Perhaps the most common failure of individuals and organizations that need to change is either that they do not seek the broader view that offers new choices, or that they do not explore the deeper roots (unquestioned beliefs) that perpetuate past and present dysfunctions.
This contribution commends a step by step approach to moving smoothly through this barrier to organization change, rather like the double-declutch technique necessary for changing gear on a stick shift without synchromesh.
Paul Watzlawick (and other proponents of the theory of change) suggested that there were two kinds of change: change within a frame of reference, like hitting the brake or accelerator of a car; and, change to a frame of reference, like changing gear.
Getting these types of changes muddled up can lead to horrendous gearbox crunching sounds and squealing of tyres, in at least two different ways:
- changing the frame when you should not, for example, squandering the cash generated in geographies where you are profitable on Utopian initiatives to enter markets where you can never make money (like changing up a gear too soon so the engine labors).
- not changing the frame when you should, for example, endlessly reorganizing until “plus ça change, plus c'est la même chose” (like over-revving an engine by not changing up when you should).
If we ever hope to achieve smooth and powerful organizational gear changes, then we must first find the imagination to "touch the void" (embrace the unknown), and the courage to "discuss the undiscussable" (challenge the known).
The solution (double-declutch) that I describe here provides a step by step approach to surmounting these two related barriers. Here are the steps:
To embrace the unknown
- Find the boundaries
- Describe the unknown
- Cross the border
- Seek a new place to stand
To challenge the known
- List the assumptions
- Probe the paradoxes
- Consider the consequences
- Test the feasibility
After one recruitment presentation in Boston, a Chinese student in his mid thirties approached me, called Qiang Xue (pronounced Chang Shwe). He was looking for a job for the summer. Checking Qiang’s references, I discovered that his professors considered him the brightest student they had ever taught. He joined us as a summer intern and spent four weeks in our New Jersey offices and four weeks in England. To find him a worthy challenge, I asked our UK gas company what was the toughest problem they faced. The pricing of nitrogen, they replied.
Air is about one percent argon, 21 per cent oxygen and 78 per cent nitrogen. Thus, argon, oxygen and nitrogen are the joint products of an industrial air separation process. Gas companies can sell all the argon and oxygen they produce, but only some of the nitrogen. So they are obliged to vent off the unsold nitrogen. Our plant managers knew higher utilization meant lower unit costs, and had succeeded in increasing demand for nitrogen by lowering prices. The question they now posed was “how much further must we lower nitrogen prices to fully load the plant?”
Qiang clarified their question by asking the plant managers are you aiming, first and foremost, to increase profits or to reduce costs. “Increase profits, of course,” they replied.
Qiang had seen that unconsciously, if not consciously, every pricing decision involves the trade-off between two factors: the break-even of the plant and the price sensitivity of the marketplace. So he asked two further questions “if we cut price, how much extra volume will we need to break-even again?” and, “if we cut price, how much extra volume will we get?”
The plant break-even is not obvious in a co-product situation because it depends what you view as your primary products. Product costs are, therefore, far from purely objective accounting numbers. In addition, there was insufficient marketing information for a statistically reliable analysis of price elasticity. However, Qiang pointed out, pricing decisions were being made all the time. The best available data, he argued, was the knowledge and experience of the company’s own sales and marketing people.
Nitrogen, a simple molecule, has many uses: from treating warts to blanketing inflammable liquids held in tanks. For each application, Qiang invited the people dealing daily in the market to estimate what would happen to sales volumes with various levels of price increase or decrease (plus five per cent, plus ten percent, minus five per cent, minus ten per cent, and so on). He asked them to do this under four scenarios–whether competitors followed or not, over the short term or the long term (where the long term was defined as the three years it would take competitors to bring new capacity on line).
Combining these estimates, the UK Company found that it could make more money by putting up prices under all scenarios. The company raised its nitrogen prices and its profits increased. Competitors followed the prices up and the company made even more money–even though it was now venting more nitrogen than ever before, its plant utilization was lower and consequently its unit production costs were higher!
