The Biology of Business: Seven Principles

Summary in Business Spirit Journal,

1. Aggregation: This is a fundamental property of Complex Adaptive Systems. In contrast to the notion of hierarchy, behavior is not directed from the top down, but rather is the emergent consequence of ever-changing interactions. One of the principal roles of management is to aggregate workers and resources into groups to perform tasks. A manager acting to reengineer a business process, for example, might dictate a solution, perhaps by building a factory or buying a machine, but thus lock the business into a particular solution that might become obsolete. In contrast, a solution that is “soft assembled” and that uses the external environment (consultants, outsourcing, partners, regulators, customers) is more likely to be able to adapt to continual changes in the demands of market.

2. Non-linearity: Far and away the most common methods for analyzing markets, economies, and enterprises are based upon assumptions of linearity: the whole is the sum of the parts; the future is a linear project of the past. The principles are crisp and clear and the mathematics simple to grasp. The problem is that very few things in nature or commerce behave linearly. It is the rare exception rather than the rule. In non-linear systems, small incremental changes can invoke sudden unexpected changes. Complex Adaptive Systems do not try to duck the complexity and unpredictability of non-linearity through assumptions. Rather, it recognizes that non-linearity is the more prevalent case, and develops methods to cope with it.

3. Flow: Flows are networks of interactions: people, natural resources, orders, goods, capital, and products that characterize an enterprise. The direction, rate, persistence, and typing of flows essentially define the structure and character of an organization. For example, value is created through a redirection of flows when a failing company is acquired, reorganized, and becomes profitable. The new owner may have kept the same people and assets, but adjusted the work flows, unlocked bottlenecks, and engendered new forms of self-organization and selection. Where a company has become too rigidtoo fixed in its ways to recognize new markets or new opportunitiesnew value can be created when an outside force comes in and sees what those in the company have failed to see and is able to unlock value.

4. Diversity: In an ecological perspective, diversity refers to the number of different species that inhabit an ecosystem. The persistence of any individual agent, whether organism, neuron, or firm, depends on the context provided by the other agents. Each kind of agent fills its own nicheniches are created by the interactions of multiple agents; the greater the number of agents and interactions, the greater and the richer the diversity of environment. Diversity can be regarded as a form of economic and social wealth because the greater the diversity, the greater the economic growth through the emergence of new niches or markets.

5. Tagging: Since tags are a way of labeling and giving significance to something, they are the most critical (and least appreciated) components of self-organization. Without tags, natural selection and self-organization would be impossible. So critical is the tagging in the human immune system, for example, that it effectively determines the identity and survivability of an individual by deciding which of 10 possible proteins are foreign and which are for the “self.” Markets are not possible without tagging, as prices are types of tags. Changes in price tags drive market behavior. Fashions are forms of tags; brands are tags; job titles are tags. Corporate politics and positioning are all enhanced or thwarted by tagging. Tags launch self-organizing behaviors. Although the notion of tagging by itself may not be a startling insight, when seen in terms of how it can be used to affect aggregation, flows, diversity and the fitness of the organization, tagging becomes a critical management tool.

6. Internal Models: Internal models are simplified representations of the environment that anticipate future action or events. Stereotypes are types of internal models that simplify the complexity of the environment to anticipate specific behaviors. There is considerable debate over the extent to which self-organizing systems have explicit internal models. One view is that all representations are implicitthat knowledge is embedded and embodied in a variety of actions and activities. An internal model simply prescribes a current action, under the prediction of some desired future state. An overt internal model is used as a basis for explicit exploration of alternatives, a process called “lookahead.”

7. Building Blocks: Fitness and the ability to stay within the “sweet spot” entail being able to recognize regularities and constraints in an environment, and to evolve an effective repertoire of reusable responses. These regularities and associated repertoires of actions are the building blocks without which complex forms of self-organization are impossible. Environments that are relentlessly novel are not survivable; hence, survival and fitness depend upon being able to recognize and exploit environmental constraints. Internal models are composed of building blocks. Building blocks are used in creating bodies of knowledge and new sub-languages. The notion of reusable business processes is fundamental. MIT’s Sloan School of Management, for example, has made tremendous efforts to identify libraries of reusable business processes.

Source: John Clippinger, The Biology of Business