In the mid 1980s, the nascent mobile phone industry had a problem: phone coverage was too expensive to provide outside of urban areas. As a solution, an international consortium headed by Motorola developed an offshoot called Iridium, with a plan to launch 77 low-earth-orbit satellites to provide satellite phone coverage to any location on Earth.

While Iridium deployed some very clever technology, the project cost a lot of money: nearly $6 billion. Handsets weren't cheap either, coming at about at $3000 each, with call costs between $6 and $30 a minute.

Iridium had designed their system in the mid 1980s, but with an incredibly long lead time they failed to appreciate that:

• the cost of installing mobile phone towers was decreasing
• network speeds were increasing exponentially.

By the time the phone service was launched in 1998 (with American Vice President Al Gore making the first call), more than a decade after the idea was first conceived, Iridium was in dire financial straits.

With a poor user experience, outsized fees and reports of organisational mismanagement, Iridium filed for Chapter 11 bankruptcy only one year after the service began. Air and Space Magazine went as far as to describe Iridium as ‘the greatest dog ever launched into space'.

It was an obscenely costly mistake and is an excellent example of long-term business strategy ignoring the evidence when it is incongruent with its objectives. In other words, an excellent example of how slow, methodical, single-minded pursuit of an unchanging goal doesn't work in the VUCA world.

Interestingly, and despite a net asset valuation of $6 billion, the company was subsequently purchased by a very savvy group of investors for $25 million. After a significant restructuring the new business was publicly listed on the Nasdaq and has since been highly profitable, thanks to its utility to the US military and smaller entities (including alpinists) conducting work in the remote parts of the globe.

As confronting as it might sound, many of today's large commercial organisations are just as exposed as Iridium was to the perfect storm of VUCA. For our organisations to survive, we need to understand why.

VUCA and the linear organisation

As Ray Kurzweil says, ‘An invention needs to make sense in the world in which it is finished, not the world in which it is started'. It's an apt summation of the problem facing many large organisations today.

Organisations are cumbersome in nature, a consequence of their hierarchical, linear structure. Many do not allow for the rapid deployment of products and services. In addition, a preference for quantitative metrics over qualitative results has led to some organisations forgetting their most important resource: people (both the employee and the customer).

David S. Rose is an American technology entrepreneur and the CEO of Gust, a platform connecting early-stage start-ups with angel investors. In his book Angel Investing, he makes the following alarming statement: ‘Any company designed for success in the twentieth century is doomed to failure in the twenty-first.'

If you disagree with this sentiment, then I think you have your head buried deeply in the sand.

As we progress further into the twenty-first century, the evidence in support of this statement is both compelling and ever increasing.

The list of once-great organisations that are either gone or shells of their former selves grows longer by the day: Kodak. Motorola. Nokia. BlackBerry. Dell. Yahoo. Sony. MySpace. Blockbuster. McDonalds. HMV. Borders. Angus & Robertson.

All of these organisations were highly linear in nature. They ignored the warning signs of the VUCA world. They all chose a traditional approach when it came to their thinking about the future. They all neglected to understand, perceive, or adapt to change.

Serious cause for alarm

Babson College, one of the USA's leading private business schools, in 2011 predicted that, by 2021, 40 per cent of existing Fortune 500 companies would no longer exist.

Others have made similar alarming predictions. In 2011, global strategy and innovation company Innosight noted the average lifespan of an S&P 500 company had decreased from 67 years in the 1920s to 15 years today. They predicted that at the current churn rate, 75 per cent of companies on the S&P 500 would be replaced by 2027.

It's not just big American companies either. On a 2014 business trip to Silicon Valley, David Thodey, former CEO of Australian communications giant Telstra (with a market cap of $7 billion) spoke of industry insiders telling him bluntly that his business model was ‘dead'.

In a newspaper interview in 2015, Thodey noted he didn't worry about the recent developments within the Australian telecoms sector (Telstra's main competition is now TPG, an acquisitions-hungry business with a market cap of approximately $8 billion); rather he spent more time talking about smaller third-tier competition and new innovative start-ups.

Designed for yesterday

The root of the problem for today's traditional organisations is this: they were designed to operate in the old world order, where status quo was the norm. Structured in a hierarchical fashion and fit for a linear world, the organisations were designed to be robust and resilient to change, but not adaptable to change. Designed to strictly control people from the top down, to acquire and rely on physical assets and to profit from scarcity. The bottom line was king, irrespective of how it was reached.

But as we now know, not only is technology within the new world order changing exponentially, but so too is everything else: the way that people live and work. So our organisations are in desperate need of an understanding of that change, and an ability to keep abreast with the pace and shock of the new.

Before we identify what this change might look like, however, it's important we understand just a little about the history of organisations; they have, after all, become an integral part of the status quo.

