Designing for Propensity - Bloomberg http://www.bloomberg.com/news/print/2010-12-09/designing-for-propens...

By John Hagel III and John Seely Brown - Dec 9, 2010

Compare a standard company org chart with a network analysis of the day-to-day relationships and
interactions in the same company. The contrast is striking. On the one hand, clearly delineated boxes with
a few set relationships driven by formal authority; on the other, a bewildering array of rapidly evolving
connections. The two representations are so different that one might question whether they in fact are
focused on the same organization. Such is the chasm separating two mindsets.

Mindset matters, and we each need to make explicit, and challenge, our most basic assumptions about
what is required for personal and business success. Business today requires a mindset that is
fundamentally different from the dominant existing mindset, and we have, so far, considered two specific
dimensions: short-term versus long-term and fixed versus growth. A third dimension is control versus
propensity.

This aspect of mindset addresses how to get results and reduce risk.

In a control mindset, the assumption is that we need to own resources and tightly direct them in order to
achieve objectives with the minimum amount of risk.
A propensity mindset focuses on the intrinsic development paths that characterize all resources and the
dynamic relationships across resources that are continually shaping those paths. From this perspective, the
best way to reduce risk is to understand these paths and find ways to leverage them.

The concept of propensity is richly developed by Francois Jullien, a French sinologist, in his book, The
Propensity of Things. Jullien explores the Chinese concept of shi, a term whose multiple, related,
meanings often confound Westerners but is central to the way Chinese view the world. Although it may be
described as position or potential, Jullien translates shi as "propensity" — "a tendency that stems from a
situation" and "which, once set off, cannot be arrested." In this understanding of shi, the only
countervailing force is a natural tendency towards balance; when a propensity plays out to an extreme, it
tends to self-correct and reverse course. Thus, we are still contained within some range.

Shi initially emerged in the realm of strategy and politics but evolved to have a much broader philosophical
meaning. In the widely quoted The Art of War, the legendary warrior, Sun Tzu, draws heavily on the
concept of propensity: a battle may be won even before the fighting begins if you understand and act upon
the propensities of the opponent and the battlefield. By understanding and leveraging these forces, you

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Designing for Propensity - Bloomberg http://www.bloomberg.com/news/print/2010-12-09/designing-for-propens...

can avoid direct confrontation and achieve your objectives with minimum effort.

This idea of propensity reinforces the differences between Eastern and Western views of the world so
powerfully described in Richard Nesbitt's The Geography of Thought
.
In thinking about mindset, propensity has two key components:

A dynamic verses static view of the world: everything is in a state of becoming.

A focus on relationships versus objects: the process of becoming is shaped by context and relationships
to others.

This mindset focuses our attention on the dynamics that continually shape the tendencies and potential of
the people and resources around us. One cannot understand their propensity by examining them in
isolation. Everything exists not just in bilateral relationships, but in complex webs of relationships among
people, objects and the broader environment.

Propensity is not abstract; it is shaped by a specific context. For example, years ago Stewart Brand wrote a
marvelous book called How Buildings Learn. His point was that buildings are constantly evolving in
response to the needs of owners and inhabitants, not to mention weather patterns. The same structure
may evolve along very different paths depending on the specific location, owners and inhabitants.

This is in contrast to a Western view that tends to abstractly group isolated objects into different
categories without regard for how the objects relate to one another. Consider again the example of the
ubiquitous org chart. The org chart is an exercise in control, attempting to pin down objects (individuals,
positions) in a fixed hierarchy that completely misses not only the frequent changes in personnel but the
more informative informal relationships and flows of information within and without the company. If you
think about the shift from stocks to flows we have already discussed, shi is well-suited to the Big Shift,
where evolving networks of relationships will increasingly drive value-creation and capture. The propensity
mindset also builds upon the two other mindset shifts, simultaneously operating in short- and long-term
horizons (propensities take a long time to play out but can be leveraged more immediately) and supporting
the idea of growth — nothing is fixed, it is always in a process of becoming.

Do more with less while shaping circumstances. By understanding the deeper, long-term forces
that influence the propensity of business resources, we are able to do more with less. We can, not just
respond to, but thrive with, change. Going with the flow — rather than against the flow — enables small
moves, smartly made, to set big things in motion. As we have discussed before, capability leverage is very
powerful. Owning and controlling resources becomes less essential if one understands — and takes
advantage of — their propensity. In fact, those who master capability leverage can have an important
economic advantage — in the form of lower up-front investment, shorter lead-times and more flexibility —
over players who focus on acquiring direct ownership of resources.

Jullien also highlights how Chinese military strategists emphasized the "shaping of effects"; by building

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Designing for Propensity - Bloomberg http://www.bloomberg.com/news/print/2010-12-09/designing-for-propens...

upon forces that are already playing out, we can influence the development of future relationships to our
benefit. In the aftermath of World War II, Malcolm McLean, a North Carolina truck driver, used a novel
approach — standardized containers — to re-shape the global shipping industry and build an
extraordinarily successful shipping company. The natural propensity of a global economy, recovering from
a brutal war, drove rapid growth in global trade. McLean understood that, with entire ports and
transportation infrastructures being rebuilt, the participants were more willing to undertake massive
redesign of the infrastructures (to handle a new form of container) than they might have been in a lower
growth environment. McLean leveraged the propensities of these infrastructures as the prospect of rapid
growth created powerful incentives to adopt a fundamentally different shipping technique, despite
significant upfront investment requirements. As we have discussed previously, the opportunities with
shaping strategies are not zero-sum-- exploiting propensity can lead to success for large numbers of
participants.

Reducing the risks of failure. Paradoxically, by seeking to avoid failure through tightly controlled
resources, we actually increase our risk of failure. "Control" breeds complacency; we are lulled into
believing that we can dictate outcomes. Sometimes we can. But if we do not understand and build upon the
propensity of the resources we need, we may be painfully surprised. Large shipping companies that did not
adopt containerized shipping because they owned their own large shipping infrastructures quickly became
marginalized in the 1960s and 1970s. In rapidly changing environments, mobilizing resources without
understanding the deep forces that are shaping their natural propensity will have a higher risk of failing. In
this context, the traditional control mindset that focuses only on ownership and tight direction actually
tends to increase risk, rather than reduce it.

Pull and propensity are fundamentally aligned. Adopting and making use of propensity requires
a holistic view of the landscape and a deeper understanding of the ongoing forces that move it. The
inward-looking silos characteristic of control-based organizations block understanding of propensity.

On the other hand, pull-based approaches focus on deploying scalable pull platforms which rapidly evolve
according to the tendencies shaping the participants. The third and highest level of pull - achieving
potential - can only be harnessed fully if we understand propensity. Pull, in general, works most powerfully
when resistance is reduced.
Propensity, as embodied in the Chinese notion of shi, is obviously a complex and nuanced concept that
goes beyond superficial applications to the business world. Interestingly, however, the concept continued
to reappear and find application in a wide variety of disciplines over the centuries. How do you see the
idea of propensity play out around you?

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affiliate of Harvard Business School.
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