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

Bruce Borup: Rejection of Linear Economics

I categorically reject the concept of linear or deterministic economics. I believe it is arrogant to think we can reliably predict the outcome of a multi-variant equation as complex as modern business. How many times have you seen a business try to plan its way through the future without any idea what the future holds in store? It's as if modern business plans were some sort of railroad you could build to ride a guaranteed success train that could only be derailed by unforeseen circumstances and natural disasters.

Business just doesn't work that way. A good friend of mine once said there ought to be a CEO's prayer, "please Lord, just one day without something going wrong!" You live and compete in a fog every day, making decisions with incomplete information and facing unpredictable competitors and global market conditions that change at a moment's notice. Under those conditions, what makes you think you can just pick a direction and achieve what you set out to do? Just how well do you have to execute to make a typewriter survive in today's marketplace?

The way you develop strategy has to change. The way you plan has to change. The way you manage has to change. How you do business is as important as what you do. The speed at which you do business is important. You have to recognize how you interact with your competitive landscape. Your ability to adapt is as important as what you make. Even how you communicate is a strategic advantage.

Your first step in building a strategy in today's business environment is for you, your board, your management team, your employees, your shareholders and all your stakeholders, to admit that you don't know everything and that you only have the tiniest clue of what the future holds in store. As a leader, that is the reality you must define for your enterprise. Everything else is arrogance! Then, and only then, can you begin to build a strategy.

Bruce Borup