The main problem with governance is the largely mechanistic approaches being used that are ill-suited to address the complexity and dynamics of today’s strategic and operating environments. If governance was instead designed as a system in its own right, layered in its complexity to provide dynamic control matching the complexity of the enterprise it is governing – then, we will see holistic outcomes being achieved on a sustainable basis. Yes, it’s more demanding. We can’t just set accountabilities and decision rights and let people get on with it, hoping the risk management process will drive compliance and take care of keeping the system in check. That’s not sufficient. This article is the first in a series exploring what and how we might get closer to the mark.
The wicked mess.
Traditionally, leaders set priorities for an enterprise overtime. This worked well until Peter Drucker came along and said, “In today’s economy, the most important resource is no longer labor, capital or land; it is knowledge.” In one stroke, he shifted the focus from physical things to the cognitive. This is so important. If we don’t manage the cognitive complexity before we dive into addressing the complexity of a contemporary situation, the risk of bad outcomes increases. Significantly. The statistics are horrifying, as 70% of projects fail to achieve their objectives. 95% of start-ups fail. And, half of the businesses started this year will not exist in 2 years’ time.
A brilliant engineer, Eberhardt Rechtin made two small yet profound adjustments to Drucker’s insight,“In today’s economy, the most important resource is no longer labor, capital or land; it is newknowledge and knowing how to use it.”This is profound, yet delightful, common sense. According to IBM, the build out of the “internet of things” will lead to the doubling of knowledge every 11 hours, whereas only 100 years ago the doubling rate was measured by the century. We’re all feeling the impact of as we can easily become swamped in new knowledge. Knowing how to use new knowledge is a new muscle to be strengthened to into a capability for dynamic choice. Everyone – not just the ‘leaders’ – need to be able to state their priorities at any pointin time while also keeping a headmark to the future by knowing their priorities overtime.
Now, if we can get everyone in an enterprise to do that, maybe then we can claim to be agile – not before. And, if we get the governance system to keep the enterprise on track now and into the future and we can claim we have tamed the gap between strategy and execution. The challenge is a tough, yet ubiquitous, one.
But, fail in either priority setting mode and the knowledge base will rapidly diminish our capability to deliver either the short or long term and widen the gap between strategy and execution. Should the system of governance fail to drive corrective action, behaviours default to the competitive culture – survival of the fittest self-interest. And, the fittest survivors get to govern what they see as a “good” culture.
Instead of governing the culture, we need to flip our thinking to having a culture of “good” governance, in which everyone aligns with the organising intent and shared outcomes, and behaviours align with the actions of the leaders and managers throughout the enterprise.
Make the response personal.
It’s easy for me to say it’s personal. In the heading picture, you see me and my wife jumping for joy in a close family circle of 10 – 2 daughters, their husbands and their four children. Our eldest grandchild, Cameron, was born in 2000. He’s one of the true millennials born in the year of the new millennium. He wears the barbs of entitlement that come with being a millennial. Yet, I think that for young folk born in these times they should be entitled to think that we’ve gotten the basics sorted already: a health system that spends more on prevention than it does on cure, an education system that prepares them to create and use new knowledge not learn it, an environment that will sustain life not having life strangled out of it, and a financial system with ethics to secure their future wealth not sequester funds into institutionally greedy pockets.
These are personal matters in need of a culture of good governance. And, I shall spend the last third of my life in collaboration and service of finding a solution.
On 24 May 1946,Einstein famously remarked to the US Commission of Nuclear Scientists, “the problems we face today cannot be solved with the level of thinking we were at when we created them.” This quote has become cliché as it points to the problem we all know, yet few have attempted to say what a higher level of thinking is, or how we engage with it.
In 1956, Kenneth Boulding gave us a great start with his philosophy and hierarchy of systems complexity. Boulding’s layered thinking ordered systems from static frameworks like mathematics and anatomy, through biological systems to social system and finishing with a transcendental layer unknowns and unknowables. He proscribed nine nested layers, each increasing in complexity and each containing the systems of lower complexity as shown here:
Each of these labels is a metaphor illustrating the complexity of the system. The critical discriminator of complexity is the increasing ability of the system to handle data, information and knowledge. This thinking from Boulding is profound coming in 1956, fully 40 years before the insights of Drucker and Rechtin. We learn that understanding any level of systems complexity cannot be made at a level below that being investigated. So, the rational, often numeric understandings readily available at the first three levels will be inadequate on their ownif one is investigating a social system at level 8. Particularly since the advent of modern computing, we have been seduced by their extraordinary capacity to give us a rational input to decision making.
Even with this brief introduction to Boulding’s thinking, we can observe that strategy and execution both relate to all nine levels of systems complexity. Or, at least, they should. Strategy looks the future and its unknowns and unknowables to create a guiding vision, outcomes and directions. Yet, if the strategy does not address each of the levels of systems complexity below level 9, then it is inadequate guidance to those following with execution. Much better that implementers be given the freedom of an integrated set of tightly defined boundaries at each level of systems complexity.
Similarly, our implementation and production teams must be able to relate their decisions and actions into the future to understand the consequences and risks. We stand a better chance of managing the interdependencies between strategy and execution if we give sufficient considerations at each level of systems complexity, and not rush to action without thinking.
Our initial insight into governance is there is a yawning gap.
Many definitions of governance point to mechanistic elements appearing in practice. Things like describing the organisational outcomes, establishing accountabilities and decision rights, are then combined with a set of rules that drive compliance and assurance. Risk management (which has its own international standard) is used as the main collector and manager of non-compliance and variance outside management’s risk tolerances. All of these elements illustrate a level of maturity in the system of governance rarely exceeding level 2. Whereas, the system of governance needs to extend across all levels of systems complexity to align with the complexity of the organisation system being governed.
The complexity of governance systems is still back in the days when setting priorities over time was adequate. Today we know that not to be sufficient. And so, the gap in governance extends over several orders of magnitude in systems complexity. There’s much work to do and it’s doable.
In my next articles, we will take a ‘run’ up the 9 levels to explore the systems complexity from an organisational perspective and then from a governance perspective. With that understanding we will yield a series of questions to guide considerations for designing a system of governance matched to the complexity of the system it is governing.
I welcome your comments, ideas and learnings from practice to help us all fix some of the basics in our systems of strategy, execution and governance.
Until next time, be great listeners, capture what you learn and share the love… Let’s not keep it under our hat.