Business strategy by Balloon and Beinhocker

Given complexity economics, Balloon Kenya’s approach to business makes total sense. This much is clear. I want to nail down here a little more on how Beinhocker’s conception of strategy parallels Balloon’s thinking, and how they seem about right.

Some basics on strategy: it has two key characteristics: it’s forward looking; and it’s about creating a plan and committing a course of action specified by that plan. That means if it’s an easily reversible decision, it’s not really strategy, because there’s no real commitment.

Moving on to Balloon vs. Beinhocker, I want to pick out threepoints of comparison:

1) The ‘traditional,’ planning approach is barking up the wrong tree.

Balloon and Beinhocker both take aim at the traditional/old/straw man guide to strategy, based on planning and essentially predicting the future. Both recognise the (crippling) difficulty of this, Beinhocker in particular highlighting that there is a near-infinite number of possible future states of the economy, and which branch is taken depends on a series of impossible-to-predict frozen accidents. The Balloon curriculum is full of quotes and one captures this point brilliantly: Ken Olson, President of Digital Equipment Corp., 1977: “There is no reason anyone would want a computer in their home”. Yeah.

2) Learning is the key

Given this “inherent uncertainty of the future,” we need to “emphasize learning and adapting over predicting and planning” (Beinhocker). This could practically be taken out of the Balloon textbook, which states: “start-ups in their early stage don’t execute. They search”. ‘Searchers’ vs. ‘planners’ takes us to Bill Easterly and so we complete the loop back to complexity-compatible thinking. The basic idea that both Balloon and Beinhocker are hitting on is that the knowledge required for success in the economy is not to be found in the heads of clever people, but out there with customers.

3) How do you learn? Test.

Testing for Balloon is the means of converting guesses into facts. Whether by talking to people, building a prototype or just trying to make some sales, it’s the crucial step between the ‘building’ of a product and the ‘learning’ that we’re all here for. Beinhocker has the requisite pithy phrase: strategy for him is simply “a portfolio of experiments”. He gives the example of Microsoft in the 80s, which kept a population of competing business plans within the organisation (many irons in the fire), each with tight feedback loops, to give the best chance of success. Some are going to fail – there’s got to be a tolerance of risk – but as long as those failures are small, who cares?

So there we are: three crucial ways in which Balloon and Beinhocker are peas in a pod. To flog this dead horse one more time, the correct mindset is “highly pragmatic. It values tangible facts about today more than guesses about tomorrow, doesn’t expect that everything will work out as planned, and prefers lots of small failures to big ones”. Quote from Balloon? Beinhocker? It doesn’t matter.

Emergent Thoughts on Emergence

Just finished ‘Aid on the Edge of Chaos’ by Ben Ramalingam, which applies ideas about complex adaptive systems to aid and development. Though ‘finished’ wouldn’t be quite the right word, as I reckon I’ll need about four more readings to get close to understanding the content. As the title suggests, this will be more a provisional set of conclusions.

Conventional development thinking: 'whoops'
credit www.drsalonen.com

I’ve already written about how Ramalingam critiques the current mode of thinking in development but it’s worth repeating the basic point: we need to stop applying simplistic analyses to complex problems. Ideas derived from Newtonian physics aren’t able to fully describe the totality of our social, environmental, ecological, political and economic reality. Who knew? Actually, the observation that the world is complex is so obvious that I can’t believe we’ve managed to fool ourselves into thinking that you can reduce REALITY to a few squares on a log-frame all this time. 

Upshot: as Abraham Lincoln says, "we must disenthrall ourselves" (one of many, many brilliant quotes in the book).

One part of this disenthralling is to stop looking for panaceas in development. Owen Barder recounts them nicely for us: more capital, more savings, more aid, more technology, better policies, better institutions, better politics. In fact, the desire for panaceas is itself part of the problem. And no, thinking in terms of complex adaptive systems is not the panacea either. This might seem obvious: accepting that there isn’t one solution to the problem of achieving development sounds easy, but actually our brains have a sneaky tendency to slip back into that way of thinking. This came home to me listening to a podcast in preparation for this post (it’s sad but I actually do prepare); Humanosphere editor Tom Paulson, when interviewing Owen Barder, asked him whether complexity thinking means that we need to look at tax havens to achieve development. Barder: that’s exactly the type of panacea thinking we are trying to get away from. Yeah.

So what are complex adaptive systems/systems of organised complexity? Let me throw some words at you that together constitute a vague approximation to an answer. Complex adaptive systems have large numbers of mutually interacting parts, are open to the environment, are self-organising in their internal structure, have ‘emergent’ macroscopic properties over and above the properties of their constitutive parts (think human consciousness as more than putting together feet and white blood cells and nerves and lungs). Complex systems are interconnected and interdependent and dynamic, constantly evolving and adapting. From all that I’m sure it’s apparent that I don’t totally understand either. Looking at the box might be helpful at this point. In fact Ramalingam takes pains to emphasise that complexity thinking is itself a work in progress even for people who research it, so don’t feel bad.

