Complexity: structural engineering for business survival

Trust me, even the smallest business is a complex system! And there is so much more that EVERY business can learn from the rigorous scientific environment than they will ever gain from the “soft skills” of management consultants attempting to re-engineer the conventional hierarchical structure. This parrot is deceased!!!

In modernity it is pointless denying that we aren’t all part of an infinitely complex network of systems and ecosystems. We need to get “fit for randomness”:

1. To take the “fat tails” of power law systems seriously. Expect change to arrive not gradually, in a way that will allow the organization to adjust in real time, but in sudden discontinuities of great consequence that reshape the business environment, bringing both dangers and opportunities.
2. To recognise that globalization and decentralization bring risks as well as rewards, and that more is sometimes different — that increased interdependence can create the conditions for “emergent” threats that are traceable to no specific element within the system.
3. To take note of the human element in efforts to become adaptable, in part by organizing practices to decrease “entrainment of thinking.”

The Institutions that, for generations, enjoyed our trust have been exposed as untrustworthy. The model was created for the, predominantly, linear processes* of the Industrial era. Although the techniques and tools of management have certainly evolved, from what we now know about the nature of systems, our efforts may be misguided and more damaging than we could have known.

A system which suppresses information and the low-level instability of dissent and negative feedback thus suppresses the information the system needs to remain stable. Suppressing dissent, facts, transparency and feedback inevitably destabilizes the system. It is ironic, isn’t it, that the suppression of dissent, facts and transparency creates the surface illusion of stability, but it is only a facade. Beneath the surface, the lack of information and low-level fluctuation/volatility builds up system instability which is suddenly released as non-linear, chaotic volatility and collapse.

The cultural and financial foundations are rotten; no longer capable of supporting a structure, eroded by years of excess and mismanagement; made fragile by the weight of its own complexity in the form of convoluted processes, legacy IT, regulation, risk management, excessive remuneration and debt.

It’s a shocking statistic and, despite complexity being widely acknowledged as one of the biggest barriers to success, it is apparent that business leaders are not doing enough about this problem. Instead of developing coherent strategies to remove complexity costs and simplify their businesses, many leaders are treating complexity as an uncontrollable and inevitable cost.

By viewing a  business as a complex system, consisting of “hubs”, “nodes”, systems and networks, connected to other systems and networks within its ecosystem and to other systems, etc, etc. we can learn and apply lessons from other disciplines. Building and maintaining a resilient company is a complex process but that is what we need to do.

I will try to be as succinct as possible as I set about explaining why from my own layman’s quasi-scientific language with some useful notes and quotes.

“…even with a command of the risks, managers need a sound understanding of control and process dynamics to consistently perform well. The understanding is counter-intuitive to many engrained practices of managing and controlling business environments.

I propose that: rather than being able to control any situation, resources, process or organization, you only have a strong influence over a limited, finite environment. I will outline some fundamentals from science and current business literature that back this proposal and then demonstrate it through real examples in the business and natural world. The detailed understanding of these scientific concepts is not needed, but a realization of their conclusions and applicability to management challenges is essential.

Managers have to cope with issues of control in dynamic, complex and interdependent environments. Dynamic situations can be described as Linear or Non-Linear. *Linear relationships mathematically can be described as factors of the first power of a variable e.g. production output’s relationship to productivity and time. However, most dynamic systems have non-linear, higher power or function relationships (e.g. x2, x3, sin x). It may be surprising to hear that although there are equations to describe a single planet’s movement around the sun, as soon as you introduce a second planet, the equations for three bodies become unsolvable…”

    * a “rigid” process of steps, one after the other; if A then B, etc; deterministic e.g. a watch, it performs a function and it works or it does not; incapable of novelty.

“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 human-centred design—understanding the interfaces among technology, people, communities, governments, and nature. This is what makes complexity manageable” 

Correct. But easier said than done, unless you have the ability to map, observe, measure and monitor “…how all the pieces—constant and variable—interact…”, across scales from from macro to micro.

Catastrophic changes in the overall state of a system can ultimately derive from how it is organized — from feedback mechanisms within it, and from linkages that are latent and often unrecognized.

Rather than go on (because I could!) I will leave you with these final thoughts (from Commerzbank and words of wisdom from a great thinker) and to ponder upon the information in the context of your own organisation. PLEASE don’t ignore it because these are real problems that will not “go away” on their own. They will only increase: unseen, unmanaged and eroding the system(s) from within…

“Complexity increases cost and decreases flexibility — often in unforeseen ways — and also tends to decrease stability,”….“If you run IT, those are three of your most important KPIs.”

Too often we prefer to overlook or ignore the great wisdom of our forebears and this quote illustrates the universality of systems, whether business, technological, biological, etc.

“…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

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