CHAPTER 7

Optimizing Resources and Technologies Through the Organization as a Network of Projects

The implication of Network Theory for organizations is profound; when we examine an organization in this light, we can see that there is an inherent network-like nature, and we can analyze its behavior and development with new understanding. More importantly, this knowledge allows us to consciously design, manage, and operate the organization with a much higher level of optimization, overcoming silos and artificial barriers. This will inevitably accelerate flow and also the successful adoption of new technologies. This optimization is not only relevant for organizations but entire supply chains. We have come to call this organizational model the Network of Projects.

Proposing the Organizational Design of the Networks of Projects

A network is a set of “nodes” connected by “links”; it is not a static entity, indeed it is something that continuously evolves, and its sustainable development is governed by a dynamic dictated by the emergence of a few hubs strongly connected to nodes through links whose behavior is statistically predictable. This dynamic is, especially in the specific case of human networks, nonlinear because of the intrinsic nonlinearity of the interactions between the nodes (people or groups of people).

At the most fundamental level, organizations are networks of ­different communities of practices; it seems only reasonable that the prevailing silo-based, hierarchical/functional organizational design be replaced with an organic way of structuring such practices. First, in Sechel: Logic, Language and Tools to Manage Any Organization as a Network (Intelligent Management Inc., 2011), followed by our chapter for Springer, ­“Managing ­Complexity in Organizations Through a Systemic Network of Projects” (2015) and then more comprehensively in Quality, Involvement, Flow: The Systemic Organization (CRC Press, 2016) my colleagues and I presented a new model for the sustainable growth of organizations based on the concept of a Network of Projects. A Network of Projects leverages the power of the Critical Chain algorithm developed by Dr. Goldratt to build organizational systems where control mechanisms, feedback cycles, and rational allocation of finite resources are more effective and in line with the goals of the organization.

Everything that an organization does can be thought of in terms of a project. Some projects, like bookkeeping, are repetitive, and others, like developing a new product, introducing a new technology, or launching a new marketing campaign, are non-repetitive. These projects are a network. In Chapter 4, we looked briefly at Network Theory. The Network of Projects that makes up the life of the organization is a particular kind of Network, called directed network, where the “direction” is provided by the goal of the organization. Such networks are called scale free, with a hierarchy of hubs and nodes. Accordingly, in an organization, there will be hub-projects, namely the ones more relevant for the success of the organization, and “node-projects,” projects that are smaller but still necessary for the development of the organizational network. What ensures the connection among these Hub and Node Projects is the finite capacity algorithm for their synchronization, fueled by an appropriate Database of resources. Within the 10 steps of the Decalogue for managing organizations as systems, based on managing variation and constraints, Step 7 regarding organizational design becomes the design of a Network of Projects.

Optimizing Resources and Technologies

A Network of Projects leverages the power of the Critical Chain algorithm developed by Dr. Goldratt to build organizations as systems where control mechanisms, feedback cycles, and rational allocation of finite resources are more effective and in line with the goals of the organization.

Designing and managing an organization as a systemic network of projects allows us to overcome the strictures that interfere with performance resulting from the artificial divisions of a traditional hierarchy/function style of management. The activities carried out in any organization need to be staffed with people with suitable competencies. It will be very cumbersome to deploy these competencies in a timely and systemic way if we organize them functionally. Why? Because any attempt to use a resource allocated to “Function A” to perform its competence beyond the boundaries of its Function will immediately result in a conflict between the head of the Function and whoever has been given the task to deploy that competence, usually a project manager. Unfortunately, virtually every minimally complex activity needed by any company to achieve any goal is cross-functional in nature, hence we are stuck in a real dilemma about how to best utilize the resources at hand. This dilemma is particularly felt by CIOs and CDOs attempting to roll out technologies end to end across an entire organization. The more we realize how paralyzing this dilemma is, the closer we come to understanding the paradigm shift needed to create organizations that are not suboptimized.

