complexity | The Fourth Revolution Blog

Why You Should Always Keep an Eye on the Context

As I was watching lately the film American Sniper I was struck by a quote. During training as a sniper the hero (Chris Kyle) is asked to close one eye to aim. He answers that he prefers to watch what’s happening around him instead of just focusing narrowly on a possible target.

Keep an eye on the target, but keep the other open on your surroundings! — Even if you are a sniper, keep an eye on the target, but keep the other open on your surroundings!

I think it is a great metaphor of the fact that we both need to focus our attention to be effective, and we still need to monitor continuously our surroundings to check what is happening. Because the most disruptive changes to our situation might come from places that we can’t even anticipate, and be very indirect consequences of far-away events.

This represents an important balance that we need in life, and it is not contradictory – although it requires some discipline. We can do both sequentially, not necessarily at the same time: maintain concentrated focus on what you want to achieve, which might be far away and tough to reach, and don’t forget to monitor sufficiently what is happening in the world around you.

Remember that the worst disasters were always the result of unexpected chains of events that started from places we thought were safe and stable. Don’t forget to monitor what happens around you!

Why It Always Seems Impossible Until It’s Done

“It always seems impossible until it is done” is a famous quote by Nelson Mandela. To all of us who try to do things outside our comfort zone, or try to change the world (or, in a more limited manner, some organizational entity), it sounds very true. And always related to the tough ancillary question: if it does not happen yet, should be persevere?

The fact is that in complex systems (our world), change will be sudden and what looked like an abysmal failure or a mediocre endeavor one day might become a sudden success overnight. At the same time it is difficult when we are in the midst of action to realize what is the amount of progress we might be making.

A significant level of perseverance is always needed to cross the stage where it seems that progress is very little until we reach effective change. And we are always surprised as how change can be sudden and widespread when it occurs. It takes a lot of background work in a lot of areas to effectively create change.

What is important is to have and to kindle the vision of what we want to achieve. If it’s ambitious it will look impossible. Just go and do it! It will be long, and it will eventually happen.

How Power Utilities need to Overcome the Power Revolution

In the wake of the energy revolution that unfolds quietly (see our post on solar power), power utilities face tough decisions. Their model is generally an industrial-age model where efficiency is gain by ever bigger power stations that benefit from scale effects to produce cheap power.

power_station — How long will be centralized power generation model survive?

The drawback is of course, the size of these stations and the related need for a very extensive distribution network, and also that to be profitable, investments need to be used for a large number of decades. Nuclear Power Plants for example, are now typically designed to last 60 years or more to amortize the investment cost.

Today, those utilities face a double threat:

the development of competitive distributed generation, which diminishes consumption from centralized stations and creates distribution network instability,
the increasing cost and lack of proper control on large power stations investments, for a variety of factors.

solar-panel-houses — A new urban landscape we need to get used to!

Centralized production capability will remain needed for a long time, in particular due to large industrial consumers and the need to have the capability to support power networks in case of extreme conditions. Yet it is will become increasingly difficult to justify the huge investments with the uncertainties of the market over the next decades. A major factor will be to be much more reliable in predicting the actual cost and schedule of construction projects. Some effort is needed in that respect in the power industry.

Utilities will soon face significant challenges to their traditional business model and they’d better take the issue upfront than become defensive. A major shift will happen, and as in all good things, a balanced approach that can be adaptable is always better than to bet too much on a single way of producing power. With some effort, thanks to our connectivity and processing capability, we will be able to manage the associated complexity of multiple sources of energy.

Why Bureaucratic Processes for Risk and Business Planning Are Suspect

“Bureaucracy was born out of the human desire for complete assurance before taking action” – Scott Belsky in Making Ideas Happen. And this assurance is a very natural desire in humans. As a result, bureaucracy creeps up everywhere and fast and finally prevents us to take action.

A risk management process that has great chances to become a large bureaucratic exercise

This effect is very interesting to observe in particular in the field of Risk Management. It’s all about risk and uncertainty, reactivity and agility to unexpected events… and most risk management processes implemented in organizations are awfully slow and bureaucratic – at a point where the operative executive does not really use them beyond maybe some thoughts once a year when he must or at the start of a Project.

There are quite a few areas where we will never have a complete assurance whatever the effort we will spend, such as predicting the future, including future risks. Bureaucracy is the wrong answer to risk management and future prediction so that any method that implies some of it should be automatically suspiciously classified as an attempt to seek reassurance for ourselves.

Is your risk management process or your future business planning process excessively bureaucratic? You’d better review it immediately because it is most probably not fit for purpose!

