competing on the edge

1 © BMI-BRSCU

TowardsCompeting on the Edge of Chaos

Dr. Llewellyn B. LewisDr. Llewellyn B. LewisMarch 2007March 2007

THE STRATEGIC FORUMTHE STRATEGIC FORUM

A place of assembly for strategic conversations

BMI

Studium Ad Prosperandum

Voluntas in Conveniendum

BUILDING RESEARCHSTRATEGY CONSULTINGUNIT cc

Reg. No. 2002/105109/23

•BMI

Studium Ad Prosperandum

Voluntas in Conveniendum

BUILDING RESEARCHSTRATEGY CONSULTINGUNIT cc

Reg. No. 2002/105109/23

•

THE STRATEGIC FORUMwww.strategicforum.co.za

2 © BMI-BRSCU

No society is likely to renew itself unless its dominant orientation is to the future.This is not to say that a society can ignore its past. A people without historians would be as crippled as an individual with amnesia; they would not know who they were. In helping a society to achieve self knowledge, the historian serves the cause of renewal. However, in the renewing society, the historian consults the past in the service of the present and the future.The society capable of continuous renewal not only is oriented towards the future but looks ahead with some confidence. This is not to say that blind optimism prevails; it is simply to say that hopelessness does not make for renewal. (Gardner: 105 – 106)

THE EDGE OF CHAOS

3 © BMI-BRSCU

SELF-DIRECTED SELF-DIRECTED TRANSFORMATIONTRANSFORMATION

CRITICAL MESSRISKRUDE AWAKENING

CHAOSUNCERTAINTY

FIRST CURVE

SECOND CURVECREATING THE FUTUREIMPOSSIBLE RESULTS

EMERGENCESTRANGE ATTRACTORS

(Based on Handy : 1994)

THE BUTTERFLY EFFECT

THE EDGE OF CHAOS

THETHEEDGE OF CHAOSEDGE OF CHAOS

COMPLEXITYCOMPLEXITYFIELD THEORYFIELD THEORY

ZONE OF ZONE OF CREATIVITY CREATIVITY

AND ADAPTABILITYAND ADAPTABILITY

ENVIRONMENTAL CHANGE

4 © BMI-BRSCU

The Question ?

Which approach is better -----

improving what is ,or

creating what isn’t ?

THE ANSWER

YES!(Handy : 1994)

THE EDGE OF CHAOS

5 © BMI-BRSCU

WORLD CLASS ORGANISATIONS

Work effectively,not just on one curve or the other,

but on both, at the same time, and learning from both.

(Handy : 1994)

THE EDGE OF CHAOS

6 © BMI-BRSCU

INDUSTRY AND COMPLEXITYTHE EDGE OF CHAOS

(Source: Fortune, 11 September 2006)

Larry PageLarry PageSergey BrinSergey Brin

Eric SchmidtEric Schmidt

““We’re willing to tolerate ambiguity We’re willing to tolerate ambiguity and chaos because that’s where the and chaos because that’s where the

room is for innovation.”room is for innovation.”

7 © BMI-BRSCU


(Source: Fortune, 11 September 2006)

8 © BMI-BRSCU


(Source: Based on Johnson and Scholes: 2002)

First curve

Second curve CreativityEmergence

CreativityEmergence

Intuitive capacity Permeable boundaries

Mind forged MANACLES

Status Quo

FutureCHAOSChallenge the

Mindsets.

9 © BMI-BRSCU

COMPLEXITY AND STRATEGY

10 © BMI-BRSCU


Miller on the Baltimore Waterfront. His Idea Factory, Legg Mason Inc

is in the background.

