On strategic perception II: problems

November 20, 2013 § Leave a comment

On strategic perception II: problems

My perception journey to strategy turned out to be somewhat longish so I decided to post it in three parts. But first, I felt it fair to present already here the summary of the implications from my ‘intelligent perception’ –analysis and its relevance to strategy thinking. A comprehensive strategy process model is not realistic here and of course, various perception-analysis driven strategy process designs are possible. But if you happen to find these thoughts interesting I hope the background explanations in part III will inspire you.

What would a perception theorist ask a strategist?

I have put the perception implications in a question form and as you will see I keep repeating – on purpose – the word ‘perception’ instead of measurement. In addition I use the term ‘firm’ when I actually refer to any form of organization, public, private or other.

Furthermore, I do not make a separation between cognitive, emotional, motivational and experiential aspects of perception in any way. I assume and I’m convinced that they are always tightly integrated and inseparable. Only experimental maniacs and brain speculators separate them in their laboratories and top-science publications. The takeaway questions as I see them, considering the perceptual system theory in the strategy context, are the following:

  1. How does the firm understand the meaning of’ ‘intelligent perception’ in its business/behavior environment? What are its domains of perception?
  2. What is the perceptual (measurement, observation, action) architecture through which the firm relates to its environment and itself? Who and what processes in and outside the firm are at the center of this and why?
  3. How is intelligent perception-action implemented in the firm?
  4. How does perceptual learning and related action take place?
  5. How are the perception processes linked with the strategy process and decision making?
  6. How are the critical invariances recognized (e.g. on the market, competitor activities, customer behavior, in technology development, business environment in general, financial developments) in its environment and within itself?
  7. How does the firm find its own one-world interpretation? How are the alternative and changing worlds derived and dealt with in the perception processes?
  8. What is the firms ‘operating system’ and bandwidth solution in connecting the perceptions with action? How are the perception processes given the right to action and system control when something critical happens?
  9. How does the firm increase the efficiency of early observations and the intelligence of the higher levels in interpreting the perceived information?

10. Is there a cost/benefit analysis of the firm’s perception system?TopScience

Spanning the perceptual architecture

Intelligent perception systems are not designed for observing and reacting to everything.  Instead, they have the capacity to form a relationship with relevant external and internal events. Biological systems use these systems to direct the perceptual, neuro-hormonal, evaluative, and motor resources accordingly.  Furthermore, perception systems are multi-dimensional (cognitive, emotional, motivational etc) in nature and involve both the pleasures and pains of perception and they are always intimately linked with behavioral control.

We don’t know how much of the world we can actually perceive and it has been a matter of popular discussion how much of the environmental visual information humans really  ‘see’. Due to the eye movements we are actually blind about twice a second. Furthermore, I believe we see less that 1/1000 000 of what there is to be seen in the whole visual field – even if it is within the sensory range or our senses. These aspects of perception demonstrate well how biological and artificial perception systems have a design and architecture that optimizes between the system economy and functional value. We are blind most of the time but do not see it. Strategic perception is no different: in the middle of the continuous blindness, intelligent perception is necessary for survival.

Perception is spontaneously agile

Perception without action is nothing: when we accidentally burn our fingers, the incoming signal pathways do not have to ask for permission from the ‘brain management’ to recruit the motor system. Or when you triple and are about to fall down, your sensory-motor balance-maintaining system not only reacts to the surprise but it is also ‘allowed’ to take full control over your external and internal behavior – for the moment – in order to regain balance. After that, control is swiftly transferred back to the base behavior and the relevant context is recovered  (cf. https://gotepoem.wordpress.com/2010/11/16/human-real-time-operating-system-theory/).

We could characterize this smooth perception-action behavior ‘agile’ as is now fashionable in talking about ‘fast strategies’ and agile ict development projects using scrum methods, for example (cf. http://en.wikipedia.org/wiki/Scrum_(development). In scrum, as in the above human examples the full (distributed) project control is momentarily transferred to individual (planned and interactively allocated) people or teams that have a relevant task to accomplish at that specific phase of the project.

This is accomplished and secured by forming a holistic project entity, including a dynamic team structure and multiple-level feed-back system. In this way the continuously interacting and evaluative collaboration project avoids the pitfalls of the rigid waterfall approaches. In one sense, as a system the scrum model resembles the human perception-action system: it includes specific actor roles (purpose-driven) and continuous interactions among the participants, and it proceeds according to fast and effective planned sprints (during a week, for example), guided by the continuous feed-back and evaluation processes.  As its best, a scum organization is fast, adaptive and can orient to new situations according to the internal and external project requirements.

