Primary risk: Lessons telcos can learn from Apple

Organisational psychologists have a concept called “primary risk”: that in choosing between two mutually-exclusive concepts of your core mission, you have to accept that bad things may happen which are outside of your control. A fascinating paper from 1999 titled “The Primary Risk” by Larry Hirschhorn (PDF) introduces this theory of organisational behaviour.

The paper uses Apple as a case study, and it is one that telcos can learn from.

Organisations need a primary task

Hirschhorn first notes that traditional theory of organisations is centred on choosing a primary task, and having people align to it. Organisations without such common goals can drift. He introduces this concept of primary task, and the difficulties its articulation can cause:

“In this sense, the primary task represents realities over which the enterprise has influence but only limited control. For example, a college administrator may imagine that the institution’s primary task is to develop the student as the whole person, while day to day students and faculty act as if the primary task were to enable students to compete for good spots in professional schools. The college in reality trains students, it does not develop them. [The primary task] uncovers people’s practices, rather than their beliefs.”

As we can see, the collective fantasy of the organisation’s purpose can deviate from what is actually practised. The primary task is evidenced by what we do, not what we believe we do.

An example of primary risk

Whilst we’re all familiar with mission statements that attempt to articulate the primary task, he notes the limitations of this approach:

“[The primary task] fails to explicate the process through which people and organizations make choices about which primary task to focus on and why. It helps us understand the organization’s operations but not the process through which it shapes a strategy.”

Hirschhorn illustrates this idea with an example of a professional architecture practise. Two partners wish to add a third partner, who is an industry star player. Do they intend to grow a partnership of equals, or emphasise the star player? These are mutually exclusive primary tasks. They find it hard to change their primary task: if they remain as equals, then the star player may leave as he is not valued. However, if they put the star’s name front and centre, and he then leaves, they are left high and dry.

In this case, the anxiety that paralyses decision-making is the risk that the star leaves: “Was [the star architect’s] design talent good enough for them to risk marketing his name, knowing there was always a chance they could lose him?”

This primary risk is “the risk of choosing the wrong primary task, that is, a task that ultimately cannot be managed.” After all, the star player can decide to stay or go at his own sole discretion.

Apple: product innovation or operational excellence?

This same dynamic exists at Apple, which experiences a dilemma between the “Steve Jobs” (product innovation) and “Tim Cook” (operational excellence) ways of being:

“When a company aims for a mass market it makes profits by standardizing its product line, limiting innovation so that new products do not compete with old ones and achieving operating efficiencies. When a company plans to make profits by introducing a stream of innovative products, it eschews standardization, it risks ‘cannibalizing’ its old products, and it focuses management’s attention less on operational efficiency and more on organizational creativity.”

Historically, Apple struggled to be a hardware shop when the PC software model was in ascendency. When the ability to simply ship products to meet demand became too onerous, Jobs was ousted and ‘professional’ management brought in to address the supposed new primary task of meeting the demand for Macs at a wide range of price points. However, the need for radical innovation remained, since the ascendency of Windows required the introduction of new interface paradigms. Hirschhorn presciently notes:

“By [re-]hiring Jobs [back from NeXT], Apple has decided to re-stage its business on the basis of this software, signifying perhaps that Apple executives now believe that the company can survive only if it produces the next decisive innovation in computing. … Indeed, reflecting on the Apple’s dilemma, Jobs, while still at arm’s length from Apple, said, ‘If I were running Apple, I would milk the Macintosh for all it’s worth—and get busy onto next great thing. The PC wars are over. Done. Microsoft won a long time ago.'”

Out with the old, in with the new

Steve Jobs was the co-founder of Apple and the driver behind the Mac. Only he could convincingly provide the necessary authority to make the new-new thing to be something other than “a better Mac”. That thing was the iPod, which then gave birth to the iPhone and iPad and iOS. Whilst iOS shares a common technology base with OS X, sales of iOS devices now eclipse those of OS X ones by a wide margin.

At the moment, Apple is managing to ride the wave of both a stream of leading innovations and outrageously good supply-chain management. Persistent competitor mis-steps also help. However, it could in future find itself again challenged by its core dilemma: is its primary task in integrating user hardware with radically innovative interfaces? Or is the primary task in creating the enabling software platforms that can be licensed out to partners, who can then overcome manufacturing constraints and reach all the niches?

The smartphone and tablet markets will eventually saturate and commodify. If Apple can’t come up with a new-new-new user interface thing, and accept the risk of disrupting a wildly successful existing business, then its primary task may have to change yet again.

