Friday, September 17, 2010

Capitalizing on Complexity

Capitalizing on Complexity: Insights from the Global Chief Executive Officer Study

“This study is the fourth edition of our biennial Global CEO Study series, led by the IBM Institute for Business Value and IBM Strategy & Change. To better understand the challenges and goals of today’s CEOs, we met face-to-face with the largest-known sample of these senior executives. Between September 2009 and January 2010, we interviewed 1,541 CEOs, general managers and senior public sector leaders who represent different sizes of organizations in 60 countries and 33 industries.”

The beginning few paragraphs of the executive summary read, “In our past three global CEO studies, CEOs consistently said that coping with change was their most pressing challenge. In 2010, our conversations identified a new primary challenge: complexity. CEOs told us they operate in a world that is substantially more volatile, uncertain and complex.

Many shared the view that incremental changes are no longer sufficient in a world that is operating in fundamentally different ways. Four primary findings arose from our conversations:
Today’s complexity is only expected to rise, and more than half of CEOs doubt their ability to manage it. Seventy-nine percent of CEOs anticipate even greater complexity ahead. However, one set of organizations — we call them “Standouts” — has turned increased complexity into financial advantage over the past five years.

Creativity is the most important leadership quality, according to CEOs. Standouts practice and encourage experimentation and innovation throughout their organizations. Creative leaders expect to make deeper business model changes to realize their strategies. To succeed, they take more calculated risks, find new ideas, and keep innovating in how they lead and communicate.
The most successful organizations co-create products and services with customers, and integrate customers into core processes. They are adopting new channels to engage and stay in tune with customers. By drawing more insight from the available data, successful CEOs make customer intimacy their number-one priority.

Better performers manage complexity on behalf of their organizations, customers and partners. They do so by simplifying operations and products, and increasing dexterity to change the way they work, access resources and enter markets around the world. Compared to other CEOs, dexterous leaders expect 20 percent more future revenue to come from new sources.”

Now in line with “full disclosure” and “transparency”, I have to tell you that I worked for IBM for 30 years. In the first ten years of my career with IBM I pursued technology invention and development. I thought that IBM would be successful if we were a leader in technology. In the second ten years I pursued innovation in business practices and product development helping to create the first independent business unit of IBM. Essentially we were doing what came to be called process reengineering some years later. Having first found out that technology development was stymied by the formal business practices of IBM, I then found out that changing business practices did no good if the organizational culture remained the same. The changes were only temporary and quickly snapped back to what they were before. So, I spent the last ten years on organizational culture and how you change it. For about the last seven years, I was a “grass roots” agitator for changing the values of the culture to strengthen creativity, innovativeness, leadership (called situational leadership at the time) and professionalism. After retiring from IBM I wrote a book on my methodology titled Innovate!.

I’m sure that you have guessed by now that my message fell on rocky ground with little soil in the 1980s.

Now, 30 years later and IBM is in the consulting business big time and touting, of all things, creativity.

OK, times change, People and organizations change. I get it.

So, I read the report carefully, marking sections and quotes to call out in this analysis I’m now writing. Unfortunately when I finished the report, I hit a brick wall. The report repeatedly used key words like complexity, creativity, leadership and innovation. These are words that I know well as I’ve lived them for 52 years. I also know that they are some of the fuzziest concepts in the business lexicon. Just about everyone has their own definitions of these words and very few of them agree with each other. Furthermore, the report did not define the words making most of the conclusions suspect. For example, when CEOs said that complexity was their biggest challenge, what definition of complexity did each of them use.

Most of the time when the authors mention complexity, they are really talking about complicatedness. If a system is complicated, cause and effect are related. If a system has the characteristic of organized complexity, cause and effect are no longer related. If the system is characterized by disorganized complexity, cause and effect are again related, but statistically.

Simple, complicated and disorganized complex systems are tractable. Organized complex systems are not. Unfortunately, many of the systems that CEOs (and the rest of us as well) have to deal with now are organized complex systems.

I’m guessing, but I think that this latter type of complexity is what the CEOs are apprehending. Unfortunately the solutions being considered and the recommendations made are not useful for this type of complexity, and may even be harmful.

In "The Reality of Complexity", Lewin writes, “We argue that managers, consultants, entrepreneurs, executives, other business professionals indeed, anyone who works can take some comfort in the fact that they are not alone in riding a bucking bronco of change that demands a different understanding of the world. Science, too, is in the midst of an important intellectual shift, a true Kuhnian paradigm shift that parallels what is happening in business, or, more accurately, is the vanguard of that change. Where once the natural world was viewed as linear and mechanistic, where simple cause-and-effect solutions were expected to explain the complex phenomena of nature, scientists now realize that much of their world is nonlinear and organic, characterized by uncertainty and unpredictability. As in science, managers are discovering that their world is not linear but rather predominantly nonlinear, not mechanistic but rather organic and complex. It’s amazing how far we have been able to take the linear model for understanding the world, both in science and in business. But in the new economy, the limitations of the mechanistic model are becoming starkly apparent. A new way of thinking is required.”

The Reality of Complexity
Some Thoughts on Complexity
1, 2, a Few, Many

Capitalizing on Complexity: Insights from the Global Chief Executive Officer Study

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