Tame Problems & Wicked Messes: Choosing Between Management and Leadership Solutions

ENTERPRISE RISK MANAGEMENT Tame Problems & Wicked Messes: Choosing Between Management and Leadership Solutions by David Hancock T his article provides a way to think about difficult problems and alternative strategies for coping with them. It has implications for enterprise risk management, operational risk management, and auditing and the distinctions among the three. T o feel brave in this new successful outcomes in the future. mulate a solution, and finally world of enterprise risk Managers will need to be on a first- implement the solution (see Figure management, bankers name basis with such concepts as 1). Do not mistake tame for need the correct methods to pro- change management; high-performance simple—some of these problems are duce the right solutions. This arti- teams; motivation, emotional, behav- extremely difficult to solve. Over cle spans nearly 35 years of con- ioral attributes; and the learning the years IT systems have carried cepts, first by introducing tame organization. out the processes faster and faster, and wicked problems, which pre- until today’s systems achieve miered in 1973, and also messes, Problem Solving results in real time. However, there introduced in 1970. The author In the past, financial institu- are still times when we fail and fail then uses a matrix approach to a tions have tended to solve prob- pretty dramatically. fourth type of problem—the lems through analytical methods, Because of this we have wicked mess—introduced in 1996. breaking things down into parts, recognised that things have Audit and risk management fixing components, and assessing become more complicated. We are functions won’t be able to meet the the probability of known increasingly faced with problems requirements for enterprise risk sequences of failures leading to an of organised complexity, clusters management (ERM) as demanded accident or loss. In the new world, of interrelated or interdependent by the draft COSO1 report without this type of problem is labelled as a problems, or systems of problems. some changes to their mind set. tame problem and tame problems Problems that cannot be solved in While this may not come as a sur- tend to enjoy consensus. relative isolation from one another prise to most, we might be curious Everybody pretty much agrees to form messes. We sort out messes to know why. It’s because current why something needs to be done through systems methods and systems can’t deliver an under- and the right way to go about doing modelling, focusing on processes, standing of socio/economic and it. To solve a tame problem, we and interdisciplinary approaches. political complexities, which will develop systems that gather all the Rather than simply breaking increasingly be key to delivering data, we then analyze that data, for- things down into parts and fixing © 2004 by RMA. David Hancock is executive director of the Halcrow Group Ltd. UK-based Halcrow provides planning, design, and management services for infrastructure development worldwide. With interests in transportation, water, and property, the company has commissions in over 70 countries from a network of more than 60 offices. 38 The RMA Journal July/August 2004

Wicked Problems & Messes Figure 1 problems are termed as “diver- Traditional Wisdom for Solving Complex Problems. The "Waterfall" gent” as opposed to “convergent” problems. A convergent problem Gather data promises a solution. The more it is studied, the more various Analyze data answers sooner or later converge. Problem Tame problems are convergent by Solution Formulate solution definition. Messes are convergent if we agree on what overlaps, on appropriate strategies, and on the Implement solution kind of climate we wish to main- 0 20 40 60 80 100 tain. A divergent problem does Time Since Beginning of Session not promise a solution. The more it is studied, the more people of integrity and intellect inevitably components, we examine patterns This may be because we don’t come to different solutions. As of interactions among parts. We have enough time, because it is with messes, there are very real organize ourselves to sort out physically impossible, or because dangers in solving the wrong messes through such things as we don’t know how. The greater problem. Mistaking or misrepre- cross-functional groups, redundancy, the degree of interactive complex- senting wicked problems for and learning organizations. Simply ity, the less our capacity to pre- messes, let alone tame problems, building more freeways doesn’t vent surprises; and the greater the almost inevitably leads one to solve vehicle congestion. A pri- degree of coupling, the less our conclude that those with different mary danger in mistaking a mess capacity to cure surprises. answers lack integrity, intellect, or for a tame problem is that it Therefore, the greater the degree both. The great danger is that becomes even more difficult to of interactive complexity and cou- such conclusions undermine trust, deal with the evolving mess. pling, the greater the likelihood and trust is a fundamental strate- However, problems persist that a system is an accident wait- gy for collectively coping with because managers continue to ing to happen—what he terms a wicked problems. If wicked prob- believe that there are such things normal accident. In such systems, lems are becoming more common as unilateral causation and inde- “operator errors” merely serve as in our modern era, and there is pendent and dependent variables. triggers. Strategies and risk man- compelling evidence they are, we Charles Perrow in his book agement techniques for dealing face a strategic choice. We can Normal Accidents elaborates on with messes are therefore quite continue to misrepresent them as some of the problems inherent in different from those appropriate messes or tame problems, hoping messes. First, interactive complexity for tame problems. Thus, increas- they will not degenerate. On the is the measure of the degree to ing our capacity to prevent unan- other hand, we can acknowledge which we cannot foresee all the ticipated interactions among com - wicked problems for what they ways things can go wrong. This ponents entails simplifying sys- are and try to stabilize them as may be because there are just too tems; increasing our capacity to conditions. This is not going to be many interactions to keep track cure them entails decoupling easy, because wicked problems of. More likely, it is because our major components (e.g., build in offend our sense of logic and our various theories are simply not up longer times to respond). common beliefs even more than to the task of modelling socio- All this is fairly straightfor- messes. In our modern times, it is technical interactions. Second, ward and fine as long as most of pretty hard to accept that a prob- coupling is a measure of the degree us share an overriding social theo- lem has no solution. This seems to which we cannot stop an ry or overriding social ethic. If we tantamount to giving up. Given impending disaster once it starts. don’t, we face wickedness. Wicked that many people care about or 39

