As Daniel Kahnemann has pointed out to us, while the human brain is a remarkable organ, it also has its limitations. One of these is that it is built to conserve energy. What that in turn means is that we readily engage in fast, linear thinking when the challenges we face are complex. Forcing yourself to think differently is the key to untangling complex situations.
I’ve been thinking lately about the challenges facing leaders in situations that are fundamentally complex, and how these might lead us to problem-solve differently. Complex systems are characterized by multiplicity, interconnectivity and dependency. Practically, what that means is that a complicated system (like a Boeing 777, for instance) can be designed to achieve predictable outcomes. A complex one, however (like the air traffic control system) has parts that interact, making predicting an outcome impossible. How then, to tackle challenges raised by complexity?
Extreme outcomes rather than expected ones
Rationally calculating likely outcomes often leads us to think of things lying along a bell shaped curve, with the most extreme possibilities the least likely.
In complex systems, however, executives need to consider the possibility of extreme outcomes rather than expected outcomes. These can be positive (Google creates an entire category of applications and grows astronomically) or negative (Northern Rock, Bear Stearns and Merrill Lynch — once storied brand names — disappear). In either case, thinking in terms of probabilities and averages is not useful.
In complex systems the most interesting phenomena often occur at the tails of distributions, rather than in their centers. Thus, the successful entrepreneur is not the norm; nor is the successful corporate innovation; successful drug discovery or successful R&D project. This in turn means that extrapolating from past trends is a poor predictor of what will be of most interest in the future. Who knew that inventing a way to trade bales of hay in a…