Organic Strategy

The most difficult problems with organic groups are problems of strategy. The essence of strategy is making decisions that take into account other people’s decisions. There are notable attempts at large group strategy that usually involve some variation of scenario planning¹² which take into account group decision making but this does not necessarily include organic groups, which are less hierarchical. The implementation of current strategic models such as SWOT are skewed towards hierarchical groups with centralized power³⁴. While hierarchical strategies such as SWOT analysis concentrate on knowing one’s self and one’s opponent, organic strategies focus on being formless and building alliances. All of these aspects of strategy have been part of the tradition of strategy since Sun Tzu, but the arrival of flatter and more organic institutions signals a fundamental shift in how strategy is developed. For instance, organic structures tend to be risk tolerant when considering investment opportunities⁵ but it is unclear whether organic companies are risk tolerant or averse when considering threats.

Traditional Strategy ~ Organic Strategy

Traditional command and control strategy assumes information is gathered on the bottom and then distributed to the top with intelligent people at the top assessing the competitor/colleague. The decision is then made to move against or align with the predicted intent of the target. Traditional command and control strategy has the advantage of some economies of scale⁶ (technical economies arising from having strategic specialists or division of labor, i.e. the cost of each engagement is reduced by having specialists in strategy and specialists in tactics) and the advantage of economies of scope⁷ (lowering average cost of strategy by using the same people to strategize for all types of engagements and players, i.e. a learning curve efficiency). Many strategic texts such as a traditional interpretation of Sun Tzu’s Art of War (see appendix) and Michael Porter’s SWOT analysis fall under this definition of strategy.

There are three paradoxes that we will use to frame the discussion of strategy as it concerns organic groups in contrast to traditional strategy.

The Paradox of the Self Organized Group

How do units collaborate without central authority? This is the paradox of the self organized group. There are examples of groups organizing with little to no central authority, so we know that it occurs. With respect to capitalist markets, Friedrich Hayek calls a ‘catallaxy’ a “self organizing system of voluntary co operation”⁸. Wikipedia describes self organization as “… a decentralized, distributed, self healing system, protecting the security of the actors in the network by limiting the scope of knowledge of the entire system held by each individual actor. The Underground Railroad is a good example of this sort of network.”⁹

Protocol > Decentralized Strategy

How will an organic strategy be structured? Given that collaboration in an organic group is handled in a decentralized manner, the structure of the strategy itself can be handled as a protocol. As Alexander Galloway puts forth in ‘Protocol: How control exists after decentralization’, “Protocol is a system of distributed management that facilitates peer to peer relationships between autonomous entities.”¹⁰ While protocol is exemplified in graph like structures like TCP/IP, it should be noted that Galloway says protocols are “… more than simply a synonym for ‘the rules’ … protocol is like the trace of footprints left in snow … One is always free to pick a different route. But protocol makes one instantly aware of the best route …“.¹¹ So with a protocol system of management the incentive is internalized in the rules: “… [when] local residents elect to have speed bumps installed … Driving slower becomes advantageous … the driver wants to drive more slowly … it becomes a virtue to drive slowly.”¹²

Protocol ~ Play Markets

Given there are sufficient self organization and incentive systems, the next step is to forestall the emergence of false or ‘play’ markets. A play market is a description of a market that does not work because there is “concentration of ultimate decision making rights and responsibilities (i.e., ownership) in the hands of a central planning board”¹³. So while planning authorities delegate13 decisions to managers along with an investment system, the managers continue to be disincentivized, “First, because managers could always be overruled by the planning authorities, they were not likely to take a long view, notably in their investment decisions. Second, because managers were not the ultimate owners, they were not the full residual claimants of their decisions and, hence, would not make efficient decisions.”¹⁴ Given “The problem arises from the fact that it is hard for the ruler to commit to a14 noninterference policy”¹⁵, the best way to form a cooperative or competitive strategic protocol is to15 have it be naturally or legally irrevocable.

Tit for Tat > Protocol in Game Theory:

A good example of a protocol with natural incentives is the Tit for Tat strategy that theoretically arises in an iterated prisoner’s dilemma game. The Tit for Tat strategy “… cooperates on the first move, and subsequently echoes (reciprocates) what the other player did on the previous move.” Tit for Tat is also nice “that is, they were never the first to defect” as well as provocable, “To obtain the benefit – or avoid exploitation – it is necessary to be provocable to both retaliation and forgiveness. When the other player defects, a nice strategy must immediately be provoked into retaliatory defection. The same goes for forgiveness: return to cooperation as soon as the other player does.”¹⁶