Wicked Problems & Messes have something at stake in how munication and trust among differ- with wicked messes? The strate- the problem is resolved, the ent camps is not enough; people gic issue is whether we choose to process of solving a wicked prob- still are likely to focus on symp- allow wicked messes to degener- lem is fundamentally social, and toms rather than deeper causes ate into chaos, whether we choose solving a wicked problem is fun- and to pursue low-leverage to stabilize them as conditions, or, damentally a social process. changes. Conversely, even if deep- more radically, whether we choose Much work has been done on er understanding of the systemic to try to dissolve them together. behavioral complexity and dynamic forces at play is achieved, such From the risk perspective, complexity . What confuses real understanding will be viewed with real listening and dialogue are decision making is that the two suspicion by the different, compet- essential to mapping the bound- coexist and interact in what we ing interests and mental models. aries and learning to recognize the call wicked messes (see Figure 2). patterns of those interactions, The fact that behavioral prob- Solutions which are the crux of sorting out lems cannot be solved in isolation The main thrust to the reso- wicked messes. Real listening is from one another makes it even lution of these types of problems also essential in establishing trust, more difficult to deal with people’s is stakeholder participation and and trust is the sine qua non of differing assumptions and values: “satisfying.” This is because effectively working together. More people who think differently must wicked problem resolving pro- significant, mistrust is the dark learn about and create a common duces no single optimum solution heart of wicked messes. The reality—one that none of them ini- but has many alternative satisfac- strategic principles for establishing tially understands adequately. tory solutions. Therefore the pro- trust is grounded in the realization Systems of interlinked problems duction of that solution must be that our commonalities are far interact with the misunderstand- “boxed” or “bounded” either by more significant and profound ings, divergent assumptions, and time or financial constraints to than our differences. In sum, these polarized beliefs of different avoid it going on ad infinitum. strategic principles are essential to groups of people. Improving com- So how do we propose to deal sorting out wicked messes together. More significant, in our increas- Figure 2 ingly complex and interdependent times, these principles guide us to Matrix showing the Four Types of Problems live in ways that help us dissolve what is problematic. Wicked Wicked Mess What does this mean for the world of finance and internal High audit? Let us first look at the concepts of management and leadership. It is key to draw a distinc- Behavioral tion between management and Complexity leadership. For our purposes, let’s Tame Mess use John Kotter’s definitions. 2 Here management is about coping Low with complexity, and its practices and procedures are largely a response to the emergence of large organisations and complex projects. Leadership, by contrast, is Low High about coping with change. These different functions—coping with Dynamic Systems Complexity complexity and coping with 40 The RMA Journal July/August 2004

