Short Review of Complex Thinking

Contents

Abbreviations

1. Introduction

2. The Model of Viable Systems (Self-Regulation)
2.1. The viable systems
2.2. The Cognitive School of strategic management

3. View of Systemic Perspective and Cybernetics
3.1. Systems Theory
3.2. Cybernetics

4. Synergy Effects by Ansoff
4.1. Synergy effects
4.2. Planning School of Strategic Management

5. Interaction with the Environment
5.1. Business Environment
5.2. Environment School

6. Phenomenon of Learning (Adaptation)
6.1. Learning as a basic quality
6.2. The Learning School of Strategic Management

7. Summary and Expectations

References

Abbreviations

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1. Introduction

This report shows famous management approaches that deal with the complexity of the company’s situation.

Not only the environment but also the company’s structures show a rising complexity. Economists and businessmen try to manage that complexity since several years. For example they reduced it for easier analysis, but this way many important relationships of the processes were left unconsidered and some of the recommendations could be wrong.

To avoid the destruction of important relationships some economists tried to keep complexity. But that made analysis very complicated.

Some of the early approaches should be shown here to present the development of complex thinking in business management.

The analysis portrays the characteristics of companies interpreted as complex systems.

At first this section describes the Model of Viable Systems by Beer.^[1] This model compares the hierarchic structure of companies with the structures of a human body. The brain and the spinal cord have top authority in this system. They can be compared with the top management or the strategic management of a company. Brain and spinal cord are connected with organs of the human body. Those organs symbolize the company’s departments.

The system is viable, when particular criterions are satisfied. One of these criterions is the main principle of self regulation by backward control. The system reacts stable to external disturbances and does not get into trouble. It keeps its state by adaptations which follow from backward controlling processes. Such adaptation processes are stimulated by disturbances.

The description of self regulation in viable systems leads to a short summary of the systems theory, especially the cybernetic elements of steering and regulation.

The constructive approach^[2] bases on a total foresight of the top management. In advance it can include reactions of the system into the plans. The limits of this approach are reached by complex systems and complex environment, because a total foresight is impossible due to the complexity of the relations.^[3]

In opposite to the total foresight of the constructive approach the systemic approach is based on the assumption that the relations of a complex system cannot be uncovered at all. It recommends a permanent adaptation of the system to new situations.^[4]

According to the holistic approach it is not enough for such an analysis to examine only parts of the system. In addition to that the interdependencies between the part-systems have to be discovered.

Already in the 1970ies Ansoff was engaged with the fundamental characteristics of interdependencies. He called the found effects: synergies. He classified the synergies into effects that reinforce each other (positive synergies), effects that hinder each other (negative synergies) and effects that are independent of each other (neutral synergies).^[5]

These results could be transferred to the interdependencies of companies. For example the reactions of single departments could influence each other by competition about resources (negative synergy) or by division of costs and findings of research and development (positive synergy).

Besides the internal effects a company is also influenced by external forces from the environment.

The environment describes the surroundings of the company. That is the superior system, where the company acts in. The limits of the surroundings blur due to system-overlapping value chains and processes. So an objective restriction of the system’s capacity is difficult.^[6]

The so called contingency approch assumes that companies are in a permanent process of adaptation to the changes of environment. Easy expressed: the company is finally product of its environment.^[7] That is a strong simplifying of the connections, because it disputes companies’ abilities to take influence to their economic destiny. But the adaptations are undisputed facts.

The phenomenon of learning considers such adaptations to the environmental changes. The system becomes a learning system that can develop its own success factors and ability for self regulation by its broad knowledge base and collected experiences about methods and reactions of the system.^[8]

So you are back to the beginning and the self regulation in the viable systems by Beer. Due to the learning a system becomes adaptable and viable.

2. The Model of Viable Systems (Self-Regulation)

2.1. The viable systems

In the 1980ies the American scientist Stafford Beer developed the model of viable systems after nearly twenty years of analysing the systems theory and the cybernetics. This model counts as one of the most important fundamentals of the analysis of the management strategies in socio-technical systems.^[9]

The used terms can be seen similar to the biologic relationships between the human brain and the central nerve system. Beer thought that the structures of this natural created network system could be transferred to the systemic relationships of other disciplines’ units. Most important is the organization structure and the parallels between the general relationships. So different systems can be connected to common classes or they can be compared (see figure below).

