Strategy Under Complexity by D. Lane and R. Maxfield

ABSTRACT - The authors suggest a new conception of strategy in times when "the very structure of the firm’s world is undergoing cascades of rapid change." They proffer that "strategy in the face of complex foresight horizons should consist of an on-going set of practices that interpret and construct relationships that comprise the world in which the firm acts." The first practice is cognitive: "a firm "populates its world" by positing who lives there and interpreting what they do." The second practice is structural: "...the firm fosters generative relationships within and across its boundaries -- relationships that produce new sources of value that cannot be foreseen in advance."

Foresight Horizons

Key Point: The process of strategy setting must relate to how far ahead the strategist can foresee - the foresight horizon.

Traditional notion of strategy - pre-commitment to a particular course of action selected from among a set of alternatives - is based on the assumption that a "firm knows enough about its world to specify alternative courses of action and to foresee the consequences that will likely follow from each of them." When this is the case the foresight horizon is called, by the authors, clear.
This traditional approach to strategy is falling into disfavor because foresight horizons are not always clear. The authors describe two other foresight horizons - complicated and complex - and argue that many organizations face a complex foresight horizon because they operate in a world which is undergoing "cascades of rapid change"...characterized by "emergence, perpetual novelty and ambiguity."

Lessons From the Rolm Story

Key Points: Using a case study from ROLM , a California computer company which reshaped the telecommunications industry, the authors derive lessons and implications for organizations faced by complex foresight horizons. To gain a much deeper appreciation for the concepts developed by Lane and Maxfield, the case study presented in the article will help a great deal.

"The meaning that agents (individuals, collections of people, firms jointly engaged in economic activity) give to themselves, their products, their competitors, their customers, and all the relevant others in their world determine their space of possible actions -- and, to a large extent, how they act. In particular, the meaning that agents construct for themselves constitute their identity: what they do, how they do it, with and to whom."

"Generative relationships are the locus of attributional shifts."
"Structural change in the agent/artifact space proceeds through a "bootstrap" dynamic: new generative relationships induce attributional shifts that lead to actions which in turn generate possibilities for new generative relationships."
"The "window of predictability" for the attributional shifts and structural changes that characterize complex foresight horizons are very short -- and virtually nonexistent outside the particular generative relationship from which they emerge."
"The first requirement for successful strategizing in the face of complex foresight horizons is to recognize them for what they are. Failing to detect changes in the structure of agent/artifact space, or interpreting the new structures through the lens of old attributions, are sure paths to failure."
"Recognizing the existence of structural instability is not enough: it is also necessary to realize that the complex path through which some semblance of stability will eventually be attained is not predictable a priori. It is not good strategizing to formulate and stick to a strategic plan that is premised on a particular scenario about how a complex situation will play itself out."
"Agents must engage in ongoing interrogation of their attributions about themselves, other agents and the artifacts around which their activity is oriented. They must develop practices that offset the easy, but potentially very costly, tendency to treat interpretations as facts."
"Agents must monitor their relationships to assess their potential for generativeness, and they must commit resources to enhance the generative potential of key relationships. Fostering relationships is especially important when foresight horizons are complex."

Strategy As Control

Key Points: "Since outcomes (of strategy) depend on the interactions with and between many other agents (inside and outside the firm’s boundaries), strategy really represents an attempt to control a process of interactions, with the firm’s own intended "lines of action" as control parameters. From this point of view, the essence of strategy is control. How to achieve control, and how much is achievable, depend upon the foresight horizon."

"When the foresight horizon is clear, it may be possible to anticipate the consequences of any possible course of action...and to chart out a best course that takes account of all possible contingencies."

