Rotman Management Fall 2010

From the Dean: Roger Martin “When a butterfly flaps itswings in one part of theworld, it can eventually cause a hurricane in another.” -Edward Lorenz, Pioneer of Chaos Theory COMPLEX INTERACTIONS. Intricate causal patterns. An over-abundance of choice. Sound familiar? Throw the ‘Butterfly Effect’ into the mix – whereby a tiny occurrence in one place can start an irreversible process with major consequences halfway around the world – and it’s no wonder so many people are concerned about how complicated the world has become. While conventional managerial wisdom often pursues predictable and measurable clarity, leadership today is more about balancing paradoxes than solving problems. Today’s environment demands a stance that embraces an uncommonly high tolerance for – even an attraction to – change, flexibility and disequilibrium, all of which boils down to amajor…

AS INDIVIDUALS, WE RELATE TO our complex, uncertain and foggy world not only through our senses, but also through ways of making sense of what our senses sense. These ‘ways of seeing’ can be thought of as ‘mental models’, and our minds are filled with them, whether we are aware of it or not. In today’s complex environment, the most successful thinkers can quickly and effectively abstract the best qualities of radically different ways of seeing from others and apply them to the situation at hand. In doing so, these thinkers develop an ‘adaptive lens’ on the bewildering phenomenon we call the world. We call these individuals integrative thinkers. Integrative thinkers see their way clear to successful action in situations where others see only a choice between poor or mediocre outcomes.…

‘Social dilemmas’ include everything from traffic jams to runs on scarce goods to maintaining trust in relationships. What do these things have in common? In each scenario, there is a temptation for some people not to cooperate with others. So in traffic jams, there is a temptation to try to pass everybody or to run a red light. One of the ways we deal with this is to have enforced traffic laws. Solving social dilemmas entails agreement on some set of norms or rules, monitoring of some sort, and people trusting one another in order to achieve optimal outcomes for all. Whenever actions taken by individuals or organizations benefit a larger group, there is always a risk that some of the participants will ‘free-ride’ on the efforts of others and not contribute…

THE ECONOMIC SHOCK OF 2008 and the Great Recession that followed didn’t just create profound uncertainty over the direction of the global economy. They also shook the confidence of many business leaders in their ability to see the future well enough to take bold action. It’s not as if we don’t know how to make good decisions under uncertainty. The U.S. Army developed scenario planning and war gaming in the 1950s, and advanced quantitative techniques – complete with decision trees and probability-based net-present-value (NPV) calculations – have been taught to MBA students since the 1960s. These approaches are extraordinarily valuable amid today’s volatility, and many well-run companies have adopted them over the years for activities such as capital budgeting. The challenge is this: coping with uncertainty demands more than just the thoughtful…

1: BE FLEXIBLE Companies must take a more flexible approach to planning: each should develop several coherent, multi-pronged strategic-action plans, not just one. Every plan should embrace all of the functions, business units and geographies of the organization and show how it can make the most of a specific economic environment. These plans can’t be academic exercises: executives must be ready to pursue any of them – quickly – as the future unfolds. In fact, the broad range of plausible outcomes in today’s environment calls for a ‘just in time’ approach to strategy setting, risk taking and resource allocation. A company’s 10 to 20 top managers, for example, might have weekly or even daily ‘all hands on deck’ meetings to exchange information and make fast operational decisions. Greater flexibility also means developing…

Whether you are interested in Physics, human health or you just want to avoid traffic jams on your way home from work, understanding complexity is key. OPEN UP ANY DICTIONARY and you will find ‘complexity’ defined along the following lines: ‘The behaviour shown by a complex system’. Then look up ‘complex system’ and you will see something like, ‘A system whose behaviour exhibits complexity’. What is going on? Unfortunately, complexity is not easy to define. Even among scientists, there is no widely-accepted definition. Worse still, it can mean different things to different people. In this article I will uncover the ‘magic ingredients’ that make something complex as opposed to just being complicated, and show how complexity is deeply engrained in our everyday lives. We will also see why complexity is set to…