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Power Laws & the New Science of Complexity Management

But this pattern of behavior also leads to serious maladaptation in times of rapid change and crisis; it is most dangerous precisely during those moments of discontinuity that define the critical episodes of change in most complex systems. Part of the aim of Mr. Snowden and his colleagues at Cynefin is to create organizational tools that can be used to train individuals and groups to be prepared for these discontinuities.

“We call it immunization,” says Mr. Snowden. “We need to dip people into chaos on a regular basis.” In his view, no individual or unit should work within the context of a fixed or narrowly defined task for more than 18 months before being tossed into a radically new task and environment. Such frequent disruption-by-design of behavioral patterns keeps individuals and organizations alert and responsive to a changing environment.

Interdependence Risk
The risk associated with business discontinuity has an added dimension in today’s increasingly networked world. The modern extended enterprise not only benefits from improved efficiency and flexibility, but also faces qualitatively new risks associated with dependence on distant suppliers, financial institutions, other governments, and additional uncontrollable elements outside itself. Interdependence carries its own kind of risk, as it can project the consequences of distant discontinuities into one’s own backyard.

In the spring of 2000, when a fire took a single semiconductor plant out of action in New Mexico, Telefon AB L.M. Ericsson of Sweden came up millions of chips short while trying to launch a new mobile-phone product, and was ultimately driven out of the handset market. In 2002, a labor slowdown at ports on the West Coast cost U.S. businesses up to $1 billion per day for several weeks, bringing into sharp relief their dependence on facilities they do not themselves control. As in the case of financial investments, or insurance, one way to deal with such risk is to identify weak spots and to protect them with old-fashioned hardening of facilities or by building in redundancy or diversification. Network theory, another area within complexity science that has made impressive progress in the past few years, can also help to identify key operational hubs or bridging links within a supply chain that need to be protected.

But it is important to recognize that troubles associated with interdependence can have extremely subtle causes, and in some cases cannot be traced to any one element in a system. To illustrate, consider the flow of traffic. On any highway, if the density of traffic is fairly low, traffic flows smoothly. As the density increases, however, trouble can set in. If one car touches its brakes — for whatever reason — a car directly behind may also slow down, possibly triggering a third to do the same and causing a local traffic jam. We’ve all experienced these “phantom” jams, which arise out of nowhere, and then dissolve just as mysteriously. They are not anyone’s fault, but reflect a fundamental coordination problem arising from the inability of drivers to respond instantaneously to changes in their environment.

In 1995, physicists Kai Nagel and Maya Paczuski, both then at Brookhaven National Laboratory in Brookhaven, N.Y., explored this phenomenon in a beautiful series of simulations. Using a computer to model a single lane of traffic, they found that as traffic density increases, the flow eventually reaches a critical point of extreme instability. At this point, traffic flow is highly erratic; the distribution of traffic jams over time follows a power law, with immense jams taking place far more frequently than the bell curve would predict. On the face of it, this would seem to be a bad situation. But it turns out that this highly irregular state is also the most efficient for getting cars down the highway in this relatively simple single-lane model. Paradoxically, decreasing the traffic density to achieve a more uniform flow also leads to a decrease in the overall traffic flow (the number of cars passing by per hour).

 
 
 
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Resources

  1. Robert Lukefahr and Tim Donohue, “Global Warming: Perception Is Reality,” s+b, Fourth Quarter 2002; Click here.
  2. Randy Starr, Jim Newfrock, and Michael Delurey, “Enterprise Resilience: Managing Risk in the Networked Economy,” s+b, Spring 2003; Click here.
  3. Philip W. Anderson, “More Is Different,” Science, Volume 177, Number 4047, 1972
  4. Robert L. Axtell, “Zipf Distribution of U.S. Firm Sizes,” Science, Volume 293, Number 5536, 2001
  5. Mark Buchanan, “The Physics of the Trading Floor,” Nature, Volume 415, January 3, 2002
  6. Dirk Helbing, “Modelling Supply Networks and Business Cycles as Unstable Transport Phenomena,” New Journal of Physics, Volume 5, 90.1-90.28, July 14, 2003
  7. Anthony Michaels, Ann Close, David Malmquist, and Anthony Knap, “Climate Science and Insurance Risk,” Nature, Volume 389, September 1997
  8. Kai Nagel and Maya Paczuski, “Emergent Traffic Jams,” Physical Review E, Volume 51, 1995
  9. Philip C. Anderson, “Seven Levers for Guiding the Evolving Enterprise,” in The Biology of Business, John Henry Clippinger III, ed. (Jossey-Bass, 1999)
  10. Mark Buchanan, Nexus: Small Worlds and the Groundbreaking New Science of Networks (W.W. Norton & Company, 2002)
  11. Nicholas Dunbar, Inventing Money: The Story of Long-Term Capital Management and the Legends Behind It (John Wiley & Sons, 2001)
  12. Rosario N. Mantegna and H. Eugene Stanley, An Introduction to Econophysics: Correlations and Complexity in Finance (Cambridge University Press, 1999)