The clash between a functional organization and achieving cross-­functional goals is, quite plainly and simply, what keeps organizations stuck. This dilemma is the chronic conflict that keeps the science of management from evolving into the real engine of economic growth. Addressing the multilayered issue of how to optimize finite resources to maximize Throughput is critical if we are to generate wealth sustainably.

So what happens if we view the recurrent and non-recurrent activities in an organization as “projects”? Whether we seek to improve the speed at which we develop and manufacture new products, install new equipment, organize shipments, or file quarterly closing, we need the coordinated and synchronized efforts of many different competencies. Deploying these competencies in a logical sequence is relatively easy. However, breaking assumptions about the way performances should be controlled and measured seems to be a true cognitive ordeal. The measurement of performances seems to be inextricably connected with a local, i.e., functional, indicator whereas we all know that what matters is the global bottom line of the company. How do we come out of this seemingly irreconcilable conflict? We do so by asking ourselves what company functions are for, and uncovering the obvious truth that functions should house competencies, not fiefdoms.

Engineers, accountants, scientists, subject matter experts should not be considered members of a “company function.” Rather, they should be seen as valuable competencies that can be deployed for the goal of the whole company. These resources, ALL the resources, should be available for whatever “project” the company needs to accomplish.

What kind of control mechanism can we rely on in a Network of Projects? Project buffers not only provide the control mechanism to protect against disruption, but also give us statistical understanding of project development and early warnings on potential delays and are normally measured in time. Simply put, buffers cumulate protection from variation associated with the execution of every task. In this way, they provide a time “shield” against delay.

The statistical property that buffers leverage is called covariance; let’s say that it is a very efficient way to “pool” time.

How About Money?

A company viewed as a Network of Projects is a natural evolution of W. Edwards Deming’s original 1952 system design. Each project is protected with a time buffer. Success in project execution is measured in terms of timeliness, adherence to specs, and cash outlay; the first two are peculiar to each project, but cash can be pooled to protect the entire Network of Projects.

Said in a different way, the money buffer that protects each project from variation in cash outlay (typically, Totally Variable Costs, TVC—the subset of the inventory that goes into a project) could be pooled in a buffer that protects ALL the projects. Covariance holds for money too.

The rationale for this choice is mathematically obvious, less so its organizational implications. Pooling resources is a systemic concept; it comes from a paradigm of whole system optimization and the reconciliation of the inherent conflict between Local vs. Global performance measurement.

Pooling cash to protect the entirety of the network of projects (enabling maximization of results) is possible only if we abandon the idea of “functional budgeting” and cost centers. We can take intelligent ­decisions about how we invest our money only if we take intelligent decisions about how we want to work.

Critical Chain as the Engine of a Systemic Organization

What we are saying is that any company should be seen as a network of ­projects with the global goal of maximizing the Throughput of the company. The theme of Goldratt’s book Critical Chain is that we can maximize the speed of new product development by adopting a particular approach to Project ­Management (PM). The implications of that approach are truly far reaching and pave the way for a complete and yet largely unexplored solution to the inherent conflict of any organization (hierarchy vs. no hierarchy).

What we have been able to discover in over 20 years of implementing the Decalogue is that the Critical Chain method that Dr. Goldratt developed can be used not only to maximize the use of the finite resources of a company; this algorithm can be used to redesign the way any company works. Critical Chain becomes, then, much more than simply an algorithm to accelerate project completion; it is the vehicle to integrate, control, and deploy the resources of the organization.

What does the network of projects organization look like? Instead of company functions, there are networks of projects; instead of heads of functions, there are managers of increasingly complex projects that draw their resources from a pool of available competencies with no resource contention; instead of executives that fight for power, there is cooperative work that is in synch with the goal of the company. Instead of often-­conflicting local indicators of performance, there is one single driver for everybody. An organization as a network is part of a network of networks. This realization, and the shift in mindset it requires, open up new opportunities and possibilities beyond individual companies for collaboration along entire supply chains.

