Change and Its Repercussions for Leadership
Presentation made at
The World Economic Forum, Davos,
24th of January 2014
While change has been ever-present for millions of years, today, it has taken on a role in our lives that is far more formidable… and even dangerous. We now tend to find ourselves at a loss, unable to respond (to change) adequately or within a necessary time frame. In short, we are overwhelmed.
Partly, this is because the nature of change has taken on a different face. It has been affected drastically and irreversibly by three factors: speed, frequency and interdependence.
Let me start with speed. Change keeps accelerating with a kind of continuous velocity, that makes it difficult to pause so that we can adapt and adjust to, let alone embrace, the rapid new forces that have come to define us and our society.
It is different from earlier forms of change, not only in terms of frequency and rapidity, but in its very nature. It is multi-faceted. Multi-disciplinary. And very much interconnected. All macro subsystems suddenly seem to overlap, from technology to economics and politics to the socio-cultural environment. And change in one sector of our society delivers repercussions that are felt in other areas within a very short period of time.
Take the internet, a technological innovation which has changed the nature of retailing (an economic impact); of education (a social impact); and of information-sharing which has mobilized people to change governments (a political impact).
This high velocity and interdependence leads to a world that has become increasingly complex, with accompanying problems that are exceedingly difficult to solve. The solutions themselves require approaches simultaneously applied by men and women from different disciplines. Nor is that always sufficient. Timing is often of essence when making a decision today, because by the time a solution is at hand, ready for implementation, the environment has already changed. Many of the facts (and situations) have become outdated or irrelevant.
When change occurs we need to make a decision. Often quickly. What shall we do about the “new event” that was caused by change.
Since it is new, there is by definition uncertainty confronting the decision maker.
The decision made needs to be implemented and that means undertaking risk. It might work. It might not.
In this new complex environment we live in, then, uncertainty and risk are heightened significantly. They have caused the demise of many corporations. Corporate leaders, deprived of what they consider sufficient advance notice, have suddenly found themselves awash in trouble faster than anything they experienced in the past.
The same pattern applies to nation-states. I leave you to fill in the names of countries.
The result is CEO’s and heads of state alike are faced with totally new forms of complexity without past experience to guide them.
The latest American financial crisis is a case in point. The crisis came as a surprise. No one expected it. Neither the Department of Treasury, nor the President’s Economic Council nor the Central Bank.
The US Federal government was forced to change its policies every few days. Why? Because it did not have a clear road map or understanding of the complexity of the situation. There was no ready solution, or even a formula at hand. It soon became clear that economic answers to the problem had unfortunate political and social repercussions. A solution that was palatable economically was viewed as impractical, if not unworkable, because it had political repercussions.
It should be noted that the problems confronting The European Union are even more complex inasmuch as they concern multiple nations, each with a different political form of governance and set of national interests, a separate national culture and its own cycles of change. Each nation is coping separately with an economic crisis that in practical terms ties them all together.
Is there a way to decrease the uncertainty and the risk?
From my experience of over forty years in consulting to corporations and leaders of countries, I would say emphatically, yes, there is.
On the corporate level, the starting point requires a new way of thinking, particularly with respect to organizations and the structure of leadership. Traditionally corporations structure their organization around a single leader. But today’s complexity requires a complementary team of managers and collaborative leadership, rather than a single voice, joined together to find solutions to problems that can quickly cause a company to go under. This is really a profound change in our present day construct of leadership and its importance cannot be overemphasized. It involves composing a team of creative entrepreneurs, risk adverse professionals and task-oriented technocrats who are cognizant of the importance of making and implementing the decision in a timely fashion, and of working collaboratively to arrive at a solution.
Why a complementary team? Because their different styles, and different judgments cross-pollinate one another. They begin with different ways of knowing (and understanding); and by complementing one another they reduce the degree of uncertainty. In the end they improve the quality of the decision itself.
Compare that to a decision rendered by say a single entrepreneur presiding over a task force under his or her command. He or she will probably make a decision with less information than a risk averse professional requires. On the other hand if the corporate leader is himself a risk averse specialist making the decision alone, he will take longer to decide… and the timing itself will likely be flawed.
In brief, complementary teams rather than single leaders turn out to be a far more effective way of leading corporations in times of complex change.
Now, what is needed to reduce risk?
Usually multiple groups (within a government or a corporation) are necessary for efficient, timely implementation of a decision. The problem is each group has its own interests. If the interests collide and there actually is no common interest, the probability that the decision will be implemented correctly is drastically reduced. The greater the degree of diversity in interests among the necessary groups, the more difficult the implementation of a solution.
Let me restate:
In a chronic, accelerated, complex, changing environment, to make effective policy decisions, a complementary, collaborative, leadership is required. It in turn needs to be capable of building coalitions to secure common interests among the necessary parties for efficient implementation.
The above factors are necessary, but not sufficient since they carry a burden. On a corporate level a team of leaders with different styles seeking a common interest inevitably means that there will be conflict. From experience we know it is bound to happen among the interested parties, in part because of their different style.
On a macro or nation state level, there will be conflict too: the opposing political parties do not necessarily collaborate constructively. We recognize this in the acrimonious relationships between Democrats and Republicans in the United States. Their actions hamper the government’s ability to function. In addition the nation’s interest groups —in the US, for example, the industrial military complex, and in other countries, the Trade Unions— make it extremely difficult to reach common agreement on interests and needs… See France, Greece. Spain.