Amazon > Service Protocol

An example of a cooperative protocol with legal incentives is amazon’s service development decree:
“1) All teams will henceforth expose their data and functionality through service interfaces.
2) Teams must communicate with each other through these interfaces.
3) There will be no other form of interprocess communication allowed: no direct linking, no direct reads of another team’s data store, no shared memory model, no back doors whatsoever. The only communication allowed is via service interface calls over the network.
4) It doesn’t matter what technology they use. HTTP, Corba, Pubsub, custom protocols doesn’t matter. Bezos doesn’t care.
5) All service interfaces, without exception, must be designed from the ground up to be externalizable. That is to say, the team must plan and design to be able to expose the interface to developers in the outside world. No exceptions.”¹⁷

The incentives are provided by performance policy:

“every single one of your peer teams suddenly becomes a potential DOS attacker. Nobody can make any real forward progress until very serious quotas and throttling are put in place in every single service.”¹⁸

The throttling and quotas being the analogous and the inverse to the ‘speed bumps’ of Galloway’s example.

The Paradox of Disparate Profit Centers

Within strategy, there are competitive and cooperative problems. Cooperative problems tend to be related to resource allocation, coordination, and control. David Besanko describes a
networked organization (similar to an organic entity) as one in which control is split into profit and responsibility centers. As the number of these smaller centers increase, large organizations struggle with the problem of how to organize across profit centers who may have different or competing incentive systems. Network organizations coordinate by elevating the focus of the individual or worker groups above the tasks they do. Besanko says “The basic unit of design in the network structure is the worker rather than the specified job or task … networks develop from the patterned relationships of organizational subgroups”¹⁹. Although network based organizations19 have high coordination costs, they can make up for those costs by being able to handle more complex information flows. Furthermore, Besanko describes something similar to Gallaway’s ‘protocols’ when referring to how modular network organizations operate, “Modular organization is a type of network structure that involves relatively self contained organizational subunits tied together through a technology that focuses on standardized linkages. Most of the critical activities for a modular subunit are contained within that unit, and links with the broader organization are minimized.”²⁰ The effect for the network in general is the reduction of search, monitoring, and control costs. Benetton Group and SAP AG’s partners operate as a network structure.²¹

The Paradox of the Republic

The paradox of the republic can be summed up in the following question: how do you elect rare talent from a limited pool of members if the probability of the pool to possess that talent is inherently low? The traditional command and control offers no help here. The traditional model starts with rare talent already self selected and then picks subjects from a general pool of people. To make matters worse, there is the paradox of the Bike Shed to contend with. That is, how does one pick an expert in a domain without being an expert of that domain?²² This problem overlaps the paradox of the republic in two ways. First, the people will tend to elect non experts in domains (such as strategy) that are considered bike sheds. Second, elected officials may actually be incentivized to create bike sheds via fingerprinting.²³

The organic solution to the paradox of the republic is to use the divide and conquer method. The bike shed is removed by dividing the concept up into non bike shed domains of knowledge. If the definition of strategy is ambiguous and therefore a bike shed, it follows that we ought to divide strategy into expert level domains. The following steps after the division is to monitor the domains by troubleshooting low performance, rewarding successful behavior, and possibly electing a domain representative to the, now measurable, domain.

Developing Organic Strategy

In order to get organic groups to think strategically, the first task will be to prime the strategic pump in the organization with the communication of anticipated of behavior. When developing organic strategy domains our initial assumption of the colleagues and competitors will be that their position is a myopic one. If their position changes later our strategic domains are flexible enough to adapt to whatever strategic strengths emerge. To illustrate broad strategic thought we use the statement usually attributed to Gandhi: “First they ignore you, then they laugh at you, then they fight you, then you win”. With this communication we can break the four stages into strategic domains in which the organization can start anticipating behavior outside of the normal strategic bike shed:

Because you expect this: “First they Ignore you”
Then you should do this: Propaganda
Because you expect this: “Then they Laugh at you”
Then you should do this: Rhetoric
Because you expect this: “Then they Fight you”
Then you should do this: Reason
Because you expect this: “Then you Win”
Then you should do this: Positioning

Each domain is now an expert domain. Propaganda is the well known field of advertising, but in this context it concentrates on name recognition. Rhetoric is similar to advertising but concentrates on forestalling or addressing competitor’s and colleague’s public reaction your entry into a market. Reason is your value proposition, and positioning is the handling of your brand placement in the market. All of these are well known, measurable, and have expert books on their respective subjects. With propaganda, rhetoric, reason, and positioning we have a set of behaviors that can be delegated to sub groups, within a profit center, or across the organization.

Propaganda

The domain of propaganda concentrates on the initial communication of advertising through some type of communication. The point here is to pick a one way or two way communication model²⁴ and develop name recognition. For allies this will educate them on who you are and attempt to make you the first choice when looking for a solution to their problems. For competitors this is the first exploitation of their position (which is probably to ignore you). The two questions to ask when focusing on propaganda are:

• What will the target look like when they Ignore you?
• What propaganda will you use that keeps them from ignoring you?

