In 'Effects-Based Thinking - Part I', the definition of effects-based thinking, or EBT, was established as an approach to strategic planning which contributes to long-lasting organizational impacts. Expanding on this concept, let's look at what the differences between strategic planning with EBT and simply tracking progress with metrics are.
Many organizations utilize scoreboards or dashboards to track progress toward goals. Such methods have values that can be measured in a continuous manner to track performance. But such tools are just that - measures of performance toward discreet objectives, but not necessarily a component of effects-based thinking. These objectives do not always have a clear connection to the organization's overarching goals or vision that one gets with EBT. For example, making a certain amount of revenue or delivering a particular earnings per share by the end of the year are great measurements. How are we going to know whether the actions we are taking today and tomorrow are having the right effects upon those measurements? How can we utilize effects-based thinking to know that we aren't just getting lucky? Furthermore, how do we even know that those measurements are the right measurements? And how do we know that the sum of the individual actions taken to affect these measurements, which often form the basis of incentive systems, are not interfering with each other or ultimately damaging the organization? This is where effects-based thinking or EBT comes into play.
Every organization is a complex system that is typically composed of smaller complex systems that are interdependent. Interdependencies between complex systems are unpredictable and can create unintended effects or consequences. So, the lesson to learn is that scoreboards and dashboards alone are not necessarily good indicators of progress toward achieving organizational goals.
So, how do we manage organizations in uncertainty? We do it by first developing an understanding of effects-based thinking (EBT) throughout an organization. Do the people at the lowest levels of the organization have an understanding of the organization's overarching goals in order to make the right decisions? Do they have the freedom to exercise judgment? Do they have access to the information they need to make those judgments? What about the middle managers - do they have the necessary understanding of goals and freedom of action to use effects-based thinking in the organization's best interest? Furthermore, whether they make the right or the wrong decision, are they learning from it and transferring that learning horizontally and vertically throughout your organization with EBT? Lastly, are the organization's senior leaders learning from what the junior leaders are learning in order to adjust the organization's course and strategic direction? To do all these things and remain agile in order to adapt to the precarious changes in complex environments requires effects-based thinking.
Everything exists within a system and every component of the system has the ability to affect everything else, as these components are interdependent. Central to EBT is this notion that effects transmit through systems in three orders: kinetic, second order, and third order.
Impacts and Kinetic Effects in EBT
Think about actions in EBT as "impacts." Impacts are the actions taken or an event that has occurred that causes the rippling effects that cascade throughout the larger system. These impacts are "kinetic" effects. Kinetic effects in effects-based thinking are measureable and immediate. Typically, then, kinetic effects are localized. The effect remains within or close to the originating system or transmits merely to the neighboring systems. Kinetic effects have a tendency to be a small step toward some larger objective.
Second Order Effects in EBT
Second order effects connect the very actionable, controllable, and immediately measurable kinetic effects to the long-term organizational goals that affect the much larger market or global system. Within effects-based thinking, second order effects are those that have a significant impact on the primary systems that comprise the overall system. That is, they correspond to an organization's individual strategic objectives. Because second order effects have a much longer range than kinetic effects in EBT, they typically only manifest themselves over a period of months or even years, and present a challenge to measurement.
At the level of second order effects, complexity sets in and it isn't always clear what might be affecting the success or failure of strategic objectives. Measurements may or may not be relevant to those objectives so paramount in effects-based thinking. So, the effects that we want at the second order of EBT must first be described as desired effects in a simple, clear manner before we attach measurements to them. We must also always hold the desired effect as primary over the measurements and continually ask ourselves whether the measurements are indeed a reflection of progress toward the desired effect. If we can't make that connection, then what is the compelling reason to keep doing what we are doing? Are our actions in effects-based thinking achieving our desired effect?
So, EBT's second order effects are the culmination of a few or many kinetic effects. They most likely align with an organization's strategic goals. Therefore, scoreboards and dashboards of a few carefully selected metrics can be excellent tools for assessing success. But there is another, higher order of effects that can't be ignored - third order effects.
Third Order Effects in EBT
In EBT, third order effects describe an organization's future picture. A future picture is similar to the popular notion of a company's vision. But specific to effects-based thinking, a future picture is a high-resolution description of some future state of the organization. It is the set of long-range goals that the strategy seeks to attain. When we speak of 'ripple effects' we are often thinking in terms of third order effects. The set of effects, expected and unexpected, that ultimately arise as a function of activity over a long period of time - on the order of several years - is the domain of third order effects. The future picture is the set of effects we want to bring into existence with EBT. Other third order effects, whether created by entities outside the organization or by the unforeseeable consequences of actions taken within the organization, are what we must guard against.
These three levels of effects in effects-based thinking - kinetic, second order, and third order - provide a structure for thinking in terms of planning, executing, and assessing an organization's activity within complex environments. Effects-based thinking helps guide organizations through such complexity and adapt to its constant changes and challenges with greater caution. But, perhaps even more importantly, EBT provides everyone in that organization with a simple structure to guide and align their actions towards long-range success.
When we bear in mind our ultimate goals when planning and executing toward immediate or short-range results, we utilize effects-based thinking to align our actions more effectively toward those ultimate goals. With EBT, we're also able to better construct, align, and adapt our measurements to ensure we aren't measuring the wrong things or, worse, driving the wrong behaviors.
James D. Murphy
CEO of Afterburner, Inc.