Date posted: 18/01/2017 7 min read

Managing complexity in modern business

There are no simple answers to managing increasing complexity and the pace of change in the modern business environment – so you have to find sophisticated answers

In brief

  • Complexity remains a here-and-now management and leadership challenge
  • The application of scientific rigour to business and organisational dynamics holds the promise of greater surety in decision making
  • The global scientific race to build the first silicon-based quantum computer is the modern equivalent of the quest to land the first man on the moon

By Leo D’angelo Fisher

When the Commonwealth Bank of Australia (CBA) committed A$5m to assist researchers at the University of NSW in the quest to build the first silicon-based quantum computer, it may have seemed an unusual partnership. But CBA knew what it was doing.

As well as offering a vote of confidence to “truly world leading” Australian science, CBA, itself at the leading edge of banking technology, is investing in technology that will transform the speed with which complex decisions are made and problems solved in industry, finance and government.

The agreement will ensure that CBA has early access to the technology developed by the centre.

The donation late last year to the university’s Centre for Quantum Computation and Communication Technology will fund R&D and the acquisition of vital equipment. The Centre, comprising 170 researchers from six universities, is headed by UNSW’s Professor Michelle Simmons, who has an international reputation for her work in atomic electronics and quantum computing.

“Australia is a powerhouse in quantum information research,” she says. “We have built a global leadership position in quantum computing and demonstrated our ability to engineer and control information on individual atoms.”

With the CBA’s A$5m, the centre believes it can build a silicon-based quantum computer prototype within five years.

Simmons – one of only 11 Australians to be an elected member of the American Academy of Arts and Sciences – and her team of researchers are already world pioneers in the fabrication of atomic-scale devices in silicon and germanium. Simmons’ team has developed the world’s first single atom transistor and the world’s thinnest conducting wires in silicon – essential elements of a quantum computer that would have the power to complete in days complex tasks that would now take decades.

CBA’s Chief Information Officer David Whiteing likens the global scientific race to build the first silicon-based quantum computer as the modern equivalent of the quest to land the first man on the moon.

“The speed of quantum computing means it promises to solve real-world issues such as searching large databases, solving complicated sets of equations and modelling atomic systems such as biological molecules and drugs,” he says.

So transformative would quantum computing be when it finally does become a reality that it is barely possible to conceive precisely what the applications or impact will be on business, economic and organisational dynamics.

For now, CBA is doing just about the only thing it can do: making sure it’s Johnny-on-the-spot when the breakthrough happens.

Managing complexity

One hopeful premise is that quantum computing will make it easier to guide management decisions and to make predictions with greater confidence based on the ability to capture and interrogate organisational, market and economic models with mathematical precision in superfast time.

Melbourne entrepreneur, company director and management consultant Dr Mark Harrigan, who has a PhD in physics, recommends patience if not caution on the subject of how quantum computing might impact on business.

“The potential of quantum computing is enormous, but I don’t see it doing much for understanding organisations in our lifetimes. But that said, the only reliable thing that can be said about predictions is that they are always wrong,” he says.

What excites about the application of scientific rigour to business and organisational dynamics is the promise of greater surety in decision making.

Complex adaptive systems – where the complexity is not just the “detail” of multiple elements of an organisation, but also the “dynamic” complexity of the ways in which those elements interact to form “behaviours” – provides a model that can be interrogated by a powerful computer.

“In a complex adaptive system – an organisation – the system and the agents co-evolve; the system lightly constrains agent behaviour… but the agents modify the system by their interaction with it.

“This self-organising nature is an important characteristic of a complex adaptive system. The good news with complexity theory is that sometimes surprisingly complex behaviour depends on some rather simple principles. The key is figuring out what they might be and having a mindset that understands that’s what you are dealing with.

“Quantum computing may one day help us understand a specific organisation in this way and predict what it might do given a certain circumstance.”

Harrigan says that most managers of SMEs will, with good reason, be more concerned with “mundane but important matters such as making sure the cash flow is sufficient to pay next month’s salaries, paying suppliers, keeping customers happy… and getting that next sale” than the benefits of complexity theory.

Larger organisations, however, would do well to come to grips with what complex adaptive systems mean for them, but he says most are still reluctant to depart from firmly entrenched management thinking.

“Perhaps the reason why we still compartmentalise even the largest companies into smaller units is that the level of thinking we mostly have is still steeped in the classical/mechanistic Newtonian view before 20th century physics revolutionised our understanding of what the world really is like,” he says.

Companies are complex by design because it allows them to do difficult things. But complexity has a dark side as well.
London Business School professor of strategy and entrepreneurship, Julian Birkinshaw

Avoid complication

Canadian management thinker Harold Jarche makes the distinction between complexity and complication.

