We live, especially in Russia today, in a VUCA world. Declining oil prices and increasing political rhetoric have aroused volatility (V) and created deep uncertainty (U) about what might happen next. Coupled with the growing complexity (C) of the modern, integrated global economy we're now in a place few have been before. There are no maps to navigate by and every decision is ambiguous (A), open to multiple, different interpretations. And this represents the greatest opportunity for Russian business.
Crises are inevitable - what goes up, must come down - but dips into crisis-generated chaos provide opportunities for radical change and renewal. Yet, till now, Russia has wasted every crisis, tightening belts and waiting the storm out until we emerge, finally, blinking into the sunshine of an economy awash with higher-priced oil money: while the desperate calls to 'diversify, innovate and modernise' heard on the downturn become mere echoes again.
But what if oil prices don't come back again?
If we assume the 'crazies' on the US far-right don't lead us to war this year the current crisis represents the biggest opportunity the Russian economy has to realise the potential its size, resources and human capabilities possesses. For in a system starved of resources incumbents will have to adapt or die - and those that don't will exit the game, leaving more for those who remain. But many will not heed this call, while others won't know how to.
Successful businesses will increasingly find their established operating models exposed by the realities of a VUCA world. Their past success blinds them to the big shift coming. For example, they look to exploit big data, as their governing paradigm remains economies of scale and scope, but the data deluge we face means there is already more data than we'll ever have the capacity to collect, store and analyse. If one can't calculate all inputs, one can't anticipate all outcomes rendering 'outcome-based' strategies sub-optimal. In the emerging paradigm success will not be enjoyed by those with the biggest data sets, but the ones who know how to use them better.
In a VUCA world 'action beats reaction', which requires operating tighter, quicker OODA loops: see the world the way it really is, rather than how you'd like it to be (observing); shape decisions according to context, not context according to theories (orienting); face failure head on, recover quickly and learn from it to reduce fear of taking risks (deciding); and rapidly amplify successes that push the boundaries of possibilities outwards (acting).
Optimal strategies will focus on effectiveness over efficiency for it isn't the best (e.g. most efficient) that prospers, but the ones best able to adapt to external changes (i.e. effective). As the economist John Kay memorably put it: the Giant Galapagos Tortoise hasn't prospered for millennia because it's a master race but because it adapted to an environment full of mud, lush vegetation and no mammalian predators better.
Russian business therefore should reject the myth of the one right answer. If every decision is the right one, you're not trying hard enough. 'Same old' risk-free strategies may provide the comfort of higher certainty (and massage the ego of the 'always-right' leader) but are exposed the moment a rival takes a calculated risk and makes the game-changing move. Organisations and economies thrive on risk-taking and failure is a necessary accelerator of the upwards learning curve - it therefore must be managed and budgeted for. In the words of Peter Drucker, 'those who take risks generally make about two big mistakes a year, while those who don't take risks generally make about two big mistakes a year' meaning victory will go to those who execute faster OODA loops to ride VUCA waves.
Mitigating business risks while reaping the rewards
Low cost, high impact tools and approaches exist - like SenseMaker® and the Cynefin Framework™ - that help organisations quickly construct and accelerate their own OODA loops. Tapping into knowledge flows in and around the organisation uncovers the critical weak signals of emerging opportunities and threats, as well as unique insights in how to exploit them. Organisations must learn to probe the environment to test coherent ideas and gather real-world examples of what works and what doesn't.
The advantage of a portfolio of probes over 'bet the house' fail-safe strategies is that they are quick to launch and cheap enough to abandon if they produce nothing of value: while those that show early signals of success can be quickly amplified. In an uncertain world picking winners is impossible. Launching multiple, parallel, safe-to-fail probes is your best chances of finding winners quicker.
Russian business must not seek alignment of its people around target outcomes; hard targets restrict the flexibility needed to adapt and alignment destroys the diversity of perspectives needed to truly innovate. Instead, Russian business must unleash a thousand probes to discover routes through the fog and become agile enough to quickly exploit them. We need to do this before the VUCA world shifts, obscuring the paths once again. Or, we can just wait for the oil prices to go back up, eventually. The choice is ours!
This represents a radical new approach to managing in a highly challenging environment. For more details on how this can benefit your company contact firstname.lastname@example.org or visit www.narrativeinsights.com.
Current business conditions in Russia are highly uncertain. Will things get better, or significantly worse first? Answers are hard to find, but they do exist - if you know where to look. For, in the same way blood flows through veins and oil through pipelines, critical knowledge flows through organisations. Tapping into these flows can make known what is currently unknown.
Given enough eyeballs, all bugs are shallow.
If you knew what every person connected to your organisation knew (management, staff, customers, suppliers) in one moment, you would have a rich and accurate picture of the current reality. And like a chess grandmaster you could see the truth of your current position; enabling you to strengthen where you are weakest and capitalise where you are strongest. Such knowledge is created and transmitted daily through tightly coupled human networks. The mechanism is the act of conversation, or the sharing of thousands of open-ended narratives (micro-stories without a beginning, middle or an end). For we humans evolved socially, learning from each other networks - clans, tribes, communities and now organisations - making us hard-wired to create and share 'critical to survival knowledge' on a daily basis.
Narratives are vehicles for sharing what we know and having our assumptions or insights confirmed, challenged or augmented. This is the process by which new knowledge is created and then transmitted. We do this not to populate the knowledge management systems our organisations have invested in (!) but as part of an on-going, natural process to make sense of the uncertain world around us so we can act better in it. Narratives take many forms: from the fairy tales we share with our children to educate them about the world, to the fragmented micro-stories we share with each other around the water-cooler, coffee machine or in break-out rooms at conferences that reveal and confirm what we must do round here to survive and thrive. If you want to learn about an organisation, listen to the stories being told.