The Visible Hand

During the 1850s, transportation in North America was revolutionised by a massive railway-building boom. Dramatically reducing travel times and costs across the continent, the boom opened up the territories of Dakota, Montana and beyond to those looking for gold and grazing land. Railroads replaced the horse and cart as the primary means of personal transport and the distribution of goods. Travel times from New York to New Orleans, for example, were reduced from approximately five weeks in 1800 to two weeks in 1830 — and just five days by 1857. For the distribution of goods, railroads proved to be three to five times more efficient than canals, which were previously the primary method of distribution.

Alfred Chandler describes this transformation in his Pulitzer Prize–winning 1977 book The Visible Hand: The Managerial Revolution in American Business. Chandler describes the large-scale coordination required to integrate many different regional railroads into a single national transportation system: no prior business or enterprise had ever required such control and coordination over such a diverse array of tasks and scheduling. This required such levels of coordination and standardising of procedures and technology that administrative forces were proved to be of greater strength and cost efficiency than market forces, thus making the organisation the primary means for productivity and economic growth.

Chandler refers to the salaried executives and middle management who emerged within these organisations as the ‘visible hand', which subsequently became the guiding force in global economics, and has continued to be so until this day.

The multiunit enterprise, which is how Chandler refers to these new organisations, and multidivisional enterprises (multiunit enterprises — developed in the 1920s — nested underneath ‘parent' companies that are themselves multiunit enterprises), became the two key organisational types on which the majority of organisational management thinking and consulting has been based. This means today's traditional organisations are still using designs — and methods, in some cases — that are either 100 or 150 years old.

The key point here isn't that this organisational design is old; after all, we take wisdom from the philosophy of the Greeks and Romans (think of Heraclitus and his concept of the constancy of change). Rather, it's the fact that, despite the designs being either 100 or 150 years old, they have hardly changed at all. There has been very little evolution.

The majority of organisations today, those that ensure society continues to function on a daily basis, are operating with a static and outdated design and structure.

It's no wonder we fear change!

The birth of the management consultant

Alongside the evolution of the organisation, and perhaps as an early indication that organisations were not inherently natural and efficient structures, there sprang an industry of consultants looking to ‘improve' the way in which organisations did their work.

They are formally called management consultants. (They do, informally, have several other monikers.)

The industry tackled ‘improvements', firstly from a strategy perspective, and more recently from a leadership perspective. This service industry has its origins in 1910 with Frederick Taylor's ‘scientific management' method, which ultimately led to the development of large international consultancy businesses, the two most recognised of course being McKinsey and Company and Boston Consulting Group (BCG).

In conjunction with the development of these large consultancies, management academics and thinkers such as Peter Drucker, Michael Porter and John Kotter were developing new concepts of strategy to improve organisational performance. Strategy models currently still in favour include McKinsey and Company's 7S Framework (36 years old), Porter's Five Forces Analysis (also 36 years old) and Kotter's Eight Steps to Change (celebrating its twentieth birthday).

Strategic, yes. Outdated? Just a bit.

The linear strategy

In his insightful book Corpus Rios: The How and What of Business Strategy, consultant Christopher Tipler describes the current state of strategic planning: if God laughs at plans, ‘God must find business hilarious, because businesses make a lot of plans'.

Tipler's book is very much a critique of the current state of strategic planning in organisations, identifying a number of woes, including unnecessary complicatedness and unreliability, dysfunctional use of ‘stultifying language' and protection of the status quo through silos and budgets, aversion to risk (and hence opportunity), and lack of imagination.

The traditional approach to strategy and planning has consisted of the following minimum ingredients. It:

• is undertaken by the organisation's senior management or executive team
• has identified specific objectives
• has identified timelines (e.g. a five-year plan, with a beginning and an end point)
• has numbered, incremental, prescriptive steps identified and committed to.

The propensity for linear strategy has to a large extent guided most other things within today's organisations.

If the key guiding premise of an organisation is its strategy, and if that strategy is ordered, prescriptive, quantified and linear, it follows that everything else the organisation does will have the same linear characteristics.

According to Dan Colussy, who masterminded the rescue and buyout of Iridium in 2000, the business plan was the main reason for Iridium's disaster:

The Iridium business plan was locked in place twelve years before the system became operational … the idea was that a businessman would carry this thing around the world in his briefcase and dial home … Of course by the time it got up, nobody needed it …

In his book Light Footprint Management, consultant Charles-Édouard Bouée says, ‘Businesses need to adapt by dispensing with old ideas, such as the assumption that the task of management is to seek adaptation to equilibrium. There is no equilibrium'.

An unhealthy obsession with goals

To achieve an organisation's strategic objective, a series of plans will be implemented. As you can see in figure 4.1 (overleaf), and are probably familiar with in your own organisation, this is a very linear process.

