On 08 Oct at 8 PM, the Prime Minister of India, Mr Narendra Modi, in one of the most significant and dramatic policy changes in the history of independent India, announced to a shocked nation that high denomination notes of Rs 500 and 1000 would cease to be legal tender at the stroke of midnight.
For a majority of Indians, accustomed to the existence of the parallel economy for decades, it represented a bold and sweeping new landscape. It bought with it a glimmer of hope for a bright future, for this was the kind of change that India had expected after having elected Modi to power in May 2014.
For businesses, it is useful to follow developments as a case study in managing complexity using new sense-making frameworks such as the Cynefin.
Our first attempt at understanding the decisions and events following the announcement gave us this dynamic:
We attempted to explain the dynamics as under:
1-2: The long decent into chaos due to years of inaction and neglect by successive governments
2-3: The recovery through a series of modifying actions, post the policy announcement
2-4: Attempts by delinquent elements in the system which are attempting to disrupt the change though propaganda and incitement. Unfortunately, the media in India has been almost completely bought out and hence cannot be trusted to be objective or helpful.
There were a couple of problems with this assessment.
Firstly, did the decent into chaos happen gradually from the complex domain into the chaotic domain (which is a natural transition) or was there some sudden revelation (from the data available to the government) that needed immediate and drastic course correction?
Secondly, was the plunge into crisis the result of the announcement, or was the announcement the start of the recovery process? If the former, it is a controlled shallow dive into chaos for the purposes of driving innovation and behaviour changes among all stakeholders, including the general population. And if the latter, and besides some visibility of its negative effects - propagating terror, secessionism, naxalism, election fraud, endemic corruption, hawala & round tripping, fake currency (FICN) and such like - why wasn't the crisis more visible?
Does the "boiling frog" analogy hold here?
What does this have to do with boiling a frog? There is a fascinating 19th century science experiment. As the story goes, researchers found that when they put a frog in a pan of boiling water, the frog just quickly jumped out. On the other hand, when they put a frog in cold water and put the water to boil over time, the frog just boiled to death. The hypothesis is that the change in temperature is so gradual, the frog does not realize it’s boiling to death. While the results of the experiment are in question it is a good metaphor for organization cultures[5].
We know that the transition from complex to chaotic domains is a transition for controlled experimentation. And we also know that the transition from Simple to Chaotic is akin to falling off a cliff. This boundary, between Simple and Chaotic, is the Zone of Complacency. Organizations arrive here through neglect of changing circumstances, though believing in one's own myths.
So we revised our dynamic to arrive at this:
Here we moved the 1-2 dynamic to the right so that it first drifts from Complicated (where monetary policy formulation structures and systems design is anchored) to the Simple domain of "best practices" and onward to the Zone of Complacency, the boundary between Simple and Chaotic, until it topples over into a full-blown crisis.
The recovery dynamic was split into two.
The 2-3 dynamic is the recovery through a series of urgent policy modifying actionsto stabilize the situation and subsequently, once stable, the 3-4 dynamic brings the situation back to normal through a series of probing experiments that seeks to establish a coorelation between minor policy change actions and its consequential impact on the monetary system.
The 2-5 dynamic is of course, the actions of the delinquent elements within the system.
We have also linked 5 and 1 with an arrow to indicate the different designs of executive policy formulation processes and monetary policy formulation processes.
Now, there are two ways of arriving in the Chaotic domain - deliberately or accidentally.
It will also be great, if we can get to the real reason why the previous federal reserve (RBI) governor, Mr Raghuram Rajan was not given the extension to which he was clearly amenable. Maybe it will come out at some point in time, probably in an autobiographical narrative. For now, it is just one more dot in the pattern of government actions in the lead up to demonetization.
So we will have to revise the dynamic again, in view of the fact that, the policy was a bold and deliberate move by the government to "rock the boat" at a huge political risk. From all indications, the dynamic that most fits the bill is a deliberate and "deep dive into chaotic domain".
The reasons are obvious.
REFERENCES
For a majority of Indians, accustomed to the existence of the parallel economy for decades, it represented a bold and sweeping new landscape. It bought with it a glimmer of hope for a bright future, for this was the kind of change that India had expected after having elected Modi to power in May 2014.
For businesses, it is useful to follow developments as a case study in managing complexity using new sense-making frameworks such as the Cynefin.
Our first attempt at understanding the decisions and events following the announcement gave us this dynamic:
We attempted to explain the dynamics as under:
1-2: The long decent into chaos due to years of inaction and neglect by successive governments
2-3: The recovery through a series of modifying actions, post the policy announcement
2-4: Attempts by delinquent elements in the system which are attempting to disrupt the change though propaganda and incitement. Unfortunately, the media in India has been almost completely bought out and hence cannot be trusted to be objective or helpful.
There were a couple of problems with this assessment.
Firstly, did the decent into chaos happen gradually from the complex domain into the chaotic domain (which is a natural transition) or was there some sudden revelation (from the data available to the government) that needed immediate and drastic course correction?
Secondly, was the plunge into crisis the result of the announcement, or was the announcement the start of the recovery process? If the former, it is a controlled shallow dive into chaos for the purposes of driving innovation and behaviour changes among all stakeholders, including the general population. And if the latter, and besides some visibility of its negative effects - propagating terror, secessionism, naxalism, election fraud, endemic corruption, hawala & round tripping, fake currency (FICN) and such like - why wasn't the crisis more visible?
