(This continues a series of posts about the art of thinking strategically in Frankenstein’s World.) 

In the first post, The PROBLEM WITH IDEAS, we talked about the shelf life of ideas decreasing while at the same time we are increasing the ability to weaponize them. This creates a problem for the strategist, which is many of the core strategic concepts we follow are incorporated as ideas. For example, Michael Porter introduced the concept of the Five Forces framework and the generic strategies of cost leadership, differentiation, and focus. There are many frameworks roaming around, used extensively by management consulting firms. 

But there is a problem. It’s what the famous management consultant Gary Hamel refers to as the dirty little secret; the strategy industry doesn’t have a theory of strategy creation. Frameworks are excellent for analyzing what it, but provide no guidance in the arena of what is yet to come. Hamel has declared repeatedly that the strategic frameworks we have come to know and love stifle innovation by relying on historical data and assuming stable boundaries going forward. Strategy becomes an exercise in extrapolation, built with spreadsheets forecasting revenue and income out years in advance using an annual rate of growth factor. He goes on to describe strategy as making unique, deliberate choices under uncertainty; frameworks can help evaluate but cannot make the choices for you. 

So what is to be done with the shelf life of ideas decreasing and traditional management frameworks not very useful in strategy creation? In an increasingly dynamic age where change is the norm, the old ways of strategic planning are obsolete. Strategists today have to change. The tired metaphors of yesterday no longer apply. Strategists are no longer the chess mastermind seeing thirty moves ahead, plotting the competition’s destruction. Nor are they Proustian spiders sitting at the center of the web, sensing every vibration that occurs. Rather, the strategists of tomorrow will become more like architects, understanding how the systems they are interested in (companies, industries, political, and other arenas of competition) are constructed and how they work. Let us refer to the new generation of strategists as the strategist architect. By understanding how system processes work and the resulting behavior, the strategist architect is in a better position to understand how the system will evolve over time and how to use that knowledge to predict what possibly could happen in the future. Its the difference between trying to control the wind and studying it so you can use its own momentum to your advantage. 

When looking to understand a system and how it works, the model of an iceberg helps. You see only the tip not realizing there is a complex structure hiding underneath the waves. The same is true of systems. At the very top are events that everyone observe. Over time, events fall into patterns of behavior which is the second level and are partially visible. Patterns of behavior are produced by structures which represent the third level. Structures are somewhat visible but mostly hidden. They are built using ideas and mental models, which is the fourth and most obscure level, remaining almost entirely out of view. It is the structural level that interests the strategist architect the most. 

Analyzing the structure of a system begins with understanding the elements of the system and their relationship to one another. Mapping out structure means identifying the elements of the system and which ones are connected. Structure can be mapped as a topology using graphs which are simple diagrams showing elements and their connections. The elements are called nodes and the lines connecting elements together are called edges. 

The most critical thing when looking at relationships is the relationship between elements (the flow). Whenever two elements are connected, something has to travel along the path. It can physical goods such as food, oil, clothing, etc, it can be money, it can be information, or it could be authority. Something is always exchanged between the two connected elements. The term I use is flow. 

Flow is the most important concept the strategist architect must master but is rarely taught as a stand alone concept. Flow is simply the movement of substances in an interconnected world. Rates, pipelines, capacity, turbulence, viscosity, streams, broadcasts, channels, and a myriad of other terms all indicate flow. Flow is ubiquitous. It is everywhere. The world lives because it is dynamic, with goods and services flowing across the globe. Much like blood flowing through arteries and veins, when circulation stops, the body dies. In the real world, flows are like lines on the map. They give clues as to what direction you are headed. 

Demographics measure the flow of people in (births) and out (deaths) of populations. If deaths exceed births, the population ages (e.g China is set to become the world’s biggest nursing home) or it dies out completely) (e.g there will be few if any ethnic Russians alive by the end of the century). Demographics are immutable. Oil is shipped via pipelines to depots where they are loaded onto tankers and shipped across the world for refinement. The flow of oil is reflected in the barrel price. As flow decreases, the price of a barrel of oil goes up. When flow decreases, the opposite happens. Countries owning the oil fields control the spigot. 

