Leading Exponential Change

by Erich R Bühler

  Innovation is constrained by deep-rooted beliefs such as micromanaging people and results to increase performance and production. Whereas a single idea can change the course of history, a hundred can go unnoticed in a micromanaged business. Therefore, a different approach is needed to handle employees’ habits, their coordination and motivation, the way their minds reason and resolve problems, the power distribution within the company, and the objectives that are shared when creating a product. We also need to consider the best ways to lay out the physical environment and the best ways to tackle conflict when exponential acceleration causes a market change.

  “Today, competitive advantage doesn’t go to the company with the best widget. It goes to the organization that can reinvent itself and defend itself from attackers—wherever they may come from—better than anyone else.”

  Colin Price, Senior Business Consultant.

  We’ve only recently begun facing the exponential growth challenge with new project management options like Scrum, Kanban, eXtreme Programming, Lean Startup, and new mindsets such as Six Sigma, Lean, and Agile. These developments have been extremely positive, and they’ve enabled businesses to develop better products and deliver them more rapidly. Thanks to these options, businesses are now able to do the following:

  Give added importance to the company’s values and principles when creating services and products.

  Focus on what really impacts clients.

  Use smaller teams and give added importance to their interactions.

  Work in short work cycles that permit the rapid creation of products or services and greater interaction with the client, which in turn increases mutual learning.

  Increase transparency in the organization to reduce the complexity of processes and activities.

  Devote time to reflect on what hasn’t turned out as well and establish action plans for continuous improvement.

  Evolve products through experimentation.

  Still, trained business-transformation consultants are often stumped when they work with companies that employ seemingly irrational behavior. They teach employees modern working habits, but all too often these don’t have the desired impact. More is needed than understanding and using a new business framework or process. The present challenge requires other advanced skills:

  Mastering organizational social patterns.

  Making positive mental states go viral.

  Understanding how the brain works (neuroscience) and using this in our favor to create better business strategies.

  Turning individual tasks into collaborative efforts.

  Using experimentation techniques in all areas of the business, not solely within software-development departments.

  When the speed of change defies comprehension, employees must be able to arrive at ideas and consensus through collaboration. But confronting exponential acceleration is difficult if we don’t first build an organization with healthy habits. Achieving this is what I explain in this book.

  A healthy business is one in which people feel confident, where there are fewer political decisions and greater collaborative effort, where conflict is used as a tool for continuous improvement, and where individuals can find and use techniques to overcome human limitations when facing constant change. Companies unable to create this kind of environment will fail at becoming exponential. Their dysfunctions will grow and bar them from adapting quickly.

  You could work in a vast, conventionally hierarchical, monopoly organization awash with money, fantastic TV ads, and end consumers who have little option but to use its services. But this company will never succeed in the era of exponential acceleration. Companies like this are unable to produce high-impact innovation and are destined to copy others. They find it hard to understand, or implement, the ingredients to build a healthy company that’s capable of adapting to market surprises.

  When companies are organizationally healthy, they adapt better to new situations and their strategy is sustainable over time. This requires changing habits and beliefs and having technology in areas where resources are scarce.

  Over the span of five years, Workplace Dynamics LLC, a consulting firm specializing in human resources, conducted hundreds of interviews with employees in the United States.

  They found the following connections between healthy businesses and success:

  A desire to create a clear path for the future.

  A culture of high performance and a sense of execution.

  A strong connection between employees and the company’s culture.

  A clear purpose for the company’s activities.

  An appreciation for the work.

  Workplace Dynamics also evaluated the performance of organizations that were considered healthy. To the surprise of many, they outperformed the Standard & Poor’s 500 index by 48 percent, generating an equivalent to an average of 12.5 percent in additional revenue annually.

  The consulting firm McKinsey & Company also carried out a survey of hundreds of companies, adding an additional perspective to understanding why initiatives for change often fail. Fewer than 30 percent of the participating companies said it was because of inadequate resources, poor planning, bad ideas, or unexpected market events. Surprisingly, 70 percent pinned the problem on employee reluctance to change or unproductive management behavior.

  To change an organization, we must improve the way individuals connect, the way they resolve conflict, and the way they solve problems in areas with scarce resources.

  Allow me to pause here for a moment. Exponential acceleration clearly places a lot of pressure on how people work, think, and share knowledge, which would increase conflict in any organization. Runde and Flanagan’s conflict resolution model could help you determine where your company stands. Is your company ready for massive change, or only for some habit adjustments?

