Ever since Andrew McAfee started the Enterprise 2.0 theme, businesses have been implementing Social technologies to utilize the wave of innovation that swept in from the Internet with user-created content and person-to-person communication via text, voice or video. According to McKinsey over 80% of businesses use at least one social technology and two thirds utilize access with a mobile device. But after the initial rush and some fast benefits it becomes harder to increase those. Mostly, the main executive goal is to increase productivity, but that is not achievable without tackling organizational barriers. While organizational barriers are created by management methodologies such as BPM, one has to ask if productivity is truly the right approach to justify Social technology.

As I pointed out years ago, Social and BPM are not complementary.

Adding Social communication to a BPM platform does nothing if the methodology manages processes the old way – analysis, redesign, implementation, deployment, monitoring, improvement. BPM holds back the benefits that Social could bring. BPM rigidizes what Social tries to make more dynamic. The moniker Dynamic-BPM does not describe a process that is Adaptive or Social. But no one looks at the possible conflict of interests. Studies indicate that executives seem to believe that it is purely a social skill problem while consultants point to cultural issues. Both may have some effect but I propose that it is a larger issue in management styles and concepts that clearly has an impact on culture.

Managing processes in adaptive style is one way to bypass the barriers. Changing to a goal-oriented definition and execution of processes is the only thing that will bring a dramatic benefit. It does open up process management to become part of the social interaction. BPM flow-diagrams block Social.

There is another faith that says that the full benefits will only be realized when the Social functionality is moved to Cloud and Mobile. They say that internal deployment and the rigidity of IT procedures are still a hindrance. That too may have an impact, but it is the same issues of control and security that will reduce the ability of a business to deploy via Cloud and Mobile. Gartner does say that the Nexus of Forces – Information (aka as Big Data), Social, Cloud and Mobile – will drive the change in IT in the years to come. They are most probably right, but I think they overestimate the flexibility of people and most of all of executives and IT departments.

Is Social really about increasing productivity?

These considerations are in my mind only sensible when they take a practical view towards more than productivity. A key element in the Internet age is the empowerment of the customer. We have already moved so much of our customer interaction to the Internet. BUT … customers have no emotional ties to a Web or Mobile interaction. Studies have shown that even long-term customers switch vendors at the drop of a hat when there is no human contact.

Loyalty programs do not deliver new business with existing customers and new customers are five times more expensive than the same revenue with existing ones. I am not flying more with one airline because I get miles that I can spend. It is a silly discount scheme that I can offset by flying with cheaper airlines. I do not choose an airline because of the online check-in and because I get my ticket on my mobile. Flying has become this non-sensical ‘cheapest-fare’ game. I might pay only a $100 dollars for the ticket, but I pay another $70 to change my ticket, and when I want one additional suitcase it is another $50. And more money for the slightest improvement in service or a snack aboard the plane. It is ridiculous and makes me feel treated like an idiot. Only the mileage status that gives me preferential treatment by the staff  makes me fly more with an airline. So self-service via Internet and Mobile have really produced a negative effect despite the cost reduction and increase in productivity KPIs.

Can the customer disconnect be offset by Big Data?

I doubt it. Predictive analytics to provide the customer with additional offers produce nothing of value. Online sales leader Amazon tries to sell me more cameras when I just bought one. It is annoying to say the least. The few accessories they offer I already bought. While they do have a complete record of all the things I bought at their site, they are unable to use it. They are unable to go cross-market-segment and offer me books on photography about the particular camera that I just bought. Which means they lack the ability to assess the content and context of my purchases. The most useful feature is the user ratings of products (not just the number of stars but the textual content) and what other customers bought after they looked at or purchased a product. That is after all similar to what we offer at ISIS Papyrus with the User-Trained Agent when we recommend tasks and actions that other users performed in a similar situation in the case/process.

The key element in making ISCM – Information (content not big data), Social, Mobile, Cloud – really do more for the business is to look at it though the lens of customer engagement. Social has the ability to connect customers with employees but that is not what most businesses want. For the short-sighted cost-cutter the ideal way to do processes is lights-out execution or straight-through-processing. Keep employees out of the game to reduce costs as much as possible. Customer contact centers are stuck in optimized and thus rigid processes that are unable to achieve FCR – First Call Resolution – which is the key to increase customer satisfaction. To achieve that, the call center employee must have all the customer information AND have decision making authority! That is like blasphemy to many MBA-trained optimizers …

The information that allows FCR is not in a database table and is not controllable by simple rules because otherwise there would be no need for the customer to actually call. The information is in the CONTENT of the communication and it has to be interpreted by a human with a caring attitude to make the customer happy. More blasphemy coming your way.

“In 2013 Customer Service Is Moving From Cost Center To Differentiator.” (Kate Leggett – Forrester Research)

Businesses are now in a situation where marketing can’t fix bad reviews on the Social networks. It won’t be solved by simply buying and implementing Social or ACM products. It clearly is about empowering employees to create the positive emotional experience for the customer, because that is the only thing in the Internet age that will create customer loyalty. If your choice of technology is driven by cost cutting and short ROI time frames your business will go the way of HBOS and Kodak.

  • Companies have to learn from experience that customer loyalty is an essential driver of business success.
  • A goal-oriented approach to service processes is the only thing that will allow them to improve.
  • Just measuring some metrics and reward employees for achieving them does nothing.
  • Employees need authority, goals and means for the customer as well as recognition and security for themselves.
  • Adaptive processes allow you to not just optimize the service call, but to remove the reason for the customer calling.
  • One integrated system of engagement makes it easier to manage, measure and improve multi-channel experiences.

Coming back to company culture enabling social interaction: Yes, culture impacts what gets done and how it gets done.  But culture in itself does not do anything. A great company culture will be able to execute a great strategy and the two have to be aligned. A customer-focused company strategy won’t be implemented through BPM methodology or rigid processes. The objectives of your strategy have be translated to explicit goals in your adaptive service processes and employees must be empowered to achieve them. No need for Big-Data, a Social culture or Cloud deployment.

If your company strategy does not consider the change that we are experiencing through digital communication, it won’t drive company culture and the use of the right technology to stay emotionally connected to your customers.

Coming in from the freezing cold of the night into the tent made my goggles fog up. That and dim light of the few logs burning at the fireplace in the center made it hard to see. There were a few benches and people have gathered to sit on reindeer furs. The sound of a soft beating drum and the light crackle of the fire was soon mixed with a low voice humming a melancholic melody. They do say that the lack of sunlight during winter above the Arctic circle makes people depressive. My eyes adjusted and could now see the old man in reindeer furs beating the drum and humming his tune. His eyes were closed and he ignored us. He seemed in trance.

Then someone closed the opening in the tent and the great shaman of Kuusamo began to speak in the old Sami dialect:

“I am alone but I am not lonely,
Because I am with my friends the reindeer.
It is cold but I am not freezing,
As my reindeer furs keep me warm.
It is dark for a long time in winter,
But it allows me to see the Aurora Borealis.
The distances are long across the frozen lakes,
But I do not have to walk and can sit in my sled.
Nothing grows in the long winter, 
But the cold and salt keep my food.
There is no one to talk to me, 
But my reindeer will always listen to me.
What else can a man want to be content,
To stand on my own, respected and safe with my reindeer.
If you share this milk with reindeer horn with me,
I can bestow on you the same open heart and clear thoughts.”

