEO of a Danish-based hearing aid company, lends his particular insight into what causes this ultimately devastating situation and why many organizations discover this stagnation far too late for their management teams to do anything about it. He paints a typical scenario in which a company develops a core business that becomes a seemingly dependable cash cow. At a certain point of perceived stability, the leadership seeks out opportunities to acquire other businesses with the surplus cash. This myopic direction may mean short-term profitability and productivity gains from the additional revenue streams and inevitable resizing, but it does so under the presumption of an unchanging market. The author also points out how some publicly traded companies pay out dividends or buy back shares in lieu of unavailable acquisition candidates.

Kolind calls for nothing less than an organizational revolution in defining his concept of a second cycle in the book. Using the company he guided as CEO, Oticon, as an exemplary model, he calls for a new framework of thinking in a knowledge-based economy by: (1) finding meaning behind a company's business objectives; (2) having employees become co-owners; (3) developing a collaborative organization; and (4) moving from power-based management to values-based leadership. The most illuminating chapter is his stepwise identification of a comprehensive toolbox he deems as necessary for a successful transition. There are seven tools identified:

-- (1) Break the Cycle (BTC) Index to assess if an organization is infected by the lifecycle disease
-- (2) Mental Model Mapper (MMM) to analyze current mental models and come up with alternative ones
-- (3) Value Identification Process (VIP) to help identify an organization's values and turn them into reality in practice
-- (4) Consensus Creation Crash Process (CCCP) to build consensus about the values and their implementation
-- (5) Knowledge-based People Management (KPM) to optimize staff resources
-- (6) Innovation Powerhouse (IP) to convert the workplace into an environment that values new ideas
-- (7) Change Process Tools (CPT) to move an entire organization from conventional to innovative habits

He sees much of the problem with mature organizations lies in an inability to detect that there is a problem. The path of apparent success is familiar to most in the corporate world - companies start to grow in headcount, additional management layers are structured into the organization, more departments are added, procedures turn into standards that become more rigid over time, the business model becomes fossilized and unable to adapt to changing market conditions. What's more, because of the focus on short-term profitability and shareholder value, the management team generally remains adamant in maintaining the business model as is and not facing up to evolving customer demands. Kolind provides an intriguing primer for those mature companies unwilling to rest on their laurels for a future unknown.

Organizations arise to fulfill a successful purpose. They grow into a competitively successful form in order to make a product, or deliver a service, or fulfill some function that needs to be fulfilled. However, over time an organization can lose sight of that and its purpose becomes one of self-perpetuation or to deliver a product that the market place will still accept, but is no longer as competitive as it once was. If this state of bureaucratic inertia continues the organization can fall into a downward spiral that can lead to the organization's demise in one way or another.

It is at this time the very organization develops a stiffness and a way of operating that can cause everything to fail. This book, by Lars Kolind, talks about how to renew an organization to catch what he calls the second wave. How to get your organization back into the fast moving state that adapts and builds itself for a market driven purpose rather than mere self preservation.

He gives an example of a company he was with, Oticon. They make hearing aids. He describes how they got themselves stuck in doing the same old thing and paralyzed against changing to once again become the leader in their market. Instead, they blamed the customers for all sorts of things. The ideas the author takes us through do sound like they would revitalize and provide an environment for going after new things. He asks that the organization focus on meaning and partnership. He provides a toolbox to manage the needed change in the organization. At the end he takes us through the case of how he did this as the new CEO of Oticon. It is interesting how the internal bureaucracy still resisted the change with their actions even when the said they were on board with the change.

The weakest part of the book might have been the most interesting. I always enjoy live case studies rather than carefully selected old cases that fit the principles under discussion, but are actually too neat for real life because of the careful selection. However, the three he picks for education, labor unions, and the auto companies are just too glibly done. Simple prescriptions with broad generalizations simply do not convince. Compare what he offers for those with the detailed and even gritty realism of the Oticon story. Which is more convincing? Of course, the one he lived and the one with all the problems. Apart from that this is an interesting book.

