Some introductory comments about leadership, management and transitional events
The life of an individual, a government or a company is divided into periods of stability, when we feel in control and confident in our ability, and periods of turbulence during which we are not in control and confidence evaporates.
Much has been written about how to prosper during periods of stability. Rather less, but still a considerable body of work, has been written about how to approach non stable environments.
A substantial fraction of this second collection, and especially that portion focussed on business, tends to propose ways in which to shape the perception of these turbulent periods so that the skills that are valid in stability, for example strategic planning and rational incrementalism, can be applied with confidence. This doctrine is tantamount to making the problem fit the tools available. Analogously, it may look like a screw but as the only tool available is a hammer we must treat it as a nail or do nothing.
Human beings are programmed to search for patterns and regularities in events and to match them with those stored as experience because finding them provides confidence in the outcome of similar actions taken in response to similar situations we may encounter in the future. We like reliable effects from known causes.
In the process there is a tendency to seek out simple configurations that model most of the data. For example we do not survey every detail of a person’s face before recognising them and, although other senses are available, we rely heavily on visual and odour clues to establish something is possibly good to eat.
The objective is prediction and the rapid evaluation of physical and emotional risk and reward in order to select an appropriate action. It must be acknowledged that this process of predictive recognition from partial information serves us well in most cases as our survival, in avoiding danger, has depended on the facility.
However as the situations we confront become more complex they likely to be matched increasingly less satisfactorily by interrogating our memory bank of experience. Many aspects of modern life are now known to be fundamentally complex and incapable of being repackaged as anything simpler. Mathematicians call these non linear dynamic systems and regard them as unpredictable to the degree desired by those individuals charged with exercising control and delivering the progress of entities operating within these systems.
In other words it is not advisable to discount reality and to treat screws as you would nails simply because, at first glance they are similar in shape, and expect the same result. To do so is a delusion born of the pressure to do something quickly, to disregard the potential damage of incorrect action and hope to make it work by force of will.
Politicians provide a particular example in seeking to manipulate the levers of the economy to create a financial climate that is conducive to expansionary commercial activity and so do corporate managers and leaders who have to deal with market or financial problems.
Politicians place great reliance on changes in rates of interest to stimulate or retard economic activity. Corporate managers regularly resort to price reductions to increase sales in the short term. If only it was so simple to bend these complex systems deterministically to your will.
Most people reading this will recognise, from their experience, these and similar tactics that were employed more as gestures than with the confidence that they were going to resolve the fundamental issues. “We did what we could” and “What more could we have done” are comments often made. The most significant positive effect is usually only to delay the onset of more severe problems.
When we are at a loss we would like to slow the passage of time in order to delay the arrival of what we know to be likely in the hope that we can think of something to avert the unwanted, but probable, situation or that “ something will turn up” to save us. This behaviour suggests that fortune favours, not the brave, but the prevaricators. Experience and history persuades us that this is not the case.
It is clear that many believe that delaying actions are desirable because they are comparatively risk and cost free. But such gestures are not without negatives. Delays are purchased at a high price as, like temporary dams and diversions, they interfere with the natural course and until the force of the river overwhelms them.
For example, retarding the onset of a cyclical downturn in the economy is not difficult but tends to make the eventual recession longer and deeper. Reducing prices tends to invite a similar response from competitors thereby neutralising your action and establishing a newer, less profitable market price level from which it is difficult to reset to the previous level without colluding (which is unlawful) or accepting a relative price disadvantage.
To further complicate matters life is punctuated by significant, unexpected events that change the game profoundly. The emergent signs of these events are identifiable in all complex systems but, seemingly, only in retrospect, and the events appear to be unavoidable.
They are critical moments of instability when what has gone before is of little value in determining what may be possible subsequently, if you can survive the transition!
They are transitional events.
The contention that led to this series of papers is that the way in which an organisation or government approaches these transitional events, how they are managed and the state of the organisation, in terms of its position and condition, when the transition is complete determines the long term success and, sometimes, the survival of companies, managers, political administrations and politicians.
Transitional events are often classified as crises. To some extent this is the result of media hyperbole but also because the periods during which these events occur often become turbulent and those affected by them are generally unprepared as they regard it as too difficult to plan for, what they regard as, the unpredictable.
