Business Fractals: THE MEANING OF COMPLEXITY


When it comes to being trained or gaining a hands-on understanding of business management I doubt that much thought ever went into considering the 2nd Law of Thermodynamics!? But, then again, much of what is still taught (and therefore understood) about business management requires such a radical change of mindset (&/or revisiting cybernetics/VSM) that only something akin to transformation will suffice. Because business in the Digital Age has changed…permanently!

The nature and scale of change, over the last half century, has been dramatic. The inter-connectedness and pace of change has accelerated during the last decade. Yet, we continue to take so much for granted that we have kept faith with tools and techniques that lack the requisite variety to deal with the business systems they are intended for. Furthermore, Business Management, like Risk Management, Actuarial science and Economics, were never sufficiently rigorous to be considered as remotely scientific. A point that has been illustrated time and again but, unsurprisingly, practitioners find the facts somewhat difficult to accept. Hence the business as usual mentality with the ongoing problems it creates! Read more of this post

Even when the DNA is similar “we can’t fix today’s problems with yesterday’s tools”:: Part 3


WARNING THE FOLLOWING ARE BAD FOR THE HEALTH OF A BUSINESS SYSTEM:

EXCESSIVE COMPLEXITY can come in a wide variety of forms: flawed economic theory; excessive debt (measured in relation to the requisite complexity of the system); poor or misguided Governance [instead of homoeostasis for business]; general/risk management or accounting practices that “constrain” the system in pursuit of skewed rewards or excessive returns*; misaligned operational structure & IT;  or processes &/or products; product, culture and strategy ambiguity (that hamper information-flow);  lack of “requisite variety”; assumptions or decisions based upon correlations in incomplete or misleading data…all very dangerous for individual financial systems and those connected to it, irrespective of scale or domain.

*the assumption that, because we know (knew) how to manage complicated systems, we know how to do likewise with complex systems is, evidently, wrong and dangerous.

We continue to be limited by our own knowledge, thus, invite disaster. We prefer faux certainty (a projection of the future based upon our past) to the reality of uncertainty and, as a result, when disaster strikes, we are prone to “label” what was unforeseen as unforeseeable…that suggests that we have looked but did not see! When, too often, the truth is that we didn’t look but assumed. Or “overlooked” by failing to utilise the tools available to us. Read more of this post

Even when the DNA is similar “we can’t fix today’s problems with yesterday’s tools”:: Part 2


INFORMATION – INTELLIGENCE – INNOVATION have transformed our INVENTIONS, theories and practices to such an extent that we need to be aware of the limitations of our knowledge: we MUST question what we “know”…not so much a case of familiarity breeding contempt but leading to “ignorance” and increasing risk.

The complexity of some man-made systems has so outstripped our ability to manage them that, increasingly, we need to draw upon our observations of the complex systems found in nature 

“The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.”

Practice without sound theory will not scale…but it WILL expose and “amplify”, wrong assumptions, errors & omissions

The irreversible complexity of man-made systems* e.g. communications, IT, transport, economic, financial, business, logistics, business, etc. have outstripped our ability to understand, maintain, manage or repair flaws without the tools and techniques that enable us to examine the relevant system components and relationships at a variety of scales [micro – macro – holistic]: Law of Requisite Variety (refer Part 1). Read more of this post

Even when the DNA is similar “we can’t fix today’s problems with yesterday’s tools”:: Part 1


This quote is from David Cole (Chief Risk Officer, Swiss Re) and, needless to say, he wasn’t talking about fixing his 30 year old VW Golf! He was actually talking about our current “economic ills” and the quote appeared in relation to the 2012 Global Risks report from WEF…but the Principle readily applies to both.

Circa 35 years ago, the engine of a popular family vehicle was a complicated machine, that could be maintained, faults identified, performance improved and mechanical repairs undertaken, even at roadside, by an enthusiastic amateur. Observation, diagnosis or intervention at the appropriate stage in the process was possible. However, in a relatively short period of time, these machines have evolved into highly complex systems. The complexity is such that, even a skilled motor mechanic armed with 30+ years knowledge and tools that have changed little, can be rendered helpless.

Read more of this post

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.