If you have not yet read our previous blogs on complexity, we recommend you to start there. This week we will be focusing on the third type of complexity, emerging complexity.
Often these disruptions come as a surprise, because of sudden changes in economy, technology or politics. For instance, corporate scandals lead to new legislation, creating entirely new levels of complexity for businesses and governments around the world. Disruptive technologies have created emerging complexity for years in the world of IT. Changing paradigms are almost the only constant there. And the credit crunch created emerging complexity for many businesses, almost overnight.
We sometimes refer to these sudden changes in the market as black swans – things you never knew were possible until you suddenly encounter them. In some cases, organizations drive these disruptions themselves, for instance by means of a new business model or invention which allows them to create new market space for themselves. As a result, there are no established competitors, no clear customer requirements, no best practices and no rules. They write the rules and redefine the very logic of competition as they go along. We call these new business models blue ocean strategies. In blue oceans, demand is created rather than fought over. There is ample opportunity for rapid, profitable growth.
Consider the following examples
- A minister is considering a major change in policy, which will affect many citizens in a financial sense. As the new law has many components (dynamic complexity) and there are many influencing factors (social complexity), it is hard to predict what the exact outcome is going to be (emerging complexity) on a microlevel. How will constituents value the impact on their life? The question is how the right simulations should be run. This ensures the minister can communicate the new policy with confidence.
- Many internet businesses have had to invent their own business models, and are still doing so. One best practice popularized in this industry is to run multiple versions of a business process next to each other, benchmarking them for operational business results. The best-scoring business process is implemented and a new round of experiments starts. As a result, the key issue is how multiple versions of business processes can be managed and control in parallel and agile fashion.
- Strategy formulation, or policy-making in the public sector is often still a very analytical exercise. However, there is not much to analyze in an environment full of emerging complexity. The question is, therefore, how the walls between strategy formulation and execution can be broken down to make strategy or policy-making a continuous process. Of course ensuring these are using an agile method allowing on-the-go adaptations.
What happens if you do not embrace emerging complexity?
Survival in non-blue ocean markets is perfectly possible, ensuring that the rules, although dynamic, are clear. However, survival is not possible without the ability to absorb black swans. Organizations need to build their capability to reformulate strategy and adapt almost instantly. Both in their management processes and in their business operations. In other words, an agile approach allowing for the necessary flexibility to tackle complexity. Resilience is the minimum requirement for survival.
What is up next?
Next week, we have a short assessment determining your ability to embrace all aspects of complexity. Interested in reading our next blog? Stay tuned by signing up below or follow us on LinkedIn, Twitter and Facebook to stay in the loop at all times. In the meantime, have a look at our website and see how we can help you with turning complexity into value.