The only competitive advantage in the 21st century: Adaptability

Erwin van der Koogh bio photo By Erwin van der Koogh Comment

The world around is changing rapidly. The 21st century is shaping up to be radically different than the 20th. And some of the consequences have been quite disastrous for some. Our systems and organizations are too fragile. Take for example the collapse of former mobile phone behemoths Nokia & Blackberry or even more spectacularly the global financial crisis. And we are currently using very 20th thinking to preventing another crisis; We are trying to make the system more robust and protect ourselves from bigger and bigger outside influences.
With potentially disastrous consequences.

As Nassim Nicholas Taleb points out in his famous book The Black Swan: The Impact of the Highly Improbable, it is impossible to predict the future based on past observations. Black Swan events are rare, surprising events with a great impact. Just like the financial crisis. Making our organizations and systems more robust is only going to delay their inevitable demise. In his most recent book he introduces the concept of Antifragile: Things That Gain from Disorder. Anti-fragile is the opposite of fragile; Something that, instead of breaking, improves because of disorder. So how can we make our organizations more anti-fragile?
It would need to be an organization which is acutely aware of its environment, can react very quickly to what looks like small changes. It must not just have a plan B in case something goes wrong, but be already working on it too. And it must keep on innovating if it is to thrive in the 21st century.

Which reminded me of a presentation I saw a while ago about Complex Adaptive Systems.

Complex Adaptive Systems

According to Wikipedia a Complex Adaptive System (CAS) is:

A complex macroscopic collection’ of relatively ‘similar and partially connected micro-structures’ – formed in order to adapt to the changing environment, and increase its survivability as a macro-structure.
They are complex in that they are dynamic networks of interactions, and their relationships are not aggregations of the individual static entities. They are adaptive; in that the individual and collective behavior mutate and self-organize corresponding to the change-initiating micro-event or collection of events.

Some examples of a CAS are bee colonies, the immune system, cities, ecosystems & the Internet. Most of these are very anti-fragile. Take cities for example. Even atomic bombs couldn’t destroy Nagasaki & Hisoshima. Both survived and are thriving again.

So what do these systems have in common?

Autonomous Agents

The basic building block of a Complex Adaptive System in the autonomous agent. Something (Someone?) that is able to make independent decisions. Agents come in very different shapes and sizes; Bees, individual cells, neurons, departments and of course people.
Most organizations are severely handicapped when it comes to autonomous agents, as decisions are usually made at the top and people outside senior management have very little room to make independent decisions.

With autonomous agents you get to tap in to the knowledge and experience of everyone, not just top managers.

Github

As mentioned in a previous blog post Github has given employees complete autonomy over what projects to work on. Or even start a new one if more people agree it is a good thing.

Svenska Handelsbanken

Handelsbanken has been consistently one of the best banks in the world for decades on both customer satisfaction and financial metrics. Their ‘secret’ is their motto: “The branch is the bank.” The central organization is there to support the branches, not to set policies & procedures.

Networked Structure

The structure of a CAS is more than the sum of its parts. A flight of birds has a direction, density, velocity & shape that is not present in any single bird. So what transforms a couple hundred birds flying around randomly into a coordinated flock?
A purpose, some very simple rules and peer to peer communication. A flight of birds can be modeled by only 3 very simple rules. But those 3 simple rules and the interactions between the birds create some extremely complex & beneficial behavior.

Contrast that with our current organizational reality: Top down communication with lots of complicated rules.

Zappos

Zappos has a few very simple rules, but the most important one is: “Deliver WOW through service.” Is it a surprise this is the company most experts describe as one of the most customer-focused company on the planet?

Valve

The simple rule with Valve? “Your desk has wheels for a reason.” If you can contribute more somewhere else you take your desk and move it to where you can add more value.

América Latina Logística

ALL was one of the companies the Brazilian government created when they privatized the countries rail lines. And it was a mess: old trains, rail tracks in disrepair and little money in the bank. Instead of coming up with a 20 page strategic plan senior managers can up with the following 4 rules:

  • remove obstacles to growing revenues,
  • minimize up-front expenditure,
  • provide benefits immediately (rather than paying off in the long term), and
  • reuse existing resources.

This sparked a wave of extreme innovation across the business from front-line employees. They turned a company which had $15 million to spend when it was started into a $1.7 billion dollar business.

Experimentation

And the last ingredient is experimentation. Lots of it. To be able to adapt we need to learn about our environment and our own capabilities. From: “How can we deliver more value?” and “How can we do the same with less?” right up to: “What would a different business model look like.”

Unfortunately most organizations are extremely risk-averse & have a phobia for failing. Both of which are essential ingredients for experimentation. Efficiency is what drove value in the Industrial Revolution, but in the Creative Economy it’s innovation. We need to find ways to fail fast, early and cheap.

3M

Most people would have heard from Google’s 20% time, but the companies that started the trend in 1948 was 3M. They call it Dream Time. The most famous product to come out of it is Post-Its, but there are many others.

“Management that is destructively critical when mistakes are made kills initiative. And it’s essential that we have many people with initiative, if we are to continue to grow.” William L. McKnight, former president and chairman of the board of 3M  

Gore & Associates

Another company that has been experimenting for decades is Gore & Associates, the company behind Gore-Tex. Its founder, Bill Gore, very much baked it in their culture from the beginning in 1958. Their experimentation is called ‘Dabble time’ and it has led to hundreds of products across 12 different industries as diverse as textiles, aerospace, energy & medical.

One great example is the invention of the Guitar strings which was done by Dave Meyer when he wasn’t inventing new types of heart implants.

The Edge of Chaos

To survive & thrive in the 21st century requires us to radically rethink the way we do business. We need a shift in focus from efficiency & predictability to learning & adaptability. The best way to do that is to take advantage of what we know about Complex Adaptive Systems. We need companies working on autonomy, networked structure & (lots of) experimentation.

Now this does not necessarily mean that we have to reinvent the way we open an account for every customer, or find a creative new way to make the financial reports. But on the edge of our organizations we need to surf what Mitchell Waldrop calls “The Edge of Chaos”.

“The balance point — often called the edge of chaos — is where the components of a system never quite lock into place, and yet never quite dissolve into turbulence either. The edge of chaos is where life has enough stability to sustain itself and enough creativity to deserve the name of life. The edge of chaos is where new idea and innovative genotypes are forever nibbling away at the edges of the status quo, and where even the most entrenched old guard will eventually be overthrown. The edge of chaos is where centuries of slavery and segregation suddenly give way to the civil rights movement of the 1950s and 1960s; where seventy years of Soviet communism suddenly give way to political turmoil and ferment; where eons of evolutionary stability suddenly give way to wholesale species transformation. The edge is the constantly shifting battle between stagnation and anarchy, the one place where a complex system can be spontaneous, adaptive and alive.”
Mitchell Waldrop in Complexity

Resources used in article:

  • http://en.wikipedia.org/wiki/Complex_adaptive_system
  • http://www.slideshare.net/johncleveland/complex-adaptive-systems-theory
  • http://blogs.hbr.org/2012/09/shape-strategy-with-simple-rul/