An Introduction to Complexity
by Marvin Cheung, Head of Research and Strategy
In a conversation, when something takes too long to explain, requires too much contextual information, or has iffy components, we might say - it is complicated. The idea of complexity goes a little further. While we use the word complicated to describe a challenging and messy situation, we use the word complexity to describe a complicated situation we cannot fully comprehend.
Fixing a classic car is complicated. It may require parts to be shipped from abroad, or niche expertise to fix the particular engine. Fixing an oil spill is complex. It is not just a matter of scooping up the oil. There are second and third order effects that are difficult to predict, and you have no way of simulating an oil spill of the same magnitude at the same time and location, nor can you unspill it.
Many strategy challenges can be considered complex, especially novel strategy problems that fall under the umbrella of innovation. Say you are considering launching a new feature you do not have the capacity to build in-house. Regardless of your hiring plan, you will have to adjust your pricing strategy to reflect the increase in costs. How will this affect your customers in a different price tier and will the aggregate effect increase or decrease profits?
Complexity defies the many efforts to study it. In many ways, that is the nature of complexity. It lies beyond the boundaries of human knowledge, and it confounds even the most sophisticated minds and technology. While there is no metric to measure complexity, we can still see why the world is increasing in complexity.
As we become increasingly connected, traditional boundaries of markets start to break down. Long gone are the insular markets with homogeneous demographics. Companies small and large, with a local or global footprint, find themselves subjected to rapidly changing macro and micro dynamics from international influences. Companies “cannot develop models of the increasingly complex environment in which they operate”, notes John C. Camillus in an article published by the Harvard Business Review.
While we are still far from being able to understand complexity itself, there is general consensus that the number of stakeholders involved contribute greatly to the complexity of a challenge. One of the reasons is that each stakeholder has a different set of perspectives and needs we need to account for. Another less appreciated reason is that the reliability of the information on individual stakeholders decreases as the number of stakeholders increases.
In the next two sections, we will first investigate strategies to manage complexity, and then establish basic information standards for evidence-based decision making in high-uncertainty environments.