Are we in for a double dip?

Post 547 - An interesting read in August 12th edition of The Economist: Is fear of renewed recession in America overblown? And is optimism in the resurgence of the European economy justified?

Seldom does the United States look at Europe with economic envy. The past few weeks, however, have been one of those rare phases. Concern about America’s stumbling recovery has been rising, just as anxieties about the euro area’s economy have faded. The dollar is the weakling among rich-world currencies. But Americans should take a little heart: it's too soon to despair about our economy. And Europeans should show a little caution: it's too soon to be sure that theirs is firmly back on its feet.

Some forecasters believe that America’s disappointing GDP growth in the second quarter, 2.4 percent at an annualized rate, could be the start of a slide towards a second recession. One worry is jobs, or the lack of them. American business created only 71,000 in July, too few to match the growth in the population of those of working age and far too few to shorten the queue of the unemployed noticeably. Unemployment is stuck at 9.5 percent, even though corporate America is flush with cash. Companies are still unhelpfully shy of hiring, preferring to squeeze yet more output from fewer people.

Contrast America’s woes with Europe’s renewed hope. Figures published after The Economist went to press were expected to show that the euro area’s economy grew faster than America’s in the second quarter, thanks largely to supercharged Germany. Booming sales to fast-growing emerging markets — notably Brazil, China and India — have brought German industry its strongest quarter in decades. The newly affluent in those countries are rushing to buy Audis and Mercedes, as well as luxury goods from other European countries. German firms that had mothballed factories when global demand for durable goods plummeted have returned to capacity far sooner than they had dared hope. Germany’s unemployment rate, 7.6 percent, is a bit lower than at the start of the financial crisis.

In Europe it is far too early to celebrate recovery on at least two counts. First, Germany apart, the euro area remains weak. Spain, whose economy is barely growing and where the jobless rate is 20 percent, would love to have America’s problems. Second, Germany relies on exports, not spending at home: the home market is one of the few places where sales of Mercedes cars have fallen this year. So its economic fortunes remain closely tied to the rest of the world—including one of its biggest markets, America.

How real are the risks of a double dip recession in the United States? The recovery has lost momentum in part because shops and warehouses are fuller, so that the initial boost to demand from restocking is fading. The housing bust still casts a shadow. Households must save to work off excess debts. Firms fearful of weak consumer spending are cautious about investing. Bank credit is scarce. All this stands in the way of a full-blooded recovery. But a slide into a second recession would require firms to cut back again on stocks, capital spending and jobs. The cash buffer corporate America has built up in case of harder times makes a fresh shock of that kind unlikely.

See the full article at:
http://www.economist.com/node/16791862

How to Survive in a Changing World.

Post 354 - It's almost November so I'm thinking about next year already. It seems likely that 2010 will be another challenging year. We still don't have a clear idea if the US economy will rebound in the new year or if there's another dip just around the corner. Either way, some businesses will prosper, others will shrink, and still others will disappear. But all will have to adapt. In the words of Charles Darwin: “It's not the strongest of the species that survives, not the most intelligent, but the one most responsive to change.”

People can't avoid change any more than businesses can expect to remain viable if they can't anticipate and adjust to new conditions. So how do you respond to change? Do you have a plan in place that will help you adapt and prosper in 2010? Here are some ideas that may help:

• Change can help you reach your goals,
There’s an old saying that, "Every change brings an opportunity." Learn to see change as a means of achieving your goals, not as a barrier preventing you from reaching them. Examine changes in your external circumstances to find how they provide you with opportunities for personal growth. Experience suggests that the greater the change, the more and the faster you can grow. If you think about change in this way, you’ll find it energizing and exciting rather than depressing and debilitating.

• You’re more adaptable that you think.
Our forefathers lived through such great upheavals, it's almost impossible to appreciate the fortitude and resilience they needed to survive. The next time you feel resistant, think about what they faced - and what they created. They uprooted themselves from their homes and families, blended old and new worlds together, learned new languages, created different cuisines and adopted new customs, all the time working to create a better future. History shows that human beings are remarkably flexible and can adapt to a wide variety of situations and environments. This should encourage you to embrace and shape change rather than resisting and avoiding it.

• Set realistic expectations.
Keep an optimistic perspective, and aim for what‘s realistically attainable in the short term. There will undoubtedly be some bumps along the road. You may not be able to anticipate all of the problems ahead, but try to map out in general terms where you want to end up and how you’ll deal with adversity along the way.

• People change at different rates.
Changing your perspective about change will take time. In fact, it usually follows the same steps as the grieving process. These steps, which are experienced sequentially and in this order, are:
- shock and denial that old routines must be left behind,
- then anger that change appears inevitable,
- then despair and a longing for a return to the old ways,
- and finally acceptance of a brighter view of the future.
Everyone goes through this process; for some, the transition is fast, for others it’s slow. So, try to be patient with yourself and others.

• Develop your own personal change tactics.
Those negative thoughts usually creep in when you're tired, hungry, stressed, or lonely. To prevent negative or self-defeating thoughts, get plenty of rest, eat properly and get enough exercise. It's amazing what a 20-minute walk or a 15-minute "power nap" can do to clear your head and improve your outlook. Even if you take all the right steps and follow the best advice, change creates stress in your life, and stress takes energy. You can compensate for this by taking special care of your body.

• Invest time and energy in learning new skills.
Sharpen your skills so you can meet new challenges with confidence. If the training you need isn’t available at work, get it somewhere else. Check out the community colleges or adult education programs in your area, or sign-up for appropriate online programs.

