10 Long Range Planning, Vol. 26, No. l, pp. 10 to 17, 1993 0024,6301/93 S6.00+.00 Printed in Great Britain @ 1993 Pergamon Press Ltd

Strategy as Order Emerging from Chaos Ralph Stacey

Scientists are developing revolutionary new ways of under- standing how nature functions. They have recently discovered that systems in nature (for example, a gas) are capable of endless variety because their dynamics are chaotic--unpredic- table new patterns emerge through a process of spontaneous serf organization (for example, a laser beam). Since human organizations are dynamic feedback systems just as nature's systems are, these new discoveries--chaos and self organiza- t i on -app ly to organizations and provide managers with a fundamentally different way of understanding their strategic development. With this new frame of reference we can see that it is impossible for managers to plan or envision the long-term future of an innovative organization. Instead, they must create and discover an unfolding future, using their ability to learn together in groups and to interact politically in a spontaneous, self- organizing manner.

Five years ago the new CEO of an established U.K. engineering company--cal l it Imperial Engineer- ing--assembled senior managers from Imperial's subsidiaries around the world. He spelled out the need to transform the company from a sleepy traditional equipment manufacturer into a high technology corporation and to bring this about, he announced a major management development programme to be rolled down the organization, starting with himself and his board colleagues. The aims of this programme were to develop new skills and attitudes, cohesive management teams, co- operation across functions and business units, and a focus on strategic thinking. To these ends, hundreds of managers were trained to develop visions and missions, analyse competitive advantages, position resource capabilities to match market requirements, prepare long-term plans, and manage change through appropriate involvement and communi- cation down the hierarchy.

Since then, Imperial has moved out of its static

Ralph Stacey is author of a number of books on Strategy: Dynamic Strategic Management in the 1990s, Kogan Page (1990), The Chaos Frontier, Butterworth Heineman (1991), Managing Chaos, Kogan Page (1992). He is a Professor at Hertfordshire University Business School and a strategy consultant to major companies at board level. For many years hewas Corporate Planning Manager at John Laing plc.

traditional sectors into high technology growth segments, through a programme of divestment and acquisition as well as new product development. That programme, however, was due largely to one division and that division's top managers had no vision. In fact they pointedly claimed that forming a picture of some future state was impossible in their rapidly changing markets and they resisted the direction to prepare long-term plans. Instead of visions and plans, they opportunistically acquired companies and developed new products. Further- more, the division's managers showed little sign of cohesion and subsidiary companies within the division conflicted and competed intensely with each other. So, while espoused policies indicated that managers should behave in a particular way, some at least did the complete opposite and the change that the chief executive sought came from them. Unfortunately, however, high technology businesses are often particularly vulnerable to recession and Imperial is now on the verge of becoming someone else's acquisition. So, in the end, it was the destination as well as the route that turned out to be unexpected and unintended.

Imperial is not a special case. During the past few years I have worked as a consultant with nine companies on strategy, reorganization and change management assignments--Imperial was one of them. The others ranged from a local agricultural merchant, to a medium-sized packaging company, to large national utilities, to international parcel delivery and construction corporations. Using this experience, I reviewed what we as consultants, in partnership with our clients, were explicitly trying to accomplish and compared this with how each of those companies actually managed the changes to develop new strategic directions, and what the outcome was.

In all of them there was the same difference between the processes of management that were ostensibly being installed and the processes which managers were actually using, and also the same difference between the outcome which was originally

intended and the outcome that actually emerged. As consultants and managers, we were trying to establish patterns of behaviour that would lead to the formulation of organization-wide intention for the long term, so overcoming ambiguity and conflict, and removing paradox and uncertainty. In no case did we succeed in establishing this pattern of behaviour for more than very short time periods and yet at least seven of these companies made some significant change in the way they were operating, even though the outcomes were rarely what had been intended or expected. The changes occurred, not because we were planning, but because we were learning in a manner provoked by the very ambiguity and conflict we were trying to remove. Where a provocative atmosphere conducive to complex learning was generated, the company changed and developed new strategic direction. Where that atmosphere failed to develop, so too did the change and the strategic direction.

