Complexity Theory and The Corporate World

How can we design organisations so that they will yield successful outcomes?

To date the received wisdom is as follows:

There should be Chief Executive Officer overseeing a tightly knit management team with a vision or strategic intent deeply embedded in the corporate culture. The organisation will focus on its core business and competencies, it will build on its strengths, it will adapt to its market environment and at all time it will not loose sight of its bottom line. Strategic management is build around, goal formation, environment evaluation, strategy formulation, evaluation and implementation, and strategic controls to report on progress and correct any deviations.

Currently the business world is littered with examples world where the above approach has not worked. In spite of this the classical strategic management approach is not questioned and its current failings explained as having been caused by the wrong goals or the inability to correct on deviations instead, or indeed even random factors.

Underlying all current strategic management thinking is the over rationalist mindset which has dominated since the triumphs of Newton and Descartes. The organisation, like the World, in principle is entirely predictable. The unquestioned assumption is that successful organisations are systems tending towards stable equilibrium adaptation to their market, societal and political environment. A stable equilibrium system is a system that behaves in a predictable manner and consequently if it is disturbed, provided management can identify these changes and the corrective actions are taken, it will return to equilibrium.

And what is wrong with that? There are 3 main criticisms of the prevailing thinking hitherto:

  1. The belief that organisations operate in "stable environments" with an equilibrium state.
  2. The future can be tamed and to some degree predicted by rational analysis
  3. The implicit assumptions of linearity y in our thinking (i.e. given an input you could work-out the output).

Complexity theory studies the fundamental properties of nonlinear feedback systems and particularly complex adaptive networks. This idea is a quite specific one, and should not be confused with the vaguer notion of complicated-ness.

A complex system is one made up of many independent agents interacting with each other (perhaps in many ways, according to a set of rules), and interacting with their changing environment. The environment may be changing independently, but also may be changing partly as a result of the behaviour of the agents.

Such systems are described as complex because the nature of the interaction cannot be adequately represented by linear mathematics and consequently not predictable.

If Strategic Management is no longer applicable, how do you manage an organisation?

The study of complexity does not offer an immediate guide to action for the individual firm. But changing our view of the way in which social systems such as firms operate may change quite fundamentally our views about their management.

Which new views should we espouse?

  1. Spontaneous Self-Organisation i.e. systems are capable of self-organisation without any human intervention (e.g. a market or a biological system)
  2. Adaptivity . i.e. firms evolve for better survival in a changing environment as opposed to responding passively to changes in the environment.

An organisation can be seen from two distinct perspectives:

  1. It can be seen as an agent interacting in competition with other firms within the larger business environment of the industry, the economy and society. In this perspective, the problem for managers of the firm is to identify those strategies which will improve the fitness of the firm to survive in the changing environment. This has been the approach hitherto.
  2. The second perspective is to regard the firm itself as a complex adaptive system, within which individuals and groups interact. The task of management is then seen to be to bring about those changes within the firm which will improve the learning, i.e. adaptive, capabilities of the firm itself.

Overall Complexity Theory asks us to concentrate on the objectives and strategies for survival instead of those for optimisations (associated with the paradigm of certainty and linearity).

From Chaos have evolved some of the most successful complex Systems to date, including Life.

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