Crises, what’s next?
In my last post I argued that crises are the result of complexity. While I still hold this argument, a crisis is probably a situation where complexity is at a maximum, if there is a maximum. The situation will probably not become more complex than that. A response I got on the previous post from John Marke was a reference to his paper ‘Why bad things happen to good policies‘. I will come back in more detail about his paper later, but one of the important statements is that all paradigmatic shifts are preceded by crises. That’s interesting, if complexity is followed by a crisis, and a crisis is followed by a paradigmatic shift, then complexity will be followed by a paradigmatic shift.
Complexity → Crisis → Paradigmatic shift
Complexity can be seen as a positive feedback loop towards complexity, while a paradigmatic shift is a negative feedback loop towards a ‘stable’ but new (and temporary) equilibrium. A new equilibrium in the sense that it was not predicted or a situation that was stable before. If we can speak of systems here (depends on your point of view on systems), at least we are talking about complex systems, or complex adaptive systems.
If a paradigmatic shift follows a crisis, then who or what sparks this shift to occur? It’s hard to say. In a complex environment, there is a huge network of resources that is ever-expanding. The value of a network is proportional to the square of the number of connected users of the system (Metcalfe). That makes it unpredictable where this shift is coming from, but chances are that it can come from a bottom-up, self-organized distributed sub-network within the system. A question that John Marke asks the reader in his paper is ‘how could we empower them’? First we have to identify the possible ‘we’ and ‘them’. Or shouldn’t ‘we’, and should it be more emergent? Marke poses a similar choice, adapt to the complex adaptive system, or harness complexity and have it work in your advantage.
I like his way of thinking, because either you just accept the fact that you can do anything except adapt, or understand some properties of the system (emergent, unexpected, self-organized, highly connected, adaptive). The latter has more interesting possibilities, and is more congruent with these characteristics. Remember, you are probably in this complex adaptive system as well, play a role, and have the same characteristics. It’s not something totally alien.
In this present situation, it is easy to understand that the situation is getting complex more quickly than it did in the past. That means that crises are about to occur more often, and the same is true for paradigmatic shifts. The thing we need to accept is that situations are not stable, and these ‘stable’ situations are volatile and temporary. Solutions are valid for a short period of time, almost by definition. And why do we want to reach a situation that worked in the past, while the environment around us keeps changing in a rapid pace?
This post is my answer to the paper of John Marke. He’s in the process of writing another, on resilience, the solution space of complexity as he puts it.
Bas Reus' quest on self-organization and online collaborative spaces 
I love this one and I agree that the degree of complexity increases steadily which means we have to rethink how we work with organization. I come from a consulting background and I believe that standard business reengineering practices don’t work anymore because of the complexity.
I have summarized my thoughts on complexity here:
Your work is very nicely done Holger. I quite enjoyed your thoughts and the beautiful job you did articulating them. Same goes for your insightful work, Bas. Really top notch. I agree about the limits of process reengineering. Actually, I wasn’t all that crazy about it when Hammer and Champy introduced it in the early 1990’s.
Any thoughts about how complexity theory might be applied to describe and explain the current catastrophe in the global financial markets? I have become more interested in this systems failure over the past few weeks, mainly because data from open sources is more available than from the national security venue I originally wrote for.
As to Bas comments on what sparks a paradigmatic shift, the financial market may turn out to be be a case study in the mechanics of a paradigmatic shift.
I think if failure is significant enough and repeated often enough a system undergoes a “step change” (so it doesn’t return to equilibrium, to tips to a completely different equilibrium). I’m not advocating any particular solution, mind you, but I think Sarkozy’s comments at Davos may be the first hint that world leaders may well demand a paradigmatic shift if this problem reoccurs. The application applies across systems, and I suspect across scale within systems. You see the behavior in political regime change, stockholder revolts, and even medical science when a particular theory fails to cure the disease.
Very best regards,
John
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Hi Bas,
Your quest goes on!
I would agree that “crises are a result of complexity” – but probably in a different sense from that which you set out here and for different reasons. No doubt you might anticipate that response, given previous comments of mine about not viewing organizations as systems etc!
My argument would probably go something like this. First, the notion of “crisis” is a social construction. That is, it emerges from the way that people perceive, interpret and evaluate what’s going on around them, both individually and, most particularly, through their interactions with others. Direct, ‘local’ conversations will be interspersed with (and influenced by) indirect ‘interactions’ (e.g. via newspapers, television and the internet). It is through the widespread interplay of these local conversations – and their reification in newspaper articles, reports and commentaries – that what’s happening comes to be viewed as “a crisis.” The established ‘pattern’ that is evoked by the notion of crisis then tends to channel ongoing sensemaking and action taking down familiar, taken-for-granted ‘pathways’. This might well include, for example, the panic and blame responses that you cite in your earlier post. More willing acceptance of imposed conditions by those who are assumed to be ‘in control’ (such as ‘The Government’ in national affairs or ‘Management’ in business contexts) is another likely outcome.
