Business Transformation
through the Creation of a Complex Adaptive System
Pravir Malik
Introduction
In
Today, we are facing similar crises in business. Billions of dollars are being spent on change management. Yet most successful organizations cannot keep pace with their more nimble competitors. That which is targeted to change, remains unchanged. More is required by less. Organizations are required to cannibalize or be eaten…
These and several other paradoxes indicate that the business environment is demanding that corporations change their way of operating. Through evolutionary history, those species that did survive did so because they were able to adapt to their environment. They proved to be Complex Adaptive Systems. They thrived on disequilibrium and chaos, and changed themselves to enter into a new relationship with the environment. There are lessons to be learned from behaving as Complex Adaptive Systems.
This thought-piece combines insights from complexity science and business to suggest what an organization must do to meaningfully exploit changing circumstances.
Organizational Operating Levels
Broadly speaking, there are several levels that an organization may operate at.
If an organization operates at a ‘material’ level, then it is tied in to the past, and to what may have once made it successful. Its world consists of known customers, known products, known markets, known processes & structure, and known strategies. Innovation is about ‘tweaking’ and about moving within the boundaries that have already established what it is. An organization centered at this level has a limited number of options to choose from when confronted with change. Change itself is engineered as though the world is fixed, and therefore any efforts are only incremental, within the confines of the described world. To the degree that an organization centered at this level can call on attitudes and strategies that are centered at the higher levels, it will likely be able to function far more successfully than an organization that perceives and acts in the world solely from a material perspective.
In terms of complexity science this organization is operating at equilibrium. And states, complexity science, “equilibrium is death.”
An organization operating at the ‘financial’ level has more degrees of freedom. Being centered in financial results, whether ROI, sales, or market share, it is not necessarily bound to the world that has made it successful. It is not necessarily bound by past markets, customers, products, processes, structures or strategies. It has the added flexibility of changing any of these to ensure that it meets its specified financial goals. Yet, if it were required to go through a quantum change, as is being required by many organizations today, it runs the risk of becoming extinct so long as it remains insistently focused on meeting its imposed financial goals. It is to be noted that organizations operating at this level do embody all the positive capacities of the previous, material, level. At the same time, to the degree that an organization centered at this level can call on attitudes and strategies that are centered at the conceptual level, it will likely be able to function far more successfully than an organization that perceives and acts in the world solely from a financial or a financial-material perspective.
An organization operating at the
‘conceptual’ level is not bound by its past. It has more degrees of freedom, and
is in essence more fluid and adaptive than any form that precedes it. It seizes
on ideas and will change its customers, products, markets, processes,
structures and/or strategies to ensure that these ideas can be fulfilled. It too, has the know-how and capability of
all the previous levels embedded into it.
Thus, material and financial capabilities are deeply embedded or easily
available to it. It is thus, begins to
approximate the functioning of a Complex Adaptive System.
An organization operating at the
‘intuitional’ level is fulfilling some deep need, possibly far beyond what it
might even imagine. As such, it has
opened to deep forces of formation, and is bound only by its ability to give
the receiving intuition a form. At such
a level of operation old, accepted ways of organizing may prove inadequate or
incomplete, and the organization may have to conduct its operations in new,
virgin forms. Such an organization is
deeply creative and perhaps becomes the model by which many other organizations
develop.
The Complex Adaptive System
The Complex Adaptive System is a living system and is marked by several distinguishing conditions. These include:
§ Disequilibrium – This is the critical starting point from which a system enters into ‘presence at the edge of chaos’. Disequilibrium is a state characterized by fluidity. Old perceptions, old strategies or processes must have been shaken to allow for disequilibrium to happen. It is the state in which an old balance with the environment has been disrupted. Several techniques can be used to shift an organization into a state of disequilibrium. More will be said about these techniques later.
§ Presence at the edge of chaos – This is an active condition. Upheaval, but not dissolution characterizes chaos. That is, there is a wise control to the disorder, which allows old ways to give way to new. Old processes, old structures, old markets, old customers, old products are allowed to yield to new ones.
§ Cultivation of self-organization & emergence – Self-organization & emergence are results of distributed intelligence. A living system is one with distributed intelligence, and organizes itself spontaneously to meet and master self-imposed and environmental demands. Further, the self-organization yields to or facilitates the birth of something that may be crying for expression, or whose time has come. That is, something seeking for emergence. In this sense living systems are ahead of the pack, since they proactively allow that which has not found expression, a product or service for example, to find expression.
§ Leadership characterized by disturbing rather than directing – A living system cannot be directed. The distributed intelligence inherent in a living system guides it to tap into the most opportunistic niches and conditions in the environment. Any direction from the top would compromise this ability. Therefore living systems are optimized by being disturbed or nudged, rather than directed.