Rhetoric

As the communication increases, resistance will need to be dealt with. The kinds of positions you take in your communication will need to address how you think your solution, service, or product will be resisted. For instance, if you expect your opponents to say that your product is too expensive or too cheap, your messaging could be that you are purposefully providing an affordable solution or an enterprise solution, respectively. Rhetoric should be looked at as a series of ‘plays’²⁵ in which you manage your reputation. The two questions to ask when focusing on rhetoric are:

• What will they say when they mock you?
• What kind of rhetoric will you use to forestall and then deflect their rhetoric?

Reason

A business value proposition²⁶ is part of the more traditional way of looking at strategy. By doing a traditional SWOT analysis²⁷ you create a more reasoned argument, which appeals to a27 more a analytical audience. A value proposition is useful for steering internal and external direction, as well as influencing the more simplified official communication directed towards customers and colleagues. A good question to ask when focusing on reason is:

• What will be your most defensible and reasonable value proposition?

Positioning

Positioning is owning a spot in your customer or colleague’s mind. It focuses on how the world views you and your solution. People think in terms of lists, and within a list they think in terms of best to worst. A positioned product or service will own a top spot on a list in the target’s mind.²⁸ After getting that position, the trick is avoid doing anything that loses the position. Entrants and internal forces will try to erode positions, so good strategy tries to deter or accommodate entrants. A good question to ask when focusing on positioning is:

● What is the one word that you want to own in the customer’s mind?
● Now that you own a position, how should you deter or accommodate entrants?

PRRP Strategy

PRRP Strategy has the ability to suit different the personalities of an organic group because of the separation of concerns into different stages. Socially aware types may gravitate to the propaganda and rhetoric domains, while the analytical could perform well in the reasoning stage. The positioning stage is suitable for ideological or visionary types. PRRP addresses the problem of ambiguity in strategy, which arises from the problems of bike sheds. PRRP also solves paradoxes of organization via a divide and conquer method.

Example: Secure Datacenter Strategic Pricing

Propaganda
What will the target look like when they ignore you? When competitors ignore your price, they are waiting to see if your entrance into the market will force them to change their prices.

What propaganda will you use that keeps them from ignoring you? Two customer engagements per week that end with a budget proposition for a private cloud which includes itemized prices.

Rhetoric

What will they say when they mock you? The competing datacenter providers encounter your price during negotiation with customers. The response is a flinch with your price being ‘too high’.

What kind of rhetoric will you use to forestall and then deflect their rhetoric? A white paper distributed in a prospective customer email campaign that highlights the value of secure private clouds.

Reason

What will be your most defensible and reasonable value proposition? The non strategic way to do pricing is cost plus. The value proposition is based on a case study of the opportunity cost of lost customers because of high profile security breaches.

Positioning

What is the one word that you want to own in the customer’s mind? You start to use language that captures the word ‘secure’ in your customer’s mind with respect to virtualized systems.

Now that you own a position, how should you deter or accommodate entrants? Create partnerships with brand name penetration testers that will co sign your systems. Accommodate entrants by adopting a fat cat strategy (allow them to come in and take the lower end of the market share).

 

Appendix I: Sun Tzu

 

