Communist Drivel

Yup, communist drivel. That is the latest comment I received on a professional message board, where we were discussing aspects of strategy and I posed an alternate view of a situation based on chaos & complexity theory. This post is not going to be a flame, so I'm not going to identify the thread, the board or the person, other than to say that the antagonist is supposedly a well-respected strategy consultant. Rather, I hope this post will clarify what the concept of emergent strategy is.

The comment was a reaction to my opposition of the machine model of business. You may recall from an earlier post that I refer to the machine model as "the world-view that has leaders quite literally as the head and the rest of the organization as the body. In this paradigm, it is thought that the only intelligence in an organization is at the head where the brain is and the rest of the organization serves to implement the instructions from the brain."

The antagonist was adamant that leadership plays the primary and overriding role in setting strategy and therefore strategy is what leadership says it is. My view of strategy is completely different, in that, an organization's strategy is what it is, or what it emerges to be, sometimes despite or regardless of what a leader says it is. In another post of mine you may recall:

"In the machine model of business, strategy is set at the top of an organization and communicated to the rest of the firm. Actual strategy, on the other hand, emerges as a result of the myriad actions of the stakeholders of an organization as they perform their day-to-day tasks: who they call, who they sell to, who they buy from, which tasks they choose to perform, who they hire and so on. These daily tactical decisions are made based on internal processes, incentive programs, tactical resource allocations and other bits and pieces that make up organizational culture."

This does not mean that leadership has no input, or is unimportant, nor does it mean that there is no intelligence in the "head" of the organization. Adaptive leadership is critical to the success of an organization and can be an effective strange attractor, guiding the organization through the edge of chaos. The concept of emergent strategy, therefore, is not a result of a communist worldview threatening the all-knowing leader as the superhero of capitalism, but the result of a pragmatism that assumes that:

      a) Because organizations exist in a complex environment, you cannot reliably predict the future, and
      b) Strategy is what it is and not what you say it is.

Put another way, strategy is the result of a complex number of inputs into the organization, one of which is effective leadership. Furthermore, important parts of a strategy to cope with the unpredictability of the business environment include how your organization does business and who your organization actually is, right now, in the present.

Another area of contention seems to be the concept of a competitive landscape. From a complexity standpoint, when we talk about a competitive landscape, we are specifically including the interaction between the organization and its environment as the organization moves through its competitive landscape. It is not a static, predictable worldview, but a complex, dynamic one, where only possible outcomes during the briefest of timespans can be anticipated. This view of the competitive landscape also acknowledges that black swan events do occur, that "you never step in the same river twice," therefore previous experiences do not guarantee future comparable outcomes and that certain events and inputs can have a sensitive dependence on initial conditions with results that amplify way out of control.

The concept of emergent strategy categorically rejects the concept of linear economics and the predictability of Keynesian assumptions. Emergent strategy is a concept that acknowledges the complex unpredictability of market-based, Austrian School economics. Just because a strategy is said to be the result of or emergence of complex inputs to an organization does not make it a communist model anymore than strategy is what you say it is, just because an organizations' leader comes up with a plan.


Bruce Borup

Perspective is everything.

If I stated that I could move faster than the speed of light, without any vehicle to help me, you'd think I was nuts.  Usain Bolt clocked in at 27.79 mph, the fastest human on Earth. But I say, it's just a matter of perspective. The earth rotates on its axis at just over 1000 mph. If you're looking down at me standing on the equator, I'm flying by. The Earth rotates around the sun at 67,000 mph. Look at me from that perspective and you're starting to get my point. Our solar system rotates around the center of the Milky Way at 568,000 mph and finally, the universe is expanding at faster than the speed of light. Q.E.D. It's all a matter of perspective.

Okay, so my point wasn't to give you a bunch of astronomical facts, but to make the point that when developing strategy for a complex adaptive system, you should understand that perspective is everything. Your perspective on your organization, the competitive landscape and the global economic climate determines what will surprise you. If your strategic event horizon is very short and you have been experiencing relative equilibrium during the recent past, you will probably fool yourself into believing that your organization exists in a manageable, predictable, stable environment.

However, businesses are constantly being bombarded with high-impact, hard to predict events that can be devastating. Management tends to rationalize these events simply because their perspective prior to the event did not include even the remotest possibility that such a black swan event could occur.

