This article is part of a series that deals with social, economic, and technological dynamics and highlights the consequences for people, brands, and organizations.
Overview of the Article Series
- Why yesterday's business success and today's operational hecticness put your company at risk
- System optimization vs. system overcoming: why continuous improvement stands in the way of real innovations
- How system overcoming succeeds: from the obsession with optimization to strategic conviction
- The success criteria of every entrepreneurial bet: Relevance, Resonance, Acceptance
Increasing Complexity and External Dynamics: A Challenge for People and Organizations
The macroeconomic structure as a global economic environment is subject to constant change. This change follows cyclical patterns and results from the increase in complexity and dynamics, as well as human attempts to respond meaningfully to the resulting surprises.
The increasing external dynamics have become clearly palpable for most. They demand an enormous degree of learning and adaptability from both individuals and organizations. This presents people and organizations with great challenges. To make matters worse, they are blind in one eye due to yesterday's success and are running toward ruin with their eyes closed because of today's operational hecticness.
"82% of German CEOs expect a decline in global economic growth."
This was the result of the 2022 Global CEO Survey. And that's despite the fact that only a year earlier, 77% were convinced of continued economic growth. This once again demonstrates the dynamics and unpredictability of our time.
The five major megatrends—climate change, technological disruption, demographic shifts, fragmenting societies, and social instability—are causing serious trouble for many companies. Issues such as inflation, geopolitical conflicts, macroeconomic volatility, cyber risks, climate change, health risks, and social inequality contribute globally to uncertainty, overwhelm, and overconfidence.
When More of the Same Becomes the Problem: Monocausality Instead of Complexity Management
Many companies are stuck. They suffer from an obsession with optimization and control, where everything must subordinate itself to previous solution approaches, desired efficiency gains, and control attempts.
The strategy is: "more of the same and certainly nothing new, but always faster, higher, further." Oriented toward the successes of yesterday. Bypassing the conditions of tomorrow.
This is usually accompanied by a monocausal way of thinking that does not do justice to today's complexity: despite the non-linear dynamics we bring upon ourselves through increasing connectivity, clear cause-and-effect relationships are assumed in most cases.
This can be observed, among other things, in the frequent confusion between correlation and causality. Furthermore, large parts of science are shaped by the assumption that the future can be predicted based on past data. Structural and systemic interactions are too rarely considered. Important connections, bottlenecks, and potentials are overlooked or misjudged.
The ability to not just control complexity but to use it creatively is lost by most people during their school and university education. Here, too, the reasons are found in the systemic framework conditions that prevent people from freely using their resources and potential.
The framework conditions created by the system determine which behavior appears meaningful and subsequently develops among the participants. From these developed behaviors comes an attitude that can be observed as culture but cannot be directly influenced.
In most companies, however, the following logic still prevails to be successful: from the current state (situation), the target state (goals) and the path to get there (measures) are determined and planned. Employees are seen as machines that must reliably fulfill their tasks or be inspected, repaired, and replaced to achieve the target according to plan.
The desperate attempts of many owners and managing directors to fight the problem at its cause and bring about solutions using outdated thinking models are increasingly reaching their limits. Monocausal thinking is no longer enough to meet today's complexity.
If control and optimization attempts on employees are insufficient, corporate culture is often used as a scapegoat to bring about the desired change. Culture change programs are popular in times of change and yet doomed to failure. Why? Because they confuse cause and effect and thus work past the goal.
The image of humanity known as 'homo oeconomicus' and the mechanization of the world are still widespread and stand in the way of the healthy development of people, organizations, and societies. These misconceptions are due to a lack of awareness and outdated theories and require a paradigm shift. However, since they contributed significantly to the successes of the past, they are difficult for many people and organizations to cast off, and for others, they are never even questioned.
The culture of a family, a company, and also a society clings to us like a shadow. Culture is the memory that doesn't let us quickly forget what were sensible answers to life's complexities yesterday. An important survival mechanism that sooner or later costs many their lives.
A lack of self-reflection, a lack of self-criticism, and the resulting overconfidence lead companies to try to control complexity and escape dynamics. While one control attempt chases the next, someone must always be found to blame or new initiatives sought whenever the plan deviates from reality again.
Whoever is able to position their company and its organization for the future must first recognize themselves in these patterns as an entrepreneur of life and begin to break away from destructive thinking and behavior patterns. This will only happen if one "has also dealt with other subject areas that must be mastered to lead a company successfully into the future, based on one's own personal perception and commitment, and exhibits corresponding competencies in these areas." (Uwe Seebacher, 2021)
Whoever wants to gain security in dealing with complexity and dynamics is called upon to expand their own theories of the world with more awareness to...
- Stand for the change they want to bring about themselves and
- Focus on the design of the system.
Engaging with insights from system and game theory on one hand and psychological insights on the other is becoming increasingly important for utilizing complexity and thus for entrepreneurial success.
A first step could be to deal with the meaning and purpose of your company and to understand the influence of digitalization on behavior and communication more precisely.
