Guidelines for Business Transformation Under Conditions of Complexity

Guidelines for Business Transformation Under Conditions of Complexity

© 2023, Barry L. Linetsky. All Rights Reserved.

There is widespread recognition in management circles that increasing complexity in formulating and delivering viable value propositions at a more rapid pace is making business adaptation to market demands more difficult. Business management techniques that grew up under a manufacturing and industrial paradigm in the early to mid 20th Century and form the backbone of how business continues to be done today based on embedded management theories and practices, are increasingly no longer appropriate under the current socio-technological revolution.

As futurist Joel Arthur Barker liked to say, “When the paradigm shifts, everything goes back to zero.”

I discuss some of these changes and implications in my articles “Discovering Requisite Agility” [
barrylinetsky.com/requisite-agility-part1-living-with-future-shock/
] and “Delivering Customer Value Through Requisite Agility.” [https://barrylinetsky.com/delivering-customer-value-through-ra/]

I write in “Delivering Customer Value Through Requisite Agility” that organisations today need to be able to adapt their offerings—their value propositions—to meet the unique needs and demands of downstream business partners and consumers, win their business as demonstrated by sales, and enrich their lives—as measured by an exchange of value, i.e., a sale in which both/all sides that engage in delivering and consuming the transaction feel they are better off. 

The challenge is that in today’s world, providing cookie-cutter solutions and pushing them out the door is working less and less. In today’s marketplace, producers are expected to adapt to the pull from consumers seeking a customized solution to get their specific job done in their specific context. Consumers have a problem and they want their problem solved, so they seek the “best” viable solution.

Market-driven has replaced production-driven, profit-driven is subordinated to consumer value-driven, and central control is subordinated to edge-driven at the point where agents of the solutions-provider come into contact with the needs of the solutions-seeker.

Consumers do their research, know what is available, know what they want (sometimes), and set high expectations for a unique solution specific to the context of their own lives. (See Dr. Philip Boxer, “Asymmetric Demand and the 21st Century Challenge to Leadership,” The Tavistock Institute, July 2005, https://www.asymmetricleadership.com/wp-content/uploads/pdfs/Tavistock%20article.pdf). The solutions consumers seek often demand that supplier A team up with supplier B to create and provide the unique solution they desire.

Boxer writes,

…asymmetric forms of demand are creating a transformational challenge for our time in which power must be taken to the edge of an organisation. The ‘edge’ is where the customer’s demand meets the organisation, and taking power to the edge of an organisation means giving the people closest to the customer the power to organise the services around the demands of the customer, instead of expecting the customer to organise themselves around the services of the organisation. Taking power to the edge necessarily goes with the idea of asymmetric demand because it is only at the edge that choices can be made about how to respond to the particular form the customer’s demand takes…. This in turn requires that the organisation’s infrastructure be ‘agile’ in order that they can respond to the variety of demands at the edge. 

The command-and-control management mindset of the past placed power at the top of a hierarchy of power, where it was presumed the expertise and knowledge to define and create customer value resided. And in the past, when craft shops and small owner-operated businesses ruled, this was often the case. In some cases, industrialists and entrepreneurs of the past often built their businesses from the ground up and knew every aspect of the work to be done. For most, those days are long gone. Business today is a conglomeration of specialized knowledge and technical expertise that is widely disbursed and rapidly changing and advancing. In the past, writes Boxer, hierarchy provided a means of maintaining the integrity and interests of the whole through delegation of power and task responsibilities. CEOs are repeating lessons of the past, still trying to manage from the centre.

But now, in the 21st Century, in a world of digitalized of information, algorithmic interpretation, and instant communications, executives are facing new and unprecedented challenges at a quickening pace without established historical or experienced-based guideposts or guidelines for reference, let alone existing best-practices. Consumer demands have become asymmetric in the sense that it is becoming more difficult to align satisfactory delivery to the nuances of consumer demand. 

Symmetry between what was offered and what was accepted used to be assumed because it was accepted by consumers as the best way to keep prices low and quality even (producers manufactured products and sold them, and consumers bought products they could best adapt to their unique needs to create solutions). Limited choice allowed business leaders to get away with ignoring customer complaints and immense dissatisfaction. This approach is no longer viable. 

Not only do consumers expect customized solutions in terms of products and services to meet their unique context-of-use, they also expect customized solution delivery; clients and consumers expect service providers to bend to what they perceive to be their reasonable needs and demands. “Asymmetric demand is demand that is specific to the client’s particular context and circumstances,” writes Boxer. And yet still too many organizations seem to find it acceptable that they fail to meet this standard and force their employees to follow irrational policies and procedures while claiming to strive to create feelings of strong customer loyalty and high Net Promoter Scores.

