CHAOS, STRATEGY, AND ACTION: HOW NOT TO ...

International Journal of Innovation and Technology Management Vol. 10, No. 6 (2013) 1340030 (19 pages) # .c World Scienti¯c Publishing Company DOI: 10.1142/S0219877013400300

CHAOS, STRATEGY, AND ACTION: HOW NOT TO FIDDLE WHILE ROME BURNS

FRED PHILLIPS Stony Brook University ! ! ! State University of New York c/o SUNY-Korea, Songdo-Dong, Yeonsu-Gu Incheon City, Republic of Korea [email protected] YU-SHAN SU* National Taiwan Normal University 162, Ho-Ping E. Road, Sec. 1 Taipei 106, Taiwan [email protected] Received 20 June 2010 Revised 4 October 2011 Accepted 23 January 2012 Published 8 November 2013 The US ¯nancial meltdown has changed companies' situations not just fundamentally but pervasively. Institutions and channels of supply and communication have disappeared or become unreliable; we are literally managing in chaos, and traditional notions of strategy, planning, and implementation must be (temporarily, it is to be hoped) discarded. This presentation draws on classic management theory, newer ideas, and experiences from technology companies to outline principles for managing for survival in times of chaos. It introduces new management cycles as alternatives to Fayol's classic management cycle, and a corresponding taxonomy of organizational situations, including stable, chaos, edge of chaos, and disaster. It aims for a clear synthesis suitable for management education and training. Keywords: Management cycle; chaos; strategy; management styles.

1. Aims of the Paper Discontinuities faced by businesses today include consequences of the mortgage meltdown, the Euro crisis, natural and man-made disasters such as Hurricane Katrina and the BP oil spill, and upstart competition arising from new free trade agreements, new technologies, and migration of knowledge workers. The classic management cycle of Fayol ! ! ! \plan, implement, evaluate" ! ! ! has not been re-evaluated for 100 years. Fayol's cycle is suited for stable business environments, but not for an age of discontinuities.

*Corresponding

author. 1340030-1

F. Phillips & Y.-S. Su

Our methodology involves a review of applicable literature (current scholarly books and papers, contemporary news items, some historical works, and a contribution of William Shakespeare), two short cases and several shorter examples from industry. In this way, the paper lays out a taxonomy of organizational situations: stable; chaos; edge of chaos; and disaster. It advances the thesis that di®erent types of management cycles are called for in each situational type. The following section details these cycles, elaborating some from the literature and proposing a new one, aiming for the same simplicity that has allowed Fayol's cycle to serve as a rule of thumb for a century. Though several of these ideas have appeared elsewhere, this paper achieves a critical synthesis and advances the idea of the chaotic management cycle. Using Continental Airlines and Toyota as mini-cases, we argue that future organizations will link all the cycles operationally in order to deal with the exigencies of today's business and technological climates. Links from these ideas to technology management and strategy are highlighted. 2. Stability Krugman [2002] reminds us that in the generation following World War II, large corporations bene¯ted from stability and were instruments of stability. Indeed, those were the years when business matters were stable enough ! ! ! mostly linear in nature [Wojick (undated)] ! ! ! to be analyzed by the mathematical methods of management science, Keynesian economics, and statistical forecasting. Now, such stability can be found only in specialized niches. An Avon saleswoman [Babin (2009)] says, \there are two things women are never going to go without, and that would be moisturizer and lipstick" ! ! ! as, one would guess, is the case also with men and beer. Nonetheless, all businesses strive for stability, by engaging in risk management, currency hedging, options markets, and the like. Fayol's [1916] management cycle, Fig. 1, is suited for a stable business environment. Strategy drives plans. Plans are implemented, monitored, and evaluated. Managers then modify the plans as needed, with occasional reference back to the strategy. Though stability is rara avis in the turbulent ¯rst decades of the 21st century, it may yet return to larger segments of the economy. We are, at least in the US, returning to an era of greater government regulation and a resurgence of Keynesian ideas. Fayol did not emphasize strategy in our modern sense of a plan for making plans. However, the inclusion of strategy in Fig. 1 will facilitate the development of the

Strategy Plan Evaluate

Act

Fig. 1. The classic management cycle applies in stable times. 1340030-2

Chaos, Strategy, and Action

Strategy Plan Evaluate

Experience/ Learning

Act

Fig. 2. The classic cycle results in individual and organizational learning.

present paper's ideas. By the same token, modern researchers [Redding and Catalanello (1994); Senge (2006)] understand that the classical management cycle gives rise to individual and organizational learning, Fig. 2.

3. Chaos Ran, which means \chaos" in Japanese, is the title of master ¯lmmaker Akira Kurosawa's 1985 capstone e®ort.a In this ¯lm ! ! ! a Japanese treatment of Shakespeare's King Lear ! ! ! the warlord father of three sons deals with his impending death by attempting to divide his domain among them. In the resulting power vacuum, Lord Ichimonji realizes the madness caused by his thirst for power. In the context of the current world ¯nancial crisis, Ran could be seen as a parable of a corporate giant who, by over-reaching, becomes both the cause and the victim of chaos. Ichimonji divided his power equally among his three sons. However, he ignored the danger inherent in the sons' di®ering characters and ambitions. He did not trouble to pay attention to the coming political and military chaos. He chose not to listen to his loyal followers' advice, thus adding impetus to the impending chaos. Like Ichimonji, today's \masters of the universe"b made bad decisions. Once the consequences of those decisions began to °ow, these executives had to choose whether to remain passive or take initiative. The ¯lm demonstrates that managers should consider diverse points of view and should beware of any idea ¯xe, especially their own. They should not indulge in denial when hearing bad news or news of potential dangers to the ¯rm. They should not blithely hands-o® accountability to others. It is challenging for managers to understand the real root of a problem and make the right decision. Ran tells us there may be no speci¯c correct action, whether one takes initiative or remains passive, and that only the manager who can adjust to changing conditions survives. Japanese martial art has a term randori ( ), \seizing chaos". Randori is practiced in a fast, unstructured, multiple-attacker situation. In randori, there is no time for deliberate technique and considered decisions; all one's training must evidence itself spontaneously and instantly. In business as in martial art, exquisite sensitivity to changing conditions is a pre-requisite for survival. Fellman and Lanteigne [2007] take a naïve view of randori, emphasizing only the mind–body connection. Their work does foreshadow a theme of the present paper, a http://us.imdb.com/title/tt0089881/. b Novelist Tom Wolfe's term for Wall Street