W h y were we saying one thing whilst in reality doing another? The answer lies in our failure to question a very fundamental assumption. As soon as we claim that we can envision and plan, that is, determine the long-term future of an organization, we make the unquestioned assumption that there are identifiable links in organizational life, at least in principle, between a cause and an effect, between an action and an outcome. We could not possibly believe that a plan of action (for example, action A now, followed by action B next year and action C the year after) could lead to, say, a dominant market share, unless we were confident that there were causal links between an action now and a market share in five years time. It is no longer possible, however, to avoid questioning that assumption about causality and when we do, we have to revise our views on how organizations develop strategically.

Over the past twenty years, mathematicians and natural scientists have discovered that there are conditions in which dynamic systems driven by simple feedback laws generate behaviour so com- plex that the links between cause and effect, action and outcome, simply disappear in the detail of unfolding behaviour. Furthermore, these scientists have established that this notion of causality

~" is embodied in the theories of chaos and self organization,

~" applies to most natural phenomena and it is because of this that nature is continuously creative.

Since human organizations are dynamic feedback systems that need to be creative if they are to survive, these discoveries are as applicable to organizations as they are to natural systems? When this new scientific frame of reference is applied to organizational dynamics, it leads to rejection of notions that managers can establish and be in control of the long-term future direction of their organiza-

Strategy as Order Emerging from Chaos 11

tion; or that they should be a cohesive team sharing a vision of its future state and holding a common culture. The new frame of reference exposes much of the received wisdom on strategic management to be a fantasy defence against anxiety, and points instead to the essential role of managers in creating the necessarily unstable conditions required for that effective learning and political interaction from which new strategic directions may or may not emerge. (Figure 1 'Changing the Frame of Reference' summarizes the differences between the new and the old frames of reference.) This paper explains the new frame of reference and suggests some implications for strategic management.

Chaos and Self Organization in Business There are four important points to make on the recent dicoveries about the complex behaviour of dynamic systems, all of which have direct appli- cation to human organizations.

1. Chaos is a Fundamental Property of Nonlinear Feedback Systems, a Category that Includes Human Organizations Feedback simply means that one action or event feeds into another; that is, one action or event determines the next according to some relationship. For example, one firm repackages its product and its rival responds in some way, leading to a further action on the part of the first, provoking in turn yet another response from the second, and so on. The feedback relationship may be linear, or propor- tional, and when this is the case, the first firm will repackage its product and the second will respond by doing much the same. The feedback relationship could be nonlinear, or non-proportional, however, so that when the first firm repackages its product, the second introduces a new product at a lower price and this could lead the first to cut prices even further, so touching offa price war. In other words, nonlinear systems are those that use amplifying (positive) feedback in some way. To see the significance of positive feedback, compare it with negative feedback.

All effective businesses use negative or damping feedback systems to control and regulate their day- to-day activities. Managers fix short-term targets for profits and then prepare annual plans or budgets, setting out the time path to reach the target. As the business moves through time, outcomes are meas- ured and compared with annual plan projections to yield variances. Frequen~ monitoring of those variances prompts corrective action to bring per- formance indicators back onto their planned paths; that is, variances feed back into corrective action, and the feedback takes a negative form so that when profit is below target, for example, offsetting action is taken to restore it. Scheduling, budgetary and planning systems utilize negative feedback to keep

12 Long Range Planning Vol. 26 February 1993

Today's Frame of Reference A New Frame of Reference

Long term future is predictable to some extent.

Visions and plans are central to strategic management.

Vision: single shared organisation-wide intention. A picture of a future state.

Strongly shared cultures.

Cohesive teams of managers operating in state of consensus.

Decision making as purely logical, analytical process.

Long term control and development as the monitoring of progress against plan milestones. Constraints provided by rules, systems and rational argument.

Strategy as the realization of prior intent.

Top management drives and controls strategic direction.

General mental models and prescriptions for many specific situations.

Adaptive equilibrium with the environment.

Long term future is unknowable.

Dynamic agendas of strategic issues are central to effective strategic management

Challenge: multiple aspirations, stretching and ambiguous. Arising out of current ill-structured end conflicting issues with long term consequences.

Contradictory counter cultures

Learning groups of managers, surfacing conflict, engaging in dialogue, publicly testing assertions.

Decision making as exploratory, experimental process based on intuition and reasoning by analogy.