The following diagram summarizes living systems characteristics, by level of operation.
As an organization tends toward being conceptually-centered it possesses more characteristics of a living system. It is interesting to note that if an organization is at the material-level, having a ‘competitive advantage’ can actually be viewed as a debilitating factor, since it may constrain its ability to adapt. Further, at the material level there is inner-outer fragmentation. That is, the inner ability, from intuition to a sense of connectedness, amongst other faculties, is not reflected in the outer action. The inner source of strength and power is often ignored. At a conceptual level, however, there is inner-outer integrity. One’s inherent source of strength is cultivated and relied on more and more at both the individual and at the group level. At the material-level an organization may be structured hierarchically. At the conceptual level the Law of Requisite Variety kicks in, so that the self-organizing structure promotes the cultivation of variety. This necessarily leads to more compelling ‘emergent’ possibilities. At the material level leadership is directive and more often operationally focused. At the conceptual-level the whole organization is relied on to provide energy and direction. The ‘leader’ simply nudges the living system in one amongst a choice of directions. Further, ambition itself at the material level is restrained by doing more of the same. As the organization proceeds toward the conceptual level radical and real-time changes or additions to direction will occur.
Examples of companies who have exercised different ambition levels follow:
·
An example of focused material-level operation,
to the point where it becomes restrictive, is that as exercised by the US Rail
Industry. They wanted to continue to provide rail services, even though others
had begun to provide transport services, and therefore signed their own death
warrant.
·
Another example of the material-level operation
is that of a company in the ‘typewriter’ business. Computers now provide all the capabilities
provided by a typewriter, and a lot more.
Any company that insists on providing typewriters will soon be wiped
out.
·
An example of financial-level operation is that
of Barnes & Nobles. When Amazon.com actually began following through on its
vision of becoming the largest bookstore on the planet, Barnes & Nobles,
threatened by its diminishing market share, spun off barnesandnobles.com. Their
motivation was simply to gain back lost market share. If instead, they had moved
to an ambition at the concept-based level, they may have been able to reinvent
the retailing industry by being the first truly click-and-mortar type company.
·
Another example of an enterprise operating at
the financial level is Covisint, the e-marketplace
joint effort between GM, Ford, and DaimlerChrysler. While Covisint
had the possibility of being a concept-led play, in reality it has been
motivated by a vision that is at a less empowering financial level. Thus, to
avoid the continuing costs of ongoing battles and pains associated with
continuing to support their own auto-parts marketplaces against the efforts of
other competitors in the same space, the Covisint
principals decided to join forces to come up with a joint auto-parts
marketplace. Since their motivation has been driven by the financial level,
they have been unable to step up to the broader concept-led leadership required
to bring such a venture to successful fruition. Thus, from the word ‘go’, they
have been attended by a host of problems starting form the inability to come up
with a mutually acceptable name for the project, to the on-going difficulty in
selecting the right technology platform, to the potentially crippling inability
to really bring their suppliers along. These leadership problems had been
further compounded by the Federal Trade Commission’s concern that the combined
purchasing power of the auto-makers could be anti-competitive for suppliers.
·
An example of a concept-led company is that of
Amazon.com. At its inception it sought
to create the world’s largest virtual bookstore. It sought to allow the user to browse titles
in the comfort of their home, while allowing users to view online reviews by
other readers. They shipped books to
buyers at prices compatible with or less than those available at its
competitors. Its concept for selling
books was so different from existing sellers of books, that investors allowed
it to continue in operation for 5 years before it has even begun to show a
profit. Further, it drew investors to
its unique concepts, and through the funds that became available to them was
able to quickly mobilize capabilities at the previous level – material and
financial.
·
Another example of a concept-led organization is
that of Aravind Eye Care System. Note
that this is not a business organization, and therefore the inclusion on this
scale is tenuous, but done nonetheless, to provide a rough indication of what
different levels of operation may mean.
Aravind Eye Care System has grown organically, without upfront planning,
and has assumed a unique practical shape, with a reach into the village level
unparalleled by any other organization.
This reach has assisted it in creating a unique culture through the
young village girls who join Aravind to become its nurses, and the backbone of
the organization. This reach also allows
Aravind to provide service to numerous blind throughout
·
To the best of the author’s knowledge companies
at the Intuitive level do not exist, though several may be in formation, driven
by the vision of their leaders.
These and some other examples are highlighted in the following graph.
