October 01, 2014

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To Tackle Complexity, Avoid Simplistic Thinking

Probst-and-bassi

By Dr. Gilbert Probst and Dr. Andrea M. Bassi

There are several problems companies and individuals face on a daily basis, some of which are direct consequences of our actions or reactions to the situations we are facing. This post builds on the one posted last week and highlights more of the traps in which we are often caught.

Conceptual Mistake 1: Quantity of Data Predicts & Solves Problems

As previously mentioned in our blog posts, life is complex. Problems are often also complex and many factors contribute to creating the problem. Herbert Simon, a very well-known business scholar, believes we have bounded rationality. This means: yes, we are rational beings, but our rationality is limited project-cartoonbecause we do not have all the information and cannot observe everything.

Consequently, many people believe complexity is inversely related to the availability of quantitative data: the more data we have, the less complex the problem is. They think an abundance of data allows us to find ultimate solutions and predict system behavior.

This implies that data allows us to slice through complexity and understand it. This would mean finding solutions to complex problems only requires detailed information about the (presumed) direct causes of these problems and about their harmful effects (Tversky & Kahneman, 1974; Heinhorn & Hogarth, 1978).

But to obtain such information, we need to make sense of our data. Focusing on only an event – What is happening today? What is happening now? – is not enough. This would only provide a temporary solution – a Band-Aid for a festering wound that is bound to cause more pain later. Finding a true solution requires delving deeper into the data.

Diving Below the Surface

Events are just the tip of the iceberg—easy to see and explore. There are underlying structures and patterns at the core of the system. These structures and patterns are the system elements that create events. If we only focus on events, we forget about the multiple variables that influence a system.

We have all experienced a solution to one problem leading to greater problems elsewhere. The most important action to take is to link the multiple variables and analyze the data deeply. Instead of tinkering with an engine in the hope of finding a solution, we take the entire engine apart.

Lehman Brothers’ collapse was the first event to focus the world’s attention on the financial crises. Nevertheless, this event did not provide decision makers with enough information about the real cause of the financial crises. It was just a symptom, not the virus (cause itself).

The collapse of Lehman Brothers was just one event in the growing concerns about the banking system’s stability, the slowdown of the tip-of-iceberghousing market and the economy as a whole. These trends all provided valuable information about the system’s previous direction.

Conceptual Mistake 2: Fixing One Problem Fixes All

Decision making is a challenging task that, if not properly managed, can lead to the emergence of unexpected side-effects and failure – fixing just one part of that engine could still lead to bad accidents! The assumption that, once implemented, the solution will benefit the entire system and have it thriving once again, is wrong.

Implementing strategies designed to maximize the performance of part of a system, or to solve the problem of one (or a small group of) actor(s), generally leads to resistance from the other stakeholders. Conversely, an integrated approach takes the role and goals of the different actors involved in complex problems into consideration.

The Importance of Multiple Perspectives

An example of the importance of multiple perspectives and ideas for business development is Procter & Gamble's (P&G) success with its open innovation program Connect + Develop. This program consists of an Internet platform where all companies and entrepreneurs can propose new innovative business solutions to meet P&G’s needs.

This open approach to innovation provides P&G with a variety of different options. It then chooses the most valuable options and develop them in collaboration with the person(s) or company that proposed them.

With the growing availability of data and optimization already a widespread concept, decision makers generally assume that their perception of reality is universal. They are therefore inclined to use their solution for different types of problems in different contexts. In other words, they use chopsticks to eat soup—a most unsuitable tool for the context. At such times, a one-size-fits-all strategy will fail!

Three Steps to Avoiding Solutions that Don't Work

1. Define the boundaries of the problem:

First, all the factors that are not directly related to the problem should be excluded. It is very important to focus on the innovation-collaboration-lightbulbsmain cause, its key drivers and their effect.

The first step is therefore to define the boundaries. These boundaries should be sufficiently open to include the essential cause-effect relations that would be excluded if one were to only focus on a single cause. But the boundaries also need to be sufficiently narrow to avoid generalization and a loss of focus.

2. Identify the causes and effects, as well as the actors involved:

Who are the key actors that stand to benefit from a change in the system? How can they be part of the solution? What are the causes of the problem and what are the possible effects of those causes?

These are the questions that should be answered and analyzed. But beware: a single effect can be the result of multiple causes and a single cause can have multiple effects on the analyzed system. In that engine there may be small faults and all of them have to be fixed if automobile is to drive smoothly and well.

3. Analyze future behavioral paths and impacts:

Once the root of a problem is well understood, qualitative projections provide an even better understanding. Once past and current trends have been observed, the time comes to start analyzing future paths. The use of scenarios allows one to project the future and analyze it consequences.

Among others, the World Economic Forum (WEF) uses scenarios to gain foresight, to look into events that could happen in the future and to develop strategies that take these possibilities into consideration.

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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