the causal milieu
Variability. Conditions in complex environments multiply the variables and relations among variables that affect causalities. There are an increasing number and diversity of competitors; an increasing number of products, product categories, and discrete markets; a proliferation of data, information, and opinion. These and other factors increase both the density and the extent of relations in commerce, and the rates and incidence of change. As a result, business judgments have to be made more quickly, taking more variables into account; consequences are more ramified and must be hedged more comprehensively; the dynamics of cause and effect are more opaque, which creates more uncertainty; risk is more variable so fixed leverage constraints often clash with time-varying loss probabilities; and transaction-cost volatility and shifting revenue models make planning more difficult.
Deontic Relations. The most dominant causal dynamics in commerce involve ‘deontic relations’ – interdependent rights, responsibilities, obligations, duties, privileges, entitlements, penalties, liberties, duties, authorizations, permissions, and so forth – whose primary effects are to enable or constrain states of affairs. The proliferation of individuals and organizations engaged in commerce across the globe therefore involves a proliferation of deontic relations. This is one of the most significant factors in the emergence of complex environments.
Distinct-but-Connected. By their nature, the elements and relations of states of affairs are ‘distinct-but-connected’. We see this in the number and diversity of new competitors that globalization spawns, even as the pragmatic necessity of their collaboration grows and intensifies; in the sprawl of financial institutions whose ability to function depends on dense linkages of payment, clearance, and other structural mechanisms; in relentless technology innovations whose advancement not only is accelerated by, but would be largely impossible without, interdependent networks of sector and industry knowledge; and in the multiplication of regulatory frameworks whose ostensible purpose is to neutrally govern aspects of firm behavior, but which often generate intractable path dependencies.
Dimensionalities. Complexity is affected by location, geography, and proximity; spatial scale; time and sequence; and temporal scale. Complexity is affected by location, geography and proximity when, for example, production or services are moved in order to reduce costs or when business activity is threatened by an environment’s political volatility. The effects of spatial scale are implicated when the scale of labor-force size or production-facility capacity changes as the result of a technological advance, an economic recession, a war, or a natural disaster. Time and sequence influence complexity, as in the timing of a change in monetary policy by a central bank or the sequencing of a company’s acquisition plan. Finally, compressions or elongations of temporal scales affect complexity – for example, in respect of changes in the speed of communication, in the pace of innovation, or in degrees of regulatory lag.
Complexity's Double Press. In the course of a company’s making decisions, expending resources, setting strategy, implementing plans – indeed, in all the day-to-day rhythms of business life – firms confront the conflicting effects of complexity as a phenomenon influenced by one or more of the four dimensions described above. Businesses increasingly leverage the speed of electronic transactions but risk the ‘suddenness’ of ramifying, systemic effects. They thrive in the fertileness of technology innovation, but can be undone by abrupt changes in the scale or scope economies that innovation produces. They endure competitive pressures to accelerate momentum, yet cross-scale timelines impose periods of highly detrimental regulatory lag. Their emerging market initiatives are unexpectedly threatened by the precipitous fall of some regimes or enabled by the birth and enlargement of others – each development affected as easily by regional geography and ancient factional schisms as by the lightning-fast contagion of ideas through the Internet. They brace for the volatility of monetary, trade and tax policies while adjusting to the ‘norm harmonization’ sought to be induced by global governance bodies like the World Bank, the IMF, and the WTO.