With that he handed out little cups with a white liquid. We drank and it tasted sweet. I wondered.

The next day I sat down with another shaman, but this time I was strapped in and a 600 HP engine roared to life. We rolled out onto the ice of the lake and with no further delay he spun the car around its center and off we went. We were past a 100 mph in a few seconds and I saw the woods come closer at the edge of the lake with frightening speed. He was driving with one hand while telling me that he started driving at the age of seven. His father had told him to not get into trouble with the police but that was it. He applied the brakes and the quarter-inch rally spikes tore up the two feet thick ice of the lake. I hardly saw him move the wheel but the car tilted left only to jerk right a moment later when he applied the throttle. We were jolted forward but because of the ‘Scandinavian flick’ we kept going sideways until the next right turn appeared. I could sense a moment of less power and with no more than a tug at the wheel the car changed load to the opposite drift into the next turn. Both the rear and the front of the car were throwing up snow from the edge of the cleared path on the ice track.

Bentley Supersports

Bentley Supersports

I finally managed to say something through my amazement. I had practiced this for a couple of days and kind of gotten the hang of it but I now felt utterly sobered and disillusioned. This was incredible perfection and control in an environment that should not allow such action. “How in the world do you keep the car so precisely in the drift? I always lose control and spin out.”

The great shaman just shrugged as he presented me with another snippet of wisdom: “You spin out if there is no force holding the car in place. When you roll straight it is the friction of the tire. When you drift there is nearly no friction and the only thing that keeps you going around the corner is the forward push of your tires. Without power you lose it. It is a balance of power and pointing the power in the right direction. You are only in control when you are under power!”

That made a lot of sense and I realized that this was another truism for life. Let go and stop giving direction forward and you will lose it. In your private endeavors, in your relationships and obviously in business alike. Drifting was not about floating but it was about applying power and giving it direction.

“I often feel that I will be too fast for the next turn and thats why I reduce throttle and then the car spins out,” I asked. He nodded smiling and answered: “How you make the next turn mostly depends on how you come out of the previous one. For the load change from one side to the other you must be in full control, which means you must not come off power, but just reduce it enough so that you destabilize the drift and the car will react to the wheel.” Again is sounded so logical that I did not understand why I had trouble doing it.

He hit the brake hard and the spikes dug into the ice just before the 180 turn. I noticed that he did his Scandinavian flick after the breaking only. He said: “Break early and hard when you are straight until your speed is right. Point shortly into the turn and then destabilize the rear by steering outside. Wait until the car comes around and then apply power to take full control. Little power, little control, more power, more control!” He grinned at me, all the while steering with the left hand and kind of showing me the cars movements with his right. It was absolutely no effort to him. He had so much experience that he reacted completely automatically to whatever the environment threw at him. No surprise that he had been four times World Rallye Champion …

Juha Kankkunen and me having clear thoughts ...

Juha Kankkunen and me having clear thoughts …

Then the clear thinking actually came to me!

I had met the great Shaman of Kuusamo. Two very different people, but both with the same clarity of thought and open hearts to their surroundings. One an incredibly old goat herder who was the most happy when with his reindeer and in harmony with nature. The other Juha Kankkunen who is still the most happy when in harmony with a car and a road. But the harmony did not come from learning in books, or following rules and procedures. It came from listening, feeling, clear thoughts, open hearts and 10.000 hours of practice.

People do not become experts through (taught) knowledge, or through experience or natural talent. Despite all the explanations that satisfy my brain’s need for narrative, I still had a hard time doing it myself and when I failed I got worse and worse. Experts are usually pretty poor in explaining exactly what they do. But when I was watching the expert do his thing I suddenly was able to copy some aspect of his expertise. I usually got it in a couple of sessions or I better stopped. Just practicing did not make it better as I got too tired and frustrated. I needed another infusion of expertise from the expert himself. It is this kind of teaching mode that the collaborative working style of ACM suggests and supports.

If you have not done it yourself – ANYTHING – you can study all you want and get as many degrees as you like – you will be an outsider and repeating other people’s knowledge without really knowing what it means. You certainly won’t be able to teach the real thing. There is nothing wrong with getting a great education, but you need to get out into the school of hard knocks, to experience the value of failure, and the adrenalin of daring and the dopamine of winning that will put you in harmony with the world. That harmony will make you wise enough to teach or consult or manage. Nothing else will.

Yup, the Nike slogan applies to life: “Just Do It!”

Last week I was heliskiing at Mike Wiegele in Blue River, Canada. Considering my spinal injury from seven years ago, after which doctors predicted that I would not be doing sports again, I simply feel privileged to experience it. At such activities one always has the opportunity to meet interesting people. Part of it is the expense and most participants have some adventurous spirit. There is the occasional rich sod one could have done without. We were a majority of entrepreneurs or business owners who work hard and play hard. Stick a group of alpha wolves into a helicopter and you’ll get very interesting people dynamics to observe.

There were a number of people from IT and we had various discussions in the evenings on where enterprise IT is going. Many are stuck in orthodox solutions to new problems because thats where the money is right now. One – I will call him Larry here – had sold his Internet business to Microsoft some time ago. Larry was intrigued by adaptive processes, but thought that businesses would rather want flowcharts. Then something interesting happened … but first a little introduction to heliskiing.

A_Star Helicopter Picking Up Skiers

A-Star Helicopter Picking Up Skiers

We flew the 6-seater A-Star heli carrying the pilot, a guide and four skiers. Other groups fly the Bell 212 with twice as many passengers. The smaller more powerful chopper can land in tighter places and sometimes only the front skids are stuck in the slope as you get out. 99% of drop-offs and pick-ups are marked landing sites and one doesn’t jump from the heli while flying as some believe. You bind your skies and poles, drop them next to the markers and kneel down far enough to leave room for the heli lands right in between, two to three feet from where you crouch. Despite the adventurous nature of the operation, safety is the primary concern when flying and skiing. Mike Wiegele operates 10+ helicopters in Blue River and has a fantastic safety record.

But in the end it is all about people. The guides try to assemble homogenous groups of skiers so that things go smoothly. Two groups ski while the third one is being lifted to the next drop-off.  A pick-up or drop-off takes between one and two minutes. Flying time five to seven minutes. The guide always loads and unloads the skis from the basket. The skiers have to open the door, climb in, buckle up, get out, close the door, crouch and wait for the hell to take off, covering their face and hang on to their stuff. Put on your skis, the guide explains where to go and you are off. Great fun, but requires good skiing skills and being very fit.

At lunch Larry asks if its ok for me to operate the hellcopter door as I am the one to always get in first and out last. I tell him that the process seems to work fine for everyone … he looks at me with a naughty smile and says: ‘I am surprised to hear that from you. I thought you don’t like rigid processes?’ I grinned and said: ‘Just because a process isn’t rigid, doesn’t mean it must be anarchy!’

What Heliskiing Teaches You About ACM.

