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At its essence, dynamic stability is a process of continual but relatively small change efforts that involve the reconfiguration of existing practices and business models rather than the creation of new ones. In addition to tinkering and kludging, which differ from each other mainly in scale, dynamic stability requires what I call pacing—the big and small changes must be implemented at the right intervals. Let's look first at what I mean by tinkering.
Tinkering. We all know a Mr. Fixit, someone who is always making things, fiddling with odd nuts and bolts and pieces of old washing machines. Similarly, some of the greatest change masters—companies such as 3M and Hewlett-Packard—are world-class tinkerers. They go into the corporate basement, so to speak, where they rapidly pull together inspired solutions to their problems. Dow Chemical, for example, developed Saran Wrap for an industrial-coating application. With a little tinkering—and a lot of expertise in marketing and branded consumer products—Dow successfully aimed the product at consumers, an entirely different market.
Perhaps the most successful example of tinkering I have witnessed was at a company that produces military helicopters. The company's production runs had been extremely small, typically just four helicopters. Each helicopter was customized for a specific type of mission—submarine hunting, for example, or tank busting. According to one engineer, no two helicopters came out the same. Even identically designed helicopters required a lot of jiggling to get all the parts working together. That production style was fine as long as military budgets were big, but the market became much more competitive after the end of the cold war. The company was under intense pressure to achieve economies of scale in development and production. It needed to change.
The organization itself, however, had little desire or energy to heed the call. It had a long history of big, expensive, failed changes, and employees were burned out and cynical. Desperate for a solution, managers discovered they already had a very good product-development model in the company's software division. They believed the model could be adapted to helicopter production to minimize product-design costs. Managers also realized they could improve production economics by using employees who already had experience with mass production in the auto industry. The company developed a new production strategy, which it called the Barbie doll. It built a base helicopter that could be dressed up with a set of accessories—guns, bombs, avionics—for customers in the military to play with. The strategy allowed the company to reap the benefits of both mass production and mass customization.
Nothing brand-new was created in this instance. The auto industry knowledge and the software development processes were already in place, as were the employees who made the change happen. The techniques are now well established in the company, and the not-invented-here syndrome is no longer an issue. Tinkering, of course, does not guarantee successful change. But it is less costly, less destabilizing, and quicker than creative destruction and invention.
Kludging. Kludging is tinkering, but with a college education. It takes place on a larger scale and involves many more parts. Some of the parts can come from outside a company's existing portfolio—as they do in mergers and acquisitions—but usually the components of a kludge are assets lying around an organization's backyard, such as skills in particular functions or standard technologies or models.
Because they are so large, kludges can result in the creation of a division or an entire business. Consider the case of GKN, a British industrial conglomerate. Starting in the early 1980s, contract cancellations started to pose a real problem. The organization would typically land contracts and then find engineers to staff the projects, but sometimes contracts would get postponed or canceled, leaving engineers idle.
To deal with this recurrent situation, GKN's units began to rent out their idle engineers for short assignments elsewhere, pulling them back into the organization as needed. The units started the practice on an informal basis, but it proved so successful that GKN created a new company to manage the hiring out of its own—and other companies'—engineers on short-term contracts. The new company, CEDU, is for all intents and purposes a sophisticated employment agency. The change in the status quo has been almost painless. The business model had been known in the organization for years. To make more money from it, all GKN had to do was formalize the practice in a new company.
Old-economy companies that try to adapt to the new economy can use kludging very effectively—they don't have to start Internet businesses from scratch. Consider Barnesandnoble.com. Dotcom, as it is known internally, saw that it could adapt Barnes & Noble's brands—along with its bricks-and-mortar capabilities in procuring books, paying publishers, and managing inventory—for e-commerce. As Dotcom CEO Stephen Riggio puts it, "It's all there.... As a result, our on-line company has been able to hit the ground running." To complete its capabilities, Dotcom has borrowed resources from outside its boundaries: a suite of software acquired from Firefly, an extensive list of potential customers from AOL, and a pricing strategy copied from its key competitor, Amazon. Little at Dotcom was invented from scratch.
Pacing. Most proponents of change management argue that you have to change as much as you can as quickly as you can to stay ahead of the competition. That advice is not so much wrong as overgeneralized. Like individuals, organizations have different needs for change. Organizations that have consistently avoided change may need to undergo rapid, destructive change. Companies that already have been changing rapidly face a different challenge—they must learn to shift down from highly destabilizing and disruptive change to tinkering and kludging.
One business leader who understands the value of pacing is Lou Gerstner. At IBM and, before that, at American Express Travel Related Services (TRS) and RJR Nabisco, his initial impact was pure creative destruction. In his first nine months at TRS, for example, Gerstner launched a massive reorganization of the card and traveler's check businesses, which was accompanied by a widespread shift of managers across those units. A rash of new product introductions followed quickly. TRS's nine-month transformation was, in Gerstner's words, like "breaking the four-minute mile."
But Gerstner had a genius for knowing when it was time to rest. He was alert to early signs of change fatigue: cynicism and burnout. He recognized that the success of his overall change campaign depended on the stability of the units involved, and he was very thoughtful about how and when to intersperse the small changes among the big. At TRS, no new products were launched and no new executives were brought in from outside for 18 months after Gerstner's initial blitz. But he didn't sit back and do nothing. He tinkered constantly to prevent the company from drifting into inertia; he played with the structure, with the compensation system, with TRS product offerings. But the unthreatening nature of the interim changes allowed the company to better absorb a second wave of product launches and restructurings when it came.
Incidentally, it's particularly easy for companies in the hurly-burly of the new economy to forget the importance of slowing down. But being first does not necessarily mean being fastest. Remember the old story of the two unfortunate campers in the jungle who noticed a jaguar stalking them. One of them sat down and put on his running shoes. The other looked at him incredulously. "You're crazy," he said. "You're never going to outrun that jaguar." "I don't need to," the first replied. "I only need to outrun you."
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