The answer is not to try to get better at prediction, nor is the answer more complex scenario planning in order to try to identify the exact meteor hurtling your way. The solution is merely to have a perspective that acknowledges that small probability events do occur and encourage your organization to develop methods for adapting to these events, thereby minimizing the impact of surprise. The ability to adapt or evolve in the face of constantly changing and rarely identifiable threats is the competitive advantage that will allow your organization to thrive over competitors who try to predict the future from a shortlist of high probability events and design their organizations only to deal with those threats.

As the leader of a complex adaptive system, ensure your organization understands the current competitive landscape, how your organization interacts with that competitive landscape and what the consequences of its actions might be. Be brutally honest and strip away the rationalizations you and your organization has about its perspective. Avoid the temptation to simplify the environment in which your organization exists. Reductionist strategies do not work well in complex adaptive systems. Focus on the whole, not just at seemingly controllable bits.

Your perspective should acknowledge the uncertainty of cause and effect in non-linear systems. Acknowledge a sensitivity to initial conditions and that side effects and unintended consequences are likely outcomes of actions and decisions. Prepare for these eventualities instead of being surprised by them. Your perspective should also acknowledge the concept that you "never step in the same river twice." You cannot assume that non-linear behavior is repeatable. Your organization faces an ever-changing set of variables.

Avoid the arrogant perspective that you can predict or control the future with any reliability and never assume that minor anomalies should be ignored just because they don't fit into your perspective.

- Dr. Bruce Borup

The Foundation of Strategy: Who are you?

Who are you? What do you do? What is your current business model? What is your current revenue model? Where are you currently positioned within your competitive landscape? Who are your customers? How do your customers currently perceive you? What is your organization's culture? 

In order to develop strategy in a complex environment, you have to have a thorough understanding of who you are, what your identity is and what your organizational perspective is.

Managers with a linear perspective on the environment tend to develop business models to fit what they think are predictable futures. The consistency of execution of these business models determines the success of the organization only for the duration of that predictable scenario. This, in turn, drives the organization's culture as those people and ideas that fit within the consistency of the business model are kept and those people, ideas and opportunities that don't fit are discarded. In other words, strategy can be viewed as a reflection of the organization's culture

In the machine model of business, strategy is set at the top of an organization and communicated to the rest of the firm. Actual strategy, on the other hand, emerges as a result of the myriad actions of the stakeholders of an organization as they perform their day-to-day tasks: who they call, who they sell to, who they buy from, which tasks they choose to perform, who they hire and so on. These daily tactical decisions are made based on internal processes, incentive programs, tactical resource allocations and other bits and pieces that make up organizational culture. The sum total of all these things describe who you are as an organization.

Bottom line: the foundation of strategy is understanding who you are as an organization. Not what you think you are, or what top management has decreed you are, but what emerges as the identity and perspective of your organization from the sum total of all the actions of the organization.

Bruce Borup

How you play the game

In order to understand the development of strategy in turbulent times you have to recognize that:

• There is a high level of uncertainty about your ability to predict the future, and 

• Your organization will interact with its competitive landscape in a non-linear fashion. 

You will also face organizational resistance to developing strategy in new ways by those who confuse a long-term trend with minimal fluctuation for a linear reality. Once your organization is hit by a dramatic event or a series of disruptive changes, those same people will rationalize their linear reality by declaring such events unforeseeable. Better to understand from the start that rapid change and high impact events are part of the non-linear reality of your organization.

In an attempt to make the future more predictable, strategy managers often up the volume of scenario planning using greater variables or they go in the opposite direction and try to focus predictions on very narrow areas of uncertainty, using mapping exercises to define possible outcomes. I can't deny that these solutions have some value, especially with short-horizon events, but the problem with non-linear competitive landscapes is that they are not static. You can't develop a static map of an ever-changing competitive landscape that has an infinite number of possible outcomes.

Therefore, as far as strategy is concerned, "how you play the game" becomes more useful than predictive strategies. How you play the game is concerned with developing a meaningful understanding of your present situation. Understanding the immediate consequences of your current strategy and how your organization will cope with an ever-shifting fog of uncertainty. Honestly define what you know and what you don't know. Develop this conversation as a shared narrative within your organization. Avoid arrogant statements of predictive knowledge and challenge others who declare predictive knowledge. On the other hand, be prudent about predictable disruptive events. In other words, try asking "what do you think would happen" before you have to ask that same question with hindsight. Finally, be aware of a sensitive dependence on initial conditions - understand that small disruptions can escalate into high-impact events.

