Tackling Complexity

A Systemic Approach for Decision Makers

Gilbert Probst, Andrea Bassi

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351287623
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Our socio-economic systems continue to grow and evolve. We need to acknowledge that, consequently, our decisions often fail – they are ineffective and create unexpected side effects. The speed of execution is increasing constantly and markets and systems respond almost immediately, making decision-making challenging. There is little or no room for failure.This important new book analyses real world strategy and policy challenges, addressing the interconnectedness of the markets/systems we live in. It provides a step-by-step approach using systems thinking to solve complex problems in socio-political as well as business environment. It proposes a technique with which to better understand the problems and the context in which they arise, and tools to directly inform each step of the decision-making process. The book explores the main innovation that systemic thinking introduces – the emphasis on defining the problem creating system, which is made up of interacting parts, rather than prioritizing events that need immediate fixing.The case studies, examples and the approach proposed can be used to better understand reality and its complexity, and to integrate stakeholders for a better solution. Practically, it can be used to identify problems, analyse their boundaries, design interventions, forecast and measure their expected impacts, implement them and monitor and evaluate their success/failure. The book touches upon global issues related to policy making and strategic management, as well as issues related to sustainable development for both the public and private sector.

1
Introduction

1.1 Purpose of and rationale for dealing with complexity

Our socioeconomic systems continue to grow and evolve. We need to acknowledge that, consequently, our decisions often fail—they are ineffective and create unexpected side-effects. The speed of execution is increasing constantly and markets and systems respond almost immediately, making decision making challenging. There is little or no room for failure.

Since 2008, the high volatility of the financial markets has burdened national leaders with considerable pressure. They have to make crucial decisions on monetary and fiscal policies and have to constantly monitor the markets. Simultaneously, they have to improve private sector access to credit (in the context of declining demand) and higher lending (although unexpected losses have heavily impacted financial institutions) to promote economic growth. They also have to have a wise monetary policy to stimulate exports, as well as monitor inflation and speculation.

During the last decades supply chains have become increasingly globalised. Product manufacturing is now often internationally and strategically located to minimise production costs. Consequently, since the supply chain is mostly far from its customers, any shock in terms of raw material availability (primarily sourced locally), labour availability, productivity, energy prices, etc. would have direct consequences on production costs and consumer demand. To counter these risks, companies such as PUMA have started to determine their global footprint to improve their resilience and use the unique strengths of their network of suppliers.

The emergence of multiple, interconnected crises exacerbates the recent challenges. We have recently experienced financial, energy and food crises, among others, and the world is feeling the effects of climate change. The growing global interconnectedness of our society, economy and environment is no longer questioned. This interconnectedness invariably leads our thoughts to the ‘butterfly effect’.¹

There is increasing evidence that the economic growth of the last few decades has been achieved at the expense of natural capital. Further, there is growing recognition that the over-exploitation of the same resources that fuelled economic growth in the past causes the current crises (UNEP, 2011a). In fact, while value has been created by the use and transformation of natural resources, stocks have been greatly depleted. For example, only 25% of commercial fish stocks—mostly low-priced species—are now underexploited (FAO, 2008) and 27% of the world’s marine fisheries had already collapsed by 2003 (Worm et al., 2006). Oil production has reached its peak and is declining in most countries (EIA, 2009). With the current water supply predicted to satisfy only 60% of world demand in 20 years, water stress will increase (McKinsey & Company & 2030 Water Resources Group, 2009). Chemical fertilisers have boosted agriculture yields (FAO, 2009a) to the detriment of soil quality (Muller & Davis, 2009). Between 1990 and 2005, 13 million hectares of forests disappeared per year (FAO, 2009b), the size of Bangladesh and Greece.

No wonder the general public and policy-makers still believe that the goals of economic growth and environmental protection, as well as national and energy security, involve a complex set of trade-offs (Howarth & Monahan, 1996; CNA Corporation, 2007; Brown & Huntington, 2008). But tools that support a systemic analysis can shed light on the dynamic complexity of the social, economic and environmental characteristics of our world. The goal should be to evaluate whether new system-wide strategies can create synergies and help the world move toward resilient economic growth, job creation, low-carbon development and resource efficiency.

The rapidly evolving environment in which we live requires faster and more decisive responses—responses to what appear to be multiple and simultaneous challenges—leaving little room for a careful analysis of alternative intervention options. Such pressure on decision makers can lead to rushed decisions. These decisions are taken on the basis of recent events. They do not consider the complex dynamics underlying the true causes of the problem. Short-term reporting or rewarding practices often motivate the search for immediate solutions and lead to unintended consequences or side-effects. These may exacerbate the problem in the medium and longer term.