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Figure 1: Structures in a viable system

(source: analogous to Malik, F. (1984): Strategie des Managements, 84/85)

The brain of a human being is comparable to the board of management in a company. It directs many subordinated systems, like blood circulation, breathing, moving and digestion. In a company the subordinated systems are departments like production, marketing or distribution. In return the brain and the central nerve system in the cortex control the several organs that can be seen analogous to the operative processes in an organization, e.g. activities and projects of a company.

The human body is connected to its environment with the five sense organs. It reacts directly to changes of the situational conditions, but it also can influence the surroundings by acting in a certain way. The equivalents at a company are its interactions with external partners, like customers, suppliers or authorities.^[10]

Beer assumed that complexity in a business system could be reduced by the creation of regulations.^[11] Such regulations belong to the conditions of strategic management. Those common regulations have the meaning of structures. Significant in this view is the realization that the cybernetic signs and functions of systems are not constitutive determined by the system itself, but by the organization of the system, that means they change when the structure of the system changes. The kind of system and the several components are subordinated under the structure.^[12]

The business studies do not think about a living biological organism with the model of viable systems. This paradigm is replaced by the company as a socio-technical system. The similarity is that companies also use to reach an interactive cybernetic balance with the environment.

Malik identifies the mechanism as homeostasis because the system is concentrated to keep several variables simultaneous constant or to minimize their deviations within the permissible parameters.

He defines the viability of a company as the capability to be in the business for indefinite time. The real viability of a company is proofed by having the relevant variables of complexity under control. This problem of existence is an empiric problem. The goal of this approach consists in the development of a strategy to protect the existence and not to reach an optimal state of adaptation in a special situation.^[13]

You could think the requirements of a viable system are fulfilled by small and medium-sized businesses or pioneers. The decisions in such companies proceed centralized so that problems of the strategic management like division of labour, decentralization of single departments or sub-optimization are not the important main problems. But if the organization structures are less complex, the inset of difficult cybernetic management approaches for the control of companies often is less useful.

The company’s size does not matter. So you can also find bigger companies having simple structures as small businesses with very complex organisations.

Drucker^[14] says that a critical value determines the transition from a simple company to a complex company. This value is called the complexity barrier. The barrier is related to the company’s general structure. For enterprises with a complexity value which is smaller than that critical value it is not necessary to use the model of viable systems, because the structures are easy and clearly arranged.

The definition of a “complex” company refers to the management style. A complex company has a management style that uses division of labour. The information and the capabilities of the management usually are not enough to manage a complex company in detail and to forecast the reactions. The management uses the cybernetics as a management tool, because the amount of the observed variables grows exponential.^[15]

Finally the division of labour also is not enough to manage a complex company. Caused by the time lag, the information about actual states of the processes reaches the management too late, so it can only react ex post and the conditions have changed in the meantime. The management knows about this fault and develops general rules for the behaviour to control the company an intrinsic way. It relies on self regulating powers of the organization.^[16]

Other studies support that theory:

Gould found out that economy’s situative changes happen too quickly to correspond with Darwin’s survival of the fittest. Instead of that Gould believes that the source of change came from inside the companies.^[17] Maybe this is the key also for the adaptation of structural modifications.

The model of the viable system shows two fundamental principles of structuring:^[18]

- Principle of viability

The viable system can be divided into smaller units that also must be viable for themselves. So in principle absolutely independent new systems could be created from these smaller units. Any arbitrary arrangement can be prevented that way, because not all potential subordinated systems are viable systems.

- Principle of recursion^[19]

Subordinated systems of a viable system show the same organisation structure as the systems of higher levels. Simultaneously the subordinated system has to submit to the rules of the entire system that forms the framework for all decisions in the system. But apart from that the subordinated system in general can act and determine autonomous inside its specific environment. That supports the coordination of the subordinated systems by an instance of the entire system, to take advantage from the synergy effects.

