Top Gun Governance

By Derek M. Stevens

Governance and management have a big problem. Organizations must learn to thrive in our highly interdependent world, even as that world is changing more rapidly and in more unpredictable and uncontrollable ways. Organizations need to become much more situation aware.

Situation awareness is a mainstay of air force and military doctrine, nuclear power plant management, aviation, and ERs, among others. These are all disciplines where mistakes in understanding a situation and predicting its outcome may not only be costly but also fatal. Top-Gun Governance adapts and scales insights and practices from the field of situation awareness to promote better sense making and prediction throughout your whole organization.

More than "big data," this next-generation governance will help you challenge your decision-making biases, recognize when events and trends are breaking current rules and assumptions, and manage the changes they inevitably bring. This is a book for leaders and those who must see changes with clear-eyed dispassion and create, implement, and sustain a culture of change in a highly dynamic world.

How did this book come about?

In a word, COVID. How did public health guidance, which had been successful in managing past epidemics, become so contentious? This question led to the following train of thought:

Why change programs are so difficult when even simple interventions, like mask wearing, are rejected by large segments of the population, to...

Thinking that different situations, characterized by their degree of unpredictability, require different communication and change-management techniques, to...

Understanding how cognitive biases take hold and reinforce positions that become very entrenched, to...

Realizing that concepts and practices in situation awareness, a discipline used extensively in environments where mistakes can be fatal, could be a good approach, to...

Using experience in organization architecture to describe ways in which situation awareness could be scaled to the organization level under the umbrella of governance

So yes, a somewhat convoluted path but one that I hope demonstrates the breadth and depth of focus in looking at very complex problems and one that informs this book.

• Language: English
• Publisher: Newman Springs Publishing, Inc.
• Release date: Nov 30, 2023
• ISBN: 9798887635989

Book preview

Table of Contents

Title

Copyright

Acknowledgements

Foreword

Chapter 1

Chapter 2

Chapter 3

Chapter 4

Chapter 5

Chapter 6

Chapter 7

Chapter 8

Chapter 9

Chapter 10

Chapter 11

Chapter 12

Chapter 13

Chapter 14

Chapter 15

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Top Gun Governance

Derek M. Stevens

Copyright © 2023 Derek M. Stevens

All rights reserved

First Edition

NEWMAN SPRINGS PUBLISHING

320 Broad Street

Red Bank, NJ 07701

First originally published by Newman Springs Publishing 2023

ISBN 979-8-88763-597-2 (Paperback)

ISBN 979-8-88763-598-9 (Digital)

Printed in the United States of America

Acknowledgements

I would like to express my gratitude to Dr. Martha Batorski for guiding me through the relevant research in situation awareness and answering my many questions; to Dr. Mica Endsley for her invaluable feedback on my approach to scaling situation awareness to the level of the enterprise; to Professor David Snowden for his patience in helping me understand the nuances of the Cynefin framework; and to Stephen Price who provided me much insight on translating concepts into relevant visuals.

Foreword

Top Gun. The term evokes images of aviators executing maneuvers at supersonic speeds. The very best naval aviators are called Top Gun because, not only do they have the very best flying skills, but they also have the best situation awareness. They can understand the battle space very quickly, predict what's coming, and make the next move before their adversaries can make theirs. They have deep understanding of the quickly unfolding, dynamically changing situation. They force their adversary to continuously react to them, rather than vice-versa.

The unpredictability of the world today is starting to make the business environment look more and more like a supersonic dog fight. Events happen quickly, with independently acting adversaries unpredictably altering the decision space, in near real time. This requires anyone who leads change, to become a Top Gun, able to sense the complexities of the situation, understand its nuances, and quickly predict what's coming next, so they can make their move before being outmaneuvered.

But, just as Top Gun aviators don't go into battle without communications, reconnaissance support, and advanced over-the-horizon-radar, giving them a more holistic view of the battle space, today's leaders cannot lead successfully without a more sophisticated governance system that promotes situation awareness.

