Official Intelligence

Every morning I pick up a small black remote, push a button and quietly say, “Alexa, turn on Mary’s Desk.” In the distance, I hear “Ok” and my desk lights come on. I never imagined that I would use voice control. I don’t like shouting at devices and don’t like announcing what I’m doing to those around me. My experience with voice in cars and smartphones has been mediocre. An Echo sat in our house for three years before I began talking to it.

Our home has been highly automated since the 1980’s, but my low voltage desk lamps are not compatible with our automation system. Last fall we connected our system to Alexa and bought an Alexa-compatible power strip for the lamps. Viola! we could control everything by voice – in fact, voice was the only way to control my desk lamps remotely. So I had to talk to a device. After I got used to it, I tried Alexa’s shopping list and found it convenient. Then I discovered that Alexa’s timers are well suited to cooking, especially with full hands. Soon I got an Echo Spot so I could see the timers as they counted down – I was hooked.

A Killer App for IoT

When devices are scattered throughout a physical space, controlling them by voice is a killer app for the Internet of Things [1] – but only if a simple control standard is embedded in every device. For the past couple of years, Amazon has been making it very easy for just about any Wi-Fi enabled device to be controlled through an Alexa skill. Better yet, taking a page out of the old Intel playbook, Amazon sells inexpensive kits and supplies testing support, so designers can easily embed microphones and Alexa intelligence inside their devices. True, these devices compete directly with Amazon Echos, but as a platform company, Amazon understands that this is a good thing.

Amazon was once considered the weakest of the voice assistant competitors, which include Google, Apple, Samsung, Microsoft, and Facebook. Most voice assistants are, well, assistants. They reserve movie tickets, arrange transportation, find answers to questions. Amazon’s Echo has a different focus: always-on listening and hands-free control of an exploding array of internet devices. This turned out to be a good choice. Google, playing fast follower, quickly introduced Google Home, while Microsoft’s Cortana is being integrated with Alexa. With its first mover advantage, Alexa has captured a commanding share of the voice control market, which could eventually become a fourth ‘pillar’ of Amazon’s success.[2]

I have to wonder: Is it an accident that Amazon discovered the most attractive use of voice while its biggest competitors were heading in a different direction? Or is there something about Amazon that gives it an edge, something that we might learn from? How does such a massively large company foster the kind of innovation that leads to completely new markets?

Day 1

In his letter to shareholders last spring, Jeff Bezos explained his longstanding mantra “It’s still Day 1” by describing Day 2: “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.” Then Bezos laid out his principles for keeping the vitality of Day 1 alive:

1. True Customer Obsession
2. A Skeptical View of Proxies
3. Eager Adoption of External Trends
4. High-Velocity Decision Making

True Customer Obsession

We’ve heard so much about Amazon’s customer obsession that it can get boring. After all, doesn’t every company focus on customers?

Actually, no. Most executives lose a lot more sleep over profits, or shareholders, or competitors than they do worrying about customers. Imagine you worked at an airline, for example, and you had an idea of how to make customers really happy: “Let’s eliminate the baggage fees!”  Your manager frowns at you and says: “Have you any idea how much money those baggage fees bring into this airline every month?”  And that would be the last customer-obsessed suggestion you would make.

But consider the Amazon team that came up with Lambda. Some customers report up to an order of magnitude reduction in cost when they switch to Lambda. Yet the Lambda team did not have to answer the sobering question: “Do you know how much revenue Lambda might cannibalize?” Everyone understood that lower prices are good for customers, so they are good for Amazon.

How does customer obsession get all the way from a statement in a shareholder letter to the actions of front line employees? Amazon does this by creating a direct line of sight between small teams and the customers they are supposed to be obsessed with, then making the teams responsible for improving the lives of those customers in some way.

Too Big to Communicate

Around 2001, Amazon’s growth was outstripping the capability of its internal systems to keep up. The leadership team came to a pretty standard conclusion – better communication was needed. Jeff Bezos was wise enough to realize that if communication was the problem, the solution had to be less communication, not more. He wanted the company to grow much larger, and if communication was impeding growth at this early stage, they had better figure out how to operate with a lot less of it.

