The challenge of complexity

Professor Carrel, complexity in economic terms, what is that actually?

Today, complexity is - in new German terms - "the name of the game". Ultimately, a large number of economic, political, social or ecological challenges of our time, as well as

No simple if-then

like all new types of crisis, revolve around this concept. All are complex in nature and test managers in three areas in particular: predicting the future, mitigating risks and making decisions. Complexity in business terms, and therein lies its challenge, is, in simplified terms, the almost unmanageable nature of things. There are no longer any simple if-then relationships.

What is the danger of this complexity for a company?

The dangers are many, but I will focus on four: Management can no longer predict what will happen when individual aspects of a complex situation or rare events interact and lead to unintended consequences. Seemingly simple measures can have significant consequences, while massive interventions are ineffective. There is a danger that leadership will fail to recognize how the system's controllability or foresight remains limited. In this situation, the second danger occurs: Business owners and managers tend to rely on expensive expert knowledge to make predictions. Yet we now know that forecasts of economic development regularly failed when dynamism entered the system.

So just when you need reliable forecasts the most?

Yes, for example at turning points or in crises. The third, significant danger lies in the fact that the brain is cognitively limited in its ability to grasp all aspects of a complex problem, although many managers do not want to admit this. The result is that managers are under the misapprehension that they have an overview of the entire situation all by themselves. And

HomemadeComplexityTrap

Fourthly: Ultimately, the corporate complexity trap is also homemade. Self-organisation and processes lead to a degree of complexity that is no longer manageable, which is why some companies critically analyse themselves and take this into account in a Complexity Index (CI).

How can this danger be countered at company level?

In the 21st century, those business leaders will be successful who recognize complexity and systemic thinking as the new reality and develop tools to grasp it and use it as an opportunity. Only in this way can they preserve their freedom of action.

What are you thinking about?

I am thinking above all of the improvement of forecasting methods. Traditional forecasting methods, which do not do justice to complex situations, are taking a back seat. Instead, simulations, models (such as customer relationship management models), scenarios, wild cards or "black swans", i.e. events that no one has thought of yet, are being used. Such models also take into account a low probability of occurrence with extreme effects.

And this has what advantages?

In complex decision-making situations, the input of a variety of different views, methods or assumptions is drastically increased. In other words, successful leaders apply the basic Law of Requisite Variety of the British neurophysiologist and cyberneticist W. Ross Ashby to control a complex system. Risks are also reduced by progressing in small steps and by means of controllable experiments. One learns continuously and implements the findings immediately. Flexible strategies are based, for example, on a set of agreed-upon ground rules for decision-making that are unchangeable, are observed by everyone at all times, and allow those directly affected on the front lines to make optimal decisions independently and flexibly depending on the situation. They escape the home-made complexity trap by means of a system simplification of the company, because a business model that is too complex is particularly susceptible to losses in times of crisis. They make every effort not to increase their own complexity by adding new processes or hierarchical levels.

What qualifications do you need?

At the management level, nothing less than a fundamentally new culture of thinking and leadership is needed. Unfortunately, a corporate culture of the command and control economy continues to stand in the way of the necessary changes. Research has shown that strategic leadership, which is confronted with complex problems, becomes more promising when cooperative collaboration within the company is promoted, mutual responsibilities are increased and decentralized problem solving at the grassroots level is encouraged thanks to the delegation of responsibilities and independent decision-making authority. However, this presupposes that employees understand each other's tasks and interdependencies, share their knowledge, take account of each other's obstacles and goals, that, in addition, individuals who strive to be integrative in teams or in the workforce are encouraged and that a climate of trust prevails.

In terms of these skills, do you see a need to catch up here?

Given the fact that systemic thinking is still in its infancy in many ventures, Frederic Vester, the father of networked thinking, would be turning over in his grave. To be fair, however, it must also be said that in our genes and in the evolution of the brain...

Promoting cooperative collaboration

mechanistic cause-and-effect thinking is deeply rooted; after all, until recently it was still helpful in complicated circumstances. It is unsuitable for dealing with adaptively complex problems or crises and has had its day.

Well, that doesn't sound very optimistic...

