degrees of freedom
The 9.0 earthquake that devastated northern Japan continues to have severe aftershocks. They are shocks in what clever physicist would ascribe to a type of space-time. It’s not about Star Trek stuff, or the time travel that fantasies love to use, but rather how one type of event starts a whole series of other events along a different type of path, affecting a different space at a different time, but connected. These types of other events are very real “butterfly effects” where a small change in one place can cause a whole bunch of changes downstream. Believe it or not, that earthquake has changed our lives, our businesses, and our collective futures. Toyota, the world’s largest automaker is expecting a 35% drop in profits, primarily from supply chain disruptions. Maybe that’s a no brainer, but it’s also driving severe supply chain effects globally and very real adverse economic and employment pain here in the US. From automakers and their suppliers, to many of the stuff we buy including our beloved electro-gadgetry … it’s still hurting.
How many of our business plans had “the earthquake” included as a scenario? Not very likely … Our nuclear industry was in the early days of a beautiful renaissance, one with a promise that would be a large driver of untethering us from our OPEC masters … but it too has been severely damaged by an aftershock … but one with no Richter scale. Disruptive events aren’t what they used to be. Historically, disruptive events were contained to the extent of our technological and logistical isolation …. We weren’t all networked. Globalization has changed that … we’re one big interdependent and interconnected family. The apparent and marketed successes of globalized supply chains and very sensitive “just in time” systems had a big Black Swan lurking … behind our chosen lines of sight.
Today, complexity has become a global behemoth, creating new rules of business and generating many more choices and opportunities for innovation and value creation. I certainly love my Android phone more than the beeper I had 30 years ago. For businesses, that complexity requires a severe filtering of what is included in planning and consequently what we chose to be blind to. Planning in business love the optimists and sometimes ostracize the pessimists … the ones who ask the unnerving questions.
Given Japan’s location, how likely are earthquakes? I heard an unfortunate comment from a nuclear industry spokesperson … unfortunate because it is an industry I love and believe in … that “the damage at the Fukishima plant was not from earthquake damage … but rather from the tsunami, it performed as designed.” Aren’t earthquakes and tsunamis connected?
Today’s world is much less dominated by trends and easy predictions … how many surprises have we had to respond to in our enterprises? My bet is that we’ve had more of them more frequently … in some multiple of our increasing interconnected interdependency. Take a look back and count them … what would we have done if we had known or prepared ahead of time? As we look ahead and build our planning and business models for the coming year … are we asking the right questions? How many levels of “what if” along our interconnectivity are we exploring? Have the aftershocks created more timidity in decision making? How much time do we invest in complexity driven failure modes versus “win” and “capture” plans. Do our business continuity plans address the really scary stuff?
There is opportunity in every storm, after all, “Luck is when preparation meets opportunity.” Seneca, Roman philosopher, mid first century AD.
What’s in a name? How about the three R’s: recognition, reputation, and revenues? What’s the value of a brand? BRANDZ has just published their evaluations and valuations of global brands. It’s a measure of just how valuable the commercial brand is and supporting insight into the whys and wherefores. The shifts and changes in their rankings are a barometer of how our choices of who delivers value are manifested in our buying behavior. It’s not an opinion poll, but rather an evaluation that incorporates business results with analysis inclusive of some subjectivity. It’s free and easily downloaded. The big global headline is that Apple, with an 84% jump in score, has surpassed Google as the most valuable brand in the world. Technology, specifically technology that enables our multi-polarity and interconnectivity to flourish, rules the top of the list … the standard bearers of an increasingly untethered and disintermediated consumer and commercial world. That means that value propositions increasingly incorporate wireless connectivity without a middle man. Googling it, Tweeting, linking up on Facebook or LinkedIn, catching it on YouTube are fully integrated into our lexicon. Recently, repressive government regimes in the Middle East have learned just how powerful these untethered forces are.
