Tim Sullivan interviewed Michael Mauboussin for a Harvard Business Review article titled Embracing Complexity (September 2011).
« A complex adaptive system has three characteristics.
- The first is that the system consists of a number of heterogeneous agents, and each of those agents makes decisions about how to behave. The most important dimension here is that those decisions will evolve over time.
- The second characteristic is that the agents interact with one another.
- That interaction leads to the third—something that scientists call emergence: In a very real way, the whole becomes greater than the sum of the parts.
The key issue is that you can’t really understand the whole system by simply looking at its individual parts. »
What are the dangers of misunderstanding complexity?
« In the late 1800s rangers at Yellowstone National Park brought in the U.S. cavalry to try to improve the game population by hand-feeding elk. The elk population swelled, and the elk started eating aspen trees, and aspen trees were what the beavers were using to build their dams, and the beaver dams caught the runoff in the spring, which allowed trout to spawn. More elk equaled less trout.
That one choice, feeding the elk, led to a series of cascading events that were completely unanticipated. People seek to improve complex adaptive systems, sometimes with disastrous consequences. It doesn’t take a lot of effort to make the leap from elk to the economy. People really have the best of intentions. But there is no way they can anticipate the ultimate results. »
What do these naturally occurring systems teach us about how to deal with complexity?
« When information is diverse and aggregation and incentives are healthy, you get very good answers to problems. That’s what nature is doing, and that’s what we have to learn to do more effectively. »
How do you translate that specifically into management?
« Cognitive diversity—intentionally putting together different points of view that will challenge one another—is essential for hiring and for building teams… Leaders have to step back and let those diverse views surface. This doesn’t come naturally to executives… The complicated part is coming up with a high level of intellectual curiosity, with different skills and experiences. »
How can you manage information aggregation?
« Frank Bryan, a political scientist, has done a lot of work on Vermont town hall meetings. Their moderators are taught to follow certain protocols to ensure that private information is shared. For instance, following Robert’s Rules of Order, no one can speak twice till everyone who wants to has spoken once. That’d be a great rule to institute in every company. A simple rule like that would change a lot of dynamics very quickly in most places. »
« Small experiments with controls are a terrific aid, and they’re cheaper than ever. In his new book, Everything Is Obvious, Duncan Watts has a great line from Gary Loveman, of Harrah’s Entertainment. There are only two ways to get fired at Harrah’s: One is to steal from the company, and the other is to run an experiment without a control. That kind of approach allows Loveman to mimic nature. Harrah’s is evolving through mutation and selection. And that’s how you navigate when feedback is ambiguous or hard to come up with. »
« Think about an investor in the stock market who buys stock that immediately goes up or down a little bit. Was buying the right decision? You don’t know the answer for years. It’s the same with decision making generally. »
How do you think more broadly about strategy in a complex environment?
« There’s an HBR article that I loved called “Strategy as Simple Rules” [January 2001]. The idea is that, especially in complex adaptive systems, a rapidly changing environment, we don’t really know how things are going to unfold, so it’s difficult to make forecasts or budgets going many years into the future.
The authors, Kathleen Eisenhardt and Donald Sull, recommend creating a set of decision rules, somewhere between a half dozen and a dozen, that are virtually immutable: These are the things the organization stands for and that will guide your decisions. Then you pretty much let people decide on the fly in the field what they think makes sense given what they see. They’re never to violate the basic rules, but they have a lot of flexibility to actually decide from moment to moment. I like that framework. I think that’s a really valuable way to go. »
Michael Mauboussin is the author of:
Expectations Investing: Reading Stock Prices for Better Returns by Michael Mauboussin and Alfred Rappaport (2021)
The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing by Michael J. Mauboussin (2012)
Think Twice: Harnessing the Power of Counterintuition by Michael J. Mauboussin (2012)
More Than You Know: Finding Financial Wisdom in Unconventional Places by Michael Mauboussin (2013)
See also
It’s Not Complicated by Rick Nason
Articles of Interest 