• Get help when you need it.
If you’re confused or overwhelmed with the changes taking place around you, ask for help. Your supervisor, manager, or coworkers may be able to assist you. Your doctor may also be able to refer you to counseling services or make other resources available.

• Keep a positive attitude.
Having a positive attitude won’t take away all life's challenges and it probably won’t change the economic outlook. What it will do, however, is to make you better prepared to work through the challenges that confront you, help you feel in control of yourself and your thoughts, and keep you moving toward finding workable solutions. The minute you alter your perception of yourself and your future, both you and your future begin to change as well.

How to excite and attract people.

How can you ask people for their best efforts and their commitment in ways that excite and attract them? Too many of the current ways of asking, instead of exciting and attracting people, bore them, frustrate them, annoy them, make them hostile or resistant, in short, produce the very opposite qualities to those that will make the organization run smoothly. Better performance will be achieved when there’s greater congruence between what’s being asked of a person and what they’re willing and able to give. To develop, motivate and hang on to talent, you’ll have to convince your people they’re working in an environment where they can grow and be enriched. This means redefining what success means for people today. The key is to develop broader jobs, to take away the stigma of the horizontal move, to focus on creating a small-enterprise environment within the context of the larger organization that develops a sense of ownership and entrepreneurship.

According to research by Mihaly Csikszentmihalyi, a psychology professor at the University of Chicago, the activities that give us the most satisfaction in life are those that engage our psychic energy in increasingly complex and challenging tasks. When we are in “flow,” the activity absorbs the body and mind. A true flow experience increases productivity, improves self-esteem, reduces stress, and inspires creativity. We lose our “self,” and order and harmony prevail. Flow experiences lead to the increased complexity in consciousness that’s necessary to evolve the self. This complexity also “provides the energy and direction for some of the most important transformations of technology and culture. Cars and computers, scientific knowledge and religious systems are created more out of a joyous desire to find new challenges and to create order in consciousness than from necessity or a calculation of profit.” Most flow experiences seem to occur when people are working, meeting new challenges that match their skills and interests. The desire to achieve complexity must be shared in order to be effective. Csikzentmihalyi says “We must join together in a community of shared belief about the future.”

As noted in earlier posts, human beings are more social than solitary. Most of us depend on social interaction and position at work for much of our sense of identity and self-worth. This places a lot of emphasis and reliance on external definitions of the self. However, simply relocating our PCs - the weaving looms of the 21st century - to our homes can leave us lonely and isolated in the suburbs.

So it seems best to keep your mind alive and move on when you get blocked or bored. As the poet Tennyson wrote in his poem, Ulysses, “How dull it is to pause, to make an end, to rust unburnished, not to shine in use.”

The time to take action is now.

Arnold Toynbee, in A Study of History, wrote about the role of challenges in creating greatness. He said, “Man achieves civilization as a response to a challenge in a situation of special difficulty which rouses him to make a hitherto unprecedented effort.” A sudden crushing defeat in war can be just the impetus a society needs to set its house in order. “People occupying frontier positions, exposed to constant attack, achieve a more brilliant development that their neighbors in more sheltered positions.” However, even when a society has mastered great challenges, such as when the Ottoman Empire reached its fullest expansion, it can sometimes decay because of “a fatal rigidity.” So the areas we fear most, those that tend to develop a fatal rigidity in us, may just be those that hold the greatest promise of transformation.

Humans are intuitive and flexible and each one of us is unique. Most people are more social than solitary. How we view today can make a big difference in what happens tomorrow. “The present,” philosopher Gottfried Leibniz once said, “is pregnant with the future.” Thinking too much about tomorrow can insulate us from the reality of today where the real nature of the future is often shaped. It’s prudent not just to look ahead, but to do our best to make sure what we do in the moment at hand is fruitful as well.

Most people are comfortable with the attitudes they developed and the tools they learned before they were 25-years old. A person’s personality is generally formed rather early and then tends to be relatively stable for life. Although people can and do acquire new skills and knowledge triggering significantly new behaviors, central tendencies such as being extroverted or introverted, for example, are likely to persist. Our first instinct in the face of obstacles is to escape, to go somewhere else where it will hopefully be different. Another alternative is to rebel and intentionally break the rules. To fulfill our potential, we must acknowledge our personal contribution in creating our problems and summon up the courage to act authentically in the face of disapproval.

Being clear about our doubts increases our credibility with others. When you stop getting better, you stop being good. People often act with detachment and deny their feelings as a way of dealing with anxiety. According to Paula Poundstone, the reason adults are always asking children what they want to be when they grow up is because they’re looking for ideas. However, every measure to reduce uncertainties of one kind tends to foster uncertainties of another kind.

In today’s get rich, get successful quick society, people are programmed to believe there must be a right way for everything if only we could lay our hands on it. We're often at our most creative when we're trying to avoid the very changes that creativity offers. Some people’s idea of change when times get tough is, “Doing more is better. Hunch over and pull harder.” But rowing harder doesn’t help if your boat is headed in the wrong direction.

Living in a time-compressed society.

Time compression has become a fact of modern life. The traffic light that takes 30 seconds to change or the computer that takes a minute to boot up or the checkout line where it takes five minutes to buy a week’s groceries all have come to seem interminable delays. Time compression has made us a society of impatient people, anxious always to be “doing” or to receive the benefits of doing NOW. This change in normal required time has profound implications for society in a host of matters. One of the most significant is the implication for our cultural time sense. A cultural time sense reflects the way a society positions itself vis-à-vis the future.

