Richard T. Pascale, "Surfing the edge of chaos – bringing life to organizations and organizations to life

Citation

Abraham, S. (2002), "Richard T. Pascale, "Surfing the edge of chaos – bringing life to organizations and organizations to life", Strategy & Leadership, Vol. 30 No. 2. https://doi.org/10.1108/sl.2002.26130bac.001

Richard T. Pascale, "Surfing the edge of chaos – bringing life to organizations and organizations to life"

The Association for Strategic Planning: Strategy is still management's core challenge

Stan Abraham

Dr C.K. Prahalad, "Value-creation dilemma: new game and new rules"

Dr C.K. Prahalad, University of Michigan professor and CEO of Praja Inc., polled the audience to get member's assessment of their firm's experience with change management. He asked six questions:

1. 1.

   Extent of change in your firm's industry?

2. 2.

   Extent of change in your firm's strategic direction?

3. 3.

   Capacity for change in your firm?

4. 4.

   Quality of infrastructures for facilitating change in your firm?

5. 5.

   Urgency for change at all levels in your firm?

6. 6.

   Capacity for collaboration in your firm?

The audience responses mirrored typical results he's observed in similar settings, namely, that while organizations can see the need for change in their industry (question 1), they are ill prepared in every way (questions 2-6) to cope with it.

His proposed solution: better strategic thinking. To do this he recommends instituting a strategy-development process that initiates four key action steps:

1. 1.

   Searching for new sources of competitive advantage.

2. 2.

   Being unique (not generic).

3. 3.

   Creating wealth (and reducing risk, investment, and time to market).

4. 4.

   Inventing new rules and new games.

In short, he said, strategy is about discovering wealth through finding a new competitive space – the ultimate goal of a new strategy. Strategy is not about doing things more efficiently; rather, it requires innovation, new games, and new rules. For example, GM is an automobile company. But since electronics accounts for an increasing portion of the value of a car, is it not becoming an electronics company? Stretching that thought further, in view of the increasing number of cars with GPS (global position system electronics), couldn't a car be viewed as a node in a global satellite network? Dr Prahalad's implication was clear – why don't companies take imaginative leaps and view themselves and what they are trying to do differently? Strategy is about creating a new dialog that takes firms not necessarily into a zone of discomfort, but rather into a zone of opportunity.

Finding a new competitive or strategic space in the 1990s sprang from deregulation occurring in many countries, new forms of globalization, emerging markets especially in developing countries, and the Internet. Today, it springs from the convergence of technologies and markets, for example:

• •

  Computing, communications, components, software (Sony, Philips, Dell, Microsoft).

• •

  Chemicals and electronics (Kodak).

• •

  Personal-care products and pharmaceuticals (P&G, Revlon, UL).

• •

  Commodity products and high technology (Cargill).

• •

  Retailing, financial services, databases (Wal-Mart, Citicorp, Tesco).

To drive home the fact that many large companies still don't have a disciplined strategy, he presented the case of a company that produced CTV, audio, CDs, cameras, games, monitors, semiconductors, music, film, software. The firm would not come to grips with its opportunity to leverage all those products and know-how into a new strategic space in which it would have no competitors. In other words, this company lacked an overall strategy.

As an illustration of trail blazing strategic thinking, Dr Prahalad asked the audience to think of emerging markets as a test bed for innovation. Some 4.5 billion of the world's people are very poor. India alone has an unserved market of 800 million very poor. What scale of operations, sustainable development, and innovative high-tech solutions would be needed to produce efficiently so that the very poor could benefit from the global capitalistic economy? Clearly, products and services will have to be at price-performance levels few of us can even imagine. Instead of seeing the poor of the world as an intractable problem (their poverty bringing to mind traditional responses of alleviation and subsidies), why not see them as a potential market and a source of innovation? Such a gigantic market, approached with innovation, could mean growth for the innovator and, of course, a rising standard of living for such poor countries. Most companies serving India's poor achieve a return on their investment of between 100-150 percent. The Grameen Bank, for example, saw such an opportunity with India's poor, and has over 4 million customers with average loans of $11-15 (yes, 11 to 15 dollars) and a 99.8 percent payback-success rate. While no Western bank has been willing to touch that market, Grameen has proved it can be profitable, by any standards.

The problem with change or adopting new technology is not "how fast can one get on the learning curve," but rather "how fast can one forget old methods and assumptions" that get in the way. The "forgetting curve" for most organizations is flat. That is, they cannot forget, and so have real difficulty changing and moving into new spaces. In contrast, developing markets, such as India, adopt many new technologies, such as the Internet, very fast. Dr Prahalad showed some slides of children who couldn't read or write making sense of, and using, the Internet after "playing around" with it for only a short time. He also cited examples of entrepreneurs in rural parts of India who, thanks to the Internet, are now selling their products worldwide.

