By Rod Collins
Traditional management assumes that business organizations are closed systems and that managerial hierarchies are the best way to maintain the equilibrium of the company. That's why conventional wisdom favors elaborate control systems so that managers, like engineers and pilots, can apply immediate corrective action to restore balance when things go awry.
However, the new business models of the Digital Age, such as those used by Linux and Wikipedia, are showing us that the most efficient operations behave like complex adaptive systems where self-managing participants, following a set of simple rules, organize themselves to solve incredibly complex problems. Generally, there are no bosses or hierarchies in these open systems, nor are there complicated regulations to govern the collective behavior of the individual contributors.
Because the horizontal business alliances of the Digital Age are far more likely to be open systems, a management model that relies on hierarchies to maintain the equilibrium of the established ways will not get the job done, especially when managing innovation is the central business issue. Being innovative means knowing when to change and calls for the collaborative interaction characteristic of complex adaptive systems.
These open systems share three common organizing principles. The first is that intelligence resides in the whole system. This means that, while different individuals may hold specific knowledge or differing interpretations of a common reality, no one person is capable of processing all the information within the system. Self-organizing systems produce intelligence only when they have the capacity to process the diversity of knowledge that resides within the entire system. Thus, organizations are most intelligent when they have a rich diversity of perspectives and the means to aggregate their collective intelligence.
The second organizing principle is that simple rules guide complex collective behavior. This most important premise is completely counterintuitive to conventional wisdom. We usually think that complex structures will only work if we have detailed blueprints or a comprehensive set of rules and regulations. While this is generally true for mechanical tasks, it is not the way the open systems of biology work. In the organic world, the secret to the effective execution of complex tasks is that order is created by the collaborative application of a few simple rules rather than by compliance with a complex set of controls. Thus, one of the distinguishing features of complex adaptive systems is that responsibility for control and coordination rests with each of the individual participants rather than with one central executive.
The third principle of self-organizing systems is that order emerges from the interaction of the independent participants. In open systems, there are no blueprints. Order is not preordained before the work begins, but rather emerges through an iterative learning process. This is the secret to the remarkable success of Linux and Wikipedia. Because complex adaptive systems can quickly learn and adapt and are capable of efficiently aggregating the collective intelligence of their many participants, they are far better organizational models when the primary business challenge is managing innovation.