Strategic Planning Harnessing Chaos
June 22, 2009
Welcome Back. We've got lots of in depth business strategy to share with you today.Perhaps there’s no hope for the hall closet, but take the thought experiment to another arena—your business strategy, or your market. Naïve is the executive who claims to control her company’s smallest details; a degree of uncontrollable uncertainty exists in every people-dependent system. In the last fifty years, that common-sense statement has become quantified in the form of chaos theory and its daughter, complexity theory. The business relevance of these two models demands an active and adaptive response from forward-thinking strategic planning executives and managers.
The world is chaotic and complex. What’s new?
Chaos theory endeavors to explain any system whose end results are “sensitive to [the system’s] initial conditions.” This sort of system, though mathematically regular, seems random. Chaos science made its public debut when meteorologist Edward Lorenz serendipitously failed in his attempt to predict the weather by computer; the pattern the program produced became the model for chaotic behavior. The chaos theory phenomenon itself exploded from its starting point and has appeared in myriad arenas, revealing patterns in everything from family dynamics to dripping faucets. Theorists famously claim that a Japanese butterfly’s slightest flutter can wreak weather havoc in Iowa.
Chaos theory’s application to the business world depends on its close relative, complexity theory. Complexity theory offers an apparently anti-scientific approach to science: it rejects the investigative methods of breakdown and categorization. Instead, complexity theorists examine a system at its macro level, focusing attention on the interactions among individuals—not the individuals themselves. The theory assumes that a complex system—like a company—is only a bundle of interactive simple systems.
Stemming from complex-ity theory, and vital to business, is the biological concept of emergent properties. According to this theory, some of a system’s macro-characteristics are not shared by the system’s individual members. (None of the molecules in your body, for instance, becomes nervous—but you do; an individual raccoon cannot exhibit a birth rate, but a community of raccoons does.) Emergent properties do not violate principles that operate at lower levels of organization,” states one college biology textbook; “however, emergent properties usually cannot be detected or even suspected by studying lower levels.” The apparently random macro-properties of any system stem from interactions, not from individuals.
Most complex biological systems, left alone, adapt fluidly to their environments. If a herd’s life-or-death success depended on one antelope, one ill-timed rainstorm could be catastrophic. But the interactions of the herd’s members—not the members themselves—drive its success; mistakes are diffused and triumphs shared.
Why chaos and complexity matter in business?
Businesses are chaotic. Obviously, life in business is chaotic: employees are uncontrollable, shareholders seldom pleased, the market up one day and down the next. But “chaos” in the colloquial sense—craziness, unmanageability—isn’t chaos theory’s final frontier in business. And chaos’s application to business is not metaphorical. “It’s not about saying let’s look at business organizations as if they are complex systems,” says Roger Lewin, co-author of The Soul at Work: Embracing Complexity Science for Business Success. “They are complex systems.”
Any company is comprised of “parts”: business units, branches, hierarchical levels. The company depends on individual people and individuals’ individual projects. In theory, if all of these elements work together, the system functions perfectly: Accounting’s numbers agree with managers’ demands, and each department earns its keep. But it doesn’t take a chaos scientist to observe the results of one interaction—between departments, or even between individual people—gone awry. It is these unquantifiable, uncontrollable interactions that actually determine the dynamic of any company.
Markets are chaotic.
Markets are also complex systems, but they are not—nor can they be—top-controlled like individual companies. They are fluid and allow for change, and this keeps them afloat. According to Foster and Kaplan, markets generally “perform better than corporations because markets allow new companies to enter more freely.” In order for a company to perform well in a given industry, it must simultaneously mirror and lead that industry as often as possible. Only a company cognizant of the important interactions between its members can gain market-like flexibility. A corporation emphasizing rigid microcontrol is quickly shattered by industry’s chaotic elasticity.
Comments
3 Responses to “Strategic Planning Harnessing Chaos”
Got something to say?
I fully agree. Complexity isn’t some kind of metaphor that we can use as a substitute for “things are really busy around here.” The systems of interaction that we are part of in our work and life arise from the myriad interactions of smaller subparts in a scale that can be pursued right on down to the smallest bits and then on up the scale as well.
Trying to understand how such ideas should change the way we lead or manage is a very important task, one that I’m committed to pursuing as we seek to co-create resilient organizations and institutions that can fulfill their work today be prepared for a future that is most certainly uncertain.
I’ve written a small pocketbook that takes a swing at some of those elements and from which further work can be undertaken. Thanks for the post and for recognizing that complexity goes well beyond the metaphorical and is instead based on a growing base of sound research.
Bob,
This is a great series and I just shared it with my twitter followers. You may want to consider joining twitter, if you haven’t already!
Beth
Glad you enjoyed the series. I will be working on more of the same in the months to come. I have joined Twitter, but have done very much yet. (http://twitter.com/BobJonas). Bob