Can Complexity Thinking Fix Capitalism?


See on Scoop.itComplexity & Resilience

Can Complexity Thinking Advance Management and Fix Capitalism?

David G Wilson‘s insight:

“An intense effort at regulating the banks has side-stepped the root cause—a lack of transparency—and instead has tried to build fences around the problem. But fences won’t help in the case of a global financial meltdown: the amounts of money involved are just too large. If we want to avoid an even larger meltdown in future, the only solution is to have transparency on what the banks are up to. It’s possible that complexity thinkers like Mark Buchanan may be able to help devise mechanisms that constitute a step towards the needed transparency. But the key requirement here is political will to insist on transparency, not the modelling of complexity science”

http://wp.me/p16h8c-1tK

See on www.forbes.com

UK insurance ‘dissected’


I felt compelled to respond to some comments that were prompted by a previous article:

IBM Insurance:: does the industry really care what customers want? I wonder…

The following comments come from a, highly experienced and senior, former insurance executive, who now works for one of the major Global Consulting firms. Obviously I wouldn’t name names without first gaining the approval of the individual in question but I really wanted to share my thoughts. After all that’s why I blog.

For many years I have eagerly anticipated some meaningful debate with thought leaders, passionate or concerned people from within the insurance industry. But I have been, consistently disappointed. I wish I was more confident that these views might spark some meaningful discussion…but I won’t hold my breath!

The comments:

I think David Wilson is making the point that despite the results of the IBM survey, he’s seeing little action from the UK insurance industry. I think at the moment UK and Western European insurers have their hands full with Regulation – Solvency II, RDR – and this is diverting their attention.

Even so, in terms of innovation, UK insurers (or at least Northern European insurers) are seen as leading the global pack in terms of capital effectiveness and optimisation, with the North American market looking to UK as an example of best practice especially in the area of risk management.

My response:

What are the key issues identified:

  1. Compliance with additional Regulation – brought about by cultural, operational and regulatory failures
  2. UK & Europe seen as innovation leaders – based upon the above, should this be the case? And,
  3. capital effectiveness and optimisation – are these correct metrics for innovation and compliance?
  4. risk management – where is the evidence of “best practice”? – I see plenty of evidence of “bad practice” that has become ‘accepted practice’ across the industry. What are current practices in relation to complexity, business resilience and systemic risk?
    Insurance and banking have convinced themselves that they have been/are innovative but, if this is true, why are they the least trusted and most complained about industries according to their customers? Does that not explain the perceived need for more regulation?

Read more of this post

Risk or Uncertainty:: which are we confronted with now?


Listen to the “risk management” fraternity and they will tell you that they know what they are doing, blah, blah but I can, emphatically tell you that THEY DO NOT!

Here is what, the late, Hunt Taylor (former Hedge Fund Manager) had to say about the markets prior to his death in 2006:

“Let us start with what we know. First, these markets look nothing like anything I’ve ever encountered before. Their stunning complexity, the staggering number of tradable instruments and their interconnectedness, the light-speed at which information moves, the degree to which the movement of one instrument triggers nonlinear reactions along chains of related derivatives, and the requisite level of mathematics necessary to price them speak to the reality that we are now sailing in uncharted waters….

“I’ve had 30-plus years of learning experiences in markets, all of which tell me that technology and telecommunications will not do away with human greed and ignorance. I think we will drive the car faster and faster until something bad happens. And I think it will come, like a comet, from that part of the night sky where we least expect it. This is something old.

“I think shocks will come, but they will be shallower, shorter. They will be harder to predict, because we are not really managing risk anymore. We are managing uncertainty – too many new variables, plus leverage on a scale we have never encountered (something borrowed). And, when the inevitable occurs, the buying opportunities that result will be won by the technologically enabled swift.”

Ubiquity, Complexity Theory, and Sandpiles, How Change Happens Read more of this post

“Complexity, Concentration and Contagion”:: Andy Haldane & Bank of England making progress


image

We should all be grateful that “thinkers” like Andy Haldane are in positions of influence. The only problem being that, at the current rate, YET AGAIN, we stand to learn the most painful of lessons after-the-event instead of embracing tools that can provide crisis anticipation or “anticipatory awareness” to (if not avoid) then mitigate the impact of contagion.

The excellent author, Mark Buchanan, recently wrote:

Over the past three decades, the global financial system has become more dynamic and interconnected, more concentrated and complicated than ever before. Financial engineering seems to know no limits to creating new instruments that link institutions in new ways.

Is that a good thing? Or could the resulting financial network be too complex? Or, perhaps, complex in the wrong way?

Read more of this post

Power Laws & Complexity Management


image 

Mark Buchanan is one of the best writers on this most complex of subjects and this article (click on image for link) covers exactly what it says on the tin!

I particularly appreciate that he tackles key aspects of the wider subject in such a manner as to make it readily understood by anyone with a desire to learn and apply what the knowledge.

Business leaders NEED to understand the nature of  complexity and the threat of self-generated risk (excessive complexity for poor structure, processes, etc.): risk resulting from the execution of the processes that facilitate functionality.

Also, to appreciate the systemic risk exposures communicated by organisations with whom they trade…without which they would fail…reinforces the most pressing need for in-depth assessment of existing and prospective partners…both up and downstream.

MB illustrates this point and the exposure that comes from Global Supply Networks “beautifully”, by recounting the sorry tale of the enforced departure of Swedish company Ericsson from the mobile handset market thanks to a factory fire in Mexico!

 

image

Enhanced by Zemanta