Legend tells us that Alexander the Great conquered the ancient kingdom of Phrygia by undoing the Gordian Knot – a tangle of incomprehensible complexity. Rather than trying to figure it out first, he simply drew his sword and sliced it in half, an ancient example of thinking outside the box. Complexity in today’s economy poses a similar dilemma. Complex problems arise from a fundamentally unpredictable web of causes. Natural systems like the weather are complex – the best we can do is to identify probabilities, not specific events.
Since the dawn of the Internet and the global economy, markets behave this way too.
The more complex the system, the less we can “know” prior to acting. We have to act, and learn from our actions. The emphasis today has to be on sensing change and opportunity in the environment, and adapting quickly. “Predict and Control” models of strategic planning are being replaced with practices of “Sense and Respond.”
That doesn’t mean that older models aren’t useful in the right circumstances. Business evolution involves “transcending and including” older practices that work, but integrating them in a more adaptive view of strategy. The Cynefin Framework Cynefin Framework developed by David Snowden and his associates offers a good taxonomy for understanding when to stick to the tried and true, and when to try something more agile.
Most professional businesspeople have been brought up to manage a “complicated” world. Strategy and operations have emphasized efficiency and control. This works fine when all the parts can be understood, given enough data. One is able to gather data, analyze it, and develop a plan of action that has a high likelihood of success. It is possible to develop replicable “best practices” to ensure predictability.
In complex environments, however, there are so many variables and network effects that prediction becomes impossible. Maneuvering in a complex environment requires disciplined experimentation, managing risk by establishing success measures up front, framing assumptions, executing a time limited plan, measuring the results, and reframing the experiment for next time.
In a complex environment, the focus of strategy shifts from analysis to action.
Agile enterprises are increasingly adopting a radical new approach to strategy execution with the unassuming name of OKRs (Objectives and Key Results). OKRs are the day to day engine for strategic agility.
OKRs originated in Silicon Valley firms including Intel, Google, LinkedIn and have spread to service industries including Sears Retail. Unlike traditional top-down methods of planning, “OKRs” is a simple, fast-cadence, bottom-up process that engages each team’s perspective and creativity.
Objectives are qualitative in nature, and should be aspirational, inspirational and actionable. An example might be “Improve Customer Experience.”
This sounds great, especially if we believe that improving this would lead to better sales. But how would we know in a more precise way that we are creating better Customer Experience?
Key Results are quantitative metrics you will use to determine if your actions are achieving the desired outcome. A good metric for that objective might be Net Promoter Score. Do our customers feel so good about dealing with us that they would recommend us to others?
Agile practices have emerged because time-to-market is of the essence in today’s business environment. Agility is a collaborative game, integrating outside-in thinking about your market, top-down thinking about strategic intent, and bottom-up action to make it all practical. OKRs are the engine that moves the game forward.