Wicked Problems & Messes Figure 3 that there appears to be an increased Boston Matrix with Suggested Leadership and Management Skills Overlaid reliance on the use of systems emphasizing Wicked Wicked Mess an interconnectivity of Solution events. As we move High predominantly farther toward the top through of the matrix, there leadership seems to be an Behavioral increased reliance on Complexity social-science type Tame Mess solutions, where peo- Solution ple do not necessarily Low predominantly behave as “soft sys- through tems”; rather, their management behavior is dominated by belief systems based on their emo- Low High tions and feelings. If we then apply our two Dynamic Systems Complexity types of risk assessment (quantitative and change—shape the characteristic based—needs and emotions— qualitative) and overlay activities of management and requiring more influence than them on the matrix we produce leadership. Each system of action power to ensure their resolution. the diagram as shown in Figure 4. involves deciding what needs to Trust and relationships must be We can observe that for the be done, creating networks of developed, indicating a high bottom sectors, where scientific- people and relationships that can degree of behavioral complexity. based solutions are dominant, accomplish an agenda, and then This allows us to segment the quantitative risk data is reliable in trying to ensure that those people matrix into two, where leadership the assessment of risk. Our actually do the job. But each qualities dominate solutions in assumption is that there is an opti- accomplishes these tasks in differ- the upper half and management mum solution and therefore an ent ways. Therefore, how can we qualities the lower (see Figure 3). underlying number that we will choose when we require the skills How can this model help us converge toward. Thus, by gener- of leadership to dominate against with our understanding of risk ating more and more data, we will those of management on a project and risk management? In the past, move closer to the underlying to obtain a successful outcome? I there has been a considerable dif- “truth.” However, as we move up propose that we use the matrix. If ference of opinion between the toward the behavioral sector, there we look at the activities required use and legitimacy at various is no underlying single solution. in more detail to see the attributes times of qualitative and quantita- The solution will now depend on exhibited by the two principals, it tive risk assessment. If we accept the feelings and ideologies of the may indicate the type of problems the preceding classification of people concerned in the assess- best solved by those skills. types of problem as shown by ment. Here by the use of quanti- Let’s revisit Figure 2 and look Figure 2 and then analyze how tative data to inform facilitated at the characteristics required to risk analysis may be applied to opportunity—risk workshops, address some of these issues. help us with each type of prob- qualitative results will ‘reveal’ Those required to achieve change lem, we can see that as we move those underlying beleifs which are predominantly behaviorally farther to the right of the matrix will lead to satisfactory solutions. 41

Wicked Problems & Messes Figure 4 To the observant reader it is apparent Boston Matrix with Suggested Risk Assessment Processes Overlaid that as we move to the upper right quadrant, Wicked Wicked Mess some of the skills for Solution is solving problems in this High social/political/ area fall outside the ethical/moral/ realms of what we Increasing reliance on behavioral qualitative assessment presently consider as Behavioral Complexity traditional risk management. Rather, these Tame Mess issues are resolved Solution using a variety of tech- Low is niques such as scenario scientific planning, political fore- Increasing reliance on casting, and environ- quantitative assessment mental scanning—tools more commonly used Low High by the sociologists and Dynamic Systems Complexity economists. If we are to become successful in the move to ERM, Here therefore it is critically this matrix to aid in choice of the important to involve all stakehold- risk management techniques asso- then we need to understand the ers who can influence the success ciated with the type of problem. limitations of our capabilities or embrace these new skills to help of the project and to attempt to The key to the solution of limit your boundaries to the case wicked messes lies in the people us succeed. in hand as otherwise the group and the use of discussion and We fail more often because we solve the will grow beyond the limits of forums to explore these problems wrong problem than because we get the acheiving a workable solution. and understand the limitations of wrong solution to the right problem. The most difficult part of this the solution. Accurate reporting of —Russell Ackoff, 1974 Ë role for both auditors and risk “near misses” and the use of facili- Contact Hancock by e-mail at managers will be recognising the tated workshops to identify root HancockD@halcrow.com. type of problem they are facing. causes can aid this process. How- To help the reader to achieve this ever, there must be an open culture Notes I have used the classification of with an attitude of “no blame.” It 1 COSO is the Committee of Sponsoring Tame, Messes, Wicked Problems also requires the pursuit of designs Organizations of the Treadway Commission. The National Commission was jointly sponsored by and Wicked Messes. This has that limit system coupling and com- the five major financial professional associations proved useful in ensuring the use plexity where possible. in the U.S.—the American Accounting Association, the American Institute of Certified of the correct tools to deal with The move to enterprise risk Public Accountants, the Financial Executives problems based on their level of management will require future Institute, the Institute of Internal Auditors, and the National Association of Accountants (now the system and behavioural complexi- audit and risk managers to live Institute of Management Accountants). Currently, ty in social sciences. We have also “comfortably” in all areas of the the COSO Chairman is John Flaherty, chairman, retired vice president, and general auditor for used the matrix to understand the matrix and to become familiar PepsiCo Inc. www.coso.org— dominant behaviours required to with and apply the tools and tech- deliver outcomes when using niques as dictated by their govern- 2 John P. Kotter, considered an expert on leadership at the Harvard Business School, wrote managers or leaders and finally I ing laws. Successful problem solv- Leading Change, which outlined an actionable, have attempted to overlay the ing means finding the right solu- eight-step process for implementing successful transformations. concepts of risk management on tion to the right problem. 42 The RMA Journal July/August 2004

Tame Problems & Wicked Messes: Choosing Between Management and Leadership Solutions

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