Do Systems Exist? (Part 2)

This week’s newsletter brings episode 20 of the Cyb3rSyn Labs Podcast, featuring Adam Walls and John Flach, the authors of the book, “Do Systems Exist"?

In this episode, Adam and John dive into building resilient organizations. We discuss the importance of building reserve capacity and requisite variety in organizations to enhance resilience and adaptability in the face of uncertainty.

John and Adam argue against the traditional approach of optimization for short-term gains, emphasizing instead the necessity of preparing for unexpected challenges by having backup resources and flexible systems. The conversation covers concepts like anti-fragility, the importance of sharing information and authority, respect for humans and more.

They highlight flaws in current management practices, including promoting leaders based on narcissism rather than character, treating employees as replaceable parts, and lacking long-term vision. Drawing from examples in nature, historical business practices, and contemporary management theories, the episode explores how organizations can foster a culture of continuous innovation and employee empowerment for sustained viability and growth.

Members of the Cyb3rSyn Community can watch/discuss the podcast episode on the www.cyb3rsynlabs.com portal or the mobile app (iOS and Android).

Part 2 is packed with more insights than Part 1 and challenges many traditional notions of management, leadership, and organizational design. We dived deep into how organizations can move beyond mere optimization to truly thrive in a complex, unpredictable world. If you're ready to flip your worldview on leadership, read on for some key takeaways from our chat.

One of the most profound ideas we explored was the inherent flaw in striving for pure "optimality" in an uncertain world. As John highlighted, our overconfidence in analytical capabilities has led to a pervasive belief that we can optimize everything. However, this approach leaves organizations fragile when confronted with the unexpected.

Instead, the critical shift is to build reserve capacity into systems, which fosters resilience and antifragility. Think of it like a skilled mountain climber always looking for secondary holds and protections, anticipating that their next grip might not be perfect. Or, consider a military context where you never commit all your forces, keeping some in reserve for unforeseen circumstances. Even simple acts, like wearing seatbelts in cars, are forms of preparation (over planning), acknowledging the possibility of a problem that we hope never happens.

Analytic models, however, often view this reserve capacity as "waste" or "inefficiency" i.e., money not going to investors. But as we discussed, it's an essential investment in safety and adaptability, enabling an organization to be adaptive when surprised. A doorman, for example, can become a great source of reserve capacity, stepping in to perform receptionist functions when needed, a flexibility that a revolving door cannot offer.

Adam introduced us to Ashby's Law of Requisite Variety, which he likened to the law of gravity in business. Yet, astonishingly, most managers are completely unaware of it.

The problem arises when businesses, in their quest for short-term profit margins or revenue, try to reduce requisite variety. We see this manifest in call centers where agents are trained to handle only one type of call, leading to frustrating hand-offs and a "requisite variety tax" paid by both the customer and the business. Similarly, the application of "lean" principles from manufacturing to services like healthcare has led to processes that put everyone in a box, eliminating flexibility and making it difficult to absorb the environment's variety. This results in patients, doctors, and nurses paying the "requisite variety tax" through long waits and a broken system.

The counter-intuitive solution, as Adam shared from his own experience, is to "put the clever person on the front line". He recounted a successful initiative in India where flipping a call center to put third-line support on the front line dramatically reduced attrition and improved service, as these individuals had the requisite variety to deal with diverse calls. This also mirrors nature's wisdom, like the 20% of bees that "explore" new nectar sources, ensuring the hive's long-term viability even if most of their attempts fail, preventing the entire colony from reaching a "local maxima" and die.

If we want to truly increase variety and viability in an organization, the most effective way is to distribute authority. This brings us to the concept of subsidiarity, which posits that authority belongs at the lowest point in the organization that has adequate information.

John provided the classic example of the Toyota Production System, where a worker on the assembly line could stop the entire line if they detected a flaw, in stark contrast to American systems where only managers held such authority. This empowered decision-making at the point of action led to much more reliable cars.

In today's interconnected world, there's a temptation, even with AI, to centralize all information for the CEO, creating an image of a general overwhelmed with displays but still unaware of victory. However, this traditional hierarchical approach, where information is pushed up and authority remains at the top, leads to time delays in decision-making, making the system unstable. As the saying goes, "information is power," and in many organizations, people hoard information, creating an illusion of control that is ultimately a very brittle strategy leading to instability and collapse.

The more effective approach is to use technology to push information out to people at the "sharp end," giving them the real-time insights and the authority they need to make decisions closest to the problem.

Perhaps the most challenging and yet fundamental shift required is in how leaders view people. The "substitution myth" views employees as replaceable cogs, diminishing their creativity and potential contributions. Historically, scientific management assumed workers were not smart, designing work to minimize their responsibilities and making them easily replaceable, like "another brick in the wall".

However, humans are inherently creative, and that creativity is the "best source of variety in the system". To leverage this, leaders must recognize that authority doesn't belong solely at the top, but rather with those at the bottom who possess critical information the CEO doesn't. This idea of "respect for people" is deeply embedded in Japanese culture, where leaders often work their way up from the factory floor, fostering a deep empathy for the actual work.

This contrasts sharply with the "Voltaire’s Bastards" phenomenon, where an MBA from a prestigious institution is often deemed sufficient to manage any company, regardless of industry experience, leading to a "total lack of respect" for the practical knowledge of those on the ground. These leaders, often driven by narcissism rather than character, are rewarded for short-term gains, leaving a "trail of failed companies" in their wake.

So, what are the critical attributes for leaders in this new world? Beyond the so-called "soft skills" like humility, trust, caring, integrity, and curiosity (which are often devalued by technocrats), the most fundamental requirement is to be a good human. As John explained, a truly effective leader makes everyone else on the team better, much like a great soccer player who creates opportunities for others rather than just focusing on their own statistics. As Adam put it, being a ‘good human’ implies self-awareness and the ability to reflect, qualities often missing in those promoted for their confidence and willingness to make "tough decisions" without losing sleep.

This holistic view also means thinking several generations ahead, "planting trees you're never going to see the shade of," rather than just to the CEO's retirement horizon.

This conversation was a fantastic journey through the complexities of organizational design, reminding us that in a world of partial truths and ever-present uncertainty, we need to be less confident in our old answers. It's a call to action for mainstream management to embrace a more human-centered, resilient, and adaptive approach, especially as we harness the potential of AI to build the next generation of small, gratifying businesses with greater variety in our society.

Grab a copy of John and Adam's book, and let's continue this vital conversation!

That’s it for this week. Stay tuned for more multidisciplinary insights in the future.