Devising adaptive leadership strategies for volatile, uncertain scenarios

People define “crisis” by different degrees and those affected by it. One person’s “amygdala hijack” (a panicked response) could be another person’s adrenaline rush (exhilaration). An unannounced, surprise crisis is known as a “black swan.” Such rare events catch everyone off guard, have serious major consequences and reveal many experts who claim twenty-twenty hindsight.

Conversely, “white rhino” events are visible, highly probable and have high impacts — yet are neglected or ignored. They too lead to crisis and chaos even as people willfully turn a blind eye to avoid unpleasantries, reduce anxiety or save face.

However, when crises or catastrophes strike, quick and effective responses hinge on the experience and skills of seasoned leaders who’ve considered such questions as:

• How do I address a potential or impending crisis?
• What constitutes “distant early warnings” for my specialty?
• What red-flag indicators have I identified that might give me a heads-up to rumblings over the horizon?
• How can I get my team to participate in situational-awareness training?
• How can my team and I work with scenario modeling or simulations to better prepare for the unexpected?

Your responses may suggest how well prepared you are to adapt to a crisis and might offer possible courses of action to deter or minimize chaos. In fact, a major tenet of chaos theory is sensitivity to initial conditions that can lead to unpredictable outcomes over time. (See “Chaos theory explained: A deep dive into an unpredictable universe,” by Paul Sutter, Space.com, March 18, 2022.) Here are some examples of initial, or “pre-event,” conditions that could lead to crises and disasters:

• Rain showers in higher elevations create flash floods that wreak havoc on downstream communities.
• One neglected burning campfire ember or one lightning strike generates catastrophic wildfires that destroy lives and forest communities.
• One person with opportunity, motivation and rationalization to defraud a small group of investors creates a global financial crisis.
• One individual infected with a new virus (patient zero) comes into contact with others, which ultimately leads to a global pandemic.

Such pre-event conditions are called the well-known “butterfly effect” in chaos theory.

Butterfly effect

The butterfly effect states that small, unnoticed, ignored or seemingly insignificant events can change the world. Most of us know the trope about the butterfly flapping its wings in the Amazon jungle, causing a massive European storm. This sounds fanciful, but there’s truth to the potential power of small or trivial elements in early pre-event conditions. (See “The Quantum Butterfly Effect,” by Craig Tyler, Los Alamos National Laboratory, Aug. 1, 2021.)

Ben Franklin’s “Poor Richard’s Almanack” reprinted a version of the centuries-old aphorism, “For Want of a Nail,” which conveys this reality of the potential power of seemingly insignificant pre-event conditions:

For want of a nail, the shoe was lost.

For want of shoe, the horse was lost.

For want of a horse, the rider was lost.

For want of a rider, the message was lost.

For want of a message, the battle was lost.

For want of a battle, the kingdom was lost.

All for the want of a horseshoe nail.

This ancient proverb and its many variations throughout history serve as a reminder that even minor inaction toward, willful blindness to, or negligence of initial conditions can lead to serious and unexpected outcomes over time. (See “Poor Richard’s Almanack, 1758,” American Battlefield Trust.)

Do we see the butterfly effect in fighting fraud? No doubt, the U.S. Securities and Exchange Commission would like a do-over with its response to the early warnings from Harry Markopolos, CFE, about Bernie Madoff’s unfolding shenanigans. The same could be said for Tyco, Enron, WorldCom, Lehman Brothers, AIG and so many others. Sometimes it’s whistleblowers who detect insignificant under-the-radar events early on that can later trigger negative and costly national or global consequences. (See “SEC Watchdog Monitors Agency’s Progress after Madoff Case,” by Dick Carozza, CFE, Fraud Magazine, May/June 2010.)

All chaotic, complex systems have some degree of underlying patterns, interconnections, repetitions and self-organization (i.e., a system creates its structure and order) — the majority of which escape our awareness. But leaders at all levels should consider those who can detect such potential harbingers of impending disaster. Leaders should be aware of even small shifts in organizations’ environments, anticipate ripple effects and adapt accordingly before such signals manifest into untamed legal, financial, unethical beasts.

Volatility demands adaptive leadership

Adaptive leadership is how seasoned, veteran decision-makers contend with constantly changing scenarios under serious constraints (mostly time but also resources, budgets, risks, etc.). For example, Wall Street might’ve collapsed in November 1963 if not for many financial and institutional experts meeting behind the scenes to repair the damage from the “Salad Oil Scandal.” (See “On the brink of collapse: How the Kennedy assassination interrupted a Wall Street meltdown,” by Donn LeVie Jr., CFE, Fraud Magazine, July/August 2023.)

Depending on conditions and constraints, the traditional approach to decision-making may take too long to affect a solution. In a crisis, adaptive leaders must consider a generalized model such as situational adaptation, which they’d base on their personal experiences, rapid pattern recognition abilities and situational awareness skills to address actions as circumstances dictate.

