Insurance Industry:: Innovation, transformation or failure

If you have visited my blog before you will already know that I have spent some considerable time researching and commenting upon a wide of topics that, although many within insurance fail to see the connection, are related directly related to the insurance industry.

In truth, my work was initially prompted by concerns (a deep dissatisfaction may be more appropriate!) about how the insurance (particularly broking) operated: structure; culture; regulation; remuneration levels; use of IT; cover; pricing of RISK. It was only as I delved deeper into the subject matter, a form of ‘root cause analysis’ [RCA] – causality being particularly pertinent to insurance! – that I came to fully appreciate HOW DANGEROUSLY LIMITED the understanding and application of a probability-based assessment of risk truly was. Especially when the business environment has, fundamentally and irrevocably, changed.

Having been introduced to Complexity (by Dr Jacek Marczyk, Founder of Ontonix srl) and it’s relationship to risk and uncertainty my RCA led me to investigate from a (more rigorous) scientific and mathematical perspective. Eventually into the realm of the behaviour of Complex Systems and, inevitably, to Systems Thinking. Gradually, the understanding, that comes from viewing life and work through the Systems lens, revealed that of much of what is wrong with Financial Services stems from unnatural interventions.

The FACTS that lie beyond conventional risk horizon (in graphics)

You must not become complacent with a pattern that works today because new patterns will be needed in the very near future

Digital Business in 2013:: it’s how things ARE on the inside that matters

Trust me, because I speak from personal experience, it is a hard (frustrating, lonely and costly) path you tread when advocating fundamental change for an industry such as insurance!

Social Business is the real deal, NOT a flash-in-the-pan.

Of course there any number of firms ready and willing to tell the insurance industry about the merits of their particular social media (Social Business) solutions…there is even a forthcoming event, “Digital Insurance Strategies 2013”…BUT, very few have sufficient knowledge about the number and nature of the industry’s root and branch problems. I fear there isn’t much scope for help from within an industry: in denial of the failings of the prevailing model and culture; structured for selling – push not pull; hampered by a prediction addiction; too closely-coupled to its supply chain to adapt to a changed environment; devoid of truly innovative [creative destruction] ideas – a long and inglorious record of  self-serving destructive creation is no substitute and has the opposite of the desired effect, which leads to; the inability to afford the requisite level of transparency required to (re)build customer trust and loyalty.

 

For a digital strategy to be effective and sustainable in the Digital Age requires i2o [inside to out] change…otherwise it could be a, short-lived and very expensive exercise in turd-polishing!!!

Drivers of Business Complexity & Simplicity

Drivers of Complexity

This is a brief but by no means exhaustive summary of some of the drivers for increasing complexity in a business. These include but are not limited to:

• Increasing customer choice through product proliferation
• Pressure for diversification of products & customers
• Many engineers, accountants and technologists (who love to work in complexity)
• People creating complexity to secure their jobs & positions
• Processes that people have been modifying for years without regard for the impact these changes have on the output
• Information departments / systems seeking or delivering ever increasing detail just because they can!
• Complex planning systems (or no planning systems)
• Increasing compliance requirements
• Belief that rigour equates to volume (e.g. of reports) when it comes to analysing, justifying and planning.

The drivers for simplifying a business have in the past generally only been exploited when the business is under intense pressure to improve performance i.e. when it is in trouble, as often occurs during economic downturns. It is a shame these drivers only appear in times of trouble rather than growth, for if they were a focus during good times then more businesses would perform well.

General ignorance:: accident or design?

The PROFESSIONAL-NOVICE DIVIDE is something that I have touched upon before, when dealing with “Hierarchies of Understanding” and “The difference between knowledge and understanding”. But, from the evidence of what I have seen in my own industry [insurance] – like wider Society – the gap between the haves and the have-nots, is, if not widening, then certainly not closing! This isn’t only detrimental to current stakeholders and shareholders…

• job satisfaction
• employee retention
• effectiveness and efficiency
• errors and omissions
• management and performance
• governance and compliance
• profitability
• resilience and sustainability

…but to those that follow.

I’m sure that there are those conspiracy theorists who would suggest that this is no accident. But I’m not so sure. Although I could be easily persuaded that leaders of the prevailing culture – some of whom view technology, like financial rewards, only in terms of what short term benefits it brings them and their business – still view humans and technology within organisations as separate entities.

How can they be? They are interdependent components in the processes of a business system that has been created to perform a range of functions from which the organisation generates revenue, the means to sustain the enterprise and (hopefully) profit.

This kind of thinking is holding many organisations back!

Airmic:: ‘Black Swan’ events – avoiding extinction

Practical advice, courtesy of AIRMIC & Marsh. The article is well worth a read even though all it really does is reiterate some of the key points I have been putting across since I started my original blog in 2009!

I have selected this extract as it identifies a huge failing that “stalks” the whole financial and risk sector but about which too few are prepared (or able) to be honest and many are even less forthcoming about its impact: ASSUMPTION.

The truth is that, without a healthy dose of assumption, the basis for flawed economic theory, mathematics that is as misleading as it is elegant and the computing power to turn it all into plausible financial models, they would not find it so, relatively, straightforward to relieve the populous (directly or indirectly) of our hard earned cash to enable them to wield – and abuse – the power that it brings!

Where do general insurers go from here?

Stating, what should be, the bleedin’ obvious…IF the industry cares as much as its marketing says it does!

Moving away from the old ‘acquire and exploit model’ that general insurers have been using for years requires a huge change in mindset. Especially when it involves bucking the trend within the industry and communicating a proposition based on value and service while others are fixating on price.

However, I’m afraid the old strategy just isn’t going to work in a world where consumers can compare prices and share experiences at the click of a mouse. Giving existing customers a compelling reason to stay and do more business with you is surely the way forward as customer sentiment can spread like wildfire online. It will therefore be those that have engendered positive perceptions from their most loyal customers, who retain and attract the most policyholders and who are subsequently most profitable in future years.

via Where do general insurers go from here? « UK Insurance.

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A "VUCA" World needs Strategic Thinkers:: Inc.com

If  you have absolutely no idea what “VUCA” stands for the following presentation will be extremely useful and, hopefully, put these “6 Habits” into a meaningful context. By no stretch of the imagination is this a complete guide…by definition there won’t be one! But, if it stops Leaders & Managers from decision-making based upon, potentially dangerous,  assumptions that is a progress!

“We need strategic leaders!” is a pretty constant refrain at every company, large and small. One reason the job is so tough: no one really understands what it entails. It’s hard to be a strategic leader if you don’t know what strategic leaders are supposed to do.

I love this quote from Paul Shoemaker….

