Introduction: Why “Best Practices” Are Holding You Back
I’m British but I’ve lived in Moscow for a long time. This has acquainted me with uncertainty. Modern Russia was born from the collapse of the Soviet Union, plunged into chaos following ‘economic shock therapy’ in the 1990s, and experienced a sovereign debt default and banking crisis in 1998. The deep recession following the 2008 global financial crisis brought more uncertainty, as did geopolitical tensions since. That Russian uncertainty avoidance is now among the highest in the world is no surprise (see fig.1).
Fig.1: Russian Uncertainty Avoidance (Hofstede1 Cultural Dimensions)
Cultures with high uncertainty avoidance crave plans and predictions about the future. These provide the comforting belief that someone, somewhere, is in control. Yet, in a volatile world, certainty is an illusion; beyond anyone’s gift to provide. As the new “Roaring Twenties” (or maybe “Screaming Twenties”) unfolds in ever-more unpredictable ways, many businesses are struggling to adapt. Their plans failed to foresee this future or prepare them for it. Many hope for a swift return to normality. But hope is not a good strategy.
Business people have often told me that the old ways of working are not working and they’re looking for something different. That’s why I started writing this book: to explore an alternative way of thinking and acting, one that is new but rooted in timeless principles. Let’s focus first on Russian businesses.
The Case of Russia Private business in Russia became legal in 1988. It’s a young market economy that has experienced growing pains. Its first decade was wild as a new class of entrepreneurs took risks and unlocked oversized rewards.
Its second decade was more stable as rewards accrued to those who did things better, not just first. During this period a different type of business leader emerged: primarily graduates of Russia’s strong STEM (Science, Technology, Engineering, Mathematics) system. Trained to seek ‘right answers’ they gazed westwards to where the leading businesses were. Copying ‘western best practices’ became standard operating procedure.
Learning from others is wise, but blindly imitating 'best practices' meant that many Russian businesses failed to create a unique competitive advantage. Few seemed to believe that they could compete with western firms and accepted being 'second rate' as long as they were better than local Russian rivals.
Competition consisted of finding the latest western thing and a 'guru' to guide its implementation. Despite possessing one of the best-educated populations in the world2 Russians were not thinking for themselves — an absurdity captured in a joke by business consultant, Ichak Adizes:
A man, seeking a brain transplant, visits a renowned brain surgeon.
The surgeon tells him he can have the brain of an Ivy League professor for $5,000.
The man thinks for a moment and asks, "What else do you have?"
"The brain of a Nobel Prize-winning physicist. This one costs $10,000" replied the surgeon.
The man thinks for a moment before asking, "What's the most expensive brain you have?"
The surgeon pauses briefly. Then picks up a brain. "I have this one. Mikhail, ordinary Russian man. But this costs $50,000."
Puzzled, the man, asks, "Why is it so expensive?"
"Ah!" replies the surgeon, "never been used!”.
To their credit, Russians laugh when I retell this joke. But there's a serious warning here: what worked yesterday, somewhere else, for someone else will not work for you today. The Greek philosopher Heraclitus explained, “no man ever steps in the same river twice, for it's not the same river and he's not the same man." We can’t rely on paths others have taken before us because of three inescapable problems:
Form over substance
Sensitivity to initial conditions
Playing not to lose.
1. Form Over Substance The global financial crash of 2008 hit Russia’s economy harder than most due to its lopsided dependence on natural resource exports. Then-President, Dmitry Medvedev, declared Russia’s response would be to modernise3 and become an innovation-led economy. He too looked westwards for answers, his gaze falling on Silicon Valley — the most innovative hub in the world’s most innovative nation. Soon, Russia was pouring massive investment into the ‘Skolkovo’ project in Moscow — an attempt to build its very own Silicon Valley. Over a decade later results remain underwhelming4.
Fig.2: Then-Russian President Dmitry Medvedev and Steve Jobs (2010)
Copying form (what something looks like today) rather than understanding substance (the principles it’s built on and countless decisions made over time) is a trap many who seek simple answers to complex problems fall into. Richard Feynman called this cargo cultism, which he illustrated with the story of the South Pacific islanders who witnessed foreign armies using their islands as supply depots during World War II:
During the war they saw airplanes land with lots of good materials, and they want the same thing to happen now. So they’ve arranged to make things like runways, to put fires along the sides of the runways, to make a wooden hut for a man to sit in, with two wooden pieces on his head like headphones and bars of bamboo sticking out like antennas—he’s the controller—and they wait for the airplanes to land. They’re doing everything right. The form is perfect. It looks exactly the way it looked before. But it doesn’t work. No airplanes land. So I call these things Cargo Cult Science, because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential, because the planes don’t land5.
The underwhelming results of the Skolkovo project demonstrate that cargo cultism — copying form without understanding substance — is not limited to South Pacific Islanders. Success can't be re-created by following someone else's path. It requires finding what works for you, in your conditions, today.