Heliskiing has many different processes each one with several goals and tasks. Most of them are either a set of checklists or rules. Only some can be seen as prescribed procedures of activities. Checklists, rules and procedures need to interact and intersect and each skiers/guide team creates its own individual process around them. As the days go by less guidance is needed and the teams refine the processes more and more. There is no upfront overall analysis or design and we were not even experts in these processes but did them for the first time. We were expert skiers needing those processes (goals) to achieve our outcome – doing fantastic skiing safely.

I will not go into the service processes of the lodge but solely focus on the processes of the groups of skiers. Flying the heli is mostly a number of checklists and several rules that the pilot has to conform to. No flowcharts. There are six performers of which four are also customers. It all starts off with a safety briefing that is nothing else then a list of compliance rules.

  • Tie together your skies and poles for loading and unloading.
  • Do not lift up the skies close to the hell but just drag them on the ground.
  • Don’t touch the heated airspeed sensor at the heli’s nose.
  • Once the pilot signals, open the door, get in and close your seat belts.
  • Don’t force handles or doors as then you are doing something wrong.
  • On landing, don’t open the seat belts before the guide opens the door .
  • Wait for the guide, climb out, close door, kneel down, signal the pilot ok.
  • If anything is amiss cross your arms to an X and he will not take off.

These are just the compliance rules and the rest of the process the team has to develop themselves. Yes, it is a team effort. The guide gives some advice on how to bind the skies and so on. You quickly learn that it is better to take off the backpack before you get in. It is really hard to find the belts with the goggles on and get hold of the buckles with mittens. So the skiers hand each other the belts. At the window seats the belts always fall below the seats and the only way to find them is to take off your mitten. Once you get out, it is more efficient to immediately put on the backpack than later when you are on the skies holding poles. But the process remains flexible as if one skier would arrive late, the others would get into the heli before to save time. We really did not discuss it. It happened …

Some other guidelines revolve around respecting your fellow skiers. If you need a ‘technical break’ before flying or skiing, do not do it in the snow close to where the hell lands. The blades will cause a snowstorm and some of it might be yellow.

Deep  Steep Snow

Deep Steep Snow

Adaptive Processes must too ensure compliance.

Finally, there are quite a few safety rules for skiing. In case of avalanche danger never ski close together. Do not use the pole straps. Everyone should wear a transceiver, and carry a shovel and avalanche probe. On glaciers don’t stand together in the same spot. You might break through into a crevice. If an avalanche goes off, yell ‘avalanche’ and try to ski out to the side. If you get sucked in, throw away our poles and try to swim and if you go under cover your face and nose to create an airspace. The others watch the skier to see where he goes under. First radio for a rescue team. Try to get there and mark the spot with a ski pole. Turn your transceivers to ‘search’ and start a ten feet spaced search pattern downhill from there. If you are atop a skier take out your probe and push it down outwards in a spiral from the signal center. If the response is hard it is rock or ice, if it is spongy .. you found him. Take your shovel and start to dig from the slope upwards as hard as you can. Another skiers removes the snow behind you. Switch to a fresh digger after a minute or so. Continue like so until you find him. Apply first aid. For multiple buried skiers the ones not digging continue to search. Yup, the rescue procedure might even work as a flow …

What was really interesting was the search for a lost skier, especially as the lost skier was me. Just before lunch break we skied in the woods and I stopped for a technical break (not at the landing site …) and my team was gone. I tried to follow their tracks but there were already too many. Suddenly there were no more tracks and as is the rule I stopped. I pulled out my radio and called. No answer. I tried that for a few minutes and then assumed that I was in bad spot. I tried to walk uphill but it was steep and deep heavy snow. So I skied down a bit. Below me I could see a little creek and an open spot. Still no answer from the radio. As that was strange I played with the channel setting and suddenly I heard voices.

To my surprise I heard that they were already sending out the helicopter to search for me. As the guides and helicopters have more powerful radios and they were continuously talking I could not get through. They were so busy executing their standard search procedure that they did not even listen anymore to the radio. Only some of the other skiers heard me on their radios ….


Skiing in the Woods

As the helis were now up searching I decided to ski down to the open spot where they would see me. I could see one of them flying about 300 yards away from me. I tried again the radio and now the helicopter above me could also hear me. I directed them to where I was and a little later two guides came and we were picked up by a heli. The guides told me that I should adhere to the safety rules.

According to the procedure the search would have taken a lot longer as I was invisible in the woods and there were too many tracks that obscured mine. In some circumstances in dangerous areas or when you are hurt it makes sense to stay put. For me the procedure is guideline but clearly everyone should use it as skill allows.

Customer Service Processes Can’t Be Done With Flow-diagrams

I could explain to Larry this way what it means to plan and execute in adaptive processes. It creates goal-oriented team collaboration and does not suffer from chaos due to a lack of procedure. He kind of claimed that skiing is not doing business. That is basically saying that the aspects and consequences of being human and the related interactions do not apply in business. That is simply nonsense. Heliskiing is a service business just like an insurance, a bank, a telecom or a healthcare organization. It has a well defined outcome. There are cases (one per run) with clear goals, many different tasks involving process resources (equipment and food), multiple performers with different roles (guides, pilots, skiers), compliance rules, ad-hoc tasks for technical stops, and yes — also some safety procedures. The case/process develops/evolves on the fly without design work. It interacts with other processes through events. It has even more interaction with the customer and the process has to be created around him/her. People skill is a core aspect in how the process is actually performed. The guide has to chose the next run according to his experience that should be the best one closest by but still safe considering the weather and snow conditions. Pure knowledge work for the customer outcome. It is the guide who makes or breaks your skiing day. And it is quite obvious that the guide is actually the process owner!

Can you now see the adaptive processes you participate in every day?

John Wenger wrote this fantastic post on the subject of complexity and uncertainty, reminding control freaks that they exhibit ignorance when they demand that economy and business do not follow the laws of nature. He reiterates so many points I have made over the years.

John Wenger also reminded me of something Mahatma Gandhi said: ‘First they ignore you, then they laugh at you, then they fight you, then you win.’ While we seem to enter the fighting stage, I only care about the concepts being understood and not only in the BPM arena. The problem is a widespread one.  Applying Gandhi’s thinking to BPM reminded me of something else he said: ‘An error does not become truth by reason of multiplied propagation.’ Just because many promote orthodox BPM does not prove its working. There is a huge consulting and software market at stake. On the other hand there is no need to prove that adaptive concepts work because we see them in nature every day of our lives. I find it utterly amazing that someone in a dark suit, white shirt and tie can stand up in front of an audience of obviously intelligent people and say with a straight face: ‘The laws of nature do not apply in business’ and is not immediately showered with rotten eggs and tomatoes.

In another post on ‘BPM disruption’ the question is asked if the BPM community should stop people like me from provocatively proposing that orthodox BPM is not all it claims to be. The BPM community is clearly afraid of change and would prefer a gradual, cautious and reasonable evolution of the BPM concept and not question its principles. As always the grey zone between BPM methodology and software makes the discussion more difficult. In principle, if a BPM approach only defines objectives, targets, goals, process handovers and customer outcomes and does not enforce flows then it follows the Adaptive Case Management (ACM) concept. Hardly any BPM effort does however do so. At the same time not every piece of software that provides flexible task collaboration supports an ACM approach.

