Business is Over. Time for the New Narrative of Complexity.
Most managers are so outrageously pragmatic when you finally notice their lack of critical reflection and holistic approach, it hurts. Even more, managers are cold-blooded bureaucrats.
But many of the most successful and popular managers are neither reflective practitioners nor administrators: they are illusionists. They surround themselves day in and day out with a mise-en-scène of a determined drive.
Largely decoupled from sustainable results, illusionists can reach top positions: Thomas Middelhof (Karstadt), Jack Welch (GE), Kenneth Lay (Enron), Markus Braun (Wirecard) or even Josef Ackermann (Deutsche Bank) are just a few spectacular examples. It becomes really dangerous when teams of illusionists lead companies, such as the “strong” CEO and the smart CFO (as was the case with General Electric) or the tech-savvy CEO and the ruthless COO (as was the case with Wirecard).
I believe that the time of these three management styles — the pragmatist, the administrator and the illusionist — is coming to an end with the dawn of the digital age. The management traditionalists are not disappearing, but they are making way for a new type of manager that you only occasionally encounter in the industrial age: the complexity artist.
The narrative of business is changing, due to the dominance of digital technologies, intensifying social divisions, and the climate emergency. These three megatrends are also changing how companies work. Thus, management in these complex times is also increasingly different from the style of Frederick Winslow Taylor, Henry Ford or Ferdinand Piëch.
In the following article, I tried to sum up the new narrative from a manager’s point of view. The following four points are something like my personal quintessence from the past 25 years — from the days when I founded the company diconium together with Andreas Schwend, which I still run today. It is a guide to artfully dealing with complexity.
I. Have a Pocket Theory
Do an experiment and ask a manager the following question: “Under what conditions does good job performance by employees occur?” Share the answers you receive in the comments if you please — that might be amusing for everyone.
If there is one question that a manager must answer well, surely it is the one above. Imagine being in charge of other people and not having an answer to that question with any sort of scientific soundness. What can employees expect from such a manager? Not much.
I believe that managers need a pocket theory that provides insight into how good collaboration and performance can occur. After all, how can you learn to manage well without a hypothesis on how performance emerges? How will you improve without knowing what assumptions you based your decision on, or what assumptions you would be better off revising based on what you learned during implementation?
One of my central Pocket Theories explains how good individual work performance arises. It consists of only three steps, but these are sufficient to tailor tasks and work environments to the individual:
· Step one: Understand the expectations of your counterpart.
· Step two: Understand the other person’s perception of the task and environment.
· Step three: Understand the motivation that drives them to act
This sounds like a guide to empathic management through good listening skills, and it is. But these three steps are only really effective if you draw organizational consequences from them. For me, it was the reason to set up diconium in such a way that:
· on the one hand, employees dare to express their expectations clearly, and on the other hand, our organization should never create false expectations
· we live a healthy corporate culture that focuses the collective perception on what is important to us as diconium: delivering innovative, pragmatic, digital-technical problem solutions for customers
· Motivation is more than just doing what’s expected of you — employees must be given the space to self-actualize and develop.
Pocket theories get to the heart of cause-and-effect relationships. They are a compass. But they are also always work-in-progress, hypotheses to be improved over time. Every manager holds pocket theories. The trick is to make them conscious and explicit so you can work on them.
Kurt Lewin, a German-American psychologist, wrote in 1945: “There is nothing as practical as a good theory.” I believe that a few pocket theories made explicit in a manager’s portfolio have the potential to make any manager, and indeed the whole organization, better over time. All it takes is some courage to theorize.
II. Trust heuristics
Pocket theories are not true. They are merely rules of thumb, useful heuristics that usually work well. An aspect of a heuristic is not only its usefulness but its ability to evolve. A heuristic is never true, it is always only an approximation. It is uncertain, temporary, fragile. Someone who knows that what they believe to be true is only a heuristic opens themselves up to positive doubt, curiosity, and growth.
I suspect that people who are aware of their own heuristics are better able to find answers to the complex questions of our time and, as a result, are more capable of leading companies. Management teacher Fredmund Malik put it this way in his 2015 book Navigating Times of Change: “Algorithms are the rules of the game, heuristics are the rules of how to win.” Even if I think Malik’s views are partly out of date, I completely agree with this quote.
Having heuristics seems unreasonable for many managers. In their understanding of their role, they are supposed to stand for security, radiate competence, and follow a clear line. For many, a competent manager is a person who is not surprised by anything. The manager is the one who constructs and maintains a machine that always runs equally reliably and, above all, predictably. Management machines are supposed to be deterministic and endowed with accuracy, fixed cause-and-effect relationships — and with little of the diverse complexity of the digital age.
Instead, heuristics ask us to doubt, confess the lack of knowledge and understanding, and adjust decisions again and again in an agile approach, according to circumstances. Machines are the algorithms of the industrial age — software is the heuristics of the digital information age.
Management artists assume, try out and improve their own heuristics by constantly switching between theory and practice. Management traditionalists hold on to what they have learned, even when time demands new solutions.
III Overcome the obsession with prediction.
Management pragmatists create organizations that work. Management administrators keep organizations running. Management illusionists provide organizations with external glitter. What all management traditionalists have in common, however, is that they are masters of prediction.
