What is this Chaos & Complexity Stuff?

Ok, let's back up and answer the obvious question: what on earth is this chaos & complexity stuff?

About a decade or so ago, I was introduced to "Surfing the Edge of Chaos" by Richard Pascale, Mark Millemann and Linda Gioja. This book literally shocked me, causing me to re-think EVERYTHING I thought I knew about business.

By EVERYTHING, I mean that I had just finished my PhD a few years before. My dissertation was on business planning and specifically on developing strategy for the fast-growth enterprise. At the time I was Asst. Professor of Entrepreneurship at Alaska Pacific University and I was teaching all this stuff at the MBA level.

With just my first peek at Chaos Theory & Complexity Theory I knew I had to start all over again. I literally had to throw my dissertation away. The economic foundation I had built to drive the development of strategy and the business planning process was riddled with holes - huge, gaping, complex, chaotic holes! This illusion of a foundation was based on the arrogant assumption that somehow we could use concepts of linear or deterministic economics to reliably predict the future. In traditional business planning we acknowledged complexity and chaos (without understanding them!) only in terms of risk that could be dealt with by means of crisis management plans. The more diligent of us wrote even more and better detailed technical plans in a mad scramble to cover every conceivable event only to have these dusty tomes relegated to the highest shelves in every corner office.

I researched more and more trying to rationalize my way out of dealing with these concepts: "you can't stretch these concepts from physics and biology to the social sciences," I pleaded with myself. "Economics doesn't behave this way!" Planning was comfortable. Pro formas were safe (just give them a haircut!). Stability was a goal! Strange Attractors, Fractal Forms, Bifurcation, Time Irreversibility, Sensitivity to Initial Conditions, Complex Adaptive Systems. It had to be drivel - probably just the stuff of consultants!

But I knew these concept would prove to be true. All of them. I knew it from the very first few pages of Surfing the Edge of Chaos. I even think the authors knew this would happen - they don't even start Part One until Chapter Two, as if they knew readers would need time to compose themselves.

So, what was I to do? I had to search through the debris of my dissertation to find something I could use to rebuild my theory of strategy development - someplace I could start. I settled on Collins & Porras. They were still right. Vision was still the basis of all strategy.

Collins & Porras described vision in two ways:

-       Core Values and Beliefs. An organization should be prepared to change EVERYTHING about itself at a moment’s notice EXCEPT its core values and beliefs. I absolutely concur. This is still the rock foundation we can stand on.

-       Purpose. Collins & Porras describe a technique known as the “5 Why’s” to divine purpose. It answers the simple question, “what’s the point of doing all this stuff?” Once again, I couldn't agree more. The purpose statement acts as a guiding star, never a destination. It should be unreasonable and unattainable.

So maybe this journey through chaos and complexity is possible? We know, as an organization, what we believe in and we agree on the "Why." There's still a few more useful pieces from my dissertation lying around: BHAG's, missions, goals, business models, revenue models, commander's intent, positioning. However, it seems some of these tools might be more useful if they are used in different ways, so I'll come back to them another time. Let's walk through some of the concepts of chaos and complexity theory I mentioned above:

-       Sensitivity to Initial Conditions.  Initial inputs to a complex system can cause the system to react in unpredictable (and nonlinear) ways.  Using exactly the same or only slightly different variables in a model will not result in the same outcomes in a complex system. A sister concept is the law of increasing returns, such as Metcalfe's law (the value of a network is proportional to the square of the connected users.)

-       Time Irreversibility. In a complex system, there is never the same context twice. For example, this is one of the challenges of quality management, in that "you never step in the same river twice."

-       Strange Attractors.  Attractors are like the influence of gravity, sets of values to which a system migrates over time. Understand that organizations have "attractors" that cause the behavior of the organization to migrate over time. Guy Kawazaki in his phenomenal book "Rules for Revolutionaries" referred to some attractors as "death traps" for businesses.

-       Fractal Forms. A fractal is any curve or surface that is independent of scale. This is often referred to as "self-similarity,"where any segment, if magnified in scale, appears identical to the whole curve. In business we could say that different levels of an organization resemble or echo others.

-       Bifurcation. Bifurcation is the sudden appearance of qualitatively different solutions to the equations for a nonlinear system as a parameter is varied. In a complex adaptive system, this can explain why different solutions emerge from different groups within an organization. This can be a key tool for innovation and creativity for an organization.

-       Complex Adaptive Systems. Rather than control an organization, management should install feedback systems in the organization in order to “encourage those activities that would tend to accomplish a goal, or discourage those activities which would tend to detract from a goal. Understand the long-term behavior of an organization is unpredictable. Do not believe for a moment the arrogance of predicting an outcome. 

Now that we are marching down this path of chaos and strategy, I should stress that chaos is not anarchy. It is not random. Chaos is often defined as a pattern you do not recognize. This is not a concept reserved for poorly performing organizations. Indeed, the larger, more complex and most stable organizations in the world are probably the biggest candidates for this shift in thinking.

Bruce Borup