movers and shakers. 1340030-3


however, namely, that e®ective response to chaos is a whole-person a®air, with strategy and task-level skills so internalized and well practiced as to appear seamless in execution. Sybase Inc. vice president Schaub [2007] practices the Japanese art of aikido. She writes about randori: Business complexity often arises from a similar spirited interaction of many players with independent motives. One avoids overcon¯dence, anger, and fear. Like many people, my natural instinct was to react ¯rst to the nearest danger. I call this the LIFO (last-in, ¯rst-out) reaction to complexity. LIFO people react to stress by abandoning important objectives for whatever threat lands in their lap next. However, this reaction allows opponents to dictate the situation. In randori, a LIFO reaction gets you blown hither and yon, frustrating you and accomplishing little. Picking a logical entry point for action (The highest priority? The task with the longest lead time? The player with the most in°uence?) puts you in control. For Schaub, trained in randori, passivity is out of the question. She goes on, \Even when things are extremely uncertain, you must see the larger situation and act. You must constantly move forward, proactively seeking a better position of power. Randori requires you to reach out to the world with gusto." Schaub's sensei notes that in randori, your objective is not to die. You cannot hope to understand or analyze randori, only to survive it and perhaps move closer to a goal. In physical confrontation, the goal may be to reach the end of the alley; in business, perhaps to stabilize a supply chain that has become uncoordinated. Objectives and goals are components of strategy (and objectives are subordinate to goals). Management of chaos is meaningful only in the context of a manager's purpose [Phillips (2003, 2008)]. The complexity of chaos provides ample distractions; succumb to them and you become part of the chaos. In Ran, the second son was bewildered by his lover, distracting him from the clan's urgent situation. He surrendered to her opinion instead of listening to his loyal folk who had accompanied him in battle. This led to his ultimate failure. Managers need to resist the ample distractions of today's mediarich environment. The management advice of diverse researchers is very much in line with randori skills. Wojick (undated) (see also Whitelaw and Wetzig [2008]) gives due emphasis to the idea of attention, and makes a pertinent distinction between attention and thought. Attention, or what people think about, can be managed. Thought, the mysterious and creative product of that attention, cannot be managed. So attention is the most precious manageable resource the cognitive enterprise has. Baum and Hassinger [2002] recommend: — Practice basic skills until they become second nature. — Develop judgment, matching response to events in appropriate way. 1340030-4


— Develop ability to sustain chaos leadership for extended periods of time, as this may be necessary. According to Heimar and Nilsson [2002], when the business environment is paradoxical and of fast-changing and chaotic nature, successful corporate strategies are shaped by strategic °exibility founded in high innovation rates, networks and alliances, and organisational elasticity and adaptiveness. To a large extent, our conclusions coincide with those of other researchers.c Forming multidimensional networks and alliances coloured by voluntary initiatives and full attention seem to be an extremely important contribution to survival in turbulent contexts. In The Rise and Fall of Strategic Planning [Mintzberg (1994)], Mintzberg claims that the very nature of strategy making ! ! ! dynamic, irregular, discontinuous, calling for groping, interactive processes with an emphasis on learning and synthesis ! ! ! compels managers to favor intuition. This may be why the analytical techniques of planning have felt so wrong to practicing managers. To be sure, there are aspects of business planning that persistently resist formalization and mathematization. First, formal systems operate most e®ectively after strategy has been developed; to monitor its achievement, assess its continued ¯t with reality, and signal major new intentions. The systems are not expected to substitute for creativity or management attention. It has become clear that the systems o®ered no improved means to deal with the information overload on human brains; indeed they often made matters worse [McNamara et al. (1999)]. The mechanical combination of bits of information did not solve any fundamental problems of human cognition. Second, the formal systems could certainly process more information, at least hard information; they could consolidate it, aggregate it, and move it about. But they could never internalize it, comprehend it, and synthesize it. Finally, the analyst tends to want to get on with the more structured step of evaluating alternatives and so tends to give scant attention to the less structured, more di±cult, but generally more important step of diagnosing the issue and generating possible alternatives in the ¯rst place. Misleading strategies result. Our purpose is not to push intuition as a management tool, but only to emphasize that the structured Fayol cycle is of limited use in unstructured situations. In The Innovation Marathon [Jelinek and Schoonhoven (1993)], Jelinek and Schoonhoven concluded: \A strategy of innovation is contained not in `plans', but in the pattern of commitments, decisions, approaches, and persistent behaviors that facilitate doing new things." This leads us to the chaos management cycle of Fig. 3. In the chaos management cycle, due to the urgency and pace of change of events, there is no time for formal evaluation, or for planning. Figure 3 portrays a thick wall c Including Rashid and Zabid [2003], who conclude that \networked" organizations are the most likely to be innovative.

1340030-5


Stable Times

Chaotic Times Strategy

Plan

Evaluate Fig. 3.