Our systems have always been complex, but global crises make complexity evident to everyone at a level that cannot go unnoticed. They highlight planetary and human boundaries, which, once pushed or surpassed, can lead to unexpected consequences on other—apparently disconnected—parts of the system.

This book clearly distinguishes between complicated and complex systems. The analysis focuses predominantly on the latter.

• Complicated systems are composed of many different interacting parts whose behaviour follows a precise logic and repeats itself in a patterned way. They are therefore predictable. Automatic watches with mechanical movements composed of hundreds of coordinated elements are examples of complicated systems. Another example is the manufacturing process of a car during which several actions (steps) occur in a well-planned sequence by means of several work stations.
• Complex systems are dominated by dynamics that are often beyond our control. These dynamics are the result of multiple interactions between variables that do not follow a regular pattern. However, their dynamic interplay can lead to unexpected consequences. Society is a complex system driven by emotions (the human component), infrastructure and our environment. For instance, not all drivers take the same road to work every day. The choice of road depends on personal needs (do we have time?), the information we receive and pay attention to (has there been an accident on the road?), the transportation mode utilised (car, bus or metro) and our interest in the environment (e.g. in CO₂ emissions). All these factors never work in exactly the same way every day, but there is always a specific rationale behind every decision. The system is therefore complex, not chaotic or complicated.

Currently, globalisation has made complexity equally relevant for governments and the private sector.

• Complexity is relevant for public policy-makers because most countries face several concurrent challenges that simultaneously affect (and are affected by) social, economic and environmental dimensions. To reach any stated goal and to shift closer to a sustainable development pathway, we need decisive policy interventions that will simultaneously support socioeconomic development and environmental conservation.

Qatar is an example of a country that paid renewed attention to complexity when designing its national development policies. In the 2009 Qatar Human Development Report, the government recognised that the country was at a crossroad. Its development models, which were based on fossil fuel exploitation, needed to also consider future challenges related to oil price fluctuations, environmental degradation, the expected population growth, and equitable access to services and opportunities. According to the report, ‘sound management of Qatar’s hydrocarbon resources will continue to secure improvements in standards of living. However, an improved [economic] standard of living cannot be the only goal of a society’ (Government of Qatar & UNDP, 2009).

• Complexity is relevant for the private sector because the business environment is changing rapidly. The patterns of demand and supply from emerging countries are evolving, technology is developing rapidly, and energy and natural resource prices are highly volatile.

The manufacturing sector is confronted with complex challenges. The most important of these is to maintain a high level of competitiveness in increasingly interconnected markets. Even the definition of competitiveness changes rapidly. On the whole, it depends on the supply side—the speed of production, the costs and the innovation—as well as on the demand side—the perception of the quality of the product or service—and its brand or image. Manufacturers therefore need to comply with global standards and expectations. They have to keep pace with their competitors while simultaneously adapting their products to local needs and cultures.

This book offers decision makers in the public and private sectors the steps and tools they need to address current complex (or wicked) issues. Informed decision makers will then have the capability to analyse challenges with a systemic perspective, which will lead to lasting solutions that sustainably improve the performance of their system.

Decision makers will immediately identify with Churchman’s definition of ‘wicked problems’: ‘that class of social system problems which are ill-formulated, where the information is confusing, where there are many clients and decision makers with conflicting values, and where the ramifications in the whole system are thoroughly confusing’ (Churchman, 1967). This complexity may frighten decision makers, or they may be unable to appreciate and understand it. They therefore tend to oversimplify reality and merely address the apparent and most obvious causes of a problem. This is a linear approach, according to which there is only one possible solution to a given problem. However, linear thinking is based on a series of logical mistakes that lead to a number of common errors when attempting to deal with complex (or wicked) problems.

Throughout the book, a step-by-step approach guides the reader to identify these problems, analyse their boundaries, understand their interconnections, design interventions, forecast and measure their expected impacts, and monitor and evaluate their success or failure (see Table 1).

TABLE 1 Conceptual mistakes, solutions and steps for an effective decision-making process using systems thinking

Decision-making phases	Conceptual mistak...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Foreword
• Foreword
• Preface
• 1. Introduction
• 2. Case study: why a systemic approach matters
• 3. Phase 1: Problem identification
• 4. Phase 2: System characterisation
• 5. Phase 3: Strategy/Policy assessment
• 6. Phase 4: Decision making and implementation
• 7. Phase 5: Monitoring and evaluation
• 8. Conclusions
• Annex: Overview of key tools
• About the Authors
• Index