2. Sensitivity to Initial Conditions However, even if we understand the substance of a system, copying it doesn’t guarantee success. In 1960, meteorologist Edward Lorenz was running weather simulations that kept producing dramatically different results, despite using what he thought were identical inputs. Eventually he found the cause: a single data input had been rounded down from 0.506127 to 0.506. This tiny variation in inputs was enough to cause a massive variation in outputs. Lorenz called this sensitivity to initial conditions.
Lorenz’s insight challenged the popular belief that, with enough data, the future of any system could be predicted. Feedback loops — where the outputs of a system are fed back in as inputs — amplify even the tiniest differences, causing the system to evolve in unpredictable ways. And complex systems contain countless parts that interact in non-linear ways — small changes catalysing disproportionately large effects: melting polar ice driving planetary temperatures higher; a tiny virus shutting down the global economy; and a new technology reshaping multiple industries at the same time.
Whenever we try to copy a complex system, countless tiny differences in the starting conditions — different people, different contexts, different moments in time — will, like the rounding error in Lorenz's simulations, cause wildly different outcomes. This is why copying 'best practices' never produces the same results twice.
3. Playing Not to Lose Even if you could overcome the problems of form over substance and sensitivity to initial conditions a third problem remains: while you’re coping what market leaders did yesterday, they're pulling further ahead tomorrow. Allowing market leaders to stay ahead in exchange for avoiding uncertainty is a compromise many businesses 'playing not to lose' find acceptable. But this only works if your peers are making the same trade-off. If new rivals enter and they’re ‘playing to win’ you’ll soon be fighting for survival.
As Europe’s largest single economy Russia attracts globally competitive businesses that are eager to capture talent, customers and profits. Today, Chinese giants like Huawei, Haier and BYD — who are out-competing western firms in global markets that Russian businesses failed to challenge in their own — are the new rivals Russian businesses face. To survive they’ll need to stop copying others and chart their own paths forward:
If your competitor’s boat gets ahead of you at the starting line, the instinct is to chase it. To tack where it tacks. But if you do, you will always be behind, because you will be sailing on the same path, subject to the same wind. And in fact, for much of the time, you will be sailing in their ‘dirty air’ — they get the full wind in their sails, which breaks up the effect of the wind on your sails. Your only hope is for the leader to make a terrible blunder. Otherwise, you will race for hours and hours, tacking dutifully behind the leader and cross the finish line behind them. If you want to end up in some place other than last, you need to tack away and plot a different course that will get you to the finish line ahead6.
Chinese firms arriving in Russia's market are both a threat and an opportunity. If Russian businesses can learn to compete against the ultra-competitive Chinese firms in their own markets, they’ll be able to compete against anyone, anywhere. But those who don't adapt will be swallowed by rivals now ‘playing to win’.
What Is To Be Done? In the 1990s, Chinese businesses faced many of the same challenges Russian businesses did: an impoverished economy, historical suspicion of private enterprise and inferior technology compared to western competitors. Yet Chinese businesses transformed themselves into global powerhouses in an incredibly short time. How did they do this?
The first thing to note is what they didn’t do. While actively learning from the West (often with sharp practices westerners complained about7) they didn’t blindly copy ‘western best practices’. They didn’t have to. The East has a long, rich tradition of strategic thinking that helps one navigate uncertainty effectively. It’s this strategic thinking that guided the rapid development of Japanese businesses in the chaotic aftermath of World War II last century and the meteoric rise of Chinese businesses this century.
This book will not argue that Russian businesses should start copying ‘eastern best practices’ — due to the insurmountable problems of form over substance, sensitivity to initial conditions and playing not to lose. Instead, it will suggest that Russians can learn from the East in ways westerners either cannot, or choose not to. Eastern strategic thinking is so different from western strategic thinking that some commentators have argued westerners struggle to grasp it8. And this presents Russian businesses with an opportunity.
Russia’s national symbol is the double-headed eagle — a reminder that the country has always looked both East and West. This duality means Russians are better placed to absorb the lessons from eastern strategic thinking that elude westerners and use theses insights to outcompete rivals. Now is the time to start doing this.
3 Modernisation is a theme in Russian, Soviet and post-Soviet history, reoccurring every 30-60 years. From Peter the Great, who founded his new capital — St. Petersburg — in 1703 in an attempt to modernise Russia and catch up with other European nations. To Catherine the Great’s modernisation of the political and legal codes to improve state efficiency, economic growth and maintain stability as the empire grew. Followed by Alexander I’s modernisation of the military in response to the new age of war ushered in by Napoleon. The emancipation of the serfs in 1861, Stolypin’s reforms starting in 1906, Stalin’s Industrialisation of the 1930s and even Gorbachev’s Perestroika of 1985 all continue this long- reoccurring attempts at modernising this vast land.
4 In 2008 the Global Innovation Index ranked Russia 68th in its list of global innovators. By 2021 it ranked Russia 45th, behind other ‘upper middle-income economies’ like Bulgaria, Malaysia, Turkey and Thailand. While such reports should be used critically (as methodologies change) these results they suggest Russia’s innovativeness is little changed, despite the huge investments into projects like Skolkovo.