The Global CEO Outlook (KPMG 2016) explores the strategic dilemmas leaders worldwide are grappling with today and reveals a certain mood: real, transformational, change is either “now or never” with many CEOs expecting their organisations to become “significantly different within the next 3 years.” Yet old dangers continue to lurk.
Seventy percent of change and transformation initiatives continue to fail with methodologies stuck in a pre-digital era. Continued efforts to reverse engineer ‘ideal’ future states in a volatile and complex world promise little improvement on these failure rates. Far from trying to anticipate what might happen CEOs must start increasing their awareness of what is happening in order to disrupt emerging threats, exploit opportunities and accelerate evolutionary growth.
The challenges facing entire industries are unlike any they’ve faced before. Consulting a major banking client on a communications program a Dutch consultancy contact of mine recognised that “due to the financial crisis, the reputation of the financial sector has been subject to extreme change. In the space of a few months the beauty transformed into a beast.” What do you do when your industry is suddenly felt to be perverse - how do you cope when the lessons of the past provide scant guidance?
As leaders increasingly “recognise that they are now handling issues that they have never grappled with before” they see that fresh approaches are needed. An example of such an approach came from a Russian oligarch I worked with following the 2008 crisis, who actively engaged his own diverse panel of experts to scan the horizon for emerging waves he could rise with, then get off before they crashed. Accessing unstructured, distributed cognition (the ‘wisdom of crowds’) in this way builds on a powerful concept: “the future is already here — it's just not very evenly distributed”
Despite the disruption CEOs remain “increasingly optimistic that they can transform their organisation[s] to enable [them] to capture the opportunity that the future holds.” Yet this new, uncertain world is witnessing record levels of corporate churn: while 50 years ago the average lifespan of a S&P 500 company was 60 years, today it’s just 18. And the KPMG Global CEO Outlook found that the less experienced CEOs are the ones who are less concerned about disruption potential, confident they have the strategies to navigate it.
Perhaps never have Mark Twain’s words of caution been more apt:
‘It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.’
As the attached picture points out, complexity offers a perspective shift.
Current management perspectives seek to shift organisations forward by seeking root causes to the problems they think are holding them back and fixing them. This is an optimal approach in a manufacturing environment. However, more economic activity is performed in services (my area of focus), where production and delivery occurs in the same (or nearly same) moment. This obscures root problems as they are often located at the level of people. So what can be done?
Once approach is for HR to be the psychology department; managing each person’s level of engagement, motivation, skill-alignment, and performance. But not only does this place a massive burden on HR (and I’ve met many exhausted ones over the last year!) it’s an impossible task. People have multiple identities they rapidly switch between. HR can never be certain which identity they’re dealing with and whether their interventions are sustainable.
Furthermore, how practical is a management strategy based on the idea that you can change people into what you want or need them to be? How many of you have had a personal relationship with someone who you wanted to change in some way? How did that work out?
The complexity perspective lets leaders move away from a purely ‘search and fix’ mentality and adopt an ‘explore and exploit’ approach as well. For in the deeply tangled web of the modern organisation problems and opportunities are part of the same complex day-to-day reality. So instead of trying to engineer your means of production (people), like manufacturers do to their machines, adopt the more human approach of a complexity mindset to work with people on discovering opportunities that impact throughout the organisation in sometimes surprising ways.
In other words, start working with how things really are, rather than how you’d like them to be.
But be warned: once you cross the complexity-Rubicon you don’t go back.
Embracing complexity means working with inherent uncertainty rather than trying to engineer it out. The act of doing so can help leaders discover and exploit new opportunities.
The Magic Roundabout in England (pictured) is an example of how complexity was embraced to design one of the most effective traffic management systems in the country.
The roundabout has five outside roundabouts going clockwise (the right way in the UK), while the middle roundabout goes anti-clockwise. There are very few guide for navigating it beyond a few lines on the road: there are no traffic lights and no road-side signs. So why does it work?
A roundabout was originally sketched out to meet the demands of a very busy intersection: junctions leading to motorways, the centre of a nearby town, a hospital, football ground, and even a route to protect a grade 2 listed building. Yet, rather than settling on one configuration the designers embraced complexity to create a design that’s successfully been in use for over 40 years now.
When the roundabout was first opened to traffic its lines were not permanently marked out. Police officers were stationed at each mini-roundabout to observe how drivers navigated it. As patterns of driver activity emerged adjustments were made to support those that were beneficial (that kept traffic flowing) while negative pattens (creating bottlenecks) were dampened.
The result was a design that works with how people drive safely, rather than trying to impose safety through rules. The design - by the novelty factor and an absence of conventional markings - forces drivers to slow down and become more aware other surroundings: they give way to cars already on the roundabout, keep inside the lines on the road and avoid collisions.
The roundabout puts the emphasis on safe and effective decision-making on the drivers rather than distant designers. What this produces is ‘emergent behaviour’ - people responding to what’s really happening as opposed to having their action planned well in advance.