In this example, it was the blinkering effect of accounting numbers and the unchallenged dogma of cost cutting that blinded the organisation to its unrealised profit potential. At one level, Qiang brought no more to his solution than basic notions of supply and demand, micro-economics 1.01. At another level, his approach demonstrated the importance of the double-declutch when reframing goals.
Gregory Bateson was the great thinker and father of “reframing”. We are still catching up with him. Watzlawick, Argyris, Senge et al (who popularised his ideas, each adding their own brand of mysticism) are but children beside Bateson.
Perhaps the most egregious hijackers of the notion of reframing are the shlock psychologists of the NLP (Neuro-Linguistic Programming) persuasion.
Maybe barriers persist because reframing has such a bad name. It is time to demystify and rehabilitate it.
To embrace the unknown, you need to raise the level at which a problem is addressed and managed. Expand the scope from a departmental perspective to the perspective of the whole firm, from local to global, from tactical to strategic, from short term to long term, from inside the company to the market and the industry, from static to evolutionary, from the details to the whole and, not least, from interface to complex relationship.
To embrace the unknown, look for the boundaries, describe what you don’t know and then step across these barriers to find a new place to stand.
Find the Boundaries
To establish the boundaries of what we know and can do about a problem, we first need to describe the present state. What is the problem called, how is it defined, how does it work? In the industrial gas example, the problem was framed as an issue of plant utilization and unit cost.
Then we need to look at the time frames. We have to think about: when must change occur, what are the deadlines, how long are the durations, how frequent are the cycles? In the industrial gas example, Qiang noted two time frames–split by the time it would take a competitor to build a new plant.
Next, consider the spatial boundaries: what are the volumes, what are the quantities, where are the geographic constraints? Geography is a key element in the profitability of an industrial gas plant. It is relatively cheap to produce industrial gases (raw materials are air, which is free, and power). However, it is expensive to transport industrial gas and plants rapidly become uneconomic when trying to service distant locations.
Finally, describe the issues: what are the problems, what are the threats, what are the needs, what are the challenges, what is the opportunity or vision?
Describe the Unknown
Having found the boundaries of the known, describe the unknown. Explain why actions we would like to take are impossible. Explore what we need and want to do, determine what we can plan, and what we cannot predict. In the gas company example, it was thought to be impossible to quantify the price elasticity of nitrogen–an element that many saw as a commodity “because it is impossible to differentiate a molecule”.
In describing the unknown, try to consider what would be seen if the possible changes took place, and then consider what would be seen if the impossible happened. In the gas company example, Qiang recognized that whether or not competitors would follow suit in raising prices was an unknown factor.
Finally, consider the non-observable and intangible changes that would take place if either the possible or impossible were to happen.
Cross the Border
Having located the bounds of the known and described the unknown, probe and attempt to trespass across the boundaries into the unknown. Reconsider each aspect of the boundaries: what might be bigger or smaller, what geographical limits could be widened, what time frame could be lengthened, what decision makers or constituencies could be changed, and so on. Ask what improbable scenarios, what unlikely or unknown factors would radically change the situation?
In the industrial gas company example, Qiang refused to accept the conventional wisdom that nitrogen price-elasticity is unknowable. He found it was well known when he asked a set of carefully structured questions designed to draw out the knowledge of the company’s own people.
Seek a New Place to Stand
Once you have crossed the borders, establish a new point of view with new boundaries and act from that base. Qiang widened our horizons by taking a higher-level perspective, by looking at the nitrogen pricing conundrum as an issue of maximizing profits, not reducing costs or increasing sales. This new place to stand, this unexpected perspective, gave him the power to open our eyes. What thrilled us was the happy reaffirmation that our business wasn’t so mediocre. This was a false impression gained by looking at it solely through the lens of accounting numbers.
If locating the boundaries, describing the unknown, crossing the borders and seeking a new place to stand are insufficient to help you clarify your aims, then go ahead and describe your desired future, detailing the actions or broader means necessary to close the gap between the present state and the future you desire.
George Bernard Shaw summed up the task of finding a new place to stand in these famous words: “You see things; and you say ‘Why?’ But I dream things that never were; and I say ‘Why not?’”