*

Action

Experience/ Learning

*Feedback is tacit only.

Chaos management cycle.

between planning and evaluation on the one side (grayed out, to emphasize that these are not part of the chaos management cycle) and action on the other. All action springs forth from experience and learning, and feedback (evaluation) is done only tacitly (see Nonaka [1998]).d There is no line pointing back to strategy, again because there is no time for formal reference to strategy. For a manager to succeed in a chaotic environment, the organization's strategy must already have thoroughly permeated his or her learning. In randori, there is no guarantee that an individual or company will survive, nor, a fortiori, get closer to a goal [Phillips and Kim (1996)]. Strategic Direction [2007] magazine states that most managers in the 1980s still believed that chaos was something to be avoided at all costs. We now know that if chaos can be avoided at all, it is due to luck, not to cost. The magazine goes on to note that Peter's [1988] book Thriving on Chaos caused more than a bit of cognitive dissonance among its targeted audience. In explaining chaos management, we have not had to appeal to the mathematical theory of chaos (e.g. Stewart [1989]). The common Western meaning of chaos, combined with a similar concept from the Japanese samurai tradition (and two modern concepts from strategy and knowledge management ! ! ! one of which is due, perhaps not coincidentally, to the Japanese scholar Nonaka), su±ces to build a meaningful and useful management cycle for chaotic times. The thousand-plus years of Japanese martial thought, amply tested in life-or-death situations and passed down through chains of accredited teachers, should be accorded a weight of evidence at least equal to that of the recent scholarly publications of university researchers. Chaos theory does, however, tell us that small perturbations can have large consequences. Ichimonji's third son, the wisest of all, had foreseen the clan war and the family strife, and tried to forestall it in every possible way. However, he ignored small signs which he thought were unimportant ! ! ! his fatal mistake. 4. Edge of Chaos In contrast, business writers concerned with the edge of chaos almost invariably make reference to the mathematical theory. Reasoning by analogy is always suspect, dAt least insofar as that is legal. Regulations and legislation, e.g. the Sarbanes–Oxley Act, may make formal reporting mandatory even in the most pressing conditions of chaos.

1340030-6


and in the case of the edge of chaos, speci¯c correspondences between the mathematical theory and the business situations are entirely lacking. The translation of Chaos Theory into management practice is, at best, a loose analogy that has been built upon generalizations of three scienti¯c concepts: Chaos, Complexity Theory, and Complex Adaptive Systems. It has always been somewhat problematic to apply a scienti¯c theory ! ! ! one that was intended to explain natural phenomena ! ! ! to explain the a®airs of human organizational systems [Hillon (undated)]. For this reason, while the second sentence in the blurb on Wheatley's [2000] book is now unarguable, the ¯rst sentence is quite wrong: Leadership and the New Science launched a revolution by demonstrating that ideas drawn from quantum physics, chaos theory, and molecular biology could improve organizational performance. Margaret Wheatley called for free-°owing information, individual empowerment, relationship networks, and organizational change that evolves organically ! ! ! ideas that have become commonplace. For much the same reason, Amazon.com reader feedback on Brown and Eisenhardt's Competing on the Edge: Strategy as Structured Chaos [Brown and Eisenhardt (1998)] is polar, evenly split between readers who found inspiration between its covers and those who found nonsense. All this is a shame, because the analogy between business management in 2013 and the mathematical notion of edge-of-chaos, if it were presented honestly as a very loose metaphor, would be a very good metaphor, especially in the high-tech world. Lashinsky's [2006] story illustrates: Sheryl Sandberg, a 37-year-old vice president, recently committed an error that cost Google several million dollars ! ! ! Bad decision, moved too quickly, no controls in place, wasted some money, is all she'll say about it ! ! ! and when she realized the magnitude of her mistake, she walked across the street to inform Larry Page, Google's co-founder and uno±cial thought leader. God, I feel really bad about this, Sandberg told Page, who accepted her apology. But as she turned to leave, Page said something that surprised her. I'm so glad you made this mistake, he said. Because I want to run a company where we are moving too quickly and doing too much, not being too cautious and doing too little. If we don't have any of these mistakes, we're just not taking enough risk. Lashinsky notes that Google can be seen to be making signi¯cant changes to adapt based on market conditions and the results of their experiments and experiences (emphasis ours).e e In 2003, Google hired the Brown of Brown and Eisenhardt [1998] as senior vice president for business operations.