Bruce Borup

The Stability Myth

As advantageous as equilibrium may be at the project level, it is a serious threat to the survival of an organization at the strategic level. Prolonged stability tends to make a system less responsive to change, whether it is caused by a lack of competition or by management intent through excessive use of detailed standard operating procedures.

Rigid process management, the very structure that managers tend to use to ensure quality products and services, can be the death knell for an organization by eliminating the requisite variety needed to withstand shocks to the system.

When motivated by competitive threats, or new opportunities, complex adaptive systems self-organize and move toward the "edge of chaos,"where increased levels of experimentation tend to lead to new solutions that improve the survivability of the organization.

As an adaptive leader, your job is not to direct the organization along a linear path. That sort of arrogance assumes predictable change. Your job is to disturb the equilibrium in a manner that would tend to encourage desired outcomes and discourage undesirable outcomes. Some of the tactics you can use to achieve this include, communicating the urgency of the problem, establishing why traditional solutions are not sufficient to meet the challenge and developing a system-wide understanding of the roots or causes of the problem. This is not a single-item agenda. The adaptive leader must sustain disequilibrium by holding stress in play until other adaptive leaders start to emerge, self-organize and begin experimenting with potential solutions.

You can create artificial stress in an organization by taking it out of its comfort zone: overload the organization, use short deadlines or other actions that tend to force the organization towards the edge of chaos. Where traditional managers might tend to identify an issue, develop a plan and step in to fix the problem, an adaptive leader identifies the issue, but then does NOT step in to fix the problem. Rather the adaptive leader communicates the urgency of the issue and creates disequilibrium so that the entire system can self-organize to develop solutions.

This is tough and counter-intuitive for most organizations. "Leaders-as-head"are expected to have all of the answers, provide all of the solutions. Adaptive leadership is part of a strategy that looks to the entire living system to develop innovative solutions so that the whole organization can thrive.

There will be organizational resistance to adaptive leadership. In the "leaders-as-head" model, members of an organization tend to look to their leaders to protect them from fear, uncertainty and doubt. Adaptive leaders must hold all members of the organization accountable for its success and regulate the stress on the organization so that you maintain disequilibrium without descending into dysfunction. You will have to use all of your soft skills to ensure that passive-aggressiveness and other avoidance mechanisms are defeated before they become an institutional defense against adaptive leadership.

Bottom line: beware the myth of stability. It has its uses at the project level and is a very useful tool in quality management. However, at the strategic level you require requisite variety and adaptive leadership in order to sustain disequilibrium and survive shocks to the system. You must create an environment where the complex adaptive system will self-organize in order to find new and exciting ways for the organization to thrive.

Bruce Borup

Do not bolt this on!

The goal: an adaptable, knowledgeable, rapid-response business model that can out-innovate the competition and out-adapt its ever-changing environment.

Here's a couple things that have to go: the world-view that has leaders quite literally as the head and the rest of the organization as the body. In this paradigm, it is thought that the only intelligence in an organization is at the head where the brain is and the rest of the organization serves to implement the instructions from the brain. Good communication, it stands to reason, is all we would need to improve the execution of strategy, just like the nervous system in a body. Good management, we hear, just requires "buy-in" so it can be "rolled-out."

We should have left this strategy framework in the last century. A better idea might be to stop trying to organize living systems as if they were children's building blocks. These ideas are remnants of the machine model where everything has identifiable causes and effects.

However, this model relies on the fallacy of predictable change. It requires the centralized all-seeing, all-knowing head to be able to react to infinite change at any pace. It is assumed that feedback loops can be bolted on to the "leaders as the head"model and everything will be fine, whereas the only advantage you get from this sort of strategic thinking is the ability to feel pain, without the associated ability to react more quickly.

There is intelligence throughout your organization. Orchestrate it. Nurture it. Connect it. Weave it together. Encourage it as it tends to take a direction you want it to take and discourage it when it tends to take a direction you don't want it to take. Use narratives to seed strategy throughout your living system and let it grow.

Above all, don't bolt this on. A machine model with a bolt-on is still a machine model.

Bruce Borup

What is this Chaos & Complexity Stuff?

Ok, let's back up and answer the obvious question: what on earth is this chaos & complexity stuff?

About a decade or so ago, I was introduced to "Surfing the Edge of Chaos" by Richard Pascale, Mark Millemann and Linda Gioja. This book literally shocked me, causing me to re-think EVERYTHING I thought I knew about business.

By EVERYTHING, I mean that I had just finished my PhD a few years before. My dissertation was on business planning and specifically on developing strategy for the fast-growth enterprise. At the time I was Asst. Professor of Entrepreneurship at Alaska Pacific University and I was teaching all this stuff at the MBA level.

