The Point of Maximum Uncertainty – Book Review

This article contains a review of the great book “The Point Of Maximum Uncertainty – Redesigning Executive Teams For Today’s Challenges” by Matthew Guest.

The book was particularly interesting for me because it was the first time I have read a book where I know the author personally. Matthew Guest is a Partner at Deloitte Consulting but was part of the same MSci Physics class at Imperial College that my wife and I attended. I believe this is the first book Matthew has published and this may also be the first review made of his work!

Although the subject of this book is not directly related to my day-to-day role, I found it a fascinating read. The book is well written, engaging and provides a lot of insights into how companies and teams can be better set up for success in the uncertain and changing world we face.

Below I’ve provided a summary of the topics that Matthew covered that I found most interesting.

Unprecedented change is upon us and most companies will fail to adapt

The magnitude of the current macro changes faced by businesses has not been seen by executive teams since the 1950s or 1970s:

• Decarbonisation
• Digitisation
• Inflation
• Social equity and diversity
• Transparency

Failure to rapidly adjust to these challenges will be catastrophic.

Historical evidence clearly shows that the majority of leadership teams will fail to achieve successful outcomes in such an environment.

Most organisations have spent the last two decades in a lacklustre attempt to incorporate digitization into their businesses. Those companies that succeeded in this area are now the largest and most profitable in the world. The significant consumer, political and environmental pressure now being exerted to decarbonise will shape the next generation of enterprises.

It is a real surprise that executive teams are not better prepared for industrial decarbonisation. It is almost criminal that they are still unprepared for digital.

The Point Of Maximum Uncertainty by Matthew Guest

Scientific vs Strategic Management

Scientific management is the concept that there is a best-knowable way to perform tasks in an organisation. It is therefore the role of a manager to determine this approach and then train the organisation to perform in this optimal way.

Strategic management is where the leadership team express in clear terms the set of strategic choices they have determined and which they want the business to work towards.

Many modern organisations follow the scientific management approach, which inherently limits the potential outcomes of the team by the level of knowledge and competence of the managers. If a business can achieve strategic management it effectively allows the individual team members to contribute to the goal in the best way they can. The collective strength of all the diverse individuals in the team is far greater than that of the managers alone.

The essential difference between function-based and mission-based organisations is that the former are designed to deliver outputs, whereas the latter are designed to deliver outcomes.

The Point Of Maximum Uncertainty by Matthew Guest

If you are interested in understanding this concept in more detail I recommend you check out the book Turn the Ship Around!: A True Story of Turning Followers into Leaders by David Marquet

To facilitate strategic management, you need to start by examining the structure of the executive team.

Understanding the structure of executive teams

Did you know that in the 1960s there were no Chief Financial Officers (CFOs) in the companies which formed the Fortune 500 list? By the year 2000, almost every executive team had one. Matthew shows through his research how these executive leadership teams have changed and evolved.

Nowadays most executive teams comprise 10 to 11 people including the CEO. Matthew presents an interesting framework for categorising executive teams. He puts each member into one of 4 roles:

1. Strategic

These people are there to propose the long term goals and direction that the organisation should work towards. They can connect the dots across the teams and determine how the business can differentiate itself in the long term.

Chief Executive Officer (CEO), Chief Strategy Officer, Head of Innovation, Chief Digital Officer

2. Revenue Creation

These roles are there to determine the actions which generate the revenue and perform within the market. This is usually within a defined timeframe. They are often responsible for allocating resources to support the strategic direction of travel.

Chief Commercial Officer (CCO), Head of Sales, Chief Marketing Officer (CMO), Region Leader, Segment Leader

3. Platform Operation

These roles create value from the revenue generated by fulfilling demand, governing in-year performance or by facilitating participation within the market.

Chief Operating Officer (COO), Chief Financial Officer (CFO), Head of Human Resources, Head of Supply-Chain, Chief Technology Officer (CTO), Head of Manufacturing

4. Protection and Mitigation

These roles are there to prevent, known or unknown risks from occurring and to limit their impacts when they occur.

General Counsel, Chief Compliance Officer, Head of PR or Communications, Head of Investor Relations, Head of Controllership

Assessing an executive team

Today’s executive organisations tend to be distributed as follows:

• 1-2 strategic personnel,
• 3 revenue creation,
• 4 platform operations,
• 1 protection and mitigation.

This can vary slightly depending on the market (consumer vs industrial). From this distribution, 70% of the roles are sitting across revenue and operations. These categories are in reality there to tackle today and near-term execution.

This bias of the executive team means, that when faced with new data, they tend to assess it based on the historical business model and their experience within it. In a stable environment, this can work well but Matthew’s thesis is that when faced with macro changes in the world, this leads to poor outcomes.

If you want to hear more on this topic you can check out this YouTube video from Matthew.

Data flow and processing of an executive team

This book introduces an interesting concept. Effectively, Matthew presents the executive team as a decision making computer. They are fed data from the organisation which is processed by the team and decisions are made.

A key idea is that we need to realise that the executive team has a finite cognitive capacity (or processing power). This means that too much data can be just as dangerous as too little. If you overload the team with too much information it can often lead to no decisions (crashing the system).

