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Phase Transition Complexity strategies for change Noah Raford Massachusetts Institute of Technology London School of Economics November 18, 2009

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Phase Transition What do you do when you are here? Noah Raford Massachusetts Institute of Technology London School of Economics November 18, 2009

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Source: Ludwig, 2002 Source: Ludwig, 2002 1 ton Time Response

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Source: Ludwig, 2002 Time Response

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Source: Ludwig, 2002 1 ton

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Source: Ludwig, 2002 1 ton

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“ Complex adaptive systems move towards conditions of self-organised criticality.” (Bak, 1996)

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“ The production of potentially catastrophic risks is endemic to late modern society.” (Beck, 1992)

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Anatomy of a Credit Collapse Housing bubble (R1 and R2) and bull market (R3) Collapsed as a result of adjustable rate mortgages Coming due (B4 exacerbated by R5), growing business and consumer debt, lowering purchasing power and further depressing the stock market (R3). Source: Stroh, 2009 (www.appliedsystemsthinking.com) Endogenous shocks: Percolating systemic risk

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Source: Tainter, 1988

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Key message 1 Non-linear phase transitions are endemic to all classes of complex adaptive systems

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Key message 2 We live in one

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Climate Change Energy Supply Security STRESSES RESPONSES Physical Systems Social Systems Governance Erosion Behavioural Norms Disrupting Fragile Systems Amplifying Inequality and Grievance Source: Adapted from Rosbon, 2009

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Increased Connectivity Increased Volatility Decreased Flexibility Formula for the 21 st Century “ Too big. Too fast. Too complex.” (Robb, 2008)

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Question How do you prepare for and respond to radical non-linear change?

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Short answer You can’t. Increase your adaptive capacity “ Dynamic capabilities”; mental, emotional, and social flexibility

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Source: Holling, 1987 Cycle of adaptive change Connectedness Conservation Growth Capital Weak Strong Active Passive r K

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Source: Holling, 1987 Cycle of adaptive change Connectedness Conservation Growth Release Capital Weak Strong Active Passive r K Ω

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Source: Holling, 1987 Connectedness Reorganization Conservation Growth Release Capital Weak Strong Active Passive r K Ω α Cycle of adaptive change

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Source: Holling, 1987 Cycle of adaptive change Connectedness Capital Weak Strong Active Passive Reorganization Conservation Growth Release r K Ω α

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Key message We don’t know when, where, or at what scale transitions will occur. We need to be aware of when a change is beginning, and “learn from the future, as it emerges.” ( Scharmer, 2006)

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Key message Your strategic imperative should be driven by where you are on the adaptive cycle, and at what scale you are operating on.

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Question How do you know which strategy to use and when to use it?

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Simple Complicated Complex Chaotic Disorder Source: Snowden, 2009 Cynefin

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Simple Complicated Complex Chaotic Source: Snowden, 2009 Cynefin Disorder r K Ω α

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Simple Problems and answers well known One or a few right answers Bureaucratic practice (SOP) Constrained action Sense – Categorise - Respond Skills: 10 hrs Chaotic Unclear what are data No answers Novel practice, crisis management Creative action Act – Sense - Respond Skills: Instinctual Complicated Problems open ended A range of possible answers Analytical, investigative practice Bounded action Sense – Analyse – Respond Skills: 1,000 hrs (6 months) Complex Problems and solutions evolving No right answers Experimental practice Lightly bounded action Probe – Sense - Respond Skills: 10,000 hrs (5 years) Cynefin, Plus Source: Snowden, Raford, 2009 ? r K Ω α

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Simple Problems and answers well known One or a few right answers Bureaucratic practice (SOP) Constrained action Sense – Categorise - Respond Skills: 10 hrs Chaotic Unclear what are data No answers Novel practice, crisis management Creative action Act – Sense - Respond Skills: Instinctual Cynefin, Plus Source: Snowden, Raford, 2009 ? Complicated Problems open ended A range of possible answers Requires analysis and investigation Bounded action Sense – Analyse – Respond Skills: 1,000 hrs (6 months) Complex Problems and solutions evolving No right answers Experimental practice Lightly bounded action Probe – Sense - Respond Skills: 10,000 hrs (5 years) r K Ω α

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A-S-R P-S-R A-S-R P-S-R P-S-R Cynefin, Plus Cynefin, 4D Probe – Sense - Respond Act – Sense - Respond

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Key point Scale of transition and the scale of actor determines the context for response.