What about RIM, Kodak and Blockbuster?

If BPM governance would really provide the strategy-relevant processes it promises then could it have saved RIM, Kodak and Blockbuster? Obviously not, you will say. Only a better strategy to head off external changes in the video rental, photo and mobile phone markets could have saved them. It does not matter how efficient processes at these companies were once their competitors changed the name of the game. These businesses were run by bean counters who looked at statistics rather than customers and executives who looked at share price rather than market changes. In such companies, strictly defined processes might keep costs at bay but freeze the organization in an illusionary optimal mode of operation. To change them becomes harder each day they are being used as more and more knowledge workers who could have changed the business leave the sinking ship. No one with half a brain wants to work in a process-optimized business.

BPM pundits need to read a little history. Technology always disrupts! And those like Kodak or Blockbuster are simply the necessary fallout. Everyone talks about change and adaptation but they really do not want to see the speed at which things are moving.  I do not understand why people are asking why we at ISIS Papyrus are abandoning content management (when that is utter nonsense as we are the only ones to truly integrate process and content) when the market that we used to have ten years ago no longer exists. All our outbound content competitors have been sold! So we went through that difficult period to adapt to a changing marketplace ourselves.

Our strategy is simple: we develop what businesses really need and not what analysts list as the most common features in some market fragment. My original ideas were the electronic document original based on AFP before there was PDF in 1990, the integration of inbound and outbound document processing in 2000 (which others copied in 2005) and managing their business context in adaptive processes, today better known as ACM. It all logically followed from my first idea to bring the smplicity of working with documents as the carrier of the business process into the 21st century. Those who see just the short-term cost cutting, the next sale or only report on what has been sold in the past are not the ones who create the future.

The knowledge worker is the new director!

Businesses with the old command and control attitude are fast disappearing or changing. Even at old companies like GE the distance between management, staff and employees is shrinking rapidly. It shows in the way that their previously separate cafeterias are merging. They suddenly need to collaborate rather than hand out direction. The knowledge worker is the new director. Managers finally become what they should be: Enablers!

Harvard Business Review ran a three article series on the future of knowledge work in their January-February issue to discuss the related human resource and management issues as well as the need for different process technology.

While the BPM community is stuck in the belief that a business needs to optimize processes and cut manpower cost to survive it is clear to others that it is the people who make or break a business. An executive is a nobody without the hard-to-duplicate know-how of a company’s most-skilled knowledge workers: engineers, salespeople, scientists, physicians, and many other decision makers, including line management. No business can afford to not treat these people right or to not use them as effectively as possible. Efficiency is utterly secondary.

Yes, the right kind of process management can help them to collaborate with lower-skill people to offload less essential work, but as it is an element of their work it can never be a rigid process flow. The organization needs a skill database and more flexible work assignments to utilize scarce and distributed talent correctly. The idea that one could simulate such collaboration is ridiculous to say the least. The most important tool to increase effectiveness is to create transparency — from the top down by laying out the goals and from the bottom up to see exactly what is going on in real-time. Not just simple social networking tools but purposeful and guided collaboration with embedded business content and data towards process goals.

These requirements demand a much more dynamic and fluid organizational structure. Old department boundaries need to become transparent to non-existent. Knowledge work in the 21st century drives change: the employee relationship and where they work; abandoning rigid workflows to allow individual contributors to add value; and the importance of technology to support those process goals in a more effective manner than email.

While we could discuss endlessly why for example Apple has done many things different to others in regards to strategy, that is really not my subject here. What we need to discuss is what a business needs to enable management and knowledge workers to implement those strategic objectives and how to stay nimble when they require frequent change. That’s really all I do when I question management styles and BPM methodology.

And yes, while John and me like the term ‘catalyst’ more you can also call us disruptors: ‘A ‘No’ uttered from the deepest conviction is better than a ‘Yes’ merely uttered to please, or worse, to avoid trouble.’ (Mahatma Gandhi)

In part 1 of these series I discussed the concept of Naive Intervention as a response to purely human need of causal narratives, while no such thing exists outside our brain. In part 2 I discussed the priority of survival over efficiency in our intuitive responses to events.

In part 3, I want to conclude my essay with a discussion about the similarities of illusions of managing a business with processes and illusionary investment theories. In both cases intellectuals use claims of unproven hypothetical benefits to justify acts of naive intervention.

Let me add once more that I am not referring to process management in manufacturing where the benefits of repeatable and solid processes are obvious, but to industries where service and customer interaction is the product. A lot can be learned from manufacturing, but you can’t turn the people who service your customers into robots or monkeys.

Less information about the more important thing makes decisions safer.

Investment theories use mathematical models to predict for example the future value of a stock, broadly based on the Efficient Market Hypothesis. I discussed in part 1 and 2 that it is arrogant to pretend that the vagaries of the business world and economy can be predicted by a few formulas. Similarly, Business Process Management uses symbols to express a model of how processes should provide a certain value in the future. Apart from a functional syntax, there is not even a definition what the true meaning of these symbols is. They express logic that does not exist in business interactions outside process management theory. It is an unproven assumption that BPMN models can actually express business interactions or even more important can represent what a business wants to deliver in value. The appealing simplicity of process graphs is understandable but their use is actually naive.

As a further point I propose, that deciding in a larger business ‘which processes to optimize how’ is similar to deciding into which stocks to invest on the stock market. Why? Because they follow the same investment principles, require a similar risk assessment and therefore will be exposed to similar fallacies. You buy a stock at a current market price and you take a risk of it going up or down. You might buy a future from a partner who guarantees you a stock at a certain price at some future date. Both parties take a risk in doing so. That risk estimation defines the risk premium. You ‘buy’ a better process through its implementation and maintenance cost. For that it provides a return in reduced costs or improved value. There is a slight difference in that you can’t sell the process to someone else, but some process outsourcers actually try to do so. The main return of stock is not its dividend but the price difference between purchase and sale. Overall that does not matter in a future value consideration. It is the return that counts regardless of how it is achieved. The risk is the uncertainty how much return the ‘process stock’ I invested in will deliver. With processes I am even less sure what the purchase price is as the implementation costs are upfront purely assumptions, as are the expected returns in terms of savings or improvements. More information about past process implementations does not help me at all in that consideration.

I thus suggest that a BPM process implementation could too be measured by an ALPHA (how much better are you doing than the average) and a BETA (average return on the market). Alpha makes BPM worthwhile, beta doesn’t. But how can we calculate these numbers in terms of the return of a process? It is really difficult. For that simple reason the main selling point of BPM in the past has been cost reduction. Firing people is a simplistic short-term cost benefit that any idiot can understand. But that does not automatically turn a BPM investment into long-term benefits and it does not make it a competitive measure. Cost reduction is a naive intervention performed by clueless management. An important point is that there are limits to cost reduction. There are only three reasons for the suggested increase in efficiency in industrial production and they are not related to managerial skill or BPM. It is miniaturization in electronics, automation in manufacturing and outsourcing to cheap third world countries. These reasons are running out of room to move. In the long run it is much harder to make money by lowering cost than by spending money to improve quality.

