Why it should matter to us all
 

Amid the current economic carnage, there’s an understandable desire that guilty individuals should suffer. Certainly, a few crucifixions on Wall Street, and few international bankers and financial journalists locked into the stocks and pelted with rotten fruit, would be great fun, and amply justified as well. But in the end, of course, the problem isn’t really with individuals. People may be greedy, stupid or deluded, and do silly things individually, but to foul up on a really gigantic scale, you need an organization. So how did organizations get themselves into such a mess—not only banks and other financial institutions, but also regulatory authorities, governments and even the media?

Some of the answers are clear enough; infectious greed and credulity, weakness of internal and external controls, herd mentality, rampant short-termism, corrupt relations between participants. I want to add one more. It’s the subtle but important distinction between systems that are complicated, and those that are merely complex.

Complex systems

A complex system has rules that you can learn, and outputs that you can understand. Take languages. Many African languages, as well as European languages like Finnish and Hungarian, are highly complex in structure, and small variations on word-roots can completely change the sense. Yet these languages can be mastered with practice. By contrast, English is a complicated language, in that it has few formal rules and consists largely of exceptions to exceptions and a huge and confusing vocabulary of synonyms. It is therefore more difficult to speak fluently than, say, Finnish with its fifteen basic noun cases.

Some complex systems, like the weather, have outcomes which are difficult to predict in detail, but are still not random. They are comprehensible by non-experts; you can see that a hurricane is coming your way, even if you’re not sure of its exact strength and direction. By contrast, it’s interesting that economists with worldwide reputations don’t simply disagree about how to handle the current economic crisis, they can’t even agree on what’s going on.

When complex becomes complicated

This is because the world economic system, always complex, has now become almost terminally complicated. It works in irrational and unfathomable ways, and not even people who designed the new financial systems know how they will work, or the likely results of the interactions between the parts.

This is not an accident. The systems were designed to be so complicated that they could not be understood or controlled, thus enabling lots of money to be made out of unsuspecting victims. What we’re dealing with is an old-fashioned confidence trick played on us all by clever people over a generation. Now the money has all gone, and the process by which it vanished is so complicated that no one can tell where it is, or exactly how it disappeared. Confusion – the ally of the con-man throughout the ages – has triumphed.

This would have been obvious if people and organizations had kept two simple precepts in mind; precepts which were probably taught to management trainees in ancient Babylon.

• If it sounds too good to be true, it probably is.
• If it looks like it can’t go on forever, it probably won’t.

Now the same organizations that fleeced governments and populations have themselves come to grief, as always happens when con-men believe their own patter. The tricksters wound up producing systems so complicated that they confused even themselves. Yet if we take some grim satisfaction from that, we have to remember that these systems were designed to be so complicated that it will take battalions of accountants years to sort out the mess, if, indeed, they ever can.

Clarity is worth more than you may think

Organizations may need to use complex systems to reflect the nature of the work they do, but there is nothing to prevent such systems being rational and logical, with clear, written procedures which have internal coherence and can be learnt by everyone involved. The best organizations are also the most rational. Written procedures that everyone can understand are not only fairer than knowing who has the ear of the boss, they are also more effective. When the whiz-kid head of marketing leaves unexpectedly, it’s no comfort to learn that he or she had some complicated system in their head and never wrote it down.

Complication in organizations is almost always a sign that something is going wrong. Complicated organizations tend to fall apart sooner or later. Indeed, whether complications are designed deliberately to deceive, or are the products of incompetence and stupidity, they are are still no basis on which to run a successful organization.

If we are to learn anything from our current woes, it should be this: complexity may be natural, but complications are nearly always man-made—sometimes for the very worst of reasons.

Technorati Tags: complex business, complication, confidence tricks, practical wisdom, organizational good sense