Thursday, March 19, 2009

The Responsiveness Scorecard

The Responsiveness Scorecard

6:13 PM Wednesday February 18, 2009

So: is the Obama administration's ARRA a 21st century Manhattan Project that will ignite smart growth?

Though wonks will discuss its imperfections to death, ARRA's actually not a bad financial stimulus (here's why) . Yet, even a perfect stimulus isn't a solution to the macro crisis. Why not?

The real problem isn't stimulus, it's responsiveness. We're trapped in a zombieconomy: one full of brain-dead organizations who are about as intelligently responsive as Homer Simpson.

Want better clothes? Don't ask the Gap. Want better software? Don't ask Microsoft. Want better cars? Don't ask Detroit. Want better music? Don't ask record labels. Want better healthcare? Don't ask big pharma. Want to hold on to your money? Don't ask a banker. Welcome to economic Bizarro World.

The economy has gone catatonic. Unresponsive corporations are just the tip of the iceberg. Markets can't allocate. Investors won't invest. Banks can't value, or hold onto anything of value. People don't trust, much less consume. What's going on? The real problem isn't how or what we stimulate - but that almost none of our organizations could respond in the first place.

Yesterday's institutions have left today's organizations unable to respond to an increasingly turbulent world. What's responsiveness, and what does it have to do with institutions? Here's a recent talk I gave discussing net-generation institutions. Or consider ARRA itself.

ARRA is built on 21st century rules. Obama's was the first 21st century political campaign: it played by a radical new set of institutional rules that made it responsive. Likewise, ARRA is the first 21st century stimulus - it's responsive, because it plays by some of those new rules, like participation and accountability, through the awesome

Today's organizations need a responsiveness upgrade. To that end, we need a new kind of stimulus: an institutional stimulus, not just a financial one, that makes our lame, brain-dead, zombified organizations more responsive. Gap, Detroit, Microsoft, big pharma, record labels, banks, evil corporations of the world - hello? Anyone home?

We can stimulate trade from here until Doomsday - but without more responsive organizations, today's failure to create new industries and renew old ones will simply recur at an accelerating pace.

Money, value, and wealth are an outcome of having responsive organizations in the first place.
Yesterday, the Manhattan Project renewed America's technological base. Today, we need a Manhattan Project to renew our institutional fabric - because yesterday's rules and principles are limiting the responsiveness of our organizations.

Here's a tool the Obama administration - and all of us - can use to explode responsiveness. Responsiveness depends on institutions. But institutions are a notoriously slippery concept, and it's sometimes difficult to know they begin and end. Let's firm them up, using a scorecard we've developed at the Lab. The scorecard should help make it crystal clear when we're reinventing of the four fundamental kinds of institutions. We use it to see and help decision-makers see who is seeding, growing, and nurturing responsiveness - and you can do the same.

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Are you redefining the economics of ownership? Ownership has its own costs and benefits. Here's an example of costly ownership: companies building patent thickets purely for the purposes of deterring competition. Here's a better one: the media industry eviscerating itself through brain-dead "rights management". Who can develop better kinds of ownership that create value for everyone? Advantage will flow inexorably to those economies - and companies - who can. Just ask Radiohead - giving people the right to pay what they wanted for music unlocked more value than demanding their submission to fixed prices.

Are you redefining the economics of contracts and standards? How do we know today's contracts are inefficient? The sheer size and growth of the legal industry is an existence proof that contracting is becoming more and more costly. Ever read an absurdly heavy-handed Microsoftian shrinkwrap license? Of course not - and that's exactly why contracting today is often costly, cumbersome, and inefficient. Whoever can invent better kinds of contracts for the 21st century will realize a tremendous advantage. Just ask Google - who redefined advertising by tying payment to action, redefining the terms of a stale contract which still based payment on sheer volume.

Are you redefining the economics of governance? Today, governance of economic organizations has devolved to cronyism, back-slapping, and glad-handing. Boards are happy to look the other way when CEOs line their pockets. CEOs are happy to look the other way when board members invite their bffs to join the board. Toxic governance has poisoned industries as disparate as autos, pharma, apparel, finance, and housing. New rules for the structure, composition, roles, and tasks of senior managers and boards will redefine the economics of governance. Advantage depends on doing so - when we can reinvent more efficient ways to manage managers, new value is created: just ask any open-source community, where everyone's simultaneously a worker, manager, and de facto board member.

Are you redefining the economics of management? Today's financial crisis isn't about money: it's about management. Bankers mismanaged our money catastrophically - because they were too busy managing their bonuses. Advantage will flow unstoppably to those who can redefine the economics of management - for the simple reason that, unlike bankers, they will be able to create greater amounts of more durable, lasting value. Responsibility, accountability, and transparency aren't just buzzwords - they're the keys to radically altering the costs and benefits of management. Just ask Threadless - whose radical vision of 21st century management is creating a global clothing revolution.

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How do you score on the scorecard? If you're redefining even a single one of the activities above, you're hitting the ball out of the park. Most companies fail to even register a score, because they're focused on seeking advantage through better products, services, business models, or strategies - instead of building responsiveness through better institutions.

Here's another lens through which to view institutions. For now, let's discuss. Fire away in the comments with questions, examples, or criticisms.

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