Business Success: Leveraging Chaos in Organizations Part I

This will be a two part blog series about leveraging chaos in organizations.  As mentioned earlier, the key to leveraging chaos within an organization is to allow the vision to drive the change. Chaos manifests within organizations as an inability to find and deal with information in a useful way. If the chaos is contained within specific boundaries, and if the members of the organization can tolerate the tension, order will eventually emerge. Crisis, however, is the failure of coping mechanisms, resulting in a loss of a framework that leads to stagnation or death. In other words, the system is unable to tolerate the tension.

Vision-driven energy can create change that does not result from crisis, although chaos will still occur. Dissatisfaction with the status quo drives a vision, not crisis. Dissatisfaction is the result of examining the status quo with an open mind in relation to the environment and deciding that change is necessary. The vision provides a way of getting members of the organization focused on the future. A vision should inspire and motivate. It should entice members to move out of the current state and move toward the new state while honoring the values of the organization and its members.

Structure within Chaoschaos

For organizations to foster adaptability, it is important to provide a structure or boundaries to guide it through the chaos. However, there is a delicate balance between providing structure and controlling the process. Recall that new patterns emerge only when the system is far from equilibrium. Providing structure in this case means utilizing the system, getting people together and providing them with ways of interacting, and sharing information. This process provides the tension that results in people feeling the need to change. In a healthy system, they would eventually create a plan together. “No one system dictates conditions to another. All participate together in creating the conditions of their interdependence.”

When an organization is in chaos, leaders typically decide they know the answers and take it upon themselves to establish the necessary structures, processes, and rules without any input from the rest of the organization. While this approach is generally easier and faster, it is antithetical to systems thinking and may impede adaptability. It actually prevents the system from rising to a higher level by way of self-organization. Systems thinking requires that the all parts of the system be involved in any major decision-making process.

When chaos is overwhelming the system, it is necessary to provide boundaries or simple rules to contain the chaos. Doing so entails helping people stay focused on the core purpose of the organization and values. By allowing employees to experience the underlying strength of the organization, everyone in it is able to understand and internalize the core purpose. However, it is critical to create dialogue opportunities that encourage tough questions regarding the purpose and its impact. It is common to assume that everyone understands the purpose; thus, often this step is skipped. Understanding the core purpose is crucial in self-organizing systems; this purpose provides the goals around which self-organization occurs. Dialoguing regarding purpose aligns individuals and helps them to claim the purpose as their own.

Values are guiding principles for how to act. They define members’ behavior in reaching their goals. An example of a value is: “We will continue to learn and evolve by examining what we do and how we do it on an individual, group, and system level.” Values act as the strange attractor that pulls the system into order during times of turbulence. They provide guidelines for how to interact with one another, particularly during chaos. Without clear standards for how to work and interact, change can be too risky.

It is futile to have values that mean nothing and do not define how people actually behave. If people hear one value and see behavior that contradicts it, they will not feel safe. For example, if an organization values self-examination and criticism to aid learning and then uses blame and punishment when something goes wrong, the self-examination will cease. In addition to consistency around behavior, it is important for leaders to model the desired organizational behavior.

Tolerance for Discomfort

Systems change when they are far from equilibrium. For this reason, it is important to resist complacency in times of success. Many organizations fail as a result of complacency. Organizations that continue to look for indicators of new shifts will maintain a competitive edge.
It is helpful to develop a tolerance for the discomfort associated with the change process. Doing so allows natural connections to develop. But when discomfort reaches high levels, some organizations hurry the process by forcing connections, coming to premature solutions, and controlling outcomes. This control impedes the formation of natural connections. Newly formed groups, which are particularly susceptible to this urge, cope with it by jumping to solutions prematurely. During times of change, the urge to bring closure to issues and to know the answers increases. This urge needs to be managed with forethought and care by developing a tolerance for ambiguity and lack of control.

