(I co-wrote this article with Jean Drouffe who is the CEO of AXA, a global insurer, in Singapore and has been in senior leadership roles in Europe and Asia for the last 15 years.)
The Covid-19 crisis has made obvious the complexity of our world. Almost overnight, our forecasts and budgets for 2020 became obsolete and we realized that we had no way to produce accurate predictions. Governments and businesses reacted too late and not decisively enough, as they did not recognize the early signals. The consequences are for all to witness and suffer: confusion about lockdown rules, airplanes on the ground, restaurants and small businesses closed, billions told to stay home, supply chain disrupted, oil worthless, and essential products such as face masks or hand gel unavailable.
We believe that the business world needs a new leadership that fully appreciates the complexity of our environment, and approaches it with humility, open mind, and discipline.
Groundhog Day
No problem can be solved from the same level of consciousness that created it.
-- Albert Einstein
Most leaders and management teams have a reductionist view of the world. We simplify problems and reduce them into manageable parts. We make assumptions—about the future, the market, the competition—and generate forecasts, budgets, and performance metrics. At that point, we feel good because we believe that we know the future and we are in control. With false humility, we develop best- and worst-case scenarios, of course, but they rarely diverge significantly, so certain we are of the outcomes.
Reductionism is the main leadership ideology today. It stems from the development of science in the 16th century[1] and accelerated with the industrial revolution, Frederick Taylor, modern accounting, business schools, management consultancies, and the quest for shareholder value. Reductionism fuels our immense desire for certainty and ever-increasing aversion for risk.
In reductionist thinking, you can predict the future of a system if you know its current state and the rules that govern the behaviors of its parts and their interactions. It is a useful theory that applies to many of the tools we use. For example, a photocopy machine is a complicated machine and reflects decades of research and expertise across many disciplines. However, when I press a button on the photocopy machine, the same result happens all the time. The relationship between inputs and outputs may not be obvious but experts—like engineers—provide us with reliable solutions.
According to Stuart Kauffman, a reputed researcher, “the reductionist program has been spectacularly successful, and will continue to be so. But it has often left a vacuum. […] The deep difficulty here lies in the fact that the complex whole may exhibit properties that are not readily explained by understanding the parts.”[2]
Unfortunately, it is our view that many situations in today’s business world don’t lend themselves to a reductionist approach. No matter how much expertise we possess, we can’t solve our issues because they are not complicated: they are complex.
Just like a butterfly flapping its wings in Brazil can set off a tornado in Texas, a man eating a bat in Wuhan can put the world’s economy to a standstill. Capital markets, macroeconomy, elections, or consumer demand for example, are similarly complex issues. Their dynamics involve large numbers of elements interacting in non-linear ways, where minor changes can produce disproportionately major consequences. Mathematicians who study these phenomena aptly call their discipline Chaos Theory.
Leaders have responded to the crisis in a reductionist, linear manner. It was initially appropriate, as they needed to conserve cash, protect revenue, and care for their employees. Unfortunately, two months into the crisis, most management teams are still operating in this short-term, reductionist mode, revising forecasts and budgets week after week, amidst rising frustration and a feeling that they are reenacting the movie Groundhog Day.
It is only by raising our level of awareness and recognizing complexity, that we can finally start making sense of the future. Four leadership practices can help leaders navigate this complex world.
Recognizing complexity
The only good is knowledge and the only evil ignorance.
-- Socrates
We love simplifying problems and finding elegant heuristics that guarantee success. But not all business problems can be dealt with in a linear, predictive manner. The first practice consists of recognizing complexity when we face it.
This is more difficult than it sounds. Indeed, leaders are paid to have answers, and they would often rather make one up than admit ignorance. We make predictions with the greatest confidence, even without much evidence to support them. How many 2020 budgets have remained unchanged since the beginning of the Covid-19 crisis?
Our cognitive biases also outweigh our humility. We are overconfident in our abilities, believing for example that our driving skills are better than most[3]. Entrepreneurs, even in the face of serious evidence that their business plan is flawed, decide to go ahead. Another example is the bias in market share projection in any business plan: all leaders expect to outgrow their industry, but we know it won’t happen for all of them. We tend to believe that positive outcomes are more likely than they really are, because that is what our mind has framed to happen. For example, we will assign a high probability to the discovery of a vaccine, ignoring that most vaccine take years to develop and that with limited production capacity, it would take even more years to distribute it. Nobel prize Daniel Kahneman and his colleague Amos Tversky researched and documented these cognitive biases in a compelling way[4].
We should hence be mindful of these human biases, and in the face of any question, ask ourselves, whether it is a problem that we can solve with experience and expertise, or are we facing irreducible uncertainty?
Embracing complexity
If you can solve your problem then what is the need of worrying?
If you cannot solve it, then what is the need of worrying?
-- Shantideva
This second practice requires a significant mindset shift. Acknowledging that we don’t know demands courage but is surprisingly liberating. Practicing not knowing is a central tenet of several spiritual traditions. Practitioners of Zen Buddhism must adopt this beginner’s mind to remove ignorance.
This practice is more challenging than it initially looks. Because we are trained in providing solutions, it is difficult to resist the urge to try. When we coach CEOs, we ask them to look us in the eyes and repeat “I don’t know” until they finally release the tension that comes with having to be omniscient. In the face of complexity, we are stronger when we recognize that we don’t have to know.
