Complexity and the Enterprise with examples from Intel Corporation

Complexity and the Enterprisewith examples from Intel Corporation Karl Kempf Decision Technologies Group, Intel Corporation Adjunct, Arizona State University

AGENDA • The Enterprise • Interacting Vectors of Complexity (with examples) • The Illusion of Control (with examples) • Practical Problems • The communication-based problems • The forecasting-based problems • Looking for Practical and/or Theoretical Solutions • Discussion TMG DECISION TECHNOLOGIES

Long Term Innovation Pipeline Long Term Innovation Pipeline Long Term Innovation Pipeline MFG PROCESS DEVELOPMENT PRODUCT DEVELOPMENT MFG CAPABILITY DEVELOPMENT MANUFACTURING SUPPLY CHAIN Manufacturers Distributors End Users Equipment Materials Capacity Logistics Goods Services SELLER BUYER Incremental Innovation The Core of the Enterprise* *NOTE: Neglects such important functions as finance, personnel, information technology, etc. TMG DECISION TECHNOLOGIES

The Core of Intel Long Term Innovation Pipeline Long Term Innovation Pipeline Long Term Innovation Pipeline MFG PROCESS DEVELOPMENT PRODUCT DEVELOPMENT MFG CAPABILITY DEVELOPMENT MANUFACTURING SUPPLY CHAIN Manufacturers Distributors End Users Equipment Materials Capacity Logistics Goods Services SELLER BUYER Incremental Innovation TMG DECISION TECHNOLOGIES

Complexity: Structure • Each of the main organizations has … • a recurring management structure (business and technical) • a large set of business processes (internally facing and externally facing) • a set of metrics including cost, benefit, efficiency, speed • a group of long standing domain experts, journeymen, & new hire novices • a catalog of training materials, classes, and instructors • …… • In the trenches at the bottom of the organization they are very different in their day to day operations • In the executive offices at the top of the organization they become more similar – they must integrate / complement / coordinate to achieve the overall goals of the enterprise TMG DECISION TECHNOLOGIES

Complexity: Nonlinearity • There are many well-known non-linear relationships in our enterprise … • In Manufacturing – work in progress VS throughput • As a Buyer and as a Seller – price VS volume • In the Supply Chain – inventory VS stock out risk • We suspect there are many more … • Manufacturing process technology development • Product technology development • Manufacturing capability technology development • There are clearly discontinuities … • Radical innovations (inside the enterprise as well as outside) • Incremental innovations TMG DECISION TECHNOLOGIES

Semi- Finished sf-1 sf-2 sf-3 sf-4 sf-5 sf-6 sf-7 sf-8 Finish Finished f-a f-b f-c f-d f-e logistics Assembly Test Complexity: Manufacturing Equipment Set A – batching machine – Queue #1 & #3 (Product A’’) (Product A’) Material A Product A Process Step #1 Process Step #2 Process Step #3 Process Step #4 Product B Material B (Product B’) (Product B’’) Equipment Set B – setup machine – Queue #2 & #4 TMG DECISION TECHNOLOGIES

MFG Wholesaler Distributor Retailer MATERIALS CUSTOMERS BEER BEER BEER ~12 ~24 Suppliers Fabrication Sort Assembly Test Finish Customers ORDERS ORDERS ORDERS Thousands of Suppliers Thousands of Products Thousands of Customers Complexity: Supply Chain TMG DECISION TECHNOLOGIES

Complexity: Self-Reorganization • In small scale, enterprises adaptively self-organize … • Work groups at the bottom of the enterprise self-organize to accomplish a task • Very dynamic, spontaneous, temporary • At all scales, enterprises self-reorganize … • Always intended for improvement in response to … • Internal change of business focus • Internal change of technology • External change in collaborators (suppliers and/or customers) • External change in competitor and/or market • Sometimes incremental, sometimes radical (re-invent the organization) • Little (or no) ability to predict the result … • Sometimes things get better • Sometimes things stay the same • Sometimes things get worse TMG DECISION TECHNOLOGIES

Complexity: Decision Making • For a considerable time enterprises operated under the assumption that decisions were “lead by an invisible hand” to find greatest value. (A. Smith) • H. Simon showed that this is not the case: enterprise rationality is bounded by our ability to … • Imagine all possible scenarios • Assemble all the requisite data • Compute all possible outcomes … and so enterprises rely to a large degree on intuition. • D. Kahneman has shown, however, that our intuition is frequently flawed. • Framing effects • … TMG DECISION TECHNOLOGIES

Behavior of the Enterprise • Enterprises exhibit very complex trajectories • There is seldom any approach to equilibrium and the enterprise never periodically returns to some standard base state. • Small inputs sometimes produce dramatically large results. • Sometimes a small change to a product design dramatically increases its popularity in the market, • sometimes it doesn't, • sometimes even a large change has no effect. • The same apparent cause sometimes yields a different result. • A sales promotion that achieved record results sometimes doesn't work in another time period or another geography, • sometimes it does, • sometimes sales change without any promotion at all. • In all cases, behaviors emerge and can be logically rationialized after the fact, but not predicted in advance. TMG DECISION TECHNOLOGIES

The Illusion of Control • In Manufacturing, an integrated set of applications … • Factory design • Factory build and ramp up • Factory operations … dramatically benefited the Enterprise. • In Supply Chain Management, a set of integrated applications … • Production Planning (for material release into factories) • Inventory Planning (for targeting safety stock) • Execution Control (of the production and inventory plans) … dramatically benefited the Enterprise. • In Procurement of Goods and Services … • Modified options theory for equipment • Optimization theory for materials • … TMG DECISION TECHNOLOGIES

