Business As A Flow Requires New Management Techniques

There are many calls to recognize that we are in a new age of business. It’s variously been called the age of agile, the digital age, and the fourth industrial revolution – and there are no doubt a few more such terms being bandied about. All these terms are illustrative of a need felt by business theorists to identify boundaries – beginnings and ends, where one thing starts and another terminates. We must, we are told, stop doing one thing and start doing another.

There’s an entirely different and better approach to managing business in a dynamic, complex ever-changing environment and that is the approach framed by Austrian economics: business as a flow. It’s always been complex, always been dynamic, always been changing. It’s just the way business writers describe it and classify it and think about it that has been static. Austrian economists have a better perspective.

Business is a flow, inside an evolving ecosystem

There is no beginning, and no causality for the current state. The system (what systems thinkers call a complex adaptive system or CAS) causes itself. We are all in the flow, the constant flux. There is no snapshot, only constant motion. Firms are CAS embedded in the CAS of the market embedded in the CAS of the economy. The constant motion of flow and change is the normal mode.

Management technique has not been able to keep up. Management technique prefers the static constructs of strategy and plans and structure. Strategy is an attempt to freeze business dynamics and specify how to act amidst constraints that can be identified, written down, and mathematicized. In reality, there is no time for planning or to make a plan, and no time for strategy in the sense of preparing a strategy document. Management technique is not well-aligned with reality.

Strategic orientation is a selection mechanism.

Businesses select the information they prefer to process and their ways of processing it, and they select the interactions with the environment that they choose to monitor and process. Selection mechanisms are dangerous and sub-optimal. They may select the wrong items, or mis-weight them, or mis-process them. They can’t get it right. Strategy is a loser before it leaves the starting gate.

The Austrian mental model for business is experimentation and exploration.

Rather than strategic selection mechanisms, the implication of business as a flow – embracing the reality that the future is unpredictable and there are many potential futures – is to keep the firm in constant motion. This means continuously searching the business model design space for new ways to operate. A business is a portfolio of experiments. The flow is to run as many experiments as possible, read the results quickly, and reorient to the next new way of operating.

The business mode for experimentation is action.

If experimentation has been well-adapted, the firm will have a wide range (but not an unlimited range) of experiments to run (ideally non-correlated) and the mode is not to analyze or strategize or plan but to act and implement. The goal is optionality – as many options available as possible. Action must be prized and promoted above analysis.

Firms need tight, fast feedback loops to read the experiments quickly.

The US Marine Corps  – an institution for operating in highly dynamic and uncertain environments – has a system of After Action Review (AAR). After a mission (a form of experiment) has been completed, participants and managers (i.e. officers and staff) gather to identify accurately “what happened”. The AAR is factual. There is no place for rank or personal criticism. Only for facts. Once the facts are agreed, then some deduction can be applied (why did that happen?) Firms should adopt the same practice. Feedback loop information must flow quickly through all levels and divisions without restriction. The result must be better alignment of the actions of the firm (or the military unit) with the reality of the external environment.

The only planning is discovery.

Planning tries to predict and control. Neither of these is possible amidst constant flow. The alternative is finding out what works and betting more on it. It’s the mode of explore and expand: keep running experiments, discovering what happened, and reallocating resources to what works by removing them from what doesn’t work.

There is a requirement to remove all barriers to change. 

Firms must accept and embrace mutation. The shared mental model must include “no barriers to change”. Businesses can create measurements for how well barrier removal has been accomplished – e.g., surfacing problems is a rewarded activity, response to problems raised is fast, the portfolio of experiments is reviewed and revised quickly, action is taken quickly. These are the measurements that matter.

Sometimes, some level of repeatable patterns can be combined with change. 

The firm may develop a reliable, repeatable revenue stream that emerges from one or more of the experiments. It can develop a management frame for continuing and maintaining the reliable revenue stream, recognizing that the reliability is short-term only, while exploring in other parts of the firm. They can do both. This duality is, by definition, inefficient. Efficiency is not a useful goal. It can be a cost-improvement strategy for the reliable revenue stream businesses but not for the firm as a whole.

Management technique is trying to catch up with business-as-a-flow.

Most of business-as-a-flow contradicts the management techniques and strategy approaches taught in business schools and advocated in the “great man / great woman” style of business biographies. Management technique needs to catch up, even while business stays in motion. Complexity theory has replaced management theory.

155. Bart Vanderhaegen on Flow: Transcending Organizational Barriers to Progress

We all seek progress: at the individual level, the team level, and the company level. Flow is the term for the experience that we feel when we are making progress on challenging activities through our own actions. Flow is high productivity and high achievement. It is the sensation you have when making progress is “winning” over being distracted or frustrated. Organizational structure is often a barrier to flow. Bart Vanderhaegen tells Economics For Business how to transcend the barrier.

Key Takeaways and Actionable Insights

Learning and change are good for people and organizations, but very hard to implement.

Management books, management gurus and consultants are all for change to established ways of doing things. But the business landscape is littered with failed change and transformation projects. It’s not people who resist change, it’s processes and established practices and organizational structure. In many ways, structure is the biggest barrier to change, and the enemy of learning. Even when change projects re-make a business’s structure, it’s still there, just in a different configuration.

