Leadership And Complexity

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Towards making sense

Complexity science implications for Leadership, Business and Industry

Leaders make the impossible happen

Dr. Llewellyn B. Lewis

BMI CENTRE FOR STRATEGY, LEADERSHIP-AND ORGANISATIONAL- REINVENTION

www.strategicforum.co.za

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www.leadershipreinvention.co.za

THE LANGUAGE OF COMPLEXITY

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� The pace of change has accelerated way beyond the comfort zone of most people

� The rules that guided decisions in the past, are no longer reliable

� The elements of change that are driving these momentous shifts, are based on the

fundamental dimensions of the universe itself.

� Time, space and mass (Stan Davis : 2001)

www.strategicforum.co.za


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THE LANGUAGE OF COMPLEXITYwww.strategicforum.co.za

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� Connectivity is putting everyone and everything on-line in one way or another and has led to the

death of distance, a shrinking of space.

� Intangible value of all kinds like service and information, is growing explosively, reducing the

importance of tangible mass.

� Connectivity, Speed and Intangibles – the derivatives of time, space and mass – are blurring the rules and redefining our businesses and our

lives.

� What we see is a melt-down of all traditional boundaries.

(Stan Davis : 2001)

THE LANGUAGE OF COMPLEXITYwww.strategicforum.co.za

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� Since the economy and business are part of the universe, time, space and mass are the fundamental

dimensions of them as well.

� Until recently, this notion was too abstract to be very useful.

� Now we are realising the extraordinary power this insight has to the business world.

� Almost instantaneous communication and computation are shrinking time and

focusing us on speed.(Stan Davis : 2001)




Source: Stacey, Ralph D. Strategic Management & Organisational Dynamics. The challenge of Complexity: 2000)

�Chaos�Complexity� Diversity�Strange Attractors�Emergence�Self Organisation�Critical Mess�Order for Free� The Butterfly effect


� Since the time of Newton, Bacon and Descartes, scientists have tended to understand the natural world in terms of machine-like regularity in which

given inputs are translated through absolutely fixed laws into given outputs

� Cause and effect are related in straightforward linear ways

� According to this Newtonian view of the world, humans will ultimately be able to dominate nature� This whole view of reasoning and understanding was imported into economics, social sciences and

psychology (Source: Based on Stacey, Ralph D. Strategic Management & Organisational Dynamics. The

challenge of Complexity: 2000: 259)



� This importation is the source of the stable equilibrium paradigm that still dominates

thinking on managing and organising� That thinking is based on the belief that

managers can in principle control the long-term

future of the system

� Such belief is realistic if cause-and-effectlinks are of the Newtonian type, for then the

future of the system can be predicted over the

long-term and its future can be controlled by

someone. (Source: Based on Stacey, Ralph D. Strategic Management &

Organisational Dynamics. The challenge of Complexity: 2000: 259)



�Chaos exists outside abstract mathematical

equations, for example the world’s weather system

� The weather is patterns in interdependent forces such as pressure, temperature, humidity

and wind speed that are related to each other by

non linear relationships� To model its behaviour, the forces have to be

measured at a particular point in time, at regular vertical intervals through the atmosphere from each

of a grid of points on the earth’s surface (Source: Stacey, Ralph D. Strategic Management & Organisational Dynamics. The challenge of

Complexity: 2000: 259)



�Rules are then necessary to explain how each of the sets of interrelated measurements, at each

measurement point in the atmosphere, move over time� This requires massive numbers of computations� When these computations are carried out they reveal that the weather follows what is called a

strange attractor, another name for a chaotic pattern. What this shape means is that the weather

follows recognisably similar patterns, but those

patterns are never ever exactly the same as at

any previous point in time (Source: Stacey, Ralph D. Strategic Management & Organisational Dynamics. The challenge of Complexity: 2000: 259)



�Chaotic dynamics means that humans will

never be able to forecast the weather at a

detailed level for more than a few days ahead. The theoretical maximum for accurate forecasts is two

weeks, which meteorologists are nowhere near reaching yet

� The reason for no two snowflakes ever being the same can be explained using chaotic dynamics� One of the most intriguing discoveries is that

healthy hearts and healthy brains display

mathematical chaos (Source: Stacey, Ralph D. Strategic Management & Organisational Dynamics.

The challenge of Complexity: 2000: 261)



� The heart moves into regular rhythm just

before a heart attack and brain patterns during epileptic fits are also perfectly regular

� It seems that chaos is the signature of health

� The properties of low dimensional deterministic chaos have been applied to non

linear feedback systems in meteorology, physics, chemistry and biology

� Economists and other social scientists have been exploring whether these discoveries are relevant to

their disciplines (Source: Stacey, Ralph D. Strategic Management & Organisational Dynamics.





THE NOBEL PRIZE: 2005


� There are indications that chaos explanations give insight into the

operation of foreign exchange markets, stock markets and oil

markets (Source: Stacey, Ralph D. Strategic Management & Organisational Dynamics.




SELF-DIRECTED TRANSFORMATION

CRITICAL MESS

ENVIRONMENTAL CHANGE

RISKRUDE AWAKENING

CHAOSUNCERTAINTY

FIRST CURVE

SECOND CURVECREATING THE FUTUREIMPOSSIBLE RESULTS

EMERGENCESTRANGE ATTRACTORS

(Based on Handy : 1994)

THE BUTTERFLY EFFECT

THEEDGE OF CHAOS

COMPLEXITYFIELD THEORY

ZONE OF CREATIVITY AND ADAPTABILITY

LEADERSHIP AND COMPLEXITY


YOUNG(Development, Growth)

PRIME(Shakeout)

MATURE(Maturity)

DEMISE(Decline)

High

Low

Low High

INTEGRATION – Have capabilities, can do things

DIFFERENTIATIONCan recognise new things

(Source: Based onWind and Crook: 2005)

(Source: Johnson and Scholes: 2002)


YOUNG PRIME MATURE DEMISE


� The danger for mature individuals is that they will miss changes in the environment because all new information will

be force-fitted into the old model.� With maturity comes considerable experience and a vast mental model

repertoire, which are both a blessing and a curse.� Demise follows when the ability to get things done

diminishes and new things are increasingly difficult to handle.� Individuals have little choice but to follow this path from youth to demise in their

physical development, although many consistently reinvent themselves to stay young in their thinking.

(Source: Based on Wind and Crook: 2005)



TWO PARADIGMS OF BUSINESS

UNIVERSAL BUSINESS PARADIGM

RE-INVENTION BUSINESS PARADIGM

� Quantum Physics

� Non Linear, organic and complex adaptive system

� Systems theory, Chaos theory, Complexity Science

� Influence, rather than control

� Emergent teams, self selected and self organised

� Uncertainty, limited ability to predict

� A WORLD MADE UP OF RELATIONSHIPS WITH INFINITE POSSIBILITIES

� Newtonian Mechanics

� Linear thinking

� Mechanistic

� Cause and effect

� Action and reaction

� Centralised Control

� Hierarchical structure

� Job titles and job descriptions

� Predictability

� A WORLD MADE UP OF THINGS WITH FINITE POSSIBILITIES

(Based on Lewin and Regine : 1999)


THE WORLDS OF HORUS* AND SETH*

INDUSTRIAL AGE CULTURE IN THE AGE OF HORUS*

INFORMATION AGE “SPIRIT” IN THE AGE OF SETH*

� Learn a skill

� Security

� Job preservation

� Capital equipment

� Status quo

� Hierarchical and regulated

� Zero sum

� Measure inputs

(Grulke : 2000)

Seth, the god of chaos and disorder.