All of this means that there can be no conception of crisis without people to perceive, interpret and evaluate events in a way that evokes this ‘pattern’. And, as soon as people are involved, you have complexity. Each of the above interactions is therefore a complex social process in its own right (or a complex responsive process, as Ralph Stacey et al would describe it). It is not dependent on an “environment” (a system concept) because, from a complex social process perspective, the interplay of these local interactions is unbounded.
Another departure would be in the notion of self-organization itself. As I read it, you are equating this with people deliberately taking the initiative (“bottom up”) to organize themselves into a sub-group (… “a bottom-up, self-organized distributed sub-network within the system”). This is again how self-organization tends to be viewed from a (complex adaptive) system perspective: The ‘agents’ (people) self-organize (i.e without top-down instruction), according to their local rules of interaction, to produce coherent patterns of behaviour. This view opens up the seemingly attractive possibility of managers being able to set a few, simple rules to stimulate and control (harness?) this self-organizing dynamic. However, from a complex social process perspective, it is the conversational interactions – and the themes that emerge from them – which self-organize (irrespective of considerations of structure). These interactions and themes tend to follow the patterns of past sensemaking – reinforcing these still further. At the same time, the capacity exists within this process for shifts to occur and novel outcomes to emerge. However, whilst pattern shifting is an ever-present possibility, it is much more likely that existing patterns of thinking, feeling and acting will be replicated and further reinforced. This is fortunate, because it enables people to go on together in everyday family, work and social situations. However, this also accounts for why cultural change – and paradigm shifts – are much rarer occurrences.
And finally, in all of this, managers can act with intention but with no certainty as to the outcomes that might arise. This means that the notion of “harness[ing] complexity [so that it will] work to your advantage” is itself problematic. We can acknowledge the complex dynamics of everyday interactions and actively engage with the local conversational process. But we can neither control these dynamics nor predict the outcomes that will emerge.
Thanks, as always, for stimulating me into commenting!
All the best, Chris
PS Ralph Stacey gives his view on the financial crisis in his new book “Complexity and Organizational Reality”, which I have recently reviewed on my blog at http://bit.ly/au0cKv .
Great post, Bas.
While I agree in your view of a paradigm shift being an attempt to reach a new stable equilibrium after a crisis, I would add another element I see today in most organizations: the coexistence of two different states: complexity, of course, but also complication, as inherited from industrial age.
In this sense, should we speak of a paradigm shift, or of an attempt to recover an obsolete model, thus avoiding a real shift?
Thanks all for commenting.
@Holger: great slides! Material for many new posts perhaps.
@John: if I say that the new situation, reached by the paradigmatic shift, is basically the same synergy, can you agree on that? Synergy in the sense that it is the result of thesis and anti-thesis, best of both worlds.
@Chris: great articulated point of view there. I like your ‘local’ point of view. This makes the situation less abstract. Everyone has other perceptions of the situation, there is not a single ‘true’ situation or reality. However, in the case of a crises, I think it helps to think of a systems view (or process). It helps to recognize a situation, and create a shared point of view. It can still be local, but not on an individual level. Thanks in return, for making me think twice about subjects. It has stimulated me more than once for writing a new blog post!
@Thierry: I’m not sure whether a stable equilibrium can be reached. Stability of what? Of the system? Or, in the line of thinking that Chris outlines, perceived stability? The distinction between complex and complicated is indeed a valid point. Therefore I think that the synthesis view (outcome of thesis and anti-thesis) is perhaps more valid, recovery is trying to ge back to a previous, not desired state.
Readers interested in complexity and financial markets should check out Didier Sornette’s excellent work on the subject. There is a lot of very hard core research which has gone into this, as one would imagine. Sornette’s book, “Why Stock Markets Crash” is an excellent introduction for more sophisticated readers.
@John: if I say that the new situation, reached by the paradigmatic shift, is basically the same synergy, can you agree on that? Synergy in the sense that it is the result of thesis and anti-thesis, best of both worlds.
I think the classic example of a Kuhnian shift is from Newtonian to quantum physics. Quantum physics is not the product of synthesis; it is completely different from Newtonian physics. Together they present a more complete picture of the world, but I don’t think that is the same as synthesis because there is no joining of the two perspectives – they exist independently of each other.
On failure in the financial markets, I tend to follow Hyman Minsky. Very simple and elegant theory on why markets fail. He died in 1996, I think, maybe even earlier. Robert Barbera’s The Cost of Capitalism does a good job of explaining why a lot of people are calling the most recent meltdown “a Minsky Moment.”
His thesis can be described in two sentences: A long period of healthy growth convinces people to take bigger and bigger risks. When a great many people have made risky bets, small disappointments can have devastating consequences.
There is a lot more to Minsky, but this is a quick & dirty view. Do a Google, there’s some good stuff on him out there.
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