How did the Internet grow so large? Through a lot of independent agents following their own agendas. How does Open Source software grow? The same way. Bezos decided that Amazon should transition to the independent agent model by organizing into small, independent teams. “If you can arrange to do big things with a multitude of small teams – that takes a lot of effort to organize, but if you can figure that out – the communication on those small teams will be very natural and easy,”[3] Bezos observed.

What, exactly, does Bezos mean by a team? At Amazon: [3,4]

1. Teams are groups of 6-12 people with a leader who acts something like a team CEO. The leader often recruits the rest of the team, and members usually stay with a team for two or more years.
2. Teams are ‘separable’ [separated organizationally] and ‘single-threaded’ [work on a single thing].  
3. Teams are responsible for a measurable set of external outcomes, usually focused on customers. 
4. Team decide internally both what they will work on and how they do the work.
5. Dependencies between teams are kept to an absolute minimum.

Once Amazon decided to structure a company composed of small, autonomous teams responsible for small, independent services, it had to figure out how to build an extensible infrastructure with these teams. That took a lot of time and experimentation, but in the end, it worked. In fact, it worked so well that Amazon decided to sell the infrastructure rather than keep it proprietary. And thus, we have Amazon Web Services (AWS), also known as ‘the Cloud’. As more and more companies move to the cloud they would be wise to understand that before it was a system architecture, the Cloud was an organizational architecture designed to streamline communication.

The Cathedral and the Bazaar

You are probably saying to yourself about now, “Cloud architectures are fine for a digital world, but how can they possibly work for a large company?” When I first heard about AWS, I asked the same question. To echo Eric Raymond’s “The Cathedral and The Bazar,” [5]

I used to believe there was a certain critical complexity above which a centralized, a priori approach to running a company was required. I thought that successful large companies were built like cathedrals, carefully crafted by individual wizards or small bands of magicians who orchestrated successful strategies. 

Amazon’s style of organization – assemble hundreds upon hundreds of autonomous teams that decide for themselves what they are going to work on – seemed to resemble a great babbling bazaar of differing agendas and approaches out of which a coherent and stable business could seemingly emerge only by a succession of miracles. 

The fact that this bazaar style seems to work, and work well, came as a distinct shock. As I learned more about AWS, I worked hard at trying to understand why the Amazon world not only didn’t fly apart in confusion but seemed to go from strength to strength at a speed barely imaginable to cathedral-builders.

Knowledge Workers

In 1999, Peter Drucker published the paper "Knowledge-Worker Productivity: The Biggest Challenge."  The productivity gains of the 20th century, he noted, applied to manual labor. In the 21st century, the challenge will be increasing knowledge worker productivity, and this requires an approach opposite to the one we have been using for manual labor productivity. He wrote: [6]

“Knowledge-worker productivity requires that the knowledge worker is both seen and treated as an ‘asset’ rather than a ‘cost.’ It requires that knowledge workers want to work for the organization in preference to all other opportunities.”  

“Knowledge workers [unlike manual workers] own the means of production. That knowledge between their ears is a totally portable and enormous capital asset.”  

“Economic theory and most business practice sees manual workers as a cost. To be productive, knowledge workers must be considered a capital asset. Costs need to be controlled and reduced. Assets need to be made to grow.” 

Drucker pointed out that there are many jobs which we might consider manual labor that involve a lot of knowledge work. One good example would be retail clerks, the subject of Zeynep Ton’s book "The Good Jobs Strategy." Ton illustrates how several retail chains have generated strong growth and higher than normal profits by paying well, training extensively, and expecting their intelligent employees to create a great experience for customers.

Knowledge workers are everywhere in our companies, and they represent a huge opportunity for improved performance, if only we learn how to see them as assets and grow their potential. 

