The traditional notion of strategic management is based on the identification of a linear relationship between the company and the external world. Strictly linked to the idea of linear dynamic, the traditional school of management recognizes a strong positive relationship between “strategic planning” and “performance”, arguing that a change in one variable must be accompanied by a proportional change in other variables and in the overall result.
Traditional management, influenced by Newtonian deterministic paradigm, is directed by three key assumptions:
- reality is objective (positivism)
- cause and effect relationships are linear, and therefore results are predictable (determinism)
- knowledge is acquired through the senses: data collection and analysis (reductionism) and focused in prediction and control.
Based on these three very basic principles, if a clear external objective is identified, via a planned and controlled evolution managers can lead the organization towards it. Linear management, by ignoring any source of uncertainty emergence and feedback cycles, leads us to believe that changes are forecastable and experienced managers should be able to anticipate them.
However, the world is not linear and, in search of a more realistic paradigm, in the last number of years researchers and practitioners have come to understand the organizations as living organisms, that is as a complex nonlinear system.
The Complex Organization
Until the late 1980s, the search to understand why some firms performed better than others was centered around two major thinking paradigms: an industrial organizational perspective of thought (that emphasized strategy formulation based on policies directed at controlling the market) and a resource-based view (concerned with improving corporate performance through efficiency). These two classical paradigms have been very effective in guiding the company strategy when there was a clear idea of the future. As the world has become more and more interconnected however, both have been proven ineffective in dealing with uncertainty and increased complexity. Therefore, in the ‘90 a new perspective on strategic thinking became evident in many management journals giving rise to the complex adaptive systems perspective. Such perspective emphasizes the need to balance structure and flexibility as means to successfully implement the business strategy in dynamical markets.
Following an evolutionary pattern that doesn’t necessarily pursue a known objective, the complex organization is shaped by different influences and forces. More often than not, in fact, markets and industries evolve against predictions, and organizations have to constantly change and evolve in a future that can’t be defined. Embracing the intrinsic Non-Linear nature of the business, this view highlights the impact of feedback loops, sensitivity to initial conditions and emergent property, also changing the way managers assess and read the company performance and forecast. In the light of this new understanding, the organization is seen as continuously receiving internal and external feedback graciously adapting to the external world. Here the analytical approach has been losing its ground and a new holistic approach has been leading the change.
This change has been a continuous trend in the last number of years however, from an organizational perspective, businesses are still built to reflect the traditional linear approach: information flow is collected in quantitative form, planning is made based on financial statements, totalling sales, totalling profits and loss report and so on. Such a tendency is also perpetuated by the software used by most companies.
Although all the above indicators still remain valid signs of the company performance, embracing the new approach means that managers should focus on patterns and trajectories of changes in relation to the market and the industry by identifying relationships in the rate of change.
By looking at the organizational constraints and trends, the question managers should ask is how a determined pattern of behavior came to be and what elements encourage or hamper a certain behavior and/or trends. In this highly competitive environment, now more than ever the analysis of the big picture is critical to understand the set of relationships among business components and how they relate to the external environment embracing a holistic approach and the intrinsic complexity of the organization