Natural Connections and Flexibility

Order rises naturally from chaos, and connections form naturally to make sense of the inherent and emerging information. Organizational structures and processes should be formed as a result of natural connections, and they should be adapted when necessary to ensure that the vision is achieved in the most productive and efficient manner. Jan Carlzon, chief executive of Scandinavian Airline System, made the organization legendary by (among other things) simplifying its rules. He burned thousands of pages of manuals and handbooks to demonstrate how overrun the organization was with rules. If rules and processes are rigid and inflexible, the organization will not be able to shift at the appropriate time. Six guidelines for staying flexible include:
1. Be patient when allowing connections to form.
2. Avoid becoming rigid with or overrun by structures, rules, and processes.
3. Make sure the rules and processes that are in place are relevant and necessary.
4. Solicit regular feedback.
5. Stay open to new ways of doing things.
6. Make sure suggestions and ideas are fully understood before discarding them.

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Business Success: The New Paradigm

In traditional organizations, strategy management is usually static and reductionist. The focus is on short-term gain, optimal allocation of resources, process improvement, and increasing competitive advantage. The approach to change is incremental, with the assumption that a slight change in the existing strategy or variation in the organizational structure will do the job.paradigm_shift_logo

As mentioned earlier, two fundamentally different organizational models are offered. The traditional model, based on Newtonian science, is linear, rational, and reductionist. It is based on the idea that organizations are made up of individual units that can be managed separately. Units such as people, products, tasks, and expenses can each be optimized to support the whole. Change as predictable and controllable with a final end state characterized by stability. According to Laszlo and Laugel in Large-Scale Organizational Change, “This notion is rooted in calculus with which Newton expressed his immutable laws of physics—smooth, continuous, differential equations that lead toward a fixed equilibrium.”

The emergent model is on the opposite end of the spectrum. It sees organizations as emerging from complexity with their parts interconnected and relating as living systems. Behavior emerges and is experienced on an organizational level. It cannot be reduced to incremental units. Rather than implementing change, the emergent or living systems model is always adapting to stay in balance. Change, as defined by the old model, is continuous. The wisdom or intelligence of the organization does not just reside with leadership but is assumed to be distributed across a wide variety of people and systems.

By understanding the rules, principles, and behaviors of each model, organizations can select the best path based on the specific situation. For example, if a company needs to manufacture a product, a clear linear process with a predefined path and time frame is optimal. However, when pressures from outside or deep within an organization require adaptation, it is rarely predictable or controllable. The constant need to innovate, a pressure felt by many in the global economy, is a good example. The intelligence of the organization to meet this goal is far superior to that of the top management team.

To illustrate how our traditional change methodologies and structures limit adaptability, imagine if traditional business rules and processes are applied to the neurons in the brain.
Organize the neuron in your brain, the most complex, infinitely diverse organ that has ever emerged in evolution, as you would a corporation. The first thing you’ve got to do is appoint the Chief Executive neuron, right?

Then you’ve got to decide which are going to be the Board of Directors neurons and the Human Resources neurons, and then you have to write an operating manual for it. Now, if you could organize your brain on that model, what would happen? You would instantly be unable to breathe until somebody told you how and where and when and how fast. You wouldn’t be able to think or see. What if your immune system were organized on this basis? First you’d have to do some market research to determine what virus, if any, was attaching you, right? Then you’d have to have marching orders for all the various aspects of your immune system.

Feel free to share your thoughts and comments.

A Dynamic Organization Principle #10

Re-envision Leading: From Command and Control to (R)Evolutionary Influence


Motivation is the art of getting people to do what you want them to do because they  want to do it. —Dwight Eisenhower

In contrast to years of hierarchical management, leaders in adaptable organizations play a more subtle leadership role. They are the visionaries who envision a future that seems impossible today. They inspire, empower, and motivate others to make decisions. They manage the flow of information and communicate extensively. They take the broadest possible view and encourage collaborative problem solving.

