Harnessing ComplexityRevisiting the Assumptions of Organizations in Uncertain Environment:Today Business and Organizations must learn to deal with uncertainty and complexity related to production and delivery of increasingly complex products and services in a rapidly changing uncertain environment. At times this raises and challenges the thoughts concerning the effectiveness of traditional management methods, which primarily lay emphasis on efficiency and strategic planning and control. An organization in today’s context to be successful must learn to adapt, change and be creative. Survival today requires that businesses to learn to bring about self-transformation with a view to adopt and change to harness and gain from complexity and uncertainty

The future is fundamentally uncertain, yet there are discernable directions, even if signs point to conflicting and multiple outcomes. For some, uncertainty justifies not thinking about the future, while for others the uncertainty is a source of opportunity. Without a concerted effort to be future-focused, organizations run grave risks of diminished importance or even oblivion in the fluctuating world of the early 21st century. Thinking about the future increases the likelihood of success in the long run.

Industrialized countries are in a process of fundamental and rapid change. The globalization of firms and markets has been the driving force behind a radical transformation process, which has gained momentum with the information technology revolution and the liberalization and deregulation of markets. Globalization can be seen as a new stage in the development of the world economy; thereby implying the merging of national markets into one borderless world markets, where as "internationalization" in this context would refer to increasing border-crossing economic activities. This has resulted in a growing worldwide integration and interpenetration of economic activities. It has created new bases of competition such as quality and time, besides intensifying price and cost competition by eroding national monopolies or oligopolies,

All global players now must be able to produce high quality products on low costs, sell them at a reasonable price and deliver them quickly and in time.

Easier said then done, meeting the above competition criteria is not enough there is growing need for today; firms’ competitiveness to depends increasingly on their capability to continuously innovate new products and processes that better meet the demands of customers. Innovative companies enjoy first-mover advantages in the product market and hence are able to charge

When faced with shifting market dynamics, emerging competitive threats, strategic mergers, technology breakthrough or governmental imperatives, organizations must learn to redefine and transform themselves, by building new capabilities as they move ahead. Identifying and responding to undefined opportunities demands a deep understanding of values and clear vision. Given this mandate it is really tough to identify new opportunities, launch new ventures and build them into viable propositions.

Many organizations long for more stability, however savvy enterprises recognizes that this present challenging environment provides fertile ground for finding and exploiting opportunities provided

they know how to adopt and acquire ability to become responsive towards the environment in which they compete and operate.

The pressures facing multi businesses firms are multifaceted and unprecedented. The demand is for having organizations designed to adapt to uncertain environment backed with powerful corporate strategy. With competition intensifying companies are now discovering that success depends on the combined assets, skills and capabilities of the firm as whole and not silos.

As the market place changes and evolves, the task of delivering outstanding sustainable performance has become highly complex. Increasingly it involves the organizational design of management structures and control systems that drive the strategic change, capitalize on new opportunities, and minimize risk all without hindering the company’s flexibility and creativity.

Organizations who focus solely on core competencies and existing efficient processes often become loser and those who remain successful do so by managing short run excellence even as they drive long term innovation and change. All this calls for leading change and organizational renewal, building organizational architecture that drives both incremental and disruptive innovations and technology.

If we look at as to what has changed in last few decades then we find that business today is being impacted by multiple forces, economic shocks, atomization of markets and demands, borderless commerce, advances in technology, a sense of acceleration and deconstruction of business. Monolithic markets of nineties have now migrated to micro-segmentation, multiple competitors and short product cycles. Size does not guarantee continued success nor does a good reputation. Of the 500 fortune companies, only few have figured in the top 100 list. Clearly business is under an unprecedented pressure to perform and the key to perform in this highly turbulent environment is to anticipate the future and work towards it.

Responsiveness to change “It is not the strongest, who survives, nor the most intelligent but those, most responsive to change” – Charles Darwin. The need as of now is to focus on innovation and acquire ability to be responsive to change, quality and process improvement, adoption of sound values and management by fact and feedback. Ultimately the responsiveness will turn out to be the difference between survival and demise. Rapid rates of change, an explosion of new insights from the life sciences, and the insufficiency of the old machine model to explain how business today really works have revolutionized management thinking.

One of the biggest rewards from harnessing the complexity is achieving high rate of delivery of new products and services coupled with rapid adaptation to changing conditions. By investing in complexity organization develop products and services through captive supply chain, the model of Self organizing networks. Innovative products and services emerge as a result of a changing pattern of collaboration of network of suppliers, both by competing and co-operating, each expert in its own domain. Organizing networks of captive supply chain is characterized by long term relationships between the network participants, but does not always require the same partners to be involved always and thus offer flexibility in terms of need base association and separation for the production and delivery of different products and services.

According to Richard Pascale if you want your company to stay alive and then try running it like a living organism, where the first rule of life is also the first rule of business – Adapt or die.

