Half full – optimism or complacency?

Change is relentless and the impact of change has no pity for those who are its victims. It has always been so and history is full of the miseries of those caught up in periods of significant social, political or economic transformation. We appear to suffer collectively from an innate urge to improve our lot on the one hand and a paradoxical attachment to the status quo on the other. One of the illogical consequences of this inner tension is a strange and often unsupportable belief that ‘things’ were better in the past.

Given the many strands of change that appear to be weaving themselves into our destiny, is this generation heading unerringly for victimhood? These strands of change include globalisation, urbanisation, technological development, de-industrialisation of the developed world, industrialisation of the developing world, climate change, greater competition for natural resources, shifts of political and economic power. Will they provide the means for emerging power hubs to dominate and control the world population at large? Possibly but not necessarily so. While recognising that there are too many places in the world where the cost of change is still paid in blood and destruction, there are enough signs of creative stamina and resilience to persist in hope. We must grab hold of those aspects of the strands of change that liberate, inspire and enable individuals to participate fully in the societies and economies within which they live, pulling them into place as a global web of mutual interdependence. OK, so that is just some high-flown rhetoric but it is also possible to do …… only not in a blog.

This is not to say that writing does not help. The work of science fiction writers and futurologists has been invaluable in stimulating our thinking by framing possible futures; individuals such as Ray Bradbury, Isaac Asimov, Terry Pratchett, Raymond Kurzweil and Peter Schwartz come to mind as leaders in this regard and no doubt there are many others whose names should be added to this list. I expect that I will come back to this mishmash of a subject area and try to make more sense of it for myself.

The glass is half full; I am an optimist and enjoy the bounty with which I have been blessed but I am also aware that a glass supped from will in time be empty and that it is already time to give some thought to replenishment.

Command, control and complexity

IBM’s 2010 CEO study has just been released. I discovered this on reading Irving Wladawsky-Berger’s blog (here), a reliable source of information, interest and insight. Irving Wladawsky-Berger provides a concise summary of the report which can be downloaded in a number of languages from this IBM site (here). The central message of the study is that CEO’s regard complexity as the primary issue facing them at the moment and identify three key behaviours that will enable them to ‘standout’ in a complex world: embodying creative leadership, reinventing customer relationships and building operational dexterity. The choice of words provides an easy target for those of us outside the corporate hothouse environment; however, to cavil at them would be a mistake. While the words may appear tired and uninspiring, the study provides interesting data on the thinking of many in leadership positions around the world. The study is more a survey of current attitudes and thinking than a synthesis of solutions but it is none the less useful for that. It shouldn’t take long to scan through it …, so do have a look.

What is surprising is that the proponents of complexity science have not been more vocal. Many have been labouring in this field for the past 20 years or more, so why are they not expounding on the relevance of their scholarship? A quick visit to the web sites of a few centres of complexity research reveal lots of interesting activity as you will see if you visit the sites representing groups at Oxford University (here), the Santa Fe Institute (here) and the London School of Economics (here). Perhaps it is not surprising that the focus of this work is quite academic; a follow up scan of what some consultants are doing in the ‘complexity space’ reveals a blend of the well packaged and the abstract. The well packaged stuff is very specific but is easily dismissed by those (almost inevitably the great majority) to whom it is not relevant; the more abstract treatment is generic but appears often to be so diffuse as to be hard for anyone to apply.

There appears to be a gap for which I hope a number of practitioners are heading. If so, there will soon be a wealth of interesting and stimulating material to challenge the thinking of leaders in industry, commerce and all the other areas of public and private enterprise.

Let us hope that they look into one concept from earlier days of the complexity community which goes by the description of ‘simple rules’ and is very attractive to anyone who takes comfort in an established relationship between cause and effect. Then if trying to establish a reliable relationship between cause and effect at the macro scale is doomed to failure, perhaps such a relationship can be established at the micro scale. All that then remains is to agglomerate all the predictable micro effects into a macro effect (or more likely, one of a number of possible macro effects) and the basis for making a decision re-emerges. Well, perhaps not every time but starting with simple rules that can be tested is arguably a better way of managing risk for most of us than ‘taking a punt’ on complexity at the macro level.

Nice, forgiving, tough and clear – all at the same time

Imagine a situation  where two people are arrested on suspicion of a crime. They are interrogated separately so there is no communication between the prisoners who have two choices; to defect (that is,  inform on the other suspect) or to cooperate (with the other suspect, not the police) by saying nothing. I have seen various descriptions of the various outcomes; if they both remain silent, they both go free or suffer a minimal penalty, if they both defect, they both suffer a major punishment while if one defects and the other cooperates, the cooperator suffers the major punishment but the defector goes free and may even reap some reward. This scenario is called the Prisoner’s Dilemma and is, I think, well known in the ‘Game Theory’ world; I believe that it also received much interest in the ’60s and ’70s in the context of the Cold War arms race.  If the situation only arises once, the rational decision is to defect but if the situation arises repeatedly a different optimum emerges.

