B RINGING S OCIAL N ETWORK A NALYSIS I NTO M AINSTREAM B USINESS Relationship Patterns That Really Matter to Business. The key achievement for business methods such as Six Sigma, LEAN and The Balanced Scorecard is that the tools and responsibilities have been taken out of the hands of specialists in the quality control department, and put into the hands of the business practitioners. If Social Network Analysis is to head down a similar path we need to also make this transformation.
Laurence Lock Lee Cai Kjaer June 2011
BRINGING SOCIAL NETWORK ANALYSIS INTO MAIN BUSINESS INTRODUCTION While the science of Social Network Analysis (SNA) has been with us for close to 80 years, the business of SNA is still trivially small. Of the approximately 500,000 management consulting firms in the world today, just a fraction of 1% offer SNA services. So what is the problem? If we look at the biggest ideas that dominate the offerings of the major management consulting firms we will invariably find services around Benchmarking, Balanced Scorecards, Six sigma, Lean Manufacturing, Business Process Management, Knowledge and Information Management, Enterprise Systems, Outsourcing, Strategic Planning, Innovation Management, Supply Chain Management and the like. How do they differ from SNA? As Davenport and Prusak wrote in their book on “What’s the Big Idea”, most successful business ideas are ‘idea practitioner’ led. This is also the case for the majority of management consulting services. Davenport and Prusak open their book by contrasting the fortunes of the scientist led Westinghouse and the business innovator led GE conglomerates. Only one is thriving today. SNA has a rich research heritage, as evidenced by the thriving INSNA research community. Intellectually stimulating and relevant across a breadth of disciplines, from psychology, computer science, organisational science, health science, management, SNA continues to hold popular appeal in the research community. But is it the science heritage that is holding SNA back in the business world? Are SNA consulting projects being continually framed as research projects? Are potential clients and consultants fearful of having inadequate skills or expertise to conduct
the analysis? Is it time for us to mature SNA from requiring academic rigor to business impact? As a point of comparison we would offer Six Sigma as an interesting case in point. The name suggests a strong statistical heritage. In normal circumstances the word ‘statistics’ would generate fear and feelings of inadequacy in the business community. Yet for Motorola, who is credited with its invention, Six Sigma is substantially about simple tools that are in reach of virtually all business practitioners, with the more sophisticated statistics only surfacing at the higher levels of certification. The key achievement for Motorola and subsequently the plethora of Six Sigma adoptees is that the tools and responsibilities were taken out of the hands of specialists in the quality control department, and put into the hands of the business practitioners. If SNA is to head down a similar path we need to also make this transformation. The language of SNA needs to change from the scientific terms of degree centralities, betweenness, closeness, densities, structural equivalence etc. to the language of business. Davenport and Prusak talk about the three classic business objectives of Efficiency, Effectiveness and Innovation that underlie the majority of successful business ideas. They go on to classify different ideas against each of the above. Not surprisingly, SNA does not appear on their list. Yet SNA can and has contributed strongly to all three of the classic objectives. In this paper we explore a number of SNA case studies where we have devised some simple tools to address the classic business objectives as identified above. Our intent is to come up with a standard set of tools that reflect the power of SNA, but in the context of classic business objectives like efficiency, effectiveness and innovation. In linking SNA results to the classic business objectives we have made some propositions that we articulate here. We are happy to engage in constructive discussion to hopefully achieve a robust suite of SNA tools for the business practitioner. What Motorola
achieved with Six Sigma, we now need to do with SNA.
UNPACKING THE CLASSIC BUSINESS OBJECTIVES For the business practitioner ‘show me the money’ is the default test for any new business idea. In this section we will ‘unpack’ the three classic objectives of Efficiency, Effectiveness and Innovation and provide some practical network centric solution propositions that directly address them.
