With storm clouds overhead, I stand along a dry creek bank in Texas. As the rain starts, very soon there is a small trickle of water, it grows larger, and in time becomes a comparative flood. If I remain long enough, eventually the rain stops, and the creek goes back to its original dry state within a few hours. This is an example of a complex adaptive system. No one is in charge, yet the system self-organizes through the interaction of the drops of water with the land, and with the other features of the environment. One simple principle drives the system, that is, that water runs downhill to find its own level. The system undergoes a rapid phase transition, moving quickly from its static steady state where the creek bed is dry, to a dynamic state in which the creek is full of water. In most rainfall events, the creek bed acts to contain the water and to channel it safely downstream. But historic events can also occur in which the supply of water overtops the banks and floods wide stretches of adjoining area. The dry steady state can last for long periods, especially during drought; so long, in fact, that entire subdivisions can be built in close proximity to the creek without the authorities being fully aware of the hazard.
Trickles can become floods in other contexts, as well. Avi Dan, writing in Forbes, noted that for 40 years you couldn’t walk through Grand Central Station in New York without admiring the large 18 by 60 foot Kodak photographs displaying panoramas of America. These were designed to showcase the Kodak brand to travelers that passed through the station. In those days, Kodak marketing executives were adept at weaving the brand into the fabric of America, and they captured 90% of the US film market for generations. At the time, Kodak was one of the world’s most valuable brands. But Kodak’s story is ultimately one of failure, rooted in decades of success. Kodak didn’t miss the digital age, rather, it invented the digital camera in 1975. Instead of marketing the new technology, however, the company held back so as not to hurt its film business, which was quite lucrative at the time. Sony and Canon eventually exploited the opening and moved to absorb much of the market with digital cameras. What started as a trickle became a flood. Kodak saw its market share decline precipitously as digital imaging became dominant. In the new regime, only a small percentage of digital images were printed on Kodak film. In this example, the environment culled Kodak because it did not evolve quickly enough to give customers what they wanted within the dynamic new digital reality.
This episode of our podcast explores organizations as complex adaptive systems (or CAS). It is a valuable perspective for examining organizational performance because it reveals hidden patterns that are present beneath the surface. In the past, such patterns did not lend themselves to study due to a lack of tools to examine what was going on. In the CAS perspective, organizations are seen as complex systems made up of individuals that may act on their own. These individuals are called agents, and might typically include an organization’s management, employees, and suppliers. In such a system, order emerges from below based on the interaction of the agents with each other, and produces such things as a culture, a set of underlying principles, and a general sense of “how we do things around here”.
In the natural world, complex adaptive systems can be seen in flocks of birds, schools of fish, and colonies of ants, among many others. Within a flock of birds, individual birds synchronize their states in the flock based on simple local rules. No single individual controls the system, but order emerges from the interaction of the agents with each other. In a school of fish, agents interact in a nonlinear fashion and synchronize their movements by rapidly changing direction in surprising patterns. In ant colonies, individual ants self-differentiate to conduct different tasks, although no one is in charge (including the queen). While there is no agreed definition of a complex system, emergence occurs when complex systems function as an integrated whole, allowing consistent patterns to emerge from below.
Organizations are often thought of as fairly conventional entities that are focused on specific goals and organized somewhat like a factory to achieve them. When the organization is threatened, it is anticipated that staff will react with one accord to counter the threat. But this model does not work reliably, especially when the environment in which an organization lives is changing rapidly. In these cases, it is useful to think of an organization as a complex adaptive system, where the parts of the system are not assumed to act in unison, but may act separately. During periods of rapid phase transition, individuals, and social grouping within the organization can enter a state of turmoil. Complex adaptive systems react in unpredictable ways at these times. When the system is far from equilibrium, individual employees may adapt to the new reality by either cooperating to fix the problem or, alternatively, display a non-cooperative or competitive attitude by rejecting the storyline that management offers. During transition periods, so-called ‘attractor’ regimes can emerge. For example, when confronted with a zero-sum game, such as outsourcing some jobs overseas, employees seldom cooperate. On the other hand, the positive sum game presented by the expansion of a firm into a new segment of the market readily gains employee acceptance.