There is surrealism to this, particularly for us Baby Boomers. Brands exist in a very Darwinian environment, with success belonging to the fittest. What being fit means has changed lots over the years. The shift years ago from industrial dominance was led by the services economy. In fact, one of the top 5 this year, IBM, now a consulting and technology services giant, was once a hardware maker selling typewriters and lots of computers, behemoths and little ones. The current kings of the hill are all technology firms, with the exception of McDonalds and some might argue that their value proposition and the stuff they sell are untethered, disintermediated, and high tech as well. To nail down the point, Amazon is now a more valuable retail brand than Wal-Mart.
Early losers in this sea change included stock brokers replaced by powerful web engines that enabled more effective, efficient transactional capabilities. Those that transitioned to become trusted advisors are still with us, but very few order takers remain. Be they Borders or Blockbuster, wireless and untethered trumped brick and mortar between customer and supplier.
Delivery of value has increasingly demanded convenience as the driver.
- How often do we measure our performance in delivering convenience?
- Are we ubiquitous in accessibility?
- How many hand-offs exist in between us and the customers’ actual securing the benefits they seek?
- How well are our electrons delivering value? Do we paper or pdf, snail mail or email, travel or teleconference, drive to the mall jungle or click to Amazon, carry cash or card it, keep knowledge in persons or in our systems and processes ……?
- How are our customers deciding where to shop and how will they decide with whom to buy?
- How quickly do we adapt and respond to changing requirements?
- Are our improvement efforts focused on where our customers are going or on getting better at where we are at today?
The term robber baron is said to have originated as a medieval name attributed to those that controlled passage on the Rhine River and charged exorbitant tolls. They recognized the power they held, as constrainers or enablers of commerce. The term lived on and thereafter was attached in 19th century America to the magnates that built and operated the railroads. Their power, the same as their predecessors, came as they became the harvesters of the power that came to gatekeepers to commercial traffic. The big and exciting commercial wars in the mid to late 1800’s were about control of the rails. The magnates who built the rails, steamship lines, and the routes of commerce did much to shape the course of history and how we operate today. We may not recognize names like Gould, Crocker, Flagler (outside of Florida), Harriman or Vanderbilt, but their tribe of visionaries and shapers continues on.
Modern technology has changed the methods of how commerce traffics, but little has changed insofar as the value and leverage these channels have. Getting from “here to there” matters much to commerce, buyers or sellers. Giants such as FedEx and UPS understood this well and filled the vacuums that public postal systems created. Be ye pirate or magnate, control over the lanes is real leverage.
Commercial choice is a function of degrees of freedom. The fewer degrees of freedom one party has, the lesser commercial power they can exercise. Loss of degrees of freedom in commerce fuels a range of responses as brutal as wars and as exciting as innovation, the best kind, the kind that solves problems, and the kind that is pulled by a sense of urgency. Often, history teaches that imbalanced growth of innovation creates the commercial imbalances that visionaries can see and leverage while we bask in the fun of the new solutions.
The current commercial wars are even more fascinating. These wars are about the virtual electronic waterways, invisible, infinitely networked, changing daily and ever more far reaching. The sea lanes and railways run on the net. The magnates who reshape winning and losing, acquire, rise, and fall can’t be measured by fleet size, or number of gates at physical hubs, or the endless trappings of game makers. They are creatures of our making. They are measured by our democratic behaviors, our choices, and have grown sufficiently to determine how democratic the future roadways will remain.
In our enterprises, we make daily choices about enterprise systems, business channels, email systems, network configurations, CRM applications and innovations to give us more transparency, build capabilities, and achieve leverage of resources and investments.
• How will our choices give up degrees of freedom that construct future system constraints?
• Do our strategic decisions create more choices and preserve flexibility?
• Do we “hard wire” ourselves onto roadways with visionary gatekeepers that will shape our futures?
• Have yesterday’s solutions become today’s constraints?
• How do we currently preserve or give away degrees of freedom in our strategic choices?
“Concentrated power has always been the enemy of liberty.” Ronald Reagan
What defines a good strategy? What does it mean? Strategy may be one of the most overused and subsequently confusing subjects in practically any realm we encounter. We hear about so many categories of strategy, that subjectivity has overcome objectivity in the usefulness of the word. Military strategy, business strategy, product strategy, life strategy, financial strategy, global strategy, marketing strategy, project strategy, retirement strategy … are among the near infinite categories.
