Successive crises in Russia triggered the same strategic response: pump enough money into the economy for long enough until oil prices rebound. But, as my previous blog questioned, what if oil prices don’t go back up? How will Russia correct its current economic fragility then?
Russia’s government has been demanding economic diversification since the days of perestroika. The economy's lack of resilience left it naked in the marketplace, causing widespread misery in the 80s, 90s and already twice this century. Yet, despite repeated calls for diversification the economy stubbornly refuses to. The reason is that nobody really knows how to do it.
The temptation for Russia is to follow the same path taken by developed economies. But the risk is in confusing cause and effect. Does the US have an innovative economy because it has Silicon Valley; or does the US have Silicon Valley because it has an innovative economy? The white elephant that is the Skolkovo project shows the Russian government’s view but also that success rarely comes from copying what others have done; because context is king.
No country - not even the US itself - has built a successful economy by following the American business model (except perhaps Chile, the exception proving the rule). The US may advocate free trade, liberal democracy and small government but it became the world’s pre-eminent economy on the back of protectionism, oligarchy and a military-industrial complex driving policy-making to this day. It had also turned its back the exploitative colonialism model of the 19th century's hegemon - Britain - to propel its own rise in the 20th century; much as China - the 21st century's emerging power - is doing now.
The lesson leaders must recognise is that taking the same path doesn't lead to the same destination, because the path is not stable. The ocean navigated in winter does not present the same challenges as the same ocean in summer. Best practice is always past practice in a different context. It is at best misleading, at worst dangerous. Decision-makers must therefore develop a healthier scepticism of those who tell them what must be done - for it's impossible to know. Russia has never diversified before and there is no map to follow.
Successful economies, organisations and people must discover their own, more natural, paths to follow. Decision-making must be grounded in the local context. You can't replicate the success of others because your starting points - the time, place, capabilities and opportunities - are different. Leaders must resist the temptation (and habit) of picking models they like (e.g. Silicon Valley) and crow-barring reality to make it fit the vision and instead deal with the truth of the position they are facing and act accordingly.
Russia's economy will not diversify while the focus remains on what must be done. In a VUCA world of volatility, uncertainty, complexity and ambiguity clear solutions do not exist. The focus should be on how can we make sense of the world around us so we can act better in it?
Rather than trying to engineer ideal future outcomes leaders should seek to better manage the evolutionary potential of their present. They should launch a thousand safe-to-fail probes - designed to generate practical data from real world interventions without exposing the system to irrecoverable risk - to increase real-time awareness about what’s really happening and why. Instead of more top-down initiatives - crafted with the best of intentions by big brains, but often subject to expert bias, groupthink and hypotheses that lack context - they must become better at also gathering multiple perspectives from those closest to the action: using the insights to drive pragmatic, practical action.
Overcoming fragility in organisations and economies requires leaders learning how to augment their current skills with new ones that uncover pristine paths to success, rather than traversing the well-trodden trails of others. Like the two frogs in the story who fall into a vat of milk, they must not be the one who gives up because he can't see the way out, but become the frog who struggles hardest and who with every kick slowly turns the milk into butter, allowing him to hop out of danger tasting sweeter.
Narrative Insights is part of the Cognitive Edge global network, providing the pragmatic tools and approaches to help leaders in diverse organisations tap the evolutionary potential of their present. Get in touch today for a free consultation.
We live, especially in Russia today, in a VUCA world. Declining oil prices and increasing political rhetoric have aroused volatility (V) and created deep uncertainty (U) about what might happen next. Coupled with the growing complexity (C) of the modern, integrated global economy we're now in a place few have been before. There are no maps to navigate by and every decision is ambiguous (A), open to multiple, different interpretations. And this represents the greatest opportunity for Russian business.
Crises are inevitable - what goes up, must come down - but dips into crisis-generated chaos provide opportunities for radical change and renewal. Yet, till now, Russia has wasted every crisis, tightening belts and waiting the storm out until we emerge, finally, blinking into the sunshine of an economy awash with higher-priced oil money: while the desperate calls to 'diversify, innovate and modernise' heard on the downturn become mere echoes again.
But what if oil prices don't come back again?
If we assume the 'crazies' on the US far-right don't lead us to war this year the current crisis represents the biggest opportunity the Russian economy has to realise the potential its size, resources and human capabilities possesses. For in a system starved of resources incumbents will have to adapt or die - and those that don't will exit the game, leaving more for those who remain. But many will not heed this call, while others won't know how to.
