Companies: changes in the face of complexity

With his colleague Peter Tollman, he studied this phenomenon and developed an indicator, “BCG’s Complexity Index”, which allowed him to quantify environmental complexity²:

The complexity of business has increased by a factor of more than 6 over the last six decades. […] Performance requirements are more numerous, more volatile and increasingly contradictory — for instance low cost and high reliability, speed and reliability, innovation and efficiency, standardization and customization, global consistency and local responsiveness…

More broadly, complexity is a scourge that affects all social phenomena and to which “fictions”, a form of “hypernormalization”, respond (Adam Curtis and the strange world) as well as, in the case of companies, hypertelia:

Management instinctively takes aim at the problems with targeted, direct, and seemingly decisive measures, creating new structures, rules, reports, KPIs, and committees. In many cases, such measures ignore the underlying root causes and ultimately impose even more complicatedness.

Thus, to an external complexity multiplied by 6, companies respond with an internal complicatedness multiplied by … 35! This symptom is typical of the over-adaptation of an organization to the rapid change (on the scale of evolution) of its environment. Matrix forms of organization, “agile” methods, new technologies… do not fundamentally tackle the problem because these solutions add to existing organizations and processes and increase even more their complicatedness. More radical transformations must therefore be considered.

1. Yves Morieux – « Smart Simplicity »

It is not possible to change the context³:

What characterizes complexity is that it cannot be reduced. We can de-globalize the exchange of goods or services, not information and data, not more than the climate.

Yves Morieux therefore proposes to tackle directly the internal complicatedness of companies. With Peter Tollman, Morieux developed a methodology called “Six Simple Rules“⁴. With Peter Tollman, Morieux developed a methodology called “Six Simple Rules” . It is a matter of naturally fostering cooperation and transparency. Here is for example the first of the six rules⁵:

Understand what your people do. “Most management approaches pay less attention to the day-to-day reality of how people behave and why, and instead add unnecessary functions and procedures. We use the term ‘smart simplicity’ to describe the approach of discovering what people actually do and why. The central insight? People act rationally, even if their actions create problems for the organization. They are trying to look after their own interests.

The fact is that when we don’t really understand what people are doing, we create “solutions”: new structures, processes, systems, incentives, training and communication that don’t attack the real causes. Humans are not standardized or interchangeable like the parts of a machine. They must therefore be encumbered with sensors and devices suitable for maintaining “canonical functioning” but which complicate the enterprise.

Fostering cooperation between individuals, whose intentions are aligned with the interests of the company, makes it possible to obtain a more direct result from them, “as they are themselves”, and thus to reduce structure. This change must obviously go hand in hand with a significant evolution in evaluation and management methods: blaming the context before the “character” of the employee, carrying out qualitative evaluations more frequently than the sacrosanct annual appraisal, exposing employees more frequently to the consequences of their actions, etc.

Yves Morieux therefore proposes to redesign the role of managers and wants to “bring them back to work”⁶:

Put simply, they need to stop thinking of themselves as the master designers of hardwired organizational structures, processes, rules, and procedures. Instead, they need to become the everyday orchestrators of a flexible and dynamic behavioral system […]

“Smart simplicity” is therefore one of those organizational proposals that still rely on human beings – with their flaws – to resist the surrounding complexity. By following the “Six Simple Rules“, we should end up with greater horizontality, fewer hierarchical levels, fewer functional or control “hypertelia”. But it is more a method of transformation (intrapreneurship is another) than a real mutation. Above all, the complex environment does not seem to be seen as part of the solution: it remains given and external.

Here is a more radical example from China.

2. Zhang Ruimin – From organization to « organismization »⁷

Zhang Ruimin

Zhang Ruimin began his career in 1968 in Qingdao and became General Manager of “Qingdao Refrigerator Plant” in 1982, a then struggling home appliance company. Today the company is called “Haier”, employs 75,000 people, including 27,000 outside of China, and generates $ 35 billion in sales. It competes with global brands like the Swedish Electrolux, the American Whirlpool or the South Korean LG. It even significantly outperforms them in terms of growth and value production.

Zhang Ruimin’s founding act is known but deserves to be remembered. In 1985, he ordered employees of Qingdao Refrigerator Co. to hammer down 76 defective refrigerators⁸:

The workers were hesitant; the cost of a refrigerator at the time was about 2 years worth of wages. When Zhang saw the distress his workers exhibited, some even to the point of tears, he exclaimed: “If we don’t destroy these refrigerators today, what is to be shattered by the market in the future will be this enterprise!”.

This is, by the way, one example among others of what Morieux suggests with “Smart Simplicity“: exposing employees more frequently to the consequences of their actions by putting them directly in contact with the outside world. This “contact” logic will be taken to the extreme by Zhang Ruimin. About ten years ago, he decided to radically transform Haier’s organization by following a model that he named “RenDanHeYi“, very inspired by the rhizomic structure of the web⁹:

“So, with the RenDanHeYi model we move away from being like an empire (with a traditional, closed pyramid) to be more like a rain forest (with an open networked platform). Every empire will eventually collapse. A rain forest, on the other hand, can be sustained.”