Volunteers

In his 2001 book "Management Challenges for the 21st Century," Peter Drucker pointed out that knowledge workers must be managed as if they were volunteers, because in fact, they are volunteers. During my last three years at 3M, I used the then-classic approach at 3M of ‘bootlegging’ the efforts of dozens of scientists and engineers, and led volunteer team developing a product called ‘Light Fiber’ and the process needed to manufacture it. I learned a lot about what it takes to lead a large team of volunteer knowledge workers, and it boils down to this: Understand what energizes every person on the team and arrange for each person to do as much of what energizes them as possible. This works particularly well because people tend to be energized by what they are good at, and focusing people’s work on what they are good at creates a win-win situation.

The Light Fiber team met every Wednesday morning before regular work hours (when everyone was free). I supplied breakfast and a couple dozen people showed up to coordinate their efforts – every week, for three years! The meeting was essentially a forum where everyone got brag about their accomplishments and make promises to each other about what they would do in the future. Even though there were no work assignments, only promises, the team accomplished amazing things.

Promises

I was reminded of this experience by the book "Thinking in Promises" by Mark Burgess. He defines a promise as a public declaration of intention by an agent. Agents can only make promises for themselves – they cannot make promises for (impose intentions on) other agents. Agents communicate about what is necessary to achieve shared goals, and then make promises to each other about their intention to contribute to the shared goal. Trust develops when agents are observed routinely keeping promises. Agents can make promises contingent on the trusted behavior of other agents, but they need a fallback plan, since the best of intentions can go awry. This sounded very familiar to me – it is a good description of what happened every week at our Light Fiber meeting. And I agree with Burgess that a system built on promises can be very reliable and robust.

Think of the Bazaar approach as a marketplace where knowledge workers can find the best places to utilize their strengths. The currency of the Bazaar is the promises made to colleagues and the trust built up by promises that are kept. Companies that function as Bazaars have discovered a secret: “Peer pressure is much more powerful than a concept of a boss. Many, many times more powerful.”[7]  When people make promises to colleagues and customers, they feel a personal commitment to keep the promise. When managers impose obligations on their teams, there are many points of failure.

A Skeptical View of Proxies

Jeff Bezos’ second principle for vitality is to take a skeptical view of proxies. What are proxies? Bezos cites process as a typical example – he doesn’t think “I followed the process” is a good excuse for poor results.

The most vexing proxies in the development world are the project metrics of cost, schedule, and scope. Teams that can focus directly on the desired outcome usually perform a lot better than teams constrained by these proxies. For IT departments, ‘The Business’ is a proxy. For many businesses, profits are a proxy for delighted customers. [8] Be skeptical.

Even if someone does their homework and proves that delivering specific proxy results will surely deliver the desired end results, a direct line of sight to the desired outcomes is much better. Why? 1) Things change, but proxies prevent the team from changing accordingly. 2) Proxies tend to mask the intent or purpose of the work, diminishing engagement. 3) Proxies interfere with feedback and therefore slow things down.

High-Velocity Decision Making

This brings us to another of Bezos’ principles for maintaining company vitality: high-velocity decision making. Fast decisions are local decisions, because when a decision must be made immediately, there is no time to push it up the chain of command. In military organizations, where high-velocity decision making is a matter of life and death, front line units make local decisions based on situational awareness and their understanding of command intent. Wise commanders get very good at communicating their intent and the desired end state, so that the rapid decisions made on the front lines will be good decisions. This well-tested approach is probably the best model we have for making fast decisions in rapidly changing environments.

There are three things that get in the way of high-velocity decisions at the local (team) level:

1. Proxies rather than a clear understanding of the desired end state.
2. Permission required from management or other teams.
3. Punishment if the decision is wrong.

We’ve already discussed proxies.

Permission

The State of DevOps report in 2017 found that the best performing teams are those that operate without the need to obtain permission from outside the team.  Obviously, wise managers should try to step back and let teams make their own decisions. But there is a bigger issue here. All too often, there are significant dependencies between teams, requiring multiple teams to coordinate their actions across a large set of interconnections. This was once the reason for long delays between software releases, but we now know that breaking dependencies is a far better strategy than catering to them.