Apple has driven up perceived value and changed the world.

Others merely drove down cost in a spiral to extinction. Apple made customers pay a pleasure premium over the cost of the product simply because they offered a unique emotional benefit. The problem is that the pleasure is not a simple measurable quantity at all, and neither is displeasure from a cheaper, but lower quality product. BPM should thus be about improving perceived quality and not about reducing costs.

Because customer perceived value cannot be determined by a model or guaranteed by certain processes, all decisions in this arena must be based on intuition and not on probabilistic prediction. It cannot take you out of BETA territory. So the question is: how could we capture reality and make things better by performing to the real-time perception of value by the customer. Quality in the definition of current BPM methodology conforms to some abstract, usually measurable spec of a deliverable when the real thing is the emotional reaction of a real person only! Therefore we simply can’t predict or measure the true outcome of processes. We thus need to focus on creating enough potential for perceived value.

The prediction that a particular process will instill a certain perceived value reeks of ignorance. Even probabilities such as coin throws in the physical world are influenced by chains of uncertainties. By the law of large numbers, coin throws are utterly predictable in the average, but that won’t tell you what the next coin throw will show. Customers are further influenced by emotional people interactions rather than a platonic, theoretical perfection. In the real world where things are chaotic, small variations in starting conditions produce substantial variation in the causal chain. Probability chains in people interactions can’t be calculated at all. Emotional, intuitive response to a customer is the only real world measure to influence perceived value and thus true outcome. Only people who care are able to deliver such value. Process management’s ONLY real world benefit can be achieved by improving how people interact effectively, including how to make that interaction more efficient by not losing incidental information or missing goals. A hard-coded flow doesn’t do that.

There is however no point in asking people what they want, where they want to go or where they will be tomorrow. Like you they don’t know. They only know what they want when they had the experience of getting it. Even if there is a statistical distribution of people reacting to that physical outcome with different emotional perceptions, like with coin throws that does in no way predict an individual reaction. Which simply means that at best ALL your process management efforts will be no more than the BETA – you will never go beyond average. There is no potential upside. You are wasting your money. Simply do nothing. It’s cheaper.

BPM experts use the same approach as economists – simply ignore complexity!

The standard process flow assumes that only a minor variation around the mean will take place in the future. The radically naive assumption of BPM is that the variations of a process outcome will only be the same risk of diffusion of past observed variations by which the variation in perceived value is (like in stock markets) related to the square root of time.

Variations in processes must however be considered in three ways: variations of the outcome over time and the variation across different processes, and third the unpredictable outside influences that move the outcomes of all variations away from their starting values. From what I have seen, the consequences of that are not understood by most BPM experts. They do not even consider it but assume that a governance structure will take care of those problems. But as I pointed out previously, governance does not actually align the process with changes in context, it just demands more governance to enforce previously defined processes. The common practice of standardizing processes is proof of that and it assumes that if the principle outcome is the same then clearly the process and cost leading to it should be the same. The standard process is the holy grail.

That one can come to the same endpoint from many starting points and through different paths produces a huge potential gap between the true cost and the perceived value across all process variations and all process starting points. The problem is that these processes work with implied parameters, meaning that some common performance indicator is construed to be relevant across quite disparate processes. The optimal process must be the cheapest one and therefore if we apply it across all customers and across the whole business then it must also be good for the whole business and also good for the future. That in effect is idiocy!

Just because you averaged out indicators that does not mean that all your processes will perform at average. Cutting cost this way carries the risk that some processes may be quite out of line and your numbers can still look good in average. There are no risk distribution profiles you could use. Some processes may experience huge volatility in outcome over time and some may simply not work at all. Your models won’t tell you and the glorious BPM dashboards are no more than fairytales. The only one to tell you is your customer! If you now say that you are doing customer satsifaction surveys they might again give you an averaged-out indication much too late, but it won’t tell which part of what process is the culprit. Big-Data-like analysis on processes just produce more stasticial noise about less important numbers. The problem is that a singular bad experience in your customer’s perception can wipe out your great process performance over the years. Emotions do not average out over the years and across processes. They are REAL and NOW and they make the customer switch in a cinch.

Antifragile – A favorable assymetry of winning options!

Antifragility (allowing gain from disorder) applied to processes enables more options to win than to lose in a favorable asymmetry and no amount of risk assessment or future value assumptions can do better than that. It basically means to play it safe in the large and allow for the potential upside in the small and not vice-versa by cutting costs across all processes. This is not the same as trying to standardize 80% of a process, as you still have the same problem within them. The other 20% have no upside potential at all and remain part of the average. It is more important to not lose that one customer (which is the first step to lose your business) than to have a large cost saving potential that could however bankrupt you. If you chose to not service a particular customer segment then that is a different thing alltogether. To become efficient is secondary to becoming effective or safe! If you choose a process that offers more options it is more likely to satisfy the customer even if you are less sure about the future costs and the future outcomes. More options means more antifragility and more potential for upsides. As long as we have a bottom line of process performance we keep them all reasonably happy and where possible we excel!

The same is true for your staff that ought to perform these processes. It is their caring attitude that is the only thing between a customer staying or leaving. This age of highly educated individuals demands a change in thinking. We must acknowledge that they collaborate as social networks of autonomous individuals. Studies show that only security, autonomy and appreciation keeps them in their jobs. Managing a business by individual performance is utterly futile. Averaging out these individual performance numbers tells you nothing about how your business is doing. It is the people network that makes the individuals produce value and not a process straightjacket. The quality of their outcomes is proportional to the quality of the relationships they entertain. An executive does not manage individuals, he is just a node in a network of people with some stronger ties. It is well understood that it is the weak ties (Granovetter) that make the network tick!

The difference between humans and animals lies in the ability to thoughtfully collaborate. Purposeful collaboration (=business) has an explosive upside, an additive capability that leads to evolutionary emergence of new stuff. All you need to do is to create collaborative environments such as the Apple Appstore that a connects developers (musicians) and users (audience) or a system like ACM that empowers the various departments and their internal and external customers to collaborate freely. Your processes become antifragile — they benefit from the disorder!

Let me close with a summary of various snippets and conclusions from ‘Antifragile':

MBAs love strategic planning but there is no evidence that it works, rather the opposite. Don’t invest in business plans but in people. You don’t need a plan, but goals and an environment that enables people to collaborate towards them.

Everything theoretical in business and economy has been exposed as pseudo-sience. Evidence of absence is not absence of evidence — meaning that even if you can’t see it, it can still be there. Good news tend to be absent from past data but that does not mean that these are bad news. Empirical evidence therefore misses positives and underestimates overall benefits leading to the conclusion that something must be done. There is little evidence of good things that came from doing nothing.

The true question for a better future is not what we must add but what we can remove from our over-technologized world. Make it simpler but not by adding rules but by removing complexity. For cooking we still use the same tools as they used 300 years ago, just slightly improved to be non-stick or easier to clean. An iPad and most tablet computers are so appealing because they do not require technological knowledge to be used and they remind us mostly on how we used to work before we started to use computers. A two-year old can use them without being able to read or needing to be taught. Likewise, I propose that ACM is a return from the rigidity of BPM to the simplicity of people collaborating with content in the context of a case folder.  There were no processes but each performer basically knew what to do with the piece of content. ACM further adds guidance, context and auditing. While simplification is good, BPM flowdiagrams are an oversimplification.