In other words, adaptive leadership is a series of experience-based responses that quickly assess and address unfolding scenarios; there’s simply no time for a typical decision cycle (multiple options, team discussions, need for approvals from executives and so on).

How do you train people to become adaptive leaders? You give current and future leaders greater decision-making responsibility over time to recognize patterns and place them in a variety of actual uncertain or complex scenarios and experiences they can draw upon later.

Let’s look at two adaptive leadership strategies used in time-critical and volatile scenarios.

OODA loop

The Observe-Orient-Decide-Act (OODA) loop strategy minimizes irrelevant information (noise) that distracts a leader’s focus and attention. (See Figure 1 below.) The loop works like this: Observe – Orient – (get feedback) - Decide – (get feedback) – Act – (get feedback) – Repeat.

Figure 1: Simplified OODA loop (see “OODA loop,” by Cameron Hashemi-Pour, Site Editor, and Sarah Lewis, TechTarget).

The U.S. military has used the OODA loop for many years for time-sensitive responses in the heat of battle. The intent is to quickly execute a tactical action that disrupts the enemy’s ability to respond, though they’re likely doing the same thing. (See “Four strategies for increasing organizational agility,” by Donn LeVie Jr., CFE, Fraud Magazine, May/June 2023.)

The OODA loop reflects a model of ongoing situational adaptation that many organizations use against competing interests. It’s a series of on-the-fly reactions that quickly address unfolding scenarios as they occur.

Recognition Primed Decision (RPD) model

The Recognition Primed Decision (RPD) model works best for highly experienced leaders in unfolding chaotic scenarios. Researcher Gary Klein first developed the model after many years observing first responders (fire and police incident commanders, military leaders) under extremely chaotic environments. (See “Sources of Power: How People Make Decisions,” MIT Press, originally published 1999.) The RPD model captures how skilled leaders possess an “instant cognition” of situations followed by appropriate responses.

Rather than scroll through many scenarios and assess their odds for success (which would be too time-consuming for chaotic situations), they select the best available option that’s efficient and — well, just works. (See Figure 2 below.) This approach is called “satisficing.” In an ambiguous or time-constrained event, an optimized solution isn’t an option. (See “Satisficing,” The Decision Lab.)

Figure 2: RPD model for simple scenario (see “The Recognition Primed Decision Model,” Decision Skills).

The scenario in Figure 2 has the adaptive leader assess the situation in a dynamic context and then reason it as being “typical” for the context in which it appears. The leader then evaluates expectancies, relevant cues and plausible goals, and selects a typical action for the scenario. The leader then implements a course of action.

Figure 3 (below) illustrates a situation in which the adaptive leader has several available courses of action. In such scenarios, mental simulations of each option arise after running through the expectancies, relevant cues and plausible goals before the leader selects an action to pursue. Once the leader selects that action, they evaluate whether it will work with or without any adjustment, and then they implement it. If none of the options appear viable, then the adaptable leader must reassess the dynamic situation.

Figure 3: RPD model showing several possible courses of action. (See “Sources of Power: How People Make Decisions,” by Gary A. Klein, Reprint Edition, The MIT Press, 1998.)

The OODA loop and the RPD model exist together with some overlap. While they both serve similar situations, they do so from different perspectives for different purposes. Use the RPD model for applying your experience, expertise and knowledge in uncertain situations, shifting objectives and time constraints. Use the OODA loop for constantly shifting scenarios requiring on-the-fly adaptation.

Because of how the RPD model relies on rapid cognition and pattern-matching abilities, it also makes use of some gut instinct, which, as we know, can be dubious. To be sure, neither the OODA loop nor the RPD model are foolproof, error-free strategies; but the luxury of having optimized solutions isn’t always practical in time-critical or other highly constrained situations.

How to think of adaptive leadership

Understanding key elements of chaos theory — especially the potential power and danger hidden within the butterfly effect — illustrates the importance of situational adaptation, pattern recognition and instant cognition as crisis situations evolve rapidly.

Adaptive leadership is a strategy driven by the experienced expert leader. Becoming an adaptive leader happens by immersion in increasingly uncertain, complex, and ambiguous circumstances and scenarios. You can learn only so much about adaptive leadership in a workshop or a book because it’s all about implementing acquired knowledge and expertise through challenging experiences over the years.

As an anti-fraud professional, you’ll likely never face a situation with the same intensity as a fighter pilot or a destroyer commander trying to protect a fleet of merchant ships from enemy submarines. Think of adaptive leadership the same way you’d approach CPR training; you may never need it, but when crisis, catastrophe or chaos strikes, you’ll be better prepared to meet the maelstrom head on with clarity, presence and resilience.

Donn LeVie Jr., CFE, a staff writer for Fraud Magazine, has been a presenter and leadership strategist at ACFE Global Fraud Conferences and chapter conferences for more than a decade. After a 33-year career leading people and programs for Fortune 100 companies and 10 years as a speaker, author, consultant and leadership strategist, he’s trying really hard to retire in the Blue Ridge Mountains of South Carolina. Contact him at DonnLeVieJr@gmail.com.