He argues that success stems from the former, but big companies seem irresistibly drawn to the latter.

“Most of today’s larger organisations have a complicated structure. To enable growth and efficiencies, more processes are put in place… This is what management schools have been teaching for over half a century,” Jarche says.

“New layers of control and supervision appear, silos are created, and knowledge acquisition is formalised in an attempt to gain efficiency through specialisation.

“Organisations, public and private, need to understand complexity instead of simply increasing complication through rules, regulations and control processes.”

Human responses to complexity are necessarily fraught – which no doubt makes the prospect of quantum computing taking the risk out of decision making very attractive.

With that prospect being a distant one, complexity remains a here-and-now management and leadership challenge.

A global survey of executives for the 2011 KPMG report Confronting Complexity found 94% believed that managing complexity was important to their business and 70% considered rising complexity to be one of the biggest challenges facing their company.

The top five causes of complexity were regulation (71 per cent), information management (63 per cent), government oversight (60 per cent), increased speed of innovation (59 per cent) and tax policy (57 per cent). Globally, 70 per cent of companies had reorganised their businesses to better manage complexity.

Deal with it

What form of intervention ameliorates the worst of complexity while retaining its more useful features? It’s a conundrum that occupies management thinkers as well as business leaders.

London Business School professor of strategy and entrepreneurship Julian Birkinshaw says complexity is an inevitable consequence of size and a “double-edged sword”.

“Companies are complex by design because it allows them to do difficult things,” he says.

“But complexity has a dark side as well and companies… often find themselves struggling to avoid the negative side effects of their complex structures.

“These forms of unintended complexity manifest themselves in many ways, from inefficient systems and unclear accountabilities to alienated and confused employees.”

However, Birkinshaw warns that the answer is rarely as simple as undoing complexity through creating better process. Organisational complexity, he says, is more complex than that.

“To some extent, organisations are indeed engineered systems… But organisations are also social systems where people act and interact in somewhat unpredictable ways. If you try to manage complexity with an engineer’s mindset, you aren’t going to get it quite right.”

Daryl Sadgrove, head of strategy and innovation at Chartered Accountants Australia and New Zealand, says complexity science can help managers understand and navigate complex challenges such as globalisation, complex decision-making and volatile markets.

The difficulty in dealing with complexity, however, tends to arise when managers rely on “simple mental models” and inadequate information. This is more likely to be the case as the level of complexity grows and the pace of change increases.

“Complexity very quickly exceeds the ability of people to rationalise a decision, which is when they tend to revert to familiar routines for decision making for no better reason than this is the way they’ve always done things,” Sadgrove says.

“Despite the advancements in the understanding of complexity and the growing availability of tools and models for business based on complexity science, there has been a relatively poor take-up of these by business.”

Sadgrove says there is no doubt that businesses are facing increasing complexity, which poses additional challenges for managers.

He says those challenges cannot be met by reverting to outmoded management tools and techniques.

“The study of how complex systems work has the potential to provide new insights and a different perspective to help tackle complex business problems,” he says.

Traditional management and strategic theories may still be useful when there is a degree of order and predictability, Sadgrove says, but they may not be a reliable foundation for basing decisions in complex and rapidly changing environments.

“There is a tendency in business to believe that everything is black or white. We make assumptions about what we know, we believe that we can predict the future and we’re confident about the decisions we make based on outdated or unsuitable tools and techniques.

“It’s an old way of thinking. We believe we can come up with the right answer by doing a SWOT analysis or we believe we’ve made the right decision because everyone at the meeting agrees. Well, it’s just not that simple, and companies are missing out on opportunities because of a lack of rigour.”

Sadgrove believes that complexity requires “a completely different mindset, a new leadership style” that starts with an admission that the “obvious” answer is not always the right one, and that a decision may have to be reversed at great expense when it’s proven to be wrong.

He advocates “discovery-driven strategy” based on testing ideas or innovations in the marketplace and being prepared to reconsider if they are shown not to work.

“There are times when you won’t have the right answer to a problem straight away, but when you come up with an idea that might fly, you can test it, and if that doesn’t work you try another. It’s not failure when an idea doesn’t fly, it’s learning, it’s enhancing an idea. You keep doing it again and again until you increase the level of certainty that you’ve made the right decision.”

Complexity: nobody said it was easy. But it might be a whole lot easier if Professor Michelle Simmons and her team have a Eureka moment.

Leo D’Angelo Fisher is an Australian journalist, writer and commentator ([email protected]).

This article was first published in the April 2015 issue of Acuity magazine.