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Tipping point of complexity

Updated: May 8, 2020

When working in large organisations, invariably you will be dealing with a large number of independent actors. There is a direct correlation between complexity and the number of stakeholders vying for their own ideal outcome. This is why traditional project planning for an uncertain future only gives you a warm feeling and is fundamentally useless.

The catalyst for this thinking is a number of our clients have sought to have a simple linear project plan to the future (the underlying assumption is you can predict the future). In a complex system, rather than a linear approach, leaders need to allow solutions to emerge and evolve. 

Our sense was with 5 or more independent actors in an organisation's ecosystems, you have a complex system; which means there are emergent behaviours that are unpredictable. 

An actor might be the customers, the competitors, the regulator, the community etc. Clearly, all organisations have more than 5 independent actors in their ecosystems therefore all live in a complex and unpredictable world. 

The reason is each actor is seeking to optimise their world (not yours) so the interplay between all these optimisation games creates the complexity. For example, while your organisation is trying to maximise its revenue your customers are trying to minimise their costs.

Our research and experience uncovered the tipping point for complexity to be between 4 and 5 independent actors. It is important to understand the framework in which decisions are being made, as this will dictate the appropriate method and planning models that should be implemented and whether it should be adaptive or predictive. 

In Harvard Business Review's article, A Leader's Framework for Decision Making by David J. Snowden and Mary E. Boone a distinction is made between four domains:

1. Simple

2. Complicated

3. Complex 

4. Chaotic

We argue that developing an organisation's strategy, fits in the Complex domain, which "is the realm of “unknown unknowns,” and it is the domain to which much of contemporary business has shifted.

In complex environments you have 'emergent behaviour' that can not be predicted, for example new entrants are coming into the market, existing players are adapting or failing, customers are learning how to optimise their situation. Given all these concurrent changes it is not possible to predict how this will play out. The best approach in this environment of "unknown unknowns" is to anticipate, form a hypothesis, act, learn and adapt; which is the approach used by Waterfield's StrategyConnect 90 Day Action Learning Cycle.

The article talks to the Cynefin Framework which has influenced our work. Using the Cynefin framework can help executives sense which context they are in so that they can not only make better decisions but also avoid the problems that arise when their preferred management style causes them to make mistakes.

Kevin Nuttall

Director, Waterfield

*An Extract from Article

Complex Contexts: The Domain of Emergence

In a complicated context, at least one right answer exists. In a complex context, however, right answers can’t be ferreted out. It’s like the difference between, say, a Ferrari and the Brazilian rainforest. Ferraris are complicated machines, but an expert mechanic can take one apart and reassemble it without changing a thing. The car is static, and the whole is the sum of its parts. The rainforest, on the other hand, is in constant flux—a species becomes extinct, weather patterns change, an agricultural project reroutes a water source—and the whole is far more than the sum of its parts.

This is the realm of “unknown unknowns,” and it is the domain to which much of contemporary business has shifted.Most situations and decisions in organizations are complex because some major change—a bad quarter, a shift in management, a merger or acquisition—introduces unpredictability and flux. In this domain, we can understand why things happen only in retrospect. Instructive patterns, however, can emerge if the leader conducts experiments that are safe to fail. That is why, instead of attempting to impose a course of action, leaders must patiently allow the path forward to reveal itself. They need to probe first, then sense, and then respond. There is a scene in the film Apollo 13 when the astronauts encounter a crisis (“Houston, we have a problem”) that moves the situation into a complex domain. A group of experts is put in a room with a mishmash of materials—bits of plastic and odds and ends that mirror the resources available to the astronauts in flight. Leaders tell the team: This is what you have; find a solution or the astronauts will die. None of those experts knew a priori what would work. Instead, they had to let a solution emerge from the materials at hand. And they succeeded. (Conditions of scarcity often produce more creative results than conditions of abundance.)

Another example comes from YouTube. The founders could not possibly have predicted all the applications for streaming video technology that now exist. Once people started using YouTube creatively, however, the company could support and augment the emerging patterns of use. YouTube has become a popular platform for expressing political views, for example. The company built on this pattern by sponsoring a debate for presidential hopefuls with video feeds from the site.

As in the other contexts, leaders face several challenges in the complex domain. Of primary concern is the temptation to fall back into traditional command-and-control management styles—to demand fail-safe business plans with defined outcomes. Leaders who don’t recognise that a complex domain requires a more experimental mode of management may become impatient when they don’t seem to be achieving the results they were aiming for. They may also find it difficult to tolerate failure, which is an essential aspect of experimental understanding. If they try to over control the organisation, they will preempt the opportunity for informative patterns to emerge. Leaders who try to impose order in a complex context will fail, but those who set the stage, step back a bit, allow patterns to emerge, and determine which ones are desirable will succeed. They will discern many opportunities for innovation, creativity, and new business models.

Further reading on this subject;Harvard Business Review's article, A Leader's Framework for Decision Making by David J. Snowden and Mary E. Boone


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