(Microsoft is presently racked by this very issue in the reverse direction, and has to face the possibility of alienating both Windows users and partners in introducing a catch-up touch interface paradigm and integrated hardware and software devices.)

Telcos: purpose-for-fitness, or fitness-for-purpose?

Telcos are also caught between two mutually exclusive concepts of their primary task in the broadband business:
    • Their historical role, which is to create supply and then find demand to fill it.
    • Their future role, which is to identify and characterise potential demand, and then create and price supply to meet it.

The traditional phone network had sufficiently stable demand of a single quality level that a supply-push model could work. It also had a busy signal to exclude traffic that exceeded instantaneous ability to supply. The Internet broke both the technology and economic models of the phone system. It no longer assures quality, or excludes any claims on its resources.

With broadband, the moment telcos start adding customers to a contended resource, they begin to destroy their ability to supply. Service quality decreases monotonically as they add customers, until they must upgrade capacity. Unfortunately, those capacity upgrades have an ever-shortening lifespan. Reducing the time to transmit a single packet has a diminishing return, as the fundamental problem is too many contending flows, and a lack of performance, phase and outcome isolation.

This is unsustainable as a long-term structure, since we demand applications with ever stricter quality needs that do not fail capriciously, at the same time as loading the networks with more low-quality traffic. Everything has to be carried at the cost of the most quality-demanding flows. No improvement in optical systems or electronics can overcome the undesirable multiplexing effects.

The primary task has to change, because the mathematics of multiplexing is not negotiable.

Thus telcos must face the need to separate out the single data service level into multiple service and price levels. In creating a demand-pull model they will have to rebuild some of their network and IT systems. It is a question of when, not if, this change will occur. Indeed, this process of differential flow treatment has already started, just in a haphazard way without a strong conceptual framework. Pay attention to what people actually do, rather than what they say they do.

Change activates our psychological defence systems

The path to a demand-pull world is likely to be arduous and frequently rejected, even if staying in supply-push is far more dangerous to long-term survival. Why is this?

Moving from supply-push to demand-pull requires a rational pricing scheme for data. This exposes users to the true costs of supplying their service, and comes with a significant danger: alienation of your stakeholders. Your customers may churn to competitors who are promising good performance at an unsustainable price. The regulator may intervene on ill-conceived ‘neutrality’ grounds. Shareholders may rebel. Analysts and pundits will certainly react with horror as sacred historical structures are questioned.

Much like the star architect leaving, bad things might indeed happen as we switch primary task, and they will be outside our control. That is a scary prospect.

Hirschhorn anticipates a defence against the anxiety of change, that the new way will be denounced as morally unacceptable because of the possibility of risk:

“This [risk] stimulated a process of moral condemnation. Moral condemnation is thus paradoxically a sign of ambivalence and a defense against the dislike we feel toward what we also value. Moreover, because this dislike is diverted rather than quashed, executives are left with a residue of doubt. These feelings of doubt reinforce strategic drift.”

Stepping into our ambivalence

The answer is to engage with your ambivalence towards a risky change, and accept that there may be a process of letting go and grieving for the old way of being:

Psychoanalytic theory suggests two complementary perspectives on ambivalence. First, we feel ambivalent when we cannot acknowledge or contain the experience of feeling repelled by the elements or features of that which also attracts us. Second, we feel ambivalent when we cannot mourn the loss of what we must relinquish, what we cannot have, when we affirm another.”

The Apple leadership team became trapped by the success of the Mac, and ambivalence towards it became unthinkable and unspeakable. The same will happen with iOS and the operational processes for mass manufacturing. Tim Cook’s greatest danger is creating a perfect supply chain bureaucracy at Apple. That could incapacitate the creativity needed to ever moving beyond iOS, and keeping the interaction innovation cycle going.

Telcos are likewise trapped by the success of early broadband, and find it hard to acknowledge the economic and user experience failures of the Internet model that become more evident as the market matures. However, telcos typically lack Jobs-like figures (or even Cook-like ones) who can help the whole organisation engage with the process of moving on. Hence the stuckness and drifting we typically see today, with often lacklustre profits from what was supposed to be a broadband bonanza.

This paradigm change towards demand-pull requires telcos to re-think their business model for broadband. That means telecoms industry leaders must face up their anxieties and ambivalence about moving away from a supply-push model. In doing so they must engage with the complex organisational psychodynamics of the primary risk.

If you would like learn more about a demand-pull model for broadband please get in touch.

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