Chapter 7

Boundaries of the solution space

 

Reverse engineering a thought process

This chapter was particularly difficult to write because I wanted to describe a a rational approach to creating an e-business from scratch, while, at the same time, actively trying to create an e-business myself (to use as a real life example and a proof of concept). The problem was that the way I was describing how it should be done wasn't the way I was actually going about it.

What I then had to do was to reverse engineer the thinking processes I'd been using to create an e-business, to see why it was differed from what I'd written. To my surprise, I discovered I'd slipped into a top down approach when describing what had to be done, yet, in real life, I'd been using a bottom up approach.

The difference hinged on the way I'd described a solution space. In describing what it is and how it can be used, I'd made the mistake of treating the solution space as a static environment that contains a number of different possible solutions that are selected from.

This is a conventional, top down approach that first creates possible solutions and then uses some form of decision theory to select between them. In other words, I was seeing the solutions space as a place to hold a number of possible business ideas, which can be selectively tried out.

By reversing engineering my thinking process, I realised that I wasn't starting off by creating a list of possible e-business solutions. What I was actually doing was to treat the solution space as a dynamic environment where components are thrown together and business solutions allowed to manifest by themselves out of the mix – my solution space was a dynamic space from which e-business solutions evolve spontaneously.

However, understanding what I was doing was one thing; being able to describe it, quite another. I was completely stumped for a simple way to describe how a dynamic solution space works. Then, out of the blue, from one of the tables in the virtual cafe, came a perfect example of a dynamic solution space being used to create paths on a university campus.

 

An unplanned, emergent solution

In the cafe discussions following the last chapter, there were various speculations on various types of strategy that wouldn't need a plan. At one table, an interesting anecdote was told by Yvan Caron, who described how some fifty years previous an architect had submitted plans for the design of a college campus that didn't include any pathways between the buildings.

When this omission was pointed out, the architect told the client that he'd purposely left out the pathways because the student's would find their own best routes between the buildings. When these routes became visible, as worn tracks through the grass, he could pave them over.

Another at the table, Joe Repta, responded:

The campus of Yvan's anecdote was in fact Michigan State University, where I spent my undergrad days. I've always remembered that story as having an important message.

We see this effect in many different places today, dirt paths that cut through planted grass in places where sidewalks don't take people where they want to go. Most successful Web services have grown in a similar way, as have most computer application programs: all beginning from some minimal seed concept, minimally (and cheaply) implemented and developing according to user wishlists.

I suggest that one way to grow a set of contacts and attract relevant strengths is a cheap, quick and dirty implementation of what seems like a good idea.

Joe Repta

This anecdote, of the paths that evolved without any plan or deliberate design, captures perfectly the essence of a bottom up strategy using a dynamic solution space. An unstructured landscape is presented and then allowed to take its own shape. But, Joe Repta put his finger on the stumbling block of this approach when he suggested starting out with "what seems a good idea".

This highlights the real problem: it is easy to get a system to self organise, but, from what base do you get the system started? What should be the initial "good idea" that triggers a dynamic system into self organising? In other words, what components and framework of ideas have to be present to enable a business to self organise by means of a bottom up process?

Normally, the framework and components for a business are provided by the business plan, but, the catch-22 is that we can't create a business plan because just like the pathways between the campus buildings we can't be sure what the best plan will turn out to be.

What is needed, therefore, is the equivalent of the untrodden grass between the campus buildings: a virgin space from which a solution can emerge. We need a framework that will allow the initial ideas for a business to manifest spontaneously, similar to the way in which paths manifest on the campus grass – a solution space that will birth optimal e-business ideas.

 

A static, top down solution space

A top down solution space is simply a mental construct with which to visualise a rich search area when searching for a solution when a goal has been specified. It is a static space to hold the most likely solutions.

Figure 7.1 illustrates a typical, top down solution space that relies upon using historical information to find a profitable e-business solution. The boundary conditions are such that only profitable e-businesses are included in the solution space as, by definition, these must have solved the problem of becoming profitable.

Figure 7.1

In this example of a top down solution space, the single boundary condition is that the business should all be profitable. Therefore all businesses within the solution space contain profitable solutions

Such a top down solution space – as illustrated by figure 7.1 – is used by Industrial Age business strategists to find business solutions for success. They isolate successful companies in an area of business they are interested in, put them into the solution space and then examine them closely to look for pointers to successful ideas, strategies or tactics.

However, this is a top down approach, where the solutions within the solution space have been tried and proven. E-business is too new and too volatile to be able to use this kind of solution space, it needs a solution space that contains promising ideas, solutions that perhaps nobody has tried before? The difficulty though is to know what is and what is not a promising idea.

What boundary conditions would need to be imposed to create a solution space that included only good ideas and excluded all the bad ideas? If we could arrange such a space, it would allow us to concentrate our efforts more efficiently and not waste our time on dead-end ventures.

To do this, a more generic version of the solution space will be needed. This is illustrated in figure 7.2, where the boundary conditions are shown as creating a gateway into the space. The objects that satisfy the boundary conditions are allowed to go through the gateway into the space and those that don't are kept out.

