There’s a famous passage in Ernest Hemingway’s 1925 novel, The Sun Also Rises, in which a character is asked how he went bankrupt. “Two ways,” he answers. “Gradually, then suddenly.” The quote has since become emblematic of how a crisis takes shape. First with small signs you hardly notice and then with shocking impact.
This is related to what mathematician Benoit Mandelbrot called Noah effects and Joseph effects. Joseph effects, as in the biblical story, support long periods of continuity. Noah effects, on the other hand, are like a big storm creating a massive flood of discontinuity, plunging everything into chaos before a new order can emerge.
A simple truth is that change isn’t always possible. History tends to converge and cascade around certain points. However, a corollary to this truth is that as forces gather, they eventually create a window of opportunity. One key strategy to bring about transformational change is to prepare for that moment and be ready to seize the opportunity when it arises.
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Former Intel CEO, Andy Grove, described the decision to switch the company’s focus from memory chips to microprocessors as a “strategic inflection point” that arose from a single conversation between he and CEO Gordon Moore. Armed with that vision they transformed the company in three years.
Yet when Lou Gerstner set out to transform IBM eight years later, he took a very different approach, declaring that, “the last thing IBM needs right now is a vision.” What he meant was that the firm’s culture was broken and behaviors needed to change. Until he could achieve that, the strategy wouldn’t matter.
Strategic transformations and behavioral transformations require vastly different approaches. Leaders, like Grove and Moore, can make unilateral decisions about strategy, but they can’t impose behaviors in the same way. You can communicate a vision and create alignment about a strategy, but to change behavior you need to shape networks.
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I still remember how, during the 2004 Orange Revolution in Ukraine, everything took on an air of inevitability. It seemed that the forces of history were on our side and that the corrupt powers that had ruled the country were breathing their last gasps. Their old ideas and tired ways would have to succumb to the new wave of democracy.
Of course, none of that was true. Five years later, the old regime would be back in power. The reality was that the Orange Revolution wasn’t a revolution at all. It was a political revolt. True revolutions are rare. As Fareed Zakaria points out in his recent book, Age of Revolutions, they involve shifts in technology, economics and identity.
What is also likely to be true is that we are, today, in an era of global revolution in which things are changing on a fundamental level. Many of the changes underway are political, but to understand what’s going on we need to look at those three underlying forces. Revolutions tend to happen when they gather underneath the surface, fester and, eventually, explode.
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We all have a sense of our own identity. Some of it is rooted in the immutable traits we’re born with, such as gender and racial attributes, but most of it we acquire along the way. We pursue training in a particular field, take a job with an organization, decide to live in one place or another and come to care about certain causes.
It’s important for us to signal our identity, which we do constantly in both conscious and unconscious ways. We often preface statements with identifiers to signal status and let people understand the role we expect to play (“As a so-and-so, I think this or that”). We also take note of how others signal identity to us and act accordingly.
Anthropologists believe that identity and status played important roles in cultural evolution, communicating to others how best to collaborate with us. Yet identity can also become a trap when our need to signal status becomes more important than what we are trying to achieve. That’s how good intentions result in bad outcomes and we become our own worst enemy.
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There is an old saying that “when you change incentives you change behavior,” and there is some evidence to support that it can work. For example, the Mexican government program Prospera has been proven to be extremely effective using cash payments to boost school attendance and preventative health care.
So it’s not surprising that when leaders want to change behavior, they often start by designing programs with carrots and sticks to encourage behaviors they want to see and penalize those they don’t. Sometimes consultants are brought in to do complex econometric analysis to optimize the incentives for maximum effect.
Yet research shows that incentives often fail and can even backfire horrendously. Human behavior can’t be boiled down to simple triggers. There are norms that underlie behaviors that are rarely obvious and unintended consequences that can warp behavior. The truth is that if you want to motivate people, incentives are not the place you want to start.
