Matrix of Change
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Step 2: Identify System Interactions

After describing existing practices, the change management team should fill in the horizontal triangular matrix to identify complementary and competing practices. How do I do this?

Formally, the standard economic definition of complementarities refers to complementary relationships in a market - two inputs to a production process are said to be compliments of one another if a decrease in the price of one causes an increase in the demand for the other. Complementary processes reinforce one another whereas competing processes work at cross-purposes. Doing more of one complement increases returns to the other. For example, in the target business system, the Stage 2 rollout of e-Logistics core services includes fulfillment and returns management, and call center support. These core practice areas are complementary, and their resulting matrix interaction is therefore a "+".

The tracking system, built as a specialized application running on top of the database, can be seen as complementary assets, and their resulting matrix interaction is therefore a "+".

These practices were reinforcing. If on the other hand, the practices were competing - doing less of a competing practice increases returns to the other a "-" would be entered. Some examples of this would be a commitment to price transparency and a volume based sales; piece-rate pay tied to hourly output and greater worker responsibility and flexible/multi-purpose manufacturing equipment and low factory worker training.

It must be stressed that the presence of a plus sign does not indicate that an interaction is "good," only that it is reinforcing. In the absence of evidence to support either reinforcement or interference, the space at the junction is left blank.

A key point to stress in a collection of complements is that emphasizing one practice, for example the use of flexible machinery, increases returns to its other complementary practices, for example, shorter production runs. Likewise, doing less of a given complement reduces returns to its other complements. Not investing in flexible manufacturing equipment, for example, would not produce shorter production runs or lower inventories.

The key idea is more the assignment and explanation of the interaction term, than the number of interactions per se. For example, in both business systems the electronic tracking system is a core IT application. Their interaction is therefore complementary and represented by a "+". After outlining the elements of the existing system, managers create a horizontal matrix to identify complementary and conflicting practices and to capture the interactions between them, creating a vertical triangular matrix. A plus sign is placed in the intersection of two practices to indicate that they complement or reinforce each other. In the UPS example, the sophisticated tracking system enables customers to check the status of their order and obtain information on the current location of their packages. These practices are mutually complementary. A similar process is used to capture the interactions between the target practices into a vertical matrix.

NOTE: The plus or minus signs for each cell can be derived in a number of ways. Often, once the practices are identified, the interactions become evident. In some cases, formal models and theory provide guidance, for example formal statistical analysis can identify the existence of complementary or substitution effects. In other cases, business experience and intuition are in order to identify such effects.

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