Societies tend to vary in their cultural time sense. For example, a society like Japan’s - one that engages in planning today to position its industry to be competitive in the next century - is clearly a society with a fairly long time horizon. On the other hand, a society like that of the United States - one that’s creating a tremendous national debt and has actually shifted from being a major creditor to being a major debtor nation within a decade - is a society that reflects a much shorter cultural time sense.

Regardless of the fundamental way a society views the future, the time compression reflected by significant decreases in normal required time causes all societies to fight the battle of maintaining a “future focus.” When in so many areas the payoff of actions is immediate - be it mathematical calculation, the speed of long-distance travel, or the rapidity of transcontinental data transmission - it becomes increasingly hard to focus on or engage in activities in which the payoff is years away.

When we are impatient with the little things, it is hard to be patient with the big things. We see this in many areas of contemporary society. Financial markets have been driven by merger activity and derivative trading as a means of creating value. This is in lieu of the old-fashioned way of investing in productive capacity and building a business. Consumers have plunged into debt to enjoy a fling today, often with limited concern for the longer-term consequences of their actions. And Americans have tolerated the creation of massive federal indebtedness and the international erosion of their financial power in the world economy.

In The Corrosion of Character: The personal consequences of work in the new capitalism Richard Sennet argues that in our flexible, reengineered economy, we are unmoored from our past, from our neighbours and from ourselves. How do we decide what is of lasting value in ourselves, living in a society which is impatient and which focuses on the immediate moment? You may not agree with his arguments, but he’ll lead you to new places.

Switching between learning curves.

The great flywheel of habit keeps a lot of companies on the same straight path long after it's become clear that they’ll face tougher times unless they learn to adapt. It takes a great deal of energy, determination and intellectual courage to question the basic purposes of our lives. Yet this is exactly what more and more of us are having to do as the structure of American industry continues to shift, as old careers and opportunities dry up, and as new ones emerge and develop.

Studies show that living organisms have learning curves that are S-shaped. People start with a period of slow orientation followed by rapid acceleration. However, at a certain point, the curve begins to tip downward. So, if a person doesn’t get on a new curve, their success in life is sharply limited. Success gives the illusion that the curve only goes up. It requires reflection and introspection to know otherwise. To be introspective means creating an observation point where you can see the past and the future and then decide what to do next.

This means retreating, withdrawing to reassess, reframing and returning. Individuals are most likely to do this when they see different values and conflicts between themselves and their work or their organization. Face up to it and decide what you can change within the organization and what you have to change for yourself. As Professor Pam Posey points out, transitioning between learning curves (created by plotting results v/s effort) is very tricky to do. “It feels like a free fall zone - it feels like we’re throwing away our progress and going back to ground zero again.”

Tractors left farmers working on their own. The city and factory left people working on their own, surrounded by others working on their own. The world became an army with lines of command driven down through management, government, education, and society. Laws and rules were made like precise mechanical engines. The message was to be a cog. That way, you knew your place. How can we know our place today, when the place itself is only there in passing? No, it's not a time to know your place, but to make your place.

“A man needs a little madness or else he'll never dare to cut the rope and be free” - Zorba the Greek

Are you a judger or a perceiver?

Two mythical heroes die hard in our culture; the gifted amateur and the born leader. The gifted amateur makes brilliant business decisions with little or no preparation, and his organization does wonderfully well as a result. The born leader succeeds by acting independently of his environment or his followers. Both of these myths help us forget that half of being smart is knowing what you’re dumb at. In the current world, you only need to hesitate in order to fail. Today’s experts are those who can see or find out how things relate to each other, not just the people with the most facts. These experts have value because they can show others what’s significant. Their expertise is less about having content and more about knowing how to help people look.

Constant change carries with it a stiff penalty; constant struggle and uncertainty.
The American Declaration of Independence says, “All experience hath shown that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed.” Swiss pychiatrist Carl Jung wrote that people’s personalities could be described as judgers or perceivers. Judgers take life seriously, are well organized, punctual, and decisive people who like time to plan their work and then work the plan. Perceivers, on the other hand, are more flexible, freewheeling and spontaneous, enjoy the unexpected, and take change in their stride. According to The Center for Application of Psychological Types in Gainesville, Florida, 60% of Americans are judgers. So most Americans are not naturally proactive change seekers or easy adaptors.

People need anchors to hold on to that provide a means for self-definition during periods of turbulence. In the Gnostic gospels, the Gospel of Thomas says, “If you bring forth what is within you, what you bring forth will save you. If you do not bring forth what is within you, what you do not bring forth will destroy you.” A preoccupation with problem solving and decision making overdevelops the analytical abilities and leaves the ability to dream and take risks underdeveloped.

Many of our present behaviors and attitudes are ingrained in us by biological and cultural predisposition. The choices we make are influenced by these forces, and only by understanding them can we liberate ourselves and consciously drive our own evolution. So, have no fear of change as such but, on the other hand, don’t embrace it merely for its own sake either. And at all costs, avoid the temptation to combat complexity with complexity.

Executive development in the 21st century.

In the emerging economy, every institution in society - business, government, unions, educational institutions, the media, each of us - has to change. Long-term business strategy can only be planned if each business action has a limited number of predictable outcomes. Most strategies fail, not because they‘re ill-conceived or poorly implemented, but because in today’s world, the outcome of many actions are unpredictable. Tiny events can lead to fundamental changes. A double-glazing company installed patio doors for the editor of a national newspaper. The doors didn’t fit and the company refused to remedy the defect. The editor publicized the situation in his newspaper and his article triggered hundreds of letters from other dissatisfied customers. As a result, the company’s business collapsed.

