Strategy in complexity

by Prof. Uditha Liyanage

Why is it that rise and fall of crude oil prices in the world come as a surprise, not just to the 'man in the street', but to economists and market actors who, one could argue, ought to have known better?

Indeed, why is it that the financial crisis, followed by the broad-ranging economic crisis was not predicted early enough by those whose job it is to track and forecast trends, financial and economic?

Prof. Uditha Liyanage

Is there a flaw in our thinking and analysis of situations, which make us "wonder what happened", after the event, whereas traditional strategic planning models are all about "making it happen", and the traditional forecasting models are supposed to tell us, "what's likely to happen with a probability of X".

In our attempt to comprehend the complexity of the multiple crises we encounter, our traditional mental models of "seeing and thinking about the world" must be examined first, so that strategy making may become a meaningful exercise in the current context.

Influenced by Newtonian physics and Cartesian philosophy, the predominant metaphors in use in organisations over the years, and even today, are those of a machine and a military operation.

Machine metaphor

If an organisation is a machine, then we just need to specify the parts well, and make sure that each part plays its role. Understanding the machine is about knowing the parts and how they work separately and together. If the machine becomes

dysfunctional, then the challenge is to isolate part(s) which is dysfunctional and correct it, so that the whole machine, begins to tick normally. The machine metaphor has dominated managerial thinking for too long (Capra, 1993).

It has made us believe that the machine's behaviour is, by and large, predictable, and the accuracy with which one is able to predict its future behaviour is largely dependent on the amount of accurate information at hand.

The bemoaning of the failure to predict the dramatic rise and fall of oil prices and the unprecedented financial cum economic crises, are perhaps due to the dominance of the machine metaphor that has shaped our world view and dictated our thinking processes.

The second metaphor which has influenced managerial thought is the military operation.

If an organisation is a kind of military operation, then command, control and communication need to be hierarchical; survival is key; and sacrificial heroes are desired. Centralised decision making and the separation between strategic thinking and operations is distinct. Power distance between the strategists and the operatives is significant. Authority, reward and punishment are the central mechanisms of motivation and control of performance.

Traditional approach

The machine and military metaphors, as they characterise our world views and mental models, have failed to help us to comprehend the turbulence and complexity that increasingly define our operating context.

The machine metaphor of the traditional approach entails three basic assumptions: (i) Every observed effect has an observable cause. (ii) Every complicated phenomenon can be understood through analysis, that is, the whole can be understood by taking it apart and studying the pieces. (iii) Sufficient analysis of the past events can create the capacity to predict future events.

These assumptions have often proved to be potent in developing our understanding of the physical world.

They have served us less well, however, in explaining how communities of humans interact and behave. The limitations of this post-enlightenment or modern analytics have now become clear.

The complexity principle dominates post-modern thought, and the centrality of Complex Adaptive Systems (CAS) in understanding phenomena, is an important development of human thought and action.

CAS are special cases of complex systems. They are complex in that they are diverse and made up of multiple interconnected elements, and adaptive in that they have the capacity to change and learn from experience. In a CAS, the agents and the system is self-similar and organised and adaptive. Such systems are characterised by a high degree of adaptive capacity, giving it resilience in the face of perturbation.

Local improvisation

The contrasting collective actions of a marching band and a jazz ensemble will illustrate the nature of a CAS vis-a-vis a determined system. The marching band - a human system - behaves very much like a linear, determined system. In joining this system, individual players voluntarily surrender their right to the local freedom of action.

The band has a single leader who dictates all activity. The range of allowable local improvisation is extremely limited. Viewers may well marvel at the machine-like precision of these bands.

In fact, a part of our fascination comes from the almost unnatural look and feel of such groups.

A very different musical group is the jazz ensemble. There is no hierarchical, linear direction and no mechanical loyalty to a set of prescribed actions. Instead, members agree to subscribe only to a few general rules and are free to improvise widely.

Similar to a flock of birds, the general characteristics of the music can be anticipated but each rendering will be different and often surprising. Such results are not created or directed by individual players, but are emergent responses of the whole system. (Jones W. 2007).

Studies on CAS suggests that creative self-organisation occurs when there is just enough information flow, diversity, connectivity, power differential, and anxiety among the agents of CAS. Too much of any of these can lead to chaotic system behavior.

Too little, and the system remains stuck in a particular pattern of behaviour (i.e. strong organisation culture). Hence, our old world strategy-making processes grounded in stable and predictable contexts may well have to be changed, perhaps abandoned. Instead, we need to adopt Complex Adaptive Systems in which strategy-making becomes more emergent and less determined. Do we have the requisite structures, systems, and cultures for it?

References:

Capra Fritjof (1993), The Tao of Physics, Simon and Schuster, USA.

Jones Wendell (2007), 'Complex Adaptive System', Beyond Intractability, Eds. Guy Burgess and Heidi Burgess, Conflict Research Consortium, University of Colorado, Boulder.

The writer is the Director of the Postgraduate Institute of Management