In the 1970s an academic at Michigan called Robert Axelrod set up a tournament  in which the entrants were required to submit  computer program to play the part of one of the prisoners. The programs were paired of against each other, in the way of a cup competition; each round consisted of 200 cycles of the scenario. The program that won was submitted by an academic from the University of Toronto called Anatoly Rapoport who adopted a very simple strategy called ‘TIT FOR TAT’. TIT FOR TAT cooperated in round one and  then chose to do exactly what the other prisoner had done in the previous round for every round thereafter. This outcome surprised Axelrod and he ran a second tournament sometime later where the challenge was to beat ‘TIT FOR TAT’; not one of 62 entrants succeeded.

‘TIT FOR TAT’ can be characterised as:

• ‘Nice’ in that it never defects first
• ‘Forgiving’ in that it rewards cooperative behaviour
• ‘Tough’ in that it punishes uncooperative behaviour
• ‘Clear’ in that opposing programs (the other prisoner) can work out the pattern pretty easily.

So what is the relevance to business? Perhaps it is in the pertinent questions that are raised about effective behaviours in competitive situations? Who are the prisoners and who the authority structure that can ‘reward’ or ‘punish’? Is business a prisoner in the competitive marketplace and when does cooperation become anti-competitive? Or are business colleagues all prisoners within the business world? What role does performance management have in encouraging or discouraging behaviours? Does it foster nice, forgiving, tough and clear behaviours if these are seen as desirable?

Since Axelrod’s competitions, I believe that there has been considerable development in modelling of the Prisoner’s Dilemma. Eric Beinhocker describes an evolution of ‘TIT FOR TAT’ embodied in a strategy called Fair. This addresses the situation where both prisoners adopt ‘TIT FOR TAT’ and there is the potential for ‘lock in’ to either mutual cooperation or mutual defecting. Axelrod began to look at strategies for situations where the game history suggested that the other prisoner could be bluffed. Lots of interesting stuff and good reading material for those who are so inclined. The Prisoner’s Dilemma is quite well covered in the literature and there is a good general description in a book called ‘The Origin of Wealth’ by Eric Beinhocker, already mentioned ( see pages 221 to 233) and in ‘Complexity’ by Mitchell Waldrop (pages 262 to 265).

The Prisoner’s Dilemma is an example of a ‘non zero sum’ phenomenon; the net loss of freedom if both cooperate is minimal while the net loss of freedom if one or other defects or if both defect is an order of magnitude greater.

Cooperation then gives the best overall outcome for two prisoners but it is unlikely that the majority of cooperations within business will operate on a one to one basis. Inevitably our cooperations are many to many and these can probably be represented usefully as a series of networks with multiple nodes. It is important for the business then to understand how networks operate in order to ensure that our knowledge and competency networks are cooperative, robust and resilient. There is quite a body of academic research in this area which is relevant at many levels within business and the research is important in order to extract  simple rules from complex phenomena (for instance, be nice, be forgiving, be tough, be clear).

The ‘how’ of business is important too

Businesses, even small businesses, sometimes work against themselves. This becomes a problem when the situation is not recognised or when it is recognised and ignored or when it is recognised and glossed over. The telltale signs can include a chronic inability of the business to perform to its true potential or a growing frustration amongst key colleagues which becomes a real issue if they should eventually decide to leave. However in the short term what may appear to be a marginal performance shortfall is unlikely to be the most pressing issue for a business. If a business is growing there are likely to be other priorities and other options; resource shortfalls for instance can be met by investment and recruitment. At the other extreme when things are tight and everyone is stretched, ‘the best may be the enemy of the good’ and in this case ‘good’ may be survival. In either instance, a very good case would need to be made for persuading business leaders to spend much time on what might appear to be fine tuning as all businesses are ultimately ‘needs’ driven.

Though ‘needs’ define the why of business they do not represent the only business driver and recognising other drivers can provide some interesting insights. For instance, ‘needs’ do not define the ‘how’ or the ‘who’. The ‘how’ is very much in the hands of the business leader because he (or she) it is who determines the business culture and who also ultimately determines the organisation and the technology that the business will adopt in order to operate. In the natural flow of events the culture, the organisation and the technology often evolve as the business itself develops. Not only do they evolve together but they also adapt to each other. So what happens when in the fullness of time a business is asked to embrace a significant change in culture or organisation or technology? Or what happens when the technology or the organisation or, perhaps more likely, the culture comes to be regarded as immutable and its evolutionary progress is stalled or even reversed. Some sort of imbalance is introduced to the business which leads to stresses and strains which distort the behaviour of the business and constrain its performance.