“Every leader’s temptation is to deal with what’s directly in front, because it always seems more urgent and concrete. Unfortunately, if you do that, you put your company at risk. While you concentrate on steering around potholes, you’ll miss windfall opportunities, not to mention any signals that the road you’re on is leading off a cliff”

After two decades of advising organizations large and small, my colleagues and I have formed a clear idea of what’s required of you in this role. Adaptive strategic leaders — the kind who thrive in today’s uncertain environment – do six things well:

Wanted: Chief Complexity Reduction Officer – Forbes

Please don’t make the mistake that Ron has identified in this article i.e. assume that he is talking about some other company! He isn’t he is talking about yours.

…If your assumption is that complexity comes largely from external factors like globalization and unexpected crises, then your only recourse is to be reactive. And when eventually things don’t go well, pegging the blame on complexity — although convenient — is a high-level form of victim mentality.

On the other hand if you acknowledge that some amount of complexity is self-generated — in the way that we structure and manage our organizations — then you can take action.

The reality is that high degrees of internal complexity significantly reduce an organization’s ability to respond effectively to complex, unanticipated events…

via Wanted: Chief Complexity Reduction Officer – Forbes.

If it wasn’t for the popular myth that the “downside of risk” is something that is exogenous [external] we would have more, better and profitable businesses; more stable economies and less volatile markets!

So, presumably, you expect some kind of justification for this statement?

Complexity in FS: why trying to predict…is [still] futile

I thought it about time I revisited an article that s-p-e-l-l-s things out about as plainly as they possibly can be….

…the ability of the system to adapt, often in completely unpredictable ways, means that you can’t model it and you can’t foresee the outcomes of any strategy of intervention. It’s all completely unknowable in advance. Once you accept this it becomes suddenly apparent that a huge swathe of modern finance is complete rubbish. For example, in a complex system you expect to see “tipping points” or phase transitions when the system suddenly and unpredictably switches from one stable state to another. As Caballero and Krishnamurthy have documented this appears to be exactly what happens during the episodes of liquidity hoarding and flights to quality associated with financial crises. People suddenly switch from a belief that they’re in a state where risk is measurable based on probability to one characterised by fear in the face of absolute uncertainty, so called Knightian uncertainty.

So, in the depths of the panic of 2008 we saw investors selling Collateralised Debt Obligations at almost any price largely because they didn’t know how to analyse them. What it looks like is that they bought these sub-prime backed securities because they’d been given the highest rating possible by the credit rating agencies. When some of these went bad the investors – many of them supposedly high powered institutions – belatedly recognised that they hadn’t got a clue about what they’d bought and sold, virtually at any price. One day they had nice risk models giving default probabilities, the next day they had junk.

via Complexity In Financial Systems: Why Trying To Predict The Next Crisis Is Futile | Timarr.

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• Complexity and Consequence: what financial and risk engineers MUST learn from mech. eng. (or anywhere) (fitforrandomness.wordpress.com)
• Complexity conundrum: Commerzbank and Capco’s complexity “coincidence”! (fitforrandomness.wordpress.com)
• Strategy under uncertainty: McKinsey Quarterly – Strategic Thinking (fitforrandomness.wordpress.com)
• “Why US Banks need a new business model” | McKinsey (thebankwatch.com)

Differentiating risk and uncertainty [infographic]: : YOUR feedback required

I have sat on this for…months because I:

• cannot make my mind up how happy I am with it,so
• I have accepted it is best to view it as a collaborative work in progress
• wasn’t entirely sure what I was going to do with it or how best to share it
• am frustrated that people in the “risk business” are unwilling to engage in informed discussion about:
  • business – networks – markets as Complex Systems
  • identified RM failings in
    • conventional Risk/Project Management – Corporate/banking/insurance
    • subjective Risk assessment
    • Risk rating
• am fed up with people, who should know better:
  • being unable to differentiate between risk and uncertainty, or
  • confusing the two
  • failing to recognise the serious implications of treating uncertainty with risk management tools/techniques and
  • making, dangerously naive, assumptions e.g.

ENGINEERING ANALYSIS: measure resilience on-line

COMPLEXITY MANAGEMENT
Special Edition: ENGINEERING  ANALYSIS

NEW ENGINEERING PORTAL  – MEASURE ROBUSTNESS ONLINE

Design for Resilience (D4R) is a web-based service that enables engineers to measure the robustness and complexity of systems.

Using the latest developments in maths and science we deliver a graphical tool which not only measures how robust a system is, it also ranks the system variables in terms impact on functionality and resilience.

Complex products cannot be engineered to perform safely and efficiently if  robustness and complexity are not measured. How robust are your designs? Can you afford not to know?

Read more.

View the tutorial

Check out the demo

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Facilities Management: Sustainability + “intelligence” = Smart asset strategy

Think of a building as a system (or man-made ecosystem) that may be unable to function if one of its sub-systems fails.

Each sub-system is inter-connected, either physically, or by the purpose for which it was constructed or is occupied. At best, the loss of one sub-system can lead to a temporary partial or full closure. At worst it can cause unseen damage to another sub-system or systems.

So, if the overall system is reliant upon interdependent sub-systems: WHY are interdependent functions only measured independently?

”Imagine assessing the robustness of the electricity grid with data on power stations but not on the power lines connecting them”

Ontonix technology offers the solution. By, effectively measuring the complexity of the (eco)system, each interdependent sub-system and the evolving relationship amongst them. The result is an early warning system providing “crisis anticipation” that supports the old adage that “prevention is better than cure”…it is also much more resilient, sustainable and profitable!!!

Take the smart technology associates with modern construction, facilities or asset management and then…. …add a “brain” in the form of a real-time (remote if necessary) complexity management system from Ontonix. Rents and Occupancy Higher for Green Office Buildings The real estate sector can play a significant role in a low-carbon economy. Not only do investments into more sustainable business practices and technologies benefit the environment an … Read More

via Get “fit for randomness” [with Ontonix UK]

Management Consultants: “Capitalising on complexity”

I have accumulated quite a collection of “papers” advising business how to deal with complexity and am happy to share them…so long as everyone understands that I am not endorsing any of them!

For your delectation I am pleased to add to the list of what, in the main are “qualitative management consultant-speak” that, even when referring to research, interviews, etc. read (to me at least) like documents produced on a topic, primarily because it is topical and offers a further opportunity to secure some well paid consultancy work.

This latest publication is from Celerant Consulting. Make up your own mind…then take another look at the Ontonix website.

Call, email me or get an objective, quantitative, insight into complexity for  FREE!