* Horus, the god of structure and predictability.

Even thousands of years ago, the conflict between order and chaos, and the dilemmas created for those in authority, were well recognised.

� Lifelong learning

� Risk-taking

� Job creation

� Intellectual capital

� Speed and change

� Distributed and networked

� Win-win

� Measure outputs



(Grulke : 2000)

“ In a very real sense, today’s business executive is in the same position as

that stone pharaoh.

Everything we have been taught about business was crafted in the Industrial Age -

in an economy where central authority, predictability and control

were the touchstones.”



“ The unwieldy corporate cultures of the Industrial Economy are rapidly being replaced by a kind of team spirit especially suitable to the new eCommerce organisations of today -

swift, nimble and driven by almost religious visions of the future - “Don’t look for profits

here, we want to change the world!””

(Grulke : 2000)


ECONOMY IN TRANSITION

INDUSTRIAL ECONOMY RESOURCES

INFORMATION ECONOMY RESOURCES

� Information

� Knowledge

� Skills and Ideas

� Raw Materials

� Real Estate

� Cheap Labour

(Grulke : 2000)

THE INDUSTRIAL ECONOMY HAS BEEN WITH US FOR HUNDREDS OF YEARS.OUR FOREFATHERS COULD BE BORN INTO THIS ECONOMY, THRIVE IN IT AND

RETIRE IN IT WITHOUT EXPERIENCING SUBSTANTIAL CHANGE.

THE NEW INFORMATION ECONOMY, DRIVEN BY COMMUNICATIONS AND COMPUTER TECHNOLOGIES, HAS BROUGHT MORE ECONOMIC TRANSFORMATIONIN THE PAST DECADES THAN THE INDUSTRIAL ECONOMY BROUGHT IN THE PAST

CENTURIES. THE INFORMATION ECONOMY WAS BUILT ON THE SUCCESSES OF THE INDUSTRIAL ECONOMY, AND THEN LEAP-FROGGED THE ECONOMIC IMPACT.


LEADERSHIP IN TRANSITION

INDUSTRIAL AGE INFORMATION AGE

� Skills

� Attitude

� Leadership

� Knowledge

� Experience

� Management

(Grulke : 2000)

THE NEW JOBS DEMAND THE ABILITY TO APPLY KNOWLEDGE IN THE FORM OF SKILLS.

EXPERIENCE HAS CONTINUALLY LESS VALUE AS THE PACE OF CHANGE INCREASES - ONLY THE RIGHT ATTITUDE TO UN-LEARN AT EVERY STEP

OF THE WAY WILL WIN THE DAY.IN A FRACTAL BUSINESS NETWORK THERE ARE FEWER MANAGEMENT

JOBS AND GREATER DEMAND FOR LEADERSHIP AT ALL LEVELS.

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The move from the “control” model, that comes

down almost unchanged from Moses, in the

hierarchic principle, toward the “servant”model, begins with cultivating the attitudes that will

permit the shift from coercion and manipulation to persuasion as the the predominant modus

operandi in institutions generally.“I believe that caring for persons, the more able and the less able serving

each other, is what makes a good society.”(Robert K. Greenleaf : The leader as servant : 1998)

“Whoever would be great among you must be your servant, and whoever would be first among you must be your slave”

(Matthew 20 : 26,27)

LEADERSHIP REINVENTION


ROMANTICDREAMERSDreamsDisturbing the status quo Paradigm shift

Not possible results

SUPERMAN(AGER)S(SHAKERS) Developing Vision, Setting goalsFocus on Doing (more, better, faster)Paradigm pioneeringStretch results

DOINGProcesses, Policies and Business Detail

BE

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Pa

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ion

, C

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NT

ION

CH

AN

GE

AG

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T

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FO

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AL

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TRANSFORMATIONALLEADERS (MOVERS)Creating contextFocus on Being (Transformation)Paradigm reinventionImpossible results

PRACTICALDOERSRoutine tasksFollowing ordersParadigm enhancement

Possible results

DOERS AND DREAMERS SHAKERS AND MOVERS


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The Great Exchange


UNIVERSAL HUMAN PARADIGM

FOCUS ON DOING

REINVENTION MASTER PARADIGM

FOCUS ON BEING


FUTURE UNKNOWN WORLD

(“The Promised Land”)

CURRENT KNOWN WORLD

(“The Wilderness”)

The Great Exchange

� Pull of the Past

� Slavery

� Day to Day issues

� Satisfied with Mediocrity

� Surviving

� Conformity

� Grasshopper Paradigm

� Paradigm Paralysis

� Challenge of the Future

� Freedom

� Dreams and Visions

� Striving for Excellence

� Thriving

� Transformation

� Eagle Paradigm

� Paradigm Reinvention





CURRENT KNOWN WORLD


The Great Exchange

� Pull of the Past

� Slavery

� Day to Day issues

� Satisfied with Mediocrity

� Surviving

� Conformity

� Grasshopper Paradigm

� Paradigm Paralysis

� Challenge of the Future

� Freedom

� Dreams and Visions

� Striving for Excellence

� Thriving

� Transformation

� Eagle Paradigm

� Paradigm Reinvention

UNIVERSAL HUMAN PARADIGM

FOCUS ON DOING

REINVENTION MASTER PARADIGM

FOCUS ON BEING





CURRENT KNOWN WORLD

(“The Desert”)

The Great Exchange

Thomas Kuhn found in his study of scientific revolutions

that you can’t convince the protectors of the old paradigm with better arguments.

The reality is that you have to wait until the establishment scholars finally retire from their positions and are

replaced by a younger and more open generation of scientists.

(Senge, Scharmer, Jaworski and Flowers: 2005)





CURRENT KNOWN WORLD


The Great Exchange

No one wants to die. Even people who want to go to heaven don’t want to die to No one wants to die. Even people who want to go to heaven don’t want to die to No one wants to die. Even people who want to go to heaven don’t want to die to No one wants to die. Even people who want to go to heaven don’t want to die to get there. And yet death is the destination we all share. No one has ever escaped it. get there. And yet death is the destination we all share. No one has ever escaped it. get there. And yet death is the destination we all share. No one has ever escaped it. get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, becauseAnd that is as it should be, becauseAnd that is as it should be, becauseAnd that is as it should be, because death is very likely the single best death is very likely the single best death is very likely the single best death is very likely the single best invention of life. It is life’s change agent. It clears out the old to invention of life. It is life’s change agent. It clears out the old to invention of life. It is life’s change agent. It clears out the old to invention of life. It is life’s change agent. It clears out the old to make way for the new.make way for the new.make way for the new.make way for the new. Right now the new is you, but someday not too long Right now the new is you, but someday not too long Right now the new is you, but someday not too long Right now the new is you, but someday not too long

from now, you will gradually become the old and be cleared away. from now, you will gradually become the old and be cleared away. from now, you will gradually become the old and be cleared away. from now, you will gradually become the old and be cleared away. Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by

dogma dogma dogma dogma ———— which is living with the results of other people’s thinking.which is living with the results of other people’s thinking.which is living with the results of other people’s thinking.which is living with the results of other people’s thinking. Don’t let the Don’t let the Don’t let the Don’t let the noise of other’s opinions drown out your own inner voice. And most important,noise of other’s opinions drown out your own inner voice. And most important,noise of other’s opinions drown out your own inner voice. And most important,noise of other’s opinions drown out your own inner voice. And most important, have have have have

the courage to follow your heart and intuition.the courage to follow your heart and intuition.the courage to follow your heart and intuition.the courage to follow your heart and intuition. They somehow already know what They somehow already know what They somehow already know what They somehow already know what you truly want to become. Everything else is secondary.you truly want to become. Everything else is secondary.you truly want to become. Everything else is secondary.you truly want to become. Everything else is secondary.(Steve Jobs, graduation address at Stanford University : 2005)


