The terminology of complex adaptive systems sounds academic and abstruse, but the subject is not: it’s about the real-life, in-your-face problems and challenges that face a business every day. The secret to solving the challenges of complexity is adaptation. Luca Dellanna, a business expert on the subject, joins Economics For Business to explain how any firm and all management teams can harness the power of adaptation.
Key Takeaways and Actionable Insights
Complex systems are a business’s everyday environment, and every business behavior is an adaptation.
Every action a manager or leader takes should be aimed not just at its direct outcome but also for the adaptations triggered in your team, i.e. the longer term, second order future behaviors that are made more likely as a consequence of the immediate action. Take motivation as an example. Motivation results less from direct efforts (such as a “motivational speech”) but rather from the establishment of an environment in which good effort is recognized and rewarded. Your system action could be as simple as checking back with employees regarding assignments very quicky and providing feedback. This shows that their behavior is observed, appreciated and valued — a motivational environment to which they will adapt positively. A different environment can be demotivating, with negative long term consequences.
Fast, tight feedback loops are the engines of adaptive systems.
Feedback is the energy of adaptive systems, and Luca urges that the feedback loops must be fast and tight. After-action feedback should be as close to immediate as possible, so that there is no uncertainty about whether action is praiseworthy or not. Dashboards and end-of-period bonuses are too delayed for motivational purposes. Similarly, feedback should be highly specific to the action in question, as opposed to a general — and, even worse, vague or unclear – evaluation. These “motivational moments” or “mission moments” can contribute to the sense of a shared mission and vision.
The opposite case can generate “motivational losses”.
When a team member or colleague shifts from motivated and engaged to unmotivated and disengaged — ready to quit perhaps — it’s a motivational loss. These can be avoided. Treat these occasions as incidents, to be investigated and addressed. Usually, the best solution is productive clarity, because motivational losses usually occur in the event of unclear objectives or unclear directions. The solution to lack of clarity is to make it impossible to be misunderstood, and to do so from the very outset, so that there is never a need to be remedial.
People have mental contracts, and it’s important to understand and empathize with them.
We all have two contracts, the one we sign, and the one in our mind which includes a host of intangibles that are unexpressed in the written contract. We might expect to receive promotion after an appropriate period of hard work, even though there’s nothing in the written contract to that effect, nor has anyone made us that promise. It’s an implicit contract. It’s important to identify and understand these mental contracts, and to end, through clear communications that can’t be misunderstood, all misconceptions that can lead to unfulfilled expectations.
Signaling must be clear and costly.
Leadership behaviors act as signals to the rest of the organization. The signals must be clear and unambiguous. Words can be misunderstood or can be perceived as self-contradicting when there is inconsistency. Behaviors can be more clear and more consistent. Luca gave a safety example: instead of instructing individuals to wear helmets in unsafe areas, managers should go to wear the work is being done, and demonstrate the behavior. The more “costly” the signaling behavior to the manager, the more clear the signal. Luca gave the example of the founder of the Dupont explosives businesses living with his family at the factory where explosives were made. He put “skin in the game” to demonstrate the importance of safety in a notoriously unsafe industry — a costly signal, and one that had the desired effect.
How to become a systems thinker: practice adaptive thinking and apply it to yourself.
Adaptive thinking can be practiced. It can become an expertise. Think through every reality to determine how other individuals are adapting to behaviors of others that concern them or affect their work. How do people adapt to the words that are spoken to them, or the instructions that are given to them? What are the likely second and third order effects? Always ask yourself, how is the system adapting?
Then apply adaptive principles to yourself. Fashion tight and specific feedback loops for yourself so that your actions generate immediate feedback. How are people adapting to your actions? Make sure you are using the right mental models. Check your assumptions.
Additional Resources
“Managing Adaptive Systems” (PDF): Mises.org/E4B_157_PDF
The Power of Adaptation: A Guide to Bottom-up Growth that Lasts by Luca Dellanna: Mises.org/E4B_157_Book
Teams Are Adaptive Systems: 12 Principles For Effective Management by Luca Dellanna: Mises.org/E4B_157_Book2
Antifragile: Things That Gain from Disorder by Nassim Nicholas Taleb: Mises.org/E4B_157_Book3