The title refers to what Lars Kolind characterizes as an organizational re-design process by which to "enable and sustain innovation and growth. The starting point is the change from conventional mass production (for example, a metal parts factory) to knowledge work (for example, investment banking) in general and customization in particular. It argues that the conventional hierarchical and functional organization is long overdue as an adequate structure for organizations that perform knowledge work. [The re-design design process] highlights four fundamental characteristics of organizations that are essential if they want to exchange an upcoming death cycle [i.e. the first cycle] with a second or third lifecycle." Kolind suggests that such an organizational re-design process is needed because most (if not all) organizations are involved in (for lack of a better term) a paradigm shift from being transaction-based to knowledge-based.

Kolind cites the rapidly increasing amount of available knowledge that becomes available, the competitive advantages that result from providing innovative and radically different solutions to problems, consumer perceptions that focus more on differentiated products and services ("Price-performance ratios are no longer the only criterion for purchase; environmental, emotional, ethical, and esthetical aspects play a greater role."), and one-time costs (e.g. R&D and marketing) become more important than unit manufacturing and transportation costs. These and other factors create all manner of challenges to which organizations must now respond if they are to adapt to changing environments while continuously applying knowledge in new ways to create innovations in products, processes, and service. In other words, free themselves from the "death cycle" by becoming what Koland characterizes as a "collaborative organization" at all levels and in all areas of their external as well as internal operations.

Of course, that requires managers to see themselves as - and function as - stewards whose fiduciary obligations include the welfare of their associates whom they view as full partners. That also requires a different mindset in terms how everyone involved values what they do and how they do it. More specifically, in terms of what Kolind characterizes as the "meaning" of such initiatives. How does they benefit others? And how can we increase and improve those benefits?

I was especially interested in how Kolind illustrates this important point, that if an organization is to become a true partner with all of its stakeholders, and especially with customers, there needs to be a meaning behind each action. Whatever a given organization's "meaning" may be, Roland suggests that it serves several significant functions: it provides overall guidelines for everything done, it determines the focus and direction of innovation, it is the "turning point" for all internal and external communications, and it determines the relevance of organizational and other changes within the organization and its partner network. Without meaning, the first lifecycle becomes the last.

Many readers will especially appreciate the material provided in Chapter 7, in which Kolind provides "some hands-on tools that you can use to refresh your organization and get it out of the life-cycle trap." Throughout the book, after specifying the "what," he focuses most of his attention on the "how" and "why" of responding to the aforementioned paradigm shift.
Hence the importance of what each reader can select for her or his own "toolbox." For example, which tools are among the most important and what are possible applications for them? See Table 7-1 on Page 98. How to measure the progress of efforts to "break out" from or avoid various first cycle traps? See Table 7-3 on Pages 100-101. What is a Consensus Crash Program (CCCP) and how can it help to create consensus about ideas, values, and goals? See Pages 118-120. All this (and much more) is provided in Chapter 7 and its wealth of information and counsel is representative of what the other chapters also offer.

As he indicates in the final chapter, Kolind believes that there is a "great untapped potential in revitalizing mature organizations within the public and private sectors and within civil society." Why does this potential remain untapped? Kolind suggests three reasons First, they tend to think that they already make the most of their potential; "that is, they think they are doing the right things." Also, if they somehow realize that they have a problem (or an opportunity) to improve, they lack the tools to carry through on the necessary change, "particularly because the transformation they need is different from what they know." Finally, mature organizations become increasingly blinded by their current model. Jim O'Toole would add another reason: mature organizations frequently become hostage to what he characterizes as "the ideology of comfort and the tyranny of custom."

Hence the importance of Lars Kolind's book in which he describes, with rigor and eloquence, "a new social construction, a new framework for doing business in the knowledge economy."

Those who share my high regard for this book are urged to check out Also Enterprise Architecture As Strategy co-authored by Jeanne W. Ross, Peter Weill, and David Robertson as well as Henry Chesbrough's Open Innovation, Vince Thompson's Ignited, Oren Harari's Break from the Pack, Ram Charan's Know How, Dean Spitzer's Transforming Performance Management, and Richard Ogle's Smart World.

I've always been fascinated about how leading-edge companies lose their focus and turn into lumbering dinosaurs. Lars Kolind tackles that subject in The Second Cycle: Winning the War Against Bureaucracy. The information he covers is practical and geared to get you back on track (or keep you from going down that road in the first place).