For the above reason, raw data is rarely fed to the executive team. It is processed by subordinates in the organisation whose role is to protect their bosses. Noise can also be introduced into the data stream through errors, miscommunications and misunderstandings.

This model of thinking about the way decisions are processed resonated with me. I have seen examples of too little, too much or too highly processed data. These things happen every day in organisations around the world and I believe it is very important to design organisations and systems to ensure these traps are avoided.

Effective Data Gathering

Gathering accurate and timely information about the world is key to developing a good model of the reality faced by a business.

One way of doing this is by going directly to the source. Talking to the team on the ground and working directly with them gives an unfiltered view of the business challenges.

Great examples of strong data gatherers come from founders like Henry Ford and Thomas Edison. They were known to personally engage in solving key problems faced by their businesses. Elon Musk is infamous for sleeping on the floor of the Tesla factory in the early days to directly support the teams in meeting their goals.

By being involved in the minutiae of the products they are making, they can grasp the reality far better than an executive team sitting in an office being fed PowerPoint presentations by middle managers.

People would confront a problem by creating a presentation. I wanted them to engage, to hash things out at the table, rather than show a bunch of slides. People who know what they’re talking about don’t need PowerPoint.

Steve Jobs, CEO of Apple

Corrupted Decision Making

Decision making should be a rational process, where data is used to determine the best future path. Unfortunately, real-world decision-makers are not perfect rational data processors and they are corrupted by the past and personal risk associated with bold decisions.

This is why we see the phenomenon of the “sunk-cost fallacy” which means that the more money, time and energy which people have invested in something the more likely they will continue forward with that course of action, even if the data shows that their future would be better preserved by changing course.

The other issue highlighted in the book is that the closer someone gets to the top of the organisation the greater the downside risk of failure. This leads to a situation where the management team tend to be the most conservative. For a manager to open themselves up to radical or creative new ideas they risk ridicule and criticism. They could get the opposite and be praised but if they are already successful and hold a good reputation in the business why risk it for some unknown future benefit?

The troubling upshot of this rational behaviour over a long career is that the people in an executive team are exceptionally well-trained to manage out personal risk and thus as a collective are highly unlikely to be able to solve a challenge that requires them to show vulnerability to each other or the wider organisation.

The Point Of Maximum Uncertainty by Matthew Guest

In an environment where a team fears failure, then a simple low-risk, low-reward solution is generally selected for most problems. This approach severely limits a business’s ability to generate creative solutions and act upon them.

Organisations naturally tend towards mediocrity

Matthew provides some great analysis from a book named On The Psychology Of Military Incompetence by Norman Dixon. This book breaks down the failings of Generals in some catastrophic military defeats.

In effect, there is a belief in the military that drilling and endless repetition of tasks is the recipe for success. It provides for order and control in chaos. For example, combat drills increase the performance of the troops while cleaning the barracks reduces disease. This leads to an organisation where the mediocrely talented individuals focus on the actions of each drill until they are perfectly timed and in sync. Over time the team will focus on the action and not the reason behind the action.

This exact behaviour occurs in business organisations. Particularly as a business grows, layers and layers of processes, approval and governance committees develop. Many of them need to be reported to without any real clarity to the functional utility. Usually, these structures were first implemented for a purpose but over time they remain in place to give a sense of order in chaos. They are not there to improve the business.

In my experience, this is one of the major causes for innovation to die in an organisation. These committees are there to maintain the status quo not to develop the future.

What should we do to set up an organisation to succeed?

What is needed is great people leadership, great communications and great craft skills.

The Point Of Maximum Uncertainty by Matthew Guest

Functional leadership structures often force good leaders into roles for which they are unsuited. Each individual needs to be allowed to contribute to the best of their ability no matter which functional silo they sit inside.

Every business should carefully think about the information flow to the executive team. If you want them to use their knowledge and perspective to solve strategic challenges they must be given a high-quality data flow to work upon.

This data flow cannot be delivered via information-packed PowerPoint slide decks carefully curated by layers of subordinates and external consulting companies.

A good decision-making process is a competitive advantage.

The Point Of Maximum Uncertainty by Matthew Guest

The goal is to re-shape the executive team and the data architecture to change from policing the actions of the direct reports to enabling them to use their individual innovation and creativity to achieve the strategic goals of the business.

Rather than focusing on management training that seeks to systematise the practice of innovation, such as that embarked upon by Immelt’s GE, executive teams should instead perfect their own information architecture so that it provides clear guardrails for those who are able to be innovative to be so and sets an example in imagination and clarity that the majority will seek to mimic.

The Point Of Maximum Uncertainty by Matthew Guest

Conclusion

Overall I found this a fascinating book, which I would recommend to anyone working in a large organisation. The thought processes introduced provide an interesting lens through which to see the executive team.

I have seen so many of the issues and pitfalls which Matthew highlights and understanding them in this context can help us to start finding solutions within our organisations.

I hope you enjoyed this summary. If you did then please go out there and buy Matthew’s book to show support for a new author. Also please comment and more importantly share with others who might appreciate this content.