In part III where I explain the core principles of the perception system behaviors, it becomes clear how they closely tangent the scrum methodology principles. But even scrum depends critically on its ability to gather relevant perceptual information about its distributed environment. This is especially challenging when the participants come from different disciplines, having their own stakeholders and operation domains with their limitations.

I’m not an experienced scrum master, although I participated in a short scrum education and have been involved in numerous spontaneous scrum-like processes. However my experience from one formal scrum project was that from the start it was unclear what was the perception architecture and how it was spanned. Of course everyone in the scrum project had a saying on the ‘perceptual background’ but not everyone was aware of its relevance in what was to come. Over the exercise it then became evident when conflicts of interests started to occur and hidden problem were revealed and discussed: it was clear that the perception architecture had not been optimally spanned and it did not fully serve its purpose. This seemed to be one of the repeating weak points of the scrum system.  However, at the moment I believe a scrum-like approach could perhaps best benefit from the perception lessons I will present in part III.

Organizations relying on the classic strategy model – mission-vision-strategy-resourcing-implementation are slow and have much to learn in trusting and avoiding the risks of giving the full control to its sub-systems. A recent Finnish example of extremely sow performance in reacting to the incoming perceptual data is our Government, remaining hesitant on how to respond to the perceived problem data, as I describe it in part I. It is not rare to hear similar stories from firms’ personnel. Indeed, a firm trusting its perception must arrange access to organized action when the perception system so requires. As far as I understand it scrum has not yet made a breakthrough in wide scale strategy work and it is absent from governmental –level strategy forums.

The illusion of a kind strategy world

We are destined to rely on extremely strong assumptions about the world. Only rarely can we hear CEOs and other high-level company representatives to explicitly describe what these assumptions actually are in their own strategy contexts. In everyday life we typically assume the world to be relatively kind to us – so that we don’t have to observe everything. It would take all our efforts and it would not be enough. As humans we do have moving eyes, which we could whirl around all the time, but luckily we have developed the swift ability to shift attention according to relevance and without moving the eyes or ears. This is a good metaphor to any firm: how to avoid excess ‘organizational eye movements’ in order to perceive (measure) important events and objects and to build intelligent perception systems that can direct attention by using the existing resources optimally?

Together the selectivity of perception and its ecological success show how valuable intelligent perception is for any system, biological or artificial. The strategic capabilities of the perception systems deserve our full admiration.

Strategy as the home of the firm’s perception system

Not unlike artificial and biological systems most organizations, public and private, orient to their world and are guided by a strategy. It is their de facto perception system and process and includes a perceptual action architecture – although firms do not typically use these terms. In the classic strategy process the perception system is used for collecting relevant internal and external forecast information and the current situation is analyzed in order to make the best possible decisions. Information sources are numerous and can be anything from the cash flow, competitive performance, competence, market, financial, and competitor data to the technology situations and trends. SAP and other similar integrated systems are trying to be the technological implementations of organizational perception: in the extreme case (imaginary only, I hope) such systems can be the only eyes to the world by an isolated manager or a bureaucrat.

I do know of firms whose strategy process is built on effective and relevant perception-action systems and architecture – and I’m lucky to have a friend, a true professional, Jaakko Ahonen  (http://www.ahonenpartners.fi/) who applies this kind strategy guiding approach in his customer (b-b or b-c) oriented growth consultancy. Interestingly, he has combined the analysis of the perceptual architectures of firms to collect data on relatively complex but relevant, multi-dimensional customer decisions and behaviors. Not surprisingly, even after many discussions with him, he does not use the term ‘perception’ in his context at all, but the results of his approach have been just impressive, to say the least. I’m convinced that there are others who think alike, but the concepts used vary.

Firms differ in how they collect strategic information: the way it is done is an expression of how they think about their perception mechanisms in scanning the external environment and the firms themselves. The initial phase of a strategy building cycle includes the declaration (either design or inventory) of this architecture and the perception resources are then spanned accordingly. This includes e.g. knowledge acquisition, measurement, and analytics, and can be seen as part of the firm’s knowledge management process. In this way the firm defines the true relationships it has with itself and its environment. Nothing else can achieve that. This may sound like loose philosophical talk but it is not: in building artificial vision systems, for example, the architectural approach is a necessary and critical ‘win-or-loose’ design phase.

