“Why Complexity Science Is So Important to Business Today
and
Why It Is So Difficult to Get this Message Across”
Potentials of Complexity Science for
Business, Government and the Media
August 3 – 5, 2006
Budapest
Richard L. Sanders
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Business Is Changing Rapidly
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What Is Contributing to this Change?
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Present Business Paradigm
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“Always Change a Winning Team”
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There Is Hope: the “Calvary” Is on the Way
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A man was walking home one dark and foggy
night. As he groped his way through the murk
he nearly tripped over someone crawling
around by a lamp post. "What are you doing?"
asked the traveler. "I’m looking for my keys."
Replied the other. "Are you sure you lost them
here?" asked the first man. "I’m not sure at
all," came the reply, "but if I haven’t lost them
near this lamp I don’t stand a chance of
finding them."
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Until recently science has been restricted to
the illuminated area, but the advent of
computers and the internet has made it
possible to explore the shadows and further. A
new light is being switched on that is resulting
in a paradigm shift that can facilitate future
growth and prosperity.
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Stages of an Enterprise
This picture and those marked by “MT” used with the permission of the MT Taylor Corporation
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System
A system is a set of dynamic, interacting
elements, organized for a goal.
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Closed System
A closed system is one that is isolated from
its environment. This kind of system uses its
own internal reserve of potential energy, and
as reactions take place, entropy rises
irreversibly to a maximum. Thermodynamic
equilibrium is reached, and the system can no
longer produce work.
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Open System
An open system is one in permanent interaction with its
environment, with which it exchanges energy, matter and
information. Because of the energy flow through the system
and the dumping of “used” energy into the environment, its
entropy is maintained at a relatively low level. This system is
capable of performing work.
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Complex System
 Large variety of elements.
 Elements organized in hierarchical levels.
 A high concentration of connections between the
elements.
 The interactions between the elements are nonlinear.
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Positive Feedback
Positive feedback loops contain the dynamics
for change in a system, growth and evolution.
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Positive Feedback
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Example
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Negative Feedback
Negative feedback loops represent control
and stability, the establishment of equilibrium
and self-maintenance.
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Negative Feedback
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Example
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Combination of Positive and Negative
Feedback
This is commonly occurring behaviour, rapid growth
followed by stabilisation
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Combination of Positive and Negative
Feedback
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Example
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The Dynamics of Maintenance and
Change
The properties and behaviour of a complex
system are determined by its internal
organisation and its relationship with its
environment.
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The Dynamics of Maintenance and
Change (Continued)
Every system has two fundamental modes of existence
and behaviour: maintenance and change. The first,
based on negative feedback loops, is characterised by
stability. The second, based on positive feedback
loops, is characterised by growth (or decline). The
coexistence of the two modes is at the heart of a
complex system
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Homeostasis: Resistance to change
Formally: The ability or tendency of an
organism or cell to maintain internal
equilibrium by adjusting its physiological
processes.
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Homeostasis: Resistance to change
Informally: A homeostatic system (an industrial firm) is
an open system that maintains its structure and
functions by means of a multiplicity of dynamic steady
states rigorously controlled by interdependent
regulation mechanisms. Such a system reacts to
random changes in the environment to maintain
stability.
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Evolution
For a complex system, to endure is not
enough; it must adapt itself to time dependent
changes in the environment and evolve.
Otherwise outside forces can disorganise and
ultimately destroy it. A key to unlocking this
apparent paradox can be found in diversity.
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Natural Selection
 Occurs by random mutation
 Much too slow to explain speed of evolution
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Sharing of DNA
 Gene pool required: (the richer, the better)
 Sharing of genes: (sharing ideas, resources, etc.)
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Homeostasis vs. Evolution
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Diversity
The law of requisite variety from Ross Ashby (1956) states
that the regulation of a system is efficient when it depends
on a system of controls as complex as the system itself.
Variety permits a wider range of response to potential
forms of aggression. Variety also produces the
unexpected, which is the seed of change.
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Auto Catalytic Behaviour
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Reactions (e.g. Chemical)
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MT
Reactions
 Without catalysis: (A + B = AB)
 With catalysis: (A + B + C = AB + C)
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Auto catalysis
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TM
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Auto catalysis
 Catalysis BA: A + B + BA = AB + BA
 Catalysis AB: A + B + AB = BA + AB
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Under certain conditions this auto catalytic
process can lead to exponential growth, for
instance the exponential growth of the
compound AB.
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Emergence of Auto catalysis
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TM
Four Zones of Auto catalysis
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TM
Four Zones
 Zone 1: much diversity but little interaction.
 Zone 2: a lot of interaction but little diversity.
 Zone 3: too little diversity and interaction.
 Zone 4: the right balance.
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Connectivity
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Boolean Networks
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TM
Three Modes of Behavior
 Chaos: too much connectivity (random changes can
cause avalanches of change; positive feedback)
 Order: too little connectivity (random changes are
damped and system returns quickly to ordered state;
negative feedback)
 Edge of Chaos: right balance between positive and
negative feedback leading to adaptation of the
network
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Two Necessary Conditions for Evolution
 “Right” level of diversity.
 “Right” level of connectivity.
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Interlude
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The New Paradigm
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DC3?
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F16?
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What Kind of Company Do You Want?
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Complexity Science and Business
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Stages of an Enterprise
This picture and those marked by “MT” used with the permission of the MT Taylor Corporation
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Conclusion
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