Control and development in open-ended situations as a political process. Constraints provided by need to build and sustain support. Control as self policing learning.

Strategy as spontaneously emerging from the chaos of challenge and contradiction, through a process of real time learning and politics.

Top management creates favourable conditions for complex learning and politics.

New mental models required for each new strategic situation.

Non-equilibrium, creative interaction with the environment.

Figure 1. Changing the frame of reference for strategic management

an organization close to a predictable, stable equilibrium path in which it is adapted to its environment. While negative feedback controls a system according to prior intention, positive feed- back produces explosively unstable equilibrium where changes are amplified, eventually putting

intolerable pressure on the system until it runs out of control. Given a choice between these two possibili- ties, it is clear where success lies.

The key discovery about the operation of nonlinear feedback systems, however, is that there is a third

Strategy as Order Emerging from Chaos 13

choice. When a nonlinear feedback system is driven away from stable equilibrium toward explosive unstable equilibrium, it passes through a phase of bounded instability--there is a border between stability and instability where feedback flips autono- mously between the amplifying and the damping to produce chaotic behaviour; a paradoxical state that combines both stability and instability.

All human interactions take the form of feedback loops simply because the consequences of one action always feed back to affect a subsequent one. Furthermore, all human interactions constitute nonlinear feedback loops because people under and overreact. Since organizations are simply a vast web of feedback loops between people they must be capable of chaotic, as well as stable and explosively unstable behaviour. The key question is which of these kinds of behaviour leads an organization to success. We can see the answer to this question if we reflect upon the fundamental forces operating on an organization.

All organizations are powerfully pulled in two fundamentally different directions: 3

to disintegration. Organizations can become more efficient and effective if they divide tasks, segment markets, appeal to individual motiva- tors, empower people, promote informal com- munication, and separate production processes in geographic and other terms. These steps lead to fragmenting cultures and dispersed power that pull an organization toward disintegration, a phenomenon that can be seen in practice as companies split into more and more business units and find it harder and harder to maintain control.

to ossification. To avoid this pull to disintegration, and to reap the advantages of synergy and co- ordination, all organizations are also pulled to a state in which tasks are integrated, overlaps in market segments and production processes are managed, group goals stressed above individual ones, power concentrated, communication and procedures formalized and strongly shared cul- tures established. As an organization moves in this direction it develops more and more rigid structures, rules, procedures and systems until it eventually ossifies, consequences that are easy to observe as organizations centralize.

Thus, one powerful set of forces pulls every organization towards a stable equilibrium (ossifica- tion) and another powerful set of forces pulls it towards an explosively unstable equilibrium (disin- tegration). Success lies at the border between these states, where managers continually alter systems and structures to avoid attraction either to disintegration or to ossification. For example, organizations typically swing to centralization in one period, to decentralization in another, and back again later on. Success clearly lies in a non-equilibrium state

between stable and unstable equilibria and for a nonlinear feedback system that is chaos.

2. Chaos is a Form of Instability where the Specific Long-term Future is Unknowable Chaos in its scientific sense is an irregular pattern of behaviour generated by well-defined nonlinear feedback rules commonly found in nature and human society. When systems driven by such rules operate away from equilibrium, they are highly sensitive to selected tiny changes in their environ- ments, amplifying them into self reinforcing vir- tuous and vicious circles that completely alter the behaviour of the system. In other words, the system's future unfolds in a manner dependent upon the precise detail of what it does, what the systems constituting its environments do and upon chance. As a result of this fundamental property of the system itself, specific links between cause and effect are lost in the history of its development and the specific path of its long-term future development is completely unpredictable. Over the short term, however, it is possible to predict behaviour because it takes time for the consequences of small changes to build up.

For example, some selected tiny change in air pressure in one part of the globe may be amplified through the weather system to produce hurricanes in another distant part. Self reinforcing circles of storms or heat waves develop from tiny changes in conditions. Because of this, it is impossible to make long-term weather forecasts.

Is there evidence of chaos in business systems ? We would conclude that there was if we could point to small changes escalating into large consequences; if we could point to self reinforcing vicious and virtuous circles; if we could point to feedback that alternates between the amplifying and the damping. It is not difficult to find such evidence.