Businesses are a collection of flows. Income flows in while expenses flow out. Cash flow measures the rate at which you spend money.
Sales funnels measure the amount of leads coming and the rate at which you convert those leads to business. If you want more revenue, you increase the leads coming or the business going out. 

The strategist architect understands system flow. What is the substance being flowed? How often does flow happen? In what direction? Outgoing, incoming, or bi-directional? What is the capacity? Can flows be re-routed in case of interruption? The critical issue here is that the control of flow is the key source of power and wealth today in the world. Let’s dig deeper into that. 

Whatever flows goes from Point A to Point B. If Point B is an intermediary point, then flow continues to what is eventually the endpoint. Controlling the flow means controlling what is sent and access to it. Oil producers sell barrels of oil on the open market, where it is bought, shipped to refineries, and turned into gasoline. You and I cannot access the oil market directly, only through the endpoint which are the gas stations where gas is sold. When looking at flows, look for access and bottlenecks. 

Access is simply who can tap into the flow. Access can be universal, or more often restricted either by authority or by fee. Some examples will clarify. Tollbooths regulate access to highways. Information networks like Lexus Nexus and Thompson Reuters charge fees for access. Creators can broadcast their content on the Internet on sites like YouTube, or on streaming services like AppleTV which requires a subscription. Access fees come in many forms such as subscription services, paywall, walled gardens, and tools. Technology expands the flow of information which business seek to monetize. 

The other key feature the strategist architect looks for is the bottleneck; that place in the structure where flow is either currently or in the future can be restricted. In short, flow exceeds capacity. Bottlenecks represent sources of great leverage. If you own the bottlenecks then you control the flow by controlling the spigot. You dial up capacity one way or the other. If you don’t control the bottleneck, you weaponize it and create a chokepoint by closing it down. Bottlenecks (aka chokepoints) are as ubiquitous as flows. 

Geography provides one source of bottlenecks. The straits of Hormuz and Malacca, along with the Panama and Suez canals are all economic bottlenecks and chokepoints for the flow of oil. The current conflict between the U.S and Iran is largely about who will control the strait of Hormuz. If the U.S and China ever go to war, the U.S will most likely shut down the strait of Malacca through which most of China’s oil is shipped. 

Businesses face economic bottlenecks. The fragility of global supply chains create artificial bottlenecks due to their complexity of implementation. Employee onboarding is another chokepoint, preventing rapid expansion of businesses (hence the interest in AI and automation). 

Information is also a bottleneck that can be turned into a chokepoint. One example is the SWIFT messaging system used by banks and other financial institutions. Another is the control of information itself. Totalitarian regimes are built on the total control of information. Democracies are at the other end of the extreme. 

Flow between elements is not the only thing the strategist architect looks for. They also look for how tightly integrated the elements of a system or systems are. The level of integration can also referred to as coupling. Tightly integrated elements or systems are so closely tied together that is hard to distinguish where one starts and the other ends. They are hard to swap out. Loosely integrated or coupled systems, by contrast, are easily separated and interchangeable.The more complex the business, the tighter the integration. 

Take supply chains for example. Supply chains tightly integrate a business and its suppliers via networks. The problem is when supply chains are disrupted, the business effectively ceases to operate. This is what happened during the COVID-19 crisis. When China enforced a mass quarantine on the population, factories sat empty creating a backlog of demand. Flow stopped and could not be easily rerouted. Supply chains were hit again during the second Trump administration with tariffs. 

Lastly, strategist architects also look at the elements in the system where decision making lies. This determines how flexible and adaptable the system is. If the structure is centralized where only one or a few elements make decisions, then you have a critical failure point. Take out the decision making and the system freezes up. If decision making is distributed, then it simply gets rerouted. This is one of the main reasons central planning in the Soviet Union failed. Decision making was so concentrated that adapting to changing conditions was impossible. Information had to be routed up the hierarchy from local authorities who then had to wait for instructions on what to do, rather than go ahead and make decisions on the spot. Complex systems have de-centralized decision making. With complex systems, flows and coupling are fairly obvious. Decision making is often hidden by the system itself. 

Without the ability to reroute decision making, the system loses its adaptability. In complex systems that are highly dynamic, this is the crux of the issue. In part 2, we will dive deeper into the ability to adapt to changing conditions and why it is so critical in dealing with complex systems.