This book is for anyone, and any organization, that must look over the horizon to glimpse, and make sense of what is quickly coming…before it arrives.

Management and governance have always been a balancing act between allocating scare time and attention to what just happened, what is happening right now, and what is likely to happen in the future. In that balancing act, the future has usually gotten short shrift. The future though, has shrunk dramatically, both in terms of time and space. What used to happen over there, and might never have affected us, now happens open over here, and fast. If we ever needed anything to reinforce that perspective, COVID, Tsunamis, foreign wars, and global competition, should have disabused us of any sense of being buffered from events that happen half a world away.

Hamel and Prahalad, in their seminal work Competing for the Future (Hamel and Prahalad 1994), calculated that less than 3 per- cent of management time is spent building a corporate perspective on the future. In 1994, that was a problem, but it is not quite the same problem as executives face today.

As long as the future looked pretty much like the past, this focus on the next quarter, current and past performance, worked reasonably well. The problem today is that the future, even the relatively near future, may not look a lot like the past. This is due to vastly increased interdependencies of global, just-in-time (JIT) supply chains. Some of these reside in countries without stable and/or transparent regimes. Information technology, is also driving innovation, and even creating whole new competitive businesses with dizzying speed.

Think of the rise of ride sharing (Uber and Lyft) expanding into food and other goods and service delivery businesses, all enabled by a technology platform that connected independent drivers with people wanting a ride. The direct connecting of suppliers with consumers decimated traditional taxi and livery services, and the platform became a model for other businesses, underpinning the gig economy. The world is becoming vastly more unpredictable, with independent actors whose actions dynamically change the decision space in real time. Sounds like a dog fight.

So, the real challenges for executive leadership today are recognizing when the rules are changing before they tip, and building an organization that can adapt to this dynamically changing environment, faster than the competition. In other words, you're the one shaping the battle space, not the one having to react to changes others impose on you.

To accomplish this, leadership must create a capability to overcome decision-making biases faster than the competition. Decision making and cognitive biases help create the mental and cultural inertia that can keep an organization mired in a maladaptive strategy. That capability, I propose, is Situation Aware Governance.

Situation awareness is the ability to perceive events, make sense of them by accessing or forming a cogent mental model of them, deciding on an action, and then correctly predicting what will happen next, based on your decision.

Situation awareness is a mainstay of military doctrine, including pilot training, aircraft-carrier flight operations, as well as other fields, such as nuclear power generation, emergency room operations, and wildland firefighting. These are highly dynamic environments where mistakes can not only be costly, but also fatal.

These high-reliability organizations (HROs) (Weick and Sutcliffe 2007) follow principles that can be applied to all businesses and organizations. This book will explore ways in which the principles and disciplines of situation awareness can be adapted and scaled to every organization.

I will also build on the work of David Snowden (Snowden 2007), who developed a very useful framework to describe different decision-making domains. The first premise of good situation awareness is to recognize what kind of decision-making space one is in, because the degree of unpredictability, and its urgency will dictate different management strategies.

I wrote this book because, after years of implementing systems and leading change programs, I realized that one-size approaches and methods to management, particularly change management, do not provide the adaptability needed in a dynamically changing world. Many of the existing methods provide a good foundation for change in individuals, and this book is not trying to overthrow those considerable efforts. But several other factors come into play that we now need to consider.

First, the nature of the situation with respect to its predictability or, more realistically these days, its unpredictability, requires different management approaches; really a wider repertoire of mental models and potential responses. As the business landscape changes rapidly, the speed with which we can overcome our cognitive and decision-making biases and significantly modify, or even discard sacred cow mental models, are advantages in today's world.

Because so much research has been done in the field of situation awareness, it was a natural starting point to introduce a new way of looking at governance in organizations.

