Complexity is risk
Have you noticed how people that are neck deep in complexity almost always ask for a standardized solution? And they supposedly do this to regain oversight.And in reverse; have you noticed how people that have everything neatly packed in small modular boxes almost always ask for some highly customized guerilla tactic – which inherently adds complexity?
Well, no matter how you answer both of these questions, you might know that they are really part of another phenomenon, namely they are about risk.
Like particles and waves is a duality in elementary particle physics, so is complexity and risk a duality in corporate management. On the surface there hardly seems to be any overlap in complexity theory and the mathematical formulas of contemporary risk management. For example, think about how risk can be bought and sold like regular merchandise. On the other hand, complexity isn’t perceived as something belonging to the free market in the same sense. Instead, it is more often perceived to be a quality description on the free market itself. This is not incorrect (since the free market is indeed chaotic), but neither is it the entire truth.
Most evidently today is the fact that complexity theory is used in the field of strategic management and organizational studies, and is sometimes called complexity strategy. And ascending even further towards the philosophical foundation of each phenomenon, clearly reveal the same underlying mechanisms for managing both.
Which side are you on?
The amazing, almost perplexing thing about complexity and risk is that for over half a century two completely separate communities of practice (at least that’s how we’re trained to perceive them) have a lot in common. Both communities can be found in every “modern” company today and even though they have co-existed for so long, they haven’t shared notes with each other yet! They themselves speak about a huge and famous gap that lies between them and requires extra-ordinary talent to cross (and like most of everything else that’s also attributed famous, it’s most likely because there are massive amounts of money involved).
In case you’re wondering, I’m talking about the business and technology side of every company in Sweden and around the World.
And what were you taught?
While the curriculum of all renowned business schools naturally includes risk analysis, risk configuration, and risk management, the technologists educations are all almost totally void of such topics.
Clarifying the qualifying last statement, I purposefully ignored the probabilistic fault-tree analysis technique, mainly because almost all engineering students seem to think it’s utterly boring – or at least irrelevant compared to … well… every other course. And, as a consequence they forget about it almost immediately after exam, and as such, fault-tree analysis has not enjoyed any success in mainstream companies today.
I’m also ignoring nuclear scientists, who actually are the only branch of technologists that have a sound risk based approach to building complex systems. In fact (and according to Massachusetts Institute of Technology, USA), they actually teach their students about “probability and its applications to reliability, quality control, and risk assessment”!! (I’m restraining myself to two explanation marks, since three exclamation marks in succession, at least according to British classical scholars, means that the author is most likely insane). Further to this, it should come as no surprise that they, the nuclear scientists, also use this acquired knowledge at their workplace all the time (except for disastrous lapses in quality control now and then, most notably in Chernobyl 1986).
A workforce, with such a high understanding of risk, would be very beneficial for mainstream companies. But alas, when have you ever seen a nuclear scientist in the position as your company’s CEO, CTO, CDO, Enterprise Architect or anything similar? They simply seem unwilling to take that particular risk (well, except if you’re an employee at the pan-European research facility CERN, then even the janitor is believed to be a nuclear scientist.)
The future is risky
There is risk in every decision we make and as the Managing Director of Avega Öresund in Sweden, Fredrik Hellström also points out; “There is also a risk in doing nothing”. What he means is that every unary decision in reality is a binary risk assessment, and that every binary decision in reality is a tertiary risk assessment, and so forth.
While there are already many different ways to manage risk in companies today – from CEO to CFO and PM’s – it’s a matter of fact that the entire technology side has no concept of risk. And since risk management is the raison d’être of every other office throughout the company, why not let it span the entire company? Why not let risk management be the cornerstone of every decision made in the office of the CIO, the CTO, the CDO, and the Enterprise Architect?
The best thing about this proposition is that the current CIO and his fellow companions don’t have to begin everything from scratch, since they are actually (or at least should be) schooled in something quite similar, namely the complexity phenomenon we addressed in the beginning. They already have a complexity mind-set and culture; it’s just not used for business, yet.
Steps to better complexity management
Technologists that understand their complexities can more easily identify those for which they have a natural competitive advantage and those they should seek to transfer or mitigate. With that clarity, a technological landscape's capacity and appetite for complexity are easier to assess, such that it can deliver the promised returns. Those assessments should inform decision making at all levels. At the same time it should be clearly understood how business changes affect the technological landscape’s complexity profile, and if it is still consistent with their approach to complexity. Lastly, every technologist should think about which systems and infrastructure, that most effectively can monitor and manage their complexities.
And when it comes to cutting costs, there is nothing better than having complexity under control.
Notes
For unknown reasons, people from Denmark have a proverb describing what not to do when faced with too much complexity. Loosely translated it says; “If you're up to your neck in s***, don't hang your head" (From Danish; “Hvis du star i lort til halsen, skal du ikke hænge med hovedet”)
The image is of Thaddeus Beal, an artist resident in USA, and is called Spring Convergence (2005). Thaddeus Beal explores graph theory, complexity theory, and chaos theory to determine the fundamental order in his compositions. Hopefully he doesn’t mind me promoting his artwork.
References (in alphabetical order)
- Kevin Buehler, Andrew Freeman & Ron Hulme, The New Arsenal of Risk Management, Harvard Business Review, September 2008.
- Kevin Buehler, Andrew Freeman & Ron Hulme, Owning the Right Risks, Harvard Business Review, September 2008.
- René M. Stulz, 6 Ways Companies Mismanage Risk, Harvard business Review, March 2009.
- Richard P. Feynman, Robert B. Leighton & Matthew Sands, The Feynman Lectures on Physics, Volume 3: Quantum Mechanics, Addison-Wesley, 1964.
- Yaneer Bar-Yam, Making Things Work: Solving Complex Problems in a Complex World, Knowledge Press, 2005.
Postad av Martin Kaarup
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Kategorier:
Complex Systems Theory
Complexity Theory
Risk Management