1340030-7


Complex adaptive systems (CASs) are complex because their overall behavior is not predictable from the behavior of their parts. They are adaptive because they change according to experience and environment, and their trajectories fall neither into a chaotic regime, which would destroy them (especially if they are not trained in randori), nor into a stable linear regime, which would render them unable to adapt. CASs live on the edge of chaos. These statements follow the Santa F!e Institute's de¯nitions of CASs. Note that chaos and linearity have speci¯c mathematical de¯nitions; complexity and CASs do not ! ! ! although there are of course mathematical measures of complexity and adaptation in physical and engineering systems. In these senses, Google and many other technology-oriented business corporations try earnestly to emulate complex adaptive systems [Kamo and Phillips (1997)]. They wish to live on the edge of chaos. This seems necessary but not su±cient for business viability; many Silicon Valley start-ups with strong CAS cultures have gone belly-up. Mainly because of their decentralization and extreme empowerment of knowledge workers, edge-of-chaos organizations use a management cycle very much like, but not identical to, the Chaos Management Cycle. Employees are thoroughly imbued with the corporate strategy and trusted with it, and not all initiatives are closely monitored or frequently evaluated. However, these organizations do not experience the total time and attention pressure of the chaotic regime, and so are able to regroup periodically for program reviews and strategy checks. The just-cited Competing on the Edge [Brown and Eisenhardt (1998)] points to two organizational forms that lead to imbalances, and provides supporting examples. The ¯rst problematic form has too little structure. For example, the founders of ice cream maker Ben and Jerry's chose to have few rules and no formal growth plan or budget. Over the years, it has been recognized as truly an innovative and fun company. It was renowned for its \anything but vanilla" °avors like Rainforest Crunch and Chubby Hubby. However, by the mid-1990, as strong competitors like H€ aagen-Dazs emerged, the once fast-growing company was faltering, for it was unable to control costs and was late to pursue important market trends such as the switch from fat-¯lled ice creams to non-fat sorbets. Thus, Ben and Jerry's stock price melted from a high of more than 30 to around 12 per share. Another example is the ¯nancial services giant Fidelity Investments. It encouraged individual managers to \make risks and defy conventional wisdom". Further, it cultivated \¯ghter pilot" mentality, and broad freedom for managers to run their funds. However, this freedom led to their failure, for it became inconsistent and undisciplined. Also, too little control over fund managers left them unable to present a uni¯ed marketing front, and thus Fidelity lost opportunities to manage major pension portfolios. On the other hand, too much structure trips the bureaucratic trap. The Germany luxury carmaker Daimler-Benz was stu®y and in°exible. Mercedes-Benz was stuck in a bureaucratic gridlock of rigid hierarchy and rules. For example, the top-selling E-class model was more than eight years old. On the manufacturing °oor, strict hierarchy was the rule, despite an estimated 35% productive gap between Mercedes 1340030-8


and its Japanese competition. Overall, the solid Mercedes image of comfort, safety, and longevity was no longer what many drivers were seeking. Therefore, the introduction of new models was rare and slow. Although the company continued to innovate, its strategic position was \yesterday". The ¯rm was stuck in a dated, predictable strategy of producing large, luxury sedans. As Mercedes stalled, its archrival BMW sped past in terms of total cars sold worldwide in the mid-1990. (We will discuss the similar case of Toyota later in this paper.) With the right team, the edge-of-chaos process called improvisation can solve this balancing act. Improvisation is about extensive, real-time communication in the context of a limited structure with a few sharply de¯ned responsibilities, strict priorities, and targeted deadlines. For example, Nike improvised to its success. Nike is well known as an innovator, creating exciting new products and services. Also, it is °exible and takes advantages of unexpected opportunities and events that enhance its reputation. Like the band The Grateful Dead during the improvisation passages, performers intensely communicate with one another, and what matters for them is only now. During the play, they bend and break musical rules, because too much structure will end in the original old song, but too little structure will lead to either inaction or chaos. Due to intense communication in improvisation, players will not look back at what they played; instead they coordinate with each other to make something exquisite. Thus, improvisation involves balancing the structure and enables managers continuously and creatively to adjust to change and execute accordingly. Business improvisation, we must add, responds to external environment as well as to internal form. A third kind of organization, not mentioned by Brown and Eisenhardt [1998], has proven to be very common: the ¯rm that does not know where it is on the structured–unstructured spectrum. Firms may believe they are structured even though managers are pursuing individual anti-strategic agendas (indeed, this is the main thesis of agency theory), while other ¯rms believe they are anti-hierarchical and their employees are empowered, when the facts indicate otherwise. The Economist [2011] cites a Boston research group survey of thousands of US employees, which found that \Bosses are eight times more likely than the average [employee] to believe that their organization is self-governing" and that \nearly half " of employees in hierarchical ¯rms have observed principal-agent problems (in the form of ethical lapses) in the previous year.

5. Disaster Largely in agreement with Khan et al. [2008], Ishak [2004], Messer [2003], War¯eld [2009] and Phillips [2011] de¯ne disaster as a destructive or highly disruptive incident that: is caused by nature, by individuals, or by public or private institutions — or a combination, . makes a large impact, either in a brief period of time, or continually, and . affects signi¯cant populations. .

1340030-9


Disasters ¯tting this de¯nition are low-probability events individually, although collectively, such disasters are quite probable. Recent examples include the Indian Ocean tsunami, hurricanes Katrina and Ike, the Exxon Valdez oil spill, 9/11 in the US and 3/11 in Spain, the AIDS crisis, global warming, and the current ¯nancial meltdown. In the ¯rst month of 2009 alone, we experienced the Kentucky freeze and the Australian ¯res. Technologies involved in disaster response include construction, ¯nancial engineering, shipbuilding, climate modeling, alternative fuels, therapies, search-andrescue, logistics, transportation, and training games and simulations. Disasters are thus distinct from crises, and disaster management di®ers from crisis management. Crises often involve a single company, e.g. Johnson and Johnson in the Tylenol poisonings case, and crisis management is a relatively straightforward matter of communicating with customers, law enforcement, and the press (see e.g. Bernstein [2007]) ! ! ! and, in the Tylenol case, recalling product and redesigning packaging. Crises are not necessarily simple, but appear so when contrasted with disasters. Multiple organizations, often from di®erent sectors, may be to blame for a disaster, and/or involved or accountable for remediation. Crises may occur within disasters, as for example with Citibank's need to explain its actions during the mortgage meltdown to the public and to Congress. Many publications feature the diagram of Fig. 4, a management cycle oriented to minimizing the e®ects of disaster. Mitigation activities are aimed at reducing the probability, or the likely consequences, of disasters. New building codes and zoning, and public education are examples of mitigation measures. Preparedness involves planning for disaster response, and emplacing response systems. The latter include strategic reserves of food, equipment, water, medicines and other essentials . . . emergency exercises/training [and] warning systems [Messer (2003)].

Source: Ishak [2004]; see also Messer [2003]. Fig. 4. The disaster management cycle. 1340030-10


HVCR “Have a Care” Analysis

Strategy Fig. 5. Augmented disaster management cycle, showing connection to traditional strategic planning.

Response. Emergency response capability aims to provide immediate medical assistance, search and rescue, food, shelter, transport, moral support, and other humanitarian relief to those in the a®ected area and to refugees. It also includes e®orts to head o® secondary hazards created by the disaster. Recovery. Immediate response may shade imperceptibly into recovery. As the community returns to normal, the surviving victims have bene¯ted from temporary housing, grants, and medical care, and may themselves take over the tasks of further restoring the structure of daily life. Sustainable development. The strategy underpinning the disaster management cycle is sustainable development, the promotion of sustainable livelihoods and their protection and recovery during disasters and emergencies [Messer (2003)]. The drive toward long-term protection and self-help ability pervades all elements of the management cycle. Mitigation and development strategy, including technology strategy, must lead to activities for assessing hazards, vulnerability, capacity, and risk [Khan et al. (2008)]. The disaster management cycle's HVCR, which may be pronounced \have a care", is in some ways parallel to the SWOT analysis associated with the classic corporate planning cycle. These ideas are depicted in Fig. 5. 6. Entrepreneurship Anso±an strategy [Anso® and McDonnell (1990)] is much concerned with turbulent environments, though Anso® did not use the jargon of chaos. His \discontinuous" and \surprising" environment types [1990, p. 63] correspond roughly to chaos, edge of chaos, and disaster, while his \repetitive", \expanding", and \changing" types are closer to what the present paper has called \stable", with \stable" implying either a static or predictably changing market. Anso® and McDonnell [1990, pp. 308–313] do address management cycles, incuding the entrepreneurial cycle, but their diagrams are complex. The present paper aims to follow Fayol in presenting management cycle concepts simple enough to be used as rules of thumb. To that end, we drastically simplify Anso® and McDonnell's [1990, p. 313] entrepreneurial management process diagram, with the result shown in Fig. 6. 1340030-11


Identify opportunity (Plan: Match opportunity with Resources and Capabilities)

Evaluate

Deliver

STRATEGY

Attract investment Fig. 6. An entrepreneurial management cycle.

Figure 6 conveys an entrepreneurship process similar to that described in many new venture texts, see e.g. Phillips [2009]. Entrepreneurship ! ! ! or intrapreneurship, as the process frequently occurs within a large organization ! ! ! is distinguished by starting with opportunity identi¯cation, followed by the selling of a plan to investors (which may be upper managers in the intrapreneurial situation). As the team identi¯es and satis¯es several new opportunities, an identity and a strategy begin to emerge. The entrepreneurial cycle shares characteristics with the chaos cycle and edge-ofchaos management. \Plan" is in parenthesis in the ¯gure, in recognition of the nervy entrepreneur who says \yes" to a big order; having no notion how he will ful¯ll it, he carries the order to investors and suppliers, hoping to marshal everything needed before the delivery date. The entrepreneur °irts with chaos. In the entrepreneurial cycle, fundraising phases are as prominent as managingthe-company phases, and strategy may temporarily be abandoned in favor of opportunism. Intrapreneurial opportunities arise in plenty from the types of business discontinuities described earlier in this paper. Like the stable cycle, the disaster cycle, and the chaos cycle, the entrepreneurial cycle is therefore an important part of every organization's future. 7. Linking the Cycles: Continental Airline Continental Airline's beginnings trace back to operations with a single-engine Lockheed aircraft on July 15, 1934. In 1982, Continental merged with Texas International and moved its headquarters to Houston.f Thus from entrepreneurial beginnings, Continental grew to enjoy a stable business regime prior to the Airline Deregulation Act of 1978, and a turbulent environment following deregulation. It has since experienced crisis and disaster. Sale of Continental stock to Northwest Airlines by a Continental board member gave Northwest leverage which it used to attempt to keep Continental from merging with Delta Airlines in 2001. This resulted in a Justice Department lawsuit charging antitrust infractions. These proceedings ate so much cash ! ! ! much of it going into the pockets of top executives and board members, some of whom unloaded f http://www.continental.com/web/en-US/content/company/history/default.aspx.

1340030-12


Continental stock at $43 ! ! ! that Continental failed to make required payments on two debt issues [Norris (2001)]. The stock fell to $13.95. The 9/11 World Trade Center attack was soon to come, harming the business of all airlines. Continental bounced back; despite an overall decline in customer satisfaction with airlines in 2008. J. D. Power ranked Continental highest in its industry segment for a third consecutive year.g Continental showed admirable disaster preparation and recovery during the period of Hurricane Ike [2008], using a plan it developed in 2006, just after Hurricane Rita. During Ike, Continental had a representative at the [Houston] TranStar Building's emergency operations center every day so he could keep tabs on the decisions that community leaders were making about evacuation routes, transportation, and other city and county services, and help the airline know what to tell customers and employees about its timeline for winding down and reinstating operations. Central to Continental's emergency plan is an underground bunker in Conroe, Texas, roughly 50 miles from Houston. This emergency control center allows Continental to safely conduct airline operations in any regions where airports are operational. On Friday, September 12, Houston's International Airport closed, and when Ike was 100 miles from Houston, Continental made the call to move its headquarters sta® to the bunker and evacuate planes from Houston to Abilene, El Paso, and other cities. The airline succeeded in operating globally throughout the storm and had an 89% on-time rate for °ights operating that weekend [Bernstein (2008)].h On June 5, 2008, Continental Airlines cut 3000 jobs and reduced capacity by 11%, citing record fuel costs that have pushed the industry into its worst crisis since 9/11.i Then a Continental Denver–Houston °ight slipped from the Denver runway and crashed on December 28, 2008; Continental's public relations actions following the crash were clumsy [Harrington (2008)].

