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.
The last module of my MBA at a leading European business school was hijacked by a visiting professor - Dave Snowden. After making some derogatory (and I later understood, customary) comments about English rugby fans, he announced, ‘forget everything you’ve been taught on this MBA - it’s not going to help you in a complex world’. A surprising statement in that context.
Humans are subject to cognitive biases - we have tendencies to unknowingly think in certain ways, sometimes steering us far from the sound judgement we all think we possess (another bias). The ‘availability cascade’ is a bias that gains plausibility through repetition. In other words, repeat something long enough and it will seem true - hence the alternative name for this bias the ‘illusion of truth effect’.
Business is not a science. It’s barely an art form - it’s improvisation. When a business gets results consultants discern patterns between cause and effect, showing how specific actions led to certain results (unless the results are negative and we’re responsible for them, in which case it’s due to outside forces - another bias, the fundamental attribution error). There is human ingenuity in wanting to learn short-cuts to success and avoid pitfalls from others. And in the business world this has become the moneymaker MBA.
Case-based insights are the heart of the MBA method. They are dependent on hindsight: showing the relationship between cause and effect. The creation of new cases are also subject to (choice-support) bias, as all other incidences where the same choices led to less stellar results are ignored. Further, we mistakenly discount any role of chance in the original story of success or context in our hope of repeating it.
Henry Mitzberg tells a wonderful story of the BCG-Honda case study. This case will be familiar to anyone who has completed an MBA marketing module, despite being taken apart by the Honda guys themselves. Far from being experts in market entry and the differentiation strategies beloved by Porter-aficionados the Honda guys admitted they were just in the right place at the right time (with not an especially good strategy to boot). In short, they got lucky - but serendipity is currently far less profitable for business schools to teach.
Nevertheless, anyone tasked with new market entry today will probably have spent time working through the insights from the Honda case (especially if they’re an MBA). Power points will have been presented highlighting the importance of exploiting niches in disrupting macro-economic environments and final investment decisions will have been rationally made. But the real lessons of Honda’s success is that faced with uncertainty (e.g. new market entry) probe - sense - respond repeatedly, in loops quicker loops than rivals, until you discover your serendipitous break through.
You may eventually get there with MBA analysis, but the costs are higher and the risks no less uncertain.
My own particular journey pre and post MBA has been an eventful one. I had been a general manager (with not inconsiderable success) for some years before coming to the conclusion that I couldn’t just keep muddling through, that I needed something more scientific - I needed an MBA. This last year I have finally succeeded, after 6 years, in unlearning all that I was taught. Snowden, it appears, was right. Not only does an MBA not help you manage in a complex world but it positively hinders; loading you up with tactical analysis instead of seeing and thinking strategically. The MBA worships at the altar of analysis to anticipate what might happen, rather than encourage of awareness of what is happening - then acting accordingly.
How many departments and organisations are being held back by MBA case-based restraints today?
During a recent conversation at a major bank the head of internal communications drew a line on a whiteboard - curving upwards ('A' in the picture above). 'When things are going well' she said 'the mood of our people is up.' Then she drew an opposing line curving down (B) explaining 'and then something can suddenly happen and the mood plummets.'
Then she drew a horizontal line (C) cutting through the two curves and said 'but our internal communications remains monotone, regardless of the situation. We don't tailor our communications to where people are: when they're up we should celebrating with them, otherwise we look out of touch; but when they're down we need to show empathy, otherwise we seem aloof and uncaring.'
What was lacking was a reliable guide to the mood of the organisation. Fortunately we're able to deploy a simple, rapid yet powerful method for this.
So, how are your internal communications - responsive or monotone?
Students of business history know to take car companies seriously. The era of scale economies was ushered in by a car company - Ford - on its innovative assembly line. While economies of scope were unleashed by another - Toyota - with its equally innovative total production system. So, has Lotus - a British sports and racing car company - just signalled the rise of the the next great step in the evolution of business?
The high-end car market is fierce and Lotus’ new CEO can only afford to innovate frugally - improve without investing. He asks ‘for all three existing car models to be broken down into their parts and laid out on tables and asks all 900 company employees to tag the parts using a traffic-light system: keep, renegotiate supply/redesign, or discard. This ensured everyone understood why these changes were being proposed and resulted in weight savings of 10% and £3,000 from the components bill. It also led to the overall quality of the cars being improved’ (1) and this was all achieved without an expensive re-design of the cars themselves.
Why does this have the potential to signal a radical new breakthrough in business?
Speed and flexibility drive competitive advantage in rapidly changing and unpredictable markets. Resource intensive major projects with long lead times and even longer pay backs are increasingly harder to justify. But this doesn’t mean organisations need to go into defensive mode, just protecting what they have by cutting costs further. It simply means business leaders should adapt better and, helpfully, Lotus has shown the way in three simple steps:
1. Work with finely-grained objects - like the Lotus CEO, break things down to the lowest practical level of action. Rather than re-design the whole car he looked to question the right of each component to be there in its current state. However, if you’re in a service organisation DON’T confuse people for car parts (people are more complex than component parts!). Instead the unit of analysis should be narratives (the micro-stories) that spread like wildfire around your organisation, shaping how people act. Become aware of them and adopt pragmatic steps to get more of the ones you want and less of those you don’t want
2. Leverage distributed cognition - Getting everyone involved not only helps create buy in but more importantly taps into one of the most important maxims of the new business paradigm: answers are already known, but just very widely distributed. Your challenge is to bring those knowledge-rich perspectives online - seeing what’s really happening through the eyes of those who know this best: customers, employees, suppliers etc. Again, capturing the narratives people share and exploring them with tools such as SenseMaker® lets you do this quickly in real-time
3. Ensure disintermediation - finally, and most importantly for business leaders, you must get your hands dirty. As Rumelt states in his excellent book ‘Good Strategy/Bad Strategy’ “Leaders who stay ‘above the details’ may do well in stable times, but riding a wave of change requires an intimate feel for its origins and dynamics.” Don’t let middle-men - internal middle-managers or external ‘experts’ - get in the way of seeing things with your own eyes as this is the only way you can effectively match what is possible (to do) with what is (really) needed.
The next stage in the evolution of business is here and it’s frugal. The barriers to entry are no longer capital-based ones but knowledge-based. Are you on board?
#TheNewSimplicity #SmarterOrganisations #SenseMaker
(1) This story was covered in the UK Sunday Times February 2015 http://www.thesundaytimes.co.uk/sto/business/Industry/article1516483.ece though I came across this in the excellent 'Cynefin Mini-Book' p6 http://www.infoq.com/minibooks/cynefin-mini-book
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.
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