Why Team Commitment is Better than Any Plan

“The team’s commitment to the plan is key to the successful execution of the plan” writes Clinton Padgett in ‘The Project Success Method‘.

I’d like to go beyond this – a commitment team is better than any plan, because the plan will change during execution, of course.

How do we achieve this level of commitment in particular in projects? I have always defended the need to have a series of workshops at the beginning of a project, with the project core team. Not for just having a chat – working together to design an execution plan is the best teambuilding I know. As Clinton Padgett also mentions, “Teamwork builds the team. Fortunately, the processes of defining and planning the project, which take place in the earliest phase of The Project Success Method, are excellent vehicles for team building.” And I can’t agree more.

Do the plan, but do it together. That is more important than the plan itself!

Why Finding Meaning in our Life Becomes Harder

As the complexity and unpredictability of our world increases significantly, and has even been accelerating in the past few years, it becomes more difficult to find our life’s meaning and purpose.

How can we find our way in an ever larger labyrinth?

One of the reasons is the multiplication of choices that are offered to us – like excessively lengthy restaurant menus, choice kills the choice. As our freedom increases, it is naturally more difficult to fix ourselves on a single purpose.

One other reason is the unpredictability and the occurrence of freak events that change significantly the world around us: how can we steer a straight course over years and decades in this context?

This all happens at the same time where personal development has never been so popular, requiring everyone to find passion and purpose in life and follow those. As a result, our general level of stress increases dramatically, leading inevitably to serious societal problems.

The solution might be not to find one’s purpose in absolute among an infinity of choices, but to find our purpose close to what we do on a daily basis, which restricts the field of search. I will elaborate on this key ideas in a few future posts.

Some references from previous blog posts: What we can learn from complex systems to understand today’s world, Why, even in a Complex World, you Need to Head Towards your Purpose!

How to Create Disruptive Change

Following our post ‘Why Experts Are Always Wrong About the Future‘, how can we overcome the limitations of expert forecasts, and create the disruptive changes that puzzle experts? Paul Graham a famous Venture Capitalist, shares some insights in an interesting post ‘How to Be an Expert in a Changing World‘. The post is worth reading in its entirety for its insights.

Paul Graham starts from the same position as us: “Change that matters usually comes from an unforeseen quarter. So I don’t even try to predict it“. And he continues, “we are full of obsolete beliefs“. Hence he concludes, “the best strategy is simply to be aggressively open-minded. Instead of trying to point yourself in the right direction, admit you have no idea what the right direction is, and try instead to be super sensitive to the winds of change“.

There, Paul makes gives us two important practical pointers we can use:

“If you’re sufficiently expert in a field, any weird idea or apparently irrelevant question that occurs to you is ipso facto worth exploring […] When an idea is described as crazy, it’s a compliment“
“focus initially on people rather than ideas. Though the nature of future discoveries is hard to predict, I’ve found I can predict quite well what sort of people will make them. Good new ideas come from earnest, energetic, independent-minded people“.

Thus become expert in a domain, explore crazy ideas and hang out with other people prone to the same tendencies – a recipe for shaping the future in a disruptive manner?

Why Experts Are Always Wrong About the Future

I am always puzzled about the failure of experts to predict anything. Take for example the sudden drop of oil price: most experts agreed one year ago that high prices were here to stay (and increase further); and the same experts now explain with the same smile and assurance that they see prices go down even more as they already halved in 6 months time. How come they can change their mind so quickly (and without shame it seems!)?

oil price 2011 forecast — A random oil price forecast of 2011. How come the current price is lower than the lowest?

The reason is of course simple. Experts are experts on an earlier version of the world. They are experts on what happened, not on what will happen. In addition, in our ever more complex world, disruptive changes are more prevalent, leading to unexpected surprises – surprises not seen before that experts can’t of course foresee.

The thing is, future can’t really be forecast when it comes to factors that depend on human interaction such as markets and societies. Financial traders know this when it comes to share prices. Of course depending on what you want to predict, it will have some inertial factors attached to it that will make change more or less quick. Still the future remains unpredictable.

So instead of trying to predict the future, experts should certainly try to better analyze and explain past and present, and more importantly, devise mechanisms to dampen as much as possible the inevitable disruptions that shake our world.

Let’s come back to my heuristics already developed in ‘How to Overcome the Experts’ Confidence Conundrum?‘: when all experts agree on something and it becomes a kind of a consensus, then there is a good chance that there will be a significant change. It is time to take a contrarian position. Thus when I’ll see that everyone finally agrees that cheap oil is there to stay, then will be the moment to invest in oil companies – oil price is due to increase!

