Emergence magazine: Matt Black Systems and the Fractal Business Model with Andrew Holm

emergence THE JOURNAL OF BUSINESS AGILITY

JUNE 2021 VOL 02 / ISSUE 02

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emergence THE JOURNAL OF BUSINESS AGILITY

Matt Black Systems Traffic Lights to Traffic Circles and a 500% Increase in Productivity Andrew Holm and Dawna Jones

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ompanies unable to adapt are heading to a wall. Matt Black Systems found themselves in that position in 2003. How they responded offers a model for company decision makers who intuitively recognise survival is a bold choice.

Matt Black Systems is a small aeronautics manufacturing company in the south of Britain. With a managing director in charge of 30 employees, it looked like a normal business, but on the balance sheet, Matt Black Systems had difficulties.

In 2003, Andrew Holm, a turnaround specialist, joined Matt Black’s co-founder’s son, Julian Wilson, and together they began a transformation process that resulted in a 500% increase in productivity. How did they do it? Data-driven iterations combined with entrepreneurial intuition exposed surprising insights about the interaction between the rules and structures in place and the effect on productivity. Andrew takes up the story.

Matt Black Systems was a traditional company, hierarchical and functional, albeit small. I came from a multinational background so saw much the same structure as a multinational, but on a smaller scale. The measures and metrics at Matt Black were

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either shining orange or flashing red. Customers and the organisation knew it. Matt Black Systems needed to change or, frankly, it would die.

Until we began Matt Black’s transformation, the predominant model of work was still driven by a functional and hierarchical system with a C-suite at the top directing the show. The solution to competitive pressures had been to introduce patches to the traditional organisational model found in toolkits such as Lean and Agile.

The first move in the turnaround was to introduce externally focused Contract Metrics (Quality, Delivery, Price, and Control) and internally focused Contract Measures (Prosperity: salary and bonuses, Formed Contracts: orders, Satisfied Contracts: sales, and Success: profit). As changes were made, we could monitor the results from the perspective of the organisation and its external collaborators. We found out what worked and what didn’t work. Lean worked, but when you removed the supporting consultants, behaviours drifted backwards. It didn’t sustainably work. We successfully put Lean into manufacturing. Did it have an effect at the whole company level, on design and other functions of the business? The truth is it didn’t.

emergence THE JOURNAL OF BUSINESS AGILITY

We continued to experiment our way to the “page 37” moment described in 500%: How Two Pioneers Transformed Productivity.1 That is when we realised that all the patches we were making had to be supported on an ongoing basis. We ran our experiments long enough to know that if the improvement activities weren’t supported by people dedicated to overseeing their implementation, behaviours would always revert back.

It was as though the behaviours reverted back to an invisible point of equilibrium – back to where they started.

The “page 37” moment was “it’s a rethink, guys, because we’ve run out of cash”. A quarter of a million pounds is not much to a lot of organisations, but to a small organisation, it was a lot of money. The money spent failed to deliver any sustainable and meaningful improvements in terms of results that the customers, suppliers, investors, and employees could see. We were trapped.

The need to change was driven by recognising that the context the business was operating in had changed irrevocably, and that was before the global pandemic! Today, change is even more imperative. First, traditional management is expensive – too expensive given the value contributed, even in a small-sized operation. At Matt Black Systems, 40% of labour costs could be attributed, one way or another, to bureaucratic functions.

However, most bureaucracy, enshrined in jurisdictional laws and regulations, is unavoidable. Employment laws, contract laws, health and safety laws, company law, and quality regulations are not optional, especially in the aerospace industry where public safety is at risk. The question posed is, “How do you comply with these legal and regulatory requirements in a way that is more efficient, effective, and economic”?

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Bureaucratic waste is costly; the resulting disengagement is unaffordable. Andrew points to baseline supervisory management, HR, quality, finance, and other siloed functions that put people in boxes, leaving little flexibility in the internal labour market. So why is this a problem?

Over the last 150-or-so years, we have consumed vast quantities of energy to produce vehicles, buildings, aircraft, industrial machinery, and such like. Energy was relatively cheap; labour was inexpensive and moderately compliant. A small number of well-educated people, using the traditional functional and hierarchical organisational model, could control vast empires and gain almost unlimited wealth.

The liberalisation of trade, initially through the GATT agreement, allowed many more people to benefit from this industrial machine.

Yet, as products have become cheaper through labour arbitrage and the liberalisation of trade, it is almost impossible, in western economies, to produce products at the price modern markets are setting.

Making high-volume consumer and industrial products, in many cases, is a fool’s errand, unless, of course, you are a philanthropist!

Today the pressure on natural resources is palpably visible to all. Humans are consuming the planet, and we know it. Western economies are struggling, and failure can be seen through almost-zero interest rate policies, quantitative easing, devaluations of currencies, industrial closures, unemployment, and, in some cases, the breakdown of societal constructs. The response to all this upheaval has been to just let these industries close and accept our fate at the hands of arbitrage.