Organizational perception can be implemented in the form of customer, market, sales and forecast data analysis, various data representation forms, discussion forums, person-to-person interactions – any big or small data process and it can also occur in various knowledge and customer relationship activities of the management and other personnel. However, it is not an extremely complex task to map and model this architecture in a company, or a government, for that matter, and to describe the basic components and the inherent perceptional relationships, but I have never seen it done.

Scorecards – bureaucrat perception?

Balanced scorecard models (e.g.http://www.hbs.edu/faculty/Publication%20Files/10-074.pdf) come close to the perceptual approach in how they define the metrics for the firm’s progress on financial, customer-, growth, and business process sectors.  The BSC system spans a ‘measurement architecture’, but it differs from the perception approach where the emphasis is on intelligent perception aspect: I use the ‘perception-action lens’ to look deeper into the nature of the measurement and data collection as part of the strategy. Perception is more than measurement as it has its own domains of activity and forms of engagement.  No measurement happens without some human engagement.

A simple example is the employees responding to various questionnaires probing their work or the firm atmosphere. It is not rare to hear them complain that they lack the real means to express their relevant observations and at the right time, for example on quality, coordination, or management communication, even when it would be of utmost value for the firm. The problem is not a lack of data, or lack of personnel inventory it is a problem of a distorted perception-action system.

For company strategists the design of measurement metrics is crucial: ignoring the perception mechanisms can entertain unfounded faith in the data sources and measures or simply cause neglect of relevant information.

Distorted perception architecture is disastrous

A curious example of a distorted perception architecture concerns the investigation panel of the Challenger accident in 1986 where one member of the panel, Richard Feynman, the famous physics Nobelist could not get his strong and clear message through and had to find his own ways to express his opinion about the accident causes. The panel was reluctant to accept his simple and practical observations, which inspired him to demonstrate them on a televised hearing. He took a glass full of ice and water and put a real O-ring from Challenger into it and then showed how he could break the cold ring by hand; this made it impossible to neglect the valid observation and his arguments. For an unknown reason, the panel had spanned its perception mechanisms in a way that made Feynman’s observation invisible in the investigation process. To many the arguments by Feynman had remained weak or silent signals but the demonstration changed the situation. It is a good question, why this happened and just like in the 2008 crisis, various explanations, political, social-psychological, institutional and others can be given but the outcome was the same: the distorted perception architecture determined which perceptions were possible.

Another educational example is the US financial crisis in 2008, which was sharply analyzed by Charles Perrow in his 2010 talk at CISAC/Stanford. He described in detail, with names of the relevant persons why the approaching disaster was not perceived by the Government and by those responsible individuals and organizations, which should have seen it. As is now well known, also a number of firms had good short-range, economical reasons to hide it and make it difficult to perceive.

A feasible interpretation is that the perceptual architecture of the Government and its analysts network was significantly biased, for a number of reasons. It did not include the players, especially banks and insurance companies, the main actors who were in continuous lobbying contact with politicians and other stakeholders. Information about the subprime problems had been visibly accumulating and a few specialists had been explicitly warning about it, but they were excluded – perhaps on purpose – from the perceptual architecture. Indeed some of them have later complained about improper treatment and behavior they received to their warnings (http://rwer.wordpress.com/2010/05/13/keen-roubini-and-baker-win-revere-award-for-economics-2). Sparrow described in delicious detail how the available observations on these actions and behaviors were neglected, left outside the perceptual architecture, which should have contained the underlying influential persons and their organizations. There were no weak signals – only very strong ones but they were neglected.

Why the lack or perception?

Is it a matter of sensitivity? Yves Doz, for example (http://www.strategicagility.com/) discusses strategic perceptions in terms of the need for strategic sharpness.  As these crisis examples show, there is much more to perception than meets the eye.  There seem to be at least two, almost orthogonal ways to interpret these architectural perception-problems. On one hand, some futures researchers argue (Ansoff, Hiltunen, for example) that it is a question of weak signals, which are simply difficult to observe. Because of that methods like the Delphi method are used to probe the best imaginable information sources (people).

I have questioned this by suggesting that it is a matter of a distorted perceptual architecture, which does not include relevant perception mechanisms and processes (https://gotepoem.wordpress.com/2011/03/19/weak-signals-or-weak-theory-of-observation/). The observed signals may appear weak, but only because the sources have not been properly identified and included in the perceptual architecture. Of course it would be possible to combine the Delphi with the architecture approach but there is the challenge that the best sources may not be the members of the establishment or have the fame to be recognized as valuable sources.