For much of the 20th century, the workplace was the last bastion of feudalism, a medieval system where each layer of society served the one above it and protected the one below it. Feudalism collapsed with the rise of the nation states because while feudal lords could protect their subjects from roving bands of brigands and marauders, they couldn’t protect then from national armies. Similarly, today’s organizations can no longer protect their employees from global market forces and the lightening speed of technological change. They no longer provide protection and they no longer expect loyalty. There’s little demand for faithful retainers anymore. The most difficult positions to fill are global program managers who coordinate products and services across international subsidiaries. Global companies are searching for ways to develop and grow these people.

Vicky Farrow, who was in charge of executive development at Sun Microsystems, gave the following advice conceerning career self-reliance: “Think of yourself as a business and be clear about your area of expertise. Define your product or service and know who you’re going to sell it to. Understand the value you add for your customers and invest in your own growth. Know where your field of expertise is headed, and be willing to change. Be prepared to start a new business when it looks like your current one is becoming obsolete.”

The new employer-employee contract goes something like this: You’re responsible for your own career. Your employer will help provide you with experience and training that can keep you marketable, but not necessarily give you a job forever. If you work smarter and produce high quality goods and services, in return, the company will give you personal recognition, continuous training, and a good living. For both production workers and professionals, staying competitive is the only real job guarantee in the global economy.

When everything, everywhere happens simultaneously, there’s no clear order or sequence. We're leaving behind many of the human institutions and stable power relationships which gave us security in the past. We're plunging down a river that has no banks to rest on. Returning upstream isn’t an option. You can row hard to stay in the same place, but you’ll eventually go broke there. The future is downstream, like it or not. Change is no longer a choice. As pitcher Nolan Ryan says, “There’s no off-season anymore.”

Letting go in order to move forward.

The origin of our political behavior in organizations comes from our dependent relations with our family, how we went about getting what we wanted from our parents and others who had power over us, living as someone said, "in a community of frowning others" who knew what was right or wrong for us. We tend to repeat those strategies of influence for the rest of our lives.

“We sail with a corpse in the cargo,” according to Henrik Ibsen. In his play, Ghosts, Osvald Alving comes home on the brink of dementia, suffering from syphilis inherited from his father. Rather than blaming Oswald’s plight on his dead father, Ibsen suggests that society at large also must share the blame for the poison of its false pieties, its preoccupation with appearances, and its soul-crushing mediocrity. So does his mother for buckling under to bourgeois respectabilities. In the end, the best she can do by her child is to promise to give him a fatal dose of morphine. Ibsen leaves us very much in doubt that she’ll have the heart to do this when the time comes. Ibsen wrote, “I’m coming to believe that all of us are ghosts ... It’s not just what we inherit from our mothers and fathers. It’s also the shadows of dead ideas and opinions and convictions. They’re no longer alive, but they grip us against our will.”

In his research on peak performers, Paul Gustavson found that high achievers were primarily people who had a dream, a clear vision of what they wanted to be in the future, and were prepared to work hard to make that dream come true. They were seldom the best or the most naturally talented when they started out. But they found opportunities to support and develop the talents they knew they had, even if others didn’t appreciate them. How many potential Pavarotis or Margaret Meads are alive today, undiscovered and undeveloped?

Transformation of any sort calls for a radical letting go and an openness to the unknown. We can’t advance and grow as long as we’re holding on tight to what no longer works. We have to let go for a new form to emerge. These are the creative moments that build our lives and they can happen at any turning point. During this time, patience is one of our greatest virtues and seeking premature closure is one of our greatest perils.

How to keep your business healthy.

The Chinese say, “The beginning of wisdom is calling things by their correct names.” When focusing on a firm’s purpose, remember that customers don’t want drills; they want holes. Making money isn’t a reason for being in business; rather, it’s a condition for staying in business. Disney’s stated purpose, “to make people happy,” is about reassurance, not theme parks. For the $$ people pay to get into Disneyland, they want experiences that will make them feel good, that will make them hopeful that all will be right with the world. The Auto Club isn’t in the business of running garages even though its employees spend a lot of time dispatching tow trucks for cars with breakdowns. Its core purpose is giving people peace of mind.

Successful companies frame their identity around their core purpose rather than in terms of their products or services. What they stand for is more important and more permanent than what they sell. For example, Motorola initially grew and prospered because it based its identity on “applying technology for the benefit of the public.” It focused its energies not just on what it currently did (making televisions), but on what it could become in the future as well.

As previous posts have illustrated, leading edge companies today are adopting organizations and configurations that few people would have imagined possible ten years ago. Many of these novel arrangements have demonstrated their effectiveness by delivering world-class performance. Behind each of these business breakthroughs is a leadership team that was willing to stretch, improvise and create a supportive atmosphere that integrated beliefs and goals, culture and strategy, and performance and rewards.

In a fast changing world, there’s no permanent “right” way to be organized. In creating organizations for the future, rather than trying to sell people on the answers, it’s more effective to engage them in an investigation where choices about relationships, structures and policies can emerge from a joint search. Involving people directly in discussions about the future is very important because resistance mostly comes when people aren’t able to see themselves in the new state. By taking part in conversations about shaping the future, people get to hear the same things at the same time and can contribute to shaping the outcomes.