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Behind the Change Curve

Ahead of the Change Curve

Strategic Drift

Demise

Transformation orREINVENTION

(Source: Based on Johnson and Scholes: 2002)

BUSINESS AND COMPLEXITY


WATCH A FLOCK OF GEESE TURNINGand swooping in flight, undeterred by wind, obstacles and distance.

There is no grand vizier goose, no chairman of the gaggle.They can’t call ahead for a weather report.

They can’t predict what obstacles they will meet. They don’t know which of their number will expire in flight.

Yet their course is true.

And they are a flock.

Complexity theorists describe this, and the many other examples of spontaneous harmony in the world around us, as

order without careful crafting or order for free.(Gary Hamel : 2000)



The intricate play of the many markets that make up the global economy, the vibrant diversity of the Internet, the behaviour of a colony of ants, that

winged arrow of geese - these are just a few instances in which

order seems to have emerged in the absence of any central authority.

All of them have something to teach us about how revolutionary strategies should emerge in a chaotic and ever- changing world.

Complexity theorists have demonstrated that by creating the right set of preconditions, one can provoke the emergence of highly ordered things

maybe even things such as revolutionary business concepts.

(Gary Hamel : 2000)



� In one of the earliest models developed by complexity theorists, Craig Reynolds discovered that the complex behaviour of such a flock of geese emerges from a few

simple rules of individual behaviour.

� Wryly, he called his computer simulation BOIDS.

� In the model each BOID obeys three rules :

�Fly in the direction of other boids;

�Try to match the velocity of adjacent boids;

�Avoid bumping into things.

(Lewin and Regine : 1999)


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� The simulation begins with the boids placed randomly in space, but very quickly the individuals form themselves into a flock that behaves just like real birds, wheeling and

turning together and avoiding obstacles in their path.

� The point is that the complex behaviour of the system as a whole - the coordinated motion of the flock - emerges from a few simple rules of interaction among individuals,

not from a single leader.

� This has been called “distributed control”, in contrast with central control, which is what many CEO’s usually try

to achieve when they follow a mechanistic model of management.



� This process is known as “emergence”.

� In nature an ant colony is a complex adaptive system.

� Individual ants interact in a few simple ways, following simple rules of signals and behaviour : “danger, come quickly”,

“food, follow me”, or “I am a nest mate, not an alien”.

� FROM THESE SIMPLE RULES EMERGES A COMPLEX NEST ARCHITECTURE, A COMPLEX SOCIAL DYNAMIC, AND EVEN

PROPERTIES SUCH AS TEMPERATURE AND HUMIDITY CONTROL WITHIN THE COLONY.

� YET NONE OF THE EMERGENT FEATURES CAN BE PREDICTED BY KNOWING HOW INDIVIDUAL ANTS INTERACT.



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A shift from viewing the world as simple, predictable and settling to

equilibriumTO

acknowledging that it is complex, unpredictable and far from

equilibrium

PARADIGM SHIFT IN THE WORLD OF BUSINESS :




� The danger for mature Organisations is that they will miss changes in the environment because all new information will

be force-fitted into the old model.� With maturity comes considerable experience and a vast mental model

repertoire, which are both a blessing and a curse.� Demise follows when the ability to get things done

diminishes and new things are increasingly difficult to handle.

� Organisations generally react to a perception that they are

headed into decline by attempting to reinvent themselves and bring in new leadership.

(Source: Based on Wind and Crook: 2005)

BUSINESS REINVENTION


TOKYO — Sony named the British-born head of its US operations, Howard Stringer, as its new chairman and CE, handing the reins of the struggling Japanese electronics

maker to a foreigner for the first time.

“The world is simply not the same place it was a few years ago. The needs and expectations of our customers have

changed,” Stringer said at a briefing.

“So, Sony too, must reinvent itself.”



UNIVERSAL BUSINESS PARADIGM

RE-INVENTION BUSINESS PARADIGM

� Quantum Physics

� Non Linear, organic and complex adaptive system

� Systems theory, Chaos theory, Complexity Science

� Influence, rather than control

� Emergent teams, self selected and self organised

� Uncertainty, limited ability to predict

� A WORLD MADE UP OF RELATIONSHIPS WITH INFINITE POSSIBILITIES

� Newtonian Mechanics

� Linear thinking

� Mechanistic

� Cause and effect

� Action and reaction

� Centralised Control

� Hierarchical structure

� Job titles and job descriptions

� Predictability

� A WORLD MADE UP OF THINGS WITH FINITE POSSIBILITIES



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� Decreasing dependence on command-and-control type of leadership

� A breakdown of hierarchies� An increasing commitment to virtual technologies

� The embracing of teamwork� Greater flexibility

� Knowledge centres interacting largely through mutual interest and electronic - rather than authority systems� Emergence of new organisational forms, including

virtual enterprises - defined as small, core organisations that outsource major business functions - imaginary

corporations, dynamic networks and flexible work teams.

(Raghuram, Garud and Wiesenfeld : 1998)


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� Boundaryless organisations in a borderless global marketplace

� Chain of command eliminated� Limitless spans of control

� Departments replaced with empowered teams� Vertical boundaries removed to flatten the hierarchy

� Horizontal boundaries removed to both replace functional departments with cross-functional teams, and organise

activities around processes� Boundaryless organisations break down barriers to both

external constituencies and geographic distance

(Based on Noble : 1996, Robbins : 1996, Raghuram, Garud and Wiesenfeld : 1996)



ORGANISATIONAL RESPONSE (BA)

As the information revolution begins to affect the nature and organisation of work as fundamentally as the industrial revolution did,

there will be more pressures to redesign the actual physical surroundings. Robert Ayling, Chief Executive, British Airways.

There are no lifts from the underground car-parks so that everyone has to pass through the street on the way to their work place; meeting people on the way. First names are the norm and no one stands on ceremony - you can’t in a village street.

The street is a real street with a café, a bank and a branch of Waitrose where you can place your order via computer and pick it up in the car park on the way home. There are trees, a piazza and a small stream, all under a high glass canopy.


Organisations work best if they are designed as villages.

In a village you don’t learn what is going on by reading memos, you go down the street and pick up the news by bumping

into people.Randomness and accidental meeting, encourages serendipity, removes the impression of hierarchy, and fosters a sense of comradeship and belonging.

