An inherent property of a chaotic system is that slight changes in  initial conditions in the system result in a disproportionate change    in outcome that is difficult to predict. Chaotic systems appear to create outcomes that appear to be random: they are generated by simple and non-random processes but the complexity of such systems emerge over time driven by numerous iterations of simple rules. The elements that compose chaotic systems might be few in number, but these elements work together to produce an intricate set of dynamics that amplifies the outcome and makes it hard to be predictable. These systems evolve over time, doing so according to rules and initial conditions and how the constituent elements work together.

Complex systems are characterized by emergence. The interactions between the elements of the system with its environment create new properties which influence the structural development of the system and the roles of the agents. In such systems there is self-organization characteristics that occur, and hence it is difficult to study and effect a system by studying the constituent parts that comprise it. The task becomes even more formidable when one faces the prevalent reality that most systems exhibit non-linear dynamics.

So how do we incorporate management practices in the face of chaos and complexity that is inherent in organization structure and market dynamics?  It would be interesting to study this in light of the evolution of management principles in keeping with the evolution of scientific paradigms.

Newtonian Mechanics and Taylorism

Traditional organization management has been heavily influenced by Newtonian mechanics. The five key assumptions of Newtonian mechanics are:

1. Reality is objective
2. Systems are linear and there is a presumption that all underlying cause and effect are linear
3. Knowledge is empirical and acquired through collecting and analyzing data with the focus on surfacing regularities, predictability and control
4. Systems are inherently efficient. Systems almost always follows the path of least resistance
5. If inputs and process is managed, the outcomes are predictable

Frederick Taylor is the father of operational research and his methods were deployed in automotive companies in the 1940’s. Workers and processes are input elements to ensure that the machine functions per expectations. There was a linearity employed in principle. Management role was that of observation and control and the system would best function under hierarchical operating principles. Mass and efficient production were the hallmarks of management goal.

Randomness and the Toyota Way

The randomness paradigm recognized uncertainty as a pervasive constant. The various methods that Toyota Way invoked around 5W rested on the assumption that understanding the cause and effect is instrumental and this inclined management toward a more process-based deployment. Learning is introduced in this model as a dynamic variable and there is a lot of emphasis on the agents and providing them the clarity and purpose of their tasks. Efficiencies and quality are presumably driven by the rank and file and autonomous decisions are allowed. The management principle moves away from hierarchical and top-down to a more responsibility driven labor force.

Complexity and Chaos and the Nimble Organization

Increasing complexity has led to more demands on the organization. With the advent of social media and rapid information distribution and a general rise in consciousness around social impact, organizations have to balance out multiple objectives. Any small change in initial condition can lead to major outcomes: an advertising mistake can become a global PR nightmare; a word taken out of context could have huge ramifications that might immediately reflect on the stock price; an employee complaint could force management change. Increasing data and knowledge are not sufficient to ensure long-term success. In fact, there is no clear recipe to guarantee success in an age fraught with non-linearity, emergence and disequilibrium. To succeed in this environment entails the development of a learning organization that is not governed by fixed top-down rules: rather the rules are simple and the guidance is around the purpose of the system or the organization. It is best left to intellectual capital to self-organize rapidly in response to external information to adapt and make changes to ensure organization resilience and success.

Companies are dynamic non-linear adaptive systems. The elements in the system are constantly interacting between themselves and their external environment. This creates new emergent properties that are sensitive to the initial conditions. A change in purpose or strategic positioning could set a domino effect and can lead to outcomes that are not predictable. Decisions are pushed out to all levels in the organization, since the presumption is that local and diverse knowledge that spontaneously emerge in response to stimuli is a superior structure than managing for complexity in a centralized manner. Thus, methods that can generate ideas, create innovation habitats, and embrace failures as providing new opportunities to learn are best practices that companies must follow. Traditional long-term planning and forecasting is becoming a far harder exercise and practically impossible. Thus, planning is more around strategic mindset, scenario planning, allowing local rules to auto generate without direct supervision, encourage dissent and diversity, stimulate creativity and establishing clarity of purpose and broad guidelines are the hall marks of success.

Principles of Leadership in a New Age

We have already explored the fact that traditional leadership models originated in the context of mass production and efficiencies. These models are arcane in our information era today, where systems are characterized by exponential dynamism of variables, increased density of interactions, increased globalization and interconnectedness, massive information distribution at increasing rapidity, and a general toward economies driven by free will of the participants rather than a central authority.