Contents: The First Cycle - Why Success Breeds Failure; The Second Cycle - A New Paradigm; Meaning; Partnership; From Hierarchy To Collaboration; Leadership; The Toolbox; Three Live Case Studies; Conclusion; How Oticon Entered The Second Cycle; Index

Kolind was responsible for taking Oticon, a market-leading hearing aid manufacturer which had stumbled badly, and turning them back around to lead the industry once again. He uses the Oticon experience as a real-life case study about what happens to put a company into a bureaucracy-bound death spiral. When companies are successful, they tend to get protective and attached to the product and processes that got them there. Arrogance and waste also enter the picture, and the company view of the industry becomes very self-centered. Success breeds the "we know best" attitude, and pretty soon the reality of the marketplace does not match the reality the company thinks it sees. This starts the downhill cycle, and it doesn't take long to destroy what was built up over many years or decades. Kolind makes the case that a new form of innovation is needed to return the company to its creative roots and cut through the ingrained bureaucracy that takes hold over time. The "toolbox" chapter looks at a number of indexes and processes he used to determine where the company is at in the first cycle, as well as the steps to take to drop the "same old, same old" patterns and replace them with ones that foster the innovation and collaboration needed to compete in today's market.

The book is grounded in practicality, not lofty sounding platitudes. The tools he created and used are not part of some "master system", but ideas and concepts you can take and adapt for your own specific situation. Because it's not a "step 1-2-3" system, each tool doesn't necessarily build on the one prior to it. But it's not very difficult to figure out which one(s) would be more applicable to a specific situation. There's no magic wand, and it's definitely easier to halt a slide when it first starts, instead of once it gets to rock-bottom. But diligent application of Kolind's ideas can make a forceful impact on your company's future.

There is an old saying that the only certainties in life are death and taxes. Most of us would amend that to be, death, taxes and bureaucracy. When humans developed agriculture, which led to the growth of cities, there was a need for accurate records. This led to the rise of bureaucracy and for better or worse, humans have been fighting it ever since.
The advantage of bureaucracy is that it slows things down. When governments are trying to change things, this is of enormous benefit, because it often requires that the change be thought through. The disadvantage is the same, it slows things down and when rapid change is needed, it can kill any reasonable attempt to solve the problem. This is one of the overwhelming problems in business, and that is the point, although very overstated, of this book.
In order to make a strong point, people overuse the phrase "war against" and Kolind does the same thing here. By having a clearly delimited hierarchy of responsibility and a complete paper trail for verification, a company bureaucracy can provide the organizational structure that prevents a descent into buck-passing chaos. The real argument is how to relax the rigidity so that necessary ideas and changes are passed through the proper people and executed with the appropriate and at times necessary speed.
Kolind's solution is to adopt what he calls a "spaghetti organization", where information flow and responsibility resemble a mass of spaghetti, and there are a large number of interconnections. In other words, instead of having hierarchies that are tunnels with few interconnections, most people in the organization are connected to almost everyone else. While there is no question that this is a good thing, there is also the unfortunate result that you can get too much of a good thing. The prime modern example of this is the consequences of e-mail.
Since everyone in the modern organization can communicate with everyone else, the spaghetti model of connections is an accurate one. However, as all of us who are in organizations know, most people send their e-mails to the largest possible group in order to avoid leaving someone out. The general consensus is to err on the side of too many rather than too few. This leads to "inbox glut" where we spend too much time scanning the e-mails looking for the ones we really needed to get.
Clearly, Kolind, who became CEO of Oticon, a company that makes hearing aids, and changed it from an industrial dinosaur into a dynamic leader of the industry, knows what he is talking about. The advice is sound and very worthwhile. However, like nearly every success, if you are to apply it to your situation, it must be molded to your unique circumstances. If you take a hard look at what he did and then a hard look at what you have done, there is a lot that you can apply to improve your company. You will need to make sure that your changes are appropriate to your circumstances and that you do not exceed in content or pace what your company can absorb. Those calls are hard to make, but that is the very definition of leadership. The goal is not to destroy bureaucracy, which is what the word war means, just to adapt it so that there is a necessary increase in efficiency.