Coping with Asymmetric Demands is the Management Challenge of our Times

“The emergent importance of asymmetric forms of demand,” writes Boxer, “with their corresponding requirement to take power to the edge, is a 21st Century phenomenon which creates new challenges that require leadership to be ‘distributed.’” 

Delivering a value-proposition to clients or customers happens in real time. Customers won’t wait for the corporate bureaucracy to figure it out. They have too many options to take their business elsewhere. To gain and keep customers under these new conditions, says Boxer, “requires a different relationship to role in which the authority of a role arises primarily through its relation to demand rather than by virtue of a position in a hierarchy.”

Business leaders who have not yet done so must shift their frame of reference from “how do I effectively supply” to “how do I effectively satisfy demand,” and recognize that it is the consumers’ needs and desires—explicit and latent—that dictate the value and wealth creation attributes of production and capability alignment. (See Amy Gallo, “A Refresher on Marketing Myopia,” HBR, August 22, 2016, https://hbr.org/2016/08/a-refresher-on-marketing-myopia.)

In today’s digital information age, where there is often an important personalized digital aspect required as part of the creation and delivery of a value-proposition, organizations need to form partnerships with other independent external suppliers to assemble a viable multi-dimensional and multi-sided offer. In the digital realm, customers expect a customized seamless offering, available on any device, at any time, from any place.

The greater the number of independent partners needed to deliver a viable solution, the more complex the operating environment and the more difficult it is to assemble a value-delivery coalition in which everybody wins in the realm of a positive exchange of value. And yet this capability to innovate, assemble, interact, and have the requisite relational agility across the network and perhaps larger ecosystem, is what is increasingly required as table stakes to just get into the game (see Theodore Levitt, “Marketing Success through Differentiation—of Anything,” HBR, January 1980, https://hbr.org/1980/01/marketing-success-through-differentiation-of-anything).

This is a high standard for a viable minimum capability because each partner, including the consumer, needs to acquire and sustain appropriate higher-order capabilities through iterative adaptation, to ensure there are no broken links in the total value chain that starts with consumer demand and ends with the satisfaction of consumer expectations. The business ecosystem has to align itself and manage its own capabilities to bring about this result, the effectiveness of which is judged by the customer in relation to their job-to-be-done.

What we can see now, more than ever before, is that, in our new world of increased complexity and quickening pace of digital transformation, success requires ongoing innovation across the business-to-consumer value chain, both pre- and post-sale. Organizations acting in concert with other like-minded organizations find that they are increasingly required to seek and possess an embedded capability to respond at pace to ongoing dynamic changes across the entire business ecosystem—internal and external. Consumers too need to be educated on how to extract the value embedded in the offering—value that while provided as a potential and paid-for benefits, remains unrealized and wasted if users don’t know how to put that embedded value to use. 

To survive in business in the emerging digital epoch, every organization needs to be flexible enough to adapt not just to its own strategic requirements, but also to the requirements imposed upon it by its value-delivery partners and its users. Each needs to face the double challenge of governing and alignment to the desires and values of actual people as flesh-and-blood people, not as “buyers” or “segments.”

The emerging reality for every business, for every executive, for every manager, for every worker, is to align every aspect of the organization to serve the multi-dimensional desired values of the customer as a person and support providing a solution in the role as a problem-solver by facilitating the job they seek to have done. In other words, the ideal to be pursued, is that every business must acquire, develop, and demonstrate the appropriate dynamic capabilities and adapt its behaviour to create and deliver a successful value proposition within each customer’s contextualized situational need, and to do so at pace with all these dynamic and unpredictable changes.

The World Needs New Solutions

Requisite agility is a strategic capability and orientation towards innovation adaptation that exists within the context of complexity science and complex adaptive systems theory. (See https://www.requisiteagility.org, and Philip Boxer’s blog at https://asymmetricleadership.com.)  

Systems theory is an interdisciplinary field of science that studies complex systems in nature and society, and studies complex parts of reality as systems (Wikipedia). All large organizations are organized and can be conceptualized as being components of larger systems within a wider ecosystem. A current challenge faced by most executives and managerial leaders is that new guiding principles need to be discovered and embedded in the value-creation system to achieve a higher level of integration to cope with and account for the visible sea-change driven by rising levels of complexity. Leading organizations are starting to see themselves as players and engaged providers, each contributing their own unique speciality to complete the puzzle, and joining forces to create an ecosystem that can deliver a unique value proposition. (See Ron Adner, Ecosystems as Structure: An Actionable Construct for Strategy, J. of Management, Vol. 43(1), Jan 2017, 39-59.) 

A recent article by Joerg Esser (“The Adaptive Organization: First Principles for Business Transformation,” Rotman Management, Spring 2023, 65-68, https://www.hbsp.harvard.edu/product/ROT483-PDF-ENG) provides a gentle introduction to the current situation that managers find themselves in. He defines some of the key concepts managers should become familiar with and identifies from his research what he regards as five guiding principles for business transformation in the context of managing complex adaptive systems.