Governance required to do BPM does not simplify — it complicates by means of rules. The most hindrance in developing human capital is the soccer-mom as per E.O. Wilson (enforcing structure that keeps kids from experimenting and adventuring) and formal education or HR programs. According to Nietzsche, not all that is unintelligible to humans is necessarily unintelligent. Nietzsche saw two forces in us: the Appolonian (measured, balanced and reasonable) and the Dyonisian (visceral, wild and untamed) or as the Asians called it, Yin and Yang. For progress we need both.

Nietzsche rather than Joseph Schumpeter first spoke of creative destruction. It is the wild and untamed in us that will destroy what the measured and reasonable set up as boundaries. If you are an executive then you should be using both forces wisely. The larger and higher the walls of rules that we create are, the harder and more profound will the earthquake be that takes them down. Looking at what is going on in economy and politics, it may be unavoidable there.

In Part 1 of this series I covered the problem that humans grossly overestimate our human rational capability and the power of non-emotional narrative in the form of theories and models. In this post on risk assessment and decision making I continue to quote freely from Taleb’s and Derman’s books.

We are demanding that the risks that we take are calculable.

While that is reasonably possible in the physical world, it is impossible in complex systems. Because our world is inherently unpredictable, human decision making does not utilize such rational and logical functionality but emotional weighting of available information from experience (Gigerenzer, Damasio, et.al.).

Most certainly you come to your decisions the same way:

  1. What can we know? -> How valid and plausible FEELS our input?
  2. What can we understand? -> How do we FEEL about the potentials (options and outcomes)?
  3. What can we influence? -> Do we FEEL capable of changing the course of things happening?

Our human ability to make decisions is thus not linked to reason as is mostly assumed. Russell Ackoff – who was a leading systems thinker – and others tried to structure that into the DIKW pyramid. Data, information, knowledge and wisdom are gained in that sequence to allow us to decide wisely. Ackoff preferred the concept of ‘understanding’ rather than wisdom in his explanations. I think because wisdom is clearly not about being logical or rational. Systems thinkers also consider themselves as overly rational and reasonable. That in itself can become a fallacy too. Many system thinkers build model illusions they then take for the reality. A true system thinker is foremost humble about his lack of knowledge.

Theories are right when they work (i.e. QED Quantum Electrodynamics is accurate to 12 digits) while models require explanation and verification. Just like an MRI scan doesn’t show a human’s emotions, an utility function like in the Efficient Market Hypothesis will not model a human’s buying decisions even if it seems statistically correct. Due to the individually acting agents of a complex adaptive system there is no such thing as predictable cause and effect in economics, finance and business.

More data is not automatically better!

Coming back to less is more or to remove what is wrong from part 1, we are entertaining another huge fallacy with Big Data. To come to good decisions you must REMOVE superfluous data until you retain the bare essentials that will keep you alive. Looking at everything through the illusion of Big Data analytics will most likely hide the real dangers in the noise. Daily changes in revenues or stock prices are no indicator where the economy or business is truly going. All they do is to provide an emotional background noise for people’s decisions. Obvious decisions require just a SINGLE good reason and not many and they don’t need statistical trends. Trends may be interrupted at any time by emotionally relevant news. So statistics are an observation but provide nothing for a prediction. They might actually do the opposite.

In the 80’s Time Magazine published an article that predicted that the then-current trend of diminishing oil prices would continue for some time and lead to prices way below $10 a barrel. This article caused OPEC to take notice and in an emergency meeting they decided to introduce strict export quotas for all member countries. While in my mind that makes OPEC is an illegal price fixing cartel there is in fact not much we or anyone can do it about except not to buy oil. As a consequence oil prices have been rising to its current levels ever since and most changes to the trends had little rational explanation up front. It was the observation of a trend with a naive model prediction that actually caused its reversal.

In practice, good decisions thus come from bad experience only!

… and luckily they don’t have to be our own experiences. Not clever thinking makes airplanes safer, but ugly and painful crashes. Even Fukushima was a valuable lesson to all PhD’s who design nuclear power plants and that in a country that created the word ‘Tsunami’. Intellectuals tend to focus on avoiding negative responses from fragility rather than recognizing their positive side-effects. That comes from working in theoretical lab environments that are however built to remove these outside influences!!! They tend to think that innovation comes from planning and an Harvard education rather than intuitive responses to bad experiences. In business, what nature and experienced people consider as a safety redundancy, MBAs purely see as inefficiency. Risk estimation and planning is just there to motivate people to take risks they DO NOT understand. But, not building a nuclear power plant is safer than building a theoretically safe one. Not buying a complex derivative is still a lot safer than buying one with an illusionary future value.

But there is no additional business in not doing something. So let’s give people a calculable risk and off we go. The calculated risk theoretically allows for higher risk premiums. People want to buy high-return, risky stocks with a calculated risk to make them less risky. Does no one see the paradox here? These are obviously not rational buying decisions! Yes, a well balanced portfolio might have the potential for a substantial upside on a small part of it with a smaller risk of loosing everything. But in the long run, if you rely on trends and statistics your return will be at best average with a substantial risk of loss as the system acts more volatile by everyone doing the same thing. If you DO NOT INVEST into risky stocks you might loose a little from inflation, but you will only lose if there is a big crash that takes everything down. As long as we believe we can calculate the risks of complex systems we are continuously increasing the risk of that total collapse.

In the long run it is a matter of survival!

Rationality and mathematics miss that past worst case events were at the time worse then all previous worst case events. Therefore decision making under uncertainty becomes even more relevant as we also have to consider matters of  survival. Fitness does not just mean to be just as strong as currently needed, but to be able to survive the next worst case. The notion of efficiency and optimization to improve profits is a naive rationalism that follows statistical theory and brings no other information than that it all fits under the Gauss curve. Survival issues are considered as too statistically rare to be of current relevance. As you make your business more efficient and more stable (by for example using BPM or outsourcing) you are unavoidably reducing its resilience by not being able to react continuously to changing external events.

But this is not just about business! Naive medical intervention (as recognized medical errors) kills several times more people than random car accidents. As cars crash frequently they get safer and safer continuously and people learn to avoid danger. Medical procedures do not change as fast as their use is highly regulated and their benefits are only considered in terms of statistical average. Additionally, the patients are given statistical information about risks to make an INFORMED decision. In reality doctors are misinforming patients by saying ‘This procedure is a calculable risk, so it is ok to take it.’ And if it fails it was not their decision. Some of that has to do with the practice of making money (lawyers and patients) through malpractice lawsuits. The immense cost and ineffectiveness of the American healthcare environment is largely caused by sortsighted gain of a few that misuse the naive intervention of the justice system.

Most medications are Naive Interventions with unknown risks.

