Organisations exist to manage uncertainty. They must place a priority on learning change and adaptation to do so. Once the greatest uncertainty was consumer demand. Now organisations must deal with multi-dimensional and volatile uncertainty.
Theory of the Firm
Economists are highly rational people. For a long time, economics has struggled to justify exactly why organisations exist. Contracting can be efficient and resources and capabilities in the market might be superior. Why would people organise slow to change, expensive, often inefficient organisations to manage work?
Most of the rationales for the economic theory of the firm have come down to managing uncertainty. Uncertainty and its related psycho-social characteristics like power, control, trust and culture tend to sit poorly in classical economic models of perfectly informed ahuman rational actors. In a sense Steve Blank’s classification of organisations between traditional organisations and startups also revolves around uncertainty. A traditional organisation with its scalable repeatable process manages uncertainty in demand for a proven product. A start-up manages the uncertainty of whether there is demand and whether the product can scale to the demand economically.
If you take a human social view of the organisation, you quickly return to a major role of managing uncertainty. We join organisations to provide a sense of belonging, safety and security from precarity, though these may all be illusions. Organisations work because they align people to goals and shape trust networks facilitating collaboration and cooperation. Organisations help manage and develop uncertain human talents over time, which can be a challenge in even the most deep and fluid labour markets. Organisations can sustain passion, vision and creativity that might wither in a volatile and uncertain marketplace.
The Fluid Firm
Whatever our view, managing uncertainty is a large part of our organisational life, so why do we focus so much on the static machine view of our organisations? The best strategic models recognise that organisations learn and adapt and that strategy should be iterative. I am a regular user of the Lafley & Martin Playing to Win framework which calls this out explicitly. We should devote the same attention to learning, change and adaptation as we devote to process, structure and compliance.
If recent months have highlighted anything, they have shown organisations the importance of the ability to adapt to uncertainty. We need to foster the management capabilities, the talents and the mindsets that enable our people and our organisations to learn, adapt and change as an everyday task. The future will not include a new normal. The future will include an everchanging uncertain series of challenges. The obstacles are the work. So is managing the uncertainty of our new changing competitive connected world.
Successful organisations already build strategies and capabilities that seek to leverage the potential hidden in uncertainty. They enable their people, their systems and their culture to thrive when things get difficult, messy and when change is required. The work ahead is to continue to evolve and adapt the fluid firm. We need to build disciplines, process and capabilities to manage this adaptive learning organisation that are as refined as the processes of traditional management. When we can show others how to embrace and thrive in the uncertainty, a new wave of potential will be realised.
I am talking at Microsoft365 May on Thursday 28 May on Yammer as a Strategic Talent and Coordination Tool exploring these topics in greater depth. Register at M365May. There is already fantastic material from a range of speakers there already.