Last week I was away with my family for a few days. In a location where there was no working internet connection and a very sketchy 3G signal. As a start-up founder with a never-ending to do list, this was quite disconcerting (especially as it was unexpected.) So aside from freaking out for a couple days, I had no choice but to catch up on both sleep (I hadn’t quite realized how big my sleep deficit had become!) and reading. Which ended up reminding me that disconnecting from time to time can pay dividends.
On the way out the door, from my pile of literally dozens of books “to read”, I had happened to grab two books to take with me: Tim Harford‘s The Undercover Economist and a pre-release copy of Dave Gray‘s The Connected Company.
The Undercover Economist is a terrific account of how economics drives behaviors and his view on how a change in our underlying economic drivers is fundamentally undermining our existing (traditional) organizational and institutional frameworks particularly resonated with me:
…economists believe there’s an important difference between being in favor of markets and being in favor of business, especially particular businesses. A politician who is in favor of markets believes in the importance of competition and wants to prevent businesses from getting too much scarcity power. A politician who’s too influenced by corporate lobbyists will do exactly the reverse.
At the end of the book, he includes the introduction to a later book Adapt: Why Success Always Starts with Failure. He tells the story of a young Russian engineer Peter Palchinsky who challenged the top-down, hierarchical thinking of first Tsarist and then communist Russia over a hundred years ago:
What Palchinsky realized was that most real-world problems are more complex than we think…His method for dealing with this could be summarized as three “Palchinsky Principles”:
- first, seek out new ideas and try new things;
- second, when trying something new, do it on a scale where failure is survivable;
- third, seek out feedback and learn from your mistakes as you go along
…Most organizations and most forms of politics have the same difficulty in carrying out the simple process of variation and selection…if we are to accept variation, we must also accept that some of these new approaches will not work well. That is not a tempting proposition for a politician or chief executive to try to sell…
…There is a limit to how much honest feedback most leaders really want to hear; and because we know this, most of us sugar-coat our opinions whenever we speak to a powerful person. In a deep hierarchy, that process is repeated many times, until the truth is utterly concealed inside a thick layer of sweet-talk…Traditional organizations are badly equipped to benefit from a decentralized process of trial and error…(yet) the more complex and elusive our problems are, the more effective trial and error becomes, relative to the alternatives. Yet it is an approach that runs counter to our instincts, and to the way in which traditional organizations work.
Building on these principles, he suggests the recipe for successfully adapting is comprise of three essential steps:
- Try new things, in the expectation some will fail;
- Make failure survivable, because it will be common;
- Make sure you know when you’ve failed.
What you want to do as a company is maximize the number of experiments you can do per unit of time. -Jeff Bezos
Much as I enjoyed Tim’s book, I was blown away by The Connected Company. Simply stated, I suspect it will go down as one of the most important management books of the early 21st century. It is a remarkable treatise on the new optimal organizational framework for businesses of the Information Age. I’ll admit to some bias as I don’t think I could have written a more articulate or complete account of the philosophy and theory underlying our approach to building Anthemis.
We are reaching a complexity tipping point, beyond which organizations will not be able to succeed without a change in structure.
…And if the world is constantly changing, the only sustainable competitive advantage is to be the one most responsive to change. That means that the speed at which you can learn is the only thing that can give you a long-term sustainable advantage. The problem is that while today’s companies are very good at processing information and producing outputs, they don’t know how to learn.
Indeed the fractal (Dave uses the term “podular”) nature of how we are building Anthemis is a direct attempt to create a more adaptable – and ultimately more resilient – company fit for the challenges of the 21st century. By explicitly embracing a networked rather than hierarchical structure we have built in the ability to experiment and fail while at the same time giving us many more chances to succeed. Dave also highlights that this new type of organization is in essence a complex adaptive system and some of you might recall from previous posts and presentations that the work of Herbert Simon on this subject has had a profound impact on our thinking.
To design connected companies we must think of the company as a complex set of connections and potential connections, a distributed organism with brains, eyes and ears everywhere, whether they are employees, partners, customers or suppliers. Most importantly, a connected company must be able to respond dynamically to change, to learn and adapt in an uncertain, ambiguous and constantly evolving environment.
A connected company is a learning company.
We see Anthemis as a network, an ecosystem where our main responsibilities are (1) to articulate and evangelize a robust vision – re-inventing finance for the Information Age – and (2) to create a fertile environment where passionate, talented individuals, teams and companies pursuing various components of this vision are provided with the tools – capital, talent, connections – that materially improve their chances of succeeding. Anthemis as a city (as opposed to a traditional company) is another interesting metaphor for our approach that Dave also explores:
Taken together, agile teams, service contracts, composability and loose coupling allow the creation of complex service clusters and networks that operate in a peer-to-peer, citylike way. In fact, these kinds of “service cities” can sometimes be so complex that the only way to manage them is not to manage them. Instead, the company focuses on creating an environment within which they can thrive.
The key to creating a successful organization in an era of unrelenting (and often accelerating) change is to build for agility. However the traditional organizational structures that were so successful in the Industrial Age are fundamentally unable to respond to this challenge:
Many business systems are tightly coupled, like trains on a track, in order to maximize control and efficiency. But what the business environment requires today is not efficiency but flexibility. So we have these tightly coupled systems and the rails are not pointing in the right direction. And changing the rails, although we feel it is necessary, is complex and expensive to do. So we sit in these business meetings, setting goals and making our strategic plans, arguing about which way the rails should be pointing, when what we really need is to get off the train altogether and embrace a completely different system and approach.
Dave highlights Amazon.com as one of today’s leading companies that has already adopted many of the tenets of the connected company. He describes their approach as breaking big problems down into small ones; distributing authority, design, creativity and decision-making to the smallest possible units and setting them free to innovate. At Anthemis, we take this one step further as most of the teams focused on each of these “smaller” problems are actually companies in their own right with their initial connection into the Anthemis ecosystem being forged via a financial investment. Aside from our legal structure however, the important distinction between ourselves and a venture capital fund is our clear long-term vision of creating a new leader in financial services: the vision is the glue.
The way we think about it is, on those big things, we want to be stubborn on the vision and flexible about the details. -Jeff Bezos
Essentially our job (at the Anthemis Group node) in this context boils down to designing and building the structure and system that supports the people and businesses in our network and then operating that system. Further we have a key role in creating and supporting a broad and diverse portfolio of experiments in order to maximize our chances of discovering and building the best and most sustainable financial services businesses in a context of rapid technological change and an evolving competitive landscape.
And perhaps in a future updated edition of his book, Dave will be able to point to us as a great example of a successful “connected company”!
Power in networks comes from awareness and influence, not control. -Dave Gray
Update: In this video, Gary Hamel talks about many similar themes, highlighting that our existing management and organizational paradigms are 100 years old and increasingly anachronistic in a world of accelerating change.
- Living Cells Show How to Fix the Financial System – Bloomberg (bloomberg.com)
- Bertrand Duperrin: Agile and Scrum versus the God Complex (isismjpucher.wordpress.com)
- [MUST WATCH] The Connected Company (socialfish.org)
- Please Let Them Fail (lenbrzozowski.wordpress.com)
- Learning from Dinosaurs (parkparadigm.com)