Executive Series #3
Dynamic Systems
Businesses are not just complex systems; they are also dynamic systems. Getting your business to, and staying, in a high-performance state is not about arriving at a fixed destination; instead, it is a journey of constant change and evolution. Winning organizations are the ones who are most able to adapt and evolve as the environment shifts around them.
When we use the term, dynamic system, we aren’t just talking about information systems. We are viewing the entire network of people, processes, and the communication systems that connect them. Our focus is not just on the architecture of the network, but also on the behavior of the elements in response to interactions. It is this behavior component that is most unpredictable and changeable.
The network consists of both internal and external elements, and not all elements are visible. There can be external influences that you will never perceive, but they are at work shaping your environment.
Everything in this system is constantly changing:
- The elements that compose the network change (new elements enter, others leave),
- Each element in the network changes and evolves,
- The connections in the network change, and
- The reactions of every element evolve in response to each interaction.
Making all of this change work positively towards your goal is the essence of your mission.
The Change is Unstoppable
The changing nature of dynamic systems is unstoppable. Whether you want it or not, the systems that make up your business and marketplace change. The change often occurs unnoticed. Employees come and go, processes change, systems evolve, culture morphs and leadership attention and priorities shift. All of this change happens, even if it is unintended. You can’t stop a company from evolving, you can only influence its direction.
Simultaneously, the external environment around the company is also changing. Customers’ perceptions and needs change. Competitors change their offerings and influence customers. Suppliers change their products and pricing. Bankers change their terms. Investors change their appetites. Government regulators change their rules.
The interaction between the complex internal and external marketplace systems is constantly evolving. Responding favorably requires you to anticipate the timing and direction of the change.
Anticipate Change
There is a temptation for every leader to want to “keep everything the same” once you have achieved some success. This thinking is a fatal mistake for most companies, but it is not uncommon. All you have to do is look at the makeup of the Fortune 500 over the last 65 years to see the wreckage; only 60 of the 500 companies that were on the list in 1955 are there today.
The key to building sustainable high performance is to anticipate change and move to where the change is headed.
I skate to where the puck is going to be, not where it has been.
Wayne Gretzky
Change has Risks, but Staying Put has More
Executives spend a lot of time evaluating choices to move in a new direction. Detailed discussions happen, often over weeks or months, where risks vs. rewards are considered. At the end of the lengthy deliberation, a decision is made based on all the analysis. The team feels confident they have minimized the risks.
But how much time does this same team spend considering the choice to do nothing? Probably none if they are like most companies. The consensus is always that the current state is “safe”.
However, imagining that your current position is safe, is an illusion. This deception is brought on by how we perceive it. We measure our current state by what has happened, not what is going to happen (i.e., revenue figures are historical, cost figures are historical, etc.). Experience convinces us that the majority of events that will happen will be close to what has happened in the past. Most of the time this is true (hardening our conviction), but the reality is that future events can be radically different than past events (i.e., the 2020 Pandemic). The infrequency of large, unexpected dislocations in the market lures executives into the trap where they imagine that their current course is risk-free. It isn’t and never has been.
Great opportunities are won or lost on the tides of change. Preparing for these possibilities gives you the best outcome.
Law of Unintended Consequences
Dynamic and complex systems carry with them inherent uncertainty. You cannot exactly predict any outcome, so you have to expect that the decisions you make will have unintended consequences.
You can hedge against these unintended consequences by planning for possible scenarios. However, it is virtually impossible to plan your way out of every possible consequence of a decision. Be careful not to be so cautious that you over-analyze your decisions. The effort will only slow your reaction time and will introduce the likelihood that the unexpected is a bad consequence.
Also, keep in mind that all unintended consequences are not bad. Often the unexpected leads to opportunities you didn’t see on the horizon. Being prepared to quickly respond to the unplanned, good or bad, will get you the best results. Prepare, and be agile.
Predict the Future – Become an Explorer
While projecting the future is imprecise, it doesn’t mean that spending time and energy spent considering possible future scenarios is a waste of time. I believe that futurist is one of the CEO’s primary roles.
If you don’t spend time (and a considerable amount I might add) trying to determine where markets are headed and what future opportunities might exist, you are failing to prepare for the unexpected. You will miss great opportunities that cross your path, and you will be blindsided by disasters when they occur.
Too often, CEOs reject strategic paths that appear unexpectedly in front of them because they feel unfamiliar, even scary. Had these CEOs spent some time exploring such possibilities and considering these new paths, they might have created a new life for their company. The failure to make exploration a priority keeps drawing them back to what feels safe and comfortable. The reality is that they are missing out on great opportunities, possibly ones that can allow the company to thrive for the next 50 years.
Xerox PARC|Apple – All you have to do is to look at the history of Xerox’s Palo Alto Research Center (PARC) facility in the 1970s. The technology they developed inspired Steve Jobs to develop the mouse and a windows-style operating system. The Xerox technologists could imagine the products, but their executives couldn’t imagine the business. The rest is history (Market Caps: Xerox $5 Billion, Apple $2,040 Billion).
Case Study
Don’t let the dynamic and complex nature of your business and marketplace scare you away from the process. You won’t be able to predict the future exactly; however, you will be able to gauge the direction and open up pathways you didn’t know existed.
Embracing the idea that businesses are complex and dynamic systems lays the groundwork to begin your journey to build a high-performance company.
Copyright © 2021 Douglas C. Fergusson