Allowing, Grasping, and Generating Complexity and Dynamics Oneself
In fact, achieving goals directly in non-linear dynamics is rather unlikely. Here, the effect does not necessarily correspond to the cause. Even small causes can unfold great effects in a dynamic-complex environment. This makes it all the more important to pay attention to details and keep the bigger picture in mind.
Only through the skillful handling of the system's own dynamics is it possible to use complexity. If complexity is reduced too much or even trivialized, one will certainly succumb to it sooner or later.
Unique Offerings, Customer-Centric Value Creation, Effective Marketing
This requires leaving the image of 'homo oeconomicus' behind and involving people more strongly in value creation without wanting to be sure of the result or what surprises will be encountered along the way.
When people, with their knowledge and talents, perceive themselves as part of the value creation and have the opportunity to collaborate, then weak signals and ideas can grow into innovations through individual and collective intelligence. Everyone can contribute their perspective free from fear in the sense of collective value creation and play a part in providing the greatest possible benefit today and tomorrow.
Why is this more important than ever? – Digitalization is changing human communication and behavior patterns subtly but drastically. This results in the need to respond to new needs and the opportunity to awaken new demands.
56% of the managing directors surveyed in the PwC study see the biggest influencing factor on the future profitability of their business in the changes in the demand situation and customer needs.
Only those organizations that proactively shape change are sustainable. Companies must learn to:
- Develop further with a view to changing needs and wishes, and
- Anticipate and proactively awaken customer demands,
to keep their business models and offerings market-compliant and performance-based in the future.
To create novel solutions for changed customer needs and demands, profound insights into the living environments of customers are needed.
Simply asking customers what they want rarely leads to breakthrough innovation.
"If I had asked people what they wanted, they would have said faster horses."
– Henry Ford
To gain valuable insights, it is necessary to be as close as possible to the corresponding value systems and patterns. Only then do changes at the value level become recognizable, allowing conclusions to be drawn about changes in behavior.
The best way to gain insights into the living environments of customers and identify relevant changes is therefore to talk to the right people and observe their behavior and communication styles. Customer centricity means not orienting oneself toward technologies and trends, but starting from human needs and demands to align product, service, and communication accordingly.
“Markets are conversations.”
– The cluetrain manifesto, Locke et al. (1999)
The basis for customer centricity is: Empathy and Foresight.
- Foresight: Only if we become aware of the overarching dynamics and their effects do we have a chance to be prepared for surprises in order to use them as best as possible.
- Empathy: Only if we can put ourselves in other people's shoes and grasp their needs and demands against the background of the dynamics is it possible for us to recognize and condense weak signals.
A profitable positioning can grow from centering all considerations and means on market conditions and the needs of paying customers. Customer centricity is the only promising way to ensure differentiation from the competition and create distinctiveness with customers.
The Dangers of Inaction
"Nearly 40% of CEOs believe that their companies will no longer be viable in a decade if they continue on their current path."
“But it worked so well for so long and everything is still fine. Why should we change anything at all?” Cobbler, stick to your last, you hear them cry.
The problem? – Many proven coping strategies and decision premises have slowly but surely reached the end of their usefulness. Crises and conflicts are symptoms that encourage the recognition of the need for change, the rethinking of previous solution approaches, and the questioning of fixed assumptions.
The list of companies whose success was simultaneously their downfall is long.
- Kodak: Once a leading name in the photography and film industry, Kodak could not make the transition to digital photography in time and eventually filed for bankruptcy in 2012.
- Nokia: Despite their earlier dominance in the mobile phone market, Nokia failed to respond to the rise of smartphones and lost market share to competitors.
- Blackberry: As touchscreen smartphones became popular, Blackberry could not keep up with its focus on keyboard devices and suffered a significant drop in sales.
- Toys "R" Us: Due to the lack of engagement in e-commerce and competitive pressure from online retailers, Toys "R" Us could not survive and had to close many branches.
If these signs are not recognized, the assumptions once crowned with success become self-imposed doctrine that will sooner or later cost many companies their business.
In addition, companies go through different life stages in which different aspects should be focused on depending on the context to ensure the healthy development of the business and brand. The factors that made the success of the last phase are often the factors that stand in the way of the success of the next phase.
Yesterday's unreflected success can therefore quickly mean the end of a company.
The dynamic conditions also invite constant reaction instead of prudent action. The countless opportunities available to companies today divert the gaze from solutions and strategies toward tactics and measures.
Resignation or activism are the result of overwhelm and a lack of theory.
What actually creates impact and would make a real difference for customers, employees, partners, and society (innovation) is rarely seriously questioned by many companies.
The operational business must be managed. "Don't think too much, just do it."
What matters in the long term and what makes the difference in the process recedes into the background.
Costs are confused with investments.
In the worst case, fatal decisions are made in the operational hecticness that stand in the way of success for years to come.
Complexity management? Identity work? Strategy development? Customer centricity? Marketing?
"Don't need it."
"We can take care of that later."
"It'll be fine."
Think twice.