These principles work similar to a filter, because they do not accept all possibilities to form subordinated systems, but only the possibilities that seem to be viable at the given environmental situation and its potential disturbances, when parallel the specified framework of the system was taken into consideration.^[20]

Transferred to the company as a socio-technical system, the single departments of the company should generally be structured as autonomous acting units that are subordinated to an authority of the entire company, e.g. the top management. The departments should be organized and structured similar to the whole organization to support the coordination by management.

With these two principles Beer refers to the general theorem of cybernetics that says all complex systems are isomorphic and their management structure is an invariant requirement to all viable systems.^[21] As a result the so called ”dysfunctionalities” in organizations are caused by failing implementation of the two principles. Beer assumes that the most important reason for bad implementation is the misunderstanding of the company’s structures. An outside spectator can only notice an apparent chaos of relationships. The connections are so various and numerous that they cannot be depicted by graphics. The use of cybernetic models, like the model of viable systems, can help the implementation. They uncover the fundamental relationships of the company that are necessary to control it. This framework of relationships is usually neglected when only partial problems are analysed.^[22]

Also the expectations have an important role. They include the degree of stability in a given state, the intention to change that state in a short-term, and the possibilities to realize that intention by given situational conditions. Changes in the expected or unexpected direction are both possible. They influence the decision inside a company and also its structure.^[23]

The given structures illustration not visible in this excerptare normally a reflection of the so far collected experiences illustration not visible in this excerpt and the expectationsillustration not visible in this excerpt, because the expectations change their calibration with every new experience.

illustration not visible in this excerpt with the components illustration not visible in this excerpt and illustration not visible in this excerpt

Formula 1: Structures influenced by experience and expectations

In a systemic-evolution view the control of this formula is called the fuzzy-control. So it is not necessary to have a complete control over all relationships between the company and its environment. That is positive, because a total control is not possible. The expectations and forecasts should include that problem to form a systematic management theory and find new solutions to design patterns for the organisation. The control of the detailed relationships on the operative level must resign behind the goal to control the relationships on the meta-level of the company. That prevents the company from collapsing.^[24]

2.2. The Cognitive School of strategic management

Beer is a member of the so called Cognitive School of strategic management. This school refers to the innovations of psychology.

So far this approach contents only a collection of research results but not a homogenous theory, because there are no formalized instructions. Strategists have to learn their capabilities and knowledge in an autodidactic way by their own experiences of business practice.^[25]

There are two main perspectives of interpretation for strategy design:^[26]

The objective perspective describes the fundamentals of strategy design as a series of information that is saved in the brain. The brain uses to build models of the environment in a formalized process. In the subjective perspective the strategy is explained with a distortion of human being’s perception. It leads him to an overestimation of himself. The human being believes that he could affect not only the company but also its environment in a kind of creating process. A manager, who creates a strategy with the methods of Cognitive School, follows his own interpretations of the relationships and uses less time to analyse the real connections.

The cybernetic model was used to depict how the manager finds his strategic decisions. The elements are attention, coding, saving or calling of the memory, deciding and evaluating of the results as an initiation of the feedback process (see figure below).^[27]

The attention works like a filter. The receptors register all information of the environment. The attention of the spectator is turned to the most important data. All data has to be filtered by its relevance. The important information is sent by receptors to the brain. Unimportant information will not be sent. For example a person that sets foot into the company’s entrance takes more attention than a person that walks along in front of the shop window. In the brain a comparison between the relevant data and a code happens. The code is a kind of key to compare data with different categories for a classification. In the example the seller turns to a person to find out if he is a customer or a visitor. Such comparisons often lead to prejudices that are determined by the framework. This disadvantage will be accepted to find a way to manage the complexity of data processing.

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Figure 2: Feedback process of the strategic decision

The saving of information is done for a later call up. The saving refers on the one hand to the manager’s experiences and on the other hand to rules and technologies formed in the organization by data processing. In the example a seller remembers the studied rules and phrases of the last consulting-training and comes to the customer to service him.^[28]

The next part is the deciding as a step-by-step process to find out about the necessary actions. The decision does not need to be done conscious by a certain executive but can also develop instinctive by logical necessity from conditions.

