Dispatches from the Digital Age

By March 20, 2015Blog

“We kill all the caterpillars, then complain there are no butterflies.” John Marsden, The Dead of Night

Chances are, if you work in a large company, its management culture is focused on seeking out, optimizing and profiting from an operating environment predicated on:

• Knowledge
• Certainty
• Stability

Successful managers of Industrial Age businesses have mastered the challenges of operating in such an environment and have shaped their businesses accordingly. The archetypal corporate hierarchy – with it’s bottom-up information flows and top-down decision making – is (unsurprisingly) highly adapted to this “KCS” paradigm. Indeed, the current, modern management canon is a product of decades of learning and refining the principles and skills needed to succeed in such an environment. In a world where knowledge, certainty and stability were attainable, corporate management evolved to be cautious and conservative, with a focus on efficiency and eliminating exceptions. Success as a manager more often than not meant prizing continuous, incremental process improvement and a linear pursuit of scale. And this behavior was particularly prevalent when the managers were not also the founder/owners as traditional incentive and reputation systems made exploring alternative management paradigms even more “risky” for such leaders. The problem is, we are no longer living in that world. The rules of the game have changed: our economies, our entire societies are racing into the Information Age, leaving the Industrial Age and it’s well understood parameters behind. Companies and their leaders no longer operate in a “KCS” world. Rather, they now need to learn how to operate in a “IUC” world:

• Ignorance
• Uncertainty
• Change

We are ignorant because the vast, ever-increasing, emergent complexity of the 21st century has definitively outpaced our ability to construct accurate (or even “good enough”) models of future (and perhaps even current) operating environments. Management is confronted not only with increasing numbers of “known unknowns” but also by a vastly greater number of “unknown unknowns”. In this environment, “management by spreadsheet” is at best an anachronism, at worst fatal. It is both psychologically and socially hard for all of us raised in a KCS world to acknowledge and accept our new state of structural ignorance. But until we do, asking the right questions and building a useful decision-making framework is almost impossible.

“The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.” Daniel J. Boorstin, The Discoverers: A History of Man’s Search to Know His World and Himself

Flowing from this state of ignorance is continuous, structural and secular uncertainty. Uncertainty that is immune to our stock solutions of “if only we had more information/better tools/smarter people.” Uncertainty that is clearly and irreducibly part of the economic, technological, political and societal landscape. A sort of Heisenberg-ian economic and social uncertainty. A non-linear, complex, adaptive, uncertain world that renders ineffective or even obsolete so many of the traditional tools and intellectual frameworks of the 20th century manager. And this new landscape of innate ignorance and uncertainty delivers us into a state of continuous and accelerating change: an observation that is neither particularly original nor insightful but nonetheless a reality that is deeply challenging to our existing management paradigms. Paradigms that are rooted in linear frames of reference. Paradigms that suppose an ability to control and to very deliberately effect outcomes. Paradigms that work in an if-this-then-that world. And the divergence between traditional management models and this new, emerging reality grows daily. Inexorably. Slowly at first and then faster. To the extent that the divergence produces cracks that fast become chasms. And all the king’s men will not be able to put Humpty together again…

So how to adapt? How to evolve? How do we manage, how do we lead in an IUC world? A definitive answer does not yet exist – and perhaps never will – but some ideas and approaches seem promising. And perhaps at the very least help to point us in the right direction:

• Open (not closed) ecosystems

• Experimentation
• Humility not hubris

The first step for an Information Age manager is to re-frame their company as an open node in broader, fractal network of people, businesses and customers. And while it is important to focus on building, catalyzing and embracing the ecosystem in which you directly participate, more powerful yet is to explicitly acknowledge and nuture your position in the multiple overlapping ecosystems in which you operate. In other words, build the corporate and cultural equivalents of open API’s and SDK’s and seek connections. Ultimately the goal is to (re)build your organization to be innately resilient – natively adaptable to continuously emerging (and emergent) risks and opportunities. The second step is to develop deep cultural affinity for, and ability to run a (never-ending) series of (business models, product, technology, etc.) experiments. To thrive in the Information Age, this must become a core competency (and not just an experiment itself.) While not a perfect parallel, good places to look for inspiration are the venture capital model and research & development model in science-based product industries. A key success factor will be your ability to exorcise any “not-invented-here” reflexes from your corporate mindset and culture.

Another way to think of this is to have your company construct a diverse portfolio of (often deep) out-of-the-money call options; but instead of options on traditional financial risks (FX, interest rates, etc.), these options aim to hedge strategic and structural business risks. Now extend this mental model to how you think about financing: instead of using a traditional capital investment framework, frame the cost of these experiments as option premiums that both (1) insure against risks to the continuing success and profits of existing, mature business models, and (2) buys you non-linear upside exposure to new, emergent business models. Also, think and measure these premiums not only in financial terms but also as importantly in informational terms. Sometimes an experiment may “expire” out-of-the-money financially but have paid off handsomely in terms of learning.

Finally, the lens through which you measure success or failure should focus on the overall portfolio and not any individual option in isolation. Indeed, if there are no options that expire out-of-the-money, the portfolio construction is not ambitious enough. In order to succeed with such a program, it is important to move away from a top-down, control-centric mindset. By definition, true participation in an ecosystem or network requires that your company embrace elements of syndication and collaboration with respect to “investments” (where investments is meant in its broadest sense – investments of time, people, ideas and – but not simply – financial capital.) To think more in terms of influence, rather than control. To focus on multiplying the range of potential positive outcomes, and not to focus obsessively on exhaustively seeking to define or predict these outcomes ahead of time. (For the physicists amongst you think quantum not Newtonian.) The third and perhaps most important (and hardest) step, is to cultivate – both in yourself and your peers – a certain confident humility. In an IUC world, this is your best chance to build innate resilience and adaptability, both personally and organisationally. Managerial hubris has always been dangerous, but going forward will almost certainly and inevitably lead to catastrophic failure, probably with increasing speed and violence. Conviction and decisiveness remain indispensable qualities, but will ever more need to be tempered for a deep respect for the “unknowableness” of the increasingly complex, dynamic world in which we all now must live.

“Technology tends toward avoidance of risks by investors.Uncertainty is ruled out if possible. People generally prefer the predictable. Few recognize how destructive this can be, how it imposes severe limits on variability and thus makes whole populations fatally vulnerable to the shocking ways our universe can throw the dice.”

Frank Herbert, Heretics of Dune