In order to improve the economic performance of an industry or a territory, it is important to recognize the current Status Quo of the economy. This is basically to understand “what is?”, but to also understand “what is possible next?”. You may think that local stakeholders, firms and public officials will know the answer to “what is going on now?”, but every time I have done such an assessment I have discovered new suppliers, new innovations, new demands and many new connections between different actors.
The benefit of being a facilitator, process consultant or development expert, is that we can move between different actors, observe certain trends, recognize gaps and form an overall picture of what we think is going on. It is very difficult for enterprises to form such a picture as they can only observe other firms from a distance.
The main challenge is about figuring out what can be done to improve certain gaps or to change the patterns that we observe. These are answers to “What is possible next?” questions . As Mesopartner, we always insist that any process to diagnose an industry or a region starts with the formulation of various hypothesis. This hypothesis formulation before we commence is not only about revealing our bias, nor only about figuring out what exactly we want to find out. It also helps us to figure out what kind of process is needed, the scope of the analysis and what different actors expect from the process.
Unlike in academic or scientific research, hypothesis formulation does not only happen in the early stages of a diagnostic or improvement process, it should be constantly reflected upon and expanded as we go on during the process of meeting stakeholders and analyzing data. This is where the importance of recognizing competing hypothesis within our team and between different stakeholders are important.This process is not about convergence, but about revealing what different actors and the investigator believes is going on.
Economic development practice is full of competing hypothesis that all seem to be very plausible. In a recent training event with Dave Snowden the consequences of not recognizing or revealing these competing hypothesis struck me. According to Dave, competing hypothesis that plausibly explains the same phenomena indicates that we are most likely dealing with a complex issue. For instance, in South Africa we have competing hypothesis about the role of small firms in the economy. One hypothesis is that small firms are engines of growth and innovation, therefore they deserve support. A competing hypothesis is that large firms invest more in innovation and growth, and that they are better drivers of economic growth. Both hypotheses are plausible – the issue is complex. Recognizing this complexity is very important, as the cause and effect relations are not easy to identify and they might even be changing – the situation is non-linear. (Marcus Jenal and I wrote a working paper on complexity in development). This simply means that to get a specific outcome, the path will most likely be indirect or oblique – cause and effect is not linear.
Why is it important to recognize competing hypothesis, or to know when some patterns in the economy or complex? The answer is that it is almost impossible to analyze a complex issue with normal diagnostic instruments. Complex patterns can only be understood by engagement, that is, through experimentation. Again, according to Dave Snowden, you have to probe a complex issue by trying several different possible fixes simultaneously, then observe (sense) what seems to work best under the current circumstances. The bottom line is that you analyze a complex issue by experimenting with it, not by observing or analyzing it.
The implication of this insight in my own work has been huge. By recognizing that many issues that I am dealing with are complex (due to competing hypothesis that are very plausible) and can only be addressed through direct engagement has saved me and my customers a lot of resources that was previously spent on seemingly circular analysis. I now use the hypothesis formation with my clients to try and see if we have competing hypothesis of “what is” and “what must be done”. Where the hypothesis seems to be straight forward, we can define a research process to reveal what is going on and what can be done to improve the situation. But when we have different competing hypothesis of what is going on, we have to immediately devise several simultaneous experiments to try and find an upgrading path. I thought my customers would not like the idea of experiments, but I was wrong.
The conditions are that you must take steps to ensure that there are many different experiments that are all very small, and that by design take different approaches to try and solve the same problem. This takes learning by doing to a new level – because now failure is as important as success as it helps us to find the paths to better performance by reducing alternatives and finding the factors in the context that makes progress possible. The biggest surprise for me is that this process of purposeful small experiments to see what is possible under current conditions (context) has unlocked my own and my customers creativity.
Perhaps a topic for a separate blog is that to really uncover these competing hypothesis we have to make sure that we do not converge too soon about what we think is going on. Maintaining divergence and variety is key – this is another challenge for me as a facilitator that is used to helping minds meet!