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How does the complexity theory apply to business? (A Brief Dialogue)

Written by: Jon Hansen

Article Overview: Member Question: Has anyone applied complexity theory to business in a practical way? Asheville, U.S. My Response: The chaos theory and butterfly effect are interesting concepts in terms of the “complexity” of business. Over a number of years and through funding from the Government of Canada’s Scientific Research and Experimental Development (SR&ED) Program I developed a theory called strand commonality. In the area of supply chain practice for example (although the term “chain” is a misnomer in that it implies a sequential architecture instead of the synchronized architecture that represents the dynamic characteristics of different stakeholders within the real-world), one seeks to understand the unique operating attributes of individual stakeholders using an agent-based model.

How does the complexity theory apply to business? (A Brief Dialogue)

Member Question:

Has anyone applied complexity theory to business in a practical way?

Asheville, U.S.

My Response:

The chaos theory and butterfly effect are interesting concepts in terms of the “complexity” of business.

Over a number of years and through funding from the Government of Canada’s Scientific Research and Experimental Development (SR&ED) Program I developed a theory called strand commonality.

In the area of supply chain practice for example (although the term “chain” is a misnomer in that it implies a sequential architecture instead of the synchronized architecture that represents the dynamic characteristics of different stakeholders within the real-world), one seeks to understand the unique operating attributes of individual stakeholders using an agent-based model.

This approach enables you to define the seemingly disparate attributes of individual stakeholder streams. The stand commonality theory then looks to identify the points of convergence between the varied attributes of different transactional streams to achieve the optimal collective outcome (re the best source, for the best product at the best price etc. at that point in time).

Conversely, traditional business models employ an equation-based methodology, in that they seek to establish a set of “static” operational standards such as SCOR in the supply chain world or Six Sigma, and then enforce a change management strategy to drive adoption to what the model classifies as “best practice.”

The trouble is that these or for that matter and operational standards and the attributes upon which they are based, are rarely static in nature, which means that the standards by which best practice has been defined in one instance is unlikely to be the same in another, even when the stakeholders remain somewhat constant. (Note: refer to the definition of the butterfly effect here.)

Strand commonality recognizes and adapts to the dynamic and at times volatile attributes of an individual stakeholder stream and therefore seeks the point of convergence between different streams that reflects the optimal collective outcome at that specific point in time.

I have included references to a number of articles I have written on this subject that will provide context in terms of real-world applicability. Suffice to say, there is a reason why 85% of all e-procurement initiatives world wide fail to achieve the expected results.

Optimization Modeling and the Modern Supply Chain (A PI Q and A)

Similarity Heuristics, Iterative Methodologies and the Emergence of the Modern Supply Chain

Is Ford’s auto-xchange the “Real Deal?”



Member Follow-up Comment:

Thanks for the response Jon. It sounds like your strand commonality is used to identify the Nash equilibrium for all “players” in the business game.

Interesting!

My Follow-up Response:

There are definitely attributes of the Nash equilibrium within a stakeholder stream, however there are also attributes which can not be as easily defined or outcomes predicted in advance – hence the butterfly effect analogy.

We know that something may happen within a certain parameter, the sequence or manner in which they occur is subject to both individual and multiple stakeholder variables which may or may not be in their control.

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Article Tags: asheville, attributes, butterfly effect, change management strategy, chaos theory, collective outcome, commonality, complexity theory, dynamic characteristics, ed program, experimental development, government of canada, misnomer, operational standards, point in time, points of convergence, scor, six sigma, stakeholders, traditional business models



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