A few years ago the double glazing firm, Everest, refused to refund the deposit on a cancelled patio door contract. The disgruntled customer happened to be the editor of the Sun newspaper. For weeks that newspaper conducted a campaign against the company that led to a massive decline in sales and the departure of salesmen in droves. Eventually the owners of the business sold it to another company?

Creative managers seize on small differences in customer requirements and perceptions to build significant differentiators for their products. Cus- tomers may respond to this by switching from other product offerings, leading to a virtuous circle; or they may switch away, causing the kind of vicious circle that Coca-Cola found itself caught up in when it made that famous soft drink slightly sweeter.

Customers discover that they have requirements because they see other people with a product offering. This leads to copying and spreading effects

14 Long Range Planning Vol. 26 February 1993

that may easily become cumulative and self rein- forcing. For example, if VHS video recorders become slightly more popular than Betamax, this encourages film makers to provide more films in the VHS format. That in turn increases the incentive for others to buy VHS rather than Betamax. In this way, a small chance difference in initial market shares can set offself reinforcing virtuous circles for some and vicious circles for others.

Managers create, or at thc very least shape, the requirements of their customers through the prod- uct offerings they make. Sony created a requirement for personal hi fi systems through its Walkman offering and manufacturers and operators have created requirements for portable telephones. Sony and Matsushita created the requirement for video recorders and when companies supply information systems to their clients, they rarely do so according to a complete specification--instead, the supplier shapes the requirement. When managers intentio- nally shape customer demands through the offerings they make, this feeds back into customer responses and managers may increase the impact by intentio- nally using the copying and spreading effects through which responses to product offcrings feed back into other customers' responses. When managers do this, they are deliberately using positive feedback--along with negative feedback controls to meet cost and quality targets, for example- - to create business success.

shape of each snowflake, but we can predict that they will be snowflakes. In business, we recognize patterns of boom and recession, but each time they are different in specific terms, defying all attempts to predict them.

Chaos is unpredictable variety within recognizable categories defined by irregular features; that is, an inseparable intertwining of order and disorder. It is this property of being bounded by recognizable qualitative patterns that makes it possible for humans to cope with chaos. Numerous tests have shown that our memories do not normally store information in units representing the precise charac- teristics of the individual shapes or events we perceive. Instead, we store information about the strength of connection between individual units perceived. We combine information together into categories or concepts using family-resemblance type features. Memory emphasizes general struc- ture, irregular category features, rather than specific content2 In short, we remember the irregular patterns rather than the specific features and we design our next actions on the basis of these memorized patterns. And since we design our actions in this manner, chaotic behaviour presents us with no real problem. Furthermore, we are adept at using analogical reasoning and intuition to reflect upon experience and adapt it to new situations, all of which is ideally suited to handling chaos. An example of this is given in Figure 2.

A successful business is also affected by many amplifying feedback processes that are outside the control of its managers and produce effects that they did not intend. Successful businesses are quite clearly characterized by feedback processes that flip between the negative and the positive, the damping and the amplifying; that is, they are characterized by feedback patterns that produce chaos. This means that the long-term future of a creative organization is absolutely unknowable and that no one can intend its future direction over the long term or be in control of it. In such a system long-term plans and visions of future states can be only illusions.

3. But, in Chaos there are Boundaries Around the Instability While chaos means disorder and randomness in the behaviour of a system at the specific level, it also means that there is a qualitative pattern at a general, overall level. The future unfolds unpredictably, but it always does so according to recognizable family- like resemblances. This is what we mean when we say that history repeats itself, but never in the same way. We see this combination of unpredictable specific behaviour within an overall pattern in snowflakes. As two nearby snowflakes fall to the earth, they experience tiny differences in tempera- ture and air impurities. Each snowflake amplifies those differences as they form and by the time they reach the earth they have different shapes--but they are still clearly snowflakes. We cannot predict the