It really makes my day when other people do a marketing job for Ontonix! OK, so there is never a specific recommendation to contact us but we are happy to settle for the next best thing. That is to identify where complexity IS already costing and will, increasingly, cost through: the impact upon clients, customers, employees and “the bottom-line” budget to identify, measure, manage and monitor on an ongoing basis reduced ROI on assets and facilit … Read More

via Get “fit for randomness” [with Ontonix UK]

Improve Profitability & Reduce Risk — Thrive in a Recession [Forbes]

Feeling vindicated is pretty satisfying but being fully vindicated in print is a new level. HOWEVER, when an article appears in Forbes THAT IS SPECIAL. Then to top it all off the author name-checks Ontonix, our CTO (and Founder) and our services. WOW!!!

Let’s face it if I had written this article very few would even read it and bold claims about complexity management: increasing profitability; reducing risk; building resilience, etc. would be dismissed as “too good to be true” or marketing BS!

But, depending upon your perspective,  this is all the incentive a CxO should need to investigate the subject matter – to gain an insight into just how damaging excessive complexity is to a business OR, it is all the justification required to contact Ontonix.

It is now 3+ years since I wrote The Complexity Crisis, which sounded the “alarm” about how companies were losing profits, creating self-induced problems (with the best of intentions), while searching for growth in no-growth markets. Many companies were confusing proliferation with innovation, and overlooking hidden costs all over the place, because none of the standard accounting systems make them easy to identify. These errors have not damaged the top line (revenue) as much as the bottom line (net profit), but make no mistake about it; both have been adversely affected by unmanaged complexity. The issue now is what to do about that problem.

via Improve Profitability & Reduce Risk — Thrive in a Recession – Forbes.

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What price simplicity?

Image via Wikipedia

It is fair to say that the (adapted) words of “Occam’s razor” are as valid in 21st Century as they were in the 14th!

Pluralitas non est ponenda sine neccesitate

For those of us whose knowledge of Latin didn’t extend beyond ‘O’ Level, this is roughly translated as: Entities should not be multiplied unnecessarily.

However a more familiar quote, oft attributed to Einstein, that expresses what William of Ockham was telling us, is: “Everything should be made as simple as possible, but not simpler.”

In modernity we have, unwittingly, come to rely upon levels of complexity in communications, products and services that were the stuff of science fiction in our own life-times…that does pre-suppose that your are old enough to remember Colour television as the preserve of an affluent minority!

But, if we should be striving for simplicity, THE question is: how can we reduce complexity without losing functionality?

Ontonix quantify current complexity and, more importantly, the point of “critical complexity” beyond which loss of function, failure or collapse are assured. We contest that, without a means to, objectively, quantify system complexity the ability to simplify – without loss of function – is impossible as there is no means to “track” causality!

I have read some experts (and consultants) talking about adding “good complexity” and removing “bad complexity”. Great! That makes sense, but if defining complexity has been the source of much Academic “mental masturbation” for over 30 years – without unilateral agreement – I would suggest that this amounts to little more than a sales pitch for consultancy services!

What is holding back your business…it may be YOU?

I have had the following graphic for so long that I can’t be absolutely sure that I can attribute it to McKinsey but they are the one’s getting the credit.

The truth is that everyone that I have shown this to can recognise the inherent wisdom…but then go off and, promptly ignore the “inconvenient” bits then wonder why “Growth & Change” remain illusive whilst their stakeholders question the ability of management to achieve stated goals and smart competitors seize the advantage!!!

Firms determine what results they want/need, commit the resource to existing or new people, so when it comes to a clash of culture (old v new), the descent into chaos and confusion is assured.

That is one reason why “change management” tends to be a long, slow, painful and costly exercise for many.

Any idiot can “manage” then find multiple excuses for failure (it’s normally someone else’s fault and it will be they that pay the price) but, if you are going to build something worthwhile and sustainable, it is a bottom-up or inside-to-out (i2o) process.

A business is a complex “system” with many component parts each of which has a role to play in enabling achievement of the purpose for which it was created…

Courtesy of (amongst other things) the human element, a business system will continue to “work” even when it is badly broken. However, for it to realise or exceed its potential requires the component parts to work interdependently. Unless the culture and people (in that order) are able and willing to play their part, underachievement – or worse – is assured.

Follow the link if you want more Complexity facts.

Ontonix understand complex systems and are the ONLY company able to reveal the structure hidden in the data it generates.

Why not try out our on-line solution for free?

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The long and winding road to: Enlightenment? (via Stupor Complexus)

As “ringing” an endorsement as Ontonix could ask for…from one who knows:

“Starting to see light

The road will likely consist in abandoning the evocative but misleading epistemological debates, and focusing instead on useful techniques to tackle the growing non-linear distortion of the business world, as it happens in econophysics, leaving the reforms of the scientific paradigm to whomever should be concerned (tèkne tòn teknòn kai epistème tòn epistemòn…). On that road, I am particularly interested in two approaches which I came across in recent years.

One is Ontonix (a company in which I have no involvement but admiration for the genius of its founder, Jacek Marczyk), which has developed a holistic risk-monitoring software. What I like about Ontonix, despite a few humble methodological reservations of mine, is their pragmatism and quantitative orientation. Ontonix do not “talk” of complexity: they measure it, based on a conceptual framework in which it is seen as an intrinsic property of systems, like temperature or pressure. Physical quantities, says Ontonix, attain scientific dignity when they are measurable. Epistemological objections can be raised concerning the definition of complexity, as well as methodological ones related to the metrics. But who cares about the hair in the soup, if we are offered an inexpensive tool that can provide, with a surprisingly small organizational effort and a simple user interface, an assessment of the systemic risk of our business? I do recognize a breakthrough in Ontonix, the first measure ever of a company’s «stability rating».”

…a growing minority of business/managerial economists consider Taylorist scientific management (which has made it to the present day through various mutations and enrichments) as still plagued by extreme mechanism and unaware of the lessons coming from complexity science (deterministic chaos, emergent behavior): they therefore believe that it should be replaced with models inspired by non-linear dynamical systems, non-equilibrium thermodynamics, agent-based simulations and other modern “complex” tools.… Read More

via Stupor Complexus

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Innovation: the difference between organisational agility or fragility

Seth Godin is “on the money” yet again but I would contend that, if it is the most adaptable that survive and thrive, then each are key elements (or “phases”) that, harnessed and applied, drive innovation in an agile, dynamic, system…

Organization vs. movement vs. philosophy

An organisation uses structure and resources and power to make things happen. Organisations hire people, issue policies, buy things, erect buildings, earn market share and get things done.

Your company is probably an organisation.