But do we need to do that?

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The dynamic context propels switching from a traffic light mentality, where positions are fixed, unresponsive to conditions, and rely on concrete directions, to traffic circles (roundabouts), designed to create uncertainty. Traffic circles (roundabouts) were first introduced in the Netherlands2 at an intersection with two busy two-lane roads. Uncertainty makes roads safer because drivers must keep their heads up, pay attention, watch out for other drivers, and proceed more carefully than you would when you think you have the right to the road. Imagine having to use your brain to navigate the uncertainty of business conditions rather than drive in straight lines?

This was strange. It was by no means the busiest time in the production facility – quite the opposite, in fact. Something was awry for whatever reason, and it needed to be sorted. The behaviour suggested that we were rewarding people in the wrong way, by paying overtime, so we changed the reward. We did the math and decided to pay them for the overtime they did not work.

After their “page 37” moment, the options available to Matt Black Systems were limited: sell, close, or do something radically different. The decision was made to push on, and the journey began. A new organisational model was needed, but what it looked like was not clear. Four customer-focused manufacturing cells were the remnants of the Lean program. Why not start there?

To launch the transformation process, Andrew and Julian started with a small experiment. Looking at the cost of overtime, they noticed there was a surge in overtime just before the summer and Christmas breaks.

The results were astonishing.

Within six months productivity had improved by 20%, with the same amount of product being shipped but fewer hours at work with no additional cost to the organisation. All remnants of time and attendance monitoring were removed. No time sheets, no audited attendance times, no clocking-in machine. We wanted to remove all artefacts of the traditional time-based culture.

By now, it became clear that their existing organisational structure and ruleset was holding Matt Black Systems back. The increase in productivity from changing the overtime ruleset pointed to the next step: making a change to the physical structure.

Matt Black Systems had a centralised stores function. Andrew and Julian decided to distribute the inventory, previously held in a centralised store, to each of the locations (think work cell). Employees agreed, but implementing the decision meant disrupting habitual patterns. While they said yes to the decision, nothing happened. Out of exasperation, Andrew and Julian completed the integration themselves and witnessed another leap forward in productivity. Experimentation continued by changing a rule or a physical structure, and the results were monitored through the contracts’ measures and metrics.

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Bit by bit, the original structure and ruleset of the old organisation morphed into a totally new organisational model. What was emerging was a fractal network organisational model inspired by nature, but that didn’t become clear until much later.

From a management point of view, control was located in each individual cell owner, much like a driver in a traffic circle. The old environment relied on centralised command and control, just like a traffic light junction. The new environment relied on devolved decision making, which necessitated the implementation of a new coordination system. This looked more like a marketplace. The same contract-based ruleset used in Matt Black’s relationship with external clients was simply brought inside the organisation, and an internal market was established. The cells, as virtual companies, were like stallholders trading externally with customers and internally with other stallholders.

It was all ridiculously simple; the answer to our woes lay in front of our very eyes. We did not have to invent anything.

Step by step, all the functionality of the centralised organisation was devolved into each of the virtual companies, supported by custom-built peer-to-peer IT. Each virtual company did everything that the statutory company did. In parallel with this integration, the virtual companies were split and continued to be split until the number of people in each virtual company was reduced to one.

The impact of all this was immense.

Despite the replication of functions within each cell, productivity took another huge leap forward, and the strangest thing started to happen. The new virtual companies were far better at performing tasks that were previously done by the centralised functions.

For example, devolving purchasing from a centralised function into the virtual companies significantly reduced acquisitions costs, which was unexpected. It told us that there were no true economies of scale gained through the centralisation of purchasing.

Revenue per person increased more than five times – a trend that continued until, by 2020, two people generated the same revenue as the old organisation did with thirty.

The thirty people were not useless – quite the opposite. The old organisational model was preventing their growth and restricting the organisation’s productivity.

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The company shrank from 30 to five, while revenue increased. As peoples’ roles widened, specialists who didn’t want the additional responsibilities left and went to new roles that better accommodated their focused skill set.

No one was fired.

People have choices both in what they do and how they do it. This is expressed in the difference between self-leadership and self-management. Self-management is when you are given a goal and you decide how to get it done. Self-leadership is when you choose the goal and how you get it done.

The new way of working demanded more of people.

Just like in a traffic circle, control is devolved to the individual driver’s choice; cooperation is in everyone’s best interests. Competition within an organisation or between virtual companies becomes more of a competitive collaboration toward a larger goal or purpose. This is far more inspirational and engaging than individually competing for status or recognition. Competition without creating value minimises talent through the constant erosion of creativity as people focus on delivering short-term gains.