Dependencies can be subtle, and are usually based on the system architecture. In the late 20th century, companies spent years pursuing the holy grail of integration, only to discover that integrated systems create a legacy of intertwined processes. This interconnectedness makes it almost impossible for teams to make changes without getting permission from a lot of other teams. So much for high-velocity decision making.

Punishment

Some years ago, 3M’s visionary CEO, William McKnight, made clear what he thought about punishing mistakes: [9]

“As our business grows, it becomes increasingly necessary to delegate responsibility and to encourage men and women to exercise their initiative. This requires considerable tolerance. Those men and women, to whom we delegate authority and responsibility, if they are good people, are going to want to do their jobs in their own way.” 

“Mistakes will be made. But if a person is essentially right, the mistakes he or she makes are not as serious in the long run as the mistakes management will make if it undertakes to tell those in authority exactly how they must do their jobs.” 

 “Management that is destructively critical when mistakes are made kills initiative. And it’s essential that we have many people with initiative if we are to continue to grow.”

       

Eager Adoption of External Trends

To wrap up our discussion of Day 1 principles, let’s consider why Bezos thinks it’s important to adopt external trends. He says that if you pay attention to how external trends are likely to affect you and your customers, you will have a tail wind that can push you toward some interesting opportunities.

Here is an example: Today’s big trends are artificial intelligence (AI) and machine learning – voice recognition is a trendy use of artificial intelligence. Verbal interaction has not been a large part of Amazon’s retail and web services businesses, but that did not keep the company from making very strong investments in voice technologies. By late 2017, the AWS re:Invent conference centered on voice recognition and machine learning embedded in devices at the edge of the cloud. You could feel the tail wind.

Let’s assume you want to take Bezos’ advice and embrace today’s big trend – artificial intelligence. You might start by asking: Can artificial intelligence be used to help understand customers better? [We know of a company using Watson to filter social media comments in order to find key customer frustrations.] Could it be used to improve the development process? [Think automation on steroids.]  What could machine learning do to increase the reliability of deployed systems? [All the data needed to discover the causes of crashes is probably in logs somewhere.] If you are not asking yourself these questions, you’re asking for a headwind.

Official Intelligence

When (not if) you find uses for artificial intelligence, it’s time to hit the pause button. If you find jobs that could be replaced by smart machines, you should ask yourself: Why? Why aren’t the intelligent people who currently do those jobs being challenged to think, to find innovative solutions to problems, to be obsessed with customers? Your challenge, should you accept it, is not to embrace artificial intelligence, it is to uncover the official intelligence that is going to waste in your organization. Don’t worry about how AI might reduce the cost of development, focus on how it might be used to leverage the knowledge and creativity of all those intelligent people in your organization.

As Peter Drucker pointed out, we know how to make manual labor more productive – in fact, artificial intelligence can be quite helpful there. But the real advances of the 21st Century will come when we figure out how to make sure that everyone in our organization is officially considered an intelligent person. Officially intelligent people don’t ask permission, they make promises. Officially intelligent people don’t need proxies, they are challenged with the end game. Officially intelligent people have jobs that are augmented by artificial intelligence not replaced by it.

Unleashing the potential of all the bright, creative people in our organizations is the central challenge of the digital age. 

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Footnotes:

1. See Alexa, the Killer App
2. The first three pillars are Marketplace, Prime, and AWS. See Alexa Could Be Amazon's "Fourth Pillar" and Why Amazon is the new Microsoft
3. See Leadership advice: How Amazon maintains focus while competing in so many industries at once. The video is worth watching.
4. See Amazon’s “two-pizza teams”: The ultimate divisional organization
5. I take great liberties paraphrasing Eric Raymond’s “The Cathedral and the Bazaar” 
6. Knowledge-Worker Productivity: The Biggest Challenge by Peter F. Drucker, California Management Review vol. 41,no. 2 winter 1999. Italics from the original.
7. In The Tipping Point, Malcolm Gladwell wrote about Gore and Associates, a well-known Bazaar company. Gladwell attributes this quote to Jim Buckley of Gore and Associates.
8. I wrote more about proxies in this post: The Cost Center Trap
9. McKnight Principles