Too many people who faught a supposedly heoric battle against cancer (like my sister in law) were in fact fighting to stay alive despite the medical treatment. Cancer treatment has only two treatment goals: tumor size and average survival after diagnosis. It does not take quality of life or time of survival without treatment into account! As we are diagnosing more (also less risky) cancers earlier the statistics do show more and longer survivors but to attribute that to treatment is a statistical lie. Someone who accepts the illness and doesn’t fight is branded a coward and quitter. How horribly arrogant and cruel can we become? When you know how treatment studies are performed (my late mother was a MD), then the pharmaceutical industry is not a life saver but purely a money printing press. And most of their grand discoveries (i.e. Penicillin and Viagra) were pure chance and not directed research! The combined side-effects of the many naive intervention medications (i.e. to lower cholesterol) that people are taking today are way beyond even being calculable!

You can get REALLY sick in LARGE hospitals where only antibiotics-resistant strains of bacteria survive. The constant antibiotics stress makes bacteria mutate to resistant variants while destroying our bacteriological microbiome with antibiotics makes us weaker. Many viral infections are treated with cure-all antibiotics while they only have a negative effect on bacteria in our microbiome. Treating children too early with antibiotics is now suspected to be a cause of the rise in allergies. Getting an infection is in fact healthy as it tunes the immune system to the changes in the environment. A natural birth and the immediate contact of the baby with the mother are so important because that transfers the most common bacteria from mother to child to jump-start the baby’s immune system. Without the constant stress of new bacteria we do not develop the ability to survive infections. Removing bacterial stress by too much hygiene is actually making us a lot less resilient. Most standard medical practice today completely ignores the long-term effect of treatments on our microbiome, making it largely naive intervention to suppress the apparent symptoms. Also a tumor is only a symptom. The real disease is a miscommunication between a body of cells and its biological context.

The hidden fragility of large systems with ‘industrial strength’ components.

A cat will survive a fall from ten feet unhurt, while an elephant most likely won’t. Because banks are so big, bailing them out, fixing prices or eliminating small scale speculation (similar to killing bacteria with disinfectants outside and antibiotics inside body) brings only illusionary stability until the crash. Suppressed volatility hides the truly existing risks until systems implode. In a complex adaptive system constant stress is not to be mistaken as overreacting to noise but must be understood as environmental tuning information.

What is claimed to be robust or ‘industrial strength’ is not, and it is also not the simple opposite of fragile. Robust will fail at some point as much as fragile, because all it offers is a tested strength to resist a well-known stress. ANTIFRAGILITY is a property of (complex adaptive) systems that improve when they are stressed. We need to re-learn that in a complex world the notion of a single logical cause or a predictable outcome of an action is suspect. The constant, random stress is information that aligns the small anti-fragile system with the changes in its environment. Large, apparently strong and efficient systems that have lost their ability to react to constant stresses are truly extremely fragile once the next large event happens or the system jitters. The true fragility of a system multiplies when most if its too-large entities are apparently robust – hence our financial system.

The same is true for projects. The larger the project the worse the outcome, unless the project is cut into many independently run elements. In too-large, too-rigid systems, variations never produce a positive effect but just worsen the situation as they produce more intervention to avoid them. Governments and global corporations completely underestimate non-linear convexity effects (see Jensen’s Inequality) with the multiplication of risks that come with size. The economy and businesses seem to become more and more efficient but the resulting fragility causes the outcomes of errors and/or events to be substantially worse.

Where is the evidence for anti-fragile benefits in Social systems?

Such evidence can only be found in real-world situations. Lab environments are not able to simulate real-world complexity. Simulating business processes is thus utter nonsense. In the Netherlands town of Drachten they removed all street signs in a traffic concept they call OpenSpace. As a result the traffic became a lot safer AND more efficient as pedestrians and drivers became more alert and active in participation. Less rules, more common sense. Good decisions are not about ‘knowing the future,’ predicting, calculating or enforcing outcomes but about creating an asymmetric potential of more positive opportunities versus less bad outcomes. Good decisions focus on survival or better ‘not biting the dust.’ Less people being hurt or killed is VERY efficient in the long run. Survival is more important than current profit. It makes no sense to be efficiently dead.

When however survival of ‘too-large-to-fail’ global corporations brings about the response to transfer their fragility to our economic system through bailouts or large loans then interventionism is no longer naive, it becomes outright stupid and ignorant!

It would be time to stop being so arrogant in pretending that we know it all and have it all under control. We obviously do not!

In Part 3, I will discuss the similarities of illusions in Investment Theory and Business Process Management.

‘Naive Intervention’ is a term used by Nassim Taleb (The Black Swan) in his recent book ‘Antifragile – Things that Gain from Disorder.’ Taleb explains that in business and economy progress comes from natural dynamics and not from naive intervention. He uses the term to describe management and political action that is based on theory rather than experience. Another book that asserts things I have said in the last ten years is ‘Models Behaving Badly – Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life.’ by Emanuel Derman whom I also quote widely here. This three-post series discusses why any approach that ignores real-world dynamics and complexity will eventually cause catastrophical failures. These books show that I am not alone with my opinions and proposals and that much of the BPM community is wearing blinders.

ACM has become an accepted way of guiding unstructured processes.

My conviction on these subjects are responsible for my work in the process management arena and particularly Adaptive Case Management. I have stepped away from discussing ACM as a software product because despite all the arguments to the opposite by Business Process Management ‘experts’, the functionality has become accepted as both standalone solution or as add-on feature of BPMS. What the BPM community has not yet understood is the concept of Goal Orientation. As a key element of ACM, I propose that it delivers embedded business governance that guides rather than controls.

Why is much of BPM still a form of Naive Intervention? The role of information technology is to improve the way a business can be managed. As an executive I look for tools that will not only control or reduce costs (MBA bean counting) but helps my business and therefore my employees to deliver customer value. While that requires a planning cycle to set goals, it is obvious that strategic planning methodologies as proposed by business consultants do not deliver. Only people who care deliver value. Economists and pseudo-scientific consultants overestimate the role of theoretical university knowledge in economy and business. They degrade the role of experience and intuition, which alone can help to deal with natural complexity. Interventionists won’t allow that goals can be reached and improvements can happen without (planning, command and control) intervention taking place. While ‘measure to manage’ makes sense to know where you are now and you are going, it is not the measurement that predicts or controls what will happen. CEO to accounting: ‘Our costs are too high.’

Steve Jobs was certainly not rational but simply followed his intuition. ‘Experts’ and Steve Ballmer laughed about his distrust of market research. It clearly shows that past or big data DO NOT predict the future. Why must the ‘right’ business decision or any other one for that matter be a rational and sensible exercise in logic and reason based on flawed data produced by illusionary models?

Not all science suffers from naive intervention.

What physicists do differently to economists is that they learn from nature. They observe and measure and then a hypotheses is turned into a theory and then a model. It works when it predicts. In economics and business naive interventionists build a model and then turn it into a religion. There is neither proof nor validation and at best there is anecdotal evidence. But economy is a social science and not physics. Social systems are dealt with through biology. Theories of economy must follow the same natural dynamics of complexity that drive all biological systems. A biologist like E.O. Wilson can teach us more about economy than any theoretical economist can. Wilson said that Karl Marx was right about Communism. Marx just applied it to the wrong species. It does work fine for ants!