A movement has an emotional heart. A movement might use an organisation, but it can replace systems and people if they disappear. Movements are more likely to cause widespread change, and they require leaders, not managers.

The internet, it turns out, is a movement, and every time someone tries to own it, they fail.

A philosophy can survive things that might wipe out a movement and that would decimate an organisation. A philosophy can skip a generation or two. It is often interpreted, and is more likely to break into autonomous groups, to morph and split and then reunite.

Industrialism was a philosophy.

The trouble kicks in when you think you have one and you actually have the other.

Feel free to fit: philosophy; movement; organisation, as you see fit, to this infographic of the “Panarchic Cycle”

The bewildering, entrancing, unpredictable nature of nature and people, the richness, diversity and changeability of life come from that evolutionary dance generated by cycles of growth, collapse, reorganization, renewal and re-establishment. We call that the adaptive cycle. 

Holling, 2009

Welcome to Art class: The “art” may be survival

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Why “problem-solving capability” NEEDS enlightened leadership

It can be difficult to understand that common management issues and disappointing business performance can be examined in the context of biological, technological and ecological systems but… they can!

If you don’t believe me, you can, pretty readily, get a copy of Stephen Covey’s famous book, “7 Habits of Highly Effective People”. I seem to recall he talks about INTERDEPENDENCE as a “higher state”. In doing so he is touching upon subjects dear to my heart and often taken for granted by each and every one of us…

…we would not fair terribly well without the unimaginable complexity of the ecosystem, that sustains our planet, or  the enormous biological complexity within the human body. There is a growing appreciation of the universality of systems: to such an extent that business, global financial, IT systems and others are now being viewed in a very different way…

Presentation: what stage in the cycle do YOU think we are at?

I know what I think and I reckon and, had it not been for the unimaginable amounts of money created out of thin air by Governments, we would already be travelling the road to recovery in the new landscape!

I am no financial or banking expert but I really don’t believe one need be if embracing some ‘Systems Thinking‘. Of course, I would love to hear some reasoned arguments for and against my viewpoint. I hope you enjoy the presentation.

Here is some further “food for thought”

Instead of viewing any more of my presentations how about trying on something by Andy Haldane {Director, Bank of England) and see if you think that my referencing him and his thought leadership in the presentation is “fair”!

“In finance it’s often been survival of the fattest rather than the fittest”

Andy Haldane, Bank of England

Haldane & May: Systemic risk in banking

Not news, unless you have been living in a cave…in which case I could probably recommend some more appropriate reading!

Assuming (dear reader) that you have some interest in the topic(s) this is a very interesting piece. It can be found/downloaded here.

Andy Haldane (Director at Bank of England), Mervyn King and Lord May have been on this “tack” for at least 2 years – I have come speeches, papers or presentations on the subject if anyone is interested – and I have referred to their views in various blog articles over that period.

However, I did want to share this section from the conclusion. Because, these gents have recognised that there is a great deal that we can learn, about, both, cause and solution, from Nature. However, as they point out, due to the Political processes that will, inevitably, affect Bank of England, it is unlikely that solutions will be implemented quickly!

Insurance innovation: an oxymoron stuck in 3rd!

The transition from 1 to 3 was relatively straightforward because greater operational efficiencies and product commoditisation enabled insurers – and brokers whose aspirations matched theirs – to sell more by reducing pricing and increasing commissions.

But a “high growth” strategy is an all-or-nothing commitment that, eventually, has to take its toll upon the products and services provided. When GWP and ROI become the focus they do so, inevitably, at the expense of customer:

peace of mind; service; satisfaction; trust and (with them) reputational damage for the industry

So, as retention rates declined, an industry that, since its earliest days, thrived upon trust, loyalty and stability chose to spend increasing amounts on marketing and sales that promote – even reward – disloyalty and volatility!

Living with Black Swans: balancing the books in uncertainty

OK I’m a self-confessed fan of NNT but early on in this interview with his former Professor he again hits the nail on the head. He reminds us of the lessons that every business (and political!) leader needs to learn..

“…You have to avoid debt because debt makes the system more fragile. You have to increase redundancies in some spaces. You have to avoid optimization. That is quite critical for someone who is doing finance to understand because it goes counter to everything you learn in portfolio theory…. I have always been very sceptical of any form of optimization. In the black swan world, optimization isn’t possible. The best you can achieve is a reduction in fragility and greater robustness. You may have heuristics, but not an optimization rule. I hope the message will finally get across because I haven’t succeeded yet.

People talk about black swans but they don’t talk about robustness, which is the real lesson of the black swans.”

Business Leaders of the current culture are not, generally, “agents of change”. As I have said before we need to cultivate Risk Leaders. Those who, not only,  recognise the flaws of the current culture but are motivated to create, champion, execute and capitalise upon new models and strategies.

Apart from the clamour, from better informed and more demanding consumers, for greater transparency, accessibility and demonstrable sustainability, the pressing NEED is for this new breed to embrace the concept that robustness (or NNT’s anti-fragility) can ONLY come from by creating (and maintaining) a sound business infrastructure…from the bottom up or, as I feel is even more appropriate, from the “inside out”: i2o”.

The relevance of scaling and causality

Such problems as Taleb highlights can only be addressed if the owner can view the business (or system) at the appropriate “scale”. Otherwise how would one know where and by how much to “increase redundancy” to build RESILIENCE in order to survive unforeseen and unforeseeable future events?

After all redundancy and robustness cost NOW and need to be maintained, so, have an ongoing impact upon profitability.

Leadership urgently required: Sustainable value or race to the bottom?

I make no apologies for promoting the thoughts and text of someone, whose thinking (on a wide range of financial matters) I have come to respect enormously. Nick’s article (below) reminded me that, if all we do is look address what we observe – treating symptoms – we can expend too much time, effort and money applying patches or plasters (in the form of legislation, regulation, processes) without actually EVER identifying and tackling cause(s). Add a time horizon of years or even decades and the ability of a system to perform the task(s) for which it was originally intended…

Is this how successive Governments have allowed the Public Sector to become excessively complex: structurally fragile, morally and financially bankrupt, monuments to institutional neglect?

- why “users” and frontline services suffer in the face of budget cuts whilst layers of management indulge in self-preservation?

Is this why Corporate rewards that are results-driven rather than strategy-led have increased moral hazard?

Why Financial Regulation failed and is “too complex” to pursue those responsible – but not, apparently, accountable – for destroying the global economy?

Self-help for business: "better questions, new answers" [free White Paper]

So you’re an SME and you reckon you know better than your Bank Manager, Accountant or some Business Consultant, what is good for your business. Instinctively, you’re probably right…but how do you know?