Yes, today's world is complicated, fast-moving, uncertain, and unforgiving. As an old man in a pub in Ireland once told me, “If you’re not confused, you don’t know what’s going on.” In surfing terms, if you’re not making waves, you’re probably not kicking hard enough! “Companies don’t change incrementally. They change in quantum lumps," according to Larry Bossidy. "If you shoot for anything less, you don’t get any change. So aim big. Even if you fall short, you’ll still make a big difference.”

An alliance of partners provides more sources of field intelligence to spot changes in the marketplace. Having partners from different industry backgrounds and corporate cultures provides a diversity of perspectives and ideas for responding to new situations. Part of the dilemma in getting managers and employees excited about change is that, over time, most businesses don’t noticeably change for the worse; they simply fail to change for the better. You need continuous improvement and periodic reinvention to stay healthy.

Strategies for uncertain times.

Strategizing today involves examining trends and developments like those mentioned yesterday, then turning them on their heads, and discovering the new opportunities that drop out. Since cars are in the news, remember that when Toyota first introduced Lexus in America, it didn’t just offer higher quality than its competitors at a 40% discount. Rather, Toyota built the car around a thorough review of the whole buying and service world experienced by prospective Lexus buyers. On the basis of that information, Toyota decided to sell Lexus cars through a unique new channel, one structured and managed to make customers feel special and valued. For Toyota, Lexus represented not just another new car, but a whole new way of doing business. As a result, exploding from a standing start in 1989, Lexus quickly outsold both Mercedes and BMW in the North American marketplace. I've owned a Lexus since 1992 and because of the excellent service and performance, I'd never want to own a different brand.

Great strategies are often based on developments outside the organization’s current field of knowledge or where discontinuities in technology, demographics or lifestyles are reshaping industry boundaries. These “white spaces” represent new areas of growth that fall between the cracks because they don’t naturally match the skills and capabilities of existing business units. Lew Platt believed his most important role in strategy formulation at Hewlett-Packard was to build bridges among the company’s various operations. He said, “My role is to encourage discussion of the overlaps and gaps among business strategies, the important areas that are not addressed by the strategies of individual businesses.”

The organizations that built the best sailing ships in the world didn’t learn to build steamships. The people who manufactured horse buggies didn’t build automobiles. Companies miss the future not because they’re stupid but because they’re blind. One of the problems of seeing the world in new ways is that the basic classification scheme built into our common speech and language directs us to observe the things we can readily classify with the names we’re already familiar with. We have a strong tendency to overlook or disregard everything else. So, as the surrounding environment changes, much of the information it generates gets ignored.

In a dynamic world, conventional wisdom is an oxymoron. Long years of experience in an industry can be a detriment rather than an asset. Since paradigms are only useful for a limited time, organizations need to constantly revise the models and ruling metaphors that guide their perceptions. Smart companies change before they have to. Lucky companies scramble and adjust when push comes to shove. The rest disappear.

When executing strategies in uncertain times, much of the route forward may be invisible from the starting point. The only way to see the road ahead is to start moving, because clarity emerges more readily from error than from confusion. Great strategies move organizations in the right direction and are quickly refined through rapid experimentation and adjustment. In a fast changing world, it’s especially important to get new products and services into the marketplace as early as possible rather than waiting to perfect them. Once they hit the market, no one can anticipate where that will lead or whether they’ll succeed or not. In a business environment where progress depends on serendipity and spontaneity, high risk and high rewards go hand-in-hand.

Creating a viable tomorrow.

To make intelligent bets on the future, you have to understand what’s likely to develop in the next five to ten years and this is especially difficult given the present pace of change. The impact of something that grows exponentially is difficult to predict because the short-term consequences are generally less than planned while the long-term consequences are generally much more than expected. As a result, most people overestimate what’s going to happen in the next two to three years and underestimate what’s going to happen in the next decade. As technology becomes more and more of a commodity, an organization’s unique competitive competence has to come from its other capabilities instead.

In high technology companies, the products are complicated, the pressures to innovate are enormous and the people who buy and use products like computer equipment often know as much about how the product works as the people who developed it. As technologies become more complicated and users more sophisticated, customers are no longer the passive recipients of a company’s products but the engines of innovation instead.

In order to leverage developments like these to build sustainable competitive advantage, more and more companies are blowing up old industry models and offering their customers a new and better deal. In the United States, Wal-Mart has done this in retailing and Nucor in steel. Southwest Airlines has reconfigured air travel. The list goes on to include Charles Schwab, Embassy Suites, Federal Express, Gateway 2000 and hundreds more. These upstarts have created new ways of doing business rather than just sticking with the old ways of doing things.

Successful organizations like these make plans to operate simultaneously in three different kinds of futures:

- predictable futures, where information about what’s required is readily available to everyone in the marketplace. Here, it’s virtually impossible to steal a march on the competition for very long, so flawless execution is the key to success.

- uncertain futures, where what’s required can’t be anticipated in advance and adaptability is the key differentiating capability. Here, the name of the game is improvisation, not standardization. One of my clients, describing her company’s strategy says, “We run like mad, and then we change direction.”

- intuitive futures, where what’s required is defined by those who create new business opportunities. Organizations gain sustainable competitive advantage by finding new patterns that connect existing elements in their environment in novel and original ways, or by inventing elements that can be used to create new patterns not previously in effect. Here, innovation and speed win the day.

Successful companies in the future will be simple, small, speedy and strategic, while aspiring to be global, lean, fast and smart. The challenge for most organizations will be to add speed and capability without adding complexity. When creating the organizations of the future, the real voyage of discovery will consist not in seeking out new structures but in seeing the world with new eyes. Great strategies come from understanding what’s happening in the world in new ways.

to be continued......