As we learn in chapter 6, however, such reliance upon prescriptive and linear strategies and plans is less than ideal: teams are particularly prone to ‘goalodicy', where goals and objectives become such an obsession that they lead to poor decisions and outcomes (and ironically, the goals and objectives not being achieved).

Goalodicy can lead a team to become so attached to their goals that they start to define the team's identity. This in turn causes the group to become blinded to real world feedback and ignore the warning signs that continued pursuit of the goal may no longer the best option.

In his very clever book The Antidote, journalist Oliver Burkeman describes a study of New York taxi drivers who were so focussed on their goals they were effectively blinded by them. In NYC, it was a widely held belief that cabs are more difficult to catch on rainy days than when the weather is fine. The cause of this was commonly attributed to all the cabs being busy because on rainy days more people catch cabs to avoid getting wet.

What the study found, however, was something different. The actual cause was due to taxi drivers having a daily income target; due to the increased number of fares from the increase in patronage on rainy days, the cab drivers reached their daily target sooner than usual and went home early. They were ignoring the opportunity to make considerably more than their daily target.

Fixed strategies and plans have a tendency to do that: working towards fixed expectations makes you blind (to both opportunities and dangers).

Compliant but over-complicated

Head of the BCG's Institute for Organisation Yves Morieux is an ardent critic of traditional old world organisational structures. He posits that their hierarchical structure is the main contributor to the global decline in productivity over the last 50 years.

In his 2015 TED talk in London, he took particular aim at what he refers to as an organisational overreliance on ‘the holy trinity of efficiency: clarity, measurement, and accountability', suggesting ‘they make human effort derail'.

Morieux argues that organisational design has inadvertently led people to focus only on their own individual performance metrics, rather than collective, collaborative organisational outcomes. He claims ‘we are creating organisations to fail, but in a compliant way'. Based on this notion that organisations have become failure-focussed and obsessed about the easy identification and attribution of blame, he says

We will know who to blame, but we will never win the race … if you think about it, we pay more attention on knowing who to blame, in case we fail, than in creating the conditions to succeed.

At the crux of Morieux's argument is this: traditional organisations' emphasis on clarity, measurement and accountability as key metrics and drivers of performance were fine for the old world order; but in today's new world order of ever-increasing complexity, those metrics only serve to encourage and compound business failure.

Morieux observes that the default response of most organisations to problems associated with increased complexity is to focus even further on clarity, measurement, and accountability, and to create further, and more complicated, structures, systems and processes.

In other words, they do more of what has been done in the past, and when that doesn't work, they do even more of the same thing. The great English philosopher Alan Watts would describe this as ‘all retch and no vomit'.

Morieux notes that since 1955, business complexity (as measured by the number of requirements companies are required by legislation to fulfil) has increased (at a steady rate) by a factor of six, whereas organisational complexity, in response to this, has increased by a factor of 35. In other words, organisations have completely overreacted.

To address each new legislative requirement, organisations have added more and more layers of bureaucracy, policy and systems, thereby creating greater and greater inefficiencies. As Morieux goes on to explain, many of these metrics tend to inadvertently cause negative internal competition within the business, such as for cost savings over product quality.

If this hasn't already made you want to sweep all the papers off your desk in one fell swoop — just wait. There's more.

In 2011, BCG created an ‘index of complicatedness' that was based on surveys of more than 100 US and European listed companies. The index shows that over the past 15 years, the number of ‘procedures, vertical layers, interface structures, coordination bodies, and decision approvals' needed in said firms had increased between 50 per cent and a staggering 350 per cent!

On average, organisations today set themselves six times as many key performance requirements as they did in 1955 (back then, CEOs were committing to four to seven performance metrics, whereas today that level has escalated to between 25 and 40).

Managers in the 20 per cent of organisations that are the most complicated by unnecessary bureaucratic layers and structures spend 40 per cent of their time report-writing, and between 30 and 60 per cent of their time in meetings. As a result, employees of these organisations were found to be three times more likely to be disengaged than employees of less bureaucratic and reactive organisations.

Linear strategy and linear structure gives us these inefficiencies. They also burden us and mean we become slow and heavy.

Linearity

Overly prescriptive and linear strategies and plans are not only untenable in a world of exponential change; they will be hugely detrimental, and not just in terms of monetary loss. Organisational survival is at stake here.

Another ardent critic of traditional organisational structures is Salim Ismail, a former vice president at Yahoo and cofounder of the Singularity University. In his book Exponential Organizations, Ismail suggests that ‘linear product development remains the predominant name of the game … whether you are making locomotives or iPhone apps'. He says

When you think linearly, when your operations are linear, and when your measures of performance and success are linear, you cannot help but end up with a linear organization, one that sees the world through a linear lens.