4. Unpredictable New Order Can Emerge from Chaos Through a Process of Spontaneous Self Organization When nonlinear feedback systems in nature are pushed far from equilibrium into chaos, they are capable of creating a complex new order. 6 For example, at some low temperature the atoms of a particular gas are arranged in a particular pattern and the gas emits no light. Then, as heat is applied, it agitates the atoms causing them to move and as this movement is amplified through the gas it emits a dull glow. Small changes in heat are thus amplified, causing instability, or chaos, that breaks the sym- metry of the atoms' original behaviour. Then at a critical point, the atoms in the gas suddenly all point in the same direction to produce a laser beam. Thus, the system uses chaos to shatter old patterns of behaviour, so creating the opportunity for the new. And as the system proceeds through chaos it is confronted with critical points where it, so to speak, makes a choice between different options for further development. Some options represent yet further chaos and others lead to more complex forms of orderly behaviour, but which will occur is inher- ently unpredictable. The choice itself is made by spontaneous self organization amongst the compo- nents of the system in which they, in effect, communicate with each other, reach a consensus and commit to a new form of behaviour. If a more complex form of orderly behaviour is reached, it has what scientists call a dissipative structure because continual attention and energy must be applied if it

Strategy as Order Emerging from Chaos 15

A group of managers in an electricity company were considering how they might differentiate their product. There was no definitive model prescribing how to do this. So, they looked for similar circumstances and translated the patterns observed there into ones that might apply to electricity. Similar circumstances were provided by the airline industry. As with electricity, the product cannot be stored and demand moves from sharp peaks to deep troughs on a daily basis. Airlines have differentiated their products by category of passenger (business and tourist), by time of use (peak and off peak) and by level of service (first class and economy). Electricity suppliers have been doing much the same thing in terms of customer category and time of use. So, should they take this further and introduce low cost, low service products with interruptible supply? When they reason in this way, managers are using the experience of similarity in one place to draw conclusions about possible actions in another.

Figure 2. Differentiating electricity

is to be sustained--for example, heat has to be continually pumped into the gas if the laser beam is to continue. If the system is to develop further, then the dissipative structure must be short lived: to reach an everrmore complex state, the system will have to pass through chaos once more.

It is striking how similar the process of dealing with strategic issues in an organization is to the self organizing phenomenon just outlined. The key to the effectiveness with which organizations change and develop new strategic directions lies in the manner in which managers handle what might be called their strategic issue agenda. That agenda is a dynamic, unwrit ten list of issues, aspirations and challenges that key groups of managers are attend- ing to. Consider the steps managers can be observed to follow as they handle their strategic issue agenda:

"ff detecting and selecting small disturbances. In open- ended strategic situations, change is typically the result of many small events and actions that are unclear, ambiguous and confusing, with conse- quences that are unknowable. The key difficulty is to identify what the real issues, problems or opportunities are and the challenge is to find an appropriate and creative aspiration or objective. In these circumstances the organization has no alternative but to rely on the initiative of individuals to notice and pursue some issue, aspiration or challenge. In order to do this, those individuals have to rely on their experience-based intuition and ability to detect analogies between one set of ambiguous circumstances and another.

amplifying the issues and building political support. Once some individual detects some potential issue, that individual begins to push for organiza- tional attention to it. A complex political process of buidling special interest groups to support an issue is required before it gains organizational attention and can thus be said to be on the strategic issue agenda.

breaking symmetries. As they build and progress strategic issue agendas, managers are in effect altering old mental models, existing company and industry recipes, to come up with new ways of doing things. They are destroying existing perceptions and structures.

critical points and unpredictable outcomes. Some

¢r

issues on the agenda may be dealt with quickly, while others may attract attention, continuous or periodic, for a very long time. H o w quickly an issue is dealt with depends upon the time required to reach enough consensus and commit- ment to proceed to action. At some critical point, an external or internal pressure in effect forces a choice. The outcome on whether and how to proceed to action over the issue is unpredictable because it depends upon the context of power, personality and group dynamic within which it is being handled. The result may or may not be action and action will usually be experimental at first.

changing the frame of reference. Managers in a business come to share memories of what worked and what did not work in the past--the organizational memory. In this way they build up a business philosophy, or culture, establishing a company recipe and in common with their rivals an industry recipe too. These recipes have a powerful effect on what issues will subsequently be detected and attended to; that is, they constitute a frame of reference within which managers interpret what to do next. The frame of reference has to be continually challenged and changed because it can easily become inappro- priate to new circumstances. The dissipative structure of consensus and commitment is there- fore necessarily short lived if an organization is to be innovative.