ORGANISATIONAL RESPONSE (BA)


Paradigm Re-invention

Sc

op

e o

f c

ha

ng

e a

nd

tr

an

sfo

rma

tio

n

Different

All processes

(Whole company)

Single process (Part of company)

Standing still

ContinuousImprovement

Paradigm shift

BestPractice

Benchmarking

Smaller

Impact of Change and transformation

Better

Business processre-engineering

The current and known world The future, unknown

Transformed

Businessrestructuring

Processsimplificationand redesign

Leadership-

Corporate-

Industry-

Transformation

Reinventing the Leadership The Organisation

Reinventing

The Industry

All organisations

(Whole industry)

Single

organisations

(Part of industry)

STRATEGYREGENERATION

FIRST CURVEEVOLUTIONARY CHANGE

SECOND CURVETRANSFORMATION AND RENEWAL

Faster

INDUSTRY AND COMPLEXITY

THEEDGE OF CHAOSCHAOS THEORYFIELD THEORY

COMPLEXITY SCIENCE

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INDUSTRY AND COMPLEXITYTHE EDGE OF CHAOS


First curve

Second curve CreativityEmergence

Intuitive capacity Permeable boundaries

PARADIGMS

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Hot Spots = (Cooperative Mindset x Boundary Spanning x Igniting Purpose) x Productive Capacity


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Hot Spots = (Cooperative Mindset x Boundary Spanning x Igniting Purpose) x Productive Capacity

Emergence of a Cooperative Mindset depends on the attitude of Leaders towards

cooperation and competition and their capacity and willingness to craft within the

organisation a sense of mutuality and congeniality.

The energy of the cooperative mindset has to be channeled across boundaries for the

innovative capacity of a Hot Spot to emerge.

For this well of latent energy to be released there has to be a point of ignition. This igniting purpose, can be an igniting vision, question, or

task.

These three elements have a multiplier effect on each other. Together they are capable of creating

energy and excitement. For this energy to be channeled into productive outcomes requires the

fourth element, productive capacity. This capacity is the extent to which members within the Hot Spot are

capable of working together in a productive manner.


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Emergence of a Cooperative Mindset: It starts with assumptions(Source: Gratton: 2007)

Assumptions of

cooperation

Designing for cooperative

Practices and processes

Cooperative

Social norms

Cooperative

Language

And stories

Legitimisation of

Cooperative behaviour

and habits

Delegitimisation of

competitive behaviour

and habits


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Dep

th o

f R

ela

tio

nsh

ips

Extent of Boundary Spanning

Within the Group Outside the Group

Close friends andStrong relationships

(strong ties)

AcquaintancesAnd associates

(weak ties)

Exploitation Exploration

InnovationConfirmation

IPDeProp

SAPOASAARF

BMRNHBRC

CIDB

ABSAFNB

Standard BankNedbank

UNISAGreenwich University

BERRodeIndustry InsightCement and Concrete InstituteSAFCECBIFSASA Steel Institute

BMI-BRSCUMFAEconometrixPolitical Dynamics

Reconfiguration

Information

arbitrage

Information

arbitrage

Information

arbitrage

Information arbitrage

(Source: After Gratton: 2007)

Another version of Stakeholder analysis


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Forms an igniting purpose can take(Based on Gratton: 2007:102)


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Forms an igniting purpose can take(Based on Gratton: 2007:102)

Can we develop deep strategic understanding of the Current

Reality of the Building Industry Environment ?

Developing Competitive Industry Foresight and Strategic

Leadership as a way of Business Life.

Turning Data into Wisdom,Exposing Paradigm Blindspots, and challenging the Industry to

REINVENT continuously.


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Points of inflection in organisations: shifting from old rules to new(Gratton: 2007: 145)

The point of inflection occurs when what has served well in the past will not serve well in the future.

The challenge for executives is that many are leading companies which are themselves at a point of inflection


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The context in which we work has changed fundamentally as technology joins up the world and globalisation opens up new markets for capital, talent, products and services.

Many companies are beginning to approach the

apex of the first curve, when simply doing more of the same is not increasing the value of their companay.

To do so they will have to abandon some of the old rules, and begin to build competence and energy

around the new rules of the second curve.

Those that fail to do so will see a gradual but consistent decline in the capacity to

create value.

At the heart of the second curve are the rules of Hot Spots – the

idea that energy can be ignited, that relationships and

networks are crucial, that commitments and

conversations can replace rules and directives.

This is no easy challenge. As leaders and members of

organisations, we often find ourselves at points of inflection.

What worked in the past is not working so well anymore.




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Many companies are beginning to approach the

apex of the first curve, when simply doing more of the same is not increasing the value of their companay.

To do so they will have to abandon some of the old rules, and begin to build competence and energy

around the new rules of the second curve.

Those that fail to do so will see a gradual but consistent decline in the capacity to

create value.

At the heart of the second curve are the rules of Hot Spots – the

idea that energy can be ignited, that relationships and

networks are crucial, that commitments and

conversations can replace rules and directives.

This is no easy challenge. As leaders and members of

organisations, we often find ourselves at points of inflection.

What worked in the past is not working so well anymore.



INDUSTRY AND COMPLEXITYReal progress demands a revolution. You can’t shuffle your way onto the next S Curve. You have to leap. You have to

vault over your preconceived notions, over everyone’s best practices, over the advice of all the experts, and over your own doubts.

(Gary Hamel, The Future of Management: 2008)

©BMI-CSLORLC62The Hot Spot Scenario: mapping emergence

(Gratton: 2007: 145)


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Productive capacity

Data analysis,developing WISDOM

Cross functional

Networking

Website, sharing of ALL

INFORMATION,empowering

Information ARBITRAGE

Socratic dialogue,

asking the BIG questions

Exchanging and TRANSFORMING

facts

BMI

AssociatesSubscribers

Modeling cooperative behaviour

REINVENTION

The Hot Spot Scenario: mapping emergence(Based on Gratton: 2007: 145)



Towards

Making sense of the future of the Building Industry System

Dr. Llewellyn B. LewisNovember 2007

THE STRATEGIC FORUMA place of assembly

for strategic conversations

BMI

Studium Ad Prosperandum

Voluntas in Conveniendum

BUILDING RESEARCHSTRATEGY CONSULTINGUNIT cc

Reg. No. 2002/105109/23

•BMI

Studium Ad Prosperandum

Voluntas in Conveniendum

BUILDING RESEARCH

STRATEGY CONSULTING

UNIT cc

•

THE STRATEGIC FORUMwww.strategicforum.co.za

BMI•

BMI•

BMI•

©BMI-CSLORLC65

INDUSTRY AND COMPLEXITYTHE EDGE OF CHAOS


Many Organisations

Lots of Ideas

Variety

Potential volatility

Intuitive capacity

Permeable boundaries

Creativity emergence

Potential Innovation

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(Source: Fortune, 11 September 2006)

THE EDGE OF CHAOS

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THE EDGE OF CHAOS


Larry PageSergey Brin

Eric Schmidt

“We’re willing to tolerate ambiguity and chaos because that’s where

the room is for innovation.”