During the period of the ‘Great Moderation' (the term for the period from the mid 1980s to 2008, referring to the decrease in macroeconomic volatility, predominantly in the US), large organisations have (in an effort to gain economies of scale, and increase growth and, in many cases, returns to shareholders) become even larger through acquisitions and mergers. This has led to even larger organisations becoming increasingly linear in their thinking and becoming even more inefficient due to their increased layers of bureaucracy and complexity.

What was their greatest strength (their sheer size and power) in the old world has now become their greatest weakness in the new world.

They are cumbersome, slow and above all reluctant to respond to both external and internal circumstances and pressures. Old world organisations:

• have a hierarchical structure
• are reliant upon infrastructure
• are resilient and robust
• focus on strategy and are backward-looking
• are rigid and inflexible
• are risk averse
• control their own assets
• try to make the external world fit their internal world
• focus on goals
• think linearly and sequentially
• are financially driven and interested in quantity
• aim to be the best
• are led by alpha figures
• have large numbers of employees
• prefer the status quo
• have a state of mind of dissonance and entropy.

Here lies the crux of the problem for these organisations: the landscape has changed and they are not able or willing to adapt. They may not even understand they need to.

Linear vs. exponential progress

Cofounder of PayPal Peter Thiel says in his irreverent manifesto Zero to One, ‘… today's “best practices” lead to dead ends; the best paths are new and untried'.

Thiel's core idea is that most of today's organisations have become successful by copying existing products, and making them just a little bit better. He describes this process as taking the world from ‘1 to n'; in other words, simply adding more of something we're already familiar with. According to Thiel, this type of progress is horizontal and easy to imagine, because we already know what it looks like.

In other words: it's linear. He gives as an example the typewriter: build another 100 in different colours and each with minor improvements, and you've made linear progress. Something a bit better, but not by much.

If, on the other hand, you had a typewriter, and from the bones of that typewriter you built a word processor, you have achieved vertical progress. Creating something entirely new, something fresh and unique, is what Thiel describes as a move from 0 to 1.

In other words: it's exponential. Figure 4.2 shows the difference.

A temporary fix

The stalwarts of traditional management thinking are finally starting to recognise the changing times. In his 2012 Harvard Business Review article ‘Accelerate', John Kotter acknowledges that

the hierarchical structures and organizational processes we have used for decades to run and improve our enterprises are no longer up to the task of winning in this faster-moving world.

His solution is that firms should, in addition to their existing organisation, create and use

a second operating system devoted to the design and implementation of strategy, that uses an agile, network like structure and a very different set of processes … [which] continually assesses the business, the industry, and the organization, and reacts with greater agility, speed and creativity than the existing one.

It must be recognised that this ‘solution' is only of a temporary nature — a Band-Aid fix, if you will. Realistically, this solution could prove incredibly expensive and create inefficiencies of management the likes of which Morieux was talking about. And it doesn't answer the question of developing an ongoing understanding of the nature of change.

It should also be pointed out that Kotter's idea is nothing new; Clayton Christensen, the world's leading academic on innovation, identified a similar solution back in the late 1990s.

According to Christensen, two of the three main ways in which organisations dealing with disruption can respond are to spin out an independent organisation from the original one to develop new processes and opportunities, or to acquire new organisations that are already taking advantage of the opportunities presented in the VUCA landscape.

Of course, if either of these options were pursued, it would take incredible restraint from the ‘mother' organisation not to over-manage and control its offspring; and this is something that large organisations do not have a very good track record with. (I used to work for one.)

Which leaves Christensen's last suggestion: completely restructure the organisation.

The leadership cult

The ‘leadership industry' is itself showing the symptoms of the disease it claims to be trying to cure organisations of: complacency and a reliance upon old, outdated ways of thinking and doing.

Think of it in these terms. A leader for the new world order needs to be like an alpinist, who is always ready to launch the next climbing mission. Alpinists have a perpetual sense of restlessness and curiosity about themselves and the natural world. So they stay fit, both physically and mentally. They don't sit back and rest on past achievements.

Unfortunately, however, the leadership development industry has become somewhat bloated — annual global investment in the industry is estimated to be in the order of $200 billion — and too invested in maintaining the status quo it helped create. Rather ironically, it has not adapted to the new VUCA world.

So if you find yourself signed up to an old world leadership-development course that aims to ‘empower' you to learn ‘personal mastery' and your ‘leadership style', and to help you ‘build high-performance teams', run away in the opposite direction, and run fast.

We need to look to other areas for newer and fresher ideas, because what we currently have has proven to be patently ineffective and a waste of large sums of money when the environment is volatile, uncertain, complex and ambiguous.

This is not to say that the development of people is a waste of time per se (it's actually incredibly important, and indeed it's the foundation of the Alpine Style Model you'll come across in the final third of this book); it's just that you want to be sure that whoever helps you with this understands how different the new world order will be.

Because the reality of the new world order is that the most important asset of any organisation will be its people. And that's what we'll look at in the next chapter.