Traditional governance strives to keep performance and behavior within prescribed guardrails. Situation Aware Governance extends this to recognizing when the guardrails are disappearing, or when the road is taking a hard turn to somewhere unknown. Situation Aware Governance challenges existing cognitive and decision-making biases. It seeks to understand the true nature of the environment, and make the investments to enable your organization to thrive in today's environment of more or less continuous change.

Lastly, a lot has been written about decision-making and cognitive biases at the individual level. A recent bestseller, Think Again by Adam Grant (Grant 2021), explores the pitfalls of not being able to rethink one's positions. This leads to, among other things, two polarities in leadership—arrogance versus humility.

Arrogance is exemplified by armchair quarterbacking; thinking that one is more capable of predicting or estimating than objective data supports. Humility, on the other hand, is exemplified by imposter syndrome; believing that one is less capable than one really is. This book takes the position that how an organization is designed, will either support building robust rethinking, bias busting practices, and situation-awareness capabilities, or it won't.

To promote these good habits, organization-wide, and sustain them through staff, and especially leadership turnover, the right policies, teams, metrics, processes, techniques, incentives, and information must be in place. These components comprise the Situation Aware Governance capability. This is the environment that mediates between the more abstract aspects of culture, and the individual's behaviors, skills, and expertise. It is an environment that supports individuals in executing the organization's mission, as well as guiding leadership through constant and highly variable change.

This book should not be taken as a prescription, but more of a blue-print that should be modified to suit your own organization. The lessons have been drawn from 30 years of consulting and managing in a wide variety of industries and situations. The processes, policies, skills, and organization structures, have been fleshed out in enough detail to provide as vivid a picture as possible regarding what the end result could look like. But they should be treated much as one would look at a picture in a home or architecture magazine—something to aspire to, and provide ideas, but needing to be tailored to your life, while respecting certain basic principles. Hopefully, this book can be your first step in becoming a Top Gun leader.

Chapter 1

Seeing the World as It Is

When COVID-19 spread around the world, public health officials compared it to influenza and prior coronavirus outbreaks like SARS and MERS. Initial communications saying that it was not necessary to wear a mask were partially based on prior experience that contagion was only possible in a narrow window of time before and during observable symptoms. (There were other considerations about scarce PPE being needed for frontline medical workers as well.) It's like the flu, so just stay away from people who are coughing and sneezing. Or if you are coughing and sneezing, just stay away from other people. Easy peasy, right? Wrong!

This response to something new is very natural. We are wired to find patterns even when they aren't really there. It's how we attempt to make sense of the world. We are wired to see the world as we expect it to be. It's only when there is something really unexpected that the analytical parts of our brain become engaged. It also takes considerable, actual mental energy to engage the analytical parts of the brain and get off autopilot. Otherwise, we filter out signals or discount them until they accumulate under the radar to create an impending disaster. But by then, it is too late to prepare. It is sink or swim. This is true at both the individual and the organization level.

There is a lot of biology embedded in our brains and nervous systems that wants to keep us anchored and invested in current models of how things work. This is because what we perceive around us is actively constructed by our brains and not just a function of our senses. Our brain's ability to construct what we expect enables us to do things like drive a car. Driving a car would be impossible if our frontal cortex had to consciously analyze every stimulus coming at us at thirty miles per hour. Our brains, whose neuronal activity is governed by chemical reactions, just don't work that fast. The more we drive a certain route, the more on autopilot we become. There is a lot of survival biology in the way our brains work. And that serves us very well, except when it doesn't.

Nobel Prize–winning laureate Daniel Kahneman describes these two thinking systems in our brains as the following:

System 1—the automatic, autopilot lower-brain functions that play an important part in preserving the continuity of our experience but are mostly unconscious and subject to unconscious decision-making biases

System 2—the higher-order cognitive and analytical functions that are engaged when there is a discontinuity, an unexpected event, that system 1 did not predict and did not expect would happen

Sometimes we have to overcome our decision-making and perceptual biases to see the world as it really is.

