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Strategy and Complexity Theory

All four principles of complex adaptive systems (equilibrium as death, selforganisation, the tendency to move towards chaos and unpredictability) have implications for strategy and how it should be managed.

The four principles have underlined the importance of a number of key issues:

  • • The need to resist too much stability.
  • • The need to work with rather than against emerging strategy.
  • • The need to balance flexibility with order.
  • • The need to accept that there are limits to what can be controlled.

Each of these implications challenge the traditional notions of strategy discussed in Chapter 1. These principles are further reinforced by Stacey’s Agreement and Certainty Matrix (2007). According to Ralph Stacey (2007), the outcomes of decisions made in modern technology environments were highly uncertain because the cause and effect linkages could not be clearly determined. This gave rise to the ‘Zone of Complexity’ where decisions were made on the ‘Edge of Chaos’. Technical rationality and the classical approach to strategy was only possible where there were high levels of certainty and agreement.

Firms which innovate and develop new technologies are examples of this. These innovations are the result of distinctive resources and capabilities which are leveraged using strategies of stretch (Hamel and Prahalad 1993). The capabilities are also dynamic (Teece et al. 1997) and can be reconfigured and redeployed quickly in response to changes in volatile environments (Hitt et al. 2003). Complexity, therefore, explains the emergence of new behaviours and structures which were never planned (with both desirable and undesirable consequences).

The chapter will now analyse how complexity provides a new perspective on how strategy is formed, what the key strategic capabilities are for an organisation and how organisations can manage innovation. These approaches to strategy will also be compared and contrasted with the analyses undertaken in Chapters 1 and 2.

Within the rational framework, change is initiated by managers setting goals, recognising problems or opportunities through analysing the internal and external environments, deciding upon a course of action (strategic choice) and implementing it. This is deliberate or intended strategy (Mintzberg and Waters 1985) although strategy can emerge without being intended or deliberately planned. When complexity principles are applied in organisations, the focus is upon the development of emergent strategy or how strategy emerges within the system. Since organisations in practice develop both types of strategy, complexity might be seen to address a limitation of the conventional approach, namely its relative neglect of the question of how we actually develop effective emergent strategy.

When applied in organisations, complexity thinking makes different assumptions about the requirements for the formulation ofeffective strategy from those made by the rational planning, design, positioning and resource- based schools (McMillan 2008; Pascale 1999). This is because it focuses upon strategy’s emergence (not its deliberate formulation). It emphasises the importance of facilitating the effective development of strategy. This can happen by promoting effective learning processes which lead to the questioning of assumptions or by fostering the adaptive coevolutionary complexity dynamics of self-organisation and emergence. This is very similar to Whittington’s ‘Processual’ strategy (2001) discussed in Chapter 1.

In Chapter 1, it was revealed that the dominant rational approach to strategy assumed that strategy was or should be largely deliberate or planned

(Chandler 1962; Ansoff 1965; Andrews 1971). However, when managers adopt a complexity approach to the development of strategy, fostering emergent strategy from the bottom-up is a key objective. This concurs with the ‘Effectuation’ (Sarasvathy 2001) and Creation Logic (Fixson & Rao 2011) approaches to strategy discussed in Chapter 1. Many of the approaches to emergent strategy development which have been proposed in the complexity literature are closely aligned with sense-making (Weick 2001) and learning which was also discussed in Chapter 1. The main reasons for this is that emergent strategy can just as easily lead to undesirable as desirable outcomes unless effective sense-making and learning take place. This is why some complexity models of strategy development focus more upon the processes of learning and sense-making than upon analysis and evaluation.

Downs et al. (2003) outlined an approach that supported desirable emergent strategy development. They used the terms ‘symbols’ and ‘symbol systems’ in the list of stages which make up their model of how strategy takes place. These terms were connected to sense-making processes and to the way in which different organisational cultures gave symbolic meanings to aspects of organisational life. What Downs et al. (2003) were stressing in this choice of words was that there was more to the information input to the strategizing process than the objective facts and figures assumed by the rational model. Managers interpreted and chose a kind of ‘symbolic’ reality according to their view of the world - they were not detached from the world as the rational model assumed. Technology entrepreneurs manifest their symbolic realities and views of the world through the vision statements that they create for their enterprises. These were what Collins and Porras (1996) referred to as Big Hairy Audacious Goals (BHAG) and what Ismail et al. (2014) called the ‘Massive Transformative Purpose’ (MTP). Examples included:

‘A computer on every desk and in every home’ - Microsoft.

‘To be the Earth’s most customer-centric company’- Amazon.

‘Organize the world’s information and make it universally accessible and useful’

- Google.

‘To make the world more open and connected’ - Facebook.

These vision statements symbolised strategies of strategic intent (Hamel and Prahalad 2005), stretch and leverage (Hamel and Prahalad 1993), disruption and in many cases a new world order. These vision statements were also communicated to internal and external stakeholders and used to energise the organisations concerned and create a strong sense of purpose and strategic direction. A comparison between the ‘Complexity’ and ‘Conventional Approach’ to strategy reveals that the two models have some similarities. They both outline steps or stages that are sequential. The conventional model focuses on objective analysis and choice. The complexity model focuses upon sense-making and learning in the development of emergent strategy. The two approaches are outlined as follows:

  • • Stage 1: Sensing possible threats and opportunities vs. setting managerial goals.
  • • Stage 2: Choosing a symbol system vs. conducting an internal analysis.
  • • Stage 3: Deciding on a model vs. conducting an external analysis.
  • • Stage 4: Drawing out the symbols vs. generating strategic options.
  • • Stage 5: Reflecting upon the symbols vs. deciding a course of action.
  • • Stage 6: Interpreting the message vs. undergoing implementation.
  • • Stage 7: Deciding on an action vs. collecting feedback.
  • • Stage 8: Acting vs. repeating the process.
  • • Stage 9: Repeating the cycle.

Mintzberg (1987) in his article ‘Crafting Strategy’, considered emergent strategy to be essentially unplanned and unintended. He defined it as emerging from a pattern of actions. Downs et al. (2003) indicated that strategy could also emerge from the way that members interpreted meaningful events. Sense-making and interpretation were seen as central to the process of double-loop learning which underpinned emergent strategy. Double-loop learning involved reframing problems and finding innovative solutions (Argyris 1991) through reinvention and new business models instead of making incremental adaptations to existing solutions i.e. single loop learning. These emergent processes also concurred with Mintzberg et al’s (1998) cognitive and learning schools of strategy featured in their book, Strategy Safari: a Guided Tour through the Wilds of Strategic Management. According to the cognitive school, strategies were developed in people’s minds as frames, models, concepts or schemas. Moreover, the learning school viewed strategy as being emergent and strategies could be found throughout the organisation thereby resulting in strategy formulation and implementation becoming intertwined.

Downs et al. (2003) highlighted that double loop learning (or complex learning) often required the questioning of assumptions that would normally be taken for granted. Unquestioned assumptions underpinned much of what conventional organisations did. The development of effective emergent strategy often required an ability on the part of organisational members to question existing assumptions, not only about how things should be done in the organisation but also about the relevance of Newtonian thinking in how they make sense of the world.

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