How can you determine that YOU’RE RIGHT AND THEY ARE WRONG?

If you want to find out how to do it without spending a fortune, opening up your business to someone (who may have an excellent CV) who doesn’t know you or your business OR handing-over “control” to people who assess the worth of a business in terms of £’s – read on.

After all, your Doctor will always tell you what you should or shouldn’t do – eat – drink but, whilst you don’t ignore health advice, I doubt you let them run your life!?

I am not advocating self-medication but I am certainly recommending some self analysis before spending big or risking the decision being taken out of your hands. You don’t even have to have any great concern about the health of the business…just a desire to know more about its “hidden” structure OR the determination to make the business the best that it can be. To: measure; monitor; manage and demonstrate it.

Reveal Your Hidden Profits: Looking at complexity in business?

It really makes my day when other people do a marketing job for Ontonix! OK, so there is never a specific recommendation to contact us but we are happy to settle for the next best thing. That is to identify where complexity IS already costing and will, increasingly, cost through:

• the impact upon clients, customers, employees and “the bottom-line”
• budget to identify, measure, manage and monitor on an ongoing basis
• reduced ROI on assets and facilities or increased insurance/risk management outlay
• reduce business capabilities &/or become less flexible (lose competitive advantage!?)

“I wouldn’t give a nickel for the simplicity on this side of complexity, but I would give my life for the simplicity on the other side of complexity”                                                                                               – Einstein

In previous posts I have made reference (and provided links) to reports by, such as, IBM, McKinsey, PwC, Economist Intelligence Unit (EIU) – on behalf of RBS, KPMG and  AT Kearney, each spelling out WHY COMPLEXITY IS SUCH A MAJOR ISSUE for modern business!

It is reassuring to now see that business’ are being recognised as “systems” operating within inter-connected ecosystems and networks. As a result the “Economic domain” is beginning to benefit from a the lessons learnt in a wide range of inter-disciplinary scientific fields…and can build resilience across domains, rather than destroy it.

What was Machiavelli talking about?

Image via Wikipedia

Or is it really important to know? Because many of his words are so profound that they transcend disciplines, scenarios and centuries!

“…in its beginning it is easy to cure, but hard to recognise; whereas, after a time, not having been detected and treated at the first, it becomes easy to recognise but impossible to cure.”

- Niccolo Machiavelli

If I had attributed the statement to: a respected Economist on the subject of sources of the global banking crisis or sovereign debt; an experienced Political commentator about the situation in Egypt;  a GP, talking about Cholesterol; an Oncologist, talking about cancer; an ecologist on global warming; an accident investigator identifying the cause of a man-made disaster; or one of my colleagues referring to business complexity, there may be some scope to debate the finer points but not the “essence” of the message!

Prevention is better than cure!

Who ever thought risk was optional?

I can’t help but observe the recurring theme of RM having to justify itself in the face of other (financial or operational) considerations. It’s like there is almost an acceptance of the need to “sell RM” within an organisation!!! This won’t be news to experienced Practitioners – some of whose professional persistence has proven pretty costly – but is this not a damning indictment of the prevailing Corporate culture?

Since the phrase “Black Swans” was first coined in the context of the Financial Sector, even when they don’t understand what it means(!), it has served as a ready, C-level, excuse for failure but, it is rarely the case…

Black Swans: A Corporate Governance “blind spot”

Where are the “risk leaders”? Instead of FS compounding the problems we should be utilising our expertise and resources to establish a means of “repaying” society, by promoting, supporting and investing in building community resilience.

EVERY project, process, task, operation being undertaken by an organisation is reliant upon varying degrees of INTER-CONNECTED function. Each contains some degree of risk.

The more complex the process or product the greater the exposure. Risk does not “run parallel” to the function, it is inherent to it and, as such, RM cannot be viewed as an option or add-on! To me this (scarily common) approach serves to reinforce the need for a paradigm shift in Corporate culture.

2010 Report Updates: FS cannot function without trust

This is a “headline” so obvious that it may well be a contender for non-news item of the decade…

So you would be entitled to assume that strategists within major banks and insurers would be busily scurrying around frantically innovating new products and services that simply ooze customer value. Frankly, anything that rebuilds trust and engenders loyalty, in an effort to undo the reputational damage done in recent years.

Yeah right. Customers aren’t really that important…yet!

I commented upon Edelman Trust Barometer & “Which?” reports earlier in the year – found at the following link:

Transparency – Trust – Trends – TRANSFORMATION

I know I have been going on about this for a long time now BUT, from the distinct lack of any change of attitude or strategy, it appears that the customer message has not been taken on board. Further evidence of the arrogance of FS and, in my humble opinion, a very serious mistake. As we enter, what will be, a difficult and painful period for UK (and beyond) the realisation that the perpetrators of so much of the financial misery have “escaped”, unscathed -  apart from a lot of Governmental and Regulatory rhetoric, will lead to a public backlash! Of course this has most serious implications for Government as society suffers.

FS firms who wait before offering truly innovative solutions and reintroducing customer value – instead of stripping it our for themselves and for their distributions channels – will only confirm, to the informed observer, that they have failed to learn any lesson from past, inglorious, failure.

To adapt the words of Warren Buffett “If value is what you take price is what you will pay”

Machines and technology are but grains of sand…

…when viewed alongside Complex [Adaptive] Systems.

Thankfully many people are now showing an increasing interest in understanding just what complexity is all about.

Randomness and robustness are words that I have become familiar with and, increasingly, with the term…

Panarchy

New one on you? Don’t worry you are far from alone..

It’s a fuzzy old world!

I like this picture. It reminds me of Spirograph from when I was a kid. It’s pretty complex too but still nowhere near conveying the sheer complexity of a “typical” complex business system…even a relatively small one!

“Why not?” I hear you cry. Well, let me attempt to, briefly, explain.

Visualise each red dot as an activity or process undertaken within the business or, indeed, as a series of key participants in the company’s supply chain. Look at all the interconnections

Even when a business decision is pretty clear cut, from the assessment of the known facts – quantitative and qualitative – and the outcome is yes or no, that doesn’t tell us about how much, when, who, what else is affected by the decision or to what extent..

This can be (is in scientific circles!) described as fuzziness. Too many potential outcomes to even begin to calculate.

Complexity: What’s in a name?

A widely accepted definition of complexity doesn’t exist. But that isn’t likely to stop any number of Consultancy firms selling services tailored to their own particular interpretation and “solution”.

Numerous Academic institutions dedicate considerable talent and resource to the study of complexity across disciplines.