Sun Tzu Chapter	Description	Hierarchical Value	Organic Value
Laying Plans	EExplores the five fundamental factors (the Way, seasons, terrain, leadership and management) and seven elements that determine the outcomes of military engagements. By thinking, assessing and comparing these points, a commander can calculate his chances of victory. Habitual deviation from these calculations will ensure failure via improper action. The text stresses that war is a very grave matter for the state and must not be commenced without due consideration	Hierarchies have a rich history of taking planning of competition and cooperation seriously.	Organic groups learn from experience and tend to be myopic.
Waging War	Explains how to understand the economy of warfare and how success requires winning decisive engagements quickly. This section advises that successful military campaigns require limiting the cost of competition and conflict	Hierarchies tend to know the value of nipping things in the bud	Organic groups tend to shy away from proactive movements
Attack by Stratagem	Defines the source of strength as unity, not size, and discusses the five factors that are needed to succeed in any war. In order of importance, these critical factors are: Attack, Strategy, Alliances, Army and Cities.	Hierarchical unity is manufactured from top-down discipline	Organic unity comes from jointly overcoming natural challenges created in their environment
Tactical Dispositions (Positioning)	Explains the importance of defending existing positions until a commander is capable of advancing from those positions in safety. It teaches commanders the importance of recognizing strategic opportunities, and teaches not to create opportunities for the enemy.	Hierarchical decision makers tend to be more proactive, and take positions when the opportunity arises. This can be because the decision makers are more removed from the risk.	Organic groups tend to shy away from proactive movements. Organic groups tend to stay put until forced.
Use of Energy (Forces)	Explains the use of creativity and timing in building an army’s momentum.
Weak Points and Strong (Emptiness and Fullness)	Explains how an army’s opportunities come from the openings in the environment caused by the relative weakness of the enemy and how to respond to changes in the fluid battlefield over a given area.	Hierarchies tend to study their opponents as soon as they show themselves to be a threat. Hierarchies are excellent at putting their big force against an opponent’s small force. Hierarchies tend to have rigid form though	Organic groups tend to be myopic when considering the strengths of an opponent. Organics tend not to organize well enough to position their large group against a small group On the other hand, organics can harness their formlessness. If an organic group can learn to be knowledgeable of their opponents weakness while retaining formlessness, they will be superior
Maneuvering an Army	Explains the dangers of direct conflict and how to win those confrontations when they are forced upon the commander.	Hierarchical commanders can use proven tactics with a disciplined group to capture opportunities that require speed	Organic groups lack the ability to coordinate quickly around a set of externally given commands/tactics. All tactics must be learned and delegated downwards.
Variation of Tactics (Variations and Adaptability)	Focuses on the need for flexibility in an army’s responses. It explains how to respond to shifting circumstances successfully.	Hierarchies are slower to respond to new information from the field because they are further from the information	Organic groups have information closer to decision makers and can therefore adapt faster
The Army on the March (Maneuvering the Army)	Describes the different situations in which an army finds itself as it moves through new enemy territories, and how to respond to these situations. Much of this section focuses on evaluating the intentions of others.	Hierarchical commanders can use proven tactics with a disciplined group to capture opportunities that require speed	Organic groups lack the ability to coordinate quickly around a set of externally given commands/tactics. All tactics must be learned and delegated downwards.
Classification of Terrain	Looks at the three general areas of resistance (distance, dangers and barriers) and the six types of ground positions that arise from them. Each of these six field positions offers certain advantages and disadvantages.	Although hierarchical decision makers are further away from the types of ground being fought on, they have the ability to move troops into dangerous ground easier. Hierarchies have the ability to sacrifice material for position easier (because the decision makers aren’t the ones being sacrificed)	Organic groups have information closer to the decision makers. Organic decision makers are more aware of what type of ground they are fighting on, as well has how to exploit such ground
The Nine Situations	Describes the nine common situations (or stages) in a campaign, from scattering to deadly, and the specific focus that a commander will need in order to successfully navigate them.	Hierarchies have more discipline, which withstands the different stages of a campaign	Organic groups that aren’t seasoned must earn through experience instead of relying on a commander
Attack by Fire	Explains the general use of weapons and the specific use of the environment as a weapon.	Hierarchies are foreigners when dealing with organics.	Organic groups grow up close to the environment they are defending
Use of Spies (Intelligence and Espionage)	Focuses on the importance of developing good information sources	Organic groups don’t have centralized information (e.g. they often operate as cells), and are therefore harder to penetrate.	Organic individuals move around unnoticed, and go in and out of traditional organizations throughout their careers

 

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1. The Art of the Long View
2. Scenarios: The Art of Strategic Conversation
3. SWOT Analysis
4. Porter’s Five Forces Analysis
5. “Theoretical work by Raaj Kumar Sah and Joseph Stiglitz suggests that organizations in which authority is decentralized will accept more investment opportunities both good and bad”, Economics of Strategy, David Besanko [et al.] 4th ed., p,245
6. Economies of Scale
7. Economies of Scope
8. Hayek, F. (1976) Law, Legislation and Liberty, Volume 2: The Mirage of Social Justice. University of Chicago Press.
9. Self Organization in Human Society
10. Alexander Galloway, Protocol: How control exists after decentralization, p. 243
11. Alexander Galloway, Protocol: How control exists after decentralization, p. 244
12. Alexander Galloway, Protocol: How control exists after decentralization, p. 241
13. Strategy, economic organizations, and the knowledge economy, Nicolai J Foss, pg 174
14. Strategy, economic organizations, and the knowledge economy, Nicolai J Foss, pg 175
15. The Evolution of Cooperation
16. Steve Rant Blog
17. Economics of Strategy, David Besanko [et al.] 4th ed., p,522
18. Economics of Strategy, David Besanko [et al.] 4th ed., p,523
19. Economics of Strategy, David Besanko [et al.] 4th ed., p,528
20. Google Docs
21. James E. Grunig
22. The Elements of Influence
23. Value Proposition
24. SWOT Analysis
25. Positioning in Marketing