The result is that the roundabout sees very few accidents, (as cars go very slow) and no traffic jams, even in rush hour (as there are multiple ways to navigate it, which people learn as they become experienced driving through it) the entire system is more effective for everyone.
For those - like me - who live in cities with horrendous traffic problems, caused by the type of centrally-planned traffic management ‘solutions’ parodied in the picture of the art installation below - the attraction of embracing complexity for discovering new options, rather than trying to design it away for the sake of centrally-planned order, becomes obvious.
Complexity is uncertainty. Not because you (subjectively) don’t know the answer but because the answer (objectively) hasn’t emerged yet.
When faced by complexity should we stop trying and wait for whatever happens to surprise us? I’d argue no, because we can work with the inherent potential of uncertainty to discover options for re-invention and innovation. Genuine progress comes from embracing complexity.
Cynefin is a sense-making framework guiding leadership decision-making in conditions of uncertainty. It helps define the type of situations leaders face and directs the most contextually-relevant approaches to addressing them. One of the key decisions is whether the answer to your problem is unknown because you haven’t found the right expert, or whether there is no answer because it hasn’t been discovered, yet. The later represents a huge opportunity.
Faced by the unknown - what next with the economy, how to improve our working culture, what will customers want next - leaders can be tempted to see the challenges as knowable; assuming someone can deal with them. Unsurprisingly an expert can usually be found (at great cost), but at best they’ll be a waste of money; at worst they’ll exacerbate the situation by trying to impose an inauthentic certainty and wasting the opportunity for fresh discovery.
The trick for leaders is knowing whether you’re merely facing a ’known unknown’ (something you know you don’t know, but know someone who does) or an ‘unknown unknown’, which require unconventional approaches. A simple rule of thumb to distinguish between the two is whether competing hypotheses exist about what is going on here and what’s causing it - rather than just how best to solve it. If it’s the former then it’s complex and no guru will solve it.
Unfortunately, deeply tangled situations are exactly the ones leaders seek to avoid at all costs. Many prefer to be decisive and wrong (this is the expert, he’ll solve it!) rather than indecisive and right (the answer is unknown, we need to experiment and see what we can learn).
However, leaders can choose to pro-actively embrace complexity supported by a sound scientific basis - using nature’s very own system of evolution that seeks variation and evidence-base selection (the alternative is creationism!). The second very short video on this page is the best introduction out there to the different approaches leaders can adopt and is well worth two and a half minutes of your life.
Tomorrow’s blog will provide examples of how embracing complexity in this way has been put into practice with exceptional benefit.
Sitting down for breakfast the venerable Mullah Nasreddin noticed a hawk perched on his window ledge. Never having seen one before the puzzled Mullah muttered ‘What a funny looking bird’. In a movement so swift it also caught age by surprise the wise old Mullah clasped the unsuspecting bird in his two strong hands, clipped it’s wings and talons and filed its pointed beak round. He placed the hawk back on the ledge and stepped back, admiringly. ‘There’ he exclaimed out loud ‘now you look like a real bird!’
Complexity has become a buzz word, increasingly common currency in many consultancies. As my own dive into the complexity rabbit hole had begun before I joined a KPMG in the process of switching from a brand strap line of ‘Audit, Tax, Advisory’ to ‘Cutting through Complexity’ I was curious to understand what the firm meant by this change. So I asked the head of marketing to give me his definition of complexity. “Well” came the reply, suffixed by a long comma,,,, "it’s when something is very, very complicated."
Consultancies are panels of experts with deeper knowledge and experience of complicated issues than the generalists running organisations or departments. The more complicated the issue they must solve the greater the time - and therefore fee - commanded. Coining complexity as something complicated taken to the nth degree communicates a higher order of expert intervention (and cost). But is this just an appropriation of the latest buzzword to sell old wine in a new wineskin?
Complicated issues (even ‘very, very complicated’ ones) have right answers; requiring numerous steps, time and expertise to get there. Think of a jet engine: if you or I were asked to take one apart, find a potential fault, fix it and put it back together again we’d find it impossible; unless we were mechanical engineers with the right manual, tools and time. Experts fix complicated things because they know how to get to a right answer, which exists.
Complexity is entirely different. If a 1,000 piece puzzle of baked beans is complicated then complex is the same puzzle with pieces being constantly taken away and new ones from different puzzles being added all the while when you’re not looking. Therefore, there will be no ‘right’ answer, no end of project. And no expert, no matter how experienced or expensive, can help you find what doesn’t exist.
Complexity contains the potential to transform leadership and organisations today. It is the ‘new simplicity’ - offering leaders radically different approaches to addressing some of their most tangled and frustrating challenges (why are staff more productive/engaged? what do those customers really want? why can’t we innovate?). But what leaders must be wary of are those who hijack words to sell the same old thing, oblivious to the inherent value in the new.
Be wary of those who turn hawks into pigeons.
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