The good news is that systemic thinking can be learned, just like emotional and social skills. Because these are indispensable for successful leadership in complex and uncertain times. They include, in particular, the leader's personal visibility and responsiveness, his or her attentive listening, authentic and truthful communication, and empathy towards the uncertain in the company. Without trust, it is unlikely that the employees will trust the leader.

Uncertain, chaotic situations

follow the vision that has been set out or the way out of the crisis. In complex situations or crises, leaders are also forced to break rules, and they must have the courage to take risks. This requires a trust-based allegiance from the whole team.

To what extent should there be an awareness across the workforce of the growing impact of complexity on operations?

This is a key element in meeting complex challenges with business success. Gallup's global research, released this fall, finds that on average, just 11 percent of employees worldwide are engaged at work. That's an alarming number that confirms our observations: Leaders need to drastically promote "cognitive diversity," or diversity of experience, education, attitudes, or opinions among employees, instead of authoritarian leadership. They build core competencies in teams or staffs to deal with complex problems or crises. Equally important becomes their mix by age, background or gender. Without intellectual curiosity, creative solution options can hardly be developed. This is where leaders and managers have a hard time. Alpha animals should be accompanied by a jester who dares to say what the others are thinking. How often do we observe in the downward spiral of crisis only more yes-men around the decision-maker, who punishes contradictory views as betrayal.

Recently, experience has again increasingly been seen as a positive value. Does this also apply to the management of complexity?

Thinking in categories of the industrial age in the area of strategy, organizational structure or leadership, which seemed appropriate until about 1970, is no longer helpful in the 21st century in view of the rapid changes, uncertainties and complexity. The paradigm: what worked yesterday, we can use again with success tomorrow thanks to our teachings, is outdated. We are flying blind, in this sense years of experience can be a limiting factor, because today's motto is: "Let go of the old mental model!"

Is there a connection between operational crisis stability and the professionalism of management in dealing with complexity?

There most certainly is. In both cases, systemic thinking is indispensable. In order to ensure operational crisis stability, we need to favour a holistic approach even before the crisis, for example by adopting an interdisciplinary approach to risk assessment, developing networked scenarios, creating a shared vision or a portfolio strategy for crisis prevention and crisis preparation. At the same time, we promote interdisciplinary training and crisis exercises with unusual scenarios.

In order to make a company more stable in terms of complexity, where do you see the decisive starting point for this?

Promising strategies for action move in the area of tension between reductionism and variety. This means, according to the motto "conquer complexity": On the one hand, to make order, to reduce complexity, to solve the manifold challenges in a simpler way and by means of sub-problems.

communication skills

more clearly and depict it in a comprehensible form. But beware, Edward De Bono's warning is to be taken seriously: Simplicity is of value only after the overall problem is understood; before that, it is worthless.

What should a company do specifically?

The inherent variety is strengthened by adaptable and flexible management systems, by thinking in terms of variants when assessing the situation. Complexity is identified with the involvement of all management levels, and we maintain an intensive, interdisciplinary dialogue with all those affected or stakeholders. This includes an extremely active and comprehensive procurement of information. What do we absolutely need to know and understand, and from the most diverse perspectives? To do this, we need intelligently composed, interdisciplinary teams or staffs in which diverse and also critical views are represented. Thanks to intellectual curiosity, creativity and variant thinking, different solution variants are developed and evaluated. In this way, individual variety is strengthened overall. The aim is to increase the number of choices and the scope for decision-making.

Remain open and willing to learn

sern. In the actual leadership process, for example in the management of actions in complex crises, new, adequate methods must be applied.

Professor Carrel, and what is important in order to actually achieve the desired goal from this point?

We have come full circle: we have said that a fundamentally new culture of thinking and leadership is indispensable. Complex challenges or crises call for a new type of company captain who thinks in a more networked way and to a greater extent in systemic overall contexts. In addition, he seeks dialogue with his crew, who support the strategy at close quarters and provide constant impetus. Accordingly, he is distinguished not only by his ability to think systemically and act strategically, but also by his special human communication skills. He will achieve the desired goal in an uncertain and complex environment with greater chances of success if he remains willing to learn and lives by the motto that leading oneself and others means understanding oneself and others better.

A heartfelt thank you for these tips.