Complexity Leadership Theory (Uhl-Bien) is a “framework for leadership that enables the learning, creative and adaptive capacity of complex adaptive systems in knowledge-producing organizations or organizational units. Since planning for the long-term is virtually impossible, Leadership has to be armed with different tool sets to steer the organization toward achieving its purpose. Leaders take on enabler role rather than controller role: empowerment supplants control. Leadership is not about focus on traits of a single leader: rather, it redirects emphasis from individual leaders to leadership as an organizational phenomenon. Leadership is a trait rather than an individual. We recognize that complex systems have lot of interacting agents – in business parlance, which might constitute labor and capital. Introducing complexity leadership is to empower all of the agents with the ability to lead their sub-units toward a common shared purpose. Different agents can become leaders in different roles as their tasks or roles morph rapidly: it is not necessarily defined by a formal appointment or knighthood in title.

Thus, complexity of our modern-day reality demands a new strategic toolset for the new leader. The most important skills would be complex seeing, complex thinking, complex knowing, complex acting, complex trusting and complex being. (Elena Osmodo, 2012)

Complex Seeing: Reality is inherently subjective. It is a page of the Heisenberg Uncertainty principle that posits that the independence between the observer and the observed is not real. If leaders are not aware of this independence, they run the risk of engaging in decisions that are fraught with bias. They will continue to perceive reality with the same lens that they have perceived reality in the past, despite the fact that undercurrents and riptides of increasingly exponential systems are tearing away their “perceived reality.”  Leader have to be conscious about the tectonic shifts, reevaluate their own intentions, probe and exclude biases that could cloud the fidelity of their decisions,  and engage in a continuous learning process. The ability to sift and see through this complexity sets the initial condition upon which the entire system’s efficacy and trajectory rests.

Complex Thinking: Leaders have to be cognizant of falling prey to linear simple cause and effect thinking. On the contrary, leaders have to engage in counter-intuitive thinking, brainstorming and creative thinking. In addition, encouraging dissent, debates and diversity encourage new strains of thought and ideas.

Complex Feeling: Leaders must maintain high levels of energy and be optimistic of the future. Failures are not scoffed at; rather they are simply another window for learning. Leaders have to promote positive and productive emotional interactions. The leaders are tasked to increase positive feedback loops while reducing negative feedback mechanisms to the extent possible. Entropy and attrition taxes any system as is: the leader’s job is to set up safe environment to inculcate respect through general guidelines and leading by example.

Complex Knowing: Leadership is tasked with formulating simple rules to enable learned and quicker decision making across the organization. Leaders must provide a common purpose, interconnect people with symbols and metaphors, and continually reiterate the raison d’etre of the organization. Knowing is articulating: leadership has to articulate and be humble to any new and novel challenges and counterfactuals that might arise. The leader has to establish systems of knowledge: collective learning, collaborative learning and organizational learning. Collective learning is the ability of the collective to learn from experiences drawn from the vast set of individual actors operating in the system. Collaborative learning results due to interaction of agents and clusters in the organization. Learning organization, as Senge defines it, is “where people continually expand their capacity to create the results they truly desire, where new and expansive patterns of thinking are nurtured, where collective aspirations are set free, and where people are continually learning to see the whole together.”

Complex Acting: Complex action is the ability of the leader to not only work toward benefiting the agents in his/her purview, but also to ensure that the benefits resonates to a whole which by definition is greater than the sum of the parts. Complex acting is to take specific action-oriented steps that largely reflect the values that the organization represents in its environmental context.

Complex Trusting: Decentralization requires conferring power to local agents. For decentralization to work effectively, leaders have to trust that the agents will, in the aggregate, work toward advancing the organization. The cost of managing top-down is far more than the benefits that a trust-based decentralized system would work in a dynamic environment resplendent with the novelty of chaos and complexity.

Complex Being: This is the ability of the leaser to favor and encourage communication across the organization rapidly. The leader needs to encourage relationships and inter-functional dialogue.

The role of complex leaders is to design adaptive systems that are able to cope with challenging and novel environments by establishing a few rules and encouraging agents to self-organize autonomously at local levels to solve challenges. The leader’s main role in this exercise is to set the strategic directions and the guidelines and let the organizations run.