More thoughts on GM.

Still thinking about the car industry, it saddens me to learn that Lee Iacocca, the executive who turned Chrysler around in the 1980s, will lose a major part of his pension and a guaranteed life-long company car as part of the fall-out from Chrysler's bankruptcy deal. Chrysler CEO Robert Nardelli told a U.S. bankruptcy court that Iacocca's pension would be among the obligations Chrysler wouldn't be paying when it got court approval to sell itself to a "New Chrysler" to be owned by the UAW, the U.S. and Canadian governments and Fiat. Iacocca's retirement was part of a supplemental executive retirement plan including non-IRS qualified pension funds that are therefore subject to bankruptcy. Chrysler is also stopping a program that gave company cars for life to former executives and directors including Iacocca.

Now, back to GM, I believe the key flaw with Obama's plan for the company is that it doesn't address the perniciousness of the traditional corporate and organizational culture at GM and bring in fresh thinkers empowered to make material changes, like Ford has done. This would go against a fatal aspect of GM's culture - its insularity. The Obama plan generally appears to be based on the traditional venture capital model in that it promises the Government will only be a short-term investor and its efforts will be focussed on turning the company around and producing a sizeable return on divestment to the new shareholders (U.S. and Canadian taxpayers).

However, the plan is missing the most critical element of the venture capital model - when a venture capital fund buys a company to turn it around, it places experts and innovators from outside in key management roles and sees that they're empowered to make decisions and effect real change. There's no evidence that the Obama turnaround team has the experience, skills, mandate, authority or even desire to make the sweeping strategic, cultural, and organizational changes required to return GM to viability. This, among other things, makes the current approach unworkable and just creates another black-hole for taxpayer money.

Thoughts triggered by GM"s current situation.

Ilya Prigogine, a Nobel prize winning chemist, suggests giving up the Aristotelian notion of past, present and future. He says that the future is truly undetermined and we have to create it as we go. “Time is a creation,” he emphasizes. “The future is just not there.” Prigogine won his Nobel prize in 1977 for his theory of “dissipative structures” which covers all open systems that exchange energy with their environment. Because they’re constantly interacting with the outside world, they’re very sensitive to signals about change. At certain bifurcation points, changes amplify into disturbances so large that the system comes apart - but it then reconfigures itself at a higher, more complex level that’s better able to handle the new conditions.

Prigogine observed that open systems tend to hesitate for a moment at the bifurcation point before assuming their new form. These self-organizing systems can be thought of as more resilient than stable. A dissipative structure can be a chemical solution or a human being or a corporation. But the pattern of change is the same in that disruption is the doorway to transformation.

Prigogine’s way of conceptualizing change - that we’re all shaken up ‘till we fall apart - was also observed 50-years earlier by the famous historian, Arnold Toynbee, who in A Study of History, wrote about the role of challenges in creating greatness. “Man achieves civilization as a response to a challenge in a situation of special difficulty which rouses him to make a hitherto unprecedented effort,” says Toynbee. A sudden crushing defeat in war can be just the impetus a society needs to set its house in order. “Peoples occupying frontier positions, exposed to constant attack, achieve a more brilliant development than their neighbors in more sheltered positions.”

However, even when a society has mastered great challenges, such as when the Ottoman Empire reached its fullest expansion, it can sometimes decay because of “a fatal rigidity.” But the areas we fear the most, those that tend to engender in us a fatal rigidity, may just be those that hold the greatest promise of transformation.

In a world of rapid change, we need to consciously reexamine the paradigms and ruling metaphors that guide our perceptions. We tend to automatically use ruling metaphors such as “rule the world” to describe and organize our fundamental relationships. I hope that those charged with reorganizing GM recognize they need to move their metaphors from mechanics to biology, and from control to coexistence.

Using biological, not mechanical, models of organization.

Most people are familiar with genes, the biological code-carriers in our DNA profiles. Some years ago, the biologist Richard Dawkins, in his book, The Selfish Gene, coined the term “meme” to describe how humans escape the tyranny of their genetic scripts. Memes are core thought packages that copy and replicate themselves throughout society. They exist in our psycho-social world, in the realm of attitudes, beliefs and values. They travel from mind to mind through child-rearing practices, education and mass communication.

Sociologist Charles Cooley noted we become what we will be to a large extent by the feedback we get from the social system in which we live. Identity and self-esteem are greatly influenced by interactions with significant others in our lives. Our memes, as well as our genes, shape us as people. They impact organizations and institutions, create social conflict and confluence, and produce large-scale change and transformation.

In the future, we need alternative models (biological rather than mechanical) to help us understand the unusual, keep track of the erratic, time the unpredictable, and give shape to the shapeless. Complexity creates the unexpected and, beyond a critical value, it’s a destabilizing force. To cope with this, we need to develop organizations where systems of truly divergent components can work together as a whole. This can only happen in network organizations where control without centralized authority is made possible by cheap coordinating technologies.

Network systems are guided, like a shepherd driving a herd of sheep, by influencing crucial leverage points and by subverting the natural tendencies of the system so it seeks new ends. Networks can absorb the new without interruption. They don’t become overloaded or dysfunctionally complex as they grow. However, developing organic complexity takes organic time. These complex organizations are slow to start and boot up.