These phases constitute a political and learning process through which managers deal with strategic issues and the key point about these processes is that they are spontaneous and self organizing: no central authority can direct anyone to detect and select an open-ended issue for attention, simply because no one knows what it is until someone has detected it; no one can centrally organize the factions that form around specific issues; and nor can anyone intend the destruction of old recipes and the substitution of new ones since they cannot know what the appropriate new ones are until they are discovered. The development of new strategic direction requires the chaos of contention and conflict, and the self-organizing processes of political interaction and complex learning.

16 Long Range Planning Vol. 26 February 1993

Eight Steps to Create Order Out of Chaos When managers believe that they must pull together harmoniously in pursuit of a shared organizational intention established before they act, they are inevitably confined to the predictable--ex- isting strategic directions will simply be continued or innovations made by others will simply be imitated. When, instead of this, managers create the chaos that flows from challenging existing percep- tions and promote the conditions in which spontan- eous self organization can occur, they make it possible for innovation and new strategic direction to emerge. Managers create such conditions when they undertake actions of the following kind.

1. Develop New Perspectives on the Meaning of Control The activity of learning in a group is a form of control that managers do not normally recognize as such. It is a self organizing, self policing form of control in which the group itself discovers intention and exercises control. Furthermore, we are all perfectly accustomed to the idea that the strategic direction of local communities, nation states and international communities is developed and con- trolled through the operation of political systems, but we rarely apply this notion to organizations. When we do, we see that a sequence of choices and actions will continue in a particular direction only while those espousing that direction continue to enjoy sufficient support. This constitutes a form of control that is as applicable to an organization when it faces the conflicts around open-ended change, as it is to a nation. The lesson is that self-organizing processes can produce controlled behaviour even though no one is in control--sometimes the best thing a manager can do is to let go and allow things to happen.

tioning and public testing of assertions encouraged. When this happens, people use argument and conflict to move towards periodic consensus and commitment to a particular issue. That consensus and commitment cannot, however, be the norm when people are searching for new perspectives-- rather, they must alternate between conflict and consensus, between confusion and clarity. This kind of dynamic is likely to occur when they most powerfully alternate the form in which they use their power: sometimes withdrawing and allowing conflict; sometimes intervening with suggestions; sometimes exerting authority.

3. Encourage Self-organizing Groups A group will be self organizing only if it discovers its own challenges, goals and objectives. Mostly, such groups need to form spontaneously--the role of top managers is simply to create the atmosphere in which this can happen. When top managers do set up a group to deal with strategic issues, however, they must avoid the temptation to write terms of reference, se.t objectives or prod the group to reach some predetermined view. Instead top managers must present ambiguous challenges and take the chance that the group may produce proposals they do not approve of. For a group of managers to be self organizing, it has to be free to operate as its members jointly choose, within the boundaries provide by their work together. This means that when they work together in this way, the normal hierarchy must be suspended for most of the time. Members are there because of the contributions they are able to make and the influence they can exert through those contributions and their own persona- lities. This suspension of the normal hierarchy can take place only if those on higher levels behave in a manner which indicates that they attach little importance to their position for the duration of the work of the group.

2. Design the Use of Power The distribution of power and the way in which it is used provide very important boundaries around the group learning process from which new strategic directions emerge. The application of power in particular forms has fairly predictable consequences for group dynamics. Where power is applied as force and consented to out of fear, the group dynamic will be one of submission, or where such power is not consented to, the group dynamic will be one of rebellion, either covert or overt. Power may be applied as authority and the predictable group dynamic here is one in which members of the group suspend their critical faculties and accept instructions from those above them. Groups in states of submission, rebellion or conformity are incapable of complex learning; that is, the development of new perspectives and new mental models.