What's the equivalent for an organization? What keeps an organization from engaging in maladaptive behaviors to changing conditions? Good governance should accomplish that for an organization but frequently doesn't. Taking governance to the next level—Situation Aware Governance—can help an organization overcome those perceptual and decision-making biases to thrive in a world that is becoming more complex and unpredictable.

Back to COVID-19. Turns out it wasn't like seasonal flu, SARS, or MERS. Unlike these viruses, it has a longer asymptomatic contagious period, which drastically changed how and how quickly we needed to respond to it. You might not even know you have been infected while you are spreading it around your family and community. But initial communications about not needing to wear a mask or that the risk of infection was low to the average citizen created behaviors and attitudes and lack of trust that stubbornly persisted, resulting in over one million US residents dead.

Because humans give more weight to early information over information we get later on (anchoring or first-assumption bias), it turns out that issuing definitive pronouncements can be very problematic when the situation is inherently unpredictable. These statements and strategies then become proverbial boat anchors to behavior change. So, being able to recognize very quickly what kind of situation your organization is confronting becomes a necessary capability in today's rapidly changing, interdependent, complex, and unpredictable world.

On a broader scale of disruption and unpredictability, COVID caused chipmakers to adjust their estimates of demand downward. However, COVID also increased the demand for at-home technologies, such as flat-screen TVs and upgraded computer systems and networks, to accommodate remote meetings and remote school. These items contain microchips, and producers of home and consumer electronics technologies bought up chip supplies. Many industries were then caught short on their supplies of essential microchips.

According to a Goldman Sachs report, as reported in Yahoo Finance (Howley 2021), a staggering 169 industries suffered supply chain disruptions and production shortfalls. But probably no industry has suffered as much as the automobile industry, where approximately 4.7 percent of industry GDP is spent on microchips and they run very lean on inventory. This disruption may all be understandable and predictable in retrospect; but it was not predictable at the start of the pandemic, at least not by industries removed from home or consumer electronics technologies, where it was not a big leap of logic or faith to predict that self-isolation and social distancing would create an increased demand for their products.

In a broader context, the relentless drive toward just-in-time inventory (Goodman and Chokshi 2021) created a very low margin of error for any disruptions. The relentless trend toward ever more lean inventory systems is also an example of why gaming out the worst in any trend, including the ones that have worked well and have driven down costs, needs to happen—religiously. Maximizing on low inventory costs and their effects on the bottom line created a paradigm in which other variables and risks were given short shrift.

Long transcontinental supply chains involving multiple suppliers were assumed to always be cheap and reliable. COVID disabused us of that notion. This is the very definition of a complex situation—one with lots of independently acting agents who will behave in their own interests, especially when under duress.

The authors also state that, in the decade leading up to the pandemic, American companies spent more than $6 trillion to buy back their own shares. This is money that was harvested from the gains made in, among other things but principally, efficiencies and economic value created through JIT. They did not spend the money on reinvesting in resilience. And it is not like supply disruptions were new. Recent events such as

the earthquake and tsunami that shattered Japan in 2011 shut down factories and impeded shipping, generating shortages of auto parts and computer chips. Floods in Thailand the same year decimated production of computer hard drives. (Goodman and Chokshi 2021)

This is why Situation Aware Governance becomes even more important. SA governance is the organization equivalent of Daniel Kahneman's system 2 (Kahneman 2011). Disruptions like a global pandemic ought to be enough of a jolt to our sensibilities to force reevaluation of our assumptions. However, as Goodman and Chokshi (2021) state, Ultimately, business is likely to further its embrace of lean for the simple reason that it has yielded profits.

So the lesson is this: the forces that keep us anchored in a particular way of thinking are very powerful, and any organization must make a conscious and continuous effort to counterbalance the prevailing thinking. I am not saying that JIT has not been beneficial. There are many advantages to adopting lean JIT systems. But too much of a good thing, maximizing on a single variable, blinds people and organizations to the wider, more unpredictable, and complex world we must navigate.