Four Common Principles of Life and Business1 Equilibrium is a precursor to death

When a living system is in a state of equilibrium, it is less responsive to the changes that are occurring around it. It is most at risk when it feels most secure. Organizations often aim for equilibrium, for a short period of time equilibrium is fine but prolonged equilibrium lulls organization into comfortable routines. “The Law of Requisite variety” states for any system to adapt to its environment, it has to incorporate requisite internal variety to cope with variety from outside – the environment. Too much equilibrium can be mortal, because when rules of the game changes once the winning formula for any organization becomes their own worst enemy. It is evident that when the world around is changing fast at unprecedented rate for any organization maintaining equilibrium is a threat to its future existence. Organizations need new kind of agility that enables them to reinvent. One of the recent examples is the demise of one of the great commercial Banks, J.P MorganGE Capital Corp makes small acquisitions to revitalize their corporate gene pool. It amplifies survival threats and foster disequilibrium to evoke fresh ideas and innovative responses. Similarly companies like Capital One, Cisco and many more follow the same pattern of creating disequilibrium.

2 When threatened or when galvanized by a compelling opportunity, living things move towards the edge of chaosThis evokes higher levels of mutations and experimentation and is more likely to result in fresh new solutions. The edge of chaos is a condition, not a location. The objective is not chaos but the edge of chaos, where there are more mutations and more possibility for serendipity. Think about deadlines. When a deadline is far away, not much happens. As the deadline approaches we feel the kick and start working to fulfill the same. If we wait for too long, and try to do too much in too short of time, we freeze up and crash – in other words we have gone over the edge into chaos. So it is very essential to understand the difference between the two, as one is constructive and drive the passion to work and excel whereas other is destructive and kills the motivation.Reaching the location of edge of chaos calls for business associates to have charters to innovate, visualizing themselves to the repository of ideas i.e. obsessed with creativity. However one has to be cautious of not crossing the border and landing in a location of complete chaos i.e. going off the edge completely. Allow associates to view themselves as entrepreneurs who are responsible for identifying and creating new business ideas and solutions. Does this means that the edge of chaos is a condition of relentless discomfort? The answer lies in the fact that it is always uncomfortable when an environment has aspirations or structures that are so strong that your discomfort makes you constantly hone your competitive edge. On the other hand completely chaotic systems and organizations are non productive and destructive by nature. So it is of utmost importance to find the edge of chaos, where company can experience

upheaval but not dissolution. Edge of chaos should be viewed as situation for productive change. We can think of company 3M that foster this culture across the organization.

3 As living things move closer to the edge of chaos, they have a tendency to self-organize, and new form emerges from the turmoil.It refers to ‘Self-organization” and emergence which is a major source of innovation, creativity and evolution. Organizations should be designed to exhibit self-organization and emergent behaviors. Think of as to how Linux has spread. It represents an organization of open system software programmers, who have managed to generate software for servers that host almost more than 35% of the Web applications. These programmers represent an organization of people, all independent, who come up with effective and robust solutions in their software because it’s constantly being tested and evolving in real time.

Another example of successful self-organizing system could be cited as of Tupperware worldwide. Each dealer is self-employed and must recruit others to host parties, those who excel, as a host becomes dealers and the most successful dealers become the Team leaders. It is claimed that more than 80% of homes in USA alone have at least one Tupperware product in them.

If you are attempting a fundamental reinvention of how your organization approaches the world, then clearly you need that collective intelligence, so as to arrive at solutions that all of the stakeholders have to say and can come to grips with.The way we manage organization will increasingly lays it foundation on living systems. In fact an organization is a living system, once we get the foundation of how living things work then the idea like self directing teams will become part of a fundamental set of beliefs which states very clearly that in this era of change, we must enroll the entire organization in discovering the way ahead.Chaos is not the random, lawless, and meaningless behaviour it appears to be. Instead, chaos is stable globally and unpredictable locally

4 Living systems cannot be directed along a linear path.Unforeseen consequences are inevitable. The challenge is to learn how to disturb them in a manner that approximates the desired outcome and then to correct the course as the outcome unfolds. Unforeseen consequences are inevitable. The real challenge is to disturb them in a manner that approximates the desired outcome.Disturb, don’t direct means that we must rethink our old notions of social engineering within the companies. Leaders must change their outlook of preconception that their job is to make hierarchy perform. Today’s leader must remember that they need to design organizational structures that are adaptable to change – self-reorganizing. They all need to understand that in living systems, things happen that they can’t predict, and once they do, then those events can set off avalanches with consequences that they could have never imagined.

Reorganizing for Emergence

At this point of discussion we can conclude that business doesn’t unfold in a predictable, linear manner, so we need to carefully think upon the rules, principles, inferences that we can draw that most apply to this hyper turbulent and dynamic environment where nothing is certain. If we analyse the above statement carefully then it simply implies that success of an organization in futre depends on its ability to plan the business scenarios well in advance and accordingly reconfigure its resource base with reference to participants of its value chain.

