“The main trend” in Russia’s current economic development “is the absence of a trend.”[1] Put simply, Russia’s past is an unreliable guide for its uncertain future. Yet, economic ‘solutions’ proposed by the federal government are the same ones, again. Will it be any different this time?

At the Sochi Investment Forum the prime minister announced a ‘new’ Economic Strategy 2030.[2] To weary eyes it looks like previous grand diversification and modernisation strategies, going back to Sergei Witte and perhaps beyond. 

Bright ideas are one thing, rigorous implementation another.

Announcing ambitious targets will convince few investors (whose ‘stimulation’ is the first priority of Strategy 2030) but will force regional governments - who have a key active role to play in facilitating investment at the local level - to scramble for compliance. It may be satisfying at the top level to mandate a policy for the entire country, but it’s misguided. As the Roman Stoic philosopher Seneca explained, 

“The greatest loss of time is delay and expectation, which depend upon the future. We let go the present, which we have in our power, and look forward to that which depends upon chance, and so relinquish a certainty for an uncertainty.”

While Russia possess some of the greatest engineering talent in the world no-one is capable of engineering the future in a complex world.[3] What is required are not grand outcomes - like import substitution, or an innovative economy - but realistic next steps. This means Russia should increase awareness of its present position, seek out higher ground nearby - then do more of the things that nudge it towards there and less of the things that move it away from there. It requires a very granular local focus, monitored but not directed from above.

Rather than taking months to create new strategy documents and years to ‘roll them out’ (by which time they become obsolete) Russia must start acting in the present to unlock a million ideas that will nudge the entire economy forwards, in any positive direction. Our own work with government agencies has been an early step in this process [4][5] - but it needs scaling up now.

As MGU economics associate professor Oleg Buklemishev has pointed out, whatever strategy you draw up it “falls apart if you do not pay attention to the real needs of people and reestablish a system of feedback between the government and the people.”[6]  In Russia these feedback loops must be free of delay and distortion so they help support local decision-making to impact meaningfully on lives in real-time.
 
‘In the absence of restoring some form of active feedback mechanisms, further economic momentum in Russia will be impossible.’Government’s economic role should be to get as many players as possible onto the field of play, referee disputes, and do the heavy lifting no-one else wants to (e.g. infrastructure investment, long-term education, pure scientific research). Its mission should be to stimulate a bottom up flowering of the economy, not impose a top down directive. Otherwise, the grand Strategy 2030 will go the same way as grand Strategy 2020.[7]
​
This is part two of a series of posts looking at ‘what Russian businesses need to do next …’. Part one can be found here. For more information on the ideas and approaches included in this blog please contact marcusguest@narrativeinsights.com

September 1 - first bell - traditionally marks the business season kick off in Russia. But this fall the big question is, what will happen next? Will we see a further softening in the oil price, the Rouble and business confidence or will this be ‘it’, the beginning of the long road back to the good times?

The answer is that no-one knows, especially the experts. The future is an unknowable country, and there are no guide books. Reality changes quicker than people can write about it. Yet the economic fundamentals aren’t good - global demand is declining, currency wars are erupting, and political tensions in such climates tend to remain sharp.

So, in the current environment should organisations stick or twist?* Sticking - striving for ever-greater efficiency - risks cutting into bone, scuttling organisational resilience.  But twisting - getting ahead of rivals by building capabilities to adapt better and faster to a volatile and uncertain world requires leaders to think and act anew.

The decision - what CEOs are paid the big bucks to get right - will determine the ‘vector’ (the direction and speed) of Russian business this year and next. For, while it's true that a few big macro-issues matter a lot, the hundreds of thousands of micro-decisions leaders make today can matter far more. 

So, is this it?

*For those unfamiliar with this term it comes from the British version of Black Jack - pontoon - when if a player doesn’t want another card s/he 'sticks' and 'twists' if s/he takes another card (believing it to be a winning one)


#ExaptiveStrategy #NavigatingComplexity #SmarterOrganisations


@marcusguest

A short test, answer quickly: which is the odd one out?  Cow, chicken, or grass.

