Complexity and the Economy

Slowly, over the last three or more decades, a feeling has grown among economists that their key assumptions of perfect rationality, equilibrium, diminishing returns, and of independent agents always facing well-defined problems are somehow not trustworthy, too restrictive, somehow forced. Now in the air are ideas of behavioral rationality, nonequilibrium, increasing returns, and of interconnected agents facing fundamental uncertainty in problems of decision-making. Economics has opened up to other approaches besides the standard neoclassical one

Brian Arthur – Complexity and the Economy

http://tuvalu.santafe.edu/~wbarthur/Papers/Complexity%20&%20Economy%20Preface.pdf

Jon Kolko » Yet another design thinking article

These critiques of design thinking are not unique to Vinsel, Jen, Nussbaum or myself. They are echoed in blogs and conference presentations. The critiques of design thinking are:

  • It takes a thoughtful, complex, iterative, and often messy process and dramatically oversimplifies it in order to make it easily understandable
  • It trivializes the role of craft and making things, which is fundamental to the process of design
  • It promotes “empathy-light”—as if an empathetic and meaningful connection with people can be forged in days or hours
  • It’s become a tool of consultancies to sell work, not to drive real impact

These critiques of design thinking are just, as is the emergent backlash against the methodology by designers and design organizations. When viewed from the historic roots I’ve described above, today’s design thinkers lack craft, lack intellectual foundations, and can’t make things.

Source: Jon Kolko » Yet another design thinking article

Jon Kolko » Yet another design thinking article

The development of business strategy is a craft skill, and can be a design process. But it means changing today’s dominant approach…

There are two paths of design, diverging. There are people and firms practicing design thinking by making things, driven by practitioners aware of the history of making things and skilled in the craft of making things. And then there are people and firms practicing design thinking by, well, thinking about things. The difference is profound. When we make things—again, the word “things” is used loosely, applying to both a toaster and a business strategy—we become intimate with details, with material, with complexity and with simplicity. We iterate and immerse and explore and craft. The work has intellectual depth because it has formal depth. “Formal depth” isn’t just a pretentious phrase. It means someone has given shape to an idea. Form has ties to aesthetics, history, meaning, and people. It references all of the ideas described above.

Source: Jon Kolko » Yet another design thinking article

Office of Naval Research (ONR) Goes Lean – steve blank – Medium

This six- to ten-week process delivers evidence for defensible, data-based decisions. For each idea, the innovation team fills out a mission model canvas. Everything on that canvas is a hypothesis. This not only includes the obvious -is there solution/mission fit? — but the other “gotchas” that innovators always seem to forget. The framework has the team talking not just to potential customers but also with regulators, and people responsible for legal, contracting, policy, and finance support. It also requires that they think through compatibility, scalability and deployment long before this gets presented to engineering. There is now another major milestone for the team: to show compelling evidence that this project deserves to be a new mainstream capability. Alternatively, the team might decide that it should be spun into its own organization or that it should be killed.

Source: Office of Naval Research (ONR) Goes Lean – steve blank – Medium

Pocket: Deconstructing Amazon Prime: Loss Leader or Value Creator?

Tbh, this is the logic organisations should run to anyway – a focus first on value creation, with value capture the second question. Even without the time horizon of Amazon, you need to create value before you capture it. This means a deep focus on your consumers and building things they love. It’s feels obvious, but it’s a lot rarer than it should be…

I have long described Amazon as a Field of Dreams company, one that goes for higher revenues first and then thinks about ways of converting those revenues into profits; if you build it, they will come. In coining this description, I am not being derisive but arguing that the market’s willingness to be patient with the company is largely a the result of the consistency with Jeff Bezos has told the same story for the company, since 1997, and acted in accordance with it. Amazon Prime symbolizes how Amazon plays the long game, an investment that has taken a decade to bear fruit, but one that will be the foundation on which Amazon launches into new businesses. I know that there are many companies that model themselves after Amazon, but unless these “Amazon Wannabes” can match its narrative consistency and long time horizon, it will remain a one of a kind.

Source: Pocket: Deconstructing Amazon Prime: Loss Leader or Value Creator?

Gonzo math

As Aristotle pointed out, one should not seek more precision in a subject than it allows. In many contexts, gonzo math turns out to be more accurate than the purer forms of analysis. “Pure” analysis in most business situations tends to be conservative rather than creative. It implicitly favors optimizing the existing business rather than building a new one. It is biased toward shrinking the business, for the simple reason that figuring out how to cut costs is easier than thinking up new ways to generate revenue. It produces an irrational kind of rationality—the kind that underestimates the impact of everything that can’t be measured easily, like the cost of job cuts on a company’s public image and internal morale. In pretending to analyze the future with the same fanatical precision with which it parses the past, it makes the classic mistake of assuming that the future will be a dotted-line projection of the most desirable recent trends.

The Management Myth: Debunking Modern Business Philosophy

Matthew Stewart

Think Biologically: Messy Management for a Complex World

A very good synthesis of complex adaptive systems theory applied to business. Couldn’t have said it better myself.

Therefore, instead of focusing on developing specific techniques or actions, managers should master the principles of biological thinking:

Pragmatism, Rather Than Intellectualism. In an old business joke, a strategist says of a new idea, “It might work in practice, but does it work in theory?” The reality is that managers also tend to want narratives and explanations. It is tempting to reject ideas that one cannot explain. Nevertheless, the lack of an obvious explanation does not imply that something does not work (or vice versa). Managers must acknowledge that things often work before we can explain why.

Resilience, Rather Than Efficiency. It’s hard to argue against efficiency. What few managers recognize, though, is that it often trades off against resilience. Like excessive dieting, trimming too much fat can in fact be harmful to companies. The difficulty is that the benefits of efficiency are often immediate and visible, while its risks are latent and invisible. To balance the calculus, companies must make resilience an explicit priority.

Experimentation, Rather Than Deduction. Paul Graham once claimed that “the best startups almost have to start as side projects.” That’s because when it comes to innovating, no one knows what will work. Great ideas, in particular, are often outliers that experts may have good reasons for rejecting. Biological management therefore demands getting your hands dirty and tinkering more often than it demands analyzing and theorizing.

Indirect, Rather Than Direct, Approaches. In her influential analysis of system leverage points, Donella Meadows pointed out that the most powerful leverage points in complex systems are all indirect, whereas the obvious leverage points like subsidies, taxes, and standards tend to be relatively ineffective. It’s an idea that most business executives intuitively understand but hesitate to put into practice. Acting on structure, goals, mindset, and other contextual drivers may seem unacceptably “soft,” but these levers are often more effective than direct levers in the long run.

Holism, Rather Than Reductionism. On the surface, reduction is a natural step in the problem-solving process. It makes problems more tractable and allows for division of labor. It works in engineerable systems, in which subcomponents interact minimally or linearly. But reduction often fails in complex systems because the crux of their behavior lies in the relationship between parts rather than in the parts themselves. The whole is not the sum of its parts.

Plurality, Rather Than Universality. Heterogeneity is the basic ingredient through which adaptation and therefore renewal and growth become possible. Innovation in cities scales superlinearly, not because their inhabitants are efficient and coordinated, but because their plural, competing viewpoints provide for constant growth and rejuvenation.7 Likewise, companies can achieve vitality not through dogma or universal solutions but by nurturing plurality.

Source: Think Biologically: Messy Management for a Complex World