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Power Laws & the New Science of Complexity Management

  1. To follow the financial and insurance industries in taking the “fat tails” of power law systems seriously. Expect change to arrive not gradually, in a way that will allow the organization to adjust in real time, but in sudden discontinuities of great consequence that reshape the business environment, bringing both dangers and opportunities.
  2. To recognize that globalization and decentralization bring risks as well as rewards, and that more is sometimes different — that increased interdependence can create the conditions for “emergent” threats that are traceable to no specific element within the system.
  3. To take note of the human element in efforts to become adaptable, in part by organizing practices to decrease “entrainment of thinking.”

Management used to mean finding solutions. Using physics, engineers could solve equations and learn how to control processes in the manufacturing of materials, in chemical processing, or what have you. In operations research, managers adopted the same mind-set, aiming to find optimal solutions to scheduling problems or supply chain management. The recipe was simple, traditional, and straightforward: identify the problem, solve it, and then apply the solution.

Today, there are fewer certainties. Unfortunately, our habits of thought still make us look for linear trends and other simple patterns, and make us expect the future to be a recognizable version of the past. In many cases, we constrain our lives in an attempt to achieve such security, but in complex networks of competing businesses, in financial markets, in the world of emerging technology, and in politics, these expectations are out of place.

Organizations need to learn to distinguish between the kinds of problems that can be handled with traditional perspectives, where precise prediction and solution is possible, and the kinds of problems associated with unavoidable complexity. Entrainment of thinking is an ever-present danger. Early last century, Frederick Taylor applied Newtonian physics, the science of his day, to management. One hundred years later, as Mr. Snowden laments, “We haven’t yet grown out of this.”

Reprint No. 04107

Author Profiles:


Mark Buchanan (mark.buchanan@wanadoo.fr) is the author of Nexus: Small Worlds and the Groundbreaking Science of Networks (W.W. Norton, 2002) and Ubiquity: The Science of History, or Why the World Is Simpler Than We Think (Random House, 2001). Formerly an editor with Nature and New Scientist, he holds a Ph.D. in physics from the University of Virginia.
 
 
 
 
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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.
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  4. Robert L. Axtell, “Zipf Distribution of U.S. Firm Sizes,” Science, Volume 293, Number 5536, 2001
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  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)
 
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