If widening the scope to include the unknown is not enough to clarify aims then it is time to challenge the known.
CHALLENGE THE KNOWN
While embracing the unknown is a matter of stepping up a level, challenging the known proceeds in the opposite direction by drilling down into the details.
Challenging the known puts more weight on fresh perspectives than on data gathering or analysis. In the industrial gas company example, the difference between our view of the business and Qiang’s did not lie in numbers but in the way of looking at them. Appreciating the value of raising prices did not preclude an interest in reducing costs, but failing to raise prices exposed the limits of our understanding of our basic profit economics.
Why would a company fail to seek a profit-maximizing balance between supply and demand? At one level, the question was superfluous. Increasing utilization to reduce costs seemed obvious. There was no conscious thought or decision behind this. The company simply knew that cost reduction was right.
What did Qiang put into his questions that a less-capable agent of change might leave out? Surprisingly little, Qiang did some more fact gathering and analysis but mostly paid much greater attention to those infinitesimal but critical details that create understanding rather than merely provide information.
To systematically challenge the known, first draw up a list of assumptions, then look for paradoxes, next consider the consequence of temporarily abolishing any axiom and, finally, explore the feasibility of doing so.
List the Assumptions
Describe what it is about the present situation that is taken for granted and considered un-moveable. Explain why a necessary action is considered possible or impossible. In the industrial gas case, it was deemed impossible to quantify price elasticity because there was a dearth of data on prices.
Pinpoint the main certainties and describe the obvious assumptions about what makes the present state what it is and certain to persist. State clearly the obvious root causes, the axioms, on which the assumptions are founded. Spell out the laws, basic regularities, truth, and facts beyond discussion. Probe what makes the impossibilities (or possibilities) persist. Define how impossibilities stem from such assumptions. Determine what fuels the continuation of something we want to stop (but can’t), and what keeps preventing the things we need to happen from happening. In the industrial gas case, the views of the sales and marketing people were too readily dismissed as opinions not facts.
Probe the Paradoxes
There is no better tool than paradox to persuade people to be more critical of the obvious. Paradoxes are those contradictions that irritate us, that stick in our mind.
Some organizational paradoxes stem from the self-fulfilling prophecies of their founding fathers. Seeming correct for a long time, they are eventually exposed as Utopian. Other paradoxes are “ways to hell paved with good intentions”, “group-think” and the perverse effects of cultural bias in big organizations.
A whole political system, like Nicolae Ceausescu’s Romania, can become one big paradox in which contradictions between thought, speech and action are carefully cultivated. In such worlds good is bad, truth is a lie, ugly is beautiful and everyone is born a sinner and a suspect doomed to prove their innocence forever. George Orwell (in Animal Farm and Nineteen Eighty-Four) and Franz Kafka (in The Trial) describe such tyrannies, seen at their extreme in Hitler’s Germany and Stalin’s Russia.
We need “organizational Ghostbusters” that specialize in the dangerous activity of exposing sick visions, institutional blindness, fanatical optimism, lethal alliances, corrupt moneymaking, shallow strategies and corporate schizophrenia of various kinds.
Such change makers use paradox as a weapon to help reason break free of its chains; because puzzlement, when it is carefully administered, enables us to detect possibility beyond anything we yet conceive.
Proclus Diadochus (412-485 AD), the Greek philosopher and mathematician who became head of Plato's Academy, distilled the role of paradox into these words: “just as sight recognizes darkness by the experience of not seeing, so imagination recognizes the infinite by not understanding it.” This isn’t simply a mystical assertion. On the contrary, paradox motivates a more rational approach to those inner limits caused by pre-judged ideas, stubborn beliefs about insoluble issues, unshakeable values and other convictions too deep or too obvious to be a likely subject of critical discussion.
The exasperation of paradox challenges people to grow and gives them a hint of where to go. According to Socratic traditions in education, paradox creates the sensation of being helplessly ignorant where previously we had no doubt. This opens our minds to new things. Paradox points to a frontier, a limit of the unknown and impossible. Thus paradox is an instrument for creating change, newness and surprise. It destroys the barriers in our minds and multiplies our choices.