The term (r)evolutionary influence is used to capture these qualities. The evolution of management_for_changecomplex systems is guided by probabilistic influence rather than deterministic control. When discontinuities arise, leaders must occasion a revolution by declaring a future others may not see as possible, and get alignment in the organization so that actions forward that future.[i]

The leadership model in the adaptable organization is more egalitarian. A manager might admit to not knowing an answer or even know the answer but still delegate that executive decision to someone on the front line. Rather than being the solver of all problems, the leader’s role to disseminate decision making by engaging the whole organization in the bidirectional sharing of information and knowledge.

Some powerful tactics facilitate and encourage evolutionary influence. Leaders must be willing to let go of control, take calculated risks, and envision the impossible for themselves and the organization. To maintain an environment of perpetual transformation, they must be willing to accept a higher risk of failure. This is achieved by treating everyone in the organization like a valued member of the team. True dialogue and information flow are necessary to facilitate communication. Conflict is managed effectively, leading to the generation of new ideas and energy.
Referring back to fractals, it is essential to see the system in its entirety. Each decision must be linked to the larger context. Some decisions may be suboptimal for a small group but still serve the larger good. The survival of the system depends on the quality of the relationships of each of its parts.

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[i]Christopher Laszlo and Jean-François Laugel, Large-Scale Organizational Change (Boston: Butterworth Heinemann, 2000), , 124.

Use Organizational Instability to Catalyze Learning

Organizations that succeed in leveraging instability unleash enormous amounts of energy for fueling innovation and adaptability. As situations present themselves—such as a new competitive threat or loss of investment money—management must maintain a delicate balance between reacting too quickly and resorting to old patterns.

Working in a culture of constant instability can be stressful, especially when it is new to the organization. Because of years of experience with the stable, predictable model, many managers resist moving to a model of permanent instability. What is required is a delicate balance between maintaining enough discomfort for learning and productivity to be optimized while avoiding the risk of demotivation, paralysis, and complacency.

Some tactics are well suited for fueling innovation and adaptability. One is to make sure that every member of the organization knows the truth about the difficulties facing the company. Holding people accountable is important. Doing so might include publicizing risk taking to highlight successes and explain shortcomings while avoiding blame. During times of stress, typically 20 percent of employees step up to be change agents. Another 20 percent resist or retreat. By raising the visibility of the change agents, the other 60 percent typically follow their lead.

Encouraging diverse points of view enhances adaptability. Discussions that support opposing points of view often trigger ideas that can be advance warnings of needed transformation.
To maintain the energy and loyalty essential to adaptability, organizations should design and share relevant metrics. A strong vision accompanied by clearly communicated roles and responsibilities will lead to accountability. With distributed decision making in a rapidly changing environment, success metrics must be clear and equitable.

Come back for the last Principle on Leading a Dynamic Organization! Feel free to comment with questions, insights, or additions to this post. 

Christopher Laszlo and Jean-François Laugel, Large-Scale Organizational Change (Boston: Butterworth Heinemann, 2000).

 

A Dynamic Organization Principle #8

Fluidify the Organizational Structure

The flow and accessibility of information is critical in complex organizations, especially those with global reach. The best structures are those that avoid rigidity. Community-based organizations are structured to optimize collaboration between horizontal units while requiring minimal input vertically. Their network structure facilitates the flow of information and task allocations diagonally, leading to maximum adaptability.management_of_change

The level of localization or decentralization depends on the conditions necessary for self-learning. The goal is to allow a structure to emerge that optimizes the ability to make rapid and relevant decisions. These structures will evolve over time as the organization grows and diversifies. Decision making is delegating to the front line with a mechanism for self-learning. Management does not set the goals and means. Rather, it sets the overall aim and allows each organizational unit to determine its own path through communication and collaborative decision making.