11 © BMI-BRSCU


12 © BMI-BRSCU


13 © BMI-BRSCU


14 © BMI-BRSCU

There are indications that chaos explanations give insight into the operation of foreign exchange-, stock-

and oil-markets (Source: Stacey, Ralph D. Strategic Management & Organisational Dynamics. The challenge of

Complexity: 2000: 259)

We deduce that it can be used to explain the dynamics of the Property Market

Inter alia, that it is a deterministic non linear system in a stage of bounded instability displaying highly complex

behaviour It is in a border area between stable equilibrium and

explosive instability; i.e. a state of paradox in which two contradictory forces, stability and instability are

operating simultaneously


15 © BMI-BRSCU

At Berkshire, our carefully-crafted acquisition strategy is simply to wait for the phone to ring. (Warren Buffet)

We try to think about things that are important and knowable. There are important things that are not knowable . . . and there are things that are knowable but not important – and we don’t want to clutter up our minds with those. (Warren Buffet)

Circle of Illusory

competence


16 © BMI-BRSCU

Competing on the edge rests on the assumption that the marketplace is in constant flux. The assumption of static equilibrium no longer applies. Rather the view is that competitors come and go. Markets emerge, close, shrink, split, collide and grow. Today’s collaborators are tomorrow’s competitors . . . or both. Technology is constantly shifting. Getting to the market early matters. In complexity parlance, the marketplace is a continuously deforming landscape. The image of this kind of landscape is of a terrain richly contoured by peaks and valleys. And it is continuously reshaped by warp-speed change.

COMPETING ON THE EDGE

17 © BMI-BRSCU

The second assumption is that firms are composed of numerous parts or agents, or businesses. When these parts are linked together at the edge of chaos and time, they form complex adaptive systems. These systems are complex not because they are complicated. They are actually fairly simple. Rather, “complex” describes the complicated, innovative and self-organised behaviour that emerges from them. They are adaptive because they can change effectively.


18 © BMI-BRSCU

The key assertion is that successful firms in fiercely competitive and unpredictably shifting industries pursue a competing on the edge strategy. The goal of this strategy is not efficiency or optimality in the usual sense. Rather, the goal is flexibility – that is adaptation to current change and evolution over time, resilience in the face of setbacks, and the ability to locate the constantly changing sources of advantage. Ultimately it means engaging in continual reinvention.


19 © BMI-BRSCU

PresentPast Future

The Edge of Time

Chaos Edge of Chaos Structure

The Edge of Chaos

(Source: Brown and Eisenhardt: 1998)


21 © BMI-BRSCU

Roll out new branches, source and develop new

products, develop new markets,

discover new customers, diversify.

LEADING CHANGE.

(Source: Brown and Eisenhardt: 1998: 23)


Building Blocks

22 © BMI-BRSCU


Navigating the Edge of Chaos: Improvisation

Entrepreneurial and creative, visionary

thinking, possibility and abundance,

continuous learning,

Emergent teams, self selected and self-

organised,emergent strategy

Simple rules,Influence rather than control,

Flat structure,Strategic Conversations,

COMMUNICATION

(Source: After Brown and Eisenhardt: 1998: 47)

23 © BMI-BRSCU


Co-adaptation

Networking, teamwork, alliances,

joint ventures, partnerships

Industry Knowledge,Local autonomy,

decentralised, distributed power.

Rapid response,Flexibility,

Leveraging strategic capability,

Unique resources, core competencies


24 © BMI-BRSCU


Regeneration

Simultaneous first and second curve thinking;

Leveraging core competencies across

Business Units.

Protect and build;Product enhancement;

market penetration;Create services that

exploit change.

Respect experience;Win-win relationships;

Redefine the boundaries, change the game rules, reconfigure the value chain.


25 © BMI-BRSCU


Experimentation

Creativity and innovation;explore opportunities

within context of strategic intent

Strategise to intercept the future,

Market development, product development, diversification.

Exploring the future, emerging strategy,

Reinvention and transformation


26 © BMI-BRSCU

The ever renewing organisation (or society) is not one which is convinced that it enjoys eternal youth.

It knows that it is forever growing old and must do something about it.

It knows that it is forever producing deadwood and must, for that reason, attend to its seedbeds.

The seedlings are new ideas, new ways of doing things, new approaches. (Gardner: 1981: 68)


27 © BMI-BRSCU

TO REINVENT TO REINVENT

THE LEADERSHIP FIRSTTHE LEADERSHIP FIRST THEN THE ORGANISATION THEN THE ORGANISATION

THEN THE INDUSTRYTHEN THE INDUSTRY

Leaders make the impossible happenLeaders make the impossible happen

The challenge isThe challenge is

competing on the edge

Technology

edge of chaos source

chaos explanations

challenge of complexity

strategy miller

strategic forum

renewing society

crafted acquisition

explosive instability