You've heard the expression ‘the whole is more than the sum of its parts’.  But this commonly-used phrase contains the breakthrough answer many organisations seek.   

Neuroscientists can describe brain neurones in great detail. Ultimately, they are no more complicated than other cells.  But put 100 billion of them together and consciousness emerges; an understanding of which still escapes us to this day.

This demonstrates that value is not in objects (e.g. neurones) but in the relationships between them.  Multiple interactions between parts amplifies the entire value of a system: the whole becomes more than the sum of its parts.

So, what should this mean for organisations today?  Let’s start with your answer to the question above:  

• If you answered grass (as it's not sentiment) you’re probably a westerner.  You grew up in a scientific culture used to measuring, weighing and categorising things.
  
• If you answered chicken (as cows eat grass) you’re probably from a culture sensitised to the importance of relationships.  You’re possibly from an Asian, African or Latin culture where relationships - not individuals - are primary.  
  

(Interestingly for me, Russians nearly always answer chicken - perhaps deciding the age-old question whether Russians are European or Asian?).

As the world we live in is more volatile, uncertain and complex, having an object-centric, mechanistic worldview (categorising people as managers, staff, customers, suppliers etc.) rather than a relationship-centric one (what's happening and why) will make you slower to adapt to external pressures.  How do you mitigate risks of disenfranchised staff with sensitive knowledge, or annoyed customers with massive networks at their fingertips if neither appear any different on the surface, until they act?  By which time it’s too late or costly to recover.

Mapping how things inter-connect - through the fragmented stories people naturally share to make sense of their world - quickly reveals repeating patterns that can be acted on.  You may not be able to change people (we’ve all tried), while processes can be equally stubborn, but patterns of interactions in a living system are constantly evolving:  we need only map them to be able to start nudging them in positive directions.

Mapping rather than measuring (e.g. KPIs), requires qualitative approaches. Soft steps rather than hard, quantitive marches may prove more challenging to (male) westerners, steeped in the dogma of the scientific method. But while the 20th century was widely designated the American one, with success coming from imitating the scientific American business model, we’re now entering the Asian century. The key lesson may be that a predisposition to focus on the relationships between things - rather than the things themselves - will be the competitive ability of the 21st century.

The need to adapt is great, but the tools and approaches for doing this exist - what is required are the leaders with the vision to start doing this.

For more information on mapping critical relationships and knowledge flows in your organisation contact marcusguest@narrativeinsights.com or visit narrativeinsights.com

The KPMG senior management obsession with predictive technology appears to be finally satiated. Last week's announcement of an alliance with the Formula 1 team, McClaren, is intended to help the big 4 firm evolve from its current “retrospective and subjective” business model to become “forward looking and predictive.”  Which is great news - if it wasn’t such nonsense!  

The desire to know in advance of chaotic shocks that could rock the firm or its market place is understandable.  Yet having more data, even of the turbo-charged variety, seems less a breakthrough in predictive capabilities and more an attempt by a large organisation to differentiate its commoditised offering in an increasingly fragmented market place.  “Multi-dimensional” data - the influence of weather, pit stops and wheel changes - may be able to predict the performance of a complicated machine, like an F1 car, in a known environment (a limited term event operating to clearly defined rules).  But KPMG - and the clients its advising - are complex entities operating in deeply uncertain ecosystems where the rules change at random and prediction is not impossible but can be dangerous if its believed. 

Complex entities, like organisations or markets, are made up of thousands of people engaging in an almost infinite number of interactions that are impossible to calculate. Furthermore, these interactions are non-linear - meaning small causes have large effects (e.g. US sub-prime mortgages and the global economy).  Though events often seem obvious in hindsight (e.g. sub-prime mortgages look a bad idea now) this doesn’t lead to foresight as a complex ecosystem is constantly emerging and new patterns make past pattens obsolete.  This is why generals don’t win wars by re-fighting the last one. 