The kind of group dynamics that are conducive to complex learning occur when highly competitive win/lose polarization is removed and open ques-

4. Provoke Multiple Cultures One way of developing the conflicting counter cultures required to provoke new perspectives is to rotate people between functions and business units. The motive here is to create cultural diversity as opposed to the current practice of using rotation to build a cadre of managers with the same manage- ment philosophy. Another effective way of pro- moting counter cultures is that practised by Cannon and Honda where significant numbers of managers are hired at the same time, midway through their careers in other organizations, to create sizeable pockets of different cultures that conflict with the predominant one. 7

5. Present Ambiguous Challenges Instead of Clear Long-term Objectives or Visions Agendas of strategic issues evolve out of the clash between different cultures in self-organizing groups. Top managers can provoke this activity by setting ambiguous challenges and presenting half- formed issues for others to develop, instead of trying

Strategy as Order Emerging from Chaos 17

to set clear long-term objectives. Problems without objectives should be intentionally posed to provoke the emotion and conflict that leads to active search for new ways of doing things. This activity of presenting challenges should also be a two-way one where top executives hold themselves open to challenge from subordinates.

6. Expose the Business to Challenging Situations Managers who avoid taking chances face the certainty of stagnation and therefore the high probability of collapse in the long term, simply because inno'Cation depends significantly on chance. Running for cover because the future is unknow- able is in the long run the riskiest response of all. Instead, managers must intentionally expose them- selves to the most challenging of situations. In his study of international companies, Michael Porter concludes that those who position themselves to serve the world's most sophisticated and demanding customers, who seek the challenge of competing with the most imaginative and competent competi- tors, are the ones who build sustainable competitive advantage on a global scale. 8

7. Devote Explicit Attention to Improving Group Learning Skills New strategic directions emerge when groups of managers learn together in the sense of questioning deeply-held beliefs and altering existing mental models rather than simply absorbing existing bodies of knowledge and sets of techniques. Such a learning process may well be personally threatening and so arouse anxiety that leads to bizarre group dynamics -- this is perhaps the major obstacle to effective organizational learning. To overcome it, managers must spend time explicitly exploring how they interact and learn together-- the route to superior learning is self reflection in groups.

8. Create Resource Slack New strategic directions emerge when the attitudes and behaviour of managers create an atmosphere favourable to individual initiative and intuition, to political interaction, and to learning in groups. Learning and political interaction are hard work and they cannot occur without investment in spare management resource. A vital precondition for emergent strategy is thus investment in manage- ment resource to allow it to happen.

Conclusion Practising managers and academics have been

debating the merits of the organizational learning as opposed to the planning conceptualization of strategic management. 9 That debate has not, how- ever, focused clearly on the critical unquestioned assumptions upon which the planning approach is based, namely that about the nature of causality. Recent discoveries about the nature of dynamic feedback systems make it clear that cause and effect links disappear in innovative human organizations, making it impossible to envision or plan their long- term futures. Because of this lack of causal connec- tion between specific actions and specific outcomes, new strategic directions can only emerge through a spontaneous, self organizing political and learning process. The planning approach can be seen as a specific approach applicable to the short-term management of an organization's existing activities, a task as vital as the development of a new strategic direction.

Acknowledgement--This article is drawn from Managing Chaos: Dynamic Business Strategies in an Unpredictable World, Ralph Stacey, London: Kogan Page (1992). (Published in the United States as Managing the Unknowable: Strategic Boundaries Between Order and Chaos, Jossey-Bass, San Francisco (1992).

References

(1) J. E. Gleick, Chaos: Making a New Science, Heinemann (1987).

(2) R. D. Stacey, The Chaos Frontier: Creative Strategic Control for Business, Butterworth-Heinemann (1991 ).

(3) P. R. Lawrence and J. W. Lorsch, Organization and Environment, Harvard University Press (1967).

(4) J. Evans, Decentralisation at Everest, unpublished thesis, Middle- sex Polytechnic (1989).

(5) A. Baddeley, Human Memory: Theory and Practice, Lawrence Earlbaum Associates Publishers (1990).

(6) I. Prigogine and I. Stengers, Order Out of Chaos: Man's Dialogue with Nature, Bantam Books (1984).

(7) I. Nonaka, Creating organizational order out of chaos: self renewal in Japanese firms, Harvard Business Review, November- December (1988).

(8) M. Porter, The Competitive Advantage of Nations, Free Press (1991 ).

(9) H. I. Ansoff. Critique of Henry Mintzberg's The Design School: Reconsidering the Basic Premises of Strategic Management, Strategic Management Journal, 12, (6) (1991 ). Also Mintzberg's reply in the same issue.