Drift and big change challenge our success
Every once in a while we stumble across a seemingly profound thought, the “aha!” moment when we see things in a new way, a concept or approach that helps organize, clarify, and make sense out of what we are seeing or experiencing.
One of these “aha!” moments in my life as a strategist has led to deep and useful insights that I suggest anyone planning for future success will be wise to consider.
The stunning impact of the COVID-19 Pandemic in 2020 led me to think deeply about unexpected change, even Black Swans (whether the Pandemic was a Black Swan event is debatable but its impact was similar to one) and to frame the unexpected change both in terms of how it impacted us personally, using the Kübler-Ross Change Curve, and organizationally, by developing a four-square grid showing the interaction of change and planning. (See my blog post The Black Swan and us.)
The exhibit is my unique way of neatly framing the interaction between change and planning. It has four domains:
Normal. In this domain, change has less impact and is more predictable. This is the domain of the day-to-day, what we see as the “normal” world, what we expect, what our annual plan addresses, where we do “business as usual.”
Future. In this domain, change has more impact and (seemingly) is more predictable. This is the domain that our strategic plan envisions, where we see opportunity, where we expect great success from innovation and perfecting our business model, where we place bets that pay off when the envisioned future change occurs.
Drift. In this domain, change has less impact and is less predictable. This is the domain of continuing, minor, often unforeseen and even hidden change, change that does not appear to be meaningful in a strategic sense and seems to have little bearing on our success or failure.
Unexpected or Black Swan. In this domain, change has greater impact and is less predictable. This is the domain of big change that we didn’t see coming or underestimated, change that that derails our strategies and maybe even our business model.
Here’s how to think about the change and planning grid:
For most of us, normalcy is where our heads are.
Drift seems like no big deal, but it is cumulative and can translate into greater impact over time. A player positioned to leverage little changes can get big returns (think of the world of arbitrage in financial markets for an analogy). And drift over time can add up to bigger change and surprise us. Watch for it!
The somewhat predictable brighter future is what we expect and set our strategies to win in. But it is smart to moderate the bets we place on this future occurring, so that we are not fully at risk if the future that occurs is not what we envisioned. “All-in” might be the smart move at the poker table, but you and your stakeholders may not want to be exposed that level of business risk (unless you truly have no other choice).
The possibility of huge, very impactful but not foreseen change (with the Black Swan being the most dramatic representation) calls for adopting strategies that address the most acceptable worse case while still maximizing options. A simple example is to pursue a financial strategy that maximizes profitable growth while building a “rainy day fund” that will enable the organization to operate if revenues fall because of an unexpected big event.
The obvious problem with the summary of how we plan is that we do not fully appreciate that change is inevitable but not necessarily predictable, it is not always positive, and it can be huge and surprising.
We underestimate change.
Furthermore, recovering from impact of cumulative drift and big change can be a challenge, because of the strategic difficulty this poses.
Strategic difficulty is another concept that arose in an “aha!” moment when I was considering my overriding professional concern as a strategist, that is, why strategic plans fail. My thinking led me to conceived the Law of Strategic Difficulty (see my book AHEAD):
The greater the differential between the current course of the organization and the envisioned future for the organization,
The more entrenched the organization is in its current vision and direction, and,
The fewer resources the organization has that will help it move to the new vision...
The more profound the strategies need to be and the more difficult the strategies will be to implement to get the organization to the vision.
More simply, strategic difficulty is determined by the amount of difference between the new vision and the old, the degree to which the organization continues to "own" the old vision and the strategies it had been pursuing to reach it, and the resources it can commit to reach the new vision.
When unseen, unexpected change suddenly requires a new vision and new strategies, this can pose a high degree of strategic difficulty. Organizations predicated on face-to-face meetings, in-office work, and indoor socializing, for example, struggled and even failed in the Pandemic because they were all-in on their business model and strategies. The difficulty of changing the business model and strategies was high. Whether they knew it or not, they were betting big on a certain future and their strategies for success did not sufficiently consider the most acceptable worse case.
Again, we underestimate change.
Why is that so?
I contend that we underestimate change because of how we are wired as humans, as well as the unknowability of the future.
We are called to consider the mental traps and biases that cloud our eyes to properly assessing drift and the possibility of Black Swans and lesser but still meaningful change. Here are some that I write about in my book BIG DECISIONS:
Confirmation bias, ignoring or dismissing anything that threatens our world view by surrounding ourselves with people and information that confirm what we think
Familiarity heuristic, believing that our behavior is correct if we have done it before
Forever changeless trap, thinking that the current condition will never change
Future blindness, our inability to take into account the properties of the future
Hyperbolic discounting, our tendency to favor immediate over later payoffs
Illusion of control, overestimating our degree of influence over external events
Illusion of explanatory depth, relying on social consensus to see what is true
Overconfidence effect, having excessive confidence in our answers to questions
Selective perception, what we expect influencing what we perceive
Sunk cost fallacy, persisting in achieving a goal due to committed expenditure and investment, including effort and attention, even when the prognosis for success is poor
Unknowledge, our systematic underestimation of what the future has in store
Wishful thinking, the formation of beliefs based on what might be pleasing to imagine, rather than on evidence, rationality, or reality
As for the unknowability of the future, we have to envision it based on “unknowledge.” Wanting to adopt a plan based on a knowable future is an unbridgeable dilemma. We must envision the future and adopt our strategies to fit it, but we can never know enough about the future. We hope that we are not arbitrary in our decisions about the future, but we must act when we are uncertain.
Planning is about adapting to change. Between our biases and the unknowability of the future, understanding the future which change creates is a very tall order.
When we paint our picture of the future and adopt strategies to prosper in that future, we need to do this with humility, curiosity, open-mindedness, and an understanding that we have to moderate and optionalize our bets: not go “all-in.”
"We sail within a vast sphere, ever drifting in uncertainty, driven from end to end. When we think to attach ourselves to any point and to fasten to it, it wavers and leaves us; and if we follow it, it eludes our grasp, slips past us, and vanishes for ever. Nothing stays for us.” - Blaise Pascal
