Is Regulation A Barrier to innovation
Charles Dickens opening line in “A Tale of Two Cities” is a perfect analogy for many businesses today.
Never before have we had the power to scale our business growth like today. Yet the pendulum swings both ways equally. Never before have we had been so exposed to the damage of disrupted change.
The fact that 70% of digital transformative efforts will fail this year supports this.
Why will so many business fail in this age of great opportunity? Why is the ability to digitally transformation so hard?
Well, here are some thoughts on this?
Its Time To See The World Differently
Exponential technology is making the world more and more complex. Old models are breaking, and the world we trained for is disappearing.
To understand this increased complexity, we have to start viewing the world as a dynamic system rather than in a static, linear, logical line.
We see the world in this linear way, we see the solution we need as a direct link between two points. If we fix the problem at point B, it will make point A work better.
This may get us some quick short term wins, but they often turn into great pain!
Everything is a system, and by adopting a non-linear perspective, we start to see the world in circles. The Image below sums this up.
Understanding systems gives us a clear insight into why we see such a high digital transformation failure rate.
Let’s go a bit deeper.
Understanding How System Work
Systems are complex, and there is a lot that we need to learn about how they work. But to get to the heart of why transformation fails, we need to understand feedback loops.
But before we do, I want to define what a system is. To quote system expert, Donella Meadows?
“A system is a set of related components that work together in a particular environment to perform whatever functions are required to achieve the system’s goal.”
If we look at the world around us, we will see that everything is a system. Here some simple examples:
- The atoms of the chair or table you are sitting at,
- Your body parts,
- Your favourite sports team,
- Your circle of friends,
- The different parts of your company,
- Your garden.
The Systems Feedback Loops
A feedback loop is a system structure that causes the output from one part of the system eventually influence input to that some other part of the system.
We will dig into some examples of these below, but there are two types of feedback loops:
- Reinforcing feedback loops
- Balancing feedback loops
Reinforcing Feedback Loop
The reinforcing feedback loop drives exponential growth. It is self-reinforcing where the more it works, the more it gains the power to work some more, driving system behaviour in one direction. It amplifies itself and builds on itself. Some examples:
- The more people catch the flu, the more they infect other people.
- The more babies are born, the more people grow up to have babies.
- The more money you have in the bank, the more interest you earn, the more money you have in the bank.
In each of the examples above we see growth as a net outcome of the feedback loop.
Balancing Feedback Loop
A balancing feedback loop is self-correcting that drives the system back to its desired status quo. They are goal-seeking or stability-seeking. Their purpose is to balance the elements within the system and limit any unchecked growth of the reinforcing feedback loop.
We see examples of this feedback loop everywhere in nature. It balances the growth and keeps the system in balance. It maintains the status quo and to bring about and preserve the desired state.
Some examples include:
- Inventory in a warehouse.
- Thermostats that manage the room temperature.
- When we are hungry, we eat more food, which makes us less hungry.
- When a company gets too big and becomes a monopoly, government restrictions force it to break up.
No growth happens in each of the above examples and the balance of the system.
A reinforcing feedback loop drives exponential growth that amplifies and builds on itself. A balancing feedback loop is self-correcting that drives the system back to its desired status quo.
The Balancing Feedback Loop and Why Digital Transformation Fails!
The opportunity of exponential technologies is to create new growth paths in two ways:
- You can be creating new revenue by scale new products and,
- Digitise your old products to extend their life through value creation.
Irrespective of which route you follow, you are creating a reinforcing feedback loop that amplifies itself. The goal is to find new revenue while protecting or harvesting old revenue. And if you can increase the speed of revenue return, so much the better.
This means you have an exponential strategy that’s working!
The ExO Organisation
Salim Ismail’s book, Exponential Organisation, outlines a great framework to do this. His organisation, ExO.works, supports and implements the approach.
The approach is to separate the old core business from the new exponential opportunity and create a new business. What you are doing is separating the exponential idea from the traditional immune system, giving it the best chance of success.
Working The Immune System
What the ExO approach does is create a new amplifying feedback loop, while sidestepping the balancing feedback loop. It walks away from the old traditional business and its immune system and starts with a clean slate.
This makes sense as the balancing feedback loop is the source of resistance, pulling the business back to its default status quo.
But does that means we can ignore the immune system in the traditional, core business?
We don’t think so!
To digitally transform, you have to understand and build your amplifying feedback loop – which is what most businesses are doing (I am just giving it a technical description here)!
By understanding how the balancing feedback loop works, we can understand how to manage the immune system.
Just like humans, immune systems are there to protect. The corporate immune system should support growth ambitions while preserving the system!
It means you need to understand the balancing feedback loops within your business and how to manage them. Most companies are not doing this, and it’s compromising their digital transformation initiates!
The obvious starting place is to understand what your status quo is! From there, you can start to work backwards by changing the systems to a new default status quo.
The 1% Challenge
I am going to leave you with messy thought from Russel Ackoff. He wrote:
“Managers are not confronted with problems that are independent of each other, but with dynamic situations that consist of complex systems of changing problems that interact with each other. I call such situations messes. . . . Managers do not solve problems, they manage messes.
And the messes have got bigger, more complex, more demanding, and more challenging, leading to higher failure.
To overcome this, we developed the 1% Challenge, which breaks down these messy problems into small, manageable tasks. It helps redefine and align the goals of the system, the way you track these goals and the way get things done.
It allows you to make tiny daily adjustments – in 1% increments. It enables you to adapt your balancing feedback loop and align it with the new exponential growth goals.
Why not take up the challenge and try it, 1% at a time!