Leader's Edge Newsletter: February 2008

How to Thrive in the Face of Change and Uncertainty

By Richard Martin

One of the fundamental challenges for leaders in all fields of endeavour is to lead through rapid change, risk and uncertainty. The unfolding crisis in financial markets and the threat of recession make this even more of an imperative. Here are some principles and observations to keep in mind when thinking about the future and what must be done.

1. Accept that you don’t know what will happen next. This may appear to be giving up hope, but in actuality it is quite liberating. When you realize that no one can predict the future, whether the next minute or the next month, you become much more attuned to changes in your environment. This creates a mindset that is poised for change and randomness, rather than the false sense of security that comes with prediction.
2. Research in recent years suggests that there is no enduring business structure or process that will result in perennial success. In fact, the average lifetime of a business model appears to be about 15 years, after which imitation and market changes make it obsolete. This is also liberating, because it means you’re free to experiment with business models, products, services and organizational structures.
3. Given the previous point, it is much better to be adaptive and flexible in your approaches to business (and life in general), than to try to create the be-all-and-end-all strategy or structure. Adaptation is a process whereby organizational leaders create a culture that accepts change and uncertainty as a given and then energize their people to seek opportunities and try out novel approaches, rather than just hunkering down to defend their turf.
4. Adaptation is largely about experimentation and reinforcing successful experiments, rather than about predicting an expected outcome then identifying the magic recipe that will lead to success. Beinhocker and Raynor have both written about how Microsoft in the late 1980s hedged its bets over a number of different operating systems, not knowing which one would win out. Though it’s main effort was with Windows, it nonetheless maintained DOS while buying SCO, a UNIX developer, and co-developing OS/2 with IBM. Windows eventually became the PC operating system standard, but Bill Gates didn’t know that back in 1987. His brilliance wasn’t in predicting the future, but rather in hedging his bets then investing fully in the winner.
5. People resist change essentially because they value certainty over uncertainty. Concretely, this means that people tend to overweight their personal experience, they tend to ignore events or phenomena that they have never personally experienced or encountered, and they put more weight on potential losses than on potential gains. In other words, people generally stick with a present situation and what they know, rather than risk changing to an unknown future. The fact that changes happen all the time is immaterial, because we are genetically wired to cling to present circumstances. This means that anyone leading change has to work against considerable inertia in order to gain momentum.
6. In situations of great uncertainty, most people tend to take their cues for action from other people. For instance, in a crowd, if a few people start to run in a particular direction, it is likely to cause a stampede in that direction. This phenomenon occurs in financial markets all the time, particularly the stock market, where we can see bubbles and busts, and wild irrational swings in pricing which have nothing to do with underlying fundamentals.
7. Risk is always present. You just don’t always know all the risks that you and your organization face. It is better to accept risk as a condition of existence, than to assume it away by saying that your brand is a guarantee of customer loyalty (it isn’t) or that there will always be a need for your particular product or service (there won’t), or that the disaster you can envisage just won’t happen (it could).
8. To lead change, executives and managers must leverage the influencers that always exist in every group. I’m not really talking about the early adopters who will try anything, but rather the thoughtful early majority who create what Malcolm Gladwell calls the “tipping point.” Once these people see the need to change in a certain direction, it is almost a given that the rest of the crowd will follow them and adhere to the change.
9. Poor strategic vision and a lack of leadership will just as surely create change, risk and uncertainty as the opposite. However, as a leader, you might not like the change you are getting. This is why it is an absolute necessity to accept that change, risk and uncertainty exist, and to take the bull by the horns to try to be at the forefront of the process.

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