Managing complexity in business

The (business) world is becoming increasingly networked. Value chains are being broken down into increasingly fine-grained, globally distributed stages. Involving more participants in a process means having to manage more interfaces between the participants. And more interfaces increase fragmentation and the need for coordination. In addition, interdependencies increase as a result of global linkage and networking. Measures that lead to increasing efficiency, such as the reduction of safety stocks and the elimination of redundancies, simultaneously contribute to systems becoming more sensitive to disruptions. The number of possible events and incidents increases disproportionately as the number of participants increases. Both the possibilities of creating linked chains and the probability of failure increase exponentially.

The variety of possible outcomes increases with the number of linkage possibilities. Thus, the quality of the links and relationships becomes a critical success factor.

If we now imagine that, in addition, different chains can be connected to each other at any point and disconnected from each other again at another point, and that these constellations can change over the course of time, we get an impression of the variety of possibilities and the associated complexity.

Example: In the spring of 2020, we were able to observe how quickly supply chains, especially in the automotive supply industry, broke down because Chinese suppliers were unable to deliver due to corona. Alternatives were also not available due to necessary approvals. Entire value chains collapsed.

This makes it understandable why incidents that used to be limited to a single effect are increasingly having an impact on other events, across countries, continents, industries and technologies. At any given point, effects occur that may have their cause in a completely different place. The cause does not even have to be of a similar magnitude to the effect and can also be offset in time. Be aware of these possibilities in every decision so that you do not fall into this complexity trap.

In business practice, we are familiar with many triggers of unforeseeable effects that can occur in various interconnected forms. Possible discontinuities such as technological leaps in supplier industries, market entries by new market participants from neighboring industries or emerging markets, changes in customer processes or working methods, and altered market constellations change the planning premises and the options for action. It is not possible to precisely take such factors into account in planning. This non-trivial realization is essential for dealing adequately with complexity. The number of possible developments increases and with it the perceived uncertainty.

What exactly do we mean by “complexity”?

The term comes from the Latin word “complexus,” which means encompassing, linking. ?Complex” is used to describe properties such as multi-layered, all-embracing, or comprehensive. Complexity is defined as a property of a system or model that makes it difficult to describe its overall behavior, even when one has complete information about its individual components and their interactions.

If complexity is present, the system properties are obviously not determined by the sum of the properties of the components, but by the interaction of the components. Thus, the evolution of a complex system is defined by the multiple and dynamically changing connections between its elements.

Obviously, our world knows different degrees of complexity. In order to be able to act appropriately, it is important to recognize the actual degree of complexity of situations and environments. We know the following categories: simple issues, complicated issues, complex issues and chaotic issues.

Complexity is often also present in negotiation situations and in cooperative relationships. In such cases, each participant tries to optimize his or her situation. Often, however, this is not possible without an impact on the overall result. Game theory provides recommendations for such situations, like the Nash equilibrium.

Dialogue

What are your challenges?

...
Restart Dialogue