On a trip to the Galápagos Islands the economist John Kay pondered over their most famous residents. The giant Galápagos tortoises have survived millions of years, whilst legions of other creatures have become extinct, not because they're part of a tortoise master race but because they’ve adapted best to a location with mud, plentiful vegetation and a dearth of mammalian predators. Success in complex, natural or man-made, ecosystems is not determined by the organism’s perfection but by its adaptability to evolve in local conditions. Evolution concludes Kay “is smarter than you are - and you have to be smart to understand the implications of that.”
Evolution is a process of trial and error, driven by a feedback loop between an organism’s capabilities and its ecosystem: when they match the organism survives, replicates and thrives. Yet, what works well in one environment often translates poorly to another - though the reasons are often opaque. This grey area in man-made ecosystems is often populated by business gurus (so ubiquitous as so few people can spell charlatan) claiming to have divined the secrets of transplanting success lock, stock, and barrel. Yet ‘best practice’ is always past practice lifted from a different context - with different starting conditions and displaying different capabilities - meaning it has decreasingly limited utility in other contexts. On the savannah the lion may be king; but in the mud it's the tortoise.
Our more complex world - driven by technological advances, a data deluge, disruptive demographics, new rivals, business models, regulations and risks - is in a state of continual emergence, making fortune fickle, as perfection is an ideal configuration to a temporary set of circumstances. Dinosaurs may have been perfectly adapted to a hot early earth with abundant giant fauna, but they quickly became ill-suited to a cooler plant, which favoured smaller, warm-blooded mammals. In a complex ecosystem, the ability to adapt (resilience) rather than perfect (robust) is the optimal strategy. “Among the few certainties” argued Kaushki Base, chief economist of the World Bank “is the need to adapt to external change. Our challenge [therefore] becomes that of the industrial revolution era moth, which adapted to its new soot-laden ecosystem by becoming darker and thus better able to hide from predators.” (Moscow Times, May 6, 2013)
Surviving and thriving in a complex world requires loosening the rigidity of perfection and embracing change by using threats as signposts calling us forward. It requires learning - imitating the way the world around us adapts, evolves and prospers. The evolutionary success of the giant Galápagos tortoise and the industrial-era moth contain lessons to guide our own development - if we are able to adapt them to our own environments.
Science teaches us over-constrained systems blow up. Formally structured systems require its moving parts to follow “the exact planned course, with as little deviation as possible - for deviations are more harmful than helpful. This …” continues Nassim Taleb “…is why the fragile needs to be very predictive in its approach.” But in a complex world - with inevitable unpredictability - it becomes a question of when, not if, highly formal structures fail.
The human desire to repeat or prolong success - engineering repeatability - is the driving force of formality. Yet, research by the economic historian Leslie Hannah demonstrates that dictating the future is beyond the capabilities and means of even the largest and best organisations. Taking the world’s top 10 companies in 1912 as her starting point she found only three of them there by the end of the century (Exxon/Jersey Standard, Shell and General Electric). Perhaps not so surprising? But of the others none were in the top 100, while the biggest company, US Steel, wasn't even in the top 500. Ten of the leading hundred companies in 1912 would vanish completely within a decade, while over half had completely disappeared by 1995.
Success in one paradigm increases the likelihood of failure. We fall victim to fundamental attribution errors - believing our own hype, thinking success is down to us and we are masters of our environment. We start to stand aloof from the rapidly changing world around us, blinkered to the need to adapt to external change. Success becomes an entrained thinking pattern ill-suited to recognising shifts in context and ‘breeds the inevitability of future failure.’ It’s most dramatically expressed in the construction of bright, shiny new HQs - such as the Royal Bank of Scotland’s in Gogarburn at the height of its hubris before shortly being re-nationalised - or other architectural wonders on the crest of a dramatic crash - such as the Empire State Building, which was started at the outset of the Great Depression, or more recently the Burj Khalifa in Dubai that presciently announced the Great Recession.
Certainty in strategy is the mechanism by which we sleep-walk into chaos. While good strategies, taken with a pinch of salt, can help organisations operate more effectively they must, if they wish to be of real value, refrain from claiming certainty about an uncertain future and allow for contingencies that can’t be predicted. For “it is when a dominant narrative emerges within an organisation, when dissent is not tolerated, that the chances of making bad decisions rise sharply”. This is why, strategists should not take their activities too seriously - and neither should we.
Nassim Taleb argues human “alertness is weakened when one relinquishes control to a system.” Motorists, he explains, “need the stressors and tension coming from the feeling of danger to feed their attention and risk controls.” Perhaps unbeknown to Taleb, the largely unremarkable town of Swindon in England has been proving this for over 40 years with the Magic Roundabout.