Companies in the future must be allowed to develop not so much by planning as by experiential learning. They must be allowed to develop through a process of spontaneous self-organization. Long-term futures will emerge from the self-organizing activities of loose, informal, destabilizing networks. Companies that survive and thrive will sustain themselves by achieving a state of creative tension on the edge of instability. Companies with ambitious strategic intent may well be outperformed by a seemingly disorganized and aimless network of enterprises teetering on the brink of collapse.

Evolution and personality.

The historical direction of evolution has been to move toward greater complexity, more richly processed information and more elaborately pursued purpose. Complexity appears to rise inexorably and to pass through a threshold every once in a while where parts are integrated into new wholes.

One way to think about evolution is as a rise in complexity, control and consciousness. Stuart Kauffman, in At Home in the Universe, points out that the range of self-organization and spontaneous order in nature may be much greater than we’d previously supposed. Kauffman contends that complexity itself triggers self-organization, or what he calls “order for free,” so that if enough molecules pass a certain threshold of complexity, they begin to self-organize into a new entity such as a living cell.

Laws of complexity generate much of the order in the natural world and it’s only then that Darwinian selection comes into play, further molding and refining. According to the late Nobel Laureate in economics, Friedrich von Hayek, “Order generated without design can far outstrip plans men consciously contrive .... Evolution leads us ahead precisely in bringing about much that we could not intend or forsee.” The chief vehicle that moves economies and civilizations forward is unplanned experimentation among billions of people who don’t know one another.

Learning from experience, in the sense of acquiring new response patterns, doesn’t alter unconscious structures, according to psychodynamic theory. But if those parts of the personality that aren’t dominated by unconscious processes are sufficiently expanded, then there is a change in the relationship of the conscious to the unconscious and hence a difference in a persons overall functioning. Research in many different institutional settings and in many parts of the world, shows that those who adhere to more extreme political positions have distinctive personality traits separating them from those who take more moderate positions in the same setting.

The formal content of a person’s political orientation - left or right, conservative or radical - may be determined mainly by education and social class, but the form or style of political expression - favoring force or persuasion, compromise or dictation, flexible in policy or rigidly dogmatic - is apparently largely determined by personality.

A person’s personality is generally formed rather early and then tends to be relatively stable for life. Although people can and do acquire new skills and knowledge triggering significantly new behavior, central tendencies such as being extraverted or introverted, for example, are likely to persist.

Analogy learning.

When you use use analogy learning, you figure out how current situations or problems are similar to previous ones. Then you can improve planning by looking up a general plan for solving a range of similar problems, and applying some or all of the general plan to the specific problem you're facing. Recognizing patterns in the environment allows an organization to take advantage of them by means of strategy. If you can’t recognize a pattern, there’s no meaningful distinction between tactics and strategy. Organizations can gain competitive advantage by looking for the patterns that connect and inventing bridges that form new patterns not previously in effect.

Self-organizing entities learn by looking at their environment, finding underlying patterns and remembering the patterns they encounter. They then learn to recognize these patterns even when distorted or incomplete inputs are all that's available. With a big enough library of patterns acquired from direct experience, they can guess what to do with the unique, one-off patterns they encounter.

Complex adaptive systems also often have leverage points where a small perturbation can produce far-reaching results. A small vaccine injection can make a huge trillion-cell organism immune to measles. The challenge is how to find the points where a small intervention makes a big difference. To begin, look for common properties and mechanisms in various complex adaptive systems. There may be some hidden order, some common interaction pattern inherent in all these systems. One system may use building blocks from another system in new ways. For example, the internal combustion engine is composed of parts used in earlier technologies that have been recombined to lead to a whole new transportation system.

To transform organizations, you first need to understand the natural change processes that are embedded in all living systems. Once you have that understanding, you can design processes of organizational change accordingly and create human organizations that mirror life's adaptability, diversity, and creativity. Applying the systems view of life to organizational learning enables us to clarify the conditions under which learning and knowledge creation take place and to derive important guidelines for the management of today's knowledge-oriented organizations.

Transformation involves moving from one area of possibility into another area with an entirely different set of possibilities. In moving organizations forward, what’s important is the collective pattern of many simultaneous actions. This messy pattern of interdependent and interlinking events produces an exponential number of possibilities. Positive feedback leads to increasing order. Small failures get lost in the shuffle; the key is to avoid large failures. The capacity to tolerate small failures makes fertile ground for unguided learning as individual variation and imperfection leads to evolution. Some level of lack of understanding is OK - stuff happens. You don’t need to know exactly how a tomato cell works to be able to grow, eat, even improve tomatoes.

Positive feedback.

As different elements in a system aggregate, they can do together what neither could do alone. In a tropical forest, trees and parasites such as Spanish moss, collectively retain nutrients in a way that neither tree nor parasite could do separately. A study of ants demonstrates that following a small number of very simple rules can lead to extremely complex behaviors. A dozen simple rules (such as if an ant finds food, it lays down a scent) followed by every ant produces an ant colony that looks intelligent as it puts out probes to exploit its environment, defends itself, and lives far longer that any single ant. Similarly, neuron cells following a few dozen simple rules can create a human brain.

There are no general rules or principles in business because living organisms (organizations) are medium-sized objects which are not governed by the simple rules of physics. Rather, they're a connected series of a large number of weak forces. When an organism stops being the interaction of a large number of weak forces and instead becomes dominated by a single force, biologists say that object is sick.