Successful businesses will increasingly find their established operating models exposed by the realities of a VUCA world. Their past success blinds them to the big shift coming. For example, they look to exploit big data, as their governing paradigm remains economies of scale and scope, but the data deluge we face means there is already more data than we'll ever have the capacity to collect, store and analyse. If one can't calculate all inputs, one can't anticipate all outcomes rendering 'outcome-based' strategies sub-optimal. In the emerging paradigm success will not be enjoyed by those with the biggest data sets, but the ones who know how to use them better.
In a VUCA world 'action beats reaction', which requires operating tighter, quicker OODA loops: see the world the way it really is, rather than how you'd like it to be (observing); shape decisions according to context, not context according to theories (orienting); face failure head on, recover quickly and learn from it to reduce fear of taking risks (deciding); and rapidly amplify successes that push the boundaries of possibilities outwards (acting).
Optimal strategies will focus on effectiveness over efficiency for it isn't the best (e.g. most efficient) that prospers, but the ones best able to adapt to external changes (i.e. effective). As the economist John Kay memorably put it: the Giant Galapagos Tortoise hasn't prospered for millennia because it's a master race but because it adapted to an environment full of mud, lush vegetation and no mammalian predators better.
Russian business therefore should reject the myth of the one right answer. If every decision is the right one, you're not trying hard enough. 'Same old' risk-free strategies may provide the comfort of higher certainty (and massage the ego of the 'always-right' leader) but are exposed the moment a rival takes a calculated risk and makes the game-changing move. Organisations and economies thrive on risk-taking and failure is a necessary accelerator of the upwards learning curve - it therefore must be managed and budgeted for. In the words of Peter Drucker, 'those who take risks generally make about two big mistakes a year, while those who don't take risks generally make about two big mistakes a year' meaning victory will go to those who execute faster OODA loops to ride VUCA waves.
Mitigating business risks while reaping the rewards
Low cost, high impact tools and approaches exist - like SenseMaker® and the Cynefin Framework™ - that help organisations quickly construct and accelerate their own OODA loops. Tapping into knowledge flows in and around the organisation uncovers the critical weak signals of emerging opportunities and threats, as well as unique insights in how to exploit them. Organisations must learn to probe the environment to test coherent ideas and gather real-world examples of what works and what doesn't.
The advantage of a portfolio of probes over 'bet the house' fail-safe strategies is that they are quick to launch and cheap enough to abandon if they produce nothing of value: while those that show early signals of success can be quickly amplified. In an uncertain world picking winners is impossible. Launching multiple, parallel, safe-to-fail probes is your best chances of finding winners quicker.
Russian business must not seek alignment of its people around target outcomes; hard targets restrict the flexibility needed to adapt and alignment destroys the diversity of perspectives needed to truly innovate. Instead, Russian business must unleash a thousand probes to discover routes through the fog and become agile enough to quickly exploit them. We need to do this before the VUCA world shifts, obscuring the paths once again. Or, we can just wait for the oil prices to go back up, eventually. The choice is ours!
This represents a radical new approach to managing in a highly challenging environment. For more details on how this can benefit your company contact firstname.lastname@example.org or visit www.narrativeinsights.com.
Russian business faces challenges that many of its leaders are ill-equipped to meet. The outside world is evolving rapidly; in unpredictable and often frightening ways. Yet discussions in Russia about the types of leadership required continue to focus inwardly on personality types, rather than what organisations must become. And to paraphrase Jack Welch: 'if the rate of change on the outside isn't matched by the rate of change on the inside, the end is near'.
My previous post compared business approaches in Johannesburg and Moscow. South African business approaches challenges by increasing the number of possible alternative solutions in play at any one time. It accepts partial failure as inevitable; discounting it as a learning cost. Better answers arise from the clash of multiple perspectives in this Darwinian process of ‘increased variation and evidence-based selection’.
Russian decision-making largely remains a linear process (visualised in the picture above from a recent Business Insider article). Decisions taken at the top - by those often furthest from the action - are passed down and compliance is expected from those on the front line. Decisions, even poor ones, are rarely challenged and initiative is still punished. This is a ‘creationist' mindset: the world is willed into action by a higher being and divergence from commands are punished as heresy.
The modern Russian culture of decision-making emerges from the soil of the Soviet Union's 'managed economy’. Technocrats would agree ideal outcomes, measure current baselines, and design steps to close the gap between today’s reality and tomorrow's ideal. While this highly-structured produced some success (e.g. victory in the space race) it ultimately failed to prevent the Soviet economy from spluttering, laying down and rolling over. But has Russian business learned the key lesson of this failure yet?
