Complexity theory and entrepreneurship

Posted: November 30, 2015 by pauljayburns in Corporate entrepreneurship, Entrepreneurship Articles, Teaching entrepreneurship
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Complexity theory seeks to explain how complex systems work and, perhaps surprisingly, it has implications for how to create entrepreneurial organizations. Complex adaptive systems – the result of multiple independent actions – are unpredictable. Small actions at one level can have large-scale unexpected consequences elsewhere. This mirrors the increasingly interconnected global marketplace of today and the turbulent, competitive environment it generates. Complexity theory hints that there are no stable equilibria in these situations – unpredictable change is the norm. But it also shows how truly adaptive systems work. This is why the theory is relevant. To succeed entrepreneurial organizations need to harness change and make it work for their own advantage.

The first thing to realise is that the theory provides intellectual support to the ‘emergent’ school of strategy development in contrast to the ‘deliberate’ school with its linearity of approach and centralized decision-making. It favours ‘pushing down’ decision-making – empowering staff to make the ‘right’ decisions for the organization. The small actions they take can have a big effect on the organization, if they can be marshalled and directed. And, as we observe in our everyday life, complex social systems have a capacity to self-organize at the individual level, reacting and changing to create new systems and structures without being directed to do so. It is this capacity to self-organize that can give direction to the changes and create competitive advantage.

Complexity theory also gives us an intellectual basis for the apparent dilemma of whether to encourage incremental or radical change within an entrepreneurial organization. The theory tells us that the two are not mutually exclusive and shows that systems most likely to thrive in a turbulent environment are those that have the capability of making both small scale adaptations as well as large scale revolutions. These systems exist at the ‘edge of chaos’, adapting all the time but able to make the occasional radical leap.

So if change is unpredictable how does an organization cope? And how do you create an organization capable of self-organizing to make the ‘right’ decisions? Complexity theory tells us that the three main requirements for self-organization are:

  1. A common identity which lends a sense of purpose;
  2. Knowledge and information upon which organized behaviour can be based;
  3. Relationships that generate and transmit the information and knowledge and allow it to be transformed into organized behaviour.

And here we start to see the keys to building an organization able to harness change to its advantage – one based on relationships with all stakeholders; one that harvests and uses knowledge and information to seek out opportunities and mitigate risks; one with a strong identity or dominant logic that provides strategic intent and vision from which ‘right’ decisions might be made. For an organization to generate this common identity and sense of purpose with strong relationships that generate knowledge and information and a willingness to act, needs a particular mix of systems, structures, organizational culture and management styles – an ‘entrepreneurial architecture’ that can be constructed in a systematic way. This creates competitive advantage that encourages entrepreneurial innovation and is difficult to copy.

If this topic interests you, read more in my book: Corporate Entrepreneurship: Innovation and strategy in large organizations.

  1. fatma84 says:

    It is so interesting and useful theory, i will read more about it. thank you


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