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It is worth considering the meaning of complexity. Take for example a Boeing 747. It is complicated but not complex.

With the myriad of structural elements, tubes and wires the plane is clearly complicated but these components all have controlled inputs and as a result the entire system functions the same way. Everyone involved in its preparation and flight work to a stable set of procedures to make sure that the machine works as expected.

By contrast a complex system consists of components whose behaviour is influenced by potentially many others, each of which may be in one of many states. The likelihood of a configuration of such states recurring is extremely low, yielding system behaviour of high diversity and unpredictability and therefore low controllability.

The business environment we all work in provides a large number of influences in constant flux, and amplified by the speed and ubiquity of modern communications, these effects cause many organisations to display characteristics of complexity. Goals become fluid, policies require updating and innovative methods and solutions are continually needed to meet ever-changing circumstances. We all experience complexity when we try to read and exploit market shifts, fluctuating prices, new technology, emerging research and development and the impact of our competitors struggling to meet the same challenges.

The Stacey Matrix characterizes complexity. We present a simplified version here which shows that complexity lies between what is complicated and chaos.

If your business operates in an environment where you deal with well-known customers who understand and like how and what you sell, then at best your business is complicated and traditional ways of managing, properly implemented, are probably adequate. You can rely on managing performance through conventional hierarchical structures, provide direction and then coordinate and monitor.

But if your business operates in an environment far from equilibrium where there are disparate views on an appropriate course of action, then you can’t manage performance and also enable it. You will need to foster diversity, challenge habits and assumptions, reduce power differentials and motivate people. To remain effective in complex environments, leaders need to move from solving known problems with established methods to the creation of new solutions and methods in real time.

Anthony Sive is the Managing Director of Canrock Asset Advisory and Sam Sharp is the Managing Director of Numerix.

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