Artist Island

Once there was an island called Artist Island. The people on this island made a very good living by gathering stones from Stone Island, forming them into stunning jewels and selling the jewelry to people in the Land of Festivals. At first, people from Artist Island visited the Land of Festivals to see what kind of jewelry would be popular and then scouted out the right kinds of stones on Stone Island. But that was not a very efficient use of the time of these excellent artisans, so after a while the people from Stone Island were asked to bring their stones to Artist Island. Later, to further improve efficiency, the Stone People were asked to deliver the finished jewelry to the Land of Festivals. Since the Stone People were now the ones in contact with the Festival People, they became responsible for ordering the jewelry as well.

The people of Artist Island continued their search for efficiency. It took a long time to shape a pile of stones into a pile of jewels, and by the time a pile was done, the Stone People complained that the designs were out of date. So the artisans learned about Lean and decided to reduce work-in-progress. They worked on stone piles for no longer than two weeks, and brought smaller piles of jewels to the boat dock for shipment to the Land of Festivals.  However, the transport boats were still quite large and took some time to fill up, so it still took a long time for jewelry to get to the Festival People, and the designs were still out of date.

Then the Stone People came up with an idea. If they invested in smaller boats, they could deliver jewelry to the Land of Festivals in much smaller batches, shortly after it was made. Gradually they switched from large boats to small boats, and as they did, they started using the same small boats to deliver stones to Artist Island. Now a stone could be dug out of a mine, taken to Artist Island, formed into a jewel and delivered to the Land of Festivals in about a month. The jewelry designs were much more up-to-date, and sales improved.

But there was still a lot of unsold jewelry in warehouses in the Land of Festivals, because sometimes the jewels had flaws and sometimes the artisans didn't understand what the Stone People were asking them to make. Quite often the jewelry was boring because the Stone People weren't aware of the many marvelous kinds of jewels that were possible, so they didn't order many interesting designs.

The Earthquake
About this time an earthquake shifted the rocks holding water in the lake, and the water level receded.  Artist Island became a peninsula connected to the mainland. Some enterprising artisans decided to walk to the mainland and talk to the Festival People. They discovered that the Festival People didn't really like their jewelry designs very much, and so the artisans went back home and produced some new designs. After a few trips, they learned more and more about the festivals, their timing, their themes, and the kind of jewels that would be best for each one. They began to produce jewelry specially designed for each festival, and sales soared.

Of course, the artisans weren't using their time quite so efficiently anymore, because some of the best craftspeople spent part of their valuable time walking over to the mainland and talking to the Festival People. But then again, contact with customers energized the artisans, and they brought their enthusiasm back to Artist Island. The new designs were wildly popular, so none of them ended up stored in a warehouse. Thus the people of Artist Island were able to sell more jewelry and charge higher prices than before.

The artisans found that the Festival People were looking for unique jewels, so they asked the Stone People to look for new kinds of stones. But the new stones that the Stone People brought were not suitable for forming into jewels, and the artisans began to wish they had kept a few of their old boats so they could go and look for new stones themselves. One day some of the artisans went exploring their new peninsula and discovered a shallow sandbar connecting Artist Island to Stone Island. So they were able to wade over to Stone Island to help the Stone People look for better stones.

Because they knew what they were looking for, the artisans soon discovered new types of stones that could be easily formed into jewels. Actually, the new stones were much bigger than the previous ones -- they barely fit in the small boats -- so the Stone People had ignored them. The large stones gave the Artist Island people a novel idea: perhaps they could make cups and bowls from the new stones. Several different kinds of stones were brought to Artist Island and artisans eagerly tried their hand at making household items. This turned out to be easier than the intricate work of making jewelry, so even apprentice artisans were able to shape the new stones. The Festival People loved the new dishes and bought many pieces in addition to the jewels they always enjoyed.