Add to that the subject of planning … and it gets even messier. I believe that the two terms have been comingled sufficiently to take on whatever meaning one chooses and therefore beginning to approach becoming meaningless when evaluating or comparing between entities. Try testing this sometime. Ask 20 different people to define strategy, planning and strategic planning and see what you get. Expect to be amused, or maybe even confused. You may also discover that the responses will often predict what the respondent does and where they fit within an entity.
Add to that the confounding impacts of organizational structure and budgets, and, … maybe we begin to make it really hard to get clarity. Yep, I’m going to have a go at it ….
Let’s stipulate that all the stuff about goals and objectives is important and not up for debate right now. Let’s also stipulate that stuff is not free and we need to have control over resources and spend and therefore budgets are important. Plus, accountability, transparency, time, cost, and quality all matter too…
Strategy is what we do to create a future such that we maximize the choices and degrees of freedom along the way because some of what we believe or wish for is wrong. We could be wrong in what it will be like, what we actually want, what is going to happen,,, lots of ways. A strategy makes us think and consider the destination(s), the journey, and options for the detours and bumps in the road. Apply this to the categories above and see if it works. Strategies that reduce degrees of freedom and constrain choices tend to end up with calamitous consequences. Try it out on Betamax, the Peloponnesian Wars, mortgage backed derivatives, the Maginot Line, health care oligarchies, pension plans, hard wired enterprise systems, onerous controls and compliance requirements, procurement approvals …. When things do not play out as you expected, or wished, or sold, do you have the preparation and capability to adapt and exercise other choices? Decisions about Afghanistan, health care reform, even our next cell phone contract and provider choice would benefit greatly from this perspective (I believe..).
Planning is what we do to create confidence, not affirmation, that what we seek to do to deliver the strategy has legs. Planning is what bridges the activities between the present and the future so that we are capable to execute and adapt over time. It is about the verbs we will execute in order to secure the nouns and adjectives in our strategy.
So, my oversimplification would argue that we want confidence that we can get to the future we want, or emerges, with choices to make it better when we were wrong a little or a lot. Strategy gives us choice. Planning gives us confidence …
Have you thought about how we make decisions? It’s fascinating and frightening. I believe decision making is by far our greatest Achilles Heel. In his book, “Fateful Choices, Ten Decisions that Changed the World”, Ian Kershaw delivers a monumental and insightful lens into decisions by world players during 1940-1941, leading to the catastrophes of World War Two and beyond. It uncovers complexities, blind spots, paradigms, megalomania, group think, and perversities of gaming. The tugs-of- war within closed doors and the powers at play within and outside the decision makers’ line of sight are overwhelming. At the end of the day, people often allow their smallness decide the fate of millions and the subsequent direction of the world.
The same can be said of the events that led to our current economic and financial catastrophes and consequences. The same can be said about how we individually decide and the impacts we have on others.
What we read of history often sounds like a linear series of events that had clear cause and effect, heroes and villains, smart and stupid as the drivers. Not so simple. My own attempt at simplicity leaves a lot out, but I conclude that two big factors in decisions are:
- The lens we put on things.
- How we frame the way we will make choices.
The challenge with decisions involving multiple players gets messier because often there are multiple lenses and the frames at play. Lenses are essential for what they bring into focus and what they leave out. Framing is essential because it sets forth the remaining and discarded degrees of freedom. Time and consequences fuel the process and create many of the biases.
This topic is important today for us individually and for our organizations. How we evaluate our environment and the choices it prompts us to make depends on what we see (our lenses). Do we see scarcity and the commensurate hunger and fear that it creates? Do we see abundance and the commensurate opportunity and confidence we can harvest? Do we rely on what time has taught us about good and bad, cause and effect, right and wrong, or ask if the rules have changed and the drivers may be different? Have we led and managed from personal “genius” or by process? I have come to believe that in stable times process trumps personal genius and in changing times, the genius card takes the pot.
