Issue 3.7 | May 2012

In this Article: why a company should master culture before it attempts to manage complexity.

The Myth of Mastery: Leading Your Company Through Complexity

by Jonathan Wilson

The nasty surprise awaiting every growing organizational leader is the utter complexity of the world in which they are meant to make a success of their business.  The complexity is comprehensive to a degree that can paralyze the mind.  It is at once political, societal, financial, economic, technological, environmental and interpersonal.  So it is no surprise that a major preoccupation of the average C-Suite is about how to manage this complexity and, especially, the risk that goes with it.  It has certainly been a preoccupation for Jamie Dimon, CEO of JP Morgan, and his colleagues.

Last month’s trading debacle at JP Morgan’s Chief Investment Office – in which it lost two (but possibly going on five) billion dollars and, as a result of which, its share price dropped like a stone (9%) – has become a lightning rod for opinions about managing complexity and risk.

Finance pundits, business school professors and politicians are variously recommending: improved mechanisms for risk disclosure, increased regulation and oversight (in particular, increased capital requirements), and functional division (institutionally separating investment from commercial banking, as Sarbanes-Oxley divided consulting from auditing for the accounting industry).  A serious suggestion is that Mr. Dimon should become a micro-manager, and acquaint himself more closely with the reams of data that lie behind JP Morgan’s trades.  All these solutions assume the failure was rooted in flawed structures or processes or information intelligence (nobody has suggested competence, because JP Morgan simply wouldn’t hire anyone but the most brilliant).  In other words, the solution to managing complexity and the risk that goes with it is … to stay on top of it.

This is impossible.  It is the nature of complexity that it is infinite.  It is infinite in scope and it is infinite in duration.  No individual, nor any human system, is capable of staying on top of complexity, because people and their systems are finite.  Complexity cannot be mastered.

Thus it is that a second nasty surprise awaits the newly minted executive: the C-Suite is not a place of unrestricted power.  Not just complexity, but finitude, defines that heady world.  The challenge is made greater still by the fact that organizational constraints are not simply neutral, but often detrimental: insufficient capital, inherited bad debt, a troubled economy, a competitor’s market share, sub-performing employees or disgruntled stakeholders.

At some point in your organization’s journey through complexity, the brick wall of finitude will present itself.  To run foul of finitude as egregiously as JP Morgan did is a result of hubris, and hubris arises when we think we can master complexity (in the early days of this particular trading crisis, Dimon assessed it as nothing more than a “tempest in a teapot”).

No, we cannot master complexity.  Even to speak of “managing” it is misguided.  But we can engage complexity, and do so with great effectiveness.  It requires not mastery of complexity, but mastery of self, as a company.

Engaging Complexity with Culture

It is hard to understand why Mr. Dimon isn’t more red-faced than he is, because the humiliation of the losses, the fall in share price and the subsequent scrutiny by regulators are not really the fall-out of bad decisions caused by ineffective systems.  They are a set of fingers all pointing to a much larger problem: a dysfunctional organizational culture.

In an age in which we, like dogs to squirrels, are not only wowed, but unthinkingly transfixed, by every shiny new technology or clever technique, we have forgotten that, operationally, these are little more than means for scaling value and/or for speeding up its delivery.  They are less so a means for creating and consistently delivering value.  The most stable platform available from which to generate and repeatedly deliver value is culture.

The converse is also true.  Where value is compromised, it is the result of a dysfunctional culture, i.e., a place where the assumptions and behaviours of employees ultimately degrades or diminishes whatever value is created.  JP Morgan might have some of the most sophisticated complexity and risk-management tools available, but how they were used was entirely dependent on the nature and quality of the company’s people.

Hire a greedy person, and your reward will be decisions based on quick-gain considerations that minimize or harm value.  Hire an egotistical person, and you will ensure the failure to think systemically and to take responsibility for an institution that is “too big to fail”.  You will guarantee silo-ism and the failure to generate the cooperation and creativity that generates the most substantial value.  Hire a person for whom personal need takes precedence over the greater good, and when the storms come you will have an executive who lacks the self-discipline that brings sanity and order in the midst of chaos.

There is much more than this to organizational culture. It is the whole package of driving ideas, sentiments, values, insights, skills and instinctive behaviours that make up a company’s core identity: its soul.  Organizational culture is only fuzzy to those who haven’t bothered to clarify their own.  And that usually happens when we prioritize technique and technology over people.  In fact, technique and technology are an extension of culture.

JP Morgan’s world will remain very complex.  What will guarantee both prudence and value creation as they move forward?  Not regulation, which stifles even good risk.  Not the micro-managing of traders and the high-level scrutiny of every transaction, which would bog the company down.  Not a functional division, which, some experts say, would have done little to thwart this or the 2008 crash.  A stronger guarantee of success is possible, however, if JP Morgan learns to master itself.  It can do this by investing more carefully in the quality of its culture and the people it hires to drive that culture.

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