Literally, “Ren” refers to each employee, “Dan” refers to the needs of each user, and “HeYi” refers to the connection between each employee and the needs of each user.

Each employee must be, in a way, the “CEO” of his own activity and “paid directly” by customers (externally) rather than by Haier (internally). The RenDanHeYi model is therefore based on a transformation of the company into an “organism” in direct, open and multiple engagement with its market: Haier is subdivided into 4,000 microenterprises, or MEs, most of which have 10 to 15 employees. Of course, this “organization” (some will also recognize Brian J. Robertson’s principles of “holacracy“) did not happen overnight. It took a lot of trial and error and almost a decade to come up with the right model of ME (of “organic cell”) and the principles of effective cooperation between MEs¹⁰:

As Zhang Ruimin often reminds his colleagues, it is impossible to design a complex system in a directive way. It must emerge through an iterative process involving imagination, experimentation and learning.

We can suggest in passing a similarity of a “philosophical” nature to Mérieux’s approach: the company must emerge “deductively” and autonomously from a set of simple “axioms”.

Zhang Ruimin’s answer to external complexity (and Haier deals with all possible modes of complexity) is not simplicity – which merely stops hypertelia – nor, of course, bureaucratic complication, but a form of … internal (though natural) complexity! Haier thus became a multicellular creature (at only two hierarchical levels) capable of subsisting by adaptation in a complex environment. Do we dare to say a “form of life”? We will see later that the “natural” mutation to last longer in a more complex environment is probably a form of “organismization”, so to speak, i.e. a transformation into a complex organism. The management still has to agree to “let go of control”, understood in its traditional sense.

This is not really Ray Dalio’s philosophy…

3. Ray Dalio – The Management Machine

Ray Dalio

A third possible vision is that of Ray Dalio, which we had already examined in 2017 (Dalio’s Machine). Recall that Ray Dalio, founder and boss of the Bridgewater investment fund, directly faces external complexity by seeking to decode the hidden mechanism of the world, by seeking the “truth”:

Truth – more precisely, an accurate understanding of reality – is the essential foundation for producing good outcomes.

Far from an “eastern” vision consisting in taking the world as it is and surfing its “flow”, here is the “western” method aiming to cut our world in regular chunks by pretending to explain it and by assigning it criteria of truth. The world, as complex as it is, is thus envisaged by Ray Dalio as a system of an “economic” nature, woven of causes and effects, rewards and punishments, according to an axiology of “good” and “evil” (and besides presenting some disturbing similarities with the Babylonian era – Return to Babylon). It is less a question of dealing with external complexity than of reducing it.

It then becomes possible to be successful as long as you face the “truth” thus revealed and observe strict obedience to Ray Dalio’s 200 principles, a mixture of practical advice, morals and injunctions¹¹. These principles do not apply directly to the business organization but rather to each of us as a “leader”. Nonetheless, it brings about a hyper-classic method in terms of organization to adapt to an external complexity that must be “dominated”: total alignment with the leader, that is to say a radical simplification. The employee is a clone, the agent of a “machine” scrupulously implementing the principles of the leader, like this one:

Don’t hire people just to fit the first job they will do; hire people you want to share your life with.

The leader is encouraged by principles of “cloning” (addition in square brackets):

Build your machine […] Create great decision-making machines by thinking the criteria you are using to make decisions while you are making them. […] Visualize alternative machines and their outcomes, and then choose […] Use standing meetings to help your organization run like a Swiss clock […] Remember that a good machine takes into account the fact that people are imperfect [ they have emotions ].

Nothing is absolutely shocking about Dalio’s principles, which are often common sense and rules already applied in companies. What is special here is their radicalism: these principles form a specification for a “brain”. In 2013, Ray Dalio called on the services of David Ferrucci, the designer of IBM’s Watson to encode his personal principles in a “manager machine” using artificial intelligence (at the time of writing, this project may still be in progress but no more public information seems available). Faced with external complexity, Ray Dalio thus offers a type of response: a mechanical organization (remember that AI is not an intelligence but a mechanism). The mechanism diffuses the personal discipline of the “leader” thanks to the new possibilities offered by mimetic techniques of artificial intelligence.

There are some similarities with Yves Morieux’s proposals because the starting premise is essentially the same: there is a form of rationality specific to the individual (the manager, the employee, etc.) which makes it possible to consider the company as a “Mechanism”, an entanglement of causalities, and therefore to simplify its operation. Morieux’s model is less radical but nevertheless also aims to force cooperation through systemic adjustments, to “mechanize” the co-dependencies of the parties to the overall project. The two approaches also share a certain classicism, even mixed with new technologies: the point of view on external complexity is intact (it is always a given external world, “reality” as Ray Dalio says), and it is the internal complication that must be addressed co-dependencies of the parties to the overall project.

Zhang Ruimin’s “RenDanHeYi” is of a different nature. It is not about changing the reality but about welcoming it as it is “inside” the process of the organization in order to adapt to it. But here is what this model could lead to.