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THE EDGE OF CHAOS


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THE EDGE OF CHAOS


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THE EDGE OF CHAOS



PresentPast Future

The Edge of Time

Chaos Edge of Chaos Structure

The Edge of Chaos

(Source: Brown and Eisenhardt: 1998)

COMPETING ON THE EDGE OF CHAOS


PresentPast Future

The Edge of Time

Chaos Edge of Chaos Structure

The Edge of Chaos

(Source: Brown and Eisenhardt: 1998)


New order can emerge from chaos. Complexity theory argues that nothing innovative can emerge from systems with a high degree of order and stability (egregulated industries);similarly, completely chaotic systems (eg riots) are incapable of functioning or creating anything.Somewhere on the boundary between order and disorder, control and chaos, sits creativity, innovation, self-renewal and growth. Pascale (1999) calls this point “the edge of chaos”. (OUBS, Strategy: Unit 8: 28)


� Competing on the edge rests on the assumption that the marketplace is in constant flux. � The assumption of static equilibrium no longer applies. � Rather the view is that competitors come and go. Markets emerge, close, shrink, split, collide and grow. � Today’s collaborators are tomorrow’s competitors . . . or both. � Technology is constantly shifting. Getting to the market early matters. � In complexity parlance, the marketplace is a continuously deforming landscape. � The image of this kind of landscape is of a terrain richly contoured by peaks and valleys. � And it is continuously reshaped by warp-speed change.



� The second assumption is that firms are composed of numerous parts or agents, or businesses. � When these parts are linked together at the edge of chaos and time, they form complex adaptive systems. � These systems are complex not because they are complicated. They are actually fairly simple. � Rather, “complex” describes the complicated, innovative and self-organised behaviour that emerges from them. � They are adaptive because they can change effectively.



� The key assertion is that successful firms in fiercely competitive and unpredictably shifting industries pursue a competing on the edge strategy.� The goal of this strategy is not efficiency or optimality in the usual sense. � Rather, the goal is flexibility – that is adaptation to current change and evolution over time, resilience in the face of setbacks, and the ability to locate the constantly changing sources of advantage.

� Ultimately it means engaging in continual reinvention.


©BMI-CSLORLC76LC76 ©BMI-CSLOR(Source: Brown and Eisenhardt: 1998)



Roll out new branches, source and develop new

products, develop new markets,

discover new customers,diversify.

LEADING CHANGE.

(Source: Brown and Eisenhardt: 1998: 23)

Building Blocks



Navigating the Edge of Chaos: Improvisation

Entrepreneurial and creative, visionary

thinking, possibility and abundance, continuous

learning,

Emergent teams, self selected and self-

organised,emergent strategy

Simple rules,Influence rather than control,

Flat structure,Strategic Conversations,

COMMUNICATION

(Source: After Brown and Eisenhardt: 1998: 47)



Co-adaptation

Networking, teamwork, alliances, joint

ventures, partnerships

Industry Knowledge,Local autonomy,

decentralised, distributed power.

Rapid response,Flexibility,

Leveraging strategic capability,

Unique resources, core competencies




Regeneration

Simultaneous first and second curve thinking;Leveraging core

competencies across Business Units.

Protect and build;Product enhancement;

market penetration;Create services that exploit

change.

Respect experience;Win-win relationships;

Redefine the boundaries, change the game rules, reconfigure the value chain.




Experimentation

Creativity and innovation;explore opportunities within

context of strategic intent

Strategise to intercept the future,Market development, product development, diversification.

Exploring the future, emerging strategy,Reinvention and transformation




The ever renewing organisation (or

society) is not one which is convinced that it enjoys eternal youth.

It knows that it is forever growing old and must do something about it.

It knows that it is forever producing deadwood and must, for that reason, attend to its seedbeds.

The seedlings are new ideas, new ways of doing things, new approaches. (Gardner: 1981: 68)



(Source: Based on Roger Lewin. Complexity. Life at the edge of chaos: 1999)

THE GLOBAL PROPERTY INDUSTRY

Local Interaction, local knowledge

Emergent Global Property

market

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market

THE PROPERTY MARKET AND COMPLEXITY

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market

Characteristics of WISE CROWDS:1. Diversity of opinion (each person has some private information, even if it is just an eccentric interpretation of

the known facts);2. Independence (people’s opinions are not determined by

the opinions of those around them);3. Decentralisation (people are able to specialise and draw

on local knowledge);4. Aggregation (some mechanism exists for turning private

judgements into a collective decision). (James Surowiecki:

2004)

THE PROPERTY MARKET AND COMPLEXITY

Not imposed by any one guru or institution

or government.The result of the

individual choices of millions of people

world-wide.


� There are indications that chaos explanations give insight into the

operation of foreign exchange-, stock-and oil-markets

(Source: Stacey, Ralph D. Strategic Management & Organisational Dynamics. The challenge of Complexity: 2000: 259)



� There are indications that chaos explanationsgive insight into the operation of foreign exchange-,

stock- and oil-markets (Source: Stacey, Ralph D. Strategic Management & Organisational Dynamics. The challenge of Complexity: 2000: 259)

� We deduce that it can be used to explain the dynamics of the Property Market

� Inter alia, that it is a deterministic non linear system in a stage of bounded instability displaying

highly complex behaviour� It is in a border area between stable equilibrium and explosive instability; i.e. a state of paradox in

which two contradictory forces, stability and instability are operating simultaneously


©BMI-CSLORLC93

Demand and Supply Equilibrium

RHRH

SA RES PROPERTY MARKET

AHAH

MIH

Legend:

AH - Affordable Housing

MIH - Middle Income Housing

LH - Luxury Housing

RH - Retirement Housing

BTL – Buy to Let Market

Loosening Market

Tightening Market

Source : Based on Viruly

BTL

LH

1999

2007

2012?

UNDERSUPPLYDemand exceeds supplyPrices increaseBuyer resistance developsMarket tightens

OVERSUPPLYSupply exceeds demandCompetition increasesPrices moderateMarket loosens



� When the system operates in the border between

stability and instability, its behaviour unfolds

in so complex a manner, so dependent on the

detail of what happens, that the links between

cause and effect are lost.

� One can no longer count on a certain given input leading to a certain given output

� The longterm future of such a system is not simply difficult to see:

� it is for all practical purposes unknowable

(Source: Based on Stacey, Ralph D. Strategic Management & Organisational Dynamics.




� The consequence is that any decision-making process that

involves forecasting, envisioning future states, or even making any assumptions

about future states, would be ineffective

� One would have to rely instead on using qualitative

patterns to reason by analogy and intuition� Those who succeed in the borders between stability and

instability would be those who see patterns where others

search for specific links between causes and events.

(Source: Based on Stacey, Ralph D. Strategic Management & Organisational Dynamics.




Sc

op

e o

f c

ha

ng

e a

nd

tr

an

sfo

rma

tio

n

Critical mass of Investors

(Whole community)

Single Investor (Part of community)

Paradigm Pioneer

Early adopter

LateAdopter

Bandwagon Flocking

Herd behaviour


All Countries

(Whole World)

Single

Country

(Part of World)

�THE LOCAL PROPERTY MARKET

LIMITS TO GROWTH

PARADIGMS CHALLENGED

ALTERNATIVE INVESTMENTS

�DEMISE

� THE PROPERTY BUBBLE?