Figure 7.2

The generic form of the top down solution space, illustrating that the boundary conditions act like a gate to let certain objects in and keep other objects out

 

What is needed with this top down approach is a way to separate good ideas from bad ideas. But, this assumes that it is possible to work out what the critical criteria for success are. We don't know this.

In the volatile world of e-business, nobody can know what these criteria should be. This is self evident, because if it were possible to work out the boundary conditions for separating good ideas from bad ideas everyone would be able to become rich and Venture Capital companies wouldn't make mistakes.

 

A dynamic, bottom up solution space

In the last chapter, it was proposed that rather than starting out with an initial idea, it might be better to begin by building a core strength and a number of useful contacts. In this way business ideas can be preferentially selected to match the capabilities of the business (as opposed to creating a business to match any business ideas).

This strategy can be described in terms of a dynamic solution space, where the solution space is the catchment area for all ideas that can be managed by the system of assets, skill sets and potential collaborative associations that together constitute the capabilities of an individual or a business. This is illustrated in figure 7.3.

Figure 7.3

A dynamic, bottom up solution space that includes only those ideas that are compatible with a existing assets, skill sets and contacts

The solution space is thus defined as a selection of business ideas that can adequately be handled by the core strengths that have been developed by the business (the core strengths being enhanced through having a number of trusted contacts who can be called upon to advise, assist or form collaborative alliances).

To appreciate the dynamics of this model, think of the ideas in the solution space as being observed under a magnifying glass. Adding extra assets, skill sets or useful contacts to a business will have the effect of moving the magnifying glass over to another group of ideas which are more appropriately suited. This is illustrated in figure 7.4.

Figure 7.4

By improving the assets, skills or contacts, the solution space will effectively move to include a different set of business ideas that can be accommodated

In this way, it can be seen that business ideas are a dynamic consequence of the structure and components of the business. This is quite different from a top down approach, where once an idea is decided upon it becomes the basis for reshaping the business to accommodate the idea.

This strategy, of creating the core strengths before coming up with an idea, is not intuitive. When Wendi Murray, an entrepreneur from Australia, read the last chapter in the virtual cafe she responded:

In chapter 5 Peter wrote:

"A business idea has the best chance of being brought to fruition if it is born into the right environment (where a suitable infrastructure and the necessary contacts are in place). Surely then, it would make sense to wait until these conditions are in existence before firming up or going ahead with any specific e-business idea?"

Although I agree with this, it implies that the 'right environment' is known and so the 'suitable infrastructure' _can_ be in place. Surely a preexisting environment and infrastructure will limit the kinds of ideas to be considered, so again, a top-down weeding-out of environment / infrastructure ideas is needed?

Wendi

This illustrates where a conceptual difficulty can occur because it is natural to assume that a "right environment" or a "suitable infrastructure" is planned for a particular purpose. But, the whole point of a bottom up approach is that the future is not anticipated so it cannot be planned for or taken into account.

The environment and the infrastructure are created without any specific business idea in mind. They are created in the same way that people get themselves educated: there is no specific application in mind, just the accumulation of various contacts, knowledge and experiences that create a favourable position to be in to be able to take an opportunity when it arises.

If you ask a student what job they are going to get when they finish their education they are unlikely to be able to give a definite answer. They are just building up a favourable position for themselves, so as to more easily be able to be accepted by a company when a suitable job opportunity arises. This is exactly the same strategy that is needed for the volatile environment of the Web: build an asset base; a skill set; a personal (or local) knowledge base; a set of useful contacts - and then go search for a suitable opportunity that is suited to this mix.

This strategy will create a filter, which will rule out many possible options, but, doesn't the choice of education do exactly the same thing? Doesn't a particular choice of education or set of experience act as a filter to direct you towards a limited selection of options? Doesn't an increased education, or a richer set of work experiences, open the door to better opportunities? Looked at in this way, it makes a lot of sense to spend time building up a strong position first before looking for ideas.

The concept is clearer if you consider the business strategy of a typical niche specialist who might decide to concentrate upon a particular small area of specialty. The specialist will need to build up this expertise before taking on any substantial assignments. The area of expertise chosen will limit the type of assignments that can be taken. Their solution space might then be defined as consisting of all the businesses that would have need of the specialty service they are capable of handling. This scenario is illustrated in figure 7.5.

Figure 7.5

A typical special service company whose business solutions could be described as a space containing all the clients who would have need of their services. Improve the expertise or ability to collaborate and the content of this solution space will improve.

 

Services and consultancies

Figure 7.5 describes a limited area of business known as the service industry (this would also include all manner of consultancies and advisory services). The prime focus of these service businesses would be to:

1) Establish an expertise in a chosen area of specialty

2) Maintain this expertise in the face of competition and continuous technological change

3) Build a reputation for competence, reliability and value

4) Make sure there is sufficient continuity of work to maintain the work force

It might seem that such businesses would not be subject to undue risk because the work projects and goals would be specified by a client and the contracts would be such that these service providers would get paid whatever the success or otherwise of the client's business venture.