Many of the “definitions” you are likely to come across convey an impression that complexity is a “twilight zone between chaos and order”! Hardly helpful when it comes to communicating on a subject that is already pretty abstract for many people familiar with  message conventional (but limited) disciplines, such as statistical and actuarial analyses, risk rating or management associated with financial risk.

Amazon Kindle ebooks: required complexity reading

Dr Jacek Marczyk, CTO and Founder of Ontonix has written several books during his illustrious career – I don’t know how he finds the time! – more recently these have, unsurprisingly, been on the subject of complexity. His work and that of the original Ontonix team has broken new ground and enabled Ontonix to provide solutions to some of the best known brands on the planet.

For those who thirst for further knowledge on, what is a fascinating, infinitely relevant and topical subject, here are the the relevant links:

Ontonix have succeeded in creating a rigorous, 100% quantitative, “hard science” means of measuring complexity [structured information] and entropy [chaos or uncertainty] within systems. This has been applied in a wide variety of fields, from Healthcare to critical business processes incl. IT system monitoring – product design and testing – Petro-chemical – Aviation – Aerospace – Air Traffic control – Financial stability rating – ecosystem & interdependence mapping…we are always looking for other areas for future development so feel free to share any ideas applicable to your sector or industry: david@ontonix.com

As a result we are able to provide Complexity Facts that others have, so far, only been able to surmise. Every dynamic [non-linear] system has a current and critical level of complexity and measurement is the first step on managing .

Related articles

• PRESS RELEASE: Ontonix 5th Anniversary! (fitforrandomness.wordpress.com)
• Ontonix: Model-free methods – a new frontier of science (fitforrandomness.wordpress.com)
• On-line complexity self-rating: OntoNet™ webinar (fitforrandomness.wordpress.com)
• Risk, Uncertainty and Complexity (fitforrandomness.wordpress.com)
• Complexity: “Cholesterol for business” (fitforrandomness.wordpress.com)
• Complexity – Economics – Risk: A Brave Army of Heretics (fitforrandomness.wordpress.com)

Eric Berlow: How complexity leads to simplicity

To demonstrate the inter-connectedness that occurs at just about every level of our existence and to understand what Einstein meant (below) please “take 5” for this presentation.

“I wouldn’t give a nickel for the simplicity on this side of complexity, but I would give my life for the simplicity on the other side of complexity.”                                                                             Albert Einstein

Reducing complexity: Looking at the “big picture” – the macro or system view – makes it easier to deal with the small problems – to micro manage.

Britain at the crossroads: 50 years of Austerity or a platform for dynamic change

Let’s face it we’re broke…and I don’t just mean financially. We don’t actually make much any more and, even if we did, the smart Entrepreneurs wouldn’t still be here to fund a Public Sector paralysed by its own complexity. A “dumbed down” nation that has grown useless, fat and lazy in the image of the Welfare State that sustains it.

“Clinically obese” was how one expert described the UK Public Sector. We are told that the choices were Quantitative Easing or Austerity. We weren’t really given a choice. It was made for us by a Coalition Government whose preference is to “play Politics” because: they are just happy to have power; are intent upon denying the scale, nature and sources of the problem; lack a vision for our future…or just dosn’t have the balls to do anything except keep on making the people who are softest targets pay!

Why else would a Government choose to appease “the markets” and rating agencies whose roles in the crisis STILL are unpunished – what happened to Corporate Governance, fiduciary responsibility, compliance, etc? – whilst the opinions of ordinary citizens – VOTERS – are disregarded!? There are people of every generation whose lack of informed opinion or inertia allowed successive Governments to spin their way through years of mismanagement and excess. Watch out!  These people have found their voices and now have a common cause.

Black Swans: A Corporate Governance “blind spot”

“FIT FOR RANDOMNESS” is all about accepting that complexity adds to the uncertainty – and, therefore, risk – of modern living. We CANNOT predict what will happen but that does not mean that we should not prepare, as best we can, to survive the unforeseen by building robustness [resilience or anti-fragility] into the complex, dynamic, systems upon which we depend.

Dr. James Carafano of the Heritage Foundation spoke to this issue at a congressional hearing on resilience in the homeland in 2008. He said, “The current paradigm of ‘protecting’ infrastructure is unrealistic. We should shift our focus to that of resiliency. Resiliency is the capacity to maintain continuity of activities even in the face of threats, disaster, and adversity.”

Any, self-respecting, C-Level Executive (or non-Exec.) worthy of the office, should assess and detail their strategy for corporate survival. Failure to do so is to expose the business, its stakeholders, professional reputation and with it, personal wealth, family and community stability to undue risk. From that perspective (alone) I tend beyond the questions (shown below) from the International Federation of Accountants.

I am used to getting “funny looks” when I suggest that QUANTITATIVE COMPLEXITY MANAGEMENT [QCM] from Ontonix is more than a means for an organisation to extend its “risk horizon” – beyond the scope of conventional ERM. QCM, or Advanced Risk Management, facilitates better, more consistent and robust, business [risk] decisions. In the process, securing that most precious of commodities, “competitive advantage”.

Here are some complexity facts from Ontonix.

All you could ever want to know about why complexity is THE big deal

This video by David Korowicz [Complexity, Economy, Civilisation & Collapse] will answer the questions you may not have even thought to ask yourself (or others). His holistic perspective, born out of inter-disciplinary thinking tells you all you need to know about complexity, the folly of a “silo mentality” and the power of interdependence.

DK provides some superb illustrations including something as, apparently, simple as buying a loaf. At the other end of the scale he deals (briefly) with Thermodynamics and the “unseen” complexity of the Global Supply Chain driven by supply and demand. Complexity is the link.

Complexity: “Cholesterol for business”

I have used this analogy before but it is certainly worth repeating as the similarities are apparent and potential impact “alarming”…

Business systems suffer from their own version of cholesterol…it’s called…COMPLEXITY. If you don’t test for it you don’t know if it is doing damage to the vital inter-connections upon which your system is dependent!

By the time the outward signs show themselves irreparable damage is done. Sufficiently fit and able to carry out the day-to-day tasks that sustain you but “found wanting” and unable to perform when put under stress e.g. confronted with a physical challenge, fighting a disease, adapting to a change of circumstance. We don’t know what the future holds but we can say that it is more uncertain now than at any time in (at least) a generation!

We are learning more lessons from nature than at any time in our history since “The Origin of Species”.

A business is a system, like the human body. It is reliant upon its component parts and its ecosystem (marketplace, supply chain, etc.) communicating, working efficiently and interdependently to enable it to perform and sustain itself and its stakeholders.

Unlike our bodies a business does have the ability to renew its structure and to thrive again BUT SURVIVAL IS NOT GUARANTEED! A business needs to have sufficient “reserves” and the means to re-generate.