8. Linking the Cycles: Toyota Kiichiro Toyoda founded the company in 1937 as a spino® from his father's company Toyota Industries, to create automobiles. On May 8, 2009, Toyota reported a record g http://www.jdpower.com/corporate/news/releases/pressrelease.aspx?ID¼2008069. h Bargmann [2008] describes a similar level of disaster planning and response, protection of employees, and

\business continuity", on the part of Wells Fargo Bank, the HEB grocery chain, and ConocoPhillips in the face of Hurricane Ike. i http://www.foxnews.com/story/0,2933,363418,00.html. Continental and United Airlines have now merged. 1340030-13


annual nett loss of US$4.2 billion, making it the latest automobile maker to be severely a®ected by the 2007–2010 ¯nancial crisis. Toyota had become one of the biggest carmakers in the world. Being number one is about being the best in terms of quality on a sustained basis. As a result, quality had been Toyota's top priority. Toyota's CEO had once said: Unless we enhance quality today, we cannot hope for growth in the future. That is why we are investing in the development of new technologies, new processes, and human resources [Stewart and Raman (2007)]. Its founders and CEOs saw three keys to building a stronger foundation for Toyota' success: improve product quality, keep reducing costs, and, in order to attain those two objectives, develop human resources [Stewart and Raman (2007)]. Toyota has focused on achieving those goals simultaneously. The Toyota Production System, an integrated socio-technical system, developed by Toyota and well known worldwide, exempli¯es the ¯rm's management philosophy, The Toyota Way. The Toyota Way prescribes continuous improvement and respect for people and their capabilities; teamwork; humility; putting the customers ¯rst; and the importance of seeing things ¯rst-hand. Many of the features that made Toyota the largest and until 2009 the most pro¯table carmaker in history started to look more like liabilities. The ambition to be number one in the world also led Toyota to ignore its original principles. Since 1999, at least 2262 Toyota and Lexus owners have reported instances of sudden unintended acceleration to the US regulators [Sorensen and Lunau (2010)]. In 2007, a series of investigations taken by federal investigators showed Toyota had fallen into a chaos trap. Investigators diagnosed a number of potential dangers in Toyota cars and trucks and warned that the agency considered the °oor mat danger a \serious issue" [Whoriskey (2010)]. Over the last two years, Toyota's troubles have not given rise to timely response and handling within the company. July 27, 2007: Troy Johnson, 39, is killed when his Honda Accord is hit from behind by a 2007 Toyota Camry whose accelerator pedal was jammed by a °oor mat. The Camry was traveling at 190 km/h before it slammed into Johnson's car, killing him instantly. The news alarmed the public, and Toyota recalled and extended the warranty. However, this is not at the end of the disaster. August 28, 2009: Four people are killed in California when their Lexus ES 350 crashes through an intersection, overturns several times and comes forest in a river basin. More and more accidents happened owning to the unsolved quality problems of [this model] [Terry (2010)]. The corporation's fumbling response to mounting complaints about sudden acceleration and braking problems has pushed even loyal customers into an unhappy place. There are many inside and outside the company who believe that Toyota's growth spurt has undermined the meticulous production and quality control that made its reputation [Soble and Simon (2010)]. Moreover, Toyota is a large, globalized organization su®ering from slow decision-making and communication due to 1340030-14


its centralized structure. If it had been up to Toyota branches, quicker action may well have resulted. Stedfan Lipper, a business professor at Temple University in Japan, said: Toyota had the perfect model for the 1980s and 1990s, but its approach now looks outdated. The concentration of decision-making at headquarters is one of the factors behind Toyota's problems right now. The company's secrecy and tendency to centralize decision-making in Japan contributed to the public relations debacle [Layne et al. (2010)]. The recalls continued, and Toyota started to slide in customer-reliability polls while Ford, Volkswagen and others such as Hyundai, which added to sales in America in 2009, caught up [Economist.com]. Toyota's customers began to defect to competing carmakers [Ibid ]. Toyota must now attend not only to the public-relations aspects of crisis management, but also to the organizational and technological roots of the crisis, responding to complaints actively, so as to recapture the hearts of loyal customers and rebuild the company's reputation and brand. It is unprovable that Continental and Toyota ever behaved in an edge-of-chaos manner, but both had entrepreneurial origins. Over 70 years, Continental has experienced entrepreneurial uncertainty, stability, crisis, and the disaster and chaos of 9/11 and the current meltdown. Toyota also has experienced stability, ¯nancial meltdown in 2008, and recall chaos which evolved into a crisis. It is clear that Continental and Toyota ! ! ! or at least parts of both ¯rms ! ! ! move back and forth among all of the management styles described in this paper.