The value of narratives is they reveal the context of what is happening. Multiple narratives, properly presented, can describe the world as it currently is; with all its various opportunities and threats. So, can organisational leaders who tap into these knowledge flows find powerful, (sunken-cost) assets to navigate the uncertain environments their organisations operate in?
Making sense of the uncertain
Today's business environment is uncertain because the world is changing rapidly in unpredictable ways. We know that building on shifting sands creates a fragile structure, but it should also be self-evident that ‘engineering’ idealised outcomes in an uncertain world increases organisational fragility when the future doesn't play out the way you hoped.
Nature evolves through 'listening' intently to the signals of change, however weak, and adapting. And it is far better for leaders to manage emerging beneficial patterns in their organisations rather than attempting to engineer idealistic outcomes. This requires decision makers ‘see the world’ through the eyes of their customers, staff, or citizens to build a picture of certainty - what's happening right now - rather than what might happen - and acting on those insights. Listening intently to the narratives may be the only way leaders - especially in Russia today - can navigate uncertainty, protect against emerging threats and discover the opportunities inherent in our uncertain world.
For more information about how to tap the knowledge flows in your organisation contact email@example.com
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
Captain E. J. Smith spoke confidently, “I cannot imagine any condition which could cause this ship to flounder. I cannot conceive of any vital disaster happening to this vessel” he told reporters ahead of the maiden voyage of the SS Titanic in April 1912.
It is certain that the future is uncertain - but organisations dedicate sometimes vast resources to anticipating it anyway. Strategy ‘gurus’ (perhaps so ubiquitous as so few people can spell ‘charlatan’) preach that ‘the more dynamic the situation, the farther ahead the leader must look’. Such advice is both illogical and dangerous - for the more dynamic the situation, the poorer your foresight will be. The more uncertain the future, the more the essential logic should be ‘take a strong position and create options.' All attempts to conquer the complex, unknowable future and make it succumb to a visionary’s will be at best, idealistic, and at worst, dangerous.
But engineering the ideal future is at the heart of much ‘formal strategising’ in organisations. Meetings, discussions and plans aim to build consensus around perceptions, goals and roles to support strategic actions - despite evidence that these have little to no positive effect on a company’s profitability. Profitable firms are as likely to strategise informally - making use of informal channels of communication and evaluation. Formalisation is part of modern business’ obsession with engineering outcomes - picturing ideal futures, identifying gaps to overcome, and planning the steps to be taken - often in excruciatingly precise detail that seeks to confer some sense of authority.
Formal strategising about the future often fails as the managers tasked with building such plans have very inaccurate perceptions not only of markets and industry they operate in, but of their own organisation and its capabilities as well. In such cases, formalising the flaws amplifies the likely harm to the organisation. And even when the organisation can claim some authority about its operating environment and can boast about the talent it manages it can simply mobilise around a future that’s just plain wrong. IBM’s CEO in 1948, Thomas J Watson, confidently forecasted ‘a world market for about five computers’ which helped lead the leader down a blind alley for decades until a nimbler, less encumbered Microsoft revealed the fault lying at the heart of IBMs strategy.
Organisations can approach strategy in a more naturalised way - taking lessons from evolution:
Evolutionary approaches seek to build on awareness of what's really happening, rather than wasting resources anticipating what might happen. The hubris of Captain Smith - and many stewards of organisations navigating choppy waters - testifies to the danger of being blind to the many futures we clearly can’t see: no matter how visionary we claim to be.
Seeing the future as merely an extension of the past is a fundamental error. Complexity’s immense, volatile and unpredictable character will make tomorrow less resemble today than yesterday did. So navigating a journey through the rear-view mirror won’t help you avoid the brick wall up ahead.
Following the stock market crash of October 1987, value-at-risk (VAR) models became the rage in financial services. JP Morgan was an early convert and pioneer as VAR provided the Chairman, promptly at 4:15pm each day a single number that defined the extent of the bank’s risk exposure. The allure of sophisticated mathematics to simplify risk management fanned VARs popularity, with over 200 books published about it. The only problem was that it was nothing more than a “beautiful lie.”
VAR is driven by historical data and dependant on one huge assumption: that the future will follow the same pattern as the past (from where the data was taken). In other words, if you haven’t driven into a wall yet, you won’t. But as Nassim Taleb has pointed out, the highly improbable nature of rare events (black swans) must be considered together with the oversize nature of their potential consequences. Driving into a wall may be unlikely but, as it’ll probably kill you and everyone else in the car, you're probably best advised to remain aware enough not to do it.
The culture of financial service firms particularly predisposes them to VAR-type errors. Miles Kennedy, a PwC partner described the culture as a “tendency to place greater confidence in risk information that is data-driven, in the belief that this confers objectivity and truth.” But whilst objectivity is a noble aim in business - freeing us from cognitive bias and politicking - objectivity “doesn’t equate to truth” where the future is concerned, for “risk is about the future, and there are no facts about the future.” Substituting foresight about possible futures and consequences for forecasts that are pleasing yet flawed is, as the world has discovered over the last six years, dangerous.
The economics professor and writer, John Kay, describes this cultural bias as a “belief that a number based on the flimsiest of data is better than a qualitative, and necessarily subjective, judgement.” Although this bias is rampant in the ‘numbers professions’ - bankers, accountants, economists - it’s spreading to other organisations through the allure of big data. And where certainty is claimed about the future - a place where no certainty can exist - it'll be a treacherous guide to navigating an increasingly complex world.
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