A business that was once fit enough to survive in a familiar environment – like a stable, buoyant, economy – is, not necessarily adequately equipped to do so when the environment changes – a turbulent and unpredictable economy – where, what sustains it is in shorter supply or harder to come by. The business matures (ages) and can lose some of the skills or agility that were once its mainstays.

Updated: Enterprise Risk Management & Complexity analysis

Surely it makes sense to any “tuned in” business leader to embrace ERM!? I think this graphic (from RIMS) beautifully illustrates the various, generic, component parts. So, why then, have so many been so slow to adopt this approach?

Risk and Insurance Society Risk Maturity Model©, 2006, www.RIMS.org

In truth I don’t know but this is my blog so I am entitled to take a crack at providing my take on the answer.

LOOK AT IT FROM THE PERSPECTIVE OF A BUSINESS OWNER/MANAGER!!!

How much time will this take?

What amount of resource will I need to commit?

How much will it cost…can WE afford it?

How can I quantify the benefit to the business?

Where the hell do we start?

All pretty reasonable questions especially when you consider that most responsible business leaders will already be complying with the terms from their insurers and the minimum legal requirements to enable them to trade.

Management time is already at a premium…isn’t that part of the problem(?)..this hardly looks like a solution. Most senior managers would be entitled to visualise working by candlelight, lost weekends, absentee father status and more issues surrounding “work/life balance”. Oh oh!!!

Where is the incentive for risk and business managers to “step up to the plate” and become RISK LEADERS? After all, the prevailing business culture is dedicated to rewarding those who satisfy the lust for a quick return…and that is very rarely the case with a well constructed strategy aimed at mitigating risk.

It looks all-encompassing and very impressive but it does beg the further question

“do I fit the model to the business or the business to the model?”

Complexity: it’s complex, real, multi-layered and VERY dangerous

 

Image by J. Star via Flickr

My previous blogs referring to Joseph Tainter’s book, The Collapse of Complex Societies were, again, brought to mind by a recent article, by Prof John Kay, in the Financial Times (Barbarians at the gates of complexity).

The following is an extract from a speech Tainter delivered in 2009. Interestingly the focus of the full version, which can be found here, was Sustainability…another topic close to my heart!

…complexity costs. In any living system, increased complexity (involving differentiation in structure and increasing organization) carries a metabolic cost. In non-human species this is a straightforward matter of additional calories. Among humans the cost is calculated in such currencies as resources, effort, time, or money, or by more subtle matters such as annoyance. While humans find complexity appealing in spheres such as art, music, or architecture, we usually prefer that someone else pay the cost. We are averse to complexity when it unalterably increases the cost of daily life without a clear benefit to the individual or household. Before the development of fossil fuels, increasing the complexity and costliness of a society meant that people worked harder.

Quantitative SWOT analysis

Most people in business will have had, at least, a “brush” with an analysis of: STRENGTHS; WEAKNESSES; OPPORTUNITIES; THREATS (SWOT).

Done properly, it can be a very useful tool. It can bring focus to key issues for the business to consider, can contribute much to strategic planning, change management and, even, negotiations…EVEN THOUGH, WHEN CARRIED OUT IN-HOUSE, IT IS SUBJECTIVE AND QUALITATIVE!

Imagine how POWERFUL it would be if it was: OBJECTIVE; QUANTITATIVE; MEASURABLE; VERIFIABLE and so much more….

Supply chain complexity

My interest and that of my colleagues at Ontonix is “the mastery of complexity”. But it can be a difficult message to communicate to business leaders for whom the term complexity either means very little or sounds vaguely like something made up by the type of Consultants who will invent new (and scarier) threats to business just to keep them in the style to which they have become accustomed!

So, it is reassuring and extremely useful when experts from business and/or Academia use their significant influence to warn of the, very real, dangers. In his article, Supply chain futures: the mastery of complexity, Philip Greening does us – as providers of unique Complex Systems Management, Business Risk Management & Quantitative Complexity Management IT solutions – and members of the Supply Chain community an enormous favour.

Ontonix can help with elephant etiquette, Swans and the visually impaired…

Like him or not, agree with him or not you can’t say that Nassim Taleb (NNT) isn’t “good value”!?    He wears his heart on his sleeve and says what he thinks.

NNT Big game hunter

Whilst others are content to talk “elephant droppings” about rules to regulate elephant behaviour…that they wont read (even if they could) he has determined the best means of dealing with an elephant infestation, is neatly folding his jacket, rolling up his sleeves and is staring-down the elephant on his fireside rug before launching his first attempt to teach the elephant about living room etiquette!!!

Does complexity guarantee “system failure”?

According to one journalist, whose speciality is deconstructing accidents, it does (see below). Naturally we at Ontonix would like to respond to this statement:

When complexity reaches the point of “critical complexity” system functionality is lost and failure can ensue.

System  complexity can be managed…that is what we do! More Complexity Facts from Ontonix

Nevertheless this is an interesting and worrying observation. One that, when taken in the context of Global Financial Services, begs the obvious question:

Updated – Complex Systems and Ecology: Report by US National Academies…

If you don’t already know WHY I am so intent upon “banging on” about complex systems then you must have stumbled upon this item quite by chance! If so…welcome! I sincerely hope that you will take on board a lesson that WE NEED TO LEARN.

But this blog is not merely about recycling someone else’s words just to look smart or well-informed. There is a “greater purpose” and that is to alert people, not just to the problem but to the solution that we, at Ontonix have developed. S-l-o-w-l-y an understanding of the need for an entirely new view is gathering momentum and Ontonix have the tools to: map interdependencies; measure [their] effectiveness; manage robustness; monitor complexity within systems. Conventional risk management tools, risk and rating methodologies are no longer adequate.

Quantitative Complexity Management is advanced risk management

Well before this recent crisis emerged, the US National Academies/National Research Council and the Federal Reserve Bank of New York collaborated on an initiative to “stimulate fresh thinking on systemic risk”. The main event was a high-level conference held in May 2006, which brought together experts from various backgrounds to explore parallels between systemic risk in the financial sector and in selected domains in engineering, ecology and other fields of science. The resulting report was published late 2007 and makes stimulating reading.

Manage complexity and add 5% to earnings! OK, so don’t take my word for it…

…80 year old Global Consultancy firm AT Kearney (ATK) say so. ATK appear to have a better understanding of complexity than most. So, I will happily let them tell you that, even by  using the methodology they outline below, they claim that managing complexity will add up to 5% to earnings.

I hope that’s got your attention!? Because it gets even better.