The framing of how we can decide is a tough one, but one aspect we can work at improving. Again, it is affected by what we envisage as time available and consequences, but constrained by what our lenses put in front of us. Personal choices carry an infinite number of variables and are compounded by beliefs, values, personal history and levels of personal insanity, ignorance, knowledge and education. Business choices carry the variables that are precipitated from a business economic or public service value system. Both matter.
When I read accounts of events and decisions, they are usually developed because there were consequences that are far reaching. A lens on the decisions made within these accounts invariably carries a post hoc focus on the extent and impact of the consequences, good or bad. That’s the problem with retrospect, not the advantage. So I will oversimplify again.
How often do we manage the present from the future? How often do we stand five, ten or more years from now and look back into today and the sequences of events that came about? It is not a frivolous pretend exercise, but rather a visionary versus incrementalist lens and frame for decision making. Looking at tomorrow with a future retrospective lens may surface that which is unseen from where we stand today. Why? Because the behaviors of other players and the many “what ifs” will carry more weight, essential weight.
The other part may have to do with whether we see scarcity or abundance ahead. That affects how I regard you and you regard me, personally or collectively. We can choose to create the visionary future we see or remain a spectator at the dock waiting for a boat to come for us. Either way, consequences will follow.
“Whenever faced with two choices, always take the third.”
The last year of economic and business calamity has shattered much of public and leadership faith in business structures and controls. Regulation failed to regulate, economic self interests of financial institutions imploded from the inbred complexity of derivatives underpinned by illusionary value creation, and the dynamics of a virtual world provided no sea walls against an economic tsunami. The unraveling of the US auto industry is likely to precipitate yet more fundamental changes of how we will all operate and conduct our enterprises. I suspect that this theme will provide a fertile ground for several of our discussions.
What is emerging is clear:
· The nature and rate of change we face will remain unpredictable for some time.
· Many of the historical data that has bred our paradigms of how to lead and manage are our greatest source of risk.
· Your upcoming decisions about how to compete and win must focus on agility and not build rigidity.
Last year, while developing some themes for a book I was writing for an organization, I gave some thought to how, from our personal histories, beliefs, and paradigms, we create constraints that shortchange the quality of our decisions. By shortchanging, I mean we make assumptions and impose filters that block out important alternatives. The adverse consequences of these decisions are the choices and investments we make that often reduce subsequent degrees of freedom, that is, they build rigidity. The terrible consequence about rigidity is that we can often become the spectator to our own demise.
A catastrophic example of the dangers of rigidity happened between the first and second world wars in Europe. It serves as perhaps one of the most important examples of how disruptive innovations and agile enterprises can completely redefine competition. Our example is the Maginot Line.
The Maginot Line was a series of concrete and steel fortifications built by the French along the German and Belgian borders after World War One as a defense against a German invasion. Coupled with what was believed to be the largest and best army in Europe, the French were confident that their capability to protect their interests and people was fail proof. The history of the Maginot Line is a fascinating topic that merits your investment in further reading, for its lessons are still relevant. For now, we will stipulate that it failed miserably in 1940. Technology, strategy and execution agility not only made the Maginot Line ineffective and irrelevant, it actually accelerated the capitulation of French forces.
It failed for some key reasons:
· The French leadership invested in rigidity of structures and strength of numbers as a consequence of paradigms resulting from the previous war experiences. Yesterday’s data built today’s solutions to tomorrow’s problems.
· The decision makers assumed some impossibilities:
o The Ardennes Forest was a barrier the German army could not cross, and therefore was left virtually undefended
o Technology and tactics would not change significantly from the trench warfare of World War One.
· The French leadership applied a lens of enforced optimism and overconfidence about their garrison solution and the size and competence of the French armed forces.
· Affirmation was sought and dissenting perspectives were sidelined or ignored.
· The huge and distracting cost of funds, attention and resources created an organizational gravity that pulled against alternatives.
These issues are as relevant today as then to the challenges organizations face. They are as visible in the building of border fences as in the application of draconian controls to achieve compliance. Many of us are challenging ourselves to build defenses against the risks we perceive and capabilities to compete in an emerging environment.
Are we building Maginot Lines as defenses to the threats we face? Are there agile alternatives we should explore?
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