The complexity theory of organizations rejects the metaphor of organizations as well-oiled machines made up of replaceable parts. Instead, an organization’s collection of agents has been brought together for a specific purpose, where they exhibit aspects of self-organization, emergence, and interdependency. Over time, the organization generally attempts to retain agents based on their individual contributions to the whole. Exemplary individuals are promoted while those that seem to be a poor fit are encouraged to go elsewhere. While these can be thought of as common HR processes, it is important that a climate of fairness and good will be maintained throughout in order to avoid adverse behavior by those affected.
On the macro level, organizations are integral parts of their environment, where they act as agents themselves on a larger stage and where they interact with customers and other organizations that frequent the same space. Within the environment in which organizations live, evolutionary processes of selection and retention continuously act on them. Organizations survive and thrive based on the strength of benefit exchanges with their environment. When environments are far from equilibrium and undergoing rapid change, evolutionary processes act strongly to encourage them to adjust their offerings in order to remain relevant to the changing needs of demand-side actors in the environment. In these situations, it may be important for organizations to have a variety of offerings in the pipeline and ready for deployment to meet these emerging needs. In a real sense, the environment is selecting organizations for retention based upon their effectiveness.
A good example of this phenomena is Qualcomm. In May 2016, Qualcomm’s CEO Steven Mollenkopf described the dynamic nature of the tech environment to The Street, “What people kind of forget in the tech industry is that you are [in a battle of] life or death, basically. You either win technology transitions or you don’t live to tell the [tale] because things move so quickly. We have had to pivot the company so many times either to a different end market or a different core competency, and the rate we have had to do that would surprise people. It could be every five years that we really have to make sure that we hit the next transition very, very well.”
Some scholars distinguish an organization as a complex evolving system (rather than adaptive system) because its human agents have the capacity to learn and evolve with each change. This allows an organization to better influence its environment, predict likely future changes, and prepare for them.
There is a tension between the two extreme states that organizations face, homeostasis and chaos. Homeostasis can be represented by an old-style bureaucratic organization in equilibrium, where the goal is predictability and stability. Chaos is the opposite state, where an organization is operating far from equilibrium and is in a state of turmoil, typically brought on by a catastrophic event. Neither of these extremes is conducive of good performance. Between the two extremes, but just short of the onset of chaos, organizations can find their mojo. Here, random events in the environment can be amplified by feedback loops and become important new paths toward the future.
The CAS perspective lends itself to the study of organizational performance. For instance, as mentioned in Episode 015, the use of the goal model for organizational effectiveness, and today’s computer-based scorecards, dashboards, and indicator monitoring systems that many organizations have adopted to implement the goal model, encourage competition among individuals and groups within an organization rather than cooperation. The CAS perspective predicts that the phenomena of competition would be a common emergent phenomena under the goal model and that it is unlikely to be good for the performance of the organization as a whole.
Another instance relevant to the CAS perspective was Episode 010 of this podcast series. There we explored ‘efficiencyism’, which is a belief in the tenets of efficiency without questioning its assumptions and consequences in specific circumstances. As was explained at that time, ‘efficiencyism’ often holds organizations back from realizing their true potential for three reasons: 1) systems theory tells us that an efficiency improvement in one part of an organization does not necessarily provide an improvement in the performance of the organization as a whole; 2) elevating efficiency to a sacred value (to be pursued at all costs) often leads to counterproductive actions at the first sign of financial trouble, such as layoffs, downsizing, and general efforts to do “more with less”; and 3) ‘efficiencyism’ seldom works, because organizations are complex human systems that can react in unpredictable ways when disturbed. Episode 010 found that organizational dysfunction appeared to be a common emergent phenomena under ‘efficiencyism’, as illustrated by the many examples provided in that episode.
What we have done in this episode is look at organizations as complex adaptive systems. The CAS perspective provides interesting tools to look under the hood of organizations and explain what is really going on. I hope you have enjoyed this somewhat different view of the world. The CAS perspective deals with what has been called “the interesting in between”, far from equilibrium, but just short of chaos. Here, what starts as a trickle can become a flood.
Charles G. Chandler, Ph.D.