Chaos refers to the behavior of a system - like the weather - which is governed by simple physical laws but is so unpredictable as to appear random. Consider an irregularly dripping tap. As each drip sets up the conditions for the next, the smallest variation blows prediction apart. Non-linear systems are governed by this kind of positive-feedback mechanism. In a linear relationship, any given cause has one and only one effect. But in a non-linear relationship, a single action can trigger a host of different effects. The interactions become so complex that the links between cause and effect disappear causing the future of non-linear feedback systems to be inherently unknowable.

A double-glazing company installed patio doors for the editor of a national newspaper. The doors didn’t fit and the company refused to remedy the defect. The editor publicized the situation in his newspaper and his article triggered hundreds of letters from other dissatisfied customers. As a result, the company’s business collapsed.

Long-term business strategy can only be planned if each business action has a limited number of predictable outcomes. Most strategies fail, not because they’re badly conceived or poorly implemented, but because in today’s world, the outcome of many actions are unpredictable. Tiny events can lead to fundamental changes. Forecasting is no longer possible when non-linear, chaotic processes govern the world and small changes produce large, unanticipated outcomes.

Unpredictability is the result of the system’s extreme sensitivity to initial conditions so tiny variations are amplified into huge consequences. Much of human life is governed by positive feedback. The actions that we take result in experiences that inform our understanding and so feed in to the choices we make.

Uncertainty and non-linear systems.

For the past 400-years, science has advanced by using linear mathematical approaches to examine smaller and smaller pieces of the world on the assumption that, when these small pieces were assembled, they would explain the whole. But the world today is filled with complex phenomena that don’t behave in a linear fashion and can’t be explained by reductionism. Adding up the parts doesn’t give a good picture of how the whole behaves anymore because the interactions between the parts are as important as the parts themselves. In the real world, rather than having simple causes and general phenomenon, “everything depends.” There's no ultimate reality. We never have all the data and we influence the data we do have by our presence. A different kind of mathematics using a nonlinear approach is needed.

Measurement supposedly makes the ”indefinite thing definite.” But according to Heisenberg’s uncertainty principle, if you can only predict the outcomes of different kinds of measurements in terms of their probabilities, then you won’t be able to obtain at the same time all the information about an object or an issue that you might want to know. In theoretical physics, new insights into the behavior of complex systems have made it possible to begin to understand how assemblies of many interconnected objects can behave in collective ways that are by no means obvious or easily deduced from the behavior of single events in isolation. Here it helps to understand the mathematical properties of wave functions and how measurement probabilities are derived from them. This leads to the concept of “decoherence.” - (see Where Does The Weirdness End? by David Lindley, Basic Books, 1996). Today, the fundamental assumptions behind “reality” no longer hold true. In a dynamic world, there are no final solutions. The only way to grasp the general or the universal is in the particular and you can only get that from experience. Risky judgment rather than precise measurement is needed because the facts which have traditionally been the baseline for measurement no longer apply.

The bionomic view that solutions to the complex problems of the information age must be allowed to evolve from experience instead of being engineered in advance offends many managers and specialists. But self-organization is widely distributed. A system like the internet is the essence of life, innovation and progress. When the environment changes, this model thrives rather than self-destructs. Traditionally, we looked for an elegant solution that achieved a powerful result with a minimum of irrelevant complication. Today, we have to live with adaptive challenges - that is, problems without any apparent solution.

As G. K. Chesterton wrote in his essay on Orthodoxy in 1924, “The real trouble with this world of ours is not that it is an unreasonable world, nor even that it is a reasonable one. The commonest kind of trouble is that it is nearly reasonable, but not quite. Life is not an illogicality, yet it is a trap for logicians. It looks just a little more mathematical and regular than it is; its exactitude is obvious, but its inexactitude is hidden; its wildness lies in wait.”

Success in the future pivots not on information but on interpretation - the ability to make meaning out of still-emerging patterns. The truly important events are not trends, but changes in the trends.

Change and biology.

Last week, I gave a presentation on managing change to a group of local business owners. This triggered a thought that it would be instructive to explore theories of evolution and change from a biologist's point of view. After all, “We learn nothing from the things we know” according to the American composer, John Cage, and I've never formally studied the biological sciences. So let's see where this takes us......

University of Michigan business professor Karl Weick reminds us, “Adaptation precludes adaptivity.” The better we are at something, the harder it is to adjust when circumstances change. Firemen are most likely to be killed or injured in their 10th year on the job. By then, they think they’ve seen everything there is to see about fires so they become less open to new information. All organisms act to defeat natural selection, to escape from evolution.

When natural selection is continuous, evolution begins only when individuals in a population can't adjust to environmental stresses with their existing abilities. Mutations whose effect can be overridden by the normal abilities of individual organisms spread randomly and eventually become part of the genetic load of the species. We expect genetic change to be rare and when it does occur, it’s proof of incompetence, of extinction barely avoided. Successful life forms don’t evolve noticeably because they’re competent in dealing with environmental change. To be a “living fossil” is the hallmark of biological success.

The problem with Darwinian evolution, where death eliminates the ineffective, is that change takes evolutionary time, often millions of years. The theory of “punctuated equilibria” popularized by Stephen Jay Gould at Harvard, suggests that instead of changing gradually, species remain unaltered for long periods of time and then evolve very rapidly. Speed is the revolution in evolution. Evolution can be speeded up significantly when we add the capability to learn.

Many companies today are being overrun by a fast moving forest fire. Leading-edge companies experience dramatic transformational changes that make them obsolete almost overnight. They think they have their world under control, but it suddenly explodes and they have to go into a totally different mode to cope with it. In this kind of world, linear models of cause and effect don't work any more. Tomorrow, I'll examine the alternative - using non-linear systems.