These tactics facilitate the development of a fluid structure with in a learning organization:

  • The creation of multilevel project teams supports a community-based structure. Senior management should delegate resources and objectives to the lowest possible level. Performance should be measured on both a team and an individual level.
  • Continually changing demands can lead to unclear reporting relationships. To facilitate learning, the organization should clearly define accountabilities while tolerating some lack of clarity. This becomes more natural as companies experience the value of community-based structures. Specific objectives and defined responsibilities lead the process while maximizing flexibility and learning.
  • Horizontal information flow and communication is very important. Within community-based organizations, information flows freely. Interconnectedness is facilitated by a plethora of communication devices. Therefore, the challenge is moving from information availability to discretion and relevance.

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Christopher Laszlo and Jean-François Laugel, Large-Scale Organizational Change (Boston: Butterworth Heinemann, 2000).

A Dynamic Organization Principle #7

Design Decision-Making Systems for Self-Organization

model_change_management_
An efficient and effective decision-making system is critical to survival in a complex, volatile economy. Organizations must develop processes that encourage self-organization. Doing so requires an open sharing of the vision, the free flow of information, and strong communication between all levels of management on down.

Decision making is one area where rigor and precision are beneficial in an otherwise fluid atmosphere. Respect for people’s time must be balanced with ensuring that everyone has a voice. Creative incentive packages, such as the ones discussed in Business Intelligence Success Factors regarding collaboration, enhance emergence of self-organization.

Complex organizations require a variety of decision-making styles. Some are designed for day-to-day operations while others focus on long-term issues. For example, formal decision making regarding important issues of management and predefined time periods, such as strategic planning, annual budgeting, and executive committee meetings, is typically well designed and structured. Formal, nonperiodic decision making designed to handle unexpected situations may also follow a set format. Formal decision making is used when a decision is needed with regard to a major restructuring, new directions, or investments and crisis management. Since formal decision making covers a variety of areas and are not planned very far in advance, the attendees may not be known ahead of time. These types of meetings are more common in complex organizations that aim to adapt quickly to market changes. Informal decision making can happen anywhere. It is important for leaders to be aware of the effect of limited input on their decisions. Managers who want to promote self-organizing, team-based, distributed decision making must recognize their power to influence through their conversational style and remind others that their opinion is just one of many that deserves consideration.

To foster self-organization, a company must guide its decision making to resemble that of an entrepreneurial enterprise. For example, reducing the presence of top management in the day-to-day operations is a good first step. Combined with an effective information exchange through every level of the company hierarchy, this shift ensures that the flow of information goes beyond the typical sharing of knowledge to include daily insights, ideas, and issues as they arise.

Self-organizing companies need teams that have a broad range of skills that represent a microcosm of the company. Such companies can adapt more quickly due to competent leadership and decision making at many levels.

Learning by doing serves large companies by reviving the entrepreneurial spirit. New challenges inspire people to connect with others to find solutions and increase learning. This leads to faster adaption of new ideas that energizes the workforce and unleashes innovation.
Complex organizations that share decision making and accountability must also share compensation. Many financial instruments to associate compensation with performance exist, such as employee stock purchase plans, cash bonuses, and stock options. One creative practice by Thermo Electron is the practice of spinouts. The company “hands over day-to-day control of newly formed subsidiaries and fistfuls of share options to the staff. The stock has returned 20% per year since the practice began.”[i]

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A Dynamic Organization Principle #5

Link Transformation to Shareholder Value Creation

Shareholder value has long been the single measure of company value. However, as organizations are exposed to continuous uncertainty, they need to behave more like living systems to survive. The survival of living systems “is measured according to strict criteria of adaptability and fit with the sustainable environment.”[i] However, there are some challenges when managing shareholder value in a complex and unstable competitive environment:

  • In a highly volatile economy, the accuracy of measures such as discounted cash flow and expected losses is diminished. It is team_building_change1difficult for highly adaptive companies to predict how much their core business might change in a few years.
  • It is difficult to capture the value added from a company’s management style or decision-making capabilities. “During rapid transformation, change processes become more influential in determining financial performance than either structure or traditional processes.”[ii]
  • Companies are beginning to see the impact on cash flow from connecting with other groups, such as their communities, partners, and the environment. Quantifying this value continues to be challenging.