EFFICIENCY Efficiency is arguably the most commonly addressed business objective. Efficiency can be simply measured by dividing the level of output by the level of inputs into the creation of the product or service. Classic top down approaches like Lean Manufacturing, Business Process Re-‐ engineering and Six Sigma achieve efficiency through identifying and removing wasteful processes, and limiting variation across business processes. For mature operations the limits of these approaches appear when continued application of these techniques no longer result in improving bottom line performance. This may be due to improvements in one area resulting in negative results in others i.e. just moving the problem. Alternatively a misplaced push to drive out variation could in fact ‘kill off’ innovation performance for example. What traditional top down techniques suffers from is an inability to capture the intricacies of knowledge intensive work activities. These activities tend to surface after ‘quick win’ efficiency gains have been made, and invariably demonstrate stubborn immunity to the application of traditional efficiency improving techniques. By applying a ‘Network Lens’ to the challenge of improving organisational efficiency, we do not attempt to delineate business processes directly. We propose that knowledge intensive work is inevitably surfaced through interactions between www.optimice.com.au
people. A typical SNA activity will expose dependencies between knowledge workers. The SNA map becomes the business process map equivalent. By overlaying the formal organisation chart over the SNA map it can become clear where the organisational inefficiencies exist. The traditional hierarchical organisation chart is optimised for top down communication. For communicating a board of directors’ strategic intent down to the operational levels, the hierarchy is clearly efficient. This organisational form is however far from efficient in facilitating the cross-‐unit collaboration demanded by current day business activities. The escalation of issues up and down the hierarchy is a substantial overhead and a drain on efficiency. To identify where organisational inefficiency is most prevalent, we prefer to look at dependency relationship ‘demand’ mismatches between organisational units. Our proposition is that peak efficiency is achieved when dependency across the formal organisational units are perfectly balanced i.e. there is no business units that are overloaded and there are no under-‐utilised business units. Additionally, we propose that an individual business unit is most efficient when there is a balance between the degree to which it depends on other business units and the degree to which other business units depend on it. In essence, this is a form of demand ‘mass balance’. Now this is clearly an ideal case and there will inevitably be reasons for demand imbalances in practice. However, it provides a focus for investigating organisational inefficiencies. We use a simple SNA in-‐degree measure as a demand proxy and conduct the analysis at the ‘business unit’ level, to identify each unit’s efficiency within the organisational ecosystem:
Figure 1 -‐ Organisational Unit Demand Balance
The above demand balance chart was generated from 40 business units of a major Italian headquartered bank. The chart shows only those units with the greatest dependency imbalance either from excess of demand on other units over demand for its own services (value sink) or an excess demand for its own services over demands it makes on other units (value source). Both extremes are not sustainable if maximum efficiency is to be achieved. Value sinks draw heavily from other units but provide little in return. Value sources may appear more positive, but they could also be bottlenecks and they will eventually need to draw more from other sources if they are to maintain their value. Additionally, we also know that when trusted relationships exist, that business processes that encompass these relationships execute much more efficiently, than where trust does not exist. We use reciprocal links as a trust proxy and a complementary measure of efficiency for individual organisational units. Once these potential sources of organisational inefficiency have been identified, it is then possible to analyse the source of this inefficiency. For a ‘value sink’ it could be that the unit lacks visibility or has simply not had enough time to establish itself. Alternatively, the unit may just be ill conceived and not working, and therefore should be restructured. For a ‘value source’ unit it could be suffering from a lack of resources, poor capability or an aversion to asking for help from other units. Contrasting the above suggested interventions to those that often result from traditional top down approaches, we can see that we are concerned less with specifying changed or reduced work activities and more concerned with building more efficient organisational relationships beyond the dictated formal hierarchy. Changed work activities, as required, would therefore result from organisational units taking ownership of balancing their own demand dependencies, resulting in a more sustainable change management scenario.
EFFECTIVENESS Effectiveness can be somewhat of a slippery concept. In its common context it is seen as the ability to ‘get intended results’. It is sometimes tethered to Efficiency by being defined as ‘doing the right thing’ in contrast to ‘doing it right’ (efficiency). If we use this latter definition we could ask ‘what prevents an organisation doing the ‘right thing’. At the highest level we could target the senior management and boards of directors and their ability to correctly identify the appropriate strategic direction for the organisation. At every other level we could define effectiveness down to the individual decision choices that we make in aligning our activities and results with the defined strategic intent. We argue that effectiveness is therefore inextricably linked to the organisation’s competencies and capabilities invested in its members. We contend that a highly competent and capable organisation will inevitably be an effective one. Competency management has typically been the territory of the Human Resources organisation. Competency is typically identified with the individual and their ability to perform a defined job. The traditional top down approach to competency management will define jobs at different levels of the organisation in terms of required competencies. Organisations like Lominger have undertaken to define particular competencies and competency levels required for particular jobs types. Defined competencies have been used for performance assessment; training needs identification and organisational capability analysis. As useful as these top down approaches to competency management are, we would argue that a major limitation exists in its focus on the individual. We would argue that organisational competence/capability cannot be assessed by simply aggregating individual competencies. Organisational capability, and therefore effectiveness, can only be assessed by looking at
how individuals interact and collaborate in employing their individual competence.
therefore be achieved by facilitating a tight community of high ‘change agility’ staff.
The third core business objective identified by Davenport and Prusak is Innovation. Organisations can be effective and efficient, but without renewing its product or services portfolio, its longer-‐term success will be questionable. !"#$"%&"'()*%($"+&"#,) • *+3()'435(.)06)#%($"+&"#,#)+'7)#+3()"'7"8"74+&)#9"&&)&(8(&#)+'7)(:%(."('$(;) • <="$=)0./+'"#+,"0')=+#),=()#,.0'/(#,)$+%+5"&",>?)