Taoists tell the story of the poor farmer who finds a wild horse. You are so lucky, his neighbors tell him. I don’t know, is his response. The next day, the farmer’s son falls while trying to tame the wild horse and breaks his leg. Such bad luck, lament the neighbors. I don’t know, shrugs the farmer. The next day, soldiers come to the village. There is an impending war and they draft all the young, able men. They spare the farmer’s son because of his broken leg. What a great luck, exclaim the neighbors. I don’t know, is the farmer’s reply.
A positive collateral of adopting this humble posture is that it opens new perspectives and is a prerequisite to move forward with a learning mindset. At this point, we are ready to embark on the third practice.
New perspectives
We should reward people, not ridicule them, for thinking the impossible.
-- Nassim Nicholas Taleb
Developing new perspectives is not predicting the future: this would be futile. It is imagining possible futures, even as we know that many of these may happen. This is different from the simplistic best case – worst case scenarios which lure us into complacency and a false sense of certainty.
Possible futures should include obvious scenarios but also remote possibilities, such as technological disruptions, bold competitive moves, demand transformation, regulatory changes, or supply breakdowns for example, along with anything else that would impact our business. Some scenarios will be optimistic, others dark. They all force us to consider our actions under many different alternatives.
We use three approaches to develop new perspectives.
First, with our teams. To expand the range of ideas, we must invite new points of views to the executive table: front-line employees, suppliers, or customers, for example. We also need contributors who may not know our business but think differently: a leader from another industry, a philosopher, an artist, or a spiritual guide. For example, we could include elite military operatives, whose survival on the field is linked to their ability to plan the impossible.
Second, away from our teams. We encourage our leaders to spend solo time on retreat. Drawing from the spiritual traditions, a retreat is simply time we spend in solitude, offline, and in silence, for periods ranging from one hour to one week. We don’t need a monastery for this although it remains a great option. We can simply go to a quiet spot in nature, by the sea, the lake, or the woods, at home, in a boutique hotel, or even in a coffee shop where anonymity works as a powerful substitute for solitude. During these solo retreat times, we can journal, read, meditate, or walk. In his treatise for leaders, Geshe Michael Roach suggests that the idea of the retreat is to break up the usual routine to get some time to think about why rather than how, and more importantly time to get new input, new sources of inspiration.[5]
Third, towards new communities. Hierarchical organizations are too slow for today’s world. Instead, we must create and engage new horizontal networks, and find new ways to collect and analyze data. These can be communities of practitioners with common interests, like industry associations, but can be informal. Predictive markets and Google Trends are other ways to leverage large scale, collective intelligence to expand our sensory range.
With a refreshed sense of possibly futures, we can move to our last practice.
Preparedness
-- Archilochus
In an unpredictable, complex situation, we cannot know the future, but we can prepare for it. To do so, leaders must prepare their teams like elite athletes, performers, military operatives or even astronauts: by training and rehearsing relentlessly. This is about deliberate practice, not improvisation.
We know of very few executive teams who train their collective skills. Most are confident that they will know what to do when whatever situation arises. The recent months have showed the limits of this approach: communication is inconsistent or incoherent, actions are not coordinated, and under stress, breakdowns occur everywhere.
Here are some tools that leaders can use, most borrowed from elite military units.
Red Team – Blue Team: a debating approach in which two teams defend opposite points of view. This helps prevent groupthink: one team defends one course of action and the other will find all the possible arguments to prove that it can’t work.
Pre-mortem: we have chosen a course of action. The team now imagines that 12 months have passed and we have failed spectacularly. What happened? Let’s imagine the conversation and list all the possible reasons why we failed.
Debriefing: after each project, we review what we did well and not so well. What could have gone terribly wrong but did not? Where were we lucky? What can we learn for next time? This approach must be conducted with an intention to learn and not to blame. Making mistakes is part of learning and the antidote to paralysis when there is a crisis. As Dr Michel Ryan of the World Health Organization says, “if you need to be right before you move, you will never win”.
Small controlled experiments: Like pilots, they are frequently mentioned but rarely executed well. The experiments must be small to allow to gain information at a relatively low cost, and failure is inconsequential. The experiments must have a control group to sense what inputs lead to what outputs.
Simplification: over time, our organizations become more complicated and entropy increases inexorably. Bureaucracy seem to appear spontaneously and never disappears. This creates rigidity, lack of reactivity and the inability to perceive weak signals.
Towards a greater sense of purpose
He who has a why to live can bear almost any how.
-- Friedrich Nietzsche
These four practices of recognizing and embracing complexity, new perspectives, and preparedness, will allow leaders to be more serene in the face of complexity. Engaging their teams through the four practices is also a way to identify who is critical yet constructive, open-minded, and ready for the future.
Leaders who engage in these four practices need not waste time on visions and goals. Whatever the objective—market share, growth, world domination, profit—it is bound to change with circumstances. Worse, once we achieve a goal, rather than basking in satisfaction, we promptly seek another one.
Instead, we believe that we find our sense of purpose in practices and daily routines. Achieving excellence, relentlessly questioning our assumptions, cultivating resilience, diversifying our points of views, training, challenging each other, and serving clients, can be more purposeful and meaningful than a grandiose vision.
The new leadership that we advocate is a journey, not a destination.
[1] Descartes famously argued that non-human animals were like automata with no free will, reasoning capabilities, or feelings of pain. [2] Stuart Kauffman, At Home in the Universe: The Search for the Laws of Self-Organization and Complexity. [3] See for example Ola Svenson (1981), Are We All Less Risky and More Skillful than our Fellow Drivers? [4] Daniel Kahneman, Thinking, Fast and Slow [5] Geshe Michael Roach, The Diamond Cutter