Value Creation as a Complex Adaptive System (CAS) Activity

CAS Thinking Helps Solve Problems in Strategy, Organizational Design, and Value Creation

Executive Summary

In my last post, "A Strategy for Creating Transformational Innovations," I described fundamental principles that aid in the development of significant innovations. I emphasized the need to identify first the few "key insights" that set the direction for an initiative. [1]  Complexity analysis provides evidence for that perspective, as briefly described here. 

The Need

The solutions to different tasks require distinctive methods and tools – a conceptual toolbox.  Unfortunately, people often use methods that are inappropriate for the task.  For example, a common mistake is to use ideas like the Business Model Canvas as a framework for value creation.  Such complicated methodologies, with over 40 questions, are ineffective for that purpose. Our experience indicates they can even obstruct progress.  Their value is primarily as checklists indicating that value creation is possible throughout the enterprise. [2]  

Simple and Complicated

People constantly solve different kinds of problems. Simple problems, like cooking a cake, can be accomplished using recipes. Complicated problems, such as designing a new house, can be addressed using a family of engineering principles, rules of thumb, and established project design and management methods.  Creativity is possible and generally desired in both cases.  And, if you are a skilled practitioner, the results will be adequate in both cases unless you drop the cake on the floor.  Complex problems are different. 

Complex 

Complex problems define our world. Almost everything we care about, people, family, organizations, markets, and ecosystems, require complex adaptive system (CAS) solutions. They involve many elements that combine and interact with each other, often in surprising and unpredictable ways. As a result, solutions are not guaranteed or fully knowable at the start.  As we learn, we adapt, and the solutions evolve and then emerge.   

Complex systems often produce surprising results that are the consequence of only a few rules. Consider the example of flocking birds. [3] Simulations show flocking birds follow three rules: 

1.     Maintain the distance locally to the nearest neighbors. 

2.     Adjust the direction locally to the nearest neighbors.

3.     Avoid predators.

Imagine you are a scientist and, instead of looking for those underlying rules, you tried to understand all the paths and directions the birds take as they respond to each other and their predators. The task would be overwhelming because, when examined that way, the variations of patterns are endless.

Flocking birds demonstrate that CAS can often have elements of inherent simplicity. Thus, a goal of CAS thinking is to identify the few underlying rules and constraints that result in the complexity observed.  That is, the ones that have the biggest impact on the outcome. 

My colleague Alan Barnard says, "The goal is to discover the inherent simplicity that describes the system's unimaginable complexity."  CAS thinking is a mental model that helps us address hard, complex problems by focusing on what matters. [4]

Organizations

All enterprises are CAS. They are not like the one depicted in the movie Modern Times by Charlie Chaplin. Chaplin's stereotypical company was a huge, perfectly designed mechanical nightmare, where employees were treated as additional machine parts doing a task. That industrial age efficiency model was never fully valid, as Chaplin demonstrates in the movie. And today, because of exponential improvements in technology and intense global competition, it is increasingly misguided.

When I became CEO of SRI International, next to Stanford University in the heart of Silicon Valley, SRI had declined for almost 20 years and was close to failing. It was a famous organization, having created world-changing innovations, such as receiving the first Internet transmission, creating electronic banking, and developing the foundations of personal computing, including the computer mouse. But SRI's business model was obsolete, and the company was in serious decline.  

SRI is an organization that creates innovative products and solutions for governments and companies worldwide. When I joined, it had over a thousand employees and almost as many projects, with hundreds of different customers. The staff was brilliant but fiercely independent and demanding, as are all creative people.

Unfortunately, because the company had been failing for years, each group, out of survival, worked independently, lacked respect for management, and often had grudges against others. When you are failing, it is natural to blame others. A typical description of SRI at that time was, “a company of a thousand people connected by a heating system." 

SRI was like the flock of birds I described earlier. Trying to fix every individual issue was impossible – a losing game of "whack a mole." The key to turning the company around was in identifying the few factors that would inevitably drive the transformation required for success.  Fortunately, SRI also had many advantages.  The world was full of endless innovative opportunities, it was likely in the best location in the world, and it had many brilliant, highly skilled staff. My feeling was that by using the i4i value creation methodology, SRI would once again become a remarkably successful enterprise. 

Here are factors we felt were critical:

1.     The employees were passionately motivated to make an impact -- achievement. Unfortunately, that was generally missing because the existing structures made systematic achievement impossible.

2.     Employees had to be effective and efficient value creators. Unfortunately, like almost all professionals, they were missing those skills. Universities and companies rarely provide them. [5]

3.     All significant innovations are interdisciplinary. Therefore, ongoing, intense collaboration is required to synthesize solutions. Unfortunately, there was little collaboration because there were no supportive structures to allow it. 

Those three "key insights" were addressed by:

1.     Focusing on world-changing opportunities: Our vision was to be the recognized as the premier independent source of high-value innovations. Therefore, we concentrated on leading-edge R&D with commercialization.  We added an employee profit-sharing program based on each employee's contribution and with a portion for all employees.

2.     Training all employees in the discipline of value creation and innovation. [2,6]

3.     Holding recuring, team stand-up Value Creation Forums across the enterprise to facilitate productive team learning, improving, and value creation. [7]. This also made SRI effectively transparent with few barriers to the flow of information. [8]

It took almost five years, but these practices transformed SRI. We grew over three times and with mostly the same staff that had been failing for twenty years, systematically created world-changing innovations, such as HDTV and Siri, which Steve Jobs bought for the iPhone. [9]

Every enterprise is different, but systematic success arises from understanding the few core issues that allow the company to adapt and thrive in its unique competitive ecosystem. Complicated management strategies, missions, and methodologies are not just ineffective; they are often damaging.