Figure 2 -‐ Organisational competency/capability
As illustrated in Figure 2, traditional top down competency approaches cannot explicitly differentiate between Organisation A and Organisation B. The following map provides an example of a competency map that identifies discipline clusters for a major petroleum company. Node colours indicate different competencies. Densities indicate strength of capability in a discipline.
Figure 3 -‐ Discipline/Capability network map
Using SNA techniques we can choose to measure the connectedness between individuals sharing similar disciplines, however we choose to define them. Our preference is to identify reciprocal links only and then measure the density of the resulting discipline based clusters. The approach can be used in concert with top down techniques by measuring the connectedness of individuals who share top down identified competencies. For example, if an organisation is going through a major transition it might like to know how well connected staff rated with high ‘change agility’ in a Lominger survey are. Improved effectiveness could www.optimice.com.au
Output measures of innovation are typically couched in terms of the level of successful new products or services launched. Traditional top down approaches to innovation employ the ‘idea funnel’, where by ideas are solicited from staff, or research is conducted by the R&D division. Management ‘gates’ are established to qualify ideas as they are developed over time. New products or services are ideas that survive the review gates and emerge through the funnel for implementation. The process is largely linear and levels of collaborative development typically only facilitated through senior management. The limitation of this traditional approach has been exposed in the modern economy by the level of market innovations being sourced from non-‐traditional sources. Established organisations are no longer relying on their internal R&D facilities as their major source of innovations and are now actively sourcing new ideas and developments from outside their firms. This Open Innovation approach is being heralded as the major innovation in the innovation process itself. Open Innovation is a networked approach to innovation. It is therefore not surprising that SNA has a role to play. Traditional innovation approaches place line management in the role of innovation facilitator. The research of Professor Ron Burt from the University of Chicago and others have indicated that successful innovations are more regularly facilitated by organisational brokers that span structural holes in the organisation. We have built our own model for innovation based on networking principles, which we call ’the 3E’s of innovation’:
senior line management. We anticipated that in the traditional organisation, resources for implementation are still facilitated through senior management. Therefore effective ‘engagers’ would need this connection, if not being a member of the senior management team themselves.
Innovation 1.0 Research
Innovation 2.0 Explore Engage Exploit
Explore: Strength of Weak Ties Model
Figure 4 -‐ Innovation 2.0
The 3E’s model still identifies with successful innovations travelling through an explore to exploit transition. The network perspective however identifies the explore and exploit phases in terms of ‘communities’. The ‘Engage’ phase aligns with Burt’s structural holes concept, identifying individuals that effectively bridge the explore and exploit communities. In conducting an SNA in the context of innovation management, we look to identify the Explore and Exploit communities and the brokers or bridges that connect them. With the explore communities we apply both Granovetter’s ‘strength of weak ties’ concept by identifying high ‘betweenness’ nodes in the weak tie network, as well as the strong tie network for explicitly identified ‘ideas’ people. The exploit community identifies the community of individuals who are identified as key ‘implementation’ resources. The exploitation community was also represented at two levels. We proposed that for straightforward implementations it would be suffice to simply identify the community of identified implementation resources. For more complex implementations however, we hypothesised that implementation teams would need to be bound in tighter ‘trust networks’ to be able to deal with the added complexity. We therefore applied the reciprocal link filter to identify the high trust implementation communities. For the ‘Engage’ community we looked for brokers connecting the explore and exploit communities who were also well connected with www.optimice.com.au
Exploitation: Programmable Engage (with Executive)
Figure 5 -‐ 3E's of innovation case study
Figure 5 identifies the 3E’s application for a UK public housing organisation of some 1500 employees. Key participants were identified as potential ‘change facilitators’ for the implementation of an open innovation software implementation. By explicitly recruiting the identified change agents into the appropriate phase of the innovation process, we anticipated an acceleration in the innovation process overall.
PLATFORM FOR BRINGING SNA INTO MAINSTREAM BUSINESS We have identified how selected SNA techniques can be framed to address the limitations of traditional top down business improvement methods aimed at the core organisational objectives of efficiency, effectiveness and innovation. It is now time to bring it all together into a suite of limited SNA techniques that can be simply communicated to business practitioners for their employment. We are not arrogant enough to suggest that these are the only, or best SNA techniques for addressing the core organisational objectives. We do however believe that for the platform of SNA tools to be effectively adopted by 5
mainstream business, they must be comparable to ‘introductory level’ six sigma, lean manufacturing or TQM methods to effectively engage the business advisor community. We put our initial set here for on-‐going development:
discussion on how this starting point can be continuously developed to address current poor adoption rates by mainstream business.