The Internet is a wonderful example of exposing the "disconnect" between how companies think of the world (product- and company-centered views) and what consumers want and how they think (customer- and market-centered). Consumers increasingly have access to information that, in turn, affects their thinking, wants, and needs. The Internet is fundamentally transforming the nature of the relationship between the company and the consumer. Consumers' aspirations are no longer constrained by local knowledge.

Companies still have a very firm-centered view of the value chain, and a product-centered view of their business. Consider what changes the Internet has brought about. Contrast just "selling a boat" with selling "a sailing experience:" the latter includes giving potential boat buyers access to a community of boat owners, involvement in the design of the boat she/he wants to purchase, creative ways of financing the purchase, opportunities to develop boating knowledge and skills, etc. The latter is far more "customer-centered," and the Internet, properly utilized, can make that possible. Amazon.com can be thought of as moving in that direction, as it includes book reviews, solicits your review of a book, puts you in touch with used-book sellers across the USA, suggests similar books, and lets you look at what others interested in a particular topic area are reading and recommending. Can one get all that from a bookstore? In short, the consumer is co-opted as a source of competence. What infrastructure is required to pull this off?

Dr Prahalad concluded by giving his view of the challenge leaders face. While managing the present, they must simultaneously refuel for the future and selectively forget the past. Too much time is spent, he said, on setting up rewards for accomplishing current goals and not enough on creating new markets. And the proper balance is not easy to achieve. To start to do so, it is critical to understand the dominant logic or "genetic code" of the organization, in other words, to discover what makes it behave in the way that it does. Without this understanding, it is impossible to change that dominant logic.

Knowing how to change the dominant logic and knowing what to forget and learn will enable the firm to create new capabilities, new games, and new rules in a way that harmonizes old and new knowledge. And only then can one increase the speed, scope, and scale of retooling the entire organization. Dr Prahalad called this building new strategic capital (for further information contact Scott Fingerhut at sfingerhut@praja.com).

James E. Cassidy, "The Boeing strategic-planning process"

The Space and Communications (S&C) Group, one of three major divisions of the Boeing Company (the others being Commercial Aircraft and Military Aircraft and Missiles), is an $8 billion operation. Rather than focus on specific product lines, the S&C unit focuses its strategic efforts simultaneously on three "horizons:" continuing to develop core businesses (short-term), building on emerging businesses (short- to medium-term), and creating viable future options (long-term). Because S&C strategies and plans are extremely sensitive to many environmental forces, such as markets, geopolitics, world events, the economy, etc., it spends a lot of time and effort tracking trends, understanding them, and analyzing their implications for the company. Its strategies and plans are also viewed from different "altitudes," such as, corporate, market, business area, programs, and operations.

The S&C group assembles and uses a strategic business council to discuss a variety of key issues as they are played out over time, and to coordinate efforts across product groups. These key issues are in the areas of business environment, customer requirements, market forecasts, competition, overall strategies, integrated road maps, and technical requirements. Market-driven strategies are developed and reviewed annually in the five markets served by S&C:

1. 1.

   launch and orbital services;

2. 2.

   human space flight;

3. 3.

   missile defense;

4. 4.

   integrated battle space (DoD);

5. 5.

   global connectivity (commercial).

The council also serves to conduct dialogs about these issues and how they affect the group's plans, enabling faster responses and better decision making.

(Reporter's note: an article that appeared a few days after the conference stated that Boeing planned to focus more on space and communications, not on commercial aircraft, in the near term, signaling a shift from earlier times when its commercial aircraft business was the core of the company[1]. Approximately $35 billion is derived from commercial aircraft out of $57 billion in overall sales, although over the next 3-5 years, that percentage will drop to below 50 percent.)

Michael Mische, "Strategic renewal and high-performance organizations"

The theme of Mr Mische, CEO, Synergy Consulting Group, was how change had redefined strategy and the sources of strategic advantage. Organizations often fail to adapt effectively because they don't recognize the potential effects of changes in their external environments. As a result, their reactions are typically insufficient (downsizing, cutting costs, streamlining the supply chain), and they use "old solutions" or old ways of thinking to address radically "new problems."

The challenge for all companies, but particularly for those that are at risk in one way or another, is to become a high performing organization. High performance is a strategic imperative, a continuous and institutionalized process. Mr Mische offered the following definition he derived from studying companies that have consistently demonstrated great or high performance:

A high-performance organization is one that consistently sets the performance standard in creating and sustaining competitive advantage, extraordinary financial performance, and stakeholder value over a long period of time[2].