Microsoft is a positive example. The company had been floundering until Satya Nadella became CEO. He made several strategic decisions, such as killing certain business segments and moving to the cloud, while changing what he describes as the "culture."  Culture is the result of the way employees work. He did that by emphasizing collaboration and adding simple methods and incentives. My feeling, from only watching from the outside, is that the company is much more focused with substantially less internal confusion.  The result is that Microsoft is now the world's most valuable company with a market cap of $2.5 trillion. [10]

Value Creation

Significant innovations all result from a complex adaptive process, where the solution is only loosely planned while following a few fundamental principles – the solutions emerge.   

Consider, for example, a team with different backgrounds working to address a previously unmet customer need.  They must develop a solution and business model that is better than any alternative.  There are endless ways the initiative can fail, including from a team that disintegrates, a downturn in the economy, a key supplier who goes bankrupt, lack of funding, and competition that suddenly appears with a better offering.   Nevertheless, given all these risks, one's odds greatly increase when following fundamental practices. That starts with identifying the few "key insights" that define the proposed innovation and immediately de-risking them.  

In the case of developing significant innovations, the key factors that reduce failure and facilitate success include:

•       Focusing on an important unmet customer and market need in an emerging new white space.

•      Identifying the one or two key insights for why the need is unaddressed.

•      Identifying the one or two key insights into the missing factors preventing the solution and that will provide a sustainable competitive advantage.

•      Developing a plausible and testable business model with beachhead customers and a path to the larger white space.

•      Assuring that all ingredients for success will be in place by the time the innovation is launched.

These basic questions form the basis for the initiative’s NABC value proposition – Need, Approach (offering and business model), Benefits/costs (i.e., value), and Competition. [7]  In addition, to learn and improve faster than the competition, the team must hold recuring team Value Creations Forums where these core ideas are constantly reframed and tested by others. [2] 

Conclusion

CAS thinking says that when addressing complex problems, such as changing a company’s strategy or the development of a major innovation, start from the few points of significant leverage and then de-risk them. One way to understand this is from the learning sciences. People can simultaneously only hold about five, plus or minus two, ideas in their minds.  The number that can be simultaneously thought about is much smaller.  Trying to do more leads to confusion, inefficiency, and even failure.  In addition, as we learned from the flock of birds example, even a few rules will result in an organization of “unimaginable complexity.”

Reference

1. “A Strategy for Creating Transformational Innovations,” Curt Carlson, Linkedin: https://www.linkedin.com/pulse/strategy-creating-transformational-innovations-curt-carlson-ph-d-/?trackingId=zzRunBgWyNw5xtyqUhXhIQ%3D%3D
2. “Innovation for Impact, Curt Carlson, HBR: https://www.linkedin.com/pulse/strategy-creating-transformational-innovations-curt-carlson-ph-d-/?trackingId=zzRunBgWyNw5xtyqUhXhIQ%3D%3D
3.  “Systems Thinking Made Simple: New Hope for Solving Wicked Problems,” Derek Cabrera and Laura Cabrera, Kindle Edition:  https://www.amazon.com/Derek-Cabrera/e/B001K8S10W/ref=dp_byline_cont_ebooks_1   Note: This and their other book, “Flock Not Clock,” are terrific introductions to systems thinking.  They are absolutely terrific. 
4.  “Five Foundational Beliefs We Can Leverage to Make Breakthroughs: Alan Barnard's 5C’s,” Alan Barnard, YouTube:  https://www.youtube.com/watch?v=mzEUSJzBsAg  Note: Alan has a host of valuable videos on YouTube that I highly recommend. 
5. We have conducted workshops with over a thousand teams in Top-100 companies and with professionals from the world’s leading universities.  They were excellent problem solvers, but only a tiny fraction had been trained to solve problems that provide value for others. Graduates of WPI, Northeastern, and from programs like the d.school at Stanford were much better, but still lacked those essential skills.  Value creation is a separate discipline. At WPI our vision is that all students will graduate with those skills.
6. “The Job of All Professionals Is Value Creation,” Curt Carlson, Linkedin: https://www.linkedin.com/pulse/job-all-professionals-value-creation-do-your-teams-carlson-ph-d--1c/
7. “The Three Laws of Value Creation,” Curt Carlson, Linkedin: https://www.linkedin.com/pulse/three-laws-value-creation-keys-systematic-innovative-carlson-ph-d-/
8. “Radical Transparency Is the Sharp Knife that Cuts Through the BS,” Curt Carlson, Linkedin:  https://www.linkedin.com/pulse/radical-transparency-sharp-knife-cuts-through-bs-2x-carlson-ph-d-/
9. “If You Really Want to Change the World: A Guide to Creating, Building, and Sustaining Breakthrough Ventures,” Henry Kressel and Norman Winarsky, KindleEdition:  https://www.amazon.com/dp/B00WDDOS7S/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1
10. “How Microsoft’s Digital Transformation Created A Trillion Dollar Gain,” Steve Denning, Forbes: https://www.forbes.com/sites/stevedenning/2021/06/20/how-microsofts-digital-transformation-created-a-trillion-dollar-gain/?sh=4c3aeb2c625b  Note: Steve has written dozens of valuable articles about organizational design and our emerging digital economy.  I recommend you see his posts in Forbes online. 
11. Raymond Hoffmann wrote a terrific email to a group of us, “The Fortnight Group,” about how some of the principles described here apply to building design. I hope he publishes it.