THE GLOBAL PROPERTY ENVIRONMENT


Sc

op

e o

f c

ha

ng

e a

nd

tr

an

sfo

rma

tio

n


(Whole community)


Paradigm Pioneer

Early adopter

LateAdopter

Bandwagon Flocking

Herd behaviour


All Countries

(Whole World)

Single

Country

(Part of World)


LIMITS TO GROWTH





Individual

BanksPublic

opinion

MinistryTreasury

IMFWorld Bank

�DEMISE

� THE PROPERTY BUBBLE?

Paradigm shift



Sc

op

e o

f c

ha

ng

e a

nd

tr

an

sfo

rma

tio

n


(Whole community)


Paradigm Pioneer

Early adopter

Paradigm shift

LateAdopter

Bandwagon Flocking

Herd behaviour


All Countries

(Whole World)

Single

Country

(Part of World)


LIMITS TO GROWTH





THEEDGE OF CHAOS

CREATIVITYINNOVATION

REINVENTION

• Structural Change?

• Self Organisation

• Order for Free!

• Property a preferred Investment!


Is the Reserve Bank in Control of the System?

It was an old Federal Reserve chairman who said that it is a central bank’s task to take away the punchbowl

just as the party starts to get lively.

(Cees Bruggemans, Chief Economist, FNB, 6 December 2004)



Is the Reserve Bank in Control of the System?

In both the UK and Australia, the reserve bank raised

interest rates specifically to target house prices,

because of bubble conditions that have developed there.

(Chris Hart, Chief Economist, ABSA, 17 September 2004)



The International Monetary Fund (IMF) urged the

Bank of England to raise interest rates to avert the possibility of a crash in house prices.

It also warned about the risks posed by high levels of

household debt, saying, 'the main risk to the outlook is the possibility of an abrupt

correction in the housing market'.(The Telegraph, London, 25 April 2004)

Is the IMF in Control of the System?



No one

Is in control of the system!

Truth be told



No one

Is in control of the system!

Truth be told


But . . . There are Important

Influencers and

Influences


PROGNOSIS ON THE PROPERTY MARKET: ALAN GREENSPAN

“The housing market will

inevitably cool down and prices

may even decline.”(28 August 2005)

INDUSTRY AND COMPLEXITYIMPORTANT INFLUENCER


PROGNOSIS ON THE PROPERTY MARKET:

ALAN GREENSPAN

• “By far the majority of homeowners have built up a considerable value cushion which can absorb a

reduction in house prices.”

• “The increase in the buying and selling of second homes indicates that speculation has played a larger role in the recent house price increases than before.”

• “Some 80% of the increase in mortgage advances are people that have borrowed on the value of their

homes.” (28 September 2005)

INDUSTRY AND COMPLEXITYIMPORTANT INFLUENCER


INDUSTRY AND COMPLEXITYIMPORTANT INFLUENCERS

Borrow for that dream house at your own risk.

That’s the message from economists who are alarmed at runaway

mortgage lending and worry that Reserve Bank governor Tito Mboweni might apply

gentle brakes soon in the form of an interest rate hike.

Optimists point out that CPIX inflation has languished for two years

within the 3%-6% target range, South Africans’ debt burden remains low by

historical and international standards and low interest rates mean

there is little problem with financing this debt.

But the pessimists say: “Tell Tito that”. He may have been a

tad alarmed by the money supply and credit growth figures for August that the Bank released on Friday morning.

(Moneyeb, 30 September 2005)

©BMI-CSLORLC107

The IMF finds that, even though housing is not traded internationally, house prices are highly

synchronized across industrial countries.

An important implication of these findings is that, just as the current upswing in

house prices has been a global phenomenon, any downturn is also likely to be highly synchronized across countries, with corresponding implications for the world economy.

One possible factor triggering a house price downturn is the tightening of monetary policy across industrial

countries as inflationary pressures emerge.

(World Economic Outlook, Washington DC, 15 September 2004)

INDUSTRY AND COMPLEXITYIMPORTANT INFLUENCES



Sc

op

e o

f c

ha

ng

e a

nd

tr

an

sfo

rma

tio

n

Different

All processes

(Whole company)

Single process (Part of company)

Standing still

ContinuousImprovement

Paradigm shift

BestPractice

Benchmarking

Smaller


Better

Business processre-engineering


Transformed

Businessrestructuring

Processsimplificationand redesign

Leadership-

Corporate-

Industry-

Transformation

Reinventing the Leadership The Organisation

Reinventing

The Industry

All organisations

(Whole industry)

Single

organisations

(Part of industry)

STRATEGYREGENERATION

FIRST CURVEEVOLUTIONARY CHANGE

SECOND CURVETRANSFORMATION AND RENEWAL

THEEDGE OF CHAOSCHAOS THEORYFIELD THEORY

COMPLEXITY SCIENCE

Faster

The challenge is TO REINVENT THE INDUSTRY

FROM :A closed system,

that reacts, copes, improves incrementally,

benchmarks, shaped by the past and designed for survival;

TO :An open system,

that creates, generates, encourages risk,

shaped by the future and designed to

transform and reinvent itself continuously.


INDUSTRY REINVENTION

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Culture fulfils several important functions (Open

University, 2006):

• It reflects and reinforces a common sense of identity internally and externally

• It aligns employees values and norms to those of the

organisation• It enables the organisationto work as a social system

• It provides a frame of reference for employees to

draw upon when undertaking productive activities and

serves as a guide for appropriate behaviour

PARADIGMS AND THE CULTURAL WEBPARADIGMS AND THE CULTURAL WEBPARADIGMS AND THE CULTURAL WEBPARADIGMS AND THE CULTURAL WEB

©BMI-CSLORLC111


Together The “soft” and “hard” Together The “soft” and “hard” Together The “soft” and “hard” Together The “soft” and “hard” elements of the cultural web elements of the cultural web elements of the cultural web elements of the cultural web

capture life in any organisation.capture life in any organisation.capture life in any organisation.capture life in any organisation.

The three ‘soft’ (i.e. intangible) The three ‘soft’ (i.e. intangible) The three ‘soft’ (i.e. intangible) The three ‘soft’ (i.e. intangible) elements of the cultural web are elements of the cultural web are elements of the cultural web are elements of the cultural web are ––––

symbols, stories, rituals and symbols, stories, rituals and symbols, stories, rituals and symbols, stories, rituals and routinesroutinesroutinesroutines

The three ‘hard’ (i.e. tangible) elements The three ‘hard’ (i.e. tangible) elements The three ‘hard’ (i.e. tangible) elements The three ‘hard’ (i.e. tangible) elements of the cultural web are power of the cultural web are power of the cultural web are power of the cultural web are power

structure, organisation structure and structure, organisation structure and structure, organisation structure and structure, organisation structure and control systems. control systems. control systems. control systems.