The futility of relying on past data for future planning was perhaps best exposed when Alan Greenspan gave testimony to Congress in October 2008.  He expressed “shocked disbelief” at the global crisis unfolding because for “40 years” there had been “considerable evidence things were going exceptionally well.”  The 2012 collapse of Monitor Group, the elite strategy firm of Michael Porter - the ‘father of modern strategic analysis’ - also demonstrated how rigorous analysis may explain success in hindsight but still fail to predict it.

A complex world, by definition, is unpredictable and more data doesn’t alter this reality. KPMG therefore faces a real danger of unintended consequences in adopting ‘sexy’ technology: complacency (believing the models to be right), retardation (why think for ourselves now) and ultimately worse decisions (as the outputs will only be as good as the inputs chosen and are supposedly more experienced partners going to learn how to do that or push it down the chain?).  The result of a turbo-charged stream of data may be to merely obscure the key signals KPMG and its clients need under even more noise.

If KPMG truly wishes to distinguish its offerings there are better ways than embarking on (another) long, seductive foray into technology they don’t understand.  Within the organisation’s engine room sits (probably 87% idly) its most sophisticated capabilities:  auditors who’ve completed thousands of audits and can recognise emerging patterns of system failures and potential improvement paths.  “How do you report those insights to decision-makers in the organisation” one such auditor was asked in an interview.  “We don’t” was the answer.  “Why not?” they were asked.  “Because my manager has told me to keep my damn mouth shut” was the reply.

So, before you buy the latest snake oil to solve your organisational problems consider what underused capabilities you already have that you can bring to bear on your strategic challenges.  For any increase in the amount of data being collected must be coupled with the human capability and desire to seek insights and create action.  Predictive technologies alone won’t turn a complex world, prone to eruptions of chaos, into an ordered one.  But while it may not be possible to make an unpredictable world predictable - it is feasible to make your organisation better adapt to this reality through harnessing the natural sense-making talents of your people.

There is little evidence to suggest ‘formal strategising’ makes any significant contribution to profits. For the analysis you build your strategy on is almost guaranteed to be wrong.  So, when choosing your next strategy provider don’t choose the best one - choose the cheapest, as this will make it easier for you to ignore their recommendations when unpredictable reality bites.

Formal cycles of ‘meetings, discussions, and negotiations’ build consensus about the direction the organisation should take and allocate roles and resources to realise it.  But formal strategising is dogged by flawed inputs: inaccurate perceptions of the current market; unrealistic assumptions about firm capabilities; and wild guesses about the unpredictable future. So, what if it’s not a brave new world your strategy is signposting you towards, but is instead entirely the wrong direction?

Firms adopting formal strategies tend to be less profitable.  Not only do they rely on analysis about the future that’s guaranteed to be wrong, but they also depend on formal reports for communication and evaluation of results.  The result is a rigid organisation - too slow to respond.  Crucial information gets stuck in non-dynamic feedback loops. And when the future doesn’t pan out as planned they become increasingly fragile and susceptible to implosion or collapse.

Profitable firms, on the other hand, tend to have managers that make use of informal channels of communication and evaluation.  This fosters an increased awareness of the knowable present (what’s really happening now and why).  Strategies built on awareness change effortlessly as new evidence and insights are discovered.  For they are built on an ongoing search for the ‘truth of the position’.  

Like a game of chess, the future has too many variations to viably calculate everything that might happen.  So, like the chess grandmaster we must seek to make moves that improve our current position, recognise favourable patterns and deploy resources to stabilise and amplify areas of strength (and disrupt areas of weakness).  For this creates openings.  And one doesn’t win at chess by making moves directly aimed at mating your opponent or winning particular pieces, but by cashing on sufficient positional advantage and timely exploiting opportunities.

In a complex world we must be wary of creating arrogant strategies.  Part one of this series of blogs warned against the danger of strategy being developed at the top, then passed down to ‘operationalists’ to execute.  Part two explained how culture acts as a barrier to successful implementation.  This final part argues for a strategic process built on awareness of what’s really happening and why.  And next week’s blog will introduce a viable method for doing this.