Figure 6 -‐ Performance Improvement Platform -‐ Network Perspective
The model identified in Figure 6 summarises our approach to performance improvement using SNA. Efficiency is assessed through the dependency demand balances for organisational units. Specific SNA measures include using demand (in-‐degree) balances and trust (reciprocal tie) indices between organisational units. Effectiveness is predicated on competency/capability and its alignment with strategic directions. The densities of competency clusters are measured to assess the degree of competence/capability along selected discipline lines. The degree to which one can ‘read’ the designed business processes inside the organisational network maps can be used as an indicator of alignment. Innovation is assessed using transitions between the explore, engage and exploit communities. Key players are identified in the different networks for recruitment as ‘change agents’ in the innovation process. Collectively the model illustrated in Figure 6 is our proposition as to how SNA can achieve ‘big idea’ status and adoption by the 99.99% of management consultants and business advisors who currently are not taking advantage of its undoubted power in improving organisational performance. We look forward to a constructive www.optimice.com.au
ABOUT THE AUTHORS Laurence Lock Lee is co-‐founder of Optimice Pty Ltd, a firm dedicated to helping its clients optimise their business relationships. He is an acknowledged leading practitioner in Social and Value Network Analysis for organisational change. He has over 35 years of working experience in roles ranging from research, management and consulting. He has consulted widely with major corporate and government clients and presented at academic and industry forums in Australia, Europe, Asia and the USA. Prior to co-‐founding Optimice, he was a Principal Consultant with Computer Sciences Corporation (CSC), where he led the knowledge and information management consulting practice and was a research member of CSC's global leading edge forum. Prior to that he worked for many years with BHP Billiton within their corporate research laboratories, leading their research programs on knowledge based systems and artificial intelligence. Laurence holds PhD from the University of Sydney, his research being on corporate social capital effects on share market performance. He is the author of “IT Governance in a Networked World” (IGI Global) and “Social Capital and Firm Performance” (VDM Verlag). Cai Kjaer is Partner and Co-‐founder of Optimice Pty Ltd. Cai has been the driving force behind www.onasurveys.com, a web-‐based survey tool helping Organisational Network Analysis professionals collect data more efficiently. Cai has extensive experience in both consulting and implementation of projects with large organisation. Prior to co-‐founding Optimice, he was a Principal Consultant with Computer Sciences Corporation (CSC). Cai has been the Principal Consultant for large scale business transformation and business process change projects responsible for getting the ‘human’ side of implementation right. Cai has extensive experience in workshop facilitation at senior and executive organisational levels.
His work experience is diverse and he has been working nationally and internationally with a range of clients from government agencies to the world's largest resources company. His expertise has been recognised with a series of invitations to present at industry forums and conferences in Australia and abroad. Cai Kjaer holds a Master of Law from University of Copenhagen.
COMPANY BACKGROUND Optimice was founded with the objective of helping clients improve, or optimise their collaboration and personal networking. Our mission is to facilitate improved organisational outcomes through the development of excellent business relationships. The Optimice’s partners have extensive experience in researching, analysing and facilitating improved business relationships. Using our backgrounds in Consulting, Knowledge Management and Collaboration we have developed approaches and techniques that are targeted at improving people relationships to drive better business results. Optimice has developed products to support the collection and visualisation of social networks. The principals have conducted network analysis projects across many industry sectors in Australia, Europe and the USA. Our SNA survey tool (ONA Surveys) has been sold around the world and is one of the leading SNA survey tools on the market. Our web based network visualisation tool is gaining increasing interest from our clients. Our Partnership Scorecard uniquely supports organisations in developing sustainable relationships, both internally and externally. Recently Optimice has completed the packaging of its tools and techniques into an organisational networking analysis platform, which is now being opened up to ‘leverage’ partners in the management consulting and business advice sector. Visit www.optimice.com.au/partners.php for more information.
ABOUT OPTIMICE Optimice provides specialised consulting services to help organisations map and improve business relationships at multiple levels. Optimice identifies relationship patterns between people, organisations or markets, and we have improved the basic techniques to optimise these relationships in a compelling business-‐focused context. Our Partnership Scorecard™ helps organisations manage the intangible relationship aspects of outsourcing, smart sourcing, alliances, joint-‐ventures and similar complex business frameworks. Our specialized survey tool www.onasurveys.com provides consultants and other practitioners the most effective and user friendly tool available on the market to collect data on business relationships. Optimice Pty Ltd. 23 Loquat Valley Rd Bayview NSW 2104 Phone +612 8002 0035 Fax +612 8213 6274 www.optimice.com.au ABN 92 123 562 854
Relationship Patterns That Really Matter to Business. The key achievement for business methods such as Six Sigma, LEAN and The Balanced Sco...
Published on Feb 27, 2012
Relationship Patterns That Really Matter to Business. The key achievement for business methods such as Six Sigma, LEAN and The Balanced Sco...