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Photo: Menno van Tol

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Less resources, lots of freedom Move fast Make quick decisions Uncover and create micro-opportunities Communicate and learn fast Excel in A-S-R crises and in P-S-R downtime Probe – Sense - Respond Act – Sense - Respond

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More resources, less freedom Exploit existing opportunities Slow to mobilise Slow at making decisions Less information from their environment Poor at communication Good at A-S-R crises (C&C) but poor at P-S-R Probe – Sense - Respond Act – Sense - Respond

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“ Strategic renewal” efforts Thompson, Ramirez, et al. (2009) Mergers and acquisitions (macro) Small, specialised units or teams Special experimental projects Workshops, forums and meetings Systemic HR practices Sources: Thompson, Ramirez, et al. (2009) Probe – Sense - Respond Act – Sense - Respond

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Sources: Floyd & Lane, 2000; Teece, Pisano, Shuen, 1997 Role Conflict 70% Fail (Strebel, 1996) Act – Sense - Respond Source: Eisenhardt and Bourgeois, 1988

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Poor at A-S-R crises and P-S-R efforts Most resources, most problems Most political and bureaucratic Most insulated from the environment Slowest mobilization Stabilizing effect Life support systems Probe – Sense - Respond Act – Sense - Respond

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Policy experiments Adaptive management and monitoring Long term thinking Government as gardener “ Foresight” groups Spies and intelligence agencies Funding and support for lower level innovation Creation of resource reserves Probe – Sense - Respond Act – Sense - Respond

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Key message Sensation, reflection, and communication are vital in times of transition and renewal. Rapid decision-making, in a context of shared understanding, combined with the authority to execute, is the key to competitive advantage in transition.

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Implication Smaller groups exhibit greater flexibility, speed and awareness, thus have the competitive advantage over large groups during times of transition (k species).

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<ul><li>Identifying gaps between the world, and your perception of it </li></ul><ul><li>Close the gaps </li></ul><ul><li>Adjust your actions to match real conditions </li></ul><ul><li>“ Fast asymmetric transients” </li></ul>

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<ul><li>Ingredients for success </li></ul><ul><li>Mutual trust </li></ul><ul><li>Fingerspitzengefuhl (intuitive feel) </li></ul><ul><li>Auftragstaktik (mission contract) </li></ul><ul><li>Schwerpunkt (big picture direction) </li></ul>

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“ Practice day and night until the sword becomes no-sword, the intention, no-intention.” Kendo proverb

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<ul><li>Conclusion: How to win </li></ul><ul><li>Sensation </li></ul><ul><li>Reflection </li></ul><ul><li>Guidance </li></ul><ul><li>Action </li></ul>Observe, observe, observe Retreat and reflect: Allow the inner knowing to emerge Act in an instant Source: Scharmer, Presencing Institute, 2009

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<ul><li>Sensation </li></ul><ul><li>Listening and talking </li></ul><ul><li>Sharing perceptions </li></ul><ul><li>Networks and partnerships </li></ul><ul><li>Search conferences / scenario exercises </li></ul><ul><li>Early warning systems </li></ul><ul><li>Narrative tracking </li></ul><ul><li>Horizon scanning </li></ul>

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2. Reflection Constant dialogue Sense-making conversations Removing yourself from the world Facilitated workshops Creating a space for insight ‘ Profound truths’ to emerge “ A ‘clearing’, within which the self approaches itself from out of the darkness of misrecognition and into the ‘lighted space’ of recognition.” Heidegger

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2. Reflection Constant dialogue Sense-making conversations Removing yourself from the world Facilitated workshops Creating a space for insight ‘ Profound truths’ to emerge “ A ‘clearing’, within which the self approaches itself from out of the darkness of misrecognition and into the ‘lighted space’ of recognition.” Heidegger

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3. Guiding direction “ Deep source” Inspiration Shared vision Schwerpunkt / passion Discovered, not created Cannot be planned “ Releasing the ‘inherent tendency’ within a material... Uncovering the inherent possibilities of the material at a particular historical moment, as part of an inherent temporal unfolding that is largely unresponsive to the whims of the individual actor.” Adorno

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4. Action Bringing forth from nothing Design generation Rapid prototyping Prolific experimentation Incremental steps towards a holistic vision

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5. Integration Bringing back into practice Inspiring adoption Linking rewards and incentives Monitoring the results; user feedback

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<ul><li>Conclusion: How to win </li></ul><ul><li>People </li></ul><ul><li>Emotions </li></ul><ul><li>Conversations </li></ul><ul><li>Mystery </li></ul>

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