Tuesday, March 3, 2009

Managing through the current chaos.

I'm often asked how executives should manage in the current chaotic environment. What should they do differently?

Conventional economic theory is built around the assumption of diminishing returns or negative feedback (as a thermostat draws a heater back to an optimal temperature). Positive feedback, or increasing returns, on the other hand, magnify the effect of small economic shifts, and instead of there being one equilibrium point for the economy, there are many and there’s no guarantee that the economic outcomes that emerge from any of them will be the best one. Non-linear feedback systems generate behavior that’s neither stable or unstable but that’s continuously new and creative.

The essence of surviving in a positive feedback world is to be highly adaptive. If the flow is in your direction, go with it. If it isn’t, don’t resist - retreat. What counts for managers now is intuition (derived from experience, not some mysterious gift from God), judgment, risk-taking, providing support and nourishment for fledgling projects, and seeing problems from a whole-systems perspective. The problems many companies are experiencing today comes from the inability of their leaders to let go. Managers need to learn to reason by induction rather than by deduction, to argue by analogy, to think in terms of metaphor and to accept paradox.

Complex adaptive systems also 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 an enormous difference.

To do this, 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.

What to keep, what to discard? That’s a matter of taste based on metaphors and analogies. Dr. John Holland, a MacArthur genius award winner who studies complex adaptation at the University of Michigan says, “The feeling of rightness is critical to what I do. It’s a matter of intuition, of judgment, of style. I look at big, buzzing complex systems and ask what mechanisms and properties seem central.” In the face of an unpredictable and inherently unknowable future, the emphasis is on adaptability, intuition, creativity and entrepreneurship.

Today, our management models should be general, accurate and simple. But, as Karl Weick reminds us, we can only have two of the three at any one time.

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