With just my first peek at Chaos Theory & Complexity Theory I knew I had to start all over again. I literally had to throw my dissertation away. The economic foundation I had built to drive the development of strategy and the business planning process was riddled with holes - huge, gaping, complex, chaotic holes! This illusion of a foundation was based on the arrogant assumption that somehow we could use concepts of linear or deterministic economics to reliably predict the future. In traditional business planning we acknowledged complexity and chaos (without understanding them!) only in terms of risk that could be dealt with by means of crisis management plans. The more diligent of us wrote even more and better detailed technical plans in a mad scramble to cover every conceivable event only to have these dusty tomes relegated to the highest shelves in every corner office.

I researched more and more trying to rationalize my way out of dealing with these concepts: "you can't stretch these concepts from physics and biology to the social sciences," I pleaded with myself. "Economics doesn't behave this way!" Planning was comfortable. Pro formas were safe (just give them a haircut!). Stability was a goal! Strange Attractors, Fractal Forms, Bifurcation, Time Irreversibility, Sensitivity to Initial Conditions, Complex Adaptive Systems. It had to be drivel - probably just the stuff of consultants!

But I knew these concept would prove to be true. All of them. I knew it from the very first few pages of Surfing the Edge of Chaos. I even think the authors knew this would happen - they don't even start Part One until Chapter Two, as if they knew readers would need time to compose themselves.

So, what was I to do? I had to search through the debris of my dissertation to find something I could use to rebuild my theory of strategy development - someplace I could start. I settled on Collins & Porras. They were still right. Vision was still the basis of all strategy.

Collins & Porras described vision in two ways:

-       Core Values and Beliefs. An organization should be prepared to change EVERYTHING about itself at a moment’s notice EXCEPT its core values and beliefs. I absolutely concur. This is still the rock foundation we can stand on.

-       Purpose. Collins & Porras describe a technique known as the “5 Why’s” to divine purpose. It answers the simple question, “what’s the point of doing all this stuff?” Once again, I couldn't agree more. The purpose statement acts as a guiding star, never a destination. It should be unreasonable and unattainable.

So maybe this journey through chaos and complexity is possible? We know, as an organization, what we believe in and we agree on the "Why." There's still a few more useful pieces from my dissertation lying around: BHAG's, missions, goals, business models, revenue models, commander's intent, positioning. However, it seems some of these tools might be more useful if they are used in different ways, so I'll come back to them another time. Let's walk through some of the concepts of chaos and complexity theory I mentioned above:

-       Sensitivity to Initial Conditions.  Initial inputs to a complex system can cause the system to react in unpredictable (and nonlinear) ways.  Using exactly the same or only slightly different variables in a model will not result in the same outcomes in a complex system. A sister concept is the law of increasing returns, such as Metcalfe's law (the value of a network is proportional to the square of the connected users.)

-       Time Irreversibility. In a complex system, there is never the same context twice. For example, this is one of the challenges of quality management, in that "you never step in the same river twice."

-       Strange Attractors.  Attractors are like the influence of gravity, sets of values to which a system migrates over time. Understand that organizations have "attractors" that cause the behavior of the organization to migrate over time. Guy Kawazaki in his phenomenal book "Rules for Revolutionaries" referred to some attractors as "death traps" for businesses.

-       Fractal Forms. A fractal is any curve or surface that is independent of scale. This is often referred to as "self-similarity,"where any segment, if magnified in scale, appears identical to the whole curve. In business we could say that different levels of an organization resemble or echo others.

-       Bifurcation. Bifurcation is the sudden appearance of qualitatively different solutions to the equations for a nonlinear system as a parameter is varied. In a complex adaptive system, this can explain why different solutions emerge from different groups within an organization. This can be a key tool for innovation and creativity for an organization.

-       Complex Adaptive Systems. Rather than control an organization, management should install feedback systems in the organization in order to “encourage those activities that would tend to accomplish a goal, or discourage those activities which would tend to detract from a goal. Understand the long-term behavior of an organization is unpredictable. Do not believe for a moment the arrogance of predicting an outcome. 

Now that we are marching down this path of chaos and strategy, I should stress that chaos is not anarchy. It is not random. Chaos is often defined as a pattern you do not recognize. This is not a concept reserved for poorly performing organizations. Indeed, the larger, more complex and most stable organizations in the world are probably the biggest candidates for this shift in thinking.

Bruce Borup