The Illusion of Control • These “successful” examples continue to motivate the Enterprise to strive for more and more control – more projects of larger scale with better integration. • These efforts are also motivated by pressures from the customers, the competition, the suppliers, the market, the stockholders, internal competition, …… • Management theories continue to be developed to better manage projects, productivity of the work force, product innovation, shareholder value, and so on. TMG DECISION TECHNOLOGIES

Intel Revenues AREA UNDER THE CURVE = $350B TMG DECISION TECHNOLOGIES

Intel Revenues AREA BETWEEN THE CURVES = $70B AREA UNDER THE CURVE = $350B TMG DECISION TECHNOLOGIES

Two Aspects of Complexity The complexity of our enterprise Our ability to manage complexity TMG DECISION TECHNOLOGIES

Communications and Knowledge • Communication always a problem: 10 100 1,000 10,000 100,000 • Sharing of past knowledge – situations and people change, BUT .. • The R. Leachman story (D2) • The M. Spearman story (F9) • … • Sharing of current knowledge – execute in a timely fashion, BUT … • The multi-project story … (PULL) • The large project story … (MFO) • … • Sharing of future goals – the power of shared goals, BUT … • Getting 100,000 people (or at least the subset of leaders) to pull in the same direction proves especially difficult in day to day practice … TMG DECISION TECHNOLOGIES

Communications and Knowledge • As complexity goes up, with bounded capacity, • Some people expand and grow • Some people remain relatively static • Some people become broader but more shallow (SC) • Some people become deeper but more narrow (Prod - MFG/TD) • We hire more people (most with only basic knowledge of our enterprise) • … at the very time that our overall skill set needs to be rising rapidly!! • As complexity goes up, we observe that practically speaking … • Reuse of existing / historical knowledge goes down, • Communication of new knowledge goes down (relatively), • Communication of status and coordination goes down (relatively), • Communication about goals for the future goes down (relatively), … at the very time that all of these should be INCREASING!! TMG DECISION TECHNOLOGIES

Forecasting • Intel is on a technology treadmill … • Each product generation must be an improvement (faster, cheaper, more power efficient, increased functionality, smaller size, etc) • The treadmill is speeding up (market place expectations, competition, etc) • To satisfy this “requirement”, the technologies must improve … Manufacturing process technology, Product technology, Manufacturing capability technology … and this almost always means increasing complexity. • Rarely are we able to increase the speed with which we gain these improvements • Example from building factories • Sometimes we are able to hold a speed metric in the face of rising complexity • Example from manufacturing cycle time per mask layer • Too often, increasing complexity slows us down (even with better tools and more personnel and increased budgets) • Example from product design TMG DECISION TECHNOLOGIES

Forecasting • Complexity is rising for our suppliers, customers, competitors, … • From the perspective of our customers, this means ON AVERAGE six changes to every order … • An order is placed with product-quantity-date-location • Sometimes the product is changed (to a faster or slower version) • Frequently the quantity is changed (more or less (or zero)) • Often the date for delivery is changed (earlier or later) • Sometimes the location for delivery is changed (city, state, country, continent) … until a few days before delivery (and they can send them back later !!!) … given a total manufacturing throughput time measured in months. • This complicates dealing with our suppliers. • Much worse … • How long does it take you to decide which computer to buy? • How long does it take us to design a new product and introduce it to the market !!! TMG DECISION TECHNOLOGIES

Forecasting • As complexity rises, everyone’s ability to forecast falls (theoretically & practically). • In Supply Chain Management … • Our many customers pass market uncertainty / variability to us, • We absorb some (through inventory and delayed differentiation) and • Pass the rest on to our many suppliers. • In Managing Technology Development … • We make our best informed choice (“guess”), • Betting the company on each new product generation and • Influencing the ecosystem as best a possible. • As complexity goes up, • our strategic and tactical speed of action goes down and our need to forecast goes up • just as our ability to forecast goes down TMG DECISION TECHNOLOGIES

Two Aspects of Complexity Ability to Communicate The complexity of our enterprise Speed of Acting Our ability to manage complexity TMG DECISION TECHNOLOGIES

Communication Prospects • Successful efforts at clustering over various relationships … … but still working to broadly utilize the results. • Number of internal conference to share the latest ideas … • … but have not implemented an archive that is easily accessible. • Intel University with trainer and student requirements … • … but difficult to keep up with the pace of change. • New efforts to improve internal coordination … • … cultural resistance to change that is not perceived to be needed. • … TMG DECISION TECHNOLOGIES

Forecasting Prospects • Different ideas at different time scales … • Daily/Weekly – better control of differentiation using “real time” model predictive feed forward feedback control • Monthly/Quarterly – broader use of (modified) options theory and auction theory in dealing with a variety of suppliers (materials, equipment, logistics) – beginning use of “markets” as a forecasting tool • Yearly/Multi-Year – scenario planning (plans are useless, planning is indispensable) • NOTE: we have been VERY good at forecasting technology! • Working on improving (already strong) working relationships with our customers (and suppliers). • However: our customers can’t predict the future / fashion of the market any better than we can ! • The end users usually don’t know what they want until they see it !! TMG DECISION TECHNOLOGIES

Closing comment on success and motivation for change (especially wrt recognition and adoption of complexity methods). DISCUSSION ? SUGGESTIONS !!! TMG DECISION TECHNOLOGIES

Complexity and the Enterprise with examples from Intel Corporation