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.’
In two conversations with senior executives last week the challenges of running large organisations arose.
One commented that his 11 hour day hardly gives him time to stuff a sandwich in his mouth, let alone room for reflection. The other noted - with some irritation - the continued mantra of infusing the organisation with an entrepreneurial spirit to kick start innovation, while noting that nothing in their current set up imitated what an entrepreneur really does (tries and fails, driven by an ever-impending fiscal cliff concentrating the mind).
The latter conversation especially reminded me of the great quote from Peter Drucker:
“The search for innovation needs to be organisationally separate and outside of the on-going managerial business. Innovative organisations realise that one cannot simultaneously create the new and take care of what one already has.
They also realise that maintenance of the present business is far too big a task for the people in it to have much time for creating the new, the different business for tomorrow. And they also realise that taking care of tomorrow is far too big and difficult a task to be diluted with concern of today. Both tasks have to be done, But they are different.
Innovative organisations, therefore, put the new into separate organisational components concerned with the creation of the new.”
However, is it enough to merely put the new in an incubator and expect it to succeed? While ‘putting the new into separate organisational components’ is a necessary step, it’s not sufficient in itself. ‘Innovation labs’ also need the right mandate, mindsets and ‘manpower’. Merely replicating the current in a ring-fenced corner of the office only produces incremental improvements as perspectives (and incentives) are still shaped by the current.
Some other shift is needed
The conversation with the executive without time to even eat made me think of the principles of agile - coming out of the software development industry but increasingly being adapted to other industries - and whether they can be a guide for those aware enough that things as they currently stand are not quite right.
Agile principles are simple. What I’ve added below are some explanation about how they might be thought about to become applicable in other business environments:
A profound shift is underway - described by Deloitte as ‘The Big Shift’ - which sees a marked decline in the perception of the ‘world as a machine’. This contains far-reaching opportunities for leaders who can embrace the new paradigm (a concept, value and set of techniques to approach challenges) and potentially disastrous consequences for those who can’t or won’t
Despite the best attempts of very smart people we continually see that interference in the affairs of sovereign nations fails to create stable democracies with western values (see: The Middle-East). We should also notice that massive interventions in the global economy (in the form of QE and austerity) fail to reduce volatility or stimulate growth (see: Greece and the European economy). And at the micro-level organisations are producing decreasing returns on net assets due to falling labour productivity (despite 50 years of technological advance), and declining customer loyalty (in the face of increased choice).
The problem for modern leaders is that a dominant narrative clouds decision-making - the ‘organisation is a machine’. This extension of Cartesian reductionism - where everything is explainable be reducing the whole to its parts and analysing their arrangement and movement - is being increasingly exposed in today’s more complex world (listed above). For example, Michael Porter - known as the father of modern strategic analysis - saw his own consultancy (the Monitor Group) collapse in 2012, showed that while rigorous analysis can explain past success it’s very poor at predicting it.
The world we operate in is not a machine. It is, as we are, organic - and this contains a profound insight. An organic world cannot be understood by a careful analysis alone of its component parts as the whole is more than the sum of its parts. Human consciousness emerges from the interaction of neurones, not the neurones themselves. This exemplifies how key properties emerge in a living system - like innovations from happy accidents, or nasty accidents from seemingly logical decisions. For example, following the sinking of the Titanic the US government mandated all ships to carry enough lifeboats for all passengers - a seemingly logical decision. But in retro-fitting the SS Eastland to comply with this new law made the ship dangerously unsteady. When passengers boarded it on the Chicago river one crisp autumn morning the ship tipped over, killing 900 people. Instead of improving the whole, tweaking the parts in a living system can unleash unintended and unforeseeable consequences.
Likewise, the great breakthroughs in innovation often do not come from purposeful design or from large companies. Everything from the computer to the helicopter, the fridge, and the x-ray were invented outside of the big organisation and often, like the microwave oven, the post-it sticker, plastic, rubber, penicillin and viagra were invented by accident - completely serendipitously. The reason therefore that big organisations don't innovate is that viewing the organisation as a machine forces variation out of the system. Non-conformance to specification is anomalous and needs to be eradicated.
This power relationship - with the chief engineer sitting atop his/her gigantic machine, managed through a hierarchy to compel conformance through aligned identities (we are X people) values and behaviour - is strangling innovation, adaptability and growth in organisations. But while alternatives exist and are well known they exacerbate the present and very real fear many leaders have: losing control. The next stage of your organisations evolution will come from having the courage - and wisdom - to treat it like the powerful living thing it really is, rather than the mechanical toy you wish it was.
Leaders have a unique challenge in the 21st century. The ecosystems (the countries, markets and industries) their organisations operate in are increasingly volatile, uncertain, complex and ambiguous. And missing critical signals amongst the increased noise risks exacerbating existing fault lines in their organisation. What should leaders do?
Subject matter experts solve complicated issues at functional levels. But complex questions (e.g. top line growth, corporate culture, change or risk management) cut across specialised silos. Complexity therefore is always escalated up; making managing complexity the key strategic challenge for executives in the 21st century.
Yet complexity remains widely misunderstood; described as something ‘very complicated’ or confused with chaos theory. Complexity science itself ascribes distinct characteristics (non-linearity, emergence, unpredictability) that render traditional 'solutions' (e.g. best practice, ideal leadership styles) entirely context dependent.
To face a complex issue means to deal with a ‘brownfield’ context - never a ‘greenfield’. Complexity is located in the system (e.g. the organisation, market, population) and always has a history, yet is constantly evolving. And as we engage with it, it changes - often in unpredictable ways. This is why answers in a complex system often appear only in hindsight - though this doesn't lead to foresight (e.g. it seems obvious now that sub-prime mortgages were a bad idea, but likewise, today's Quantitative Easing is variously described as the only thing saving the global economy or creating an even bigger future crash. Only time will tell).