Of course, the artisans weren't using their time quite so efficiently now that some of the best craftspeople were working with the Stone People as well as the Festival People. But then again, dishes involved less intricate work so more items could be produced and it was much easier to avoid flaws. Furthermore, the Festival People were eager to buy every single item the artisans could produce. No longer was finished work gathering dust in warehouses. Thus the artisans were able to make and sell many more products than before. Finally, since the household items were considered a necessity, business remained good even during tough economic times.

The New Landscape
Let’s take a tour of Artist Island a few years after the waters receded and turned it into a peninsula. The former island has three different kinds of artisans. First of all there are the enterprising artisans who learned to empathize with customers and look for new stones to shape in novel ways to solve customer problems. They are deeply engaged in their work and have created tight feedback loops so they can continue to develop products that customers love and bring innovative new stones to the market.

This group of artisans has revised the definition of efficiency.[1] They don’t worry too much about resource efficiency -- that is, keeping every artisan busy. They focus on flow efficiency -- that is, keeping each stone moving from Stone Island all the way to customers in the Land of Festivals with as little delay as possible. They have found that with greater flow efficiency, they get higher quality, more rapid customer feedback, and thus they are more likely to make products that delight customers. The enterprising artisans are doing very well.

But not everyone on Artist Island noticed that the waters receded, or if they noticed, they were not eager to abandon their comfortable routines. The traditional artisans believe in resource efficiency -- that is, making the most efficient use of their valuable time. So they continue to receive boatloads of stones from the Stone People, form them into the kind of jewels they are asked to make, and send the jewelry to be sold in the Land of Festivals. It’s not their problem if the Stone People order the wrong jewels, or if the boats are so large that their work is out of date by the time it reaches the Land of Festivals, or if half of their jewelry ends up in warehouses, unused by the Festival People. Their job is to deliver what they are asked for in a timely manner, and to continually reduce their costs.

Of course, the work is not very challenging and it’s difficult to get enthusiastic about making piles of jewelry that no one is likely to use. Because of this, many traditional artisans are leaving to join the enterprising artisans, attracted by the opportunity to think for themselves, the challenge of improving their artistic skills, and the satisfaction of seeing their work appreciated by the Festival People.

There is a third area of Artist Island -- one that wasn't mentioned earlier -- an area that has been around ever since stones began to be used for practical items. Here we find the parts-makers, artisans who form stones into parts for automobiles and airplanes and medical devices and control systems and things like that. They make up almost half of the population of Artist Island. The parts-makers work with vehicle and device designers to make sure their parts fit and operate properly. Recently they have learned a few things from the enterprising artisans, such as focusing on flow efficiency (moving stones through their work area without delay), understanding the needs of their customers (both the device designers as well as device customers), and constantly looking for new stones that can better meet these needs.

The Future
As the years go by, the enterprising artisans will move to the mainland to work side-by-side with the Festival People. The parts-makers will also migrate to the mainland and join forces with the device designers. All that will be left on the former island are the cost centers housing traditional artisans, but even these will gradually shrink and eventually disappear. Because in the end, while the talent of the artisans will remain essential, Artist Island will not matter anymore.

Navigating the New Landscape
We have spent a lot of time over the past decade working to make life better on Artist Island (a.k.a. Software Development Land). We promoted Lean principles such as small batches and steady flow and quality at the source. But over the past few years we have watched the waters recede and marveled as the island turned into a peninsula. The best and brightest of the artisans have abandoned the boat system and learned to talk directly with customers, work as partners with other disciplines, and seek out new approaches to solving problems.

We have written three books about Artist Island, but we couldn't write a fourth, because the island has largely disappeared. In its place is a new landscape, one in which integrated product teams are expected to ask the right questions, solve the right problems, and deliver solutions that customers love. So we wrote our fourth book -- The Lean Mindset: Ask the Right Questions -- about thriving in the new landscape, a land without islands, a land that doesn't have quite enough artisans, a land that’s full of endless possibilities.
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Footnote:
[1] Thanks to Niklas Modig and Pär Åhlström, for introducing us to these two viewpoints on efficiency. See their excellent book -- This Is Lean: Resolving the Efficiency Paradox.