Once an organization has accepted that it is a living system, the description and extent of its ‘living-ness’ may still vary. An organization may perceive that its living system is bounded by its physical boundaries. Or, an organization may perceive that its living-ness extends to include suppliers and customers in its network. At the far-end of the spectrum, an organization may perceive that all is one living system, and that it itself is only a bounded projection of the essential living quality characteristic of the one living system. If an organization is inclined to the lattermost description of living systems, this further opens it up to a host of fundamental, game-changing questions:
§
What really
is the Living System?
§
What are its
qualities?
§
Is there a
plan or purpose inherent in the Living System?
§
How can a
bounded projection of the Living System, an organization, enter into
communication with the Living System?
§
Can an
organization constantly renew itself by keeping aligned with the purpose of the
Living System?
Shifting an
Organization
A Complex Adaptive System or a conceptually-centered organization is a robust organization capable of exploiting its environment to its best advantage. Necessarily, the means by which any organization, whether it is materially-centered or financially-centered or at any other point in between, can be made to shift toward a conceptually-centered organization becomes critical.
Companies at the material end of the spectrum will literally need to be shaken out of their inertia. These companies have become complacent and have reached a state of equilibrium. They have lost their coping mechanisms. Thus, ‘hard’ or even ‘adversarial’ techniques will usually be required to literally shock them out of an outdated worldview.
Companies at the conceptual end of the spectrum are already Complex Adaptive Systems. The energy that sustains them is alive, dynamic, and opportunistic. Techniques to ensure that they continue to live in the present moment and with the same output of positive energy are, by contrast, required.
The following diagram depicts this variation in application of techniques. Note that techniques further up the slope
will have a greater range of applicability in that they may successfully be
applied to organizations that correspond to circumstances further down the
slope. Techniques further down the
slope, on the other hand, cannot be applied to organizations that correspond to
circumstances further up the slope.
The gist of these techniques follows:
Technique |
Brief Description |
|
Fostering relentless discomfort |
Fostering relentless discomfort is about creating an underlying sense of questioning to do with individual level of contribution to the company. While relentless discomfort is an aspiration for peak performance, it is based on a foundation of self-questioning insufficiency. In this respect it always pushes the subject(s) toward self-exceeding. |
|
Insisting on uncompromising straight talk |
Uncompromising straight talk requires a shift in the mutual understanding of the nature of ‘conflict’. Conflict needs to be viewed as a means to surface difference of opinions, and to work through them to create a more robust business foundation. |
|
Harnessing adversity |
Harnessing adversity is about learning from adverse situations to create a more robust system. |
|
Infusing intricate situational understanding |
This is about creating a widespread understanding of those variables that really drive the business. |
|
Rewarding inventive accountability |
Rewarding inventiveness and innovation that is still bound by accountability. |
|
Managing from the future |
Managing from the future requires participants to stand in the future and to remove any obstacles that remain in the way of being there fully. |
|
Creating an employee signature |
The employer and employee have to enter into a holistic contract that nurtures the employee and provides the employee with a stimulating and rewarding work environment. |
|
Building collaborative competency |
Technique for being able to collaborate with others through focusing on what is unique and best about them. |
|
Cultivating macro-perspective |
Participants need to ‘see’ differently, so that the corporation, the entire business environment, along with all stakeholders, is seen as one unified complex adaptive system. |
|
Appreciative inquiry |
Appreciative inquiry is about mobilizing and leveraging the positive patterns and energy that exists in all people, all organizations, and all situations. |
|
Cultivating mental fitness |
A series of introspective techniques to create greater self-awareness, leading to increased levels of calm, concentration, and creativity. |
On examination of these techniques, it is found that being able to apply them successfully requires a definite introspective ability on the part of the participants. For example, being able to shift the context of ‘conflict’ in the technique of ‘Uncompromising straight talk’, requires one to be able to see that the ‘negative’ is only a mask of the positive, and when pursued, yields a far greater and more robust opposite in its place. Or, in ‘Cultivating macro-perspective’, self-observation will uncover patterns of perceiving the world which filters the reality of what is out there. Through becoming aware of these patterns they can be removed so that a more complete and thorough perception of reality settles in its place. Thus, various forms of introspection remains the greatest enabler of success in any of these techniques.
Further, for an organization to become a sustainable Complex Adaptive System, the source of its energy must be self-renewable. For it to be self-renewable individuals and groups have to want to continue to behave differently and have to continue to want to make change. For this to occur ‘joy’ must be at the base. That is, techniques at the ‘appreciative’ end of the spectrum have to be employed rather than techniques at the ‘adversarial’ end. This observation is well borne out in examination of companies, such as Sears and Monsanto, where attempts were made to shift them into operating as Complex Adaptive Systems. These attempts ultimately failed because the energy being unleashed was adversarial and therefore unsustainable. Had the initial attempts been supplemented or subsequently replaced with techniques like Appreciative Inquiry and Cultivating Mental Fitness, the system would no doubt have become sustainable, and therefore the magnitude of change would have continued unabated.
