Dealing with uncertainty and the risk of failure is a big topic but I believe there are some useful insights to be gained from looking at how Pixar dealt with these challenges. The observations below are drawn from a book titled “Creativity, Inc” by Ed Catmull who founded and led Pixar. The overall theme of the book is about developing and sustaining a creative culture but dealing with uncertainty emerges as a big part of this.
Supporting a Creative and Innovative Culture
The basic thesis of the book is that being innovative is very hard to do (no surprises there) but the value lies in how Pixar approached this challenge. Pixar’s answer is that you need to build structures, processes and institutions that deal with
- Lack of candour, and
- Things we cannot see
The main message was that just saying we will be innovative is not enough, management needs to clear away the impediments that frustrate people being innovative and creative.
- There must be an active, ongoing process to coax ideas from people and constantly push them to contribute.
- There must also be a process that protects new ideas while they are not yet well formed (what he refers to as “ugly babies”).
The discussion here seemed similar to the argument for “disciplined innovation” that was advocated in another book titled the “Legacy of Good Leadership”. The point being that these things are easy to say, but very hard to do without some kind of institutional structure that promotes and protects them while they are in their formative stage. They are also very hard to support when the market is continually focussed on short term outcomes; expense growth in particular.
The discussion of what Pixar did to promote creativity and innovation was interesting but the sections dealing with candour I think have even more direct relevance to banking because of what they say about creating a good risk culture.
One of the bigger challenges Pixar encountered was in the timely recognition of problems (or risks) and Chapter 5 outlines how they “institutionalised” candour as a means to identify and address them. What was interesting is the reminder of just how hard it is to overcome all of the social and institutional impediments to giving candid feedback. Some examples of blockages to candour the book cited;
- people are reluctant to tell people in higher positions what they really think,
- the views of strong and confident people tend to prevail, independent of whether they are right or wrong,
- people are conditioned not to challenge the consensus.
Pixar’s solution was to create a loose group of experienced people called the “Braintrust” to be the place where candour ruled the discussion. Interestingly, Steve Jobbs was not allowed to participate in these sessions, notwithstanding the fact that he owned the company and was acknowledged to be a genius. His style was simply not suited to the kind of open discussion and debate they were looking for.
Dealing with Uncertainty
There is a lot of focus in the book on managing uncertainty which I think translates quite well to banking. Resistance to change, the author argues, is ultimately a risk to the business. The solution Catmull advocates is to construct a business that is designed to adapt to change and able to deal with surprises and setbacks. Resilience in his view is more important than strength.
I think the larger Australian banks have done a pretty good job of responding to the changing nature of what kinds of products customers want. It is less clear that they have been willing to make the kinds of investments required to build resilient organisations. There is a tendency to invest in systems that seek to predict/detect risks and an over-riding concern with cost efficiency. Neither of these objectives are inherently wrong but they can promote over-confidence that risk is completely understood and result in systems that don’t have a lot of capacity (or redundancy) to cope with the unexpected. Unfortunately, a resilient system will tend to be less efficient even though it is ultimately more effective in the long run.
Understanding that Success can be a Trap
Catmull also emphasised that, notwithstanding Pixar’s success, it was important not to lose sight of the role that random factors play in both success and failure. A quote from Ch 8 illustrates this point;
“… a lot of our success came because we had pure intentions and great talent, and we did a lot of things right, but I also believe that attributing our success solely to our own intelligence without acknowledging the role of accidental events, diminishes us.”
In a similar vein, the author goes on to describe the risk that success can be a trap for the following reasons;
- it creates the impression that what you are doing must be right,
- it tempts you to overlook hidden problems and
- you may be confusing luck with skill.
There is a discussion in Ch 9 of the kinds of things that lead you to misunderstand the real nature of both your success and your failure. These include various cognitive biases (such as “confirmation” where you weight information that supports what you believe more than the counter evidence) and mental models we use to simplify the world in which we operate. These are hard wired into us so the best we can do is be aware of how these things can take us off track; that at least puts us ahead of those who blindly follow their mental models and biases.
Trust in People
His answer to building the capacity to adapt to change and respond to setbacks is to trust in people. He accepts setbacks and screw ups as an inevitable part of being creative and innovative so trust does not mean you trust that people won’t make mistakes. Trust is demonstrated when you support them when they do screw up and trust them to find the solution.Stability is not the goal, balance is what counts in the sense of being able to maintain balance in an unstable world.
If these ideas resonate with you then the book is worth reading.