This starts with predicting financial results. Managers of companies listed on the capital market have no choice but to meet investors’ expectations. Anything else would look incompetent. But this obsession with prediction continues inside companies. Managers must predict which employees will perform well in which positions in the corporate hierarchy, and which strategies and operational decisions will produce good results. According to Arthur W. Deming, one of the thought leaders in management theory, the ability to predict the behaviour of systems is the core skill of managers. Just as an engineer designs machines because he or she thinks he or she can produce a certain output with that machine, a manager designs organizational machines.
Accountants already pretend that a company — or a department or teams — is a black box with inputs (costs) and outputs (revenues). The manager is the one who knows, who anticipates, which inputs will result in which outputs.
It’s smart people who can do this — especially as predictions become increasingly difficult in the digital age. In a complex, digital, VUCA (volatile, uncertain, complex and ambiguous) world undergoing ecological upheaval, it is problematic to continue to rely on individuals’ predictive skills. Nor, in my view, is it a solution to rely instead on groups’ competence, although consultation with experts and stakeholders is certainly helpful in improving predictions. A better solution is to reduce the need for good predictions themselves.
Deming himself saw that the only real solution to complex and, thus, hard-to-predict problems is to limit the need to make predictions themselves. The solution is to create agile companies, departments and teams, as is already commonplace in digital companies today.
Digital companies that use agile models of thought and action, such as SCRUM or SAFe, set a mission for themselves. They tend to refrain from predicting what results will be achieved. They focus on a “best-effort” rather than achieving target parameters. Digital companies don’t predict — they work toward the goal, they do and learn, they iterate their way to better and better results, to goals that can’t even be predicted in detail yet. They work mission-oriented, not goal-oriented.
Few people described this approach better than Nissam Taleb, who wrote in his 2012 book Antifragile about the practical handling of complexity: “I cannot accept a pretence of science. I much prefer a sophisticated craft, focused on tricks, to a failed science looking for certainties.” (Nissam Taleb, 2012, Antifragile)
In today’s world, management traditionalists only fake good management. They pretend that the world continues to be simple and predictable. It is time to embrace complexity, to reflect it in the very structures and processes of organizations. This requires, in Taleb’s words, progressive craft and trickery — something I would call “thinking within operating systems”.
IV. Think within operating systems
The previous three rules sound a bit like a personal guideline for executives: have a pocket theory, trust yourself with heuristics, and don’t get hung up on trying to make the best predictions. But good advice is ineffective if you are not able to translate these rules into organizational structures and processes.
An organizational operating system includes all the structures and processes used to set goals and coordinate an organization. It consists of three pillars. The first pillar, the head, includes all analytical, head-driven elements: strategy, business model, goal setting, and decision-making processes. The second pillar, the hand, includes all the processes, management practices and technologies to do all the nice or just plain necessary things we set out to do. The third pillar is the heart. It includes all the many things that people in a company are passionate about. It is the mindsets and emotions that a company creates with what it sets out to do in its head — and experiences in its hand.
These three pillars alone only describe an organization. It becomes an operating system when you start to design the pillars in their components so that they support each other and align them with what the organization wants to stand for. That is why we use different operating systems at diconium. For our main business, consulting and software engineering of eCommerce systems, we use one that can be roughly reduced to four principles:
· Small, autonomous, but not self-sufficient units.
· Coordination through transparency and standardization
· Allowing and encouraging division of labour: Not everyone should work on everything all the time
· Leadership that leaves room for individual freedom, so that employees can act on their curiosity and develop personal responsibility
These four points are a reduction. The principles are not important, they only set the framework. What is important is that all the structures, processes and management actually contribute to the principles, so that the whole becomes more than the sum of the parts. In the 25 years, we have been working at the forefront of the digital revolution, we have learned that a truly good customer journey is never simple, but has very deep systemic requirements. We have simply applied this knowledge to the journey of all the people who work at diconium.
Today, we at diconium have an organizational operating system that allows a lot of individual freedom, yet still works in a goal-oriented way. A system that is not atypical for project-driven companies. One that has worked well to date — but also one that we are now redesigning so that the ever-growing technological possibilities of our time are not thwarted by our organizational comfort.
In some subsidiaries, we have already positioned ourselves quite differently years ago. For example, several years ago we introduced Holocracy at CINTEO — a system that replaces managers nearly total and is completely mission-based. CINTEO, now part of the Mercedes Group, is a software company that develops eCommerce solutions in an evolutionary manner in the complex environment of the automotive group.
Conclusion
I believe that our digital age, rich in upheaval and change, needs more managers who are able to deal artfully with complexity. Those managers don’t take themselves completely for granted and know how fallible they are. Who therefore rely on organizational solutions, who find their own way — who do not passively stand by and wait for a self-discovery process to bear fruit, but actively work on organizational operating systems, so that their companies strive toward great missions as if by themselves.
Management should be understood as an advanced art of dealing with complexity. A narrative that does not exclude complexity, as mechanical systems do, but that is able to identify and exploit opportunities. At least in knowledge-based technology companies, there is no alternative.
How To Build A Tech Company
An industry in transition: I would like to discuss with you, but also with international experts, what kind of organisation and processes are needed to create modern, innovative products that combine high-quality hardware with agile, smart software solutions. I would like to find out how we can jointly transfer German engineering skills into the digital or even autonomous age — which is why, in the coming months, I will be asking myself more than ever before: “How to build a tech company? Follow our Medium blog for this.