9. Discussion As technology companies become ever more global, they will encounter unexpected competition and new markets, and face exposure to a wider range of crises and disasters. It can be expected that they will draw on not just one management process, but all four of the cycles shown as interlinked in Fig. 7. Students may

Stable Cycle

Entrepreneurial Cycle

Chaos Cycle

Disaster Cycle

Fig. 7. Technology-dependent companies will use all four management cycles ! ! ! sometimes sequentially and sometimes simultaneously. 1340030-15


visualize a company as a car traversing the four circumferences, with tra±c signals indicating (possibly unpredictable) turns at the points where any two circles intersect. Stable times are suited for Fayol's plan-do-evaluate cycle. In contrast, chaos leaves no time for planning or evaluation; survival demands a tight and most likely non-verbal feedback cycle between well-trained action and environmental alertness. Managing on the edge of chaos is similar, but demands ! ! ! and a®ords time for ! ! ! occasional regrouping and evaluation. The disaster management cycle allows evaluation only after a rare event that planners hope does not happen. All are strategy-driven, all result in further re¯ned strategies, and all may generate crises. The ¯nancial meltdown is chaos and disaster ! ! ! and generates crises. Governments react to the ¯nancial crisis by protecting domestic markets, leading to temporary stability. Large companies ¯nance intrapreneurial ventures and spin out entrepreneurial start-ups. More companies learn to dance on the edge of chaos, while others fall into chaos. Companies will come to transition from one management cycle to another as easily as segueing from a salsa to a meringue. As Edstr€ om et al. [2003] remark, the challenges in going from a system of planned economy to a free market system are without a doubt enormous both for countries and individual companies. They describe an Eastern European company that is facing just such chaos. The chaotic management cycle is not yet widely appreciated, and is a promising subject of training for ¯rms. The details of how companies can traverse the linked cycles of Fig. 7 are left for future research. This paper has for the ¯rst time brought together discussions of business responses to eras of stability, entrepreneurialism, chaos, and disaster, representing these as management \cycles" and pitching them at a level su±ciently abstract to encompass all four, yet still su±ciently operational so as to be useful to managers and students. We believe it presents the ¯rst depiction of a \chaotic management cycle". It has linked the disaster cycle to HVCR analysis and to corporate strategy, has provided a visual metaphor for a ¯rm's traversal among the four cycles, and has predicted the future ubiquity of these traversals. It has cited reasons, including globalization, the increasing presence of large companies in disaster zones, changing executive attitudes to chaos, and increasing intrapreneurship, for this prediction. Having critically evaluated some trends in the literature, it presents accurate yet simple diagrams of the four cycles that preserve the \rule of thumb" character of Fayol's original management cycle. The authors hope these schema will be of practical as well as conceptual use to managers and to students.

Acknowledgment This research was partially supported by World Bank Contract No. MoES/CS/IC/ 009/2010, International Technical Assistance for Capacity Building in Universities on Strategic Planning.

1340030-16


References Anso®, H. I. and McDonnell, E. J. (1990). Implanting Strategic Management, 2nd edn., Prentice Hall, Englewood Cli®s. Babin, J. (2009), Avon's calling for more sales reps. American Public Media. Available at http://marketplace.publicradio.org/display/web/2009/02/03/pm avon/. Accessed on 3 February 2009. Bargmann, J. (2008). In control. Continental Magazine, 63–65. Baum, D. H. and Hassinger, J. (2002). The Randori Principles. Kaplan Publishing. Bernstein, J. (ed.) (2007). Keeping the Wolves at Bay: A Media Training Manual, 3rd edn., Bernstein Crisis Management LLC. Bernstein, J. (2008). Continental airlines makes classic blunder. Bernstein Crisis Management blog. Available at http://bernsteincrisismanagement.blogspot.com/2008/12/continentalairlines-makes-classic.html. Accessed on 7 February 2009. Brown, S. L. and Eisenhardt K. M. (1998). Competing on the Edge: Strategy as Structured Chaos. Harvard Business School Press. Edstr€om, T., Haimo, D. and Larnefeldt, T. (2003). When Plan Becomes Market: A Successful Company's Change. The Case of Krenholm, Estonia. University essay from Link€ opings Universitet/Ekonomiska Institutionen. Fayol, H. (1916). Administration Industrielle et G!en!erale. Bulletin de la Soci!et!e de l'Industrie Minerale. Fifth Series, 10, 3: 5–162. Fellman, P. V. and Lanteigne, N. (2007). The Randori Principles. 7th International Conference on Complex Systems, Quincy, MA. Available at http://knowledgetoday.org/wiki/ index.php/ICCS07, last edited on 6 March 2008 18:34:19 US/Mountain. Harrington, G. (2008). Bunker mentality: Business continuity. Continental Magazine, 64. Heimar, M. and Nilsson, D. (2002). Survival in Chaos: A Study of Strategy Formation in a Turbulent Business Environment. University essay from Link€ opings Universitet/Ekonomiska Institutionen. Hillon, M.(updated). What is chaos and complexity? Available at http://www.horsesenseatwork.com/psl/pages/chaosde¯ned.html. Accessed on 7 February 2009. Ishak, R. (2004). Special report: Disaster planning and management. NCD Malaysia, 3, 2: 47–51. Available at http://www.dph.gov.my/ncd/Bulletin/April Jun04/10.Special% 20Report.pdf. Accessed on 7 February 2009. Jelinek, M. and Schoonhoven, C. B. (1993). The Innovation Marathon, Jossey-Bass, San Francisco. Kamo, J. and F. Phillips (1997). The evolutionary organization as a complex adaptive system. PICMET '97, Proceedings of the Portland International Conference on Management of Engineering and Technology, Portland. Khan, H., Vasilescu, L. G. and Khan, A. (2008). Disaster management cycle: A theoretical approach. Available at http://mnmk.ro/documents/2008-6.pdf. Accessed on 7 February 2009. Krugman, P. (2002). Greed is bad. New York Times. Available at http://query.nytimes.com/ gst/fullpage.html?res¼9804E5D8103AF937A35755C0A9649C8B63&sec=&spon¼ &pagewanted¼1. Accessed on 7 February 2009. Lashinsky, A. (2006). Chaos by design. Available at http://money.cnn.com/magazines/ fortune/fortune archive/2006/10/02/8387489/index.htm?postversion¼2006092009. Accessed on 2 October 2009. Layne, N., Uranaka, T. and Krolicki K. (2010). How the wheels came o® Toyota's sterling reputation. Calgary Herald. 14 February 2010. Make or brake, Economist.com. Jan 27, 2010. McNamara, R. S., Blight, J. G., Brigham, R. K., Biersteker, T. J. and Schandler, H. Y. (1999). Argument Without End: In Search of Answers to the Vietnam Tragedy. Public A®airs.

