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Complexity Management

This document discusses using chaos theory as a framework for understanding strategic management and industry evolution. It proposes that industries behave as complex, nonlinear systems rather than achieving stable equilibrium as traditional theories assume. Chaos theory suggests long term forecasting is difficult for industries due to sensitivity to initial conditions and nonlinear relationships between actors. However, short term forecasting may be possible by identifying patterns. Dramatic changes can occur unexpectedly in these systems. The document also presents a supply chain model to demonstrate how chaos theory provides insights for managing complexity and uncertainty in industries.

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mtaimur1
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Download as PPTX, PDF, TXT or read online on Scribd
198 views

Complexity Management

This document discusses using chaos theory as a framework for understanding strategic management and industry evolution. It proposes that industries behave as complex, nonlinear systems rather than achieving stable equilibrium as traditional theories assume. Chaos theory suggests long term forecasting is difficult for industries due to sensitivity to initial conditions and nonlinear relationships between actors. However, short term forecasting may be possible by identifying patterns. Dramatic changes can occur unexpectedly in these systems. The document also presents a supply chain model to demonstrate how chaos theory provides insights for managing complexity and uncertainty in industries.

Uploaded by

mtaimur1
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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David Levy

Muhammad Taimur
Shams Uddin
Nighat Saif
Safia Zeb
Mustafa Kakakhel

To provide theoretical framework for dynamic


evolution of industries

To provide application of Chaos theory in strategic


management

To provide implication of Chaos theory for


managerial purposes

Strategic management lacks theoretical tools to predict the


behavior of firms and industries.

Industries evolve dynamically overtime due to actors


interactions.

Existing theories assume simple linear relationships without


feedback.

Chaos theory provides useful conceptual framework


accommodating the non linear complexity.

Chaos theory is the study of complex, non linear dynamic


systems.

Butterfly effect

E.g. pendulum suspended between magnets

Tiny variations in initial position magnifies and results in


chaotic behavior.

Predictability short term vs. long term

Industries are assumed to be dynamic, complex and


non linear systems.

Interdependency of firms and industrial actors

Industries are non linear and are path dependant

So industries behave as chaotic systems

1.

Long term planning is very difficult

Smaller disturbances in initial state multiplies over


time

Future forecasting is difficult due to complexity and


non linear relationships.

Business should not spent on forecasting and strategic


planning

2. Industries do no reach stable equilibrium

Traditional theories tries to reach stable equilibrium


while equilibrium is not possible in chaotic system

Industries do not settle down and stability is not long


lasting

E.g. Prices and investment patterns are short lived

3. Dramatic change can occur unexpectedly

Traditional theories suggest that small changes in


parameters bring small changes in equilibrium
Dramatic fluctuations occur internally in chaotic
systems.
Characteristic of probability distribution in chaotic
systems.
Small exogenous changes may also bring magnified
fluctuations.
E.g. New entrants or small change in technology

4. Short term forecasts are possible

Long term forecasting is difficult while short term


forecasting is possible

This is because of the presence of patterns and fractals

The accurate models of complex system with carefully


drawn initial points help in short term prediction

Chaotic systems shows repetitive patterns helping in


forecasting

General guidelines are required since fixed strategies


cannot be formulated for every scenario

Firms change their strategies as industrial structures


evolve

Best strategies are those which achieve their goals even


indirectly.

So we need dynamic strategies for coping with


complexity and uncertainty

A model based on California Computer Technology is


presented

This model demonstrates how chaotic theory can help


in understanding real managerial issues

Supply chain as complex, dynamic and non linear


system.

Two important dimensions

1. Uncertainty
Each stage is exposed to shocks

Finished products fluctuate in volume to this


uncertainty

The inventory need to be adjusted to cope with this


uncertainty

2. Time Relationship

Disruption in one stage causes changes in other parts of


the system

These disruption propagate forward and backward


along the chain

This disruption causes chaos within the supply chain

Managers should make accurate sale forecasts to reduce


cost of offshore manufacturing

Managers should deal with external factors like suppliers

Managers should reduce the occurrence of internal


production problems

Managers should change the structure of supply chain


accordingly

Chaos theory provides conceptual framework for the


dynamic evolution of industries

Long term forecasting is almost impossible for


chaotic systems

However short term forecasting is possible

Dramatic changes can occur unexpectedly

Chaos theory highlights the importance of guidelines


formulation for coping with complexity

Underestimating complexity may result in


unanticipated costs

Management might reduce the volatility of supply


chain and improve its performance

Thank You

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