In summary, the method of calculating economic value added must be “modified to integrate perpetual transformation rather than one-time (or periodic) shareholder value initiatives in managing a business portfolio.”[iii]
The next actions are designed to assist companies in determining shareholder value in a complex and volatile environment.

  • Develop different cash flow scenarios. Organizations will be in a stronger position if they develop different cash flow scenarios for multiple futures based on the best estimates of what will change and how the market will behave in the next few years. The actual exercise of scenario building and the resulting discussion are more important than getting the estimates exactly right. The flow and exchange of ideas is valuable in generating the preparedness for the next phase.
  • Link shareholder value at every phase. When new business lines or other opportunities emerge through the adaptive process, it is essential to link shareholder value at every phase and ensure “sufficient coherence among strategy, finance, organization, and implementation.”[iv]
  • Focus on growth strategies. Such a focus is essential, even if it requires actions such as downsizing, restructuring, and reengineering, when an adaptive company is experiencing a major transformation.

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[i] Christopher Laszlo and Jean-François Laugel, Large-Scale Organizational Change (Boston: Butterworth Heinemann, 2000), 79.
[ii] Ibid., 80-81.
[iii] Ibid., 81.
[iv] Ibid., 84.

A Dynamic Organization Principle #4

Use Strategic Infection Points

A strategic inflection point, a term coined by Andrew Grove, former CEO of Intel Corporation, “occurs when a company is confronted by an innovation of revolutionary significance (force 10x) that affects the entire industry in which it operates.”[i] Minor shifts, such as price drops and changes in purchase behavior, challenge companies every day. Strategic inflection points, however, force companies into seismic shifts or extinction. As our economy becomes more unpredictable, strategic inflection points are increasing in frequency. By developing adaptability and resilience, organizations can leverage the opportunities these strategic inflection points present.
Chaos dynamics says that strategic inflection points represent decision points or bifurcations for leadership_techniques_many organizations. At this point, companies must adapt in order to survive. The status quo is no longer viable.
The long-term success of an organization in times of volatility depends on its ability to take advantage of each strategic inflection point better than its competitors. There are several ways to leverage this opportunity.
Organizations are better able to perceive key shifts in advance of competitors by tapping into their front-line employees. The “sales staff, warehouse managers, customer service representatives, product developers, scientists, or purchasing agents are often the first to sense”[ii] these changes.
When top leaders see continuation of the status quo as unviable, they may decide to generate a period of transitional chaos. Clear, frequent, and comprehensive communication is essential during these times. If employees are kept in the dark about what is happening, fear increases and positive energies that support innovation and cooperation shut down. At a time when it is often the most difficult, people need to be heard. Communication about the status and expected outcome must flow freely in all directions.
Disorder is a strange or chaotic attractor that can unleash powerful forces for change within an organization. However, when faced with an unforeseen strategic inflection point, top leaders are challenged with maintaining a delicate balance. By dispersing control and supporting the organization as it self-organizes within the new paradigm, the company survives and grows in resilience.
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[i] Christopher Laszlo and Jean-François Laugel, Large-Scale Organizational Change (Boston: Butterworth Heinemann, 2000), 70.
[ii] Christopher Laszlo and Jean-François Laugel, Large-Scale Organizational Change (Boston: Butterworth Heinemann, 2000), 72.

A Dynamic Organization: Principle #3

Compete for Industry Sustainability

The longevity of any company is dependent on the sustainability of the industry. Measures to increase the sustainability of suppliers, distributors, subcontractors, and even direct and indirect competitors promote the long-term viability of the industry. While there is still competition between businesses on certain levels, the overall win-at-all-costs model is giving way to a more win-win philosophy. For example, companies have been known to request legislation that limits all players from certain practices that put the industry at risk.

