McKinsey argues that ‘increased risk and complexity are now here to stay’ while research from KPMG conducted with 1,400 executives in 22 countries across seven industries found 70% agreeing with the statement ‘increasing complexity is one of the biggest challenges my company faces.’ But the real challenge is not in recognising this but in (1) understanding what complexity is and (2) learning to cope with it.
Complexity can’t be mastered; it must be absorbed
Frederich Hayek, an economics Nobel laureate, argued that ‘nobody has yet succeeded in deliberately arranging all the activities that go on in a complex society.’ If they had, that society ‘would no longer make use of many minds, but would be altogether dependant on one mind; it would not be very complex but extremely primitive.’ Efforts to simplify, cut through or master complexity merely destroy its inherent potential without mitigating risk.
‘Ordered systems’ are defined by repeatability (do A and B happens: always) and can be managed with the more traditional engineering approach that seeks to produce predictable outcomes. But complexity has distinct characteristics that defy this ordered approach:
Perhaps this is best explained by way of a story? A forest’s greatest enemy is fire, so the US National Parks Service adopted a zero tolerance stance - every outbreak would be extinguished. But soon they noticed an increase in major fires, as most forest fires are small, burn out quickly and remove combustible undergrowth, which create firebreaks that limit the occurrence of major incidences.
So, the US National Parks Service adopted a policy to put out man-made fires, but allow natural ones to burn. But very soon the largest fire ever-known hit Yellowstone National Park as several natural fires, in very extreme conditions, joined together. It took 25,000 firefighters and $120 million to fight it and destroyed a third of the park’s vegetation.
The US National Parks Service policy today? Allow forest rangers to use judgment in deciding which fires to tackle.
The second ‘rule’ of complexity is that it can’t be commanded or controlled