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Corporate Management: Complexity Is Risk

There is risk in everything: complexity and risk is a duality in corporate management

Have you noticed how people that are neck deep in complexity almost always ask for a standardized solution? And they supposedly do this to regain oversight.

And in reverse; have you noticed how people that have everything neatly packed in small modular boxes almost always ask for some highly customized guerilla tactic – which inherently adds complexity?

Well, no matter how you answer both of these questions, you might know that they are really part of another phenomenon, namely they are about risk.

Like particles and waves is a duality in elementary particle physics, so is complexity and risk a duality in corporate management. On the surface there hardly seems to be any overlap in complexity theory and the mathematical formulas of contemporary risk management. For example, think about how risk can be bought and sold like regular merchandise. On the other hand, complexity isn’t perceived as something belonging to the free market in the same sense. Instead, it is more often perceived to be a quality description on the free market itself. This is not incorrect (since the free market is indeed chaotic), but neither is it the entire truth.

Most evidently today is the fact that complexity theory is used in the field of strategic management and organizational studies, and is sometimes called complexity strategy. And ascending even further towards the philosophical foundation of each phenomenon, clearly reveal the same underlying mechanisms for managing both.

Which side are you on?

The amazing, almost perplexing thing about complexity and risk is that for over half a century two completely separate communities of practice (at least that’s how we’re trained to perceive them) in reality has a lot in common. Both communities can be found in every “modern” company today and even though they have co-existed for so long, they haven’t shared notes with each other yet! They themselves speak about a huge and famous gap that lies between them and requires extra-ordinary talent to cross (and like most of everything else that’s also attributed famous, it’s most likely because there are massive amounts of money involved).

In case you’re wondering, I’m talking about the business and technology side of every company in Sweden and around the World.

And what were you taught?

While the curriculum of all renowned business schools naturally includes risk analysis, risk configuration, and risk management, the technologist’s educations are all almost totally void of such topics.

Clarifying the qualifying last statement, I purposefully ignored the probabilistic fault-tree analysis technique, mainly because almost all engineering students seem to think it’s utterly boring – or at least irrelevant compared to … well… every other course. And, as a consequence they forget about it almost immediately after exam, and as such, fault-tree analysis has not enjoyed any success in mainstream companies today.

I’m also ignoring nuclear scientists, who actually are the only branch of technologists that have a sound risk based approach to building complex systems. In fact (and according to Massachusetts Institute of Technology, USA), they actually teach their students about “probability and its applications to reliability, quality control, and risk assessment”!! (I’m restraining myself to two explanations marks, since three exclamations marks in succession, at least according to British classical scholars, means that the author is most likely insane). Further to this, it should come as no surprise that they, the nuclear scientists, also use this acquired knowledge at their workplace all the time (except for disastrous lapses in quality control now and then, most notably in Chernobyl 1986).

A workforce, with such a high understanding of risk, would be very beneficial for mainstream companies. But alas, when have you ever seen a nuclear scientists in the position as your company’s CEO, CTO, CDO, Enterprise Architect or anything similar? They simply seem unwilling to take that particular risk (well, except if you’re an employee at the pan-European research facility CERN, then even the janitor is believed to be a nuclear scientist.)

More Stories By Martin Kaarup

Martin Kaarup began his professional career over a decade ago as a system developer on location-based mobile phone services. During that time he participated as lead developer in pioneering unique state-of-the-art location-based services for the European and Asian markets, such as low-cost fleet-tracking using antenna triangulation and applications for utilizing customer positioning data for demographic use. He also participated in building location based games, such as treasure hunts and country-wide Dungeon & Dragons-based games merging www, wap and sms technologies.

Later, he shifted to the financial sector in Scandinavia where he worked as an enterprise architect building, extending, and delivering advanced fund data solutions and services designed specifically for the pan-European Fund Industry.

Today, Martin is an employee at the Swedish consultants company Avega Group, where he focuses his expertice on consulting companies on strategic and enterprise wide issues.

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