Swindon’s is one of five such roundabouts in the country. Traffic flows around five mini-roundabouts in an outer loop, in the usual (for the UK) clockwise manner, but around a smaller inner roundabout in a counter-clockwise direction. Who designed such a bizarre roundabout? The motorists themselves.
During the design and pilot phase traffic police located at each mini-roundabout monitored how drivers navigated the frankly confusing and very busy intersection, with the most successful pathways mapped out as the final layouts. The higher levels of situational awareness motorists needed to navigate the mess created an optimised and effective design that even today, with massively increased traffic numbers, enjoy quick flow through times and very few accidents.
The Magic Roundabout shows how effective a decentralised (distributed) decision-making approach in a complex system can be. Tapping the power of human cognition is essentially how civilisations - not just roundabouts - are built, yet, many organisations choose to ignore this effective-optimisation resource in favour of top-down decision-making that aims to deliver efficiency. The high-religion of efficiency - six sigma - is clearly effective in ordered, manufacturing environments such as Motorola and GE where it was developed and expanded. But in a non-ordered environment - such as a service firm - a focus on efficiency kills effectiveness, as 3M found out to its cost. Being effective in a complex environment requires letting go of the illusory certainty of efficiency - engineering precision - and instead embracing the messiness of the Magic Roundabout by tapping into the effective power of human awareness.
Centrally-designed systems may often be aesthetically neat and pleasing, but they are also rigid and slow to respond to changing external conditions, demands and new information. Messier systems, on the other hand, adapt and change quicker - and with less effort - when needed. To be effective in a more complex world organisations must build inefficiencies into their structure to allow the entire system to have enough adaptive capacity to rapidly evolve to meet new circumstances and needs. This requires investing not in human resources, but human beings, capable of rapidly making sense of the complexity around them in a far more wonderful way than any designed system (as this video shows). If civilisations and roundabouts can be built on human-generated effectiveness, what stops your organisation from doing it?
The turnaround in US military fortunes in Iraq in 2006 was attributed to the replacement of bad leaders (Donald Rumsfeld and General Casey) with good ones (Robert Gates and General Petraeus). But Rumsfeld had left an important legacy with his (inadvertent?) popularisation of the language of complexity. “There are” he explained at an early press briefing “known knowns; things we know we know. There are known unknowns; things we know we don’t know. But there are also unknown unknowns; things we don’t know we don’t know.’ Unfortunately, one of Rumsfeld's (many) mistakes was believing top down leadership was the right answer in all these domains.
'Known knowns’ describe obvious domains that are clear to everyone (if you go to war people will die). ‘Known unknowns’ describe complicated domains that only few, usually experts, know (how many might die). While ‘unknown unknowns’ describe what actually occurred - chaos - a place of total randomness. Yet, the man who finally brought effective leadership to a dire situation - General Petraeus - did so by harnessing complexity - the ‘unknown knowns’. In complex domains we may not know the right answer (for it's constantly changing) or know anyone who does (as answers are widely distributed, with many different people holding small pieces of the bigger puzzle) but we know answers exist, so we must adopt a different mindset to harness and exploit them.
The General, heralded Stateside as the hero of the counter-insurgency, sought answers “further down the ranks, and outside the armed forces entirely, searching for people who had already solved parts of the problem that the US forces were facing.” He understood that faced with a seemingly intractable problem (as the insurgency seemed in 2006) very different perspectives must be sought. Petraeus moved away from expert opinion, which anticipates what might happen, to favour instead listening to the experiences of those closest to the action. This increased awareness of what was happening (replacing uncertainty with certainty) which helped reveal why it was happening and how might an effective response look in context.
Experts can rapidly provide a degree of confidence for leaders faced with difficult challenges. By collecting masses of data and applying big brains to analyse and synthesise neatly the expert can reduce risk. But as data is always past data their analysis will be fraught with assumptions extrapolated to determine an unknowable future that will willingly or otherwise confirm their hypothesis - on which their expert status depends. Experts impose what they know and, while their advice can be useful for ‘complicated’ questions, in ‘complex’ domains their advice can mislead - especially if its authority renders other voices mute. Therefore, as Professor Armstrong of the Wharton School pointed out, when attempting to forecast the future ‘expertise beyond a minimal level is of little value’ so never ‘hire the best expert you can — or even close to the best. Hire the cheapest.’
Title quote attributed to (then) Colonel H.R. McMaster, whose story and some of the other ideas for this blog entry are taken from the excellent 'Adapt: Why success always starts with failure' by Tim Harford
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