In the example the seller starts a marketing strategy with the intention to influence the potential customer.^[29]

[...]

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^[1] Beer, S. (1972): Brain of the Firm, pp. 135.

^[2] Malik, F. (1984): Strategie des Managements, 38.

^[3] Malik, F. (1984): Strategie des Managements, 46.

^[4] Schmidt, D. (1991): Strategisches Management komplexer Systeme, 29

^[5] Ansoff, H. (1966): Management Strategie, 100-103.

^[6] Smircich, L., Stubbart, C. (1985): Strategic Management, pp. 725.

^[7] Staehle, W.H. (1990): Management, pp. 47.

^[8] Mintzberg, H., Ahlstrand, B., Lampel, J. (1999): Strategy Safari, pp. 240.

^[9] Beer, S. (1979): The Heart of Enterprise; Malik, F. (1991): Strategie des Managements, 32. The model of viable systems is often interpreted as the best cybernetic model with the highest amount of recorded structures and so it i soften used as a framework for modifications.

^[10] Beer, S. (1972): Brain of the Firm, pp. 135. Beer describes the general management relations of viable systems.

^[11] Beer, S. (1973): Kybernetische Führungslehre, pp. 43.

^[12] Malik, F. (1991): Strategie des Managements, 80.

^[13] Malik, F. (1991): Strategie des Managements, 69. He wants to explain that the company also have to adjust its business behaviour to environmental changes. For example it can expend its main business to other articles to survive in market competition. But a company has no guarantee that it can keep a sustainable viability.

^[14] Drucker, P. (1974): Management-Tasks, 664.

^[15] Malik, F. (1991): Strategie des Managements, 83.

^[16] Gomez, P., Malik, F., Oeller, K.H. (1975): Systemmethodik, 123 p.

^[17] Gould, S.J. (1980): The Panda´s Thumb, 180.

^[18] Malik, F. (1991): Strategie des Managements, 87.

^[19] Malik, F. (1991): Strategie des Managements, 103. This principle is compared in the literature with the Poland Babuschka dolls, that look outside nearly identical but can be put one into the other for many layers, like the skins of an onion. Malik shows the biological realization that every cell of the human body includes the DNA architectural drawing of the whole body in its genes. That means the organism itself could be reproduced by the DNA of every subordinated cell.

^[20] Gomez, P., Malik, F., Oeller, K.H. (1975): Systemmethodik, 308. The system of higher level also is a meta system that does not need to be cogent authoritarian, but deals with variables and relations of higher level caused by its higher view. In practice was proofed that an authoritarian structure usually is formed to minimize disturbances and deviations.

^[21] Beer, S. (1972): Systems Approach, 30. This quality is desirable but not a real immanent quality of the systems..

^[22] Malik, F. (1991): Strategie des Managements, 96 p.

^[23] Malik, F. (1991): Strategie des Managements, 50.

^[24] Malik, F. (1991): Strategie des Managements, 70–73. Malik thinks the model of viable systems by Beer would be one of the most important fundamentals to understand complexity of systems.

^[25] Mintzberg, H., Ahlstrand, B., Lampel, J. (1999): Strategy Safari, 176. The scientists often have problems to analyse the creative act of strategy design with the methods of psychology.

^[26] Mintzberg, H., Ahlstrand, B., Lampel, J. (1999): Strategy Safari, 177-179.

^[27] Corner, P.D., Kinicki, A.J., Keats, B.W. (1994): Integrating, 296; Mintzberg, H., Ahlstrand, B., Lampel, J. (1999): Strategy Safari, 183.

^[28] Mintzberg, H., Ahlstrand, B., Lampel, J. (1999): Strategy Safari, 184.

^[29] Mintzberg, H., Ahlstrand, B., Lampel, J. (1999): Strategy Safari, 185. Often it cannot be remembered how a decision came by, because too many persons and departments were involved in the decision making.