Efficiency - the high price.

Management has come to be seen as a science whose purpose is to make commercial organisations more efficient. But the single-minded pursuit of efficiency makes businesses less resilient. Organisations that are consistently more efficient earn an increasing share of available profits and can begin to game the market. In time, organisations become consolidated around a single dominant business model. This outcome carries a high risk of catastrophic failure and a high likelihood of exploitation. Business, government, and management education need to increase their emphasis on organisational resilience. This will involve limiting the size of organisations, introducing more friction into global trade and the capital markets, giving long-term investors a larger say in strategic decision making, creating jobs that are richer in learning opportunities, and offering educational programmes that balance efficiency and resilience.

If Economic resources are random, statistics tells us that they will follow a Gaussian distribution: when plotting on a graph, the vast majority of payoffs will be close to the average, with fewer and fewer occurring occurring the further we move in either direction. (Gaussian distribution: the normal distribution is the most important probability distribution in statistics because it fits many natural phenomena. It is also known as the Bell Curve - how the values of a variable are distributed.) Because the Gaussian distribution is so prevalent in human life and in nature, we tend to expect it across domains. We believe that outcomes are and should be normally distributed - not just in the physical world but in the world writ large.

Vilfredo Pareto, observed more than a century ago that 20% of Italians owned 80% of the country's land. In a Pareto distribution, the vast majority of incidences are clustered at the low end, and the tail at the high end extends and extends. There is no meaningful mean or median; the distribution is not stable. There is a "growing power" of the few. The success stories of the so-called new economy are in some measure responsible - the dynamics of platform businesses, where competitive advantages often derive from network effects, quickly convert Gaussian distributions to Pareto ones. Since 1997 a strong majority of industries in the United States have become more concentrated. Many are now what Economists consider "highly concentrated". This tends to correlate with low levels of competition, high consumer prices, and high profit margins. Complexity scholars, including UCLA's Bill McKelvey, have identified several factors that systematically push outcomes toward Pareto distribution. Among them are pressure on the system in question and ease of connection between its participants. Complexity theory - the basic premise of complexity theory is that there is a hidden order to the behaviour (and evolution) of complex systems, whether that system is a national economy, an ecosystem, an organization, or a production line. In business and finance, complexity theory places its focus on the ways a factory or company resemble an ecosystem or market, rather than a machine "whose parts and functions have been plucked out in advance," according to David Berreby. He maintains that the organization of systems is no accident, but "the results of laws of nature that we don't yet fully understand." Once understood, managers will learn that if left to function on their own, systems organize themselves, bringing about "order for free." Proponents of complexity theory believe specific traits are shared by most complex systems. These systems are the combination of many independent actors behaving as a single unit. These actors respond to their environment, much as stock markets respond to news of changing economies, genes respond to natural selection, or the human brain responds to sensory input. All of these "networks" also act as a single system made of many interacting components. Complexity theory attempts to explain how even millions of independent actors can unintentionally demonstrate patterned behavior and properties that, while present in the overall system, are not present in any individual component of that system. Complexity theory was founded on researchers's attempts to rationalize the behaviour of large and complex systems, believing they cannot be explained by usual rules of nature. It attempts to discover how the many disparate elements of a system work with each other to shape the system and its outcomes, as well as how each component changes over time. It is also one way to express the perceived domination of systems over their myriad smaller influences.

While complexity theory is strikingly similar to chaos theory, complexity theorists maintain that chaos, by itself, does not account for the coherence of self-organizing, complex systems. Rather, complex systems reside at the edge of chaos—the actors or components of a system are never locked in to a particular position or role within the system, but they never fall completely out of control. As M. Mitchell Waldrop states in Complexity, "The edge of chaos is the constantly shifting battle zone between stagnation and anarchy, the one place where a complex system can be spontaneous, adaptive, and alive." Sherry Turkle, author of Life on the Screen and professor of sociology of science at the Massachusetts Institute of Technology (MIT), feels that technology has helped bring the issues of complexity theory to life. She asserts that computers helped persuade us that knowing all the parts of a system (or a computer) cannot give anyone the ability to foresee all the complexity that can arise as all of those parts interact.

Resilience is the ability to recover from difficulties - to spring back into shape after a shock. Think of the difference between being adapted to an existing environment (which is what efficiency delivers) and being adaptable to changes in the environment. Resilient systems are typically characterized by the very features - diversity and redundancy, or slack - that efficiency seeks to destroy. To curb efficiency creep and foster resilience, organisations can:

1. Limit scale;
2. Introduce friction;
3. Promote patient capital;
4. Create good jobs;
5. Teach for resilience.

In closing, remember that the costs of complexity are hard to see. You may have an affinity for very complex ideas, and you describe them in complicated ways. As a leader, does that create challenges? Work on communication: delegate and participate and "boil" down the plan so that employees can actually follow it.

Prof Rory Dunn.