1340030-17


Messer, N. M. (2003). The role of local institutions and their interaction in disaster risk mitigation: A literature review, United Nations Food and Agriculture Organization (FAO). Available at http://www.fao.org/docrep/006/ad710e/ad710e00.HTM, accessed on 7 February 2009. Mintzberg, H. (1994). The Rise and Fall of Strategic Planning. Free Press. Nonaka, I. (1998). The knowledge-creating company, in Harvard Business Review on Knowledge Management. Boston MA: Harvard Business School Publishing: 21–46. Norris, F. (2001). Continental: Risky deals and insider sales precede crisis, New York Times. Available at http://query.nytimes.com/gst/fullpage.html?res¼9C03E4DA113BF932A1575AC0A9679C8B63. Accessed on 7 February 2009. Paul, R. (2010). What's been lost in Toyota crisis?, CNN.com. Available at http://edition.cnn. com/2010/OPINION/03/15/paul.toyota.controversy/index.html. Accessed on 7 February 2009. Peters, T. (1988). Thriving on Chaos: Handbook for a Management Revolution. Harper Paperbacks. Phillips, F. (2003). The Conscious Manager: Zen for Decision Makers. General Informatics LLC, Beaverton. Phillips, F. (2008). The conscious manager: Zen for decision makers, E®ective Executive, 11, 5: 40–49. Phillips, F. (ed.) (2009). Managing Innovation, Technology, and Entrepreneurship. Meyer and Meyer, Aachen. Phillips, F. (2011). Inter-institutional relationships and emergency management. International Journal of Society Systems Science, 3, 1–2: 40–58. Phillips, F. and Kim, N. (1996). Implications of chaos research for new product forecasting. Technological Forecasting and Social Change, 53, 3: 239–261. Rashid, A. and Zabid, M. (2003). The in°uence of organizational culture on attitudes towards organizational change. The Leadership and Organization Development Journal, 25, 2: 161–179. Redding, J. C. and Catalanello, R. F. (1994). Strategic Readiness: The Making of the Learning Organization. Jossey-Bass Management. Schaub, K. (2007). Aikido o®ers exercise in meeting challenges, Forbes.com. Available at http://www.forbes.com/2007/12/20/schaub-randori-philosophy-lead-innovationcx ks 1220aikido.html. Schweinsberg, C. (2009). Toyota hopes for 2010 recovery. Ward's Auto World, 45, 12: 26. Senge, P. M. (2006). The Fifth Discipline: The Art and Practice of the Learning Organization, revised edition, Peter M. Crown Business. Soble, J. and Simon, B. (2010). Cars: O® the road. Financial Times. Sorensen, C. and Lunau, K.(2010). Out of control. Maclean's. Toronto: Feb 22, 123, 6: 30–33. Stewart, I. (1989). Does God Play Dice? The Mathematics of Chaos. Blackwell. Stewart, T. and Raman, A. (2007). Lessons from Toyota's long drive. Harvard Business Review, 85, 7/8: 74–83. Strategic Direction (no byline) (2007). Googling out of control: Can Google's chaos management style ensure continuing success? Strategic Direction, 23, 8: 25–27, ISSN: 02580543, Emerald Group Publishing Limited. Terry, A. (2010). Toyota's troubles. Global News. The Economist (2011). The view from the top, and bottom: Bosses think their ¯rms are caring. Their minions disagree. September 24, p. 76. Available at http://www.economist.com/ node/21530171?fsrc¼scn/tw/te/ar/theviewfromthetopandbottom. War¯eld, C. (2009). The disaster management cycle. Available at http://www.gdrc.org/uem/ disasters/1-dm cycle.html. Accessed on 7 February 2009. Wheatley, M. J. (2000). Leadership and the New Science: Discovering Order in a Chaotic World, 2nd edn., Berrett-Koehler Publishers.

1340030-18


Whitelaw, G. and Wetzig, B. (2008). Move to Greatness: Focusing the Four Essential Energies of a Whole and Balanced Leader. Nicholas Brealey Publishing. Whoriskey, P. (2010). Toyota Resisted Government Safety Findings. Automaker Followed \Game Plan", Escaped a Broad Early Recall. The Washington Post, Washington, DC, A-1. Wojick, D. E. (updated). Chaos Management and the Dynamics of Information: A New Way to Manage People in Action. Available at http://www.bydesign.com/powervision/ Mathematics Philosophy Science/Chaosman.html.

Biography Dr. Fred Phillips is a Professor and Program Chair in the Department of Technology and Society at State University of New York ! ! ! Stony Brook. He is a Senior Fellow of the IC2 Institute at the University of Texas at Austin and is Editor-inChief of Technological Forecasting and Social Change. Dr. Yu-Shan Su is an Associate Professor in the Department of Industrial Education at National Taiwan Normal University in Taipei, Taiwan. She teaches strategic management, innovation management and international business. She serves on the editorial board of the journal Technological Forecasting and Social Change. She published her works in international journals, such as Asia Paci¯c Journal of Management, Technological Forecasting and Social Change, International Journal of Photoenergy, etc.

1340030-19

CHAOS, STRATEGY, AND ACTION: HOW NOT TO ...

CHAOS, STRATEGY, AND ACTION: HOW NOT TO ...

Suggest Documents