In a complex world context is king.
Idealised futures are an illusion - as are strategies based on certainties designed to get you there. The collapse of Michael Porter’s Monitor Group in 2012 showed that while rigorous strategic analysis can help explain how excess profits were created in the past, it's a poor predictor of how to generate them in the future. Even the best formal strategising can trap leaders into believing the future will be an extension of the past. But if the future fails to conform to expectations we are left naked and fragile, exposed to the elements.
Like King Canut ordering back the tide, we discover powerful natural forces defy command and control.
Yet, the natural world itself - of which man is a part - has adapted wonderfully to exploit complexity. Evolution works through a process of increasing variation (of options), basing selection on what works now, and replication (or starvation) of options based on hard evidence of suitability. Can leaders learn something from nature about adopting a rigorous external focus, increasing awareness of options through rapid trial and error, and creating mechanisms to amplify or dampen options in order to thrive?
Effective horizon scanning uncovers emerging signals that signal where and what to act on before its too costly or too late. Technology is a great enabler in this, if one caveat is kept in mind: technology without human interpretation is meaningless. Google may find anything you ask, but can’t tell you what to ask for. Uncoupled from humans technology merely increases the noise surrounding the signals. Data is dumb - to become meaningful information human knowledge must be applied.
Humans should be at the front and back end of technologically-aided decision-making - defining the issues to explore and discovering its real meaning. Technology therefore must be designed to fit the human - the way we are now, rather than the way we'd like us to be. It must augment our natural sense-making abilities, which have supported human evolution through millennia (a best practice case?).
Critical knowledge flows through organisations in human networks. Navigating these flows effectively can reveal the origins and dynamics of change. And as humans share such knowledge naturally, extrinsic rewards aren’t required to tap this. Humans naturally create and share knowledge in the form of narratives - ‘micro-stories’ - that are both universal (every culture has them) and democratic (no barriers exist to sharing). These are the 'water cooler’ stories that spread insights and enable other people to make sense of the world around them so they can act better in it. Harnessing these narratives is critical to making sense of and navigating complexity.
Critical knowledge can be leveraged at little extra cost.
Leaders must create the conditions for contextually-appropriate knowledge to emerge. Managing for serendipity (‘pleasant surprises’) means seeking fresh insights, rapidly field-testing coherent ideas and replicating success. But as genuine breakthroughs don’t come from established thinking patterns. Leaders must learn how to break through the hard-wired autonomic brain we rely on - which seeks first-fit, rather than best-fit, solutions - and instead become receptive to novel ideas. Strategic leadership is less about engineering future visions than it is about increasing awareness of the critical factors in our ecosystem, 'identifying the biggest challenges in them and devising coherent approaches to overcoming them'. Real strategy is about seeking the truth of the current position.
Navigating and exploiting complexity means leaders must take multiple perspectives to discover genuine insights. Going beyond objective numbers to understand the why. Rapidly testing coherent ideas as ‘safe-to-fail’ experiments. and feeding success, whilst starving failure of resources. No-one can ‘cut through’ or ‘simplify’ complexity - nor should we want to. Complexity contains rich opportunities in a changing world. Leaders employing naturalistic approaches can exploit complexity profitably.
SenseMaker® - an innovative technology first deployed by the Singapore government to detect weak signal terrorist threats - taps into mass organisational knowledge flows and helps join up disparate information from silos to form actionable knowledge. It presents whole network perspectives leaders can rapidly see and understand, helping unlock the organisation’s present evolutionary potential.
For more information about how to make sense of, navigate and exploit complexity for organisational success contact firstname.lastname@example.org
“Google can answer almost anything you ask it, but it can’t tell you what you ought to be asking”. Technology is immensely powerful, but severely limited. It’s not the amount of data that creates competitive advantage but how decision-makers make sense of it that counts. Genuine breakthroughs (innovation) come from a symbiosis of humans and machines.
A complex world compels organisations to rapidly discover new solutions to swerve or recover from increasingly inevitable ‘black swan’ visitations. But “historically” writes the internet expert Clay Shirky “we have overestimated the value of access to information, and we have always underestimated the value of access to each other.” The failure of the US security services, for example, to prevent the 9/11 attacks were not due to a deficiency of data collection but of humans beings sharing knowledge about what had been collected in cross-functional teams to make better sense of the data. If organisations want to become smart and resilient they must leverage natural human skills in parallel with technology. Less focus on big data; more focus on ‘big knowledge.’
Evidence from millennia of evolution testifies to the natural human ability to prosper. And we do this through social interaction, with each other, using technology as an enabler - not a decider. For example, the recent discovery of an unusual new planet with four suns was not made by the super hi-tech Kepler telescope alone, but in conjunction with two members of a web-based citizen science project accessing the astronomical amount of data NASA makes freely available to the public from it. NASA does this as it recognises the limitations of their own data-crunching computer programs which don’t know how to interpret variations that are signals that should be explored. Fortunately, this is something the human brain excels at. Engaging natural human sense-making abilities, by bringing multiple perspectives to bear on crucial challenges can create genuine breakthroughs and increase productivity at essentially zero cost.
Some organisations tap natural knowledge flows with huge commercial success - IBM is now repeating it’s hugely successful co-investment with Linux and Goldcorp discovered massive of previously hard to find gold reserves after making information freely available on the web. Real competitive advantage won’t come from investment in management fads - the learning curve is too costly. It will come from marrying multiple current capabilities together. This demands leaders reject the myth of the ‘one right answer’ and instead seek to stimulate the natural knowledge-sharing processes already occurring between humans; support them with technology they are able to use; and use their own human judgement to make sense of the insights to learn how to better act in the highly-complex world around them.
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