In the Industrial Age, this might have been the state of affairs, but, in the rapidly changing world of the Information Age, any business based upon a service is basically unstable for the following reasons:

1) It is a gamble as to whether or not the area of expertise chosen for a service business remains fashionable for any reasonably length of time.

2) Maintaining expertise in the light of continuous technological change is time consuming and expensive and can eat away at profitability.

3) Unrealistic expectations and a lack of technical knowledge by clients can easily cause clients to be lost and reputations ruined.

4) Fast changing technological trends can quickly cause skill sets to become redundant. Staff who do have currently fashionable skill sets tend to be highly mobile because of high demand for their expertise. These factors make it extremely difficult for companies with skilled employees to maintain a constant level of reliability and competence, resulting in reputations having short shelf lives.

5) Because of a lack of technical knowledge it is extremely difficult for a client to know whether or not they are getting good value for a highly technical service. This makes it very difficult for truly superior service companies to compete against inferior services that put special emphasis on sales and marketing. This does not put them out of business but often sees them at the poorly paid bottom of a food chain (see note below)

Such instability does not suit either investors or large companies so the bulk of this service work is done through individual freelancers, small companies or associations. They can be more flexible, able to change direction easily. They can build and develop their knowledge and expertise in specific niche areas, gradually establish a reputation and a portfolio of regular clients. This is usually sufficient to ensure a reasonably good income: enough to amply reward them for their efforts

Note: The technological food chain

Most technical specialists are not sales people and resent having to use their valuable time visiting and talking to clients who seldom appreciate the depth of their technical knowledge. Sales people on the other hand have no time to spend learning the technicalities because they spend most of their time looking after clients and chasing around looking for new business.

This situation creates symbiotic relationships and hierarchies of dependencies – known as the food chain – which although essential is often resented as is illustrated by the post to a table in the cafe by Stephen Roberts:

...everyone who works in the new media industry in London knows that there exists a food chain. A big client goes to its PR department with a requirement for a web site. They contact an advertising agency who will brief a specialist web agency. Often This large agency will then subcontract to one of the small website companies around town. Below this chain is a huge raft of bottom feeding freelancers, picked up on an ad hoc job by job basis.

I assure you this is true and sometimes the chain is even longer. It's a sort of evil version of what we were talking about and it's honestly not a fulfilling way of working (I've often been told to lie to a client as to where I was calling from with a project related inquiry).

Stephen Roberts

Who hires the services?

There are millions of people working in the service industries. By definition, they are all earning money by helping others to make money, so, their earning are dependent upon the needs, ideas and initiatives of others. These others might be described as:

1) Other service industry individuals or companies who need specialist niche services to augment their own range of services.

2) Managers in companies who are outsourcing services

3) Entrepreneurs who are creating speculative business enterprises

In the Industrial Age economy, entrepreneurial contributions were confined mostly to the early phases of the life cycle of a business. As soon as a business became established, it would be restructured and formalised to ensure the activities of the business would be carried out efficiently, reliably and consistently. This transition normally involved replacing the entrepreneurial functions with managerial functions. The call for services is then switched from being under the control of entrepreneurs to being under the control of managers. This situation is illustrated in figure 7.6.

 

 

Figure 7.6

Industrial Age business usually matured from an entrepreneurial stage to a managed stage. This changed the nature of the service requirements

 

In the e-business environment of the Information Age, there are constant technological changes and developments. This continually opens up new opportunities for competitive initiatives. In such an environment, it is not reasonable to expect a business to reach a state of stable maturity where the running of a business can be handed over to trained managers. Instead, a business has to be organised to be highly adaptive to cope with unpredictable change. This situation is illustrated in figure 7.7.

 

 

Figure 7.7

In the volatile environment of e-business, there is continuous change. This prevents businesses settling down to a stable state of maturity. Instead, they have to become adaptable

The need for a business to become flexible and adaptive requires that a business becomes predominantly concerned with change and uncertainty. This will need entrepreneurial rather than management thinking: making it impossible to replace entrepreneurial functions with managerial functions.

Managers and entrepreneurs have to have completely different mind sets; these are not compatible. Managers will try to eliminate change as much as possible, while entrepreneurs relish change and use it to gain advantage. This difference in attitudes will greatly effect the way each will make use of services

Managers will be looking for methods, procedures and controls, to provide stability and consistency. Entrepreneurs will see these as handicapping the ability of the business to adapt and respond to new situations.

Managers will want to formalise all arrangements with services. They'll want specifications and binding contracts with long term commitments. Entrepreneurs on the other hand will prefer very loose arrangements with built in flexibility and no long term commitments.

Managers will prefer to keep service arrangements to a minimum, bringing as much work in house as possible where they can exercise more control. Entrepreneurs will prefer to use as many outsourced services as possible, so that the core business has a minimum of overheads and does not get locked into redundant or out of date methods or technology.

It is this difference, between the strategy of a manager and the strategy of an entrepreneur, that epitomises the difference between Industrial Age and Information Age businesses. This will be critically important when it comes to devising a suitable e-business strategy

 

### End of chapter 7 ###

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Copyright 2001 - Peter Small

Peter Small

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