Case Examples
Case 1 – Failed attempt at creating disequilibrium:
An insurance company sought to create a Program Office that would oversee, approve, and coordinate the many independent and uncoordinated efforts of the IS department.
On examination of the situation, and after extensive employee interviewing, it was found that many of the employees were extremely frustrated and saw no meaning to their work, and no purpose in the new projects they were continually asked to work on. Their view of the value of the work they were engaged in was in stark contrast to that of the executive team’s who had sponsored this study.
On probing, it was clear that the executive team felt that their department had no problems whatsoever, and if there were any problems, having a Program Office in place would solve them. Yet, a large percentage of the 400 employees felt differently, and had numerous examples to back their point of view.
Creation of a Program Office was another device whose implementation would push back examination of the real underlying issues.
A series of workshops were conducted in which employee feedback was presented to the executive team, in the hope of shifting the executive team into a state of disequilibrium. Instead of embracing the reality being presented to them the executive team got further embedded in its narrow points of view.
It was no surprise, therefore, that during the course of the study it was learned that the new parent of the insurance company was planning to conduct a critical review of the IS department.
If the team had allowed themselves to enter into disequilibrium and if they had made the shift to seeing their organization as a Complex Adaptive System, that would have allowed them to enter into chaos. Self-organized teams may then have emerged to really address the underlying issues facing the organization.
Case 2 - Creation of disequilibrium and chaos, followed by failure to embrace adaptive leadership
A lumber trading company sought to proactively respond to the emergence of several as yet unfocused and small dotcoms in its industry, through the creation of an eBusiness strategy.
Multiple eBusiness workshops were conducted. Multiple alternative future environments were mapped out. Further, these were augmented by a series of introspective exercises that heightened executives’ openness to new possibilities. As a result of these workshops and exercises the team entered into a state of disequilibrium. The possibility of being blind-sided or overtaken by a competitor became very real. In response the team created a number of proactive and reactive eBusiness plays leveraging on strengths they had accumulated through the years.
When it came time to take ownership for and further explore these ideas, however, a pattern of operative leadership set in. The participants sought answers from the senior most people in the workshop. On their part, the senior most leaders did not bounce back this responsibility to the participants; instead they assumed the directive roles they had always played. As a result of this, self-organized teams could not emerge, distributed intelligence could not be truly leveraged, and the true dynamics of a complex adaptive system could not set in.
This resulted in a number of fine ideas that have not yet been realized.
Case 3 – The creation of a complex adaptive system
A large conglomerate grew inquisitive about the eBusiness environment.
A number of thought-pieces, workshops, and talks were planned, and disseminated through the organization at various levels. The result was a genuine state of disequilibrium. The organization felt its business foundations being tangibly threatened. Subsequently it entered into that pristine state of chaos.
A separate eBusiness division was created, in addition to a series of more advanced workshops being conducted for the managers on a worldwide basis. Largely self-organized teams emerged to focus on the creation of eBusiness plays. The distributed intelligence of the organization had been tapped. The eBusiness division spawned a number of dotcoms in web-time.
Summary
Allowing an organization to function as a Complex Adaptive System allows for real transformation to take place. This is so because in a living, chaotic environment, characteristic of Complex Adaptive Systems, self-organized teams driven by a distributed intelligence are allowed to emerge. These teams, nudged rather than directed by an overseeing leadership, to continue to pursue the paths that are naturally opening to them, tap into emergent possibilities at the leading edge of innovation, to bring about a true transformation of the organization.
Yet, organizations need to be prepared to operate as Complex Adaptive Systems. A number of mobilizing techniques need to be used to push an organization up the ‘degrees of freedom’ slope. If the organization is at the material-end of the slope then usually ‘adversarial’ techniques will be required to achieve this mobilization. If the organization is more at the conceptual-end of the slope then ‘positive’ techniques will be required to ensure it maintains its status as a Complex Adaptive System. Both types of techniques will be greatly enabled if participants are able to hone their abilities of introspection. Further, for sustainable Complex Adaptive Systems to be created the underlying energy has to be self-sustainable. This suggests that ‘appreciative’ or ‘positive’ techniques that are based on the mobilization of joy have at some stage to be used.
A three-step program for transformation can be employed:
1. Figure out the level an organization is operating at.
2. Design a transformation program appropriate to the level the organization is at.
3. Continue to shift an organization up the degrees of freedom slope until it is driven by a self-renewable source of energy.
Companies that have been able to approximate Complex Adaptive Systems have been immensely rewarded for it. Those who have remained materially-centered often become extinct.
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