The Network of Conversations in Organizations

The links that connect the elements of an organization, are the ­conversations for action that take place. The effective synchronization of these conversations is possible only if the basic processes that these conversations represent are statistically predictable in their outcomes. The question then becomes, how can we make the outcome of conversations predictable? How can we frame a human interaction based on language (as opposed to a one-way command to a machine) in a way that leads to predictable and actionable outcomes?

We can replace the outdated Hierarchical/Functional structure with a much more organic design, based on managing variation and constraints, that reflects the intrinsically project-like nature of the work of organizations. This change is not cosmetic, it is transformational and it is rooted in a paradigm of cooperation, togetherness, and win–win. The new covenant that everyone in the organization—as well as the value chain in which the organization is embedded—must embrace requires a much higher ability to think, communicate, and act; it requires a new “wiring” in the way we measure, manage, and sustainably improve our efforts toward our goals.

The real challenge in bringing about a transformation based on a Network of Projects lies in the emotional and cognitive shift that needs to occur in the way people learn and use their knowledge as well as how they see themselves develop and interact in the workplace. The Thinking Processes from the Theory of Constraints were developed by Dr. ­Goldratt to aid that shift (we take a look at these in Chapter 10). Far from being a mere technique, we have found them to be a critical element in transforming organizations into “thinking systems” because they foster in people the ability to see interdependencies, resolve conflicts, be empowered, work cooperatively, communicate effectively, and, at a higher level, perceive (and act consistently with) the oneness of the organization with its ­business and physical environment.

To replace successfully a traditional Hierarchy with a Network of Projects, we need to start from the very foundation of how we think, speak, and act. What we need to learn is how to seamlessly connect our uniquely human abilities to

1. Systematically develop solutions to seemingly insurmountable ­conflicts (intuition)
2. Understand the full spectrum of these solutions (analysis/­understanding)
3. Develop and implement a cohesive and coherent action plan to implement the solutions (knowledge)
4. Sustain the development of the “intelligent emotions” needed to ­harness complexity

The Thinking Processes from the Theory of Constraints

With the accelerating complexity in all environments, humans have an unprecedented need to develop the intellectual and emotional skills to ­navigate change and adapt on a continuous basis. Any organization that wants to continue to go beyond simple survival and prosper needs to find a way to navigate the intellectual and emotional demands of ongoing change.

The Thinking Processes were developed by Dr. Goldratt to sustain and focus the change process underpinned by the process of ongoing improvement at the heart of the Theory of Constraints. Goldratt ­identified three major phases of change:

1. What to change
2. What to change to
3. How to make the change happen

Goldratt created the Thinking Processes to support and facilitate each of the three phases. He did so as he realized how important it was to provide a strong cognitive support to combat the difficulties associated with change that people inevitably experience. Used as a complete suite, the Thinking Processes have proved themselves to be an effective way to supervise and guide the change process. They are also an ideal companion for developing project plans.

Using precise verbalization and simple diagrams, the Thinking ­Processes help people to visualize the complex, highly nonlinear network of cause–effect relationships that mark reality, as we perceive it. They allow us to map the “conversations” that make up our cognitive horizon, and these conversations are in themselves a kind of network. Without them, we have no way of grasping the reality of this network, how it defines the semantic boundary of our universe, and how it shapes our actions.

Learning to use the Thinking Processes takes some practice, but within days, they allow people to focus and accelerate their work together. Over time, they enhance and fortify the faculties of the intellect that are responsible for the conception of new ideas (intuition), their full development through analysis (understanding), and the operational deployment of the actions needed to carry out the implementation of the fully ­analyzed idea (knowledge).

By linking these faculties, the Thinking Processes enable a higher level of control over the interdependencies among these faculties, and this can often lead to conceiving breakthroughs that did not previously seem possible. They also have an important role in reducing variation in our thought processes by focusing our mental efforts toward a goal. They can greatly reduce variation in the way people communicate in an organization by providing a common language. Moreover, they help to harness the powerful forces represented by the emotions involved in the change process, and reinforce and engender the empathy required for ­collaborative work.