In the immediate aftermath of the Soviet collapse Russian business sought 'silver bullets' - simple solutions to complex problems - from western 'gurus' (so called as so few can spell ‘charlatan'). Yet the wrong insights were presented and drawn and even at a recent leadership conference in Moscow the debate continues as to ‘ideal leadership styles’ - is the ideal leader a mentor, servant or (whisper it) benevolent dictator? This navel-gazing misses the main point about effective leadership - it isn’t about style, but substance: it requires recognising and responding to the true nature of the challenges faced.
All decisions have a situational context. These are located in one of the three systems prevalent in nature:
'Complex' is the natural, dynamic state of things in nature (which we are part, like it or not). 'Chaos' is what nature often unleashes on us in natural disasters. While 'ordered systems' are humans attempts to guard against the threat of chaos and uncertainty of complexity. However, taken too far, the quest for order turns our organisations into rigid bureaucracies. This makes them inflexible and unable to adapt when external change accelerates, such as in the aftermath of Lehman Brothers collapse or sharp falls in oil prices.
Recognising the true nature of the challenges faced and learning the required decision-making response is critical in Russia today. Many challenges remain 'ordered' ones - requiring improvements to make processes or products better, quicker or cheaper - but existential challenges - the ones keeping leaders awake at night - are increasingly complex. This means old-style command and control leadership - even tempered with a dose of mentoring style - are simply insufficient to deliver success in today’s harsh market.
Complex challenges demand leaders become more than just captains of their ship: plotting a course in advance for the crew to follow, who - despite storms and demons - will reach the safety of the intended harbour. The tool box leaders today need to effectively navigate complexity is the subject of the next blog in this short series.
Ideas here inspired by 'A Leaders Framework for Decisions-Making' by Boone & Snowden
When attacked Russians hunker down to out-wait their opponent: Muscovites abandoned their city to Napoleon, letting his army dissipate in it; and the Soviet Union drew red lines around its main cities, as their defenders bloodily drained Hitler's army through attrition. The magnitude of these victories testifies to the potency of Russian resilience under attack.
Spending time in another BRICS country recently I was had discussions about two transformational events in South African history: the Afrikaners 'Great Trek', as whole towns upped and resettled thousands of miles away to avoid British rule; and the post-apartheid 'Great Transformation', as the country avoided a descent into a widely-expected civil war .
The reason these historical narratives are important is that they define how leaders make decisions in times of pressure in Russia and South Africa today. Faced by it's current opponents the Russian cultural reaction is to tighten belts for the long-run. While in modern South Africa the 'Great trek' provides a common reference for how far one might need to go for a solution, while the post-apartheid transition (though not yet finished) steels South African determination to defy expectations.
The different culture of decision-making reveals themselves at a practical level:
In Johannesburg - we're invited by a room full of senior decision-makers to discuss why our highly innovative approach may help meet their challenges. As risk is tolerated failure is understood in the 'great trek' towards trying ten things to discover the one that may change the entire game for them. Collectively they look for compelling reasons to conclude 'there is enough evidence to try your approach'.
In Moscow - we're challenged by gate-keepers to prove upfront that our offering is superior. Should we manage this we're ambushed by other gate-keepers on the long road to the budget holder. Failure is not an option, no risks can be taken. Case studies are demanded (even though the discussion is about innovation, which by definition has not been tried before in their market) and collectively the organisation is looking for any reason to opt out.
Decision-making is defined by cultural-historical narratives. Russia defensive stance when under threat - a failure avoidance position - is historically robust (Napoleon and Hitler were both sent packing). But the cost to Russia is huge. In this crisis state-owned enterprises will draw from the reserve fund to survive and multi-nationals will live off the fat they have accumulated. But for many Russian business owners these are not options. So cutting and running - exacerbating a brain drain that undermines Russia's long-term capabilities - is the chosen path.
This is a slow death for Russian business! But is there an alternative?
Political leaders call for economic diversification as a response - 10 or even 40 years too late - for one must diversify from a position of strength, when the resources required are in abundance. Furthermore, such calls come without instructions on how to make it happen. Witness the throwing of (now) scarcely available capital at the potential white elephant that is Skolkovo, which confused cause (an innovative business climate) and effect (a Russian Silicon Valley).
Russia doesn't have its own 'Voortrekkers' who made the 'Great Trek' 175 years ago, so must seek to evolve in line with its own cultural narrative. If Russia is to become a modern, innovative economy - one better able 'to suffer the slings and arrows of outrageous fortune' - it must exploit every opportunity that presents itself. Some of these will not work, while some will catapult the entire economy forward. The next blog in this short series will introduce pragmatic steps organisations can take to recognise the difference and help usher in a Russian spring for business.
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