4. Matthew Gladen – « Organizational Posthumanism »

Matthew Gladen

Matthew E. Gladen is an American researcher and philosopher who defines his research as follows¹²:

Much of my work has explored the organizational and managerial implications of emerging technologies relating to social robotics, artificial general intelligence, artificial life, swarm and nanorobotics, ubiquitous computing, neural implants and neuroprosthetics, and augmented and virtual reality […] I both analyze ongoing developments and attempt to anticipate future dynamics of technological posthumanization.

Matthew Gladen casts a wide net, but his work finds its coherence in this “posthumanist” horizon, in which societal structures and dynamics are animated by human beings as well as, in equal parts, by members of other natures: artificial, non-biological, etc. (Ray Dalio’s solution could be qualified as (pre!) posthumanist).

Matthew Gladen and his “posthumanist” research colleagues follow a path opened in the 1970s by cyberneticist Stafford Beer, a curious figure, to say the least, who pioneered the application of cybernetics to business management and organizations, including societal ones (he worked for the government of Salvador Allende, he approached Robert Mugabe in the 1980s …). Stafford Beer has thus developed a “Viable System Model” (VSM), which is a model for the structural organization of any autonomous system that is “viable” and therefore, in a way, “alive”¹³. Matthew Gladen continues this line of research with the means and knowledge of today¹⁴:

By drawing on the Viable Systems Approach (VSA), we introduce the new concept of an “organism-enterprise” that exists simultaneously as both a life-form and a business. We then reconceptualize the anthropocentric understanding of a “business” in a way that allows an artificial life-form to constitute a “synthetic” organism-enterprise (SOE) just as a human being functioning as a sole proprietor constitutes a “natural” organism-enterprise.

Among the ten fundamental concepts of the VSA, we note (which should not a big surprise for our readers)¹⁵:

Viable systems are autopoietic and self-organizing [ Francisco Varela, The Heterodox ] […] As such, they are also self-organizing, continuously aligning internal and external complexity.

From the point of view of the company faced with complexity, Matthew Gladen’s answer is of the same nature as that envisaged “intuitively” by Zhang Ruimin: only a “self-organizing” internal complexity is able to last, like a tropical forest. But the “RenDanHeYi” vision of Zhang Ruimin, proposing to “surf the flow”, by trial and error, is here conceptualized “Western-style”, i.e. with all the performative power of a model whose efficiency, ethics or ecology we will then see if it is efficient, ethical or ecological.

The idea of the living enterprise, which responds to complexity as a “living” organism, is attractive, but “organizational posthumanism” pushes it towards a horizon where the human is no more than a particular arrangement of matter, with its advantages and disadvantages. Here is a work and research to be followed with attention.

1+2+3+4 = ?

As Yves Morieux points out, companies can obviously no longer continue to respond with “complication”, which consists of stacking up solutions, whether they be structures, means of control, information systems, silos, hierarchical levels… that erode productivity and hinder “innovation”. They must therefore change.

The four answers we observed can take place in the following diagram. Horizontally, an axis of humanism → posthumanism, on which the human as a human is progressively “diluted”. Vertically, an axis simplicity → internal (functional) complexity of the company, in the middle of which we place the “pure center” between simplicity and complexity: the complicatedness according to Morieux, i.e. the “makeshift” organization.

Clearly, the technician system is pushing capitalistic organizations in the direction indicated, i.e. complex and posthumanist organisms. We wonder what could eventually resist and overturn this natural move?

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1. ↑ Ruth Palombo Weiss / ATD – November 11, 2015 – Managing Complexity and Complicatedness: Q&A With Yves Morieux
2. ↑ BCG Henderson Institute – January 31, 2020 – In Conversation with Yves Morieux About Complexity
3. ↑ François Vidal and Jean-Marc Vittori / Les Echos – March 22, 2019 – Yves Morieux : « Les entreprises adoptent des organisations de moins en moins efficaces »
4. ↑ Yves Morieux and Peter Tollman – Harvard Business Review Press – April 1, 2014 – Six Simple Rules: How to Manage Complexity without Getting Complicated
5. ↑ Gary Belsky / Time – April 25, 2014 – 6 Simple Rules for Simplifying Everything
6. ↑ Yves Morieux – October 4, 2018 – Bringing Managers Back to Work
7. ↑ We cannot appreciate whether this neologism works in English or not. The meaning should nevertheless be clear: “organismization” means literally “becoming an organism”.
8. ↑ Wikipedia – Zhang Ruimin
9. ↑ Corporate Rebels – RENDANHEYI: THE ORGANIZATIONAL MODEL DEFINING THE FUTURE OF WORK?
10. ↑ Gary Hamel and Michele Zanini / Harvard Business Review France – April-May 2019 – Halte à la bureaucratie – Comment un fabricant d’électroménager chinois réinvente le management à l’ère du numérique
11. ↑ Principles by Ray Dalio (excerpt)
12. ↑ Goodreads.com – Matthew E. Gladen
13. ↑ Wikipedia – Viable system model
14. ↑ Matthew Gladen / ResearchGate – August 2014 – The Artificial Life-Form As Entrepreneur: Synthetic Organism-Enterprises and the Reconceptualization of Business
15. ↑ Wikipedia – Viable system approach