The learning required through a change process can be very destabilizing because it continuously pushes forward the limits of our cognition. It creates a gap between what we know and what we feel we can do, and this gap can be uncomfortable. In order to leverage the tension resulting from this gap in a positive way, we need to understand our emotions better and refine them. In this way, we can transform their potentially destructive power into a positive force for change. The Thinking Processes help ­people to manage the interdependency of intellect and emotion in the change process. In this way, change can become the transformational effort that is required for any sustainable, as opposed to temporary, shift. We will look at them in more detail in Chapter 10.

Shifting Beyond the Hierarchical Mindset

The major problem with replacing a hierarchical mindset lies in the subliminal, unchallenged mental models that make us believe that an organization requires a superimposed control mechanism, be it a boss, a function, or an accounting structure based on cost accounting type ­considerations. The Thinking Processes help us understand the connections, linkages, and the overall mechanism by which we infer reality. Reality is shaped in our minds by connections that largely remain unchallenged unless we unveil them. By making explicit the cause–effect relationships with which we perceive reality, we have an opportunity to challenge all of those assumptions that limit our ability, for instance, to work within a non-silo infrastructure like a network of projects.

More in general, the good functioning of an organization where conventional hierarchy has been challenged lies in enabling higher forms of systemic thinking that are stifled by both current educational systems organized into silos and the corporate world. It is not enough simply to change processes. Flat organizations could easily turn into a short-lived gimmick unless we systemically challenge working and, ultimately, existential paradigms governing the image that we have of what it means to live and work together. This requires a considerable cognitive effort and, without the right cognitive tools to support that effort, there can be little guarantee of continued success (Figure 7.1).

Figure 7.1 The shift from command and control to a network of projects

Achieving So Much More

Network theory teaches us that the interaction of hubs and nodes gives birth to emergent properties, i.e., structures or behaviors that emerge spontaneously from interaction. The years of implementations have shown us that we can consider the Decalogue as an emergent ­property—something that goes far beyond the simple combining of two separate elements. It is a unique methodology that lays the foundations for continuous improvement and sustainable growth and points at a new organizational model. This organizational model evolves the systemic combination of Deming and Goldratt into the design of the network of projects—a vision and a method that can make the systemic organization truly operational. To achieve this reality requires a higher form of intelligence and ethical awareness. We can achieve this with the ecology of the mind that systemic thinking provides and by embracing the values of a worldview where profit and the common good are inextricably interdependent. Both W. Edwards Deming and Eliyahu Goldratt understood that humanity is capable of so much more than we imagine. Whatever situation or business we are in, we can do fundamentally more, and we can achieve that in a meaningful way, not to the detriment of others, but by creating something new, better, and from which all will benefit, all through the value chain from the supplier to the end user. Far from being a utopia, this understanding is rapidly becoming the obvious solution, because it is the only sustainable way ahead.

Summary of Chapter 7

• Organizations are inherently network-like in their nature.
• Network theory helps us analyze the behavior and development of organizations with new understanding.
• The knowledge we gain from Network theory allows us to consciously design, manage, and operate the organization with a much higher level of optimization. We have come to call this organizational model the Network of Projects.
• A Network of Projects leverages the power of the Critical Chain algorithm developed by Dr. Goldratt to build organizations as systems where control mechanisms, feedback cycles, and rational allocation of finite resources are more effective and in line with the goals of the organization.
• This change is transformational and is rooted in a paradigm of cooperation, togetherness, and win–win. It requires a much higher ability to think, communicate, and act; it requires a new “wiring” in the way we measure, manage, and sustainably improve our efforts toward our goals.
• The real challenge in bringing about a transformation based on a Network of Projects lies in the emotional and cognitive shift required.
• The Thinking Processes from the Theory of Constraints provide an important support for the transformation and help people to manage the interdependency of intellect and emotion in the change process.
• The main challenge in replacing a hierarchical mindset lies in mental models that make us believe that an organization requires a superimposed control mechanism. Shifting mindset requires adequate cognitive tools.
• We can achieve so much more with the ecology of the mind that systemic thinking provides and by embracing the values of a worldview where profit and the common good are inextricably interdependent. This is the only sustainable way ahead.