"If foresight horizons are a little more complicated, "adequate" can substitute for "best", without surrendering the idea of control as top- down and predetermined. But as foresight horizons become even more complicated, the strategist can no longer foresee enough to map out courses of action that guarantee desired outcomes. Strategy must include provisions for actively monitoring the world to discover unexpected consequences...At this point, control is no longer just top- down: some control must be delegated to those who participated directly in monitoring, for their judgments of what constitute unexpected consequences trigger the adjustment mechanisms and thus affect the direction of future actions."
"The dynamics of structural change associated with complex foresight horizons have a much more radical impact on the meaning of control. Constructive positive feedback make a complete nonsense of top- down control...In such situations, control is not so much delegated as it is distributed throughout agent space. Then, the everyday way of talking about strategy can be very misleading. For example, people usually talk about strategy as something this is "set" by strategists. When control is distributed, it is more appropriate to think of it as something that emerges from agent interactions...In contexts like this, the relation between strategy and control is very different from the classical conception. It is just not meaningful to interpret strategy as a plan to assert control. Rather, strategy must be seen as a process to understand control: where it resides, and how it has been exercised within each of its loci."

"Two kinds of strategic practices are particularly important when foresight horizons are complex. Through the first, agents seek to construct a representation of the structure of their world that can serve them as a kind of road map on which to locate the effects of their actions. Through the second, agents try to secure positions from which distributed control processes can work to their benefit."

Populating The World

Key Points: "When foresight horizons are complex, agents cannot take knowledge of their worlds for granted. They need information, of course -- hence the strategic need for exploration and experimentation. But information takes on meaning only through interpretation, and interpretation starts with an ontology: who and what are the people and things that constitute the agent’s world and how do they relate to one another?

"When the structure of an agent’s world is changing rapidly, unexamined assumptions are likely to be out-of-date, and actions based on them ineffective. Hence the strategic need for practices that help agents "populate" their world: that is, to identify, criticize and reconstruct their attributions about who and what are there. These practices have to happen in the context of discursive relationships, and so they will clearly consist in at least in part of structured conversations."

Fostering Generative Relationships

Key Points: "Generative relationships may be the key to success and even survival in complex foresight horizons, but fostering them poses two problems. First, how can agents decide which relationships have generative potential? And second, once they’ve determined which relationships seem promising, how can they foster them?"

"If the benefits that accrue from a generative relationship are unforeseeable a priori, on what basis can an agent decide for foster it?...While it may not be possible to foresee just what positive effects a particular coupling might yield, it may nonetheless be possible to determine the generative potential." Essential preconditions for generativeness include:

- aligned directedness: common, general direction

- heterogeneity: differences, diversity of ideas, competencies

- mutual directedness: interest in ongoing, recurring interaction

- permissions: implicit or explicit permission to engage in explorations

- action opportunities: ability, willingness to engage in joint action

Conclusion: Strategy Under Complexity

Key Points: "When agent/artifact space changes structure rapidly, foresight horizons get complex. To succeed, even survive, in the face of rapid structural change, it is essential to make sense out of what is happening and to act on the basis of that understanding. Since what is happening results from the interactions between many agents, all responding to novel situation with very different perceptions of what is going on, much of it is just unpredictable a priori. Making sense means that interpretation is essential; unpredictability requires ongoing reinterpretation. Hence our conclusion that the first and most important strategic requirement in complex foresight horizons is the institution of interpretive practices, which we have called populating the world, throughout the firm, wherever there are agents that initiate and carry out interactions with other agents -- that is, at every locus of distributed control.

But of course making sense isn’t enough. Agents act -- and they act by interacting with other agents. In complex foresight horizons, opportunities arise unexpectedly, and they do so in the context of generative relationships. In this context, the most important actions that agents can take are those that enhance the generative potential of the relationships into which they enter. As a result, agents must monitor relationships for generativeness, and they must learn to take actions that foster the relationships with the most generative potential. Then, when new opportunities emerge from these relationships, agents must learn to set aside prior expectations and plans and follow where the relationships lead. We call the set of strategic practices through which agents accomplish these things fostering generative relationships, and they constitute the second cornerstone of our conception of strategy under complexity."

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