How to make it work?
This is going to sound over-simplified. It is not. Far, far from it. I have devoted over forty years of my professional life studying what works when it comes to managing change effectively and efficiently, within corporations as well as governments. It is not a simple concept. It is simplified so it can be implemented. It has been tested successfully with hundreds of corporations worldwide and to a lesser degree with governments.
What is required at this point within the complementary team, up and down the corporate and political ladder, is mutual respect. (Respect, as Emanuel Kant said, means to recognize the sovereignty of the other party to think differently.)
When there is mutual respect there is a willingness to learn from each other. There is a greater tolerance for differences in opinion. Without arguments and collaboration shaped and governed by respect, a faulty and wrong decision will emerge and lots of energy will be wasted; or else —just as harmful— decisions will be deferred, bringing corporate and/or national decisions to a halt. Just like the latest budget debate in the American Congress.
To deal with the conflicts, which can be destructive when multiple interests are involved, is a bit more difficult. Mutual respect is not enough. Here we also need mutual trust.
Trust means that if I yield my interest now for the benefit of another group, in time I will be rewarded. It is based on a belief in a “growing pie:” there is enough for everyone and giving up now on some point is worth doing because it will help the pie grow, and eventually there will be more for us too.
When there is trust there is collaboration. Decisions are implemented in the spirit in which they were made, and the risk is thus lower. When there is an absence of trust, collaboration ceases, and decisions are made in the context of a different frame of reference, which unfortunately only increases the risk.
It bears repeating: Mutual Trust and Respect reduces uncertainty and risk in decision-making and implementation.
What is the role of leadership then?
To create an environment, to develop and nurture a culture of mutual trust and respect within the system, be it a corporation or a government.
Look at the world around us. What does Switzerland have in terms of natural resources? Or Japan? Practically nothing. Nevertheless both countries by and large have enjoyed economic success.
On the other hand take South Africa. It has enormous resources in gold and diamonds, but its economic success is limited at best.
What is the difference?
The culture. A culture of MT&R.
When there is MT&R, there is cooperation and collaboration and the system not only survives, but prospers at all levels, whether it is a family a corporation or a nation.
I was asked recently by several government leaders for a proposed solution to the latest economic crisis.
My answer was: whatever you do, do not lose the trust and respect of the nation, which is to say, the trust and respect of the people.
I believe that trust and respect are the most important assets a government, indeed a system on any level, can possess. They are the most difficult to develop, and the easiest to lose.
The reality is that trust and respect are threatened by change. Why? Because change increases uncertainty and risk, and thereby tests our trust and our respect for one other.
It appears that politicians in general are losing the respect and the trust of the populace. Worldwide. I attribute this to the rapid rate of change which politicians have deep trouble responding to with any success. For them, it is a constant struggle. The problems keep getting more complex every day; and with the complexity their popularity keeps getting lower, falling day by day.
The repercussions can be catastrophic. Not just loss of power for the leaders; but loss of power for the state as well.
It is probably a truism by now: the greater the rate of change the more acute the conflicts. In the twentieth century more people were murdered by other people than in the entire history of mankind. What will the twenty-first century bring with the proliferation of nuclear weapons and /or weapons of mass destruction?
We should ask ourselves: Is the world marching to its destruction or to the Age of Aquarius? I suggest that it depends upon whether MT&R among nations, people and religions will be the guiding compass or not.
A related conundrum confronts us on the corporate level. Which corporations will succeed and which will go under? Again, I would say that it depends whether MT&R can help solve differences between management, workers and stockholders, and whether in the end a unity of interests can be produced. One factor that made Germany successful in recent decades was the collaboration of management and workers through the system of co-determination.
The more collaboration the better in time of change.
It is important to recognize these realities. Change is a centripetal force. Technology has brought the world closer together. But without MT&R change becomes a centrifugal force too. And not easy to control.
Today the conflicts between political parties are particularly bitter. And conflicts of interests increasingly drive people and political parties farther and farther apart, without much hope of a collaborative solution. Trust is rapidly disappearing. And disintegration within corporations, the silo phenomena, is a repetitive syndrome.
Political leaders in democratic society have for the most part become prisoners of the polls. They find themselves constrained, unable to take positions that they recognize are necessary for the health of the economy. The pressure groups within the society are too vocal, and our new social media galvanizes the voters to respond immediately and emotionally to the latest pressure. See Greece. See France.
In the face of this broad ranging decline, destructive conflicts have begun to assume a dominating role, which in turn appears to be opening the door to totalitarian leadership.
What is the solution?
The democratic system designed hundreds of years ago does not seem to be responding well anymore to the challenge that chronic and complex change poses.
The remedy on the macro level then is to reconsider how democracy should work given the chaotic environment we live in. It needs to be reconstructed. Along what lines? I am afraid that is another paper, or at least an extended talk that will try your patience. I can say, however, that the restructuring begins with developing paths towards mutual respect and trust. It will require structural and educational changes which will mean a paradigmatic shift in our value system.
On the corporate level, with respect to leadership, education and training, MBA schools need to re-design their curricula, so they move away from concentrating on individual leadership and begin to emphasize the necessity of collaborative management and team-work. So that the curriculum begin to focus on ways to construct coalitions whose main goal is to achieve common interests.
Major changes in our environment call for major changes in how we manage.
Dr. Ichak Kalderon Adizes