Comparison of conventional aid thinking and complexity-influenced ideas about development

Okay so that’s all well and interesting that clever people have found out why everyone’s been wrong for the last seventy years but what does it mean for development? Ramalingam provides some broad-brush messages on this: complexity thinking can’t tell you what to do on Monday morning, but it can help us understand the world around us better, promote more open debate about the challenges facing us, and help us think up new approaches to problems. It can help us “see through new eyes”. In this sense, development is more of an emergent property of a society/economy rather than a outcome of a process to be engineered. Aid in an ideal world then becomes “an open innovation network,” an “internal catalyst...[to] identify, expand and sustain the space for change,” a “fluid, dynamic, emergent” process. We stop looking for ‘the answer’ because, as the NYU Development Research Institute strapline goes, “there are no answers for global poverty. There are only answer-finding systems.” If nothing else, you can’t say complexity thinking isn’t good at snappy one-liners.

The thrill from this enormous potential is kind of feeding into my disillusionment with NGO work at the moment; the organisations I have experienced thus far are not embedded in the relevant 'system', not looking to foster small adaptive changes whilst accepting the underlying complexity of the problem they are trying to address. The organisations I have worked for have their ‘product’ with its own intellectual framework which is superimposed onto a given situation. They have their own thinking, activities and feedback loops which are only tangentially aligned with the problem at hand with all its complexity, non-linear characteristics and emergent properties. And most dangerous of all, they are self-sustaining, insulated from their own inadequacies by the current aid system.

Ramalingam shows us complex systems thinking in action: it’s all over the place apparently, from emergent leadership in Obama’s election campaign, to holistic range management in Zimbabwe, to conflict resolution in Aceh after the Boxing Day tsunami, to the development of M-Pesa mobile money in Kenya. The book is filled with examples.

After the above whirlwind, I’m still left with a few questions though:

• How do you identify a system? What is the scale of a system?
• How do you know when something is not a problem of organized complexity?
• What would development institutions/donors/NGOs look like if you took them apart and rebuilt them to be equipped to face problems of complexity?
• What are the steps to changing aid in the right direction? Is it just that we read Ramalingam's book, realise we’ve been doing it wrong and change our approach? How do you change the system? (Ramalingam recognises the difficulties of this with the remark that “thousands of careers depend on sustaining certain ways of looking at the world”. That'd be politics again.)

Time to read it again I guess.

Involuntary guest post by Ben Ramalingam

I'm currently reading Aid on the Edge of Chaos by Ben Ramalingam, which attempts to apply complexity theory, i.e. the next big thing about five years ago (hate it when I get there late), to aid policy and practice. You should read it. Just finished Part 1, which dances lightly through the thinking and implicit theories behind the aid industry over the last sixty years and rips them apart, with wit, cartoons, punny chapter titles (Chapter 4 - 'The Goats in the Machine') and occasional classical references. The attack is directed at the linear, simplistic view of reality (cause and effect, rational actors, closed systems) derived from Newtonian physics, which underpins much of aid thinking and is totally inadequate for addressing the complex problems of development. There were some great passages which articulate, much more lucidly, elements of the frustration which underpinned my last post. Sharing is caring.

The problem with the aid industry:

"Despite the grander claims of some recent movements, development and humanitarian work is not a knowledge industry - except in the most idealistic interpretation. It is an export industry, and an exceptionally blunt, supply-oriented one at that. It gathers up poverty, vulnerability, and suffering from the South, packages them for sale in the West, and exports off-the-peg solutions back in relentless waves of best-practicitis"

And the traditional response:

"In the face of widespread institutional inertia, the resilient cookie cutters and travelling orthodoxies of foreign aid, the strategy most commonly found is to simply give up on trying to find a good solution. Just follow orders, do your job, and try not to get in trouble. Let the system do what it will."

The message:

"[A]id agencies are increasingly dealing with a world for which their learning, strategic, performance, and organizational frameworks were not designed"

If you fancy learning what more appropriate frameworks would be, take your pick from the following links on complexity in development, or, better, read the book. If I had to go for one (other than the book) I'd recommend the Owen Barder podcast (not that I've read all of these myself).

Papers/books (for the brave):

A (long) one by Ramalingam and others

A book on systems thinking by Donella Meadows

Podcasts (for the bus):

From Humanosphere with Owen Barder (short)

From Owen Barder himself (longer and better)

Blog posts (for the time-pressed):

From Ramalingam on his blog

Various from Duncan Green on his blog

From the Center for Global Development