What if it were possible to transcend structure?

The secret lies in motivation.

Austrian economics reveals the secret of motivation: every individual seeks better circumstances for themselves, trading one set of conditions that’s unsatisfactory for another set that they prefer. That’s an intrinsic motivation — it comes from inside the individual.

Most business systems rely on extrinsic motivations, what Bart Vanderhaegen calls carrot and stick. The firm metes out rewards in the form of awards and bonuses and promotions for behavior it wants to encourage, and withholds them when there is unapproved behavior. The firm takes a positivist or behaviorist view of the world: people can be “nudged” into approved behavior patterns.

Rewards have many flaws. They rely on predictions — setting future targets — that can never be reliable. These predictions are often fixed, unresponsive to changes in the environment, and usually set without much discussion with the individual who is to be motivated by the target. If the target is met or not, the individual finds it hard to know exactly how their actions contributed to the result.

There is a third kind of motivation: FLOW.

It is possible to harness a third kind of motivation that is neither carrot nor stick, and relies on neither reward nor punishment. It can provide autonomy and freedom to individuals to pursue what they find valuable. They can see their own activity as a contribution to a greater end or purpose for themselves. This kind of motivation comes from FLOW.

FLOW is your absorption into an activity performed well. It’s the enjoyment of performing an activity to the extent that you are actually experiencing that you are good at it, while you ae doing it. The activity itself creates the motivation for it. FLOW easily wins the internal competition between getting distracted or diverted versus making progress on the activity.

We are progress-seeking creatures, and FLOW gives us the greatest sense of progress.

FLOW is practical, and can be harnessed, practiced, and linked to work and organization.

There are three conditions for being in FLOW, or getting back to FLOW when you fall out of it.

1) A clear and specific goal for the activity.

This is not to be confused with aspirational goals like a corporate vision, or target goals like the year-end sales volume target. This goal is at the level of action. For the specific activity, what represents completion? In what time specific frame? What problem will have been solved when the action is complete?

2) Capture immediate feedback from the activity.

The activity tells you if you are making progress. Measurement is in the activity itself — there is no outside judge. If you’re not making progress, the activity can steer you back to it. Bart Vanderhaegen uses a tennis analogy: if your shots are going in, you’re making progress; if not, you can adjust your action.

3) The activity must have a challenging but solvable level of difficulty.

To make progress requires taking on challenges that can elevate our skills. FLOW requires overcoming difficulties (an insight that is contrary to the old adage of “keep it simple”).

For those who are quantitatively minded, Mihaly Csikszentmihalyi, the founder of FLOW studies, measured the appropriate degree of difficulty as 10-12% harder than one’s current ability — a kind of Goldilocks number of not too hard and not too easy.

This has profound implications for organizations engaged in motivation. They must present ever-increasing levels of difficulty to their employees and teams, as they learn to perform better and better in the flow of taking on challenging tasks.

4) Organizational structure is a barrier to FLOW and to its power to solve complex business problems.

FLOW can solve complex problems. When the overarching problem to solve is how to deliver customer value — which is a problem that cuts across all elements of corporate structure — a FLOWing team can succeed, because value is a clear goal, and learning by taking on difficult challenges provides a pathway to the goal. The customer doesn’t care how the firm is structured.

Internal structures of departments and functions and conflicting goals and rules can present a major barrier to FLOW and to customer value generation. A problem-solving team representing many departments and focused on the goal of customer value can transcend the barrier, and transcend corporate structure.

Therefore, Bart Vanderhaegen recommends not to spend time and effort creating a new structure when the current one is problematic. Create FLOW over structure.

5) How to put FLOW into action.

Like everything that has value, FLOW is a subjective experience. But there are some application actions that can help to generate team FLOW.

  • Organize a problem-solving network on top of the structural layer.It’s an organic network that crosses departments and regions and functions and all other structural boundaries.
  • Give each team in the network a mandate.A mandate is a problem to solve without specific direction on how to solve it. The team figures out what the solution will look like and how to get there.
  • Make the problems as open as possible.The problem may be to define what are the most important problems to solve.
  • Create transparency (via a software platform) on the problems, ideas and progress.Everyone “taking the pen” themselves.
  • Make sure the goals are linked to actions.For the most open problems, goals can be set for a small number of steps: let’s get to the next milestone in 30 days (e.g., generating a first set of preliminary ideas).

Through criticism and testing, teams will be able to FLOW to new levels of comfort in solving the most difficult of problems. They become more and more capable. And the problem-solving network is scalable: it can become bigger and bigger and solve harder and harder problems.

Additional Resources

“The Value-Creating FLOW Process for Business Problem-Solving” (PDF): Download HERE

Bart Vanderhaegen’s TED

The Pactify Podcast:

FLOW: The Psychology of Optimal Experience by Mihalyi Csikszentmihalyi:

Creativity: Flow and the Psychology of Discovery and Invention by Mihalyi Csikszentmihalyi: