Re-Purposed Electric Car Batteries and Its Effects on Electric Car Adoption/Driverless Car Adoption

Last night I attended the Churchill Club event in Melbourne on the future of batteries. There was a great panel presenting and the discussions covered a range of battery technologies, including Ecoult which is commercialising the CSIRO ultracapacitor technology for lead acid batteries.

In particular I was interested in the presentation by Relectrify CEO and Co-Founder Valentin Muenzel who talked about Relectrify’s mission to use electric car batteries that were no longer useful in energy storage applications. This was interesting because as part of my research for a book that Chris Rice and I are writing on the future of driverless cars I had been looking at the adoption rates of electric cars as part of the rise of driverless cars. In that research I had come across an assessment by Ark Investments that had calculated the net present value of an electric car battery in a specific energy storage scenario as shown in the following table:

Ark Invest battery depreciation table

source: https://ark-invest.com/research/ev-batteries-value – accessed June 20th 2017

The basic principle is that while a battery in an electric car might have its performance degrade to a point where it is no longer useful for driving, that battery will still have significant storage capacity (think about your phone battery after 18 months – it still works but its capacity is reduced).  If you can buy that battery cheaply and adapt it to storage use then you have a cost effective solution.

Of course the Net Present Value calculation in the table is for a specified energy reserve use which has a higher price, and nobody buys an asset for its Net Present Value otherwise all you do is get your money back over time. In discussions with Valentin he told me that without giving away commercial secrets the model for them is about 50% of the value of a new battery. This is important because the cost of new car batteries is falling. An analysis of battery prices by Bloomberg New Energy Finance in January showed the pace of that change:

battery prices falling fast from Bloomberg

source: https://www.bloomberg.com/news/articles/2017-01-30/tesla-s-battery-revolution-just-reached-critical-mass  

Now this is the price of the battery itself which is not the same as an installed battery system but the progress has been amazing, and mirrors what we have seen in solar energy. No great basic technology breakthrough, but significant technology improvements driven by the cost learning curve. In a separate report Mckinsey has stated that electric vehicle batteries fell to $227/kWh in 2016 with Tesla claiming to be below $190 per kWh (Electric vehicle battery cost dropped 80% in 6 years down to $227/kWh – Tesla claims to be below $190/kWh) Rumours have also circulated that Tesla has got the battery costs down to $125 per kWh (Tesla is now claiming 35% battery cost reduction at ‘Gigafactory 1’ – hinting at breakthrough cost below $125/kWh) although the truth of that remains to be seen. There is no doubt about the rapid pace of changes occurring, just the quantum of that change.

Valentin and I also discussed the model for autonomous vehicles given that a fleet model or a car sharing model means that cars would travel far more kilometres in a year. For an electric car this means that the battery will reach its degradation limit more quickly as the battery would be charged and discharged more often. Interestingly for Valentin this meant that the battery would be worth more for repurposing, because outside of the energy capacity the battery still retained, its relative newness means the technology is likely to be more advanced, and safety and physical deterioration characteristics would be much better.

Given that storage is likely to become far more important in the future given changes in the energy generation mixes around the world it puts a slightly different complexion on the costs of electric cars. It is our view that the end game for driverless cars is mass fleets supplied as a service with hardly anybody owning a car. If electric car batteries only last 3 years in shared driverless vehicle but have significant re-sale value it lowers the lifetime cost of a kilometre travelled and therefore accelerates us to the point where the cost of running an electric car is lower than running a fossil fuel car. Lifetime cost factors less into individual car ownership decisions but if you own 50,000 cars in a mass fleet in a highly competitive market it becomes it becomes a much more important factor. This changes adoption rates and also the balance between fossil fuel and electric cars.

The effects of this will be lumpy as Valentin advised that different batteries have different degrees of difficulty for repurposing as stationary storage. This is related to the original design decisions made for the battery technology which were originally made with the purpose of electric cars in mind, not stationary storage. For example apparently Tesla has stated that their car batteries will not be repurposed and that is due to the design constraints in their battery technology.

A note of caution:

In a discussion with John Wood (CEO of Ecoult) he quite rightly warned me to be careful of the public statements of battery manufacturers and suppliers on their lifetime use. Given that we are talking about changes in technology and lifetimes of 10-15 years which are therefore untested in the real world, those are wise words.

 

Image credit: The featured image is from http://www.relectrify.com/

The Future for Accountants

The story for accountants the last few years has been increasing levels of outsourcing tasks to low wage environments such as India, and increasing levels of automation for their tasks and their clients. The early stage of that process has been the automation in accounting software systems such as QuickBooks and Mint. Increasingly this automation will move into more and more of the accounting space including real time artificial intelligence auditing systems, automatic preparation of increasing complex tax returns, and structuring credit arrangements.

These things generally start out small and at the less complex end of things and accelerate into more complex areas before people realise it has happened.

So where is the new value for accountants. Primarily this has to be in the process of value creation for clients. Therefore accountants need to move up the value chain and Examples include:

1/ Transformation of business processes around technology changes and the re-training of staff for their SME clients.

As I wrote in Questions on the Future of Work a recent McKinsey report has stated that

According to our analysis, fewer than 5 percent of occupations can be entirely automated using current technology. However, about 60 percent of occupations could have 30 percent or more of their constituent activities automated”

This supports the notion that apart from a few isolated cases (e.g. truck drivers with driverless trucks) technology does not replace jobs but replaces particular skills or tasks. More importantly business processes and the ways in which we serve customers are changed by the introduction of various forms of artificial intelligence into technologies. This can be a customised approach for vendors like Salesforce Einstein which is adding AI services to its sales, and customer service offerings at around US$50 to US$75 per user per month. Or it can be more fundamental changes to value propositions and business models and the underlying capabilities required to deliver them.

Either way we appear to be entering an era where the jobs people will do will change even more rapidly than they have over the last 10 years and will constantly change rather than be part of a single change management process. In my experience most organisations with under 1,000 employees have little idea on how to approach this problem. This is a huge opportunity for accountants who already have close contact with their clients.

2/ Assisting clients with understanding their strategic landscape

In a world that is moving faster and changing more rapidly than ever before operators of SME businesses are facing greater uncertainty than ever before. They are also facing a paradox. The pressure on them means that they must spend more time focusing on the operational matters in their business but they are doing so right at the time that looking around to see what is happening becomes more important. Just last week I was working with an SME business that is very well run and focused on all the right things that need to be done for the next 12 months. At the same time they were not thinking very deeply about the future and that their decisions (that were absolutely correct in a short term sense) might mean for their long term future.

This means that there is great value for an independent adviser that sees a wide range of other businesses and can:

  • Provide a better strategic understanding of the industry in which the client business operates. Examples include looking at possible industry scenarios for 5 years time and trying to understand what the interim competitive position might be.
  • Cross pollinate ideas and ways of doing things from other businesses in other business sectors. Sometimes very simple tools and approaches from somewhere else can significantly improve a businesses bottom line.
  • Look at the business from a dispassionate but involved perspective and ask questions the business is not asking itself. Examples might include – does your logical short term investment in cost improvements weaken your balance sheet and capacity to respond to x/y or z which are significant risks?  OR What custom built systems are you using which can be supplied via industry standard products or new utility services.
  • Run a structured red team/blue team process to attacking and defending the business from an outside perspective.

 

3/ In the future: utilisation of AI to augment their own capabilities

The reality of artificial intelligence is narrow expertise systems rather than a general intelligence. So we will see artificial intelligence systems that can aid sales people and customer service people but cannot do other things (see Einstein above). We will see narrow artificial intelligence systems that can assist doctors but not do much else. The list goes on.

The modern approach to artificial intelligence systems is basically on of machine learning which requires large training data sets and a large market to justify to expenditure on development and training. Therefore we will see AI systems developing in markets where there are either a lot of customers, or high margin customers, or both. Given how many accounting practices there are around the world the accountancy business is one that is ripe for such a development.

Veterinary Schools as a Platform (VSaaP)

Late last year we worked with the Australian Veterinary Board Council and the Deans of all the Veterinary Schools in Australia and New Zealand looking at what the future of veterinary education and regulation might look like in 2031.  The date was chosen to be the time when a 12 year old just starting secondary school now would be a graduate of 2-3 years standing. We looked at a whole range of issues including availability of smart phone based diagnostic kits for pet owners, artificial intelligence systems for diagnosis, urban densification and its effects on pet ownership, veterinary practice corporatisation, international trade requirements, and the need for wide or narrow scope veterinary degrees.

One of the ideas that emerged from the process has stuck in my head and I think has great scope to revolutionise how we provide a much wider range of education at universities and for education post graduation.

Essentially the is one where  the veterinary school acts as the primary site of education for those subject areas that need face to face contact and technical expertise that cannot be achieved in an online, video, or virtual reality environment.

All other subjects/modules are accessed by the students via the school platform and the teaching material and processes that form the basis of those modules can be supplied by any accredited service across the globe. The model looks like the following diagram if we just look at one module, in this case cat medicine at the vet school at the University of Melbourne:

Vet school as a platform image

On the supply side of the platform (above the line in the diagram) cat medicine courses are supplied by all the possible services globally that wish to provide that service and who are able to meet the curriculum needs.  The platform would be agnostic on delivery systems as long as outcomes where met.

On the demand side (below the line in this diagram) each student in this model can choose who their supplier of education in cat medicine is. In the picture above Isabelle has chosen Sydney University because they have a great reputation but also provide face to face services at the school in Melbourne. Ivy and Anne have chosen Seoul National University because they have a great reputation and their virtual reality applications suit their learning style and they have been offered lifetime professional development at a low cost as part of  the deal.

The school accredits multiple providers from interstate and/or overseas for each module (the school itself can provide modules in competition with these modules if it desires). Students can choose the best provider for the module or subject they wish to complete.

Competition on the platform fosters innovation in teaching content, support and methodologies that best meet the student’s needs.

Collaboration may occur between schools with centres of excellence formed to compete with international providers. E.g. Sydney University could be the cat medicine centre of excellence that allows economies of scale to be achieve on content creation and methodologies (for example virtual reality technology is still quite expensive but spread over 1000 students the costs come down).

Uncertainty about the future education and information needs is dealt with by the system working as “plug and play” with new subject matter being able to be added as flexibly as possible, and many providers producing a much larger resource base. This should allow more rapid adoption of new content as the world changes (e.g. big data systems/network facilitation for clients with home diagnostic tests).

On top of the pre-registration process it could also be used for post registration professional development with or without limited degrees. Currently vets have to learn and qualify across a massive range of animal species but many go into small animal practice and never see a cow, sheep, or pig again. Shorter narrow species based degrees could be supplemented by post graduation systems that allow vets to qualify in other areas if they wish to change careers or specialties.

By taking advantage of education technologies to improve the efficiency and quality of education a school as a platform system. There are multiple advantages to this beyond what has been discussed above:

  • The time and costs of delivering some content can be reduced.
  • Greater value can be created in other areas by increasing the time and resources applied to the teaching of those areas.
  • Self paced degree systems could be put in place where the pace of learning is determined by the student rather than the needs of the lecturers or the school.

Regulatory/Accreditation issues could be relatively straightforward if the existing schools are accredited and the content partners are required to meet content and/or competency based assessments. Combined with limited degrees, intern models, etc. the issues can become quite complex. The accreditation process itself may need to become more flexible and capable of responding faster to changes in technology.

Technology in delivery of course and maximising flexibility in systems is rapidly advancing. For example the University of Texas has a major collaborative project going on with Salesforce:

UT System partners with tech industry leader to develop next-generation learning platform

The future is coming faster than we think and it has the potential to radically change education models.

 

Councils and Foresight – Critical Differences

Since I published my Councils and Foresight post last week I have had some comments and questions via social media about the key differences between Councils and Commercial Organisations in particular and what they mean in terms of different approaches to foresight. Along with those questions three comments that were made last week during our foresight session at the VLGA Mayoral Leadership Conference have stuck in my head:

  1. I demonstrated our quick and dirty scenario approach prefaced with the statement that it was useful when you had a spare ten minutes. One Mayor talked to me afterwards and said she would love a spare ten minutes for anything. That is a major concern, No time for strategic thinking.
  2. Two mayors talked to me about reading 300 page briefing reports for council meetings, which ties in with the problem in point 1.
  3. One Mayor talked about the glacial pace of change in councils, which I am sure is true in most people’s experience.

These comments tie in with the different approaches that need to be taken with foresight issues in councils and they relate to the structural issues of how councils operate:

  • Firstly compared to commercial entities councils do not have the luxury of appointing a skills based board (council) based on getting a diverse range of expertise and perspectives. Having said that many commercial boards do not do that well either but at least they have the capacity to do so.
  • Secondly many councillors commonly come to council without a deep understanding of the detailed operations of council or in the management of large organisations while in many cases commercial boards are selected on that basis.
  • Thirdly councils are far more tied into, and exposed to the needs and views of their community while large commercial entities in particular are generally distant from their smaller shareholders. There are pluses and minuses to either situation but there is nothing like being confronted down the street, in the pub, or at the local footy club to bring home the reality of what you are trying to do.
  • Fourthly commercial entities are able to make faster decisions and have a much clearer measurement of success in terms of profit and loss, balance sheets, and share prices, albeit allowing for the weaknesses of some of those approaches.

So in terms of foresight and thinking of the future I think that councillors need to:

1/ Work much harder at bringing a diverse range of perspectives into the foresight and strategy processes of council, and ensure they are not the same old faces. This compensates for the lack of capacity to have a planned diverse council.

2/ Let go of the need to get across of all the detail and concentrate far more on critical thinking and questioning skills. Having been involved in representational agripolitics and party politics I realise that this is a lot easier said than done. Voters expect you to be across all the detail but if you spend all your time reading 300 page briefing papers you will have no time for thinking strategically. Councillors need to allow council officers to do the detailed work but have the capacity to clinically question what is put before them or develop alternative strategy, not try and do the operating job.

3/ Concentrate on areas where there is going to be faster than glacial movement. In areas of the economy that have been disrupted recently the key  has been a strong and direct link between the producer of products and services and the customer. Think books, music, airline travel, etc. In council affairs this relationship is sometimes more diffuse. The key area of direct contact and pressure is either funding by government or rates. In this efficiency and effectiveness of council service provision are critical. My view is that critical areas to be looking at here are:

  • The development of artificial intelligence systems and robotics. MTR in Hong Kong is already using an AI Boss to supervise and schedule its repairs and maintenance system.. X.ai is supplying an AI as a personal assistant which I have had personal experience with, and it already works well. There are going to be huge opportunities for reducing costs and improving the effectiveness of council service sin the next 5-10 years.
  • Crowd funding as a mechanism to test the real desire of people to get various things done in their community, perhaps by providing matching funding for projects. This has to be carefully managed as it raises the value of the voice of people who have money versus those that do not.
  • The rise of social enterprise were world class business operations also have a social purpose. The Bendigo Community Bank is an example of this where 50% of the profits are returned directly to the community in which the bank operates but there is likely to be big developments in this area.

4/ Concentrate on longer term issues and start the discussions well ahead of time. If pace of change is going to be slow then we need to engage the community in longer term discussions on what change looks like. Examples include:

  • Driverless cars are likely to be adopted in a significant way in the future. The time frame of that wholesale adoption is likely to be 10-20 years away (see post : Implementation of Driverless Cars – A case for public subsidy of private transport systems) but will have significant impacts on requirements for parking, public transport systems, road planning, work/living relationships (changing value of certain suburbs versus others). Council needs to be thinking about these issues well ahead of the adoption curve.
  • The future of local democracy. What does that look like in a networked world, tied in with crowd funding systems, electronic voting systems, virtual reality , etc.
  • The possible havoc that improvements in artificial intelligence and robotics might wreak on employment and what it means to the local economy and job market.

The pace of change is likely to accelerate. Councillors need to step back and see where their limited time can be used to create most value in that future.

Paul Higgins

Councils and Foresight

Yesterday it was both my pleasure and privilege to present a Master Class on Foresight for Councils to the Annual Mayoral Leadership Conference in Victoria run by the Victorian Local Governance Association and Leadership Victoria. I say privilege because it was fantastic to see such a committed and enthusiastic group of people determined to maximise their learning and capacity to make a contribution to their communities in what must be one of the hardest  but most important jobs in politics. This aligns with one of our principles of being engaged in work that helps others make a contribution to their community so it was a privilege in the strongest sense of the word. Here is a summary of what I presented with some additions based on some of their great questions. The structure of the presentation was to talk about some general principles and then to give the participants a taste of some tools they could use in their council activities. The title of presentation was Avoiding the Unknown Unknowns but from the outset I told them that this was an impossible aspiration. That we can get better at looking at what might surprise us but we will still have to react to surprises and there will always be crises to deal with. Foresight is essentially the process of helping people put together a few more pieces of the puzzle they face while recognising there will always be pieces missing The group as a whole were there to learn to think better about what might be happening in the future, to create new approaches to approaching planning and problem solving, and to look at how to open up their organisations and their communities to what the future might hold. The principles that we discussed around these objectives were: 1/ That we all have innate ability to think about the future. We cannot operate in the real world without that capacity. In such a simple process as crossing the road we have to project ourselves into the future by anticipating how fast cars are travelling and when they will arrive at our crossing point. However our brains evolved at a time when the sorts of threats and challenges we faced as human beings were nothing like the complex issues we face in today’s ever changing world. Our brains evolved in an environment where physical threats and challenges were the main issues and so the improving vision systems and pattern recognition systems that were successful in those environments won out. Our brains have not changed much since those times and so we need concepts and processes to augment the natural way in which our brains work. 2/ That getting people and organisations to think about different possible futures automatically increases the chances of spotting meaningful change. If our minds are already tuned to multiple possibilities we are more likely to see signals of change in the events, encounters, and reports that we see every day. 3/ That the use of as many diverse perspectives as possible in engaging in thinking about the future improves our chances of our organisations finding meaningful signs of change. We all have cognitive biases such as confirmation bias where we actively seek out people and information that confirms our “fantastic” decision making or recency bias where we privilege more recent information (see List of cognitive biases , Top 10 Thinking Traps Exposed — How to Foolproof Your Mind, Part I, or  Racial Bias, Even When We Have Good Intentions for many more examples). These biases mean that we see the world in a certain way and when talking about future possibilities we favour some forward views of the world, discount some forward views, and downright ignore others. No matter how smart we are these biases affect us and it is very hard to get away from them as an individual. Therefore we need to involve people with diverse backgrounds, ages, training, cultures, etc when looking at what the future might hold because we all look at things a different way depending on those backgrounds. 4/ That context is really important. The decision theorist Gary Klein once said:

“Intuition is the use of patterns you have already learned, whereas insight is the discovery of new patterns”

Some of the really good decision makers I have seen in the past were great because they were great users of their intuition. They had built up a large library of problems they had seen and solutions that worked and they were able to pluck those out and apply them. That is the use of patterns you have already learned. It works fantastically well where the problems repeat themselves and we can re-apply solutions that worked. However we live in a world that is getting more complex and uncertain every year and therefore we encounter more and more novel problems as we move forward.The real skill here is differentiating between problems we are familiar with and applying old solutions to them, and recognising what are new problems and creating new solutions for them. One of the underlying skills in foresight is discovering and understanding the underlying patterns that are driving change. One of the practical applications of foresight is using that to create better decision making by understanding context. One of the best ways to look for ways the world might be changing and more new ideas on strategy is to look at other sectors, other cultures, other industries and other organisations. However the real skill is understanding the context in which those changes are happening and being able to apply that understanding to your context, not just blind copying.

5/ That time frames are really important when trying to get your organisation to rethink what the future might look like. One of the lessons that I have learnt in the practical application of foresight is to extend the time frame well beyond the current strategic plan time frame. This may seem fairly basic as we are talking about the future but it is really important. If we move the discussions beyond current plan time frames then it helps get past current embedded positions. The hardest thing to ask people to do is to go through a long strategic planning process and then six months later ask them to rethink what they have done. After people have spent months grappling with the issues, and fighting for their ideas and views to be represented in the plan and have resources allocated to those ideas they will always fight to preserve those entrenched positions. If you can take people 7-10 years in the future we move move partly beyond those problems and have more open discussions. We can then take any strategy ideas generated by that process back into the present to apply them. As a caveat here I am not a fan of these process being thought of as being 20 or 50 years in the future except in very specific cases because the time frames and too long and not relevant to people.

Later in the session I demonstrated our Trend Sheet Conversation process that utilises different perspectives in an organisation to discuss and prioritise trends and the impact they may have on the organisation. During that process I cautioned the group on being over reliant on trends. All trends are historical in nature as they are based on evidence of what has already happened. All trends change or break at some stage so creating pictures of the future that is reliant solely on project existing trends is a very risky process. To highlight that point I displayed the following picture of total vehicle miles traveled predictions from the US Department of Transport :

transport forecast fiascoVMT-C-P-chart-big1-541x550.png.CROP.original-original

Source: http://www.ssti.us/2013/12/new-travel-demand-projections-are-due-from-u-s-dot-will-they-be-accurate-this-time/ 

It appears that the projections ignored changes in what was really happening on the ground and continued to project previous growth trends into the future despite evidence to the contrary. This is a major issue if national road planning and spending is based on the projections. The post I have linked to above describes the process in more detail. One of the Mayors then asked  a really good question which was how do you deal with this issue if trend projections are being presented to you by council officers or outside experts. This is part of a broader question of how elected councillors question and probe information that is presented to them by experts. My answer was in four parts: Firstly the experts need to be probed on the underlying components of the forecasts. What is driving the assumptions. A key approach here is to break down the numbers into their components. In the case above questions like what are younger drivers doing? what are the effects of increasing urbanisation on miles traveled? If those answers are not forthcoming then the understanding and expertise of the expert has to be called into question. People who really know their stuff will revel in good questions being asked. Secondly ask a series of “what if” questions. This can be phrased by stating something like “lets assume that is the most likely scenario but what happens if the trends change? This can be particularly useful if again the trends are broken down into their component parts. For example “what if young drivers change behaviour?’ or “what if urban densification in our area accelerates?”, or “what if petrol prices fall?” or “what if the demographic mix in our area changes?’This can be particularly useful in identifying risks that are present if the trend breaks or changes Thirdly create a single scenario that details all the things that must remain the same for the trend to remain unbroken. This is very similar to the first process above but can be done in much more creative and story-telling ways that may work better for communication. Fourthly studies show that experts can actually be the worst people for spotting changes in patterns and trends because they are so tied into the existing ways of thinking. Therefore bring alternative outside perspectives into the process of thinking about the trends. This is always useful. I wish the group luck in their leadership roles in their communities in the next year,. I continue to be inspired that there are great people willing to put up their hands and put in the hard work that our communities need Paul Higgins You can see the presentation at Embracing Uncertainty – Mayoral Conference Masterclass Jan 2015 A second blog post : Councils and Foresight – Critical Differences is now available If you want to see more of our work please go to  Emergent Futures

The Board’s Role In Complex and Uncertain Environments – Part Two

Before Christmas I started a series on boards and uncertainty based on a Master Class Workshop for Not for Profit Organisations I presented as part of the Leadership Victoria Director Dynamics Master Class Series : How do successful boards manage the “unknown unknowns”?

You can read that post at:

The Board’s Role In Complex and Uncertain Environments – Part One

This is part two of the series and is focused on boards operating in increasingly complex environments.

If we accept that boards are operating in increasingly complex environments and that complexity creates greater uncertainty then they need to re-asses their roles. Based on the Cossin/Metayer Model described in the last post they have to spend more time in co-creation of strategy and in support of strategy. Cossin and Metayer describe co-creator and supporter roles as:

“By pursuing a co-creative role, boards can help open the minds of executives and steer the strategy debate beyond any cultural blind spots. Such blind spots typically arise from executive myopia due to corporate, historic or strategic biases”

Supporter: “In this role, the board acts largely as a support to management, lending the executive team its credibility and authority (or, in some cases, withholding its support to pressure management)”

Many Not for Profit boards are structured around the supporter roles with the board members contacts in political,economic, and community networks a valuable resource for the organisation.

My focus here is on the role of foresight in co-creation of strategy and the definition above provides a handy starting point as to what can be done to maximise the board’s value in this role. I normally say that structure follows strategy but in terms of boards I think that structure is very important and the reverse is true.

Therefore if a board’s role is to assist management in avoiding blind spots and strategic biases then a diversity of perspectives is critical. This means that when looking at board composition we need to go past the standard skill matching process where industry, financial, and legal expertise are often at the top of the wish list. In not for profit boards we can add fundraising capacity or access to networks as a key skill. Using such a list can result in a largely uniform set of board members with a long history of experience in the industry sector involved. Commonly this is predominantly a group of middle aged to older white males, except in the not for profit sector where more women are involved. This expertise is certainly useful but if it is the overwhelming characteristic of the board then the board will tend to mirror management’s biases rather than expose and question them. In order to get maximum capacity for diverse perspectives and the capacity to contribute to strategy in a complex environment we must get more diversity. This means diversity in gender, culture, technical experience, age, and training.

This is a strong case for more women on boards. Not because it is the right thing to do but because it is better for the organisation.

Secondly if the structure of the board from a perspectives point of view is well constructed then we need to allow the time and space for those perspectives to be brought to bear. Two things need to happen here.

1/ The board must have an ongoing role in strategy discussions rather than strategy being something that is discussed during the strategic planning process. It is more and more common to see strategy being adjusted in a dynamic fashion rather than just in strategic planning cycles. Processes need to be in place to have this as an active process with the board rather than management presenting new alternatives. The foresight part of strategy is focused on opening up the organisation to more possibilities and new ways of thinking. The strategic planning process is more of an analytical and choice making one, closing down the possibilities in order to allocate resources appropriately. The two require different skills and different processes.

2/ Board meetings need to be structured in a way that reflects the environment in which the organisation is operating and the considered role of the board. Too often I have seen board meeting agendas where strategy discussions are the last item on the agenda after financial and compliance issues have been discussed. This means that the supervisor role is being favoured over the other roles.This can either result in the strategy discussion being curtailed as people have commitments to meet, or people participating in strategy discussions when they are mentally and physically tired. This is particularly true of Not for Profit boards that often meet in the evenings. Boards need to assess their ratio of their various roles between supervision, support, and co-creation and then make sure that appropriate time is allocated for each role on that basis. Strategy discussions should always be at the start of the agenda while people are mentally freshest as it is the most challenging part of a directors role.

In the next post I will consider some foresight methodologies and approaches that can be used to complement the board structure and levels of expertise.

The Board’s Role In Complex and Uncertain Environments – Part One

A couple of weeks ago I delivered a Master Class Workshop for Not for Profit Organisations as part of the Leadership Victoria Director Dynamics Master Class Series : How do successful boards manage the“unknown unknowns?

As part of that process I re-examined my own thinking on what board’s should be doing generally in this area and decided I should write down my process of thinking through the issues in a format that allows more examination of the issues than the confines of the workshop.

As the start of the process I was drawn to an MIT Sloan Management Review article written by Didier Cossin and fellow futurist Estelle Metayer :  How Strategic Is Your Board? (sign up required) as I felt it provided a useful framework to overlay foresight thinking and approaches on to

In particular I was struck by the following graphic they used about the board’s role in the context of various operating environments:

Board's role in strategy dependent on context from MIT Sloan Review

In the article Cossin and Metayer have the view that the role of the board varies depending on the context they find the organisation in and that when those contexts change then the board needs to change its role.

My view is that boards are generally operating in an environment that is simple, complicated, or complex and occasionally dipping into chaotic environments, which most people would define as crises. If we look at the graphic from that point of view then boards that are operating towards the right hand side require both a different approach but also more time to commit to the organisation. As the context moves to the right the requirements for a supervisory role do not diminish but the requirements in the rest of the roles increases. More and more boards are operating in complex environments due to the increasing complex, networked and connected world we live in. This presents a problem in its own right.

In my experience a lot of boards and the management have not even thought through the context they operate in this deeply and are not really operating in the optimal way in a relatively stable environment (in this case stable does not mean the opposite of complex or chaotic but that the organisation is operating in one context or another). Thinking through this more deeply is highly valuable for the board because until they have decided what environment they are largely operating in then the role that boards tend to take are dependent on historic operating modes of the organisation, or tried and true ways that directors have operated previously.The problem with this approach is that confronting new problems with old approaches only works if the problem is similar to the old problems.  In my early days as a board director I was enormously impressed by a Chairman who seemed to be a great thinker and strategist. Over time I realised that it was the product of a long experience and applying previous approaches to problems. As the organisation encountered more and more complex environments his ability to strategise fell away dramatically as novel problems and issues presented themselves.

However I am not saying that we all need to start operating in a mode that suits complex environments. This works in both directions. Boards should not apply complex context modes of operating to simple operating environments. There is as much danger in doing that as applying simple modes of operating to complex environments.

I think that this is a particularly apt to thinking about the boards of not for profit organisations because in my experience they have the following issues which differentiate them from commercial boards:

1/ While strategy should be about the exploitation of risk defined by an appropriate understanding of the risk appetite of the organisation many not for profit board members are more concerned with managing their own risks rather than the risks of the organisation. This results in a risk aversion mindset due to their requirement for there not be be “problems on their watch” which means avoiding failure at all cost. Which translates into “avoid highly visual failure at all costs” . However failing by not taking appropriate risks is not as visible and therefore risk is minimised at all costs which includes either constricting the capacity of the organisation or creating crippling compliance requirements. I have witnessed a board that deferred to the lawyer on the board when talking about risk because they felt that he had the appropriate expertise without realising that he was all about building his board resume and looking for other board positions and so was highly risk averse for the wrong reasons. In the context of the framework that Cossin and Metayer have provided this often results in a board being overly supervisory and spending too much time in that role to the cost of their other roles.

2/ Not for profit boards generally have less time to commit to the organisation. This varies tremendously for individual board member, some of which spend an enormous amount of time and effort on the organisation. However the time for collective strategy efforts tends to be constrained by the length of board meetings and how much time the more time pressed directors can spend on the organisation. In the context of the framework presented this means two things. Firstly with limited time boards tend to feel that they have to get the supervisory role right and therefore co-creation tends to take second place. I have worked with several boards where it is the first time they have spent more than an hour on foresight and thinking deeply on their strategy (as opposed to reviewing a strategic plan presented by the management). Secondly in environments that are more complex the time commitments are higher and this makes it more and more difficult for the board to feel that it is carrying out its role well. This can sometimes work well in a chaotic environment  where it is all hands on deck in a heroic stance. However it is far more difficult when operating in a complex environment in an ongoing manner.

Before we move on to my thoughts on the role of the board and the foresight approaches and principles that need to be applied we need to define what is meant by these operating environments. My thinking on this has been greatly influenced by the Cynefin model and Dave Snowden’s thinking and writing. I recommend that you go to Cognitive Edge for a deeper and more nuanced discussion of thee model but basically :

1/ Simple environments are defined by simple cause and effect relationships which can be readily understood where best practice is the main approach.

2/ Complicated environments are defined as where cause and effect are still understandable but they are more complicated. This is the area of systems thinking and expertise. There may be feed back loops and time delays and multiple interactions but with sufficient expertise and analysis they are understandable.

3/ Complex environments are defined by interactions and relationships that are only discernible in retrospect. For example we may now be able to explain why the price of oil has dropped dramatically but a year ago it was impossible to predict because they are so many interacting factors and the reactions of actors in the environment to change cause even more possible forward scenarios. You can start again with the same starting environment and get a completely different future. Some people make the mistake of thinking that expertise is not important here because you cannot understand the system in prospect. However multiple expertise perspectives is the way to operate here. I recommend that you read Dave Snowden’s recent blog on this:

Of experts and expertise

In my next section of this series of posts I will explore what a board can do to operate in increasingly complex environments and then move on to ways of thinking about foresight and strategy.

You can now see that post at:

The Board’s Role In Complex and Uncertain Environments – Part Two

Paul Higgins