I hope senior management do not get persuaded to divert their attention to studying ‘complexity’ in the hope of understanding recent economic turmoil. “‘Power curves’: What natural and economic disasters have in common” argues that “parallels between financial crises and natural disasters–such as earthquakes or forest fires–suggest that the economy, just like complex natural systems, is inherently unstable and prone to occasional huge failures that are very hard or impossible to foresee. Proponents of this school of thinking are bringing new ideas grounded in complexity theory to economic forecasting, strategic planning, and risk management.” This contributes little to the quest for skilled strategic management.
Whilst random fluctuations add complexity to how exactly events unfold, many of the phenomena discussed in this article feature simple underlying mechanisms that are well understood and do not need abstract or complex math.
The sub-prime lending collapse was inevitable, and its timing increasingly clear as conditions worsened. The 2001/02 dotcom crash was indicated as new-firm startups were gradually overtaken by failures – both of which were observable – with IT/telecom suppliers, consultancies and others relentlessly adding capacity while ignoring this data. The same has happened this time round in many sectors – e.g. ship construction, commercial property, credit-card lending.
Many such events feature thresholds being crossed in the organization’s own market environment – making it a basic discipline of competent strategic management to track these mechanisms, rather than looking for abstract and non-actionable answers in complexity.
Please go to this article and challenge its value for helping senior managers steer organizations’ strategy and performance! – there’s a comment facility. … unless of course you know of a real business that made real decisions with real impact on its sustained performance byusing complexity science that could not have been done easier, quicker cheaper another way?Share