Companies and individuals face various problems daily. Some of these problems are the direct consequences of our actions or reactions to the situations we face. When we fail to explore the nuances and complexity of a problem, our response is not as flexible and effective as it should be. Systems today are volatile, uncertain, complex and ambiguous, and the dominant dynamics are beyond our control. Making the right decisions or responding optimally is therefore far more challenging than previously.
It’s not very difficult to be a decision-maker – we all make decisions every day. The tricky part is to make the right decision. Herbert Simon, a very well-known business scholar, believes we have bounded rationality. This means that while we are rational beings, our rationality is limited. We don’t have all the information and can’t observe everything, which makes it more difficult to make the right decisions. In addition, the speed of execution is increasing constantly and markets and systems respond almost immediately, which makes decision-making challenging – even perilous. Nevertheless, as politicians have also learned, this is not the end of the world. We can still control and predict some factors and make good decisions.
In today’s world, it would be very optimistic to believe that a single effect causes a given problem. More troubling is the assumption that addressing this effect would solve the problem. Although we know there are different degrees of complexity, that different depths of knowledge are required to understand a problem or recognize an opportunity, we blithely assume that a problem has only one cause. We often hear that if something is too simple and too good to be true, it usually is. Exactly!
If this were not the case, it would be easy to answer the following questions: What is happening? Why are we unable to find lasting solutions? Why are many historical companies, the pride of nations, going bankrupt? Why are countries still failing?
Our socio-economic system is very complex and continues to grow and evolve. As Heraclitus wrote around 500 BC: “The only constant is change.”
Thus, it is important to always identify the problem, to define the boundaries of the problem, and to analyse the future paths and impact. There is most certainly a relation between a system’s history, its present state and its future state, but this does not mean that the same solutions can be applied to the same problem at different times in history. In addition, solutions often depend on changes in different parts of the world. We should therefore build tailor-made solutions for each problem, each time.
Two Swiss companies, Bühler and DSM, started off with very successful business models. They decided to enter a new market – China – and failed miserably. They used a linear approach and simply replicated their well-tested strategy in a very different socio-economic and cultural context. After a subsequent careful assessment of their mistakes, and a systemic analysis of the markets they wanted to access, they crafted a successful strategic plan, with contributions from different stakeholders. This plan involved moving from an exclusive focus on product development to adopting a more comprehensive approach that prioritized the local context. This more transparent and collaborative process allowed the companies to better understand consumer preferences and to involve a variety of stakeholders, which determined their ultimate success.
Based on our experience in working with the public and private sector, we’ve identified the following steps to guide decision-makers and strategists, which can help them turn the most complex issues into opportunities.
- Identify the causes and effects of the problem across the social, economic and environmental dimensions. The system is characterized by feedbacks within and across sectors, which may create synergies or side effects. All these different dimensions should therefore be carefully analysed.
The collapse of Lehman Brothers was the first event to focus the world’s attention on the financial crisis. But it did not provide decision-makers with enough information about the real cause of the financial crisis. It was just a symptom, not the cause. It was just one event in the growing concerns about the banking system’s stability, the slowdown of the housing market and the economy as a whole. These trends all provided valuable information about the system’s previous direction.
- Use a multistakeholder approach to account for a variety of points of view and to incorporate as much varied knowledge as possible in the analysis. Solving complexity requires collaboration from actors (public, private, civil society) in different sectors (economic, social, environmental), levels (international, national, regional) and interests. Only diversity can solve complex problems such as global warming or unemployment. Each stakeholder brings different, often unique, assets to the table. Companies, for example, have financial means, while NGOs have local knowledge and the power that comes from working with volunteers.
One example of the importance of multiple perspectives and ideas for business development is Procter & Gamble’s (P&G) success with its open innovation programme Connect + Develop. It consists of an internet platform where companies and entrepreneurs can propose innovative business solutions to meet P&G’s needs. This open approach provides P&G with a range of options. It then chooses the most valuable options and develops them in collaboration with the person(s) or company that proposed them.
- Evaluate the impact across sectors and find a balanced strategy to improve the performance of the entire system, rather than maximizing some areas at the expense of others.
Queen Rania Al Abdullah of Jordan established the Madrasati Initiative, a good example of a multistakeholder perspective on tackling complexity. The aim of the initiative is to ensure that all stakeholders in the education sector share responsibility. In one of their projects, the Husban School, they collaborated with Toyota. In the first stage, they defined clear roles and responsibilities for the different stakeholders, which prevented them from perceiving Toyota as the “fairy godfather” who would provide everything without expecting them to shoulder responsibilities. This project, with its different perspectives, was a success and provided beneficial outcomes at all levels of society since it balanced the needs of every participant.
- Evaluate the impact across actors and find an inclusive strategy that will allocate costs consistently and distribute the benefits equitably across the key actors in the system.
The UNDP Guyana Low Carbon Emission Strategy, developed by a multistakeholder steering committee, is one such example. The steering committee was composed of agents from different levels, sectors and interests – including the World Wildlife Fund, the ministry of agriculture, the Forest Producers Association, and indigenous group associations. The range of actors and the inclusive aspect to the committee improved decision-making and made it easier to tackle local issues.
- Think long term and prioritize resilience. Success often relies on resilience in the face of unforeseen events, and a focus on increasing a system’s capacity to absorb and adapt to change, with clear, long-term goals.
Here at the World Economic Forum, we often use scenarios to provide insight into the future of a specific sector or a country, and determine strategies according to these insights. These scenarios enable relevant actors to set priorities and monitor the performance of the system. After identifying the causes and effects of the problem, the Forum brings together different stakeholders from around the world to discuss the driving forces and evaluate their impact.
- Monitor the performance of systems to learn about the many ways they respond to strategy and policy implementation. It also helps to improve decision-making by incrementally addressing the causes of a given system’s success or failure.
This post is based on Tackling Complexity: A Systemic Approach for Decision Makers by Gilbert Probst and Andrea Bassi. Gilbert Probst is Managing Director at the World Economic Forum.
Main image: A worker on IG Index’s trading floor holds his head in his hands as markets tumble, in London, September 22, 2011. REUTERS/Andrew Winning