Ontonix: "Optimal does NOT mean best"


Nowadays it is very popular to seek optimal solutions to a broad spectrum of problems: portfolios,  engineering systems, strategies, traffic systems, distribution channels, networks, policies, etc. But have you ever wondered if optimal really means best? Well, it does not. Optimality is not the most convenient state in which to function. The reason?

Optimal solutions are inherently fragile.

Our economy (but not only) is fragile because everything we do is focused on maximizing something (profits,  performance, success) while minimizing something else (risk, time, investment, R&D) at the same time. This leads to strains within the system. Everything is stretched to the limit (or as much as physics will allow). This is exactly what one should not do when facing turbulence. The focus should, instead, be on:

  • Solutions that are fit, not optimal.
  • Simplifying business models and strategies.
  • Accepting compromises not seeking perfection. Improve, don’t optimise.

 

Read the full article: Ontonix – Complex Systems Management, Business Risk Management.

“ERM is not enough”:: How to prepare for a Black Swan [Booz & Co]


Great to know that there are still major Consultancy firms ready and willing to wade-in to help firms understand the type of risks that could “kill” an enterprise but about which too little is widely known, less is understood and next to nothing is done to extend the current “risk horizon” or to build RESILIENCE into the Commercial/Corporate defences.

Of course the following perspective is certainly not the only one available…”Black Swans”, Systemic Risk, Complexity, Uncertainty are topics that I have covered in this blog on MANY occasions…but it is worth a read. It may answer some questions or prompt new one’s, either way, you will have given the matter further thought and, if it leads you to a more resilient enterprise, the benefits will be communicated to others…and you can thank me later!

These events can threaten a com­pany’s survival, and boards and senior leaders are responsible for protecting shareholders and other stakeholders. They must ask, What else can go wrong?

A Disrupter Analysis Stress Test

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Fragile or Agile?:: the Law of Requisite Variety [Ashby’s Law]


The Law of Requisite Variety

I am sorry to say that I don’t know too many leaders who have acted or are prepared to act to create agile, service-orientated systems “because of the economy”! That is why operations, whose owners fail to adapt to a changed environment become UNSUSTAINABLE &FRAGILE.

Voilà! VOLATILITY & UNCERTAINTY…what better reasons to build-in resilience???

“Controlling the environment” is a pretty tall order, so I prefer to focus upon tasks us mere mortals can tackle. For example, tackling systems built to manage people, their “ambiguous” strategies and the culture that it spawned. These add complexity that impairs the effectiveness of the business to perform the functions for which it was created. Aligning the digital structure of the business to the “effective information-flow” in its sub- systems and ecosystem, creates a responsive, adaptable, business that can work to attain the “requisite variety” to regulate the system. Result: RESILIENT & SUSTAINABLE

Since customer needs come in all shapes and sizes, variety is a fact of life in any service business.

The Law of Requisite Variety, also known as Ashby’s Law, for the neuroscientist who first formulated it, says that any control system must be capable of a number of possible states that is greater than or equal to the number of states in the system to be controlled*.

In other words, if there is variety in the environment you need enough variety in your system to absorb it effectively. Think of a juggler: no matter how skilled the juggler, there will always be a point where there are too many possible states for the juggler’s mind and hands to maintain control.

There are two ways to deal with variety. You can reduce variety by standardising inputs and controlling the environment as much as possible, or you can design a system that’s capable of absorbing more variety.

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?

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Kodak:: NOT too big to fail…and not alone!


In the Digital Age, inter-connected “business systems” have transformed the business environment, at a pace that exposed the fragility of the institutional model: financial; political; religious; media.

A, morally and financially, corrupt “ME culture”, that spread, like a virus, ‘hidden’ in a high growth, high leverage, high DEBT banking model that, by disguising debt as credit, created addicts hooked on the illusion of prosperity whilst feeding the greed of its creators and exponential growth in financial and social inequality.

Self-similar [self-serving] hierarchical structures and unsustainable strategies.

A model, so unused to dealing with negative ‘feedback’, that its most successful exponents became highly skilled in the arts of ambiguity and manipulation. Accompanied by the inability to distinguish good from bad or fact from fiction, they unquestioningly executed strategies born of, obviously, flawed theories and, like joining Cosa Nostra, once you’re in getting out is a little tricky!

Such self-serving enterprises, lacking in meaningful two-way communication and unable, or willing, to discern noise from signals can ‘miss’ vital signs in their environment. The excessive complexity and close-coupled relationships, it has created to strip value from the system, impedes the ability to adapt at the pace of more ‘agile’ competitors.

Fragile in an uncertain economic environment; vulnerable to the impact of “minor” internal or external sudden – unforeseen NOT unforeseeable – changes.

These once mighty institutions are under increasing pressure from, innovative, client-centric “hub & spoke” business models; transparent; structured and aligned to aid the [non-linear] digital information-flow that underpins functionality, effectiveness and innovation.