We can think of no concrete solutions however one can frame certain basic guidelines and they are enumerated as follows:

1 Design, don’t engineer2 Discover, don’t dictate3 Decipher, don’t pre assume

Evolve design principles that disturb, but don’t direct. People often rely on social engineering to create and enforce the rules, so it is better to design rather to dictate. As events unfold, figure it out the effects – things that could never be predicted, but that need to be considered mainly because outcomes can’t be dictated they have to be discovered as and when they happen. Once outcomes start emerging you can’t dictate the fastest solution everywhere. You need to Decipher, and not pre suppose, and this calls for creating a design for an organization that allows a community to lean from itself, to come up with its own solutions to its problems. And then to have restraint not to try to impose those solutions on every other community in the name of efficiency as each living system has unique DNA pool and the same cannot be replicated exactly. Organizations are living systems having their own gene pool and hence will have different approaches and styles of dealing with uncertainties prevailing in the environment in which they compete and operate. Through self-organization, the behavior of the group emerges from the collective interactions of all the individuals. Often individuals if follow simple rules, the resulting group behavior can be surprisingly complex and remarkably effective. Organizations that will last for long need to certain attributes such as Flexibility, Robustness and Self organizing. We need to think today’s organization as self directing living entity where role of leaders is to provide enough fertile ground where self awareness and realization leads to intrinsic motivation, creativity and innovation which are rules of the games of the new knowledge based economy.

In our today’s world of fast changing markets, evolving competitors and technologies, there is a constant need to keep revising and updating knowledge and information about possible markets, customer needs and technical possibilities – PLAN THE SCENARIO.

When I refer PLAN THE SCENARIO then I mean to think about alternative descriptions or stories of how the future might unfold. Scenarios compile information about divergent trends and possibilities into internally consistent images of plausible alternative futures. Scenarios are designed to systematically explore future challenges and opportunities and aid in strategy development. In the process, they often provoke the imagination, raise fundamental questions, make explicit our deeply held values, and stretch our worldviews. Scenarios are not predictions of the future, as there are NO future facts. Rather, they encourage people to think about how to navigate successfully across the different circumstances that might be encountered. Scenarios can expand our ‘field of view’ and help people to see possible threats and opportunities that would otherwise have remained hidden.

Scenarios are an investment in learning. A set of several significantly different scenarios helps “bound the uncertainty” of the future so that organizations can systematically plan for future contingencies and clarify their vision of the future they prefer. Scenario thinking is real l and not the end product, but merely a powerful tool.

Organization can’t afford to imagine and design products and services which they feel might succeed, thereby organize a system to produce and deliver the same –the efficient frontier. Imaging about products and services that have customer appeal forces organizations to explore the possibilities and decide accordingly (Creativity), followed by strict execution of what has been decided to gain maximum advantage of efficiency in operations (Mechanical and Economic optimization.), both are opposite qualities required.

Imagination and creativity thus must precede efficiency of execution. Role of creativity and ability to explore the possible scenario will be the deciding factors of success. Exploration and experiment means developing ability to tolerate “failure” and being open to new thoughts and ideas to harness the true benefits from complexity by developing long term social relationship among the participants of value chain.

Imperatives for succeeding in Uncertain World can thus be cited asCorporations will have to develop a new dynamic approach to strategy formulation - collaborative, drawing on key signals from all quarters, and constantly evolving in the light of new circumstances” Leaders of these corporations will seek to build resilience and flexibility into the very fabric of the organization, by developing a set of core capabilities”.Corporations who succeed in the future will be those whose leaders remain steadfast in the face of uncertainty, and who have the qualities to manage change effectively” Organization must plan their scenarios for future and accordingly plan to allocate resources.

In order to arrive at what you do not know, you must go by way of ignorance.In order to possess what you do not possess, you must go by way of dispossession.In order to arrive at what you are not, you must go through the way in which you are not

ReadingsRichard Pascale “Surfing the Edge of Chaos”Kevin Kelly “New rules for the new Economy”Allan M Webber “How Business is lot like life”Jeffrey Goldstein “Self- designing organizations”James Moore “Advent of Business Ecosystem”Tapscott, D. Digital Economy. Promise and Peril in the Age of Networked Intelligence

McGraw-Hill, New York.Teece, D. “Profiting from Technological Innovation: Implications for Integration,

Collaboration, Licencing, and Public Policy”, Harper The Competitive Challenge: Strategies for Industrial Innovation and

Renewal.Prahalad, C. and G. Hamel

"The Core Competence of the Corporation," Harvard Business Review, Eliasson, G. “The Knowledge-Based Information Economy“, in Eliasson, G

Key Terms:

A “Disruptive Innovation” is a successfully exploited product, service or business model that significantly transforms the demands and needs of a mainstream market and disrupts its former key players. Mainstream markets do not initially appreciate its set of performance attributes, highly rated by niche market customers. Mainstream market customers as well as competitor’s value different performance attribute sets and therefore view the innovation as substandard.Atomization Defined as the disintegration of an industry chain into ever smaller segments and niches, atomization is also visible in the computer industry, among others.

Author: Prof.. Vinod.Kr.Sharma – Additional Director – Jagran Institute of Management - Kanpur