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“Institutions usually remain inscrutable to those operating within them—like water to fish.” writes Joseph Henrich, Harvard’s Chair of Human Evolutionary Biology. “Because cultural evolution generally operates subtly and outside conscious awareness, people rarely understand how or why their institutions work or even that they ’do’ anything.”
Organizations are institutions of collective action. They are designed to produce specific, repeatable processes through the creation of specialized roles, norms, rituals and behaviors. This is what creates the culture shock when someone starts out in a new place, and also the social cues they use to start conforming and fitting in.
It’s also why whenever we set out to lead change, we’re sure to encounter resistance. All of those subtle forces built up over time are designed to support existing behaviors and norms. To bring genuine transformation about, we need to shift from a manager’s mindset rooted in the status quo, to a changemaker mindset that can shift it to another direction.
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The mathematician Benoit Mandelbrot saw the world through what he called Noah effects and Joseph effects. Joseph effects, as in the biblical story, support long periods of continuity. Noah effects, on the other hand, are like a big storm creating a massive flood of discontinuity, washing away the previous order.
History certainly seems to bear this out. Events propagate at a certain rhythm and then converge and cascade around certain points. For roughly a decade, I’ve thought that 2020 would be one of those inflection points and that certainly seems to be the case. The 2020s are echoing the 1920s in some very troubling ways.
We always need to be careful with making historical parallels, because history is so long and varied that we can find some historical allusion to fit any potential set of facts. Yet, they can also be instructive. Clearly, we are on the brink of a new era that we do not fully understand and it is a juncture that is fraught with peril. Looking back can help us make sense of it all.
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“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices,” wrote Adam Smith in his classic, The Wealth of Nations. It is a lesson we seem to need to learn over and over again.
It is also at the heart of a recent suit brought by the Justice Department, along with eight state Attorneys General, against a little known real estate software company named RealPage. It may seem obscure, but its ripple effects are bound to be far reaching, affecting not only regulation and competition, but the distinctions we make between machine and man.
How did an obscure company, that few ever heard of, manage to drive up rent for millions of Americans? At what point does an algorithm become collusive? Is there any real difference between sharing information in some back room or on a server mediated by an algorithm? These are all questions we need to answer in an increasingly algorithmically-driven world.
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Jennifer was a rising star when her boss tapped her to lead a transformational initiative. She was told that it was a “burning platform” moment and her success was absolutely crucial to the future of the organization. She could set her own budget, choose her own team and would have full executive support to move forward and scale quickly.
Jennifer wasted no time. She hired an outside firm to help her craft an emotive message to create awareness for the initiative as well as a sense of urgency around the need for change. She designed a training program to help employees adapt to and embrace the transformation. In six weeks the project launched with a huge kickoff meeting.
Initially, it seemed to be an enormous success. But soon Jennifer noticed the excitement fizzling out and, about eight months into it she realized that she was being actively undermined. Executive support diminished, the project was abandoned and her career was derailed. It all could have been avoided if she had taken an evidence-based approach.
In March of this year, Bill Anderson, pharma giant Bayer’s CEO, wrote in Fortune that the 160–year old company was at a “crossroads.” He outlined steps he was taking to battle the bureaucracy that’s plaguing the firm, such as slashing red tape, eliminating levels of hierarchy and decentralizing decision making.
Many cheered his stand against the status quo, but I was skeptical It seemed more like transformation theater than a real transformational initiative. In particular, I was struck how Anderson’s plan reflected telltale signs, such as a false sense of urgency, a rushed process and an over-publicized launch.
I was surprised to find that many agreed with me. We’ve seen so many “celebrity CEOs” like “Chainsaw” Al Dunlap at Sunbeam, Bob Nardelli at The Home Depot, and Eddie Lampert at Sears, talk big and then fail miserably, that it seems that we’re not as likely to be taken in. Yet just as important as noticing the pitfalls, we need to acknowledge the underlying fallacies.
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