High performers, with their competitive advantage, do more than try to beat their competitors – they constructively compete against themselves. To great companies, "competitive advantage is about being significantly better than the competition by being the competitive standard that sets the rules[2]."

What standard of financial performance and shareholder-value creation should a high performance company adopt? Mr Mische suggests four goals: about a 25 percent growth in revenues and/or profits over a five-year period, an annual return for shareholders twice that of the overall S&P 500 as a benchmark, consistently meets official revenue and earnings forecasts, and fully allocates assets to optimize their use and return to shareholders.

Mr Mische then described the five keys to strategic renewal as new bases for competing:

1. 1.

   knowledge;

2. 2.

   information technology;

3. 3.

   organizational agility and operational excellence;

4. 4.

   leadership;

5. 5.

   innovation.

A company must have all five keys (or "strategic pillars" as he later referred to them) to create a competitive advantage and achieve high performance.

Finally, Mr Mische suggested that companies developing strategy for the future should not focus on a specific goal but instead concentrate on:

• •

  creating extreme organizational agility capable of positioning the organization rapidly and effectively;

• •

  creating organizational competencies that allow the company to compete differently; and

• •

  requiring a portfolio approach to developing and deploying strategy, depending on changing circumstances and trends.

(For more information contact MAMische@aol.com)

Jim Bandrowski, "Strategy implementation through change leadership"

"Every day, great strategy gets mugged in the streets of reality," warns Jim Bandrowski, president of Strategic Action Associates. To accomplish both breakthrough strategy development and the requisite execution in the real world, he advocates a three-phased change leadership process of:

1. 1.

   vision-planning and creating a case for change;

2. 2.

   communicating and implementing the plan; and

3. 3.

   solidifying and spreading the change[3].

The process takes place in nine steps.

Step one, leaders need to create a vivid vision, clear plan, and case for change. Change requires "internal marketing," Mr Bandrowski emphasized, and the case for change must be tailored to each group involved in its implementation. Great leaders typically articulate a message that is 80 percent about the benefits of changing and 20 percent about the consequences of not changing. However, what motivates many people to take that first, hard step are the compelling consequences of not changing. He urges change managers to make the status quo more dangerous than leaping into the unknown. This situation can be expressed by one of Mr Bandrowski's "change equations:"

Vision + benefits + consequences of not changing > 3X the expected resistance to change

In other words, the case for change must be much stronger than the inevitable resistance to it.

Step two of the process involves identifying actions that will generate quick wins, hopefully large measurable ones that prove to everyone that the strategy is working. In addition, it may be beneficial to define transition states for the organization rather than attempt to make a huge strategic change in one step.

Step three, one should design the change organization and culture by specifying the new "strategic values," which are the specific beliefs employees must have in order to implement the new strategy. The behaviors for all employees, particularly the leaders, should be precisely defined, to start (learn), as well as stop (unlearn). Also, all HR systems (incentive compensation, hiring, promotion, recognition, etc.) need to be aligned with the change strategy. Too often, some are in direct conflict with the new direction.

Step four is communicating the vision and change strategy. Mr Bandrowski asked, rhetorically, "From whom do people want to hear about change?" His answer: "Two people – the CEO and the person's immediate boss." For both large and small organizations, the case for change and the vision plan need to be customized for a number of audiences to explain what's expected of them and what's in it for them. He emphasized the change must be "marketed" relentlessly by telling stories about success and about the consequences of not changing. Moreover, the leaders need to be role models for the desired new behaviors. Ideally, executives and managers should think up and perform "flamboyant, symbolic acts" of change management that people will gossip about and spread through the intranet grapevine, which is faster than any formal communication.

Managers should use multiple forms of communication to disseminate the strategic plan and strategic-action plans. One example is creating a "visual vision," a mural containing a collage of scenes illustrating what the strategy looks like fully implemented.

Step five is overcoming resistance, and is crucial to any change effort. Leaders' most important tools here are their ears – by listening intently they give people time and the opportunity to openly voice their concerns, without the leader being defensive. Mr Bandrowski recommended a creative approach for this that he calls "Double barreled brainstorming:" one is positive and the other negative, as shown in Exhibit 1.

First, employees should be given the opportunity to state their ideal improvements to how the strategy will be implemented in their area, and then be asked to draft feasible, cost-effective versions of the ideas (a mini-creative process). Even more vital, employees should be asked to list why the strategy won't work – their concerns, resistances, etc. – and then recommend their preventatives. Not only does this improve the plan; it gives employees a chance to vent in a receptive environment. This more often than not turns pessimists into supporters of the strategy. The best improvements and most important preventives should be put directly into your strategic plan – preventing many of the possible "strategy muggings."