Crises are, however, an extreme class of transitional event. They are discontinuities in which little linkage remains between what went before and what will follow.
But true discontinuities, and hence crises, in the sense that all agents, engaged in similar activities within the affected system, are simultaneously overwhelmed and a majority are destroyed, are rare.
Defining moments are transitional events in which the change between the past and the future may be substantial but, unlike crises, a linkage persists. They tend to arise more frequently and some are predictable.
There are defining moments that are confined to individual actors in a system while others, like economic recessions, have a more general effect in which some agents are engulfed while others manage to survive the storm but are damaged in the process and a few emerge in good order, changed irrevocably but able to progress.
Defining moments can also be precipitated. For example a major acquisition, leveraging the company with debt in order to fund a significant dividend, invading another country, electing a new administration, giving birth, getting married or divorced. All these are events that are avoidable but are actions taken that embrace an additional risk in the pursuance of a future material or emotional reward.
Poor management, however, can eradicate the possibility of reward and transform the defining moment into a climate of distress and, further, into a crisis that can be terminal. For example; unaffordable leverage can lead to bankruptcy and failed diplomatic manoeuvring can result in the elimination of the species through nuclear Armageddon, but, even in the cases where the primary event cannot be averted, this escalation into a crisis is avoidable.
Unlike crises defining moments tend to be poorly identified contemporaneously and are generally dealt with more casually as their importance, if appreciated at all , is, at the time, often underestimated and sometimes denied. How many times have you listened to politicians and corporate executives, who have presided over a major negative event, be able to identify a moment at which they took the wrong action, insufficient action or no action at all and now realise that the consequence could have been less negative or even positive if only they had acted with conviction?
On a personal level, however, it is often considered preferable for those in charge to exaggerate the impact of external factors and to promote difficult periods as discontinuities and, by asserting their unpredictability, thereby deflect responsibility for the dislocation and damage that accompanies a poorly managed transitional events.
If you don’t know what to do it is better to suggest that you are confronting a crisis resulting from external factors rather than a defining moment. A victim of circumstance is treated more charitably than a victim of their own poor decisions.
Transitional events are the defining moments that make or break an organisation. They cannot be avoided, averted or wished away. They have their own momentum and set their own timescale. They must be dealt with.
Their behaviour is viral like. If left too long the virus will infect the whole organisation and will not be susceptible to treatment. The problems will multiply and at worst the organisation will collapse at best it will be permanently disabled.
In the corporate world acceptable performance over the medium to longer term means that the company will have encountered and transcended successfully at least one transitional event.
However for some companies the inability to navigate successfully through a transitional event, even though they have prospered during a previous period of relatively stability, suggests that the methodologies used successfully during the stable time and continue to apply consistently are less effective in more turbulent periods.
The logical incrementalism that is the basis of scientific management depends on a supply of reliable information and a predictable operating environment. Most plans and the allocation of investment resources that follow from them assume both these conditions to hold.
But transitional events withdraw both of these conditions and apply irresistible forces of change. If you accept this notion then it follows that steps must be taken to identify transitional events and, once located, that they must be handled differently to stable times.
To anyone who can navigate them positively they offer an opportunity to emerge better able to cope with the period that follows than others who may have not acted effectively.
The key to long term performance lies in the way in which you combine, along the time line, the dominance of scientific management during periods of comparative stability when control is at a premium with governance by an alternative, more flexible methodology during transitional events.
Four things become important;
1. How to recognise a transitional event.
2. The acceptance that being able to recognise it means that you are probably unable to avoid it and, therefore, must understand how to deal with it positively.
3. The kind of leadership that is appropriate during such times.
4. What to do when the transitional event has been successfully traversed.
In other work I deal with these four items by exploring the characteristics and predictability of transitional events and the distinction between management and leadership and when each should hold the position of controlling authority.
The corporate vessel in which we take our voyage is also important and hence I also explore, in some detail, how structure influences capability.
I do not intend that the this series of papers should be prescriptive. My objective is to illuminate an aspect of corporate life that is underexposed in order to sensitise those responsible for corporate governance, investors and lenders to what I believe is a key and unavoidable feature of the landscape in which companies operate.