In the Industrial Economy, our model of success in business started with a strong charismatic leader with superior intelligence who could see through the end of the game, pick the best solution and hand out orders to employees who then executed them with specialized division of labor in functional silos. This model worked as long as the business environment remained relatively stable. A leader could simulate all possible scenarios from each move and make the right one based on the highest probability of winning.
However, the Digital Economy of the 21st century has changed the rules of competition in a massive way, requiring flexibility and adaptability from all market players. In a post–Digital Revolution era, trying to predict, control and eliminate variances is a losing game. For one, efforts to reduce variance inevitably meet the law of diminishing marginal returns: the cost of reducing variance eventually exceeds the benefit. In addition, the goal of controlling and minimizing variance is deceptive, because we don’t know what to measure in a complex environment that changes fast. The minute we figure out what we need to measure, it has already changed. We can’t control what we can’t measure. Primary responses to environmental changes now call for adaptability, speed, decentralization and pattern recognition with the primary management goal of accelerating learning and harnessing complexity.
The speed with which this fast-changing, dynamic environment is producing new information has exceeded the speed at which traditional bureaucratic hierarchy can send information up and down its chain of command. As a result, a decoupling of information, power and responsibility has taken place. Information resides with frontline employees but power and responsibility reside with top managers. Hence, employees cannot take action in a timely fashion, which creates inefficiency and ineffective decision-making, a deadly situation in this fast-changing complex world.
The increasing complexity of today’s business world makes the traditional model obsolete. The market has become too complex. Leaders must now up their game to successfully navigate today’s complex business environment. Four factors have dramatically increased the level of complexity today:
- the increased number of new variables introduced (new technologies, tools, etc)
- the increased speed of interaction among those variables (through faster communication speed in technology)
- the increased density of population and resulting higher density of interactions (greater population growths in cities)
- the increased degree of interdependence among all variables involved
A combination of these four mutually reinforcing conditions can quickly push a phenomenon over the tipping point from predictable to uncontrollable, demanding new approaches and reactions from current market leaders. If not, leaders must prepare to face the consequences: a Silicon Valley startup from a garage can render an existing player’s business model irrelevant overnight.
The complex post¬–Digital Revolution business environment makes the mechanistic efficiency of the Industrial era model ineffective. The very premise of Six Sigma, a poster child of the Industrial era model—that we can predict, control, and reduce variability—is at odds with the principle of unpredictability and complexity in today’s business world. Variability is the essence of the game, not a noise to be eliminated. Leaders should not be afraid of complexity but rather increase complexity to use it to their advantage.
Turning complexity on its head, organizations can use the very principles that pose significant challenges to their advantage by increasing the speed, interdependence, density of interaction, and variety of input in the organization to improve one’s chances of survival and radical innovation.. Companies can take numerous steps to achieve these competencies, such as:
- To increase a team’s variability of input, maximize diversity of thought. Listen to employees who come from different socioeconomic backgrounds.
- To increase the speed of interaction, share information with complete transparency, remove any friction in the communication process and constantly make iterative improvements using simple rules. Increase self-organization of frontline employees who have more information. Push power and responsibility down to where information resides so that information, power and responsibility can all reside at the same place.
- To increase density of interactions, increase frequency of interactions among employees. House them in cubicles with low walls in confined spaces. Design a path to the cafeteria and snacks so that employees from departments that would never interact in a normal course of business would have to run into each other to facilitate accidental discoveries.
- To increase interdependence among employees, put a networked team structure in place to improve connection among team members, creating many-to-many relationships, replacing the obsolete traditional silos in hierarchical order of one-to-many relationships. Create an environment where people feel a sense of belonging and connection.
Google and many other Silicon Valley tech giants have adopted these steps and many more to become the innovative and successful companies as we know them today—and it’s how any organization can transform itself to succeed in this new digital era. Therefore, new leadership competencies required in this more complex environment include tolerance for ambiguity and diversity, agility, flexibility, transparency, adaptability, resilience and connection with others
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Dr. Sunnie Giles is the author of The New Science of Radical Innovation and founder of Quantum Leadership for Radical Innovation®, a program based on her breakthrough research, which transforms leaders into ones fit to deliver radical innovation. She has an MBA from University of Chicago Booth School of Business and is a TEDx speaker on radical innovation.