How Crisis Moments in Our Life Define Ourselves

I am always amazed at how moderately or acute crisis situations define our lives and define ourselves. Our life is but a succession of relatively quiet and stable moment with transitions or difficult situations in between. It is actually quite similar to nature’s behavior where short, catastrophic events shape the world, which otherwise is relatively quiet and stable (and denotes that we live in a complex system).

Crisis and difficult situations define ourselves by the way we respond to them. Those key moments are turning points defining our future life and therefore in many aspects our future selves.

And there is no way we can escape from these turning points. We can try to keep the stable moments we crave as long as possible, but life is such that at some point, disaster or other types of crisis will strike.

Like we can find out true self by identifying what we dislike in others, we shape our true identity by the way we respond to crisis situations.

Faced with a crisis, a profound change in your life conditions, the way we respond reveal and shapes what we are. Crisis moments are not nice, they are a necessary evil we can’t avoid. We can just respond the way we want to be. We can, and we must shape our response, even when the world seems to be crumbling around us.

How Integrated Systems Increase Fragility and Decrease Adaptability

The more systems are integrated, the higher the potential that a mistake (involuntary or purposefully introduced) can propagate trough the entire system and pollute its overall accuracy. Hence, integrated systems are intrinsically fragile.

Promoters of integrated systems fight this issue by adding a number of filters to the entry of information in the system, de facto decreasing significantly the system flexibility and the possibility to adapt to changing needs.

John Hagel mentions that it is the same with organizations: the bigger and more monolithic the organization, the more fragile it can be. And very large, integrated organizations and systems are an impediment to change and adaptation.

The solution is hence modularity and creation of small, understandable, and interconnected entities or systems. The key lies in devising standard interfaces to deal with the interfaces. This obviously has an additional cost compared to integrated systems and organizations (it is less efficient), but on the medium term, the adaptation capability should produce better and more resilient results (thus, a higher effectiveness)

When will we stop thinking that efficiency, integration, standardization is better? Do we need some more meltdowns to prove that effectiveness, modularity and diversification is much more desirable?

Hat tip to ParisTech review, papers on the future of the organization (in French).

How to, and Why Put One’s Eggs in a Single Basket – a Small Company Guide

Mark Twain said, “Put all of your eggs in one basket and WATCH THAT BASKET.” Well, that’s obviously the contrary of the more prudent common wisdom say “don’t put all your eggs in a single basket“! Who is right? What are the situations where it might be worthwhile follow Mark Twain’s recommendation and what are other situations where we might better follow common wisdom?

In terms of risk management, having several egg baskets spreads the risk – there is less risk that the entire egg supply disappears, while at the same time there is a higher probability that some of it will be damaged. When you put all your eggs in a single basket, there is more focus.

Large companies will tend to follow common wisdom – they diversify their risk to enhance long term survival. This leads to average performance as some activities will be under-performing. Small companies don’t have this luxury – they put all their eggs in a single basket, and watching closely and fostering these eggs, with the help of some luck, they might be much better performing. This is what allows small companies to thrive and develop (together with the typical lack of reactivity that plagues larger companies).

Typical entrepreneurs need focus. They have to put all their eggs in a single basket and focus seriously on preserving it and having it grow. Still you can’t exercise such a focus on all areas of your life. Other areas (such as your savings for retirement) need more common risk management approaches.

You need to be choosy on those areas where you put all your eggs in a single basket, but that can be very worthwhile provided you exercise a right level of attention and focus. Choose the area where you will do that and stick to it!

Why it is so Important to Know How to Cut Losses

Following on our discussion of prospect theory applied to project failures, there appear to be some ways to overcome this unconscious tendency to prefer desperate gambles to cutting losses when it appears that there is a high probability of significant losses.

An obviously desperate (and amateur) gambler

That seems to be what makes the difference between the professional and the amateur when it comes to gambling or to trade on markets: professionals know how to cut their losses, and it is in part because they are working on a very high number of attempts, and through repeated and frequent exposure to the situation. What is important for them is that overall, on a large portfolio of attempts, the wins slightly exceed the losses. So they learnt to cut and take their losses without too much emotion when it happens, before the losses become too overwhelmingly high. On the contrary, amateurs stick to their position and drown with it.

In other situations like project management it is less possible to play the game of having a large portfolio, although that it often possible at the company level. Here again, what is really important is to be able to cut losses before they become so big that they can sink the organization. Most organizational failure come from the avoidance of cutting losses while the situation was still manageable.

The solution is really to become a professional and recognize, either through repeated exposure or through reflection on one’s inner workings, that we tend to be risk-taking in certain situations, beyond what would be reasonable. And to be courageous enough to stop and take one’s losses even if that means losing one’s reputation of being able to deliver. That is always better than to lose its all.

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