current highly complex and volatile environment, now and in the future—that is their primary job!
A non-business analogy is the human body, a highly complex system that must be able to perform three basic functions. The human body must be able to perform respiration (draw breath and pass oxygen to the blood) at a sufficient rate. The body then must also be able to circulate oxygenated blood throughout the body in a constant loop (pulse and blood pressure). Finally, the body must be able to maintain a fairly tight control zone of temperature or risk vital organ failure. These three basic functions essentially define what is known as the “vital signs”.
The green zone centers for each of these vitals is well known throughout the medical community and will depend on certain patient characteristics such as age and sex. These green zones are defined below by the Cleveland Clinic.5
Any person that exhibits increasing difficulty with any one or a combination of these vital functions will be at an increasing risk of expiring. If that person was at a hospital during that difficulty there would be an escalation of monitoring, attention, and resources devoted to their care as they progress through admittance, a medical unit, a Definitive Observation Unit (DOU), and finally an Intensive Care Unit (ICU).
FIGURE 1-2 Alternate strategic target chart scenario
Figure 1-2 depicts three different scenarios. In each case, the relative positions of each of the three considerations are plotted. It should be pointed out that all three of these scenarios are simply a point in time reference; it could be the same company just at different points in time or it could be three different companies at one point or even different points in time. The position and tension between these three important considerations is constantly shifting.
Which scenario is healthier? The scenario on the left may represent a company that is performing relatively well with regard to contribution margin and the market but is suffering from a working capital crisis. The middle scenario depicts a company that is failing to generate cash and is suffering from a working capital crunch. The scenario on the right is a company that is generating a high amount of cash, has abundant working capital and a well-defended and growing base of customers.
But how can leadership best hope to manage these basic elements in a VUCA environment? The key to both the short-term and long-term management of these elements can be found in concepts called “coherence” and “resiliency.”
Striving for Coherence and Resiliency
Coherence and resiliency are key terms in the emerging science of complex adaptive systems. What is a complex adaptive system (CAS)? First, let’s understand that any complex system is governed by three important principles:
The word “adaptive” introduces the element of how a complex system changes or reconfigures itself through a process known as “emergence.” Once emergence has occurred, then feedback and selection occur over a period of time resulting in further reconfiguration to the system. When complex systems are co-mingled or intertwined (such as highly integrated supply chains) these events and steps tend to cascade across systems, making a highly complex and evolving picture. Figure 1-3 is a modified version of Figure 10.1 from the book Demand Driven Performance—Using Smart Metrics. It lists nine characteristics of a CAS.
FIGURE 1-3 Complex adaptive system characteristics7
At this time we will focus on only two of these characteristics. The first is coherence. A complex adaptive system’s “success” depends on the coherence of all of its parts. A subsystem’s purpose has to be in alignment with the purpose of the greater system in order for there to be coherence. Without that alignment, the subsystem acts in a way that endangers the greater system it depends on. Coherence must be at the forefront of determining the signal set components, triggers, and action priorities. To maintain coherence, adaptive agents must ensure their signal sets contain the relevant information to direct their actions and are not at cross-purposes with the goals of the systems it depends on.8 The concept of coherence is consistent with the systemic approaches of thought leaders such as Ohno, Goldratt, and Deming and their respective disciplines of lean, Theory of Constraints, and Six Sigma. All of these disciplines urge management to organize and operate in a manner that emphasizes carefully aligning local actions to the global objective. Deming and Goldratt in particular were extremely opinionated about the failure of management and executives to understand and effectively embrace this concept, which is one that seems rooted in basic common sense.
The second characteristic of