Here is a problem, however. Business leaders by and large are not comfortable with relying on any process that can be described as evolutionary. For one reason it sounds like long term deal and for another the process sounds like it is out of their control. Thankfully it is possible to find at least anecdotal evidence that might provide some encouragement for them. In the first instance, a number of the changes that have affected our culture, organisation and technology at a societal level in the past 30 years have followed an evolutionary pattern where the adoption rate is slow initially but then accelerates dramatically, following a characteristic ‘S’ curve as saturation is approached in due course. The growth in sales of mobile phones is an example of this pattern. An item that was seen primarily as a piece of business equipment and supplementary to fixed line telephony has been instrumental in changing the social opportunities and behaviour of a generation in the developed world and has been the means of bypassing the need for costly investment in fixed line infrastructure in the developing world.

So get the change right and it can be the leaders who end up being the limiting factor. One important feature of such changes that must be borne in mind is that they are often ‘pulled’ by the adopters (the ‘out of the leader’s control’ factor) but there is also possible encouragement for business leaders here, too. Multidisciplinary research by various groups under the broad heading of complexity science suggests that it is possible to build models of complex behaviour involving groups of agents that interact according to relatively simple rules. This will not provide a tool for leaders to use to control the evolutionary process but it can provide them with a better understanding of the process with which they can better position themselves to influence it. The words say it all; an evolutionary process calls for an influencing style of leadership rather than a controlling style. It is not right for every situation but if you want to align the organisation, culture and technology of your business, then ‘influencing leadership’ is the way to go. And before you go, remember an effective communication flow of knowledge and information throughout the business process is the very lifeblood of an influencing style of leadership.

There are business tools that can help; one I have used with some success in the past is AIM (Accelerated Implementation Methodology) which is available from Implementation Management Associates.

Old insight, fresh perspective?

When Ralph Stacey looks at the complexity matrix (seen here being used by the medical profession) he drew up some years ago he could be forgiven for feeling a glow of satisfaction. For him it is perhaps ‘old hat’ but for many of the rest of us his matrix provides a helpful fresh perspective on the confusing economic, financial and political climate in which we find ourselves. His matrix suggests that in situations where we are far from agreement and far from certainty having recourse to rational decision making (and this I would qualify to mean linear rational thinking), political decision making or judgement based decision making will not necessarily be very effective. Brenda Zimmerman of York University, Toronto on whose analysis the above reference is based acknowledges that traditional management teaching has concentrated on decision making where (linear) reasoning, politics and judgement can be effective, which focus has left a gap in management teaching. This raises a couple of questions: how useful could the Stacey matrix be in the prevailing circumstances – which can well be described as far from certain and far from agreement? How aware are the current business leaders of this material, given that many of them will have completed their formal education before it was published?

In Stacey’s matrix this region (far from certainty and far from agreement) is divided into two zones, the zone of complexity and the zone of chaos. With reference to the zone of chaos, Zimmerman says, with no little understatement, this is a region ‘… that organizations should avoid as much as possible.’ So, looking on the bright side, let’s assume that we are in the zone of complexity. If traditional management tools are not necessarily effective in this region, what tools are there that we can use?

Some strategic thinkers are looking to see what complexity science can offer in the military sphere and this book by James Moffat serves well as a starting point: Complexity Science and Network Centric Warfare. In amongst the non linear maths there is a wealth of analytical thinking that lays down a foundation for the application of complexity science on which to build models of operations in what is described as the information age.

I don’t want to say more about complexity science here apart from commenting that its use in this context is to help break the mould of traditional command and control structures and to create the philosophical and intellectual framework for de-centralised command and control. Hold the idea of using complexity science in this way while we explore another line of thought.

A recent copy of the Economist includes a special report on the middle class, particularly in emerging markets (Burgeoning Burgeoisie, Economist, 14th February 2009 – to see the link may require a subscription). There is an interesting discussion on who or what are the middle classes but two particular correlations stand out; one between the middle class and economic growth and the other between the middle class and democracy. As the report recognises the former case is easier to make and even it is unlikely to continue without interruption through a recession. Daaron Acemoglu of the Massachussetts Institute of Technology is quoted as attributing the importance of the middle class to growth in the emerging markets to the fact that “… they are more committed than the elite to a mixed, competitive economy.” This is related in the Economist report to Maslow’s hierarchy of needs; I suspect that account also needs to be taken of an economy of exclusivity alongside the economy of wealth.  The former is a zero sum economy while the latter is not; as an emerging middle class starts out with little to lose in either economy it does not have to balance a loss of exclusivity against any gains in wealth. This brings us back to complexity science because it provides one of the perspectives for understanding the dynamics of non zero sum economics as is very ably expounded by Eric Beinhocker in his book, The Origin of Wealth.

What puzzles me in the current climate is that with all the scholarship that has gone into complexity science over the past 20 years I am not hearing more reference to its use in responding to the current uncertainties. Perhaps I am listening at the wrong windows; I hope so because I find much to attract me in the philosophical underpinnings of complexity science and much that I would like to investigate as a means of addresssing the difficulties that present themselves to me.

James Moffat acknowledges the role of the Santa Fe Institute in the early development of this field of multidisciplinary research and the institute provides a treasure trove of relevant expertise and reference material. Ralph Stacey is professor at University of Hertfordshire and was recently interviewed here.