Exhibit 1– Double barreled brainstorming

Step six is to begin taking "strategic action." First focus on achieving the potential short-term, big successes identified in step two, and applaud even the smallest, incremental steps in the right direction. Be sure to provide employees with the skills and competencies they will need to implement the change, translate the change initiative into division and work unit objectives and strategies, and encourage controlled risk-taking by promoting many experiments in the new ways.

Step seven begins the process of sustaining the change. While most people take the first, tough step because of the fear of the consequences of not changing, it now is time to employ nearly a 100 percent encouraging message. Leaders must positively reinforce those employees who are attempting (and later doing) the new strategy and behaviors. All too often this is ignored, with leaders moving on to the next new strategy and then not understanding why their change effort peters out or fails. "Positive reinforcement is the most powerful, cost-free, and underutilized approach in business. If there is little or no positive reinforcement, new behaviors extinguish themselves." This is expressed in Mr Bandrowski's second "change equation:"

Any new initiative + no positive reinforcement = no initiative (failure)

Step eight is to inspire change throughout the organization. The pilot change strategy should be refined and then spread, transferring or replacing managers and employees who don't support it. Ideally, the change is instilled so deeply that employees can't remember the old ways. To keep it thriving, you should reinvigorate the change from time to time with new themes, projects, and people.

Step nine is what many world-class companies have achieved – a culture of continuous change. Making change happen becomes second nature to everyone in the organization, to the point that they are often asking, "What's next?" Rather than merely adapting to change, winning companies keep creating it.

Richard T. Pascale, "Surfing the edge of chaos – bringing life to organizations and organizations to life"

After several years of studying scientific research on complex adaptive systems, Richard Pascale, writer, consultant, and associate fellow of Templeton College, Oxford University has identified a number of principles that apply to organizations as "adaptive living systems." He found four principles in particular that are relevant to strategic practice, and may provide insights to help management anticipate and cope with adaptive change:

1. 1.

   Equilibrium equals death. Forced equilibrium poses a constant danger to successful firms. [By "equilibrium," he means that the organization experiences no changes for an extended period of time.] For example, efforts to routinely suppress all fires in Yosemite National Park were part of a misguided effort to preserve it in a state of permanent equilibrium. This policy eventually resulted in a devastating forest fire fed by a plethora of undergrowth and dry fallen limbs that had accumulated for many years. In a corporate example, IBM, eventually saw its fortunes plummet after decades of sticking with the same strategy and refusing to change or innovate. Its rebirth occurred only after it focused on new markets and lines of business and changed its strategies.

2. 2.

   Surfing the edge of chaos. Complex adaptive systems move toward the edge of chaos when provoked by a complex task. Novelty emerges in the space between rigidity and randomness. For example at Shell Oil Company, teams from each country in which it does business were coached and the new projects that resulted led to a more direct, informal, and less hierarchical way of working.

3. 3.

   Self-organization and emergence. Complex adaptive systems exhibit the capacity for self-organization. Living systems focus on intelligence in the nodes. As a case in point, Shell Oil showed a similar adaptation to the market. To improve the retailing potential of Shell's service stations, Shell marshaled the insights of the "front-line troops" themselves (the nodes). Teams from operating companies throughout the world were assembled into "retailing boot camps" or workshops for identifying and exploiting market opportunities. These resulted in improvements and many new ideas for beating the competition.

4. 4.

   Disturb, don't direct. One can disturb a living system, but not direct it. Managers cannot assume that a particular input will produce a particular output. Shell learned that top-down strategies don't win in the marketplace; instead, experimentation, rapid learning, and seizing the momentum of success are better approaches.

(Richard Pascale's office can be contacted at rtpascale@aol.com.)

Notes

1. 1.

   Bridges, A., "Boeing to focus on space and communications, not aircraft", Los Angeles Times, Friday, 12 October 2001, p. C2 (revenue figures from the same article).

2. 2.

   Mische, M., Strategic Renewal, Prentice-Hall, 2000.

3. 3.

   This change approach is addressed in depth in a chapter of Jim Bandrowski's book in progress, Breakthrough Leader. He welcomes comments at www.StrategicAction.com or tel: 1-925-820-8838.

(Editor's note: a number of other featured speakers at the ASP conference are not included in this "Report" because they have submitted full-length articles based on their presentations to Strategy & Leadership. More information about the Association for Strategic Planning can be found on its Web site: www.strategyplus.org)