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.’
We’re going to solve the most difficult problem your organisation has. And we’re going to do it without any investment. We’re also going to leverage the best untapped resources you’ve got. And we’ll do all this without creating extra work for you, the leader.
The catch is you must be able to handle the truth of what we reveal to you. And not every leader can. Many prefer to appear certain even if wrong, rather than being right if it means seeming uncertain. It seems to be a political thing.
But if you’re a secure leader and can handle truth in all it’s glorious messiness then we can help unpack the issues keeping you awake at night and deal effectively with them.
Don’t be so sure …
I made this exact offer to an executive at a major organisation. ‘Yes this is a major problem we haven’t been able to solve’ he replied. ‘Yes’ he also said in response to a demonstration, ‘I can how it works. But …’ he declared ‘budgets are a problem.’ A common refrain!
So I offered it for free.
I’m still waiting…
Budgets aren’t really his problem. Power is. He’s putting fires out everywhere with the tools he’s already got and their ineffectiveness makes him busy - and this provides an illusion of value. But now a leader in a rival industry - who can handle the truth - is starting to do it? What effect will this have on our reluctant executive? Is he better at playing catch up than early adopting?
Don’t let this happen to you. Tell us what your problem is … we’ll show you how we can help.
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.
Russia Direct recently ran an interview with Oleg Buklemishev, former assistant to the Finance Minister and Prime Minister of Russia, where he explained what needed to happen for the Russian economy to start growing again. Though the article contains great insights it fails to address the most critical questions of all - how can businesses can do anything about this at the local level?
Learning to see
“During a crisis" the article starts "it's possible to see clearly what one’s weaknesses are, and even at the current stage, Russia can actually turn itself into a new and successful economy”
Arguably, the biggest problem for Russia with the 2008 crises was that it was over too soon. The Russian economy this century was a ‘tornado’ and even turkeys fly in them. When the challenges of 2009 arrived it triggered many cold hard stares at the real (in)capabilities of Russian businesses (I spent the year at the heart of one large Russian business doing this). Yet, by 2010 ‘green shoots’ of recovery conned people back into the mindset that one only needed to ‘turn up and take the money lying on the table’ again (as one executive described it to me). So, the economy didn’t reform or diversify (again): Russia wasted its crisis.
However, the current L-shaped crisis engulfing Russia doesn’t appear to have an exit any time soon. Though no-one really knows where the oil price will be in 12 months the fundamentals clearly aren’t good  and, as this time last year showed, whither oil goes the Ruble follows. This uncertainty is placing immense pressure on businesses and while some - without the aid of 200kph winds - will go to the wall, others will learn how to adapt and prosper. The question is - which one will your business be?
For many business leaders the insurmountable challenge today is ‘how can we try something different when we don’t have any spare resources?’
Starvation of resources - like pressure - is a necessary but insufficient pre-condition for breakthrough growth. The status quo of incremental improvement is only challenged when the external environment makes that change non-negotiable. Further, it’s only a mis-match between ‘current’ and ‘required’ capabilities that triggers fresh ways of doing things. Without crises we would never need do anything differently, for we'd have enough resources to justify doing things the way we’d always done them.
Crises are nature's way of telling you it’s time to evolve
Russia has been hit by some of the biggest crisis to hit any country (outside of a war on its territory) in recent history (1991, 1998, 2008, 2014) and, while calls to diversify the economy have continually been made from the very top, it’s probably only from the bottom that the meaningful change that will turn Russia into a new and successful economy can happen. So, taking Mr. Buklemishev’s interview as a starting point, this blog over the next few issues will explore in more detail what businesses can do about the challenges they face today - not in spite of the pressure and absence of resources, but because of them.
If any of the ideas in this series interests you please contact me at email@example.com for a discussion about how you can apply them to help your business adapt better to the current realities of this market.
Shape the Future
Don't just adapt to it