  FIGURE 1.4: Runde and Flanagan’s conflict framework

  At the first level, Differences, people or teams see a problem from different points of view, different mindsets, and varying interests. But they are aware of this. This happens every day at the companies I help. There are arguments, but in the end everyone cooperates, and then they go and have a beer together. Differences are seen as something positive.

  The second level, Misunderstandings, involves one of the most common problems in traditional organizations: interpreting a situation differently because of a lack of transparency, an inability to know what the other person expects, or not being “on the same page” regarding the business. The solution may lie in making expectations clear, speaking openly and clearly, and increasing face-to-face communication. At this level, it’s still relatively easy to get employees to use new working habits and kick-start exponential growth in your product and market.

  Level 3, Disagreements, occurs when people see a situation differently and (however well they understand the other person’s position) remain upset that the person disagrees with them. This situation could be the result of a company without a clear definition of the business value for a single product or a company that has conflicting goals. The company might use methodologies with processes incompatible with the company’s principles or make decisions based on assumptions versus experimentation. This level of conflict can be extremely productive if it is taken as an opportunity for improvement and change. Part of the solution here is to thrash out explicit working agreements that reinforce transparency, increase experimentation, engage people in common goals, and provide the necessary time for reflection at the end of each work cycle. In this case, you’ll have to focus efforts on acquiring such habits before adding new processes or working structures that will tackle exponential growth.

  The fourth level, Discord, marks a break from the first three, as it is here that we begin to see adverse effects on interpersonal relations. You can tell this level has been reached when individuals criticize each other, avoid each o
ther, and block colleagues’ initiatives. The conflict is then very likely to escalate to the next level, Polarization. At this point, opponents try to recruit allies to their cause and the tactical objective is exclusively to win the battle—with no regard to how it benefits the company.

  The first three levels can be extremely productive in the creation of an outstanding business, but the last two are dysfunctional and lead to a loss of trust, focus, and sense of execution. So before taking a step toward change, analyze the level of conflict at your company. Exponential acceleration of results could aggravate problems, so you should have the right environment before setting out.

  Empirical Learning

  Just about everyone has heard of Louis Pasteur (1822–1895), the person who made your morning milk safe to drink. This is probably his greatest contribution to society, but he’s responsible for much more than pasteurization. During Pasteur’s time, doctors believed there were four different body fluids (blood, phlegm, yellow bile, and black bile) and that these were behind most diseases. When all four fluids were in harmony, a person was healthy. If the fluids weren’t in harmony, a person would fall ill.

  This theory was known as humorism, and doctors based all their practices on it, even though they had no idea why imbalances occurred. Almost everyone followed the theory, and because of this, many patients died because doctors misunderstood the cause of the illnesses.

  The key to Pasteur’s success wasn’t simply his research explaining what made people ill, but rather that he based his work on an idea called the germ theory of diseases, proposed by Girolamo Fracastoro in 1546. Pasteur and Robert Koch worked to prove that germs were transmitted through a process in which microorganisms, which live everywhere, invade and reproduce inside hosts, making them ill.

  As you can see, theories help us ask the right questions and provide us with a powerful lens to study problems from different perspectives. Just as Pasteur did not conform to the common thought process of his time, it’s imperative that we also recognize potentially flawed mechanisms and adopt new ways of working.

  Changing existing mechanisms and adopting new ways of working are key to solving problems, but attempting to do so is futile if you do not have the right conditions. You must understand organizational patterns to make progress in your company, because, by default, your ideas compete against established behaviors and shortcuts that have been in the company for years.

  Your teams should have real experiences and establish a working style that proves it’s possible to advance in a different direction. Closer observation and overcoming the temptation of deep-rooted habits, as well as constantly developing the processes you find yourself immersed in, are part of the solution to the exponential acceleration problem.

  Some companies want to take a great leap in the dark without having first established essential habits. Take the software industry. In the nineties, managers thought that strictly controlling processes and people was the best way to create a product (Prince2, Waterfall, etc.). The assumption was that every step in the creation of a software application should be clearly set and defined, thereby reducing uncertainty. Development would be managed and controlled, step by step, through rigid structures. The thought followed that the creation process would be easy to repeat and require little or no variation. The underlying principle was something like, “Do what you’ve always done, and you’ll always get the same results.” But today, we know there’s a great deal we don’t know about the future of a product, and that there are sociological and organizational patterns a leader needs to account for.

  Uncertainty in markets is inevitable, and we are dealing with complex processes requiring research, creativity, patience, and experimentation. Creating innovative products requires not only the transfer of explicit knowledge between people or teams (items we can document or verbalize) but also an understanding of how they reach conclusions that help them solve problems. This last point is the hardest to grasp, but it’s essential if you intend to create new processes to confront exponential acceleration.

  If events are uncertain or unpredictable, does it mean you can’t control them? Not necessarily. But you will have to change how you think and create new habits.

  Empiricism—the theory that knowledge comes from working experience—could be a good start to improving whatever you do. It sets a foundational work style that commits us to trying things first to determine whether we’re on the right track, and then learning and reflecting on what we’ve experienced.

  From this theory, every idea or plan is merely a hypothesis until we are certain our team can do it properly and that those who will use the product like the final implementation. Many companies imagine that clients will love a service or feature because it solves a problem. They also figure that if a process was previously performed with one group of people, then performing the same with other groups will yield the same result. This is not correct.

  Next time you hear the phrase “product requirement” or “product feature” used about something the company is trying to implement, try replacing the word “requirement/feature” with “hypothesis.” This will enable those around you to understand that the success of any new idea is mere speculation until it makes contact with the end user.

  Until we get the product or new feature to the market, success will only be a hypothesis or speculation—and as a general rule for diminishing risk, hypotheses should be kept small to prove on a controllable scale that an initial assumption is correct.

  You can download the latest Scrum guide from here: en.innova1st.com/10A

  The Scrum framework, initially used for software development but now extended to other industries, is based on empiricism.

  Its foundation consists of three pillars that reinforce positive habits:

  TransparencyEvery aspect of a company’s process must be visible and known to everyone involved (including both managers and those who report to them). This entails a common language shared by all participants, inside and outside the company, so that clients understand the difficulties involved in product development and become part of the solution.

  InspectionProcesses must be inspected or reviewed by members of the teams frequently enough to detect variations or surprises. It is expected that those doing the work will have conversations on how to improve the process and its interactions. This also calls for thinking explicitly about the next steps and ensuring these are sustainable over time. The Scrum framework uses retrospective meetings, which have had a positive effect on how organizations evolve.

  AdaptationAdaptation requires that after inspection, improvements are made in the processes, interactions between people, or anything else that gets in the way of a bigger positive impact.

  Because transparency, inspection, and adaptation become part of the day-to-day mental attitude, the group regularly starts asking itself, “Why are we doing things this way?” Challenging existing processes and beliefs is an important step for organizations starting to cement a proper foundation.

  From the Linear to the Exponential Mindset

  Once your company is capable of working empirically, you need to start reflecting on the differences between the linear and the exponential mindset and its possible effect on products.

  Remember that the incremental way of thinking is represented as a straight line from present to future: one thing follows another and each cause leads to its effect. An incremental business plan allows you to see exactly how you will get from here to there. However, an exponential path is not a straight line. It’s like a curve in the road that prevents you from seeing around the corner. The strategy could change at any moment, and you could even hit the brakes before making a substantial leap forward. You need a different approach that will enable you to create more business value in a world where the rules have changed. That approach requires different habits and ways of reasoning that allow people to change constantly and with less resistance.

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nbsp; Business value is the result of an action that supports healthy and sustainable habits in the organization, providing the protection of, or increase in, the company’s income, increasing customer satisfaction, and avoiding or reducing costs. In this book, customer means clients, companies, business units, product and services, marketing and sales, portfolios, compliance, etc.

  A few months before this book was published, I was visiting Auckland, New Zealand, on business. While there, I rented a minivan to visit towns outside the capital. At first, I found the van difficult to park because of its size. But after a few days, I got the hang of it, because it was a purely mechanical process. The real challenge, however, was that people drove on the left side of the road, unlike in Spain and Latin America. But driving on the left wasn’t my main issue. My main issue was NOT driving on the right.

  With any distraction, I would involuntarily drift over to the other side of the road. It’s hard to stop old habits, because you have to “unlearn” behavior accumulated over years. Doing so requires that you understand how the brain works and adopt techniques to face the challenge (we’ll learn more about this in Chapter 4). We generally stick to old mental models until new ways of thinking appear. During the change process, however, we tend to see the new only through the old lens.

  “In formal logic, a contradiction is the signal of defeat, but in the evolution of real knowledge it marks the first step in progress toward a victory.”