Xviii) Not Realising That

"...An organisation's capabilities become its disabilities when disruption is afoot..."

Clayton Christensen et al, 2003

Three factors (resources, processes and values) comprise the RPV framework, which defines an organisation's capability (what it can and cannot accomplish).

The RPV framework:

i) Resources - includes people, equipment, technology, product designs, brands, information, cash, relationship with suppliers/distributors/customers. Of these resources, the most critical is the people, especially managers; failure will occur if the wrong people are chosen to lead the venture. The selection process is very difficult to get right. For example, someone who has a successful track record and the right attributes for the current business may not necessarily handle a new business venture. It is better to look for people who have the skills, intuition and experience that is similar to the new business venture, ie can handle unpredictable situations. Most existing managers are not suitable as their experience is based upon

"...finely honed operational skills in managing quality programs, process improvement teams, and cost-control efforts......many managers who are intensely focused on delivering ever improving results often are the worst at developing next-generation management bench strength. It takes extraordinary discipline and vision on the part of senior executives to balance the tension between putting in fully qualified employees to drive results now versus giving learning opportunities to high-potential employees who need development..."

Clayton Christensen et al, 2003

This can be a case for bringing in outside managers and/or outsourcing activities.

Starting a new business venture involves problems that are very different from those in a well-established organisation. In fact, failure and bouncing back from failure are critical experiences in developing the necessary skills to handle a new business.

"...The school-of-experience theory, however, says that potential should not be measured by attributes, but rather by the ability to acquire the attributes and skills needed for future situations......the ability to learn what needs to be learned.....focusing on ability to learn, it is possible to avoid......the infinite list of competencies important for today are those that will be required in the future. Performance appraisal......focus on learning-orientated measures such as 'seeks opportunities to learn,' seeks and uses feedback,' 'asks the right questions,' 'looks at things from new perspectives,' and 'learns from mistakes'......the quest is to determine whether an employee is willing to learn new skills..."

Clayton Christensen et al, 2003

Of the capabilities in the initial stages of a new venture, resources (especially people) are critical. For example, the attitudes and actions of a founder are critical to initial success. However, over time there is a shift to the processes and values. Sometimes a new venture starts well but will falter if the founder and/or management fail to institute processes and/or values, ie

"...Success is easier to sustain when the locus of capability to innovate successfully migrates from resources to processes and values..."

Clayton Christensen et al, 2003

Furthermore,

"...once members of the organisation begin to adopt ways of working and criteria for making decisions by assumptions, rather than by conscious decision, then those processes and values come to constitute the organisation's culture......culture is a powerful management tool......culture enables employees to act autonomously and causes them to act consistently..."

Clayton Christensen et al, 2003

However, to handle new problems, challenges, etc it is easier if the organisation's capabilities reside primarily in the people; if the capabilities reside more in processes and values so that they have become embedded in the culture, change can be very difficult to achieve.

ii) Processes - organisations create value by transforming resources into products/ services of great value. The transformational patterns of interaction, coordination, communications and decision-making are described as processes. Processes can be

- formal (explicitly defined, visibly documented and conscientiously followed)

- informal ( habitual routines or ways of working that have worked over time)

- cultural (ways of working that people have unconsciously followed as they are effective)

Remember: a process that works in one situation is not necessarily effective in another situation. In contrast to many resources being flexible, processes by their very nature are not meant to change. Processes need to be aligned with their task.

"...very often the cause of a new venture's failure is the wrong processes were used to build it..."

Clayton Christensen et al, 2003

More often than not the processes that support the investment decisions, such as the way market research is conducted, translating analysis into financial projections, negotiations of budgets and plans, etc are the problem: processes, rather than logistics, development, production, customer service, etc

iii) Values - the organisation's values are the standards by which staff make continuous prioritisation decisions around resources, products/services, processes, etc.

"...where as resources and processes are often enablers that define what an organisation can do, values often represent constraints - they define what the organisation cannot do..."

Clayton Christensen et al, 2003

Generally, financial indicators revolve around acceptable gross margins and the size of the business in order to be interesting. As an organisation grows, it can lose the capability of entering into small emerging markets as they are too small.

Unless large organisations are flexible, size becomes a disability in creating new growth businesses.

The RPV framework can be used to help integrate acquired organisations, and the following questions will help identify if you are buying resources, and/or processes, and/or values

"...What is it that really makes this company that I just bought so expensive? Do I justify the price because of its resources - its people, products, technology, or market position? Or was a substantial portion of its worth created by its processes and values - its unique way of working and decision-making that enabled the company to understand and satisfy customers; develop, make, and deliver new products in a timely way; and to do so within a cost structure that gives it disruptive potential?..."

Clayton Christensen et al, 2003

If the processes and values were the reason for the acquisition's historical success, it is better strategy to leave it as a stand-alone business. On the other hand, if the organisation's resources were the primary rationale for acquisition, then integrating it into the parent is a good idea so that the acquired people, products, technology, customers, etc can leverage off the parent's existing capabilities, such as processes

 

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