Here is some of what Esser says, starting with the observation that managers need new solutions to address what are new problem sets driven by advances in technology and consumer access to real-time digital communication platforms: 

As change rages on and leaders do their best to keep up, it’s important to remember that tried-and-tested solutions are precisely that: They have already been tried and tested. In the past tense. And past-tense solutions will not be effective in today’s environment. The world needs new solutions.

While we are encouraged to embrace failure by the wisdom of the ether and the new leadership ethic, Esser writes that the vast majority of transformation efforts are unsuccessful, and “This level of failure is more that an execution gap; it is a signal that we need to embrace a completely different mental model of what we are trying to achieve as we go about adapting.”

One reason so many transformation efforts fail, asserts Esser, is that managers are using an outdated model that rests on the premise that we are “just trying to get from Point A to Point B.” This linear mindset fails because it “treats the organization as if it were a machine: Make the necessary changes here and here, flip these switches,…and the machine will start humming along effectively once again.” What we need instead, he informs us, is “a revised view of what transformation means.” And for this we can look to science.

Science informs us of ‘first principles,’ which Aristotle identified as “the basis from which a thing is known.” A scientific approach to problem solving, says Esser, “leads to meaningful, robust knowledge and is needed to make sense of the world and act accordingly.” To the extent that managers continue to take a linear direct cause-and-effect approach to problem solving, they fail to adapt a more robust complex adaptive systems approach suitable for problem solving in complex situations dominated by unknowns and increased confusion.   

A key element of understanding complex adaptive systems is that they rely on elements and effects that are emergent, i.e., the real but unintended consequences arising from the interaction of elements constituting the system. These emergent elements and unintended consequences are often unseen, yet their impacts on system performance are real. It is not until we are aware of them that we can take them into account in our planning and decision-making, even if we can’t fully control them. (See Tim Sullivan, “Embracing Complexity,” HBR, September 2011, https://hbr.org/2011/09/embracing-complexity).

With regards to emergence in the context of managing complex adaptive systems, Esser writes:

Complex adaptive systems rely on a specific underlying dynamic known as emergence—a concept drawn from complexity theory…. Emergence is the idea that small things form big things with properties different than the sum of their parts when interacting as part of a greater whole….

Taking note of emergent elements and how they interact and embracing these real and often unseen forces as part of an already existing complex adaptive system, allows you to gain new insights into constraints and opportunities to drive successful transformations, thereby “empowering [your company] to find new ways to achieve your ambition.”

Seeing the world though a new conceptual framework or paradigm can help motivate new thinking and learning to drive adaptive change from the world of the complicated to the more opaque world of the complex. The good news is that this adaptive change doesn’t require complete and immediate change everywhere all at once. One can only do so much before falling into chaos. The challenge is to manage change strategically and appropriately, i.e., requisitely. Esser writes:

In practice, this [turning your company into a complex adaptive system] doesn’t necessarily mean doing completely different things from those you might have done in the outdated ‘analyze-conceptualize-execute’ model. … Rather than rejecting everything we used to do, the renewed approach to adaptation that I recommend entails prioritizing things differently by ascribing some things greater value than others.

These priorities ascribed by Esser are his five principles for business transformation. They are:

  1. Scenarios over predictions
  2. Ambition over masterplans
  3. The wisdom of the many over the expertise of the few
  4. Homemade solutions over store-bought
  5. Exploration over optimization.

To those not familiar with complex systems theory, Esser’s principles will seem to be overly broad, cliche-sounding, and unlikely to get you very far. But for those who are being thrust into change at a quickening tempo, they are good guideposts to begin your quest to discover new angles for insight. 

Change is not easy, especially as managerial leaders in organizations try to embrace increasing complexity and suffer debilitating stress through the process of managing and coping with the confusion of future shock. As more managers recognize that a dynamic systems approach and systems thinking tools can add perspective and insight to agile innovation and adaptation to the demands of the marketplace and radical alignment and adherence to each customer’s context-of-use, they will develop methodologies and advance our body of knowledge of how to manage and organize our capital and workplaces to innovate, create, and deliver value in our quest for humanistic net-positive wealth creation and happiness.  

© 2023, Barry L. Linetsky. All Rights Reserved. 

Barry Linetsky is a senior-level strategic advisor and enabler, writer, researcher, and photographer. His thought-leadership and research has been published by Rotman Magazine and Ivey Business Journal [https://iveybusinessjournal.com/?s=linetsky]. He is the author of the acclaimed and best-selling book The Business of Walt Disney and the Nine Principles of His Success, and Understanding and Creating Vision and Mission Statements. He blogs on strategic business issues at www.barrylinetsky.com.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.