The paradox that spurred the industrial gas people to clarify their aims was the irritating thought that they were venting gases that, if sold, would lower their unit costs. This detail was the key that Qiang seized upon.
Because real change so often lies beyond our current level of understanding, new things may appear paradoxical. Perhaps this is why managers are loath to relinquish ineffective top-down control of complex relationships for the disturbing idea of improvement via better dialogue.
One must be at ease with the unfamiliar and the contradictory to navigate change and create newness. Change agents must learn to live with the unknown, untamed, for a while. Those mentally accustomed to vagueness, complexity and ambiguity are better prepared to produce original ideas and cope with newness. Familiarity with paradox is necessary to survive the never-ending surprises of our rapidly changing world.
There are many ways to cope with paradox. You can accept the conclusion but explain why it is unacceptable, reject the reasoning as faulty, reject one or several premises explaining why they seem acceptable, misunderstand or deliberately refuse to consider the paradox altogether, live humbly or peacefully with the paradox unresolved, or transcend the frame of reference that is making the situation impossible.
Zen masters employ paradox in the last of these ways. Zen teachers formulate “koans”, questions that are designed to be impossible to answer, because they want their students to learn to reject the question. The koan is intended to annoy the learner so much that in a sudden moment of illumination, of “satori”, they come to see that all rules can be broken, all boundaries transgressed.
This lesson is vital… for we may damn ourselves eternally if we fail to reject certain questions. This is the terrible message of the book and film “Sophie’s Choice”. Waiting in line at Auschwitz, Sophie is told “you may keep one of your children, the other must go.”
“Don’t make me choose, I can’t,” she begs.
“I’ll send them both. Make a choice,” the soldier replies.
“Take my little girl,” Sophie cries. “Take my baby.”
Thereafter she is inconsolable; even the son she kept with her dies in the camp.
In particular, beware oversimplification. Simplification is deceptively appealing in its apparent lack of ambiguity.
The breakthrough for the industrial gas people lay in realizing that their metrics were oversimplifications, that there is more to maximizing profit than simply asking Production to reduce costs and Marketing to increase sales.
In the industrial gas case, the company had not been looking at bottom-line growth, at profit. They had been looking at their operations with the narrower focus of cost in order to block out any of the complexities that would spoil their attempt to view the economics of utilization in a simple way (and would therefore make it harder to hold the plant manager to account).
Consider the Consequences
The next step is to consider the consequence of temporarily abolishing each axiom–the upsides and downsides. Abandon realism and imagine what would happen if you alter each axiom. Determine the advantages and the disadvantages.
Why didn’t the industrial gas people look at pricing more holistically? It was not because of inattention or laziness but because of insufficient exposure to basic concepts of economics and more broadly of “systems thinking”. Nothing more surely discourages deep thought than being surrounded by less helpful notions such as management accounting that, with no sinister intentions and often with great rigor, can nevertheless have the effect of suggesting that there is a disheartening gap between a business and its potential for higher profitability. Making profit maximization the aim, meant rethinking the ways Production and Marketing were measured.
Explore the Feasibility
Finally, establish what it will take to alter the situation, break down dysfunctional axioms or avoid their consequences. Explore the conditions of feasibility: what would it take to abolish the assumptions or move the issue out of its current context?
More concretely, determine what means, what power, and what support is necessary and what cost would be incurred to make the ‘impossible’ possible and to implement the impossible? The only investment for the industrial gas company was the cost of reprinting its price lists.
Qiang joined BOC full time after he graduated from MIT. His work is a reminder that, much as we all yearn for grand strategic insights, the practical application of common sense can still add great value. However, his most brilliant contribution was to facilitate this dialogue at the interface between Production and Marketing in such a way that all felt that they had discovered the answer for themselves.
Paradoxically, the competent but ungrateful client–the one who says “Who needs you, I can do this myself”–is the hallmark of the greatest intervener.
Qiang Xue, Ioan Tenner see http://wisdom.tenner.org/