WE BELIEVE THEM but can’t help but wonder how much more could be achieved if their means of calculation didn’t sound like a question for contestants in a Mensa “Brain of the Year” IQ competition! The process sounds pretty daunting and has all the potential to be a source of complexity in itself.

What they need is a means to measure complexity utilising the type of data that any well-run corporation collate as a matter of course. So that the measurement and management of complexity is an ongoing process NOT one of the jobs that the CFO or his/her staff dread.

There is only one company that can deliver that type of capability.

If ATK have such confidence in adding (up to) 5% to earnings as a result of a protracted, consultative, (qualitative/subjective) process – where the “observer”, inevitably, affects outcomes – imagine what could be achieved by undertaking a 100% quantitative (objective) assessment,  using data currently generated by the enterprise!

“Risk Leaders” are those who recognise the competitive advantage to be gained by managing complexity: in existing operations (improving operational effectiveness); asset management; designing new processes; mapping & monitoring interdependencies; creating new products; internal risk and credit management; IT systems management; assessing Mergers & Acquisitions; managing supply chain risks, etc.

Complexity CAN be managed…but only once it is measured

This article refers to complexity from an engineering perspective BUT, as the Ontonix “solutions” are model-free AND we already provide bespoke engineering products, the most significant aspect is the reference to COMPLEXITY AS A SYSTEM PROPERTY: Complexity demands a new mindset

We particularly liked this this quote:

“In a complex system, learning how all the pieces—constant and variable—interact gives a depth of understanding that averts catastrophe. That is what we mean by humancentred design—understanding the interfaces among technology, people, communities, governments, and nature. This is what makes complexity manageable”

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Will insurers adopt tools for NOW to minimise risk tomorrow?

Why are insurers ignoring the facts?

Why are they still trying to predict the future using incomplete data, assumptions and flawed models?

Lemons into lemonade

Established marketing/sales wisdom tells you that the formula is:

Target audience + mass marketing = sales.

Therefore, add more audience or marketing budget, get more sales! Simple!?

In the current climate (with all it’s financial turmoil and uncertainty) business needs to recognise that, in the consumer economy that has been fashioned at HUGE expense, the balance of power has shifted.

Consumers control the flow of information today—consumers have the clout and power. Within the financial services industry the brand and reputation (and balance sheets!) of many UK and global institutions are irreparably damaged.

We have entered a, historically, difficult phase in the UK insurance cycle. The fact that it is set against such a tough economic backdrop makes predicting the future an exercise fraught with danger. But is it more or less dangerous to ignore the facts and hope that tried and tested routines will see you through?

Insurers need to realise that, by diluting cover and service in their drive to “win business on price” a large portion of their marketing budget would have been better invested in these key areas.

Brokers have only served to compound the damage to the industry’s reputation by continuing to support insurers who provide a sub-standard service in return for unsustainable commission levels.

Consumers are more savvy and, as a result, are less likely to be “sold to”.

“turning lemons into lemonade”

The new formula is:

Consumer experiences = sales.

Understanding and embracing this shift creates opportunities for those who focus on creating consumer experiences, and who are willing to trade control for sales by viewing consumers as their partners.

We have an opportunity to set in motion a transformation for the traditional system from a transactional model where I win and you lose, to a relational model where I win, you win and the community wins.

Both Aleatory and Epistemic Uncertainty Create Risk

Nice work Glen! I have asked the question before but “at what point does the decision NOT to obtain accessible knowledge about ‘reducible exposures’ [epistemic uncertainty] – such as excessive complexity – become a Corporate Governance issue?”

Epistemic risk is modeled by defining the probability that the risk will occur, the time frame in which that probability is active, and the probability of an impact or consequence from the risk when it does occur…

…For these types of risks we can have an explicit or an implicit risk handling plan. I use the work handling with special purpose. We handle risks in a variety of ways. Mitigation is one of those ways. But the risk handling work is actual work. It is in the schedule. We are doing work to mitigate the risk. We are buying down the risk, or we are retiring the risk. In all cases, we are spending money, and consuming time to reduce the probability that the risk will occur. Or we could be spending money and consuming time to reduce the impact of the risk when it does occur. In both cases we are taking action to address the risk.

via Herding Cats: Both Aleatory and Epistemic Uncertainty Create Risk.

The Radical Redesigning of Business for Resilience | The Nature of Business

We have been, and still are, in the grips of a flawed view of reality – a flawed paradigm, a flawed world view –and it pervades our culture putting us on biological collision course with collapse. It is the paradigm that is reflected in our culture’s infatuation with stuff and our willful ignorance of nature.
http://thenatureofbusiness.org/2013/04/22/the-radical-redesigning-of-business-for-resilience/

Beware the Totalitarian Corporation

Reblogged from neilcrofts:

It is easy to imagine, in these enlightened times that totalitarianism is from a bygone age.  Remarkably, perhaps, there are still businesses that operate using the kind of hierarchical systems and culture that might be familiar to medieval kings or South American dictators from the 1970's.

Systems with privileged elites whose roles are defined by supplication of the next person up the line, competing with their peers for favour and demanding that those in their own sphere of control make them look good.  

Read more… 820 more words

"...I also believe that corporations can shift from totalitarian to collaborative, and that failure is inevitable for those who do not"

Mathematics, psychology, decisions

Reblogged from djmarsay:

I attended a conference on the mathematics of finance last week. It seems that things would have gone better in 2007/8 if only policy makers had employed some mathematicians to critique the then dominant dogmas. But I am not so sure. I think one would need to understand why people went along with the dogmas. Psychology, such as behavioural economics, doesn't seem to help much, since although it challenges some aspects of the dogmas it fails to challenge (and perhaps even promotes) other aspects, so that it is not at all clear how it could have helped.

Read more… 421 more words

According to naïve inductivism we might suppose that if the evidence has always fitted the models, then actions based on the supposition that they will continue to do so will be justified. (Hence, ‘it is rational to act as if the model is true’). But for something as complex as an economy the models are necessarily incomplete, so that one can only say that the evidence fitted the models within the context as it was at the time...

Creative ‘deconstruction’:: Innovate Your Business Model

In such a fast-moving economy Opportunities & Threats emerge from the environment at such pace that an effective, resilient, ecosystem are prerequisites. Not since the dawning of the Industrial Revolution has the need for ‘organisational adaptability’ and agility been so apparent. 

“…even with a concrete business model, there may come a time to modify and innovate it.  So, the question is:

What circumstances require business model innovation?

There are five circumstances that often require business model innovation.  They can be categorized into Opportunities and Needs…

via » Deconstruct and Innovate Your Business Model.