Surfing the Edge of Chaos

Every decade or two during the past one hundred years, a point of inflection has occurred in management thinking. These breakthroughs are akin to the S-curves of technology that characterize the life cycle of many industrial and consumer products: Introduction ? Acceleration ? Acceptance ? Maturity. Each big idea catches hold slowly. Yet, within a relatively short time, the new approach becomes so widely accepted that it is difficult even for old-timers to reconstruct how the world looked before.

The decade following World War II gave birth to the “strategic era.” While the tenets of military strategy had been evolving for centuries, the link to commercial enterprise was tenuous. Before the late 1940s, most companies adhered to the tenet “make a little, sell a little, make a little more.” After the war, faculty at the Harvard Business School (soon joined by swelling ranks of consultants) began to take the discipline of strategy seriously. By the late 1970s, the array of strategic concepts (SWOT analysis, the five forces framework, experience curves, strategic portfolios, the concept of competitive advantage) had become standard ordnance in the management arsenal. Today, a mere twenty years later, a grasp of these concepts is presumed as a threshold of management literacy. They have become so familiar that it is hard to imagine a world without them.

It is useful to step back and reflect on the scientific underpinnings to this legacy. Eric Beinhocker writes:

“The early micro-economists copied the mathematics of mid-nineteenth century physics equation by equation. [‘Atoms’] became the individual, ‘force’ became the economists’ notion of ‘marginal utility’ (or demand), ‘kinetic energy’ became total expenditure. All of this was synthesized into a coherent theory by Alfred Marshall — known as the theory of industrial organization.”1

Marshall’s work and its underpinnings in nineteenth century physics exert a huge influence on strategic thinking to this day. From our concept of strategy to our efforts at organizational renewal, the deep logic is based on assumptions of deterministic cause and effect (i.e., a billiard ball model of how competitors will respond to a strategic challenge or how employees will behave under a new incentive scheme). And all of this, consistent with Newton’s initial conceptions, is assumed to take place in a world where time, space (i.e., a particular industry structure or definition of a market), and dynamic equilibrium are accepted as reasonable underpinnings for the formulation of executive action.

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References

1. E.D. Beinhocker, “Strategy at the Edge of Chaos,” McKinsey Quarterly, number 1, 1997, p. 25.

2. For an entertaining treatment of this inquiry, see:

M.M. Waldrop, Complexity (New York: Simon & Schuster, 1992).

3. A. Trosiglio, “Managing Complexity” (unpublished working paper, June 1995), p. 3; and

D. Deutsch, The Fabric of Reality (New York: Penguin, 1997), pp. 3–21.

4. See S. Kauffman, At Home in the Universe (New York: Oxford University Press, 1995), p. 21; and

G. Hamel and C.K. Prahalad, “Strategic Intent,” Harvard Business Review, volume 67, May–June 1989, pp. 63–76.

5. See Kauffman (1995), p. 205; and

J.H. Holland, Hidden Order (Reading, Massachusetts: Addison-Wesley, 1995), p. 3.

6. See Kauffman (1995), p. 230; and

M. Gell-Mann, The Quark and the Jaguar (New York: Freeman, 1994), p. 249.

7. See Gell-Mann (1994), pp. 238–239; and

Holland (1995), pp. 38–39 and p. 5.

8. W. Ashby, An Introduction to Cybernetics (New York: Wiley, 1956).

9. R. Pascale, interviews with James Cannavino, May 1996.

10. See Gell-Mann (1994), p. 64 and p. 253; and

S.J. Gould, Full House (New York: Crown Publishing, 1996), p. 138.

11. G. Hamel, “Strategy as Revolution,” Harvard Business Review, volume 74, July–August 1996, pp. 69–82.

12. Information and quotations in this section are drawn from:

R. Pascale, interviews with Steve Miller, London, The Hague, and Houston, October 1997 through February 1998.

13. Kauffman (1995), pp. 80–86.

14. Waldrop (1992), p. 110.

15. J. Kao, Jamming: The Art and Discipline of Business Creativity (New York: HarperCollins, 1997).

16. I. Marshall and D. Zohar, Who’s Afraid of Schrodinger’s Cat? (New York, Morrow, 1997), p. 16, p. 19, pp. 153–158.

17. Seldon’s work is unpublished. He considers it proprietary and solely for consulting purposes.

18. Information and quotations in this section are drawn from:

R. Pascale, interviews with Steve Miller, London, The Hague, and Houston, October 1997 through February 1998.

19. Gell-Mann (1994), pp. 228–230.

20. Waldrop (1992), pp. 138–139.

21. R. Hof, “Hewlett Packard,” Business Week, 13 February 1995, p. 67.

22. Information and quotations in this section are drawn from:

R. Pascale, interviews with Steve Miller, London, The Hague, and Houston, October 1997 through February 1998.

23. A. Saxenian, “Lessons from Silicon Valley,” Technology Review, volume 97, number 5, July 1994, pp. 42–45.

24. Information and quotations in this section are drawn from:

R. Pascale, interviews with Steve Miller, London, The Hague, and Houston, October 1997 through February 1998.

Acknowledgments

This article is drawn from R. Pascale, M. Millemann, and L. Gioja, Surfing the Edge of Chaos: How the Smartest Companies Use the New Science to Stay Ahead (forthcoming).