At some point, predictability breaks down in the face of complexity and novelty; and when it does, a quote from Richard Macklem, the current governor of the Bank of Canada, made just after the 2008 financial crisis, when he was deputy governor, really hits the nail on the head: You really find out how things work when they don't work (Parkinson, David 2020).

Moreover, organizations can create their own rose-colored glasses, or deceptively predictable version of reality, through various mechanisms like strategic planning or a big investment in an initiative. Henry Mintzberg called this the fallacy of predetermination (Mintzberg 1994), whereby the strategic plan sets up filters and blinders on what is seen, measured, understood, and taken seriously. Ignoring real-world signals because they don't comport with the predicted or desired version of reality can result in its own kind of chaos.

Key Questions

Another recent, well-publicized situation that reveals how a company may create its own chaos is the saga of the Boeing 737 MAX aircraft. This case is instructive because it shows how a situation can go from clear to chaos following a situation and decision-making framework known as Cynefin (Snowden 2007), which will become a key part of the solution to provide Situation Aware Governance.

The 737 MAX was originally conceived as a derivative aircraft program of the venerable 737 platform to counter a more fuel-efficient new Airbus plane. Boeing management sought to make the plane changes as invisible to pilots as possible and as price competitive as possible, with the directive that the plane would require no new simulator training, which is very expensive.

Management could not get out of the mindset that the plane was derivative—that the design changes were all controllable and the maneuvering characteristics were predictable. They weren't; and worse, because the fixes were supposed to be invisible to pilots, situation awareness both at a program managerial level and finally at a pilot/cockpit level was seriously degraded.

Throw in highly variable levels of pilot training and pilot airmanship for discount and regional airlines in the third world; and we all know the result—two catastrophic crashes, the worldwide grounding of the plane, and the loss of billions in revenue for Boeing. More on this case study and the different kinds of situations that Situation Aware Governance must be attuned to later on.

Building resilience—a seawall in stormy times

On the other hand, some companies such as Nike and MultiCare, a Seattle-based healthcare network, were correctly reading the tea leaves about demographic, market, and customer preferences. These were not related to COVID.

Noticing that people liked to shop more online for convenience, Nike had been building a factory direct to customer capability for several years. When COVID hit, Nike was able to divert production and sales away from impacted traditional brick-and-mortar retail outlets to their online consumer direct channel. By building this new sales and distribution channel, they engineered resilience into their company and did quite well during the pandemic.

MultiCare, a Washington state healthcare provider, noticed a trend toward the need for online doctors' appointments. Addressing the need for convenience and that people cannot easily take time off to visit the doctor's office, especially for minor ailments, propelled them to develop an online doctor-visit capability. This served them well and enabled them to weather the pandemic.

What Nike and MultiCare did was build resilience into their businesses by designing redundant channels into their operations. COVID became a magnifier for the success of these investments, but they were following a principle of organizations that are situation aware or high-reliability organizations (Weick and Sutcliffe 2007), which is commitment to resilience. Turns out, this is a key factor in successfully managing in an increasingly unpredictable world.

How many times has your organization been fooled by a trend, ignored a competitor or the emergence of a new technology with disruptive force, or embarked on a project that turned out to be quite unpredictable in its reception or opposition, even within your own organization? How many times did you say, in retrospect, after events unfolded, That was obvious or Should have seen that coming even though it was not at all obvious at the outset? Conversely, for programs that were successful, did you ever say something like Wish we could bottle that secret sauce?

Three key questions arise:

To executives who should be asking What does this approach give me that I don't get now? intuitively, being able to manage more effectively in different types of situations that demand different management approaches will enhance your odds of success. This is especially true in executing strategic plans that require big changes, as well as responding to and managing unexpected and