Does the "boiling frog" analogy hold here?
What does this have to do with boiling a frog? There is a fascinating 19th century science experiment. As the story goes, researchers found that when they put a frog in a pan of boiling water, the frog just quickly jumped out. On the other hand, when they put a frog in cold water and put the water to boil over time, the frog just boiled to death. The hypothesis is that the change in temperature is so gradual, the frog does not realize it’s boiling to death. While the results of the experiment are in question it is a good metaphor for organization cultures[5].
We know that the transition from complex to chaotic domains is a transition for controlled experimentation. And we also know that the transition from Simple to Chaotic is akin to falling off a cliff. This boundary, between Simple and Chaotic, is the Zone of Complacency. Organizations arrive here through neglect of changing circumstances, though believing in one's own myths.
So we revised our dynamic to arrive at this:
Here we moved the 1-2 dynamic to the right so that it first drifts from Complicated (where monetary policy formulation structures and systems design is anchored) to the Simple domain of "best practices" and onward to the Zone of Complacency, the boundary between Simple and Chaotic, until it topples over into a full-blown crisis.
The recovery dynamic was split into two.
The 2-3 dynamic is the recovery through a series of urgent policy modifying actionsto stabilize the situation and subsequently, once stable, the 3-4 dynamic brings the situation back to normal through a series of probing experiments that seeks to establish a coorelation between minor policy change actions and its consequential impact on the monetary system.
The 2-5 dynamic is of course, the actions of the delinquent elements within the system.
We have also linked 5 and 1 with an arrow to indicate the different designs of executive policy formulation processes and monetary policy formulation processes.
Now, there are two ways of arriving in the Chaotic domain - deliberately or accidentally.
- If we enter Chaos deliberately, its primary purpose is innovation and inducing behavior changes.
- If we enter it accidentally, then we need to act swiftly to stabilize the situation.
To further revise the picture, we need to know whether the crisis was induced deliberately or accidentally.
Past government policies leading up to the demonetization announcement clearly indicate that a fair amount of preparatory steps lead up to it - from announcing Digital India, the opening of Jan Dhan accounts for the marginalized in support of the Direct Benefits Transfer scheme that brought access to basic banking services to a majority of the population, the series of bilateral agreements with numerous countries on money laundering and anti round-tripping, and subsequently the Voluntary Income Disclosure scheme (VIDS 2016) that ended on 30 Sep 2016.
Surely, anyone able to connect to dots would have been able to foresee the next step in this sequence or at the very least, get some inkling of what was to come. That fact that the government managed to keep such a dramatic shift in policy confidential worked well. There was no other choice. There was no way, "better preparation" could have been afforded, if the outcomes were to be realized and the cost of change justified.
It will also be great, if we can get to the real reason why the previous federal reserve (RBI) governor, Mr Raghuram Rajan was not given the extension to which he was clearly amenable. Maybe it will come out at some point in time, probably in an autobiographical narrative. For now, it is just one more dot in the pattern of government actions in the lead up to demonetization.
So we will have to revise the dynamic again, in view of the fact that, the policy was a bold and deliberate move by the government to "rock the boat" at a huge political risk. From all indications, the dynamic that most fits the bill is a deliberate and "deep dive into chaotic domain".
The reasons are obvious.
- There is no way to bring about a dramatic change in behaviour in India that was unitedly in favour of both accountability and transparency in financial transactions, unless the level of use of physical currency in the country was reduced to a bare minimum, that too for small transactions.
- There was no way to bring about systemic changes in the monetary and its associated systems unless it was jolted into a crisis. For example, even large public sector banks such as the State Bank of India, had consistently refused to participate in the RBI/IBA collaborative ventures such as the National Payments Corporation of India (NPCI), whose charter, among other things, was to create a standardized interface for all retail payment systems in India.
- There was a crying need to choke hawala channels, round-tripping and other money laundering mechanisms.
- Curbing terrorism, naxalism, secessionist movements in the North East, the underworld, and political muscle, all being funded by the parallel economy had become a priority national security issue.
- Lobbying, election funding, government contracts, defence procurement et al. needed transparency and reform.
- Major step-by-step reforms were needed to prevent money laundering in the jewelry, gold and precious metals, real estate, metals & mining markets.
- Rampant funding of NGOs and religious bodies by foreign interests, use of monetary inducements for proselytizing, blocking of development activities through contrived environmental concerns, misuse of official and legal machinery though front organization, all needed to be stopped.
So, assuming that from all indications, the policy was introduced as a deliberate "deep dive into chaos", here is the revised graphic.
The 4-1 dynamic or return to normalcy - the new normal - will take some time. For the moment, the control is very much with the political executive until the end-objectives are achieved (4).
- The Cynefin Framework; Cognitive Edge; [YouTube;11 Jul 2010]
- Cynefin Framework; Cognitive Edge website; [Cognitive Edge ]
- A leaders framework for decision making; David Snowden & Mary Boone; Harvard Business Review; Nov 2007 Issue
- Understanding the Cynefin Framework - a basic intro; Julia Webster; Sep 29, 2013; Everyday Kanban website
- Leadership and the Boiling Frog Experiment; Henna Inam; Aug 28, 2013; Forbes
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