A win-win approach to business will ultimately enhance industry sustainability. The pursuitleadership_development_systems_ of profit that ignores the health of the community or the environment ultimately destroys the entire system

Companies can take several steps to improve industry sustainability. Forming partnerships to enhance collaboration among competitors can be very effective for tasks such as technology development, financing, and setting standards. In addition to adding benefit, partnerships can increase flexibility, free resources, inspire innovation, and disperse risk.

As industry sustainability degrades, companies may be subjected to increased regulation and possible negative publicity. By projecting these costs and incorporating them into their planning, companies are in a position to set the standards for their industry. This can lead to a positive company and industry image while improving long-term industry sustainability.
Companies can create their own standards that look to the future needs of their industry. In an age of instant communication and corporate scrutiny, companies that establish policies for the long-term benefit of the industry get the immediate benefit of positive press. With the recent awareness of corporate malfeasance, consumers often reward companies that “do the right thing.” As other companies adopt the behavior, the market increases and everyone wins.

Come back for the next 7 Principles on Leading a Dynamic Organization! Please comment with questions, additions and ways where you have been successful competing for sustainability within your Industry. To receive alerts when the next blog is published, click on the RSS feed at the top left of the page to subscribe.

Christopher Laszlo and Jean-François Laugel, Large-Scale Organizational Change (Boston: Butterworth Heinemann, 2000)

A Dynamic Organization: Principle #2

Maintain Long-term Identity while Repositioning

Advances in technology and global connectivity have combined to unleash a host of new opportunities for companies of all sizes. As organizations become adept at morphing their strategies to take advantage of these opportunities, they gain strategic benefit by business_change_model_ establishing and maintaining a long-term identity that speaks to their core strength. This ability to change also protects companies from failure if their existing business is marginalized or deemed untenable by government legislation, new technological innovation, or other unforeseen events. By building and communicating an identity vision, organizations are able to leverage their ability to “differentiate themselves from competitors, motivate their employees, and build lasting relationships with customers.”[i]

Several approaches can help leaders reposition their business while maintaining their overall identity. Defining a transcendent vision allows a company to redefine aspects of its business while maintaining its overall identity. SAS, for example, is a global Business Intelligence Solutions company that started out creating software for statistical analysis. A SAS user was someone who knew how to write SAS code. Today, SAS has broadened its scope and evolved into a leader in Business Intelligence solutions with an emphasis on business analytics. With SAS, anyone within the organization can access information to gain knowledge about their business through simple graphical user interfaces (GUIs). But the vision of the company as one that helps businesses turn data into knowledge still rings true for SAS.

To ensure success when adapting strategies, organizations should keep an eye on customer value while taking advantage of all the internal knowledge as well as market indicators to determine which new activity or group of activities will serve future needs of customers.

Another consideration is to reduce reliance on forecasting tools and statistical methodologies. In a volatile economy, these tools are only marginally useful. Companies that are thriving today are leveraging the concepts of chaos theory and complexity science. These concepts include “better monitoring of trends in the external environment, regular reevaluation of the broader industry configuration to see where margins are highest (to see which players are making the most money), scenario planning, pattern recognition, improved ability to pick up weak signals in the environment, and rapid and coordinated decision making.”[ii] By focusing on the future rather than on past patterns and accomplishments, the application succeeds by tapping into the innovative spirit of the organization.

Look for the next 8 Principles on Leading a Dynamic Organization! Feel free to comment with questions, additions and ways in which you have had to morph your strategies in order to take advantage of new opportunities!

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[i] Christopher Laszlo and Jean-François Laugel, Large-Scale Organizational Change (Boston: Butterworth Heinemann, 2000), 57.
[ii] Ibid., 62.