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PARADIGMS AND THE CULTURAL WEBPARADIGMS AND THE CULTURAL WEBPARADIGMS AND THE CULTURAL WEBPARADIGMS AND THE CULTURAL WEBThe organisation’s paradigm refers to

the “deeper level of basic assumptions and beliefs that are

commonly shared by members of an organisation and defines the

member’s view of the organisation and its environment.” (Boojihawon,

2006: 67)

“The cultural web can be used to enable managers to surface

and explore the core assumptions underpinning their

paradigms, and therefore, facilitate the implementation of change.” (Boojihawon, 2006:

81. 82)

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Added ValueWealth CreationHome ownershipNation building

Family Life

DecentralisedDistributed power

Mutual respectProfessional

Expert knowledgeInformality

Emergent teams, self selected and self organised;

Non hierarchical;Flat Structure;

Networking, Teamwork; Alliances, Joint Ventures

Partnerships

Planning meetingsNetworking

Site meetings

ProjectsRelationshipsInstalled base

Problem solvingUnique Solutions

FUTURE ORGANISATION CULTURAL WEB

Commercial principlesSimple rules

Influence rather than controlRelationships emphasised

Budgeting and strict Financial Discipline

Project management

An entrepreneurial and creative company with high confidence and passion. Oriented towards visionary thinking, possibility and abundance,

risk taking and reward sharing. Emphasis on continuous learning, teamwork, networking and long-term, win-win relationships.

©BMI-CSLORLC115

The NETWORK STRUCTURE is a flexible, non hierarchical organisational form

that groups together a series of independent organisations to

design, produce and market a given product or service. (Grant: 2002)

FUTURE STRUCTUREFUTURE STRUCTUREFUTURE STRUCTUREFUTURE STRUCTURE

The essential feature of networks is that the boundaries of the organisation are less distinct and permeable, so that the

organisation becomes “boundaryless”.

The network structure is common in dynamic and complex environments where creativity, innovation, and speed of

response are key sources of advantage and fundamental to the effectiveness of the organisation. (Grant 2002)

©BMI-CSLORLC116

NETWORK STRUCTURE REQUIRED FOR BUILDING AN EVERLASTING COMPANY

MarketingSupply Chain

Logistics

FactoriesRegional Distribution Centres

CORPORATE SUPPORT OFFICE

CORPORATE SUPPORT OFFICE TOGETHER WITH FACTORIES AND REGIONAL DISTRIBUTION CENTRES PROVIDES THE POLICY DIRECTION, STRATEGY AND COORDINATION

Policy Direction,Strategy and Coordination

Manufacturing

FUTURE STRUCTUREFUTURE STRUCTUREFUTURE STRUCTUREFUTURE STRUCTURE

Human Resources Finance

©BMI-CSLORLC117

Trends in the Property Market are inextricably responsive to, and influenced by INVESTMENT CLIMATE,

INVESTOR CONFIDENCE and PROPERTY DELIVERY.

Investo

r C

on

fid

en

ce

Investment Climate

Closed System Open SystemParadigm Regression Paradigm Paralysis Paradigm Shift Paradigm ReinventionProperty a Poor Investment Average Good Property a Preferred Investment

MIAMI SCENARIOHIGH ROAD

Planned development

Property the preferred investment

High affordability

High confidence

Profitable industry

IPANEMA SCENARIOUPPER MIDDLE ROAD

Mixed development

Property a good investment

Average affordability

Average confidence

Average performing industry

ALGARVE SCENARIOLOWER MIDDLE ROADHaphazard development

Property an average investment

Low affordability

Low confidence

Surviving industry

MOMBASA SCENARIOLOW ROAD

Sporadic development

Property a poor investment

Poor affordability

Struggling industry


MOST LIKELY OUTCOME

©BMI-CSLORLC118

Trends in the Property Market are inextricably responsive to, and influenced by INVESTMENT CLIMATE,

INVESTOR CONFIDENCE and PROPERTY DELIVERY.

Investo

r C

on

fid

en

ce

Investment Climate

Closed System Open SystemParadigm Regression Paradigm Paralysis Paradigm Shift Paradigm ReinventionProperty a Poor Investment Average Good Property a Preferred Investment

MIAMI SCENARIOHIGH ROAD

Planned development

Property the preferred investment

High affordability

High confidence

Profitable industry

IPANEMA SCENARIOUPPER MIDDLE ROAD

Mixed development

Property a good investment

Average affordability

Average confidence

Average performing industry

ALGARVE SCENARIOLOWER MIDDLE ROADHaphazard development

Property an average investment

Low affordability

Low confidence

Surviving industry

MOMBASA SCENARIOLOW ROAD

Sporadic development

Property a poor investment

Poor affordability

Struggling industry


MOST LIKELY OUTCOME

THREE DRIVING FORCESStrange Attractors?

� Investment Climate� Investor Confidence�Property Delivery

©BMI-CSLORLC119


1.00

1.86

2.71

3.57

4.43

5.29

6.14

7.00

INVESTOR CONFIDENCEGovernmental influences

Primary Stakeholder influences (Players)

Secondary Stakeholder influences (Subjects)

Tertiary Stakeholder influences (Referees)

Neighbourhood influences

Environmental influences

Promotional influences

Market influences

INVESTMENT CLIMATE

Cost related

Policy related

Promotion and marketing relatedMarket relatedFinance related

Resource related

Lifestyle related

Confidence related

PROPERTY DELIVERY

Role of the Estate Agent

Role of the New Housing Market

Role of Secondary Housing Market

Role of the Product

Role of Influencers

Role of Financial Institutions

Role of IntermediariesRole of Consumer

MAKING SENSE OF THE FUTURE OF THE RESIDENTIAL PROPERTY MARKETCURRENT REALITY vs Strategic Forum SCENARIOS

(Source: BMI-BRSCU)

CURRENT REALITY (3,92) Higher Middle Road Algarve Scenario (4,86) Lower Middle Road Ipanema Scenario (4,00)

High Road Miami Scenario (5,72) Low Road Mombasa Scenario (3,14)

©BMI-CSLORLC120


1.00

1.86

2.71

3.57

4.43

5.29

6.14

7.00








Market influences

INVESTMENT CLIMATE

Cost related

Policy related


Resource related

Lifestyle related

Confidence related

PROPERTY DELIVERY




Role of the Product

Role of Influencers




(Source: BMI-BRSCU)



Assigning values to the QUALITATIVE generic variables influencing change allows for quantifcation and positioning of the CURRENT REALITIY relative to the IDEALISED SCENARIOS. It also shows where performance is good and where intervention is required.

©BMI-CSLORLC121


1.00

1.86

2.71

3.57

4.43

5.29

6.14

7.00








Market influences

INVESTMENT CLIMATE

Cost related

Policy related


Resource related

Lifestyle related

Confidence related

PROPERTY DELIVERY




Role of the Product

Role of Influencers




(Source: BMI-BRSCU)



Current Reality (3,92) indicates that Residential Property is between the Low Road (3,14) (Mombasa) and the Lower Middle Road (4,00) (Ipanema) scenarios.