Oddly, our approach was accused of encouraging selfishness – that each person would act in their own best interests. The bizarre paradox is that’s exactly what they did. Acting in their own selfish best interest resulted in being unselfish. It made much more sense for them, as individuals, to join together in groups to attract work. Cooperation became a core talent.

How did Matt Black achieve a 500% productivity increase while staff count declined?

Achieving a 500% increase in productivity was never the goal. The original goal was simply to survive and satisfy our customers better than our competitors. If we had aimed just to increase productivity, we would never have seen the wider benefits that emerged, nor would we have achieved 500%.

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The narrow focus on profit and on measuring time is a distraction from the real goal of an organisation which is to enhance prosperity by forming and satisfying contracts successfully.

Some companies have taken their time-based culture to such an extreme that they are measuring the mouse clicks per minute to make sure employees are actually at their computer when they are contracted to be.

This sort of invasive oversight is the ultimate expression of a time-based culture. The traditional organisational model looks at people as a mechanism, a cog in the wheel, but people aren’t cogs in a wheel. For collective success, the environment needs to encourage and support people in bringing their six core human talents to the workplace: curiosity, imagination, creativity, self-discipline, co-operation, and realisation skills.

Does a self-leading network approach, like the one Matt Black evolved to, require a more advanced leadership intelligence?

Andrew thinks so.

Data is to the past as intuition is to the future. You don’t have data about the future. Everything in the future has a probability associated with it.

Human beings are really great at intuiting, and the more they exercise their intuition, the better it gets. Intuition is not a childish thing. Intuition is taking all the “what if” statements of the data you’ve got, then analysing them in a future perspective to arrive at your best judgment.

The world is messy, and unless your organisation is capable of handling that mess, you are going to fail.

You have to handle mess with mess.

Flexibility is hugely important. The system that you design has to be able to withstand the perturbations that are applied to it, and if it can’t, it will fail. Centralising and over-optimising a system for certain conditions works well when these conditions exist but collapses when they don’t.

emergence THE JOURNAL OF BUSINESS AGILITY

Like it or not, work is already moving from a “do as you’re told” traffic light mentality to a devolved “decide for yourself” traffic circle mentality. Individuals must be capable of standing alone and working cooperatively within a fluid goal-inspired network. One controlling mind is no longer sufficient in an ever more complex and chaotic environment. The new world requires everyone to be fully engaged in steering and sustaining prosperity, much like every cell in any organism contributes to its vitality. In that sense, the model Matt Black naturally evolved to is one based on a fractal, where each virtual company is based on a self-similar repeating pattern. Small wonder that a leaf became the metaphor for a small company in the south of Britain who realised a 500% gain in productivity simply by iteratively designing a business model which supported people to bring their six core talents to work.

The ultimate lesson learned by Andrew and Julian was that authentic leanness and agility were not patches to their original, traffic light, organisational model, but rather a free outcome from their new, traffic circle, organisational model.

REFERENCES: https://www.amazon.com/500-transformed-productivity-self-leading-organisation/dp/1527265358 1

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Andrew Holm is a co-owner and director of Matt Black Systems and is best known for his work on organisational modelling and business transformation. Andrew has completed numerous business turn-around projects and is a recognised thought leader in self-leading organisations. He is the creator of the first fully integrated software application for self-leading organisations. His books, Introducing Your Invisible Manager and 500%: How Two Pioneers Transformed Productivity3 are available on Amazon.com. Contact Andrew through his website: Fractalwork.com.

Dawna Jones co-creates adaptive strategies for addressing complex, perplexing issues, leading organisations past resistance to reach for 10X inspiring goals. Her capacity to sense and respond to systems provides novel ways to get past growth constraints and serve our world in more generative ways. A serial podcaster, she is also the author of Decision Making for Dummies and a contributor to From Hierarchy to High Performance and two other books. Plus, she hosts the Inspirational Insights podcast4. Contact her through LinkedIn5 or directly at dawna@frominsighttoaction.com.

https://www.wired.com/2004/12/traffic/

https://www.amazon.com/500-transformed-productivity-self-leading-organisation/dp/1527265358 3

4 https://shows.acast.com/insight-to-action-inspirational-insights-podcast 5

https://www.linkedin.com/in/dawnahjones/

https://shows.acast.com/insight-to-action-inspirational-insights-podcast/episodes/500-how-two-pioneers-in-self-management-achieved-an-unbeliev

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7 https://www.management-issues.com/podcasts/374/the-road-to-self-management/ 8

https://youtu.be/nwVoFq16sMk

For more insight on Matt Black’s journey...

Listen to the recent episode with Andrew Holm on the Inspirational Insights podcast6. Dawna visited Andrew and Julian at Matt Black Systems in 2015 and published an episode in 2016: “The road to self-management7”. Dawna has been podcasting on leadership and management innovation since 2008.

Watch the interview fellow podcaster Richard Atherton did on the Being Human podcast with Julian Wilson8 on YouTube.

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