Another explanation is related to what a colleague of mine Professor Leena Kasvio once described several years ago: an accident where a landing passenger airplane crashed against a car driving on the runway. Her description of the causes was that the air traffic controllers had a distorted (she did not use this term) idea of what was their core task and consequently, what to monitor; it is not only managing the air traffic and finding the right landing window and process etc. for the planes but especially to help them land safely. The latter view would span the perception architecture accordingly and had naturally included the runway traffic, be they cars cats or bulldozers.

An alternative, cognitive-theoretical explanation to poor organizational perception is the notion of cognitive dissonance according to which denial and distortion of perception or even blindness can be caused by a person’s – or an organization’s – observation and experience that reality appears to challenge her deepest and most established beliefs about the world (Kessler, 2010, in real-world economics review). At first sight this feels like loose psychoanalytical thinking to me and not very convincing.  

However, I have just read an interview from a Danish economist predicting that Netherlands and Finland will be the next ones on line to cause economical problems in Europe (Kauppalehti 12.11.2013). There is strong statistics to support this view. Finland having been among the best pupils in the European economy class, the claim has surprised many Finns and indeed, it seems like it is threatening our deep national (positive) views of ourselves. Hence, almost as a support for the cognitive dissonance view his comment has not had a serious predecessor in the dominant Finnish economical discourse although the possibility has appeared on the strategy charts of firms preparing for the near future.

One is tempted to claim that due to the cognitive dissonance our (public) national perceptual architecture has not included sources, which would reveal such negative phenomena. Hence, we just remain passive, as if waiting for an external and forceful attentive signal or even instruction (from economists, EU politicians, rating organizations etc) to include such perception sources – when the situation becomes undeniably threatening. After that, the new perception mechanism will be span and in open public use, but time has been lost again.

Is it possible to perceive a ‘black swan’?

In his books “The Black Swan” and “Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets” Taleb described the ‘black swan’ metaphor used to describe significant but rare and ‘outlier’  – improbable, difficult to predict with traditional methods – phenomena. Interestingly, hindsight is also included in the black swan concept, that is, the tendency to offer explanations to its occurrence retrospectively. My colleague Hannu Tuomisaari from Aalto University reminded me of Taleb’s work in this context and the possible challenge it is to the perceptual architecture concept – and made me think:

The retrospective explanation of the ‘black swan’ carries an interesting perceptual aspect, although imaginary: retrospection itself is a demonstration of the possibility to envision what has caused the unexpected phenomenon to occur. Illusory or not but the imagination is also based on spanning a (imaginary) perceptual architecture that includes the relevant observations. How else could such phenomena be explained? A question remains, though, is it ever been possible to span a relevant perceptual architecture for catching a black swan?

A distorted perceptual architecture can sink ships

Disastrous consequence of a biased perceptual architecture is not a novel phenomenon. One of my favorite historical examples is the stability test of the famous Swedish Vasa warship, which sank outside Stockholm on its maiden cruise in August 1628 (http://faculty.up.edu/lulay/failure/vasacasestudy.pdf). It was built in a hurry and with the largest investments ever in order to make it the most glorious warship in Sweden. King Gustav had hurried its building and put the shipyard management under royal pressure. By doing this, he seriously distorted the perception-action mechanisms at the shipyard.

The construction process was problematic from the beginning and there were early doubts about the ship’s stability. Aware of these problems, the shipyard management had Vasa tested at the harbor by ordering a group of 30 men to run from side-to-side of the ship: already on the third run Vasa was rocking dangerously. The warning signal was strong enough for them and the test was halted. Curious enough, no information of this result could reach the critical decision makers, and Vasa prepared for her celebrated maiden cruise. One could say that the warning signal remained ‘weak’ from the system – surely from the King’s – perspective. Then on the first celebrated cruise, a mild wind outside the harbor was enough to heel Vasa over and she sank after a 1300 meter cruise, taking 53 seamen with her. Today the well-preserved Vasa, raised in 1961, can be admired at the amazing museum in Stockholm.

One could consider Vasa either as a simple case of bad communication or a combination of bad management, fear for the Royal power of the King and his subordinates – and a communication failure.  But there is more to it; the catastrophe bears a close resemblance to the preceding events of the financial crisis in USA. Had the perception-action architecture been spanned according to the core national strategic goals, untouched by local interests, lobbying, political, and other perception masking factors, the early warning signs would have been early, strong and loud enough within this architecture.  In both cases, many seemed to ask, after the disaster: “Why didn’t we see it coming?”, but it is the wrong question – it should read: “Why didn’t we tune our perception-action architecture right?”

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