©BMI-CSLORLC122


35 000

85 000

135 000

185 000

235 000

285 000

335 000

385 000

435 0001

98

0

198

2

198

4

198

6

198

8

199

0

199

2

199

4

199

6

199

8

200

0

200

2

200

4

200

6

200

8

201

0

201

2

201

4

201

6

201

8

202

0

RA

ND

MIL

LIO

N A

T C

ON

ST

AN

T 2

010 P

RIC

ES

ASSETS MORTGAGED : RESIDENTIAL PROPERTY : 1980-2008STRATEGIC FORUM SCENARIOS: 2009-2020

(Source : SARB, MFA DATABASE, BMI-BRSCU)

Residential Property: 1980-2009

High Road Miami Scenario

Higher Middle Road Algarve

Lower Middle Road Ipanema Scenario

Low Road Mombasa Scenario

Current most likely outcome is between the Low Road Mombasa and the Lower

Middle Road Ipanema Scenario

©BMI-CSLORLC123

After 9/11, the terrorist attack in New York, and after the crash of the stock market in 2000, 2001,

individuals have said “the only place that my money is safe is in my own

home”.And as a consequence of that, “There’s firmly embedded in the global culture this

idea that you can’t go wrong investing in property.”

(Simon Marais, Alan Gray as quoted on Moneyweb, 12 July 2004)

INDUSTRY REINVENTIONINVESTMENT CLIMATE

©BMI-CSLORLC124

After 9/11, the terrorist attack in New York, and after the crash of the stock market in 2000, 2001,

individuals have said “the only place that my money is safe is in my own

home”.And as a consequence of that, “There’s firmly embedded in the global culture this

idea that you can’t go wrong investing in property.”

(Simon Marais, Alan Gray as quoted on Moneyweb, 12 July 2004)

INDUSTRY REINVENTIONINVESTMENT CLIMATE

The world’s second wealthiest man, investment guru Warren Buffett, said

this year he had found “very few

attractive shares to buy” “ Joe Public’ is still seeing bricks

and mortar as more attractive than securities

and bonds”.(Researchworldwide.com, 18 March 2005)

The world’s second wealthiest man, investment guru Warren Buffett, said

this year he had found “very few

attractive shares to buy” “ Joe Public’ is still seeing bricks

and mortar as more attractive than securities

and bonds”.(Researchworldwide.com, 18 March 2005)


PROGNOSIS ON THE PROPERTY MARKET

• Affordability of Housing DECLINING.

• Real House prices are some 5% below 2007 (But . . . A massive 87% higher than 2000)

• Price difference between new and existing houses widening (new housing now 32% more than existing)

• Interest rates at historically low levels

• Debt levels of households increasing

• The GLOBAL PROPERTY BUBBLE is now history. The market in SA has adjusted downward quite dramatically in a

hard landing. Residential building on the way to gradual recovery. Non Residential building declining. Many other

factors unique to the South African market mitigated against a bubble type collapse of the market.



PROGNOSIS ON THE PROPERTY MARKET

• Affordability of Housing DECLINING.

• Real House prices are some 5% below 2007 (But . . . A massive 87% higher than 2000)

• Price difference between new and existing houses widening (new housing now 32% more than existing)

• Interest rates at historically low levels

• Debt levels of households increasing

• The GLOBAL PROPERTY BUBBLE is now history. The market in SA has adjusted downward quite dramatically in a

hard landing. Residential building on the way to gradual recovery. Non Residential building declining. Many other

factors unique to the South African market mitigated against a bubble type collapse of the market.


When the system operates in the border between stability and instability, forecasting, envisioning future states, or even making any assumptions

about future states, are ineffective

One would have to rely instead on using qualitative patterns to reason by analogy and

intuitionThose who succeed in the borders between

stability and instability would be those who see patterns where others search for specific links

between causes and events. (Source: Based on Stacey, Ralph D. Strategic Management & Organisational

Dynamics. The challenge of Complexity: 2000: 259)

When the system operates in the border between stability and instability, forecasting, envisioning future states, or even making any assumptions

about future states, are ineffective

One would have to rely instead on using qualitative patterns to reason by analogy and

intuitionThose who succeed in the borders between

stability and instability would be those who see patterns where others search for specific links

between causes and events. (Source: Based on Stacey, Ralph D. Strategic Management & Organisational

Dynamics. The challenge of Complexity: 2000: 259)


INVESTMENT CLIMATE

0

50 000

100 000

150 000

200 000

250 000

300 000

01

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00

9

01

-Ju

l-2

01

0

Aff

ord

ab

le R

ea

l H

ou

se P

rice

s (R

an

d)

Affordable Housing: Real prices: 1980 - YTD 2011(Source: ABSA HPI; BMI-BRSCU Workings)


MFA COMPOSITE LEADING INDICATOR (CLIBI)

FOR THE SOUTH AFRICAN BUILDING INDUSTRY

0

10

20

30

40

50

60

70

80

90

100

| 71 | 74 | 77 | 80 | 83 | 86 | 89 | 92 | 95 | 98 | 01 | 04 | 07 | 10 | 13

Source: FNB / BER; SARB; MFA DATABASE

PE

SS

IMIS

M <

50 >

OP

TIM

ISM

OPTIMISM

PESSIMISM

Shaded areas represent the upswing phase

of the business cycle

OP

TIM

ISM

PE

SS

IMIS

MINVESTOR CONFIDENCE

?


MFA COMPOSITE LEADING INDICATOR (CLIBI)

FOR THE SOUTH AFRICAN BUILDING INDUSTRY

0

10

20

30

40

50

60

70

80

90

100

| 71 | 74 | 77 | 80 | 83 | 86 | 89 | 92 | 95 | 98 | 01 | 04 | 07 | 10 | 13

Source: FNB / BER; SARB; MFA DATABASE

PE

SS

IMIS

M <

50 >

OP

TIM

ISM

OPTIMISM

PESSIMISM

Shaded areas represent the upswing phase

of the business cycle

OP

TIM

ISM

PE

SS

IMIS

M

CONFIDENCE TURNING?Now is NOT the best time for buy-to-let

investments.(Unless the Lets are BLUE-CHIP

Corporate Tennants) For some investors in residential

property it is, in fact, TIME TO CASH IN.

INVESTOR CONFIDENCE

?


0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

19

93/0

1

19

93/0

8

19

94/0

3

19

94/1

0

19

95/0

5

19

95/1

2

19

96/0

7

19

97/0

2

19

97/0

9

19

98/0

4

19

98/1

1

19

99/0

6

20

00/0

1

20

00/0

8

20

01/0

3

20

01/1

0

20

02/0

5

20

02/1

2

20

03/0

7

20

04/0

2

20

04/0

9

20

05/0

4

20

05/1

1

20

06/0

6

20

07/0

1

20

07/0

8

20

08/0

3

20

08/1

0

20

09/0

5

20

09/1

2

20

10/'0

7

20

11/'0

2

R M

illio

ns (

Cu

rren

t V

alu

es)

New mortgage loans and readvances by month and application: Jan 1993- June 2011(Source: SARB, BMI-BRSCU Workings)

New mortgage loans and re-advances applied on existing buildings

Gross new mortgage loans and re-advances for construction of buildings

Net new mortgage loans and re-advances applied on vacant land

12 per. Mov. Avg. (New mortgage loans and re-advances applied on existing buildings)

New Building Loans

ExistingBuilding Loans

PROPERTY DELIVERY


TO REINVENT

THE LEADERSHIP FIRSTTHEN THE ORGANISATION

THEN THE INDUSTRY


The challenge is

Leadership And Complexity

Business

Transcript of Leadership And Complexity