The similarities of theoretical physics and economy lie only in their mathematical syntax but not in the semantics. In physics we can have if-then relations as theorems but there are no definite causal relationships in the complexity of economy or business. Economists present model illusions as the laws of economy and executives take rational methodologies as the principles of business. Mathematical or planning rigor does not turn fiction into fact. Intellectuals forget that any number they derive from economy or business by means of a mathematical model is not accurate or relevant but a snapshot abstraction that misrepresents the reality of the world. They most certainly won’t predict the future. At best they are self-fulfilling prophecies as long as people believe in them.

Why do we go wrong? We simply do not like uncertainty as it produces fear. Evolution does not need or provide narratives, but our human rationality wants explanations and predictions to reduce uncertainty. We create causal narratives despite the everyday evidence to the opposite: You don’t teach a child to walk by explaining the physics. The taste of food cannot be explained by chemical formulas. Cooking recipes (process flows) do not guarantee good taste! Despite all our models no one can tell you which way the stock market will go the next day. John Maynard Keynes: “Markets can stay irrational longer than you can stay solvent.” Keynes on the other hand believed strongly in naive political intervention through base lending rates and government spending. The question is how the ‘man at the controls’ would know which way to turn them.

‘In theory there is no difference between theory and practice, in practice there is.’ (Albert Einstein)

The difference lies in experiencing emotional aha-moments versus following a causal model theory. For knowledge gained without that personal experience it is easy to develop illusions about the causality of events taking place. Large systems make such emotional experiences impossible. BPM is a classical example as are the explanations why the stock market went a certain way. We have proof today that human decisions are purely emotional, while the Efficient Market Hypothesis (EMH) assumes that we decide rationally and while individuals err, the statistical average will be right. Nassim Taleb describes that the most successful traders had absolutely no idea about economics or the currencies they traded. They were not mathematically calculating or estimating the future as if-then-else chains but simply acting on guts. Given that EMH must be seen as the main cause of our current financial crisis, the so called Adaptive Market Hypothesis adds behavioral economics to EMH, by applying the principles of evolution to financial interactions. I doubt however that it will be better than human intuition.

As agents in the economy, our decisions weigh our desires to avoid pain and experience pleasure. That pleasure may have an altruistic motive or we might use reasoning to emotionally chose deferred pleasure or avoiding pain. That emotional component comes from personal experience and not from contemplating statistics. Dry science offers no such learning and if at all produces more uncertainty and thus fear. I can however learn from someone else’s emotional experience through emphatic narrative. We see other people and emphatically copy their behavior. We see us in their shoes. This is why true leaders lead by example and not through enforcement. Clearly our perception may be wrong or we may be misled, sometimes even intentionally. Look at political campaigns or the incredible promises of Ponzi scheme investment funds and you know what I mean. We are after all human and statistics won’t improve on that. Our gut tells us to stay away from things we cannot grasp.

There is no need for the RIGHT action, not even ANY action!

We are told by politicians, economists and business consultants that success or improvement needs rational directed action. What utter nonsense! Acts of commission are considered necessary and sometimes heroic, while acts of omission are considered dumb, lazy, ignorant and even signs of cowardice. You can succeed or be guilty by both action or inaction. That was already a core theme in my 2003 novel ‘Deity’. Interventionists forget that one can win just as much and with less risk by ‘not losing.’ Learning what NOT TO DO keeps us alive more than any book on ‘Ten steps to a safer (happier, prosperous) life.’ The greatest contribution to knowledge is to REMOVE what is wrong. A team is improved by removing the wrong people and it works a lot better than adding more better ones (see issues with size).

Weak leaders promote the concept of an ideal outcome that is however a fallacy of wrongly applying probability theory and expected value to complex adaptive systems and natural evolution. Communists and socialists use the emotion of envy to produce a narrative that claims that it is not ethical for one individual to have more. In social systems progress is however achieved by some doing intuitively better than others. Promoting equality is thus purely a matter of equal opportunity and not enforcing equal outcome! We know that communism failed because averaging outcome kills the natural dynamics needed for evolution to work. Survival of the fittest does however not mean the strongest and biggest, but the most adaptable to a changing environment.

But I am clearly not promoting to always do nothing, because we need to try something new to progress. However, following in others footsteps or executing model theories won’t take you anywhere new or interesting. To justify their existence, governments and executives promote the need to act and because they do not lead by example they write laws and prescribe work in a causal model illusion towards the (average) ideal.

Mathematical (Big Data) models will never beat our intuition.

So why in the world are naive, intellectual rationalists stuck on using communist-like intervention in a free market economy and capitalist business environment! It is the pretense of being in control. Using the same mathematical model for everyone equalizes the outcome while dramatically increasing the risk should the model assumptions be flawed. Our current problems are thus not caused by capitalist greed but by naive intervention into free markets.

True democracy and free markets cannot be ideal theoretical models, but they must be empirical approaches that allow natural dynamics. They do not average out failures and successes. They ought to produce the opportunity for substantial upsides while accepting some downside. Systems are not made safer by making the entities bigger and apparently more stable as these large entities become unmanageable and their dependencies uncontrollable. Any entity becomes a single point of system failure. Political intervention to save insolvent banks is only transferring the risk to the political system and thus the populace.

Why has the banling system not changed after the crisis? Clearly because the rotten apples were kept in the basket by government intervention. The continue to rot and spread rot as they did before. Why? Because of the complexity of financial links, politicians are now in a squeeze to act because they allowed both these large banks and their large transactions to pay for the huge debts required for their previous naive (political) interventions. The system is now inherently fragile as the model is utterly illusionary and thus false! Idealistic theories such as Communism or Efficent Market Hypothesis have limited upsides and only produce the negative potential of massive downsides through the ensuing complexity of more and more short-sighted interventions.

Our current form of neo-liberal capitalism is no longer a FREE market. Just look at the amount of rules and laws! Compliance has become a major problem further killing business dynamics. The USA and European Union are no longer democratic societies. Both are technocracies hyper-controlled by naive interventionists who have no clue about natural systems. Their downfall (and ours) are the size of entities that only SEEM to be more robust. That is so for countries, cities, political organizations, and global corporations, who are in fact all very fragile. The reason that these entities seem more robust is because they are made to look this way. Buying or selling a business contains perfect opportunities defining goodwill and write-offs that make the books look right. Global enterprises are not rated on the stock market by quality, value or even profit but by revenue, growth and how bold their deals are. Boards oust conservative CEOs who do not  push up the share price. CEOs are considered lacking in skill if they do not meet analyst expectations who have no clue what the business is doing. Does no one see how ridiculous all this is? Enforcing smaller entities and smaller transactions is the only way towards more natural dynamics in economy with less global risk. While the solution to this problem is in theory simple, in practice any kind of governance structure won’t reduce the amount of governance. Any problem will be approached by asking for more governance, a.k.a. ‘Naive Intervention’ creating more tension against the dynamcs of complexity. The only consequence is a crash that will dissolve these governance structures. Likewise, a business run by bean counters and interventionists on BPM processes won’t survive.

And that is not a model illusion but a simple lesson of history!

In Part 2, I will discuss that decision making under uncertainty is relevant for survival rather than efficiency.


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