Potentials of Complexity Science for Business, Government and the Media August 3 – 5, 2006 Budapest Richard L. Sanders

1. “Why Complexity Science Is So Important to Business Today and Why It Is So Difficult to Get this Message Across” Potentials of Complexity Science for Business, Government and the Media August 3 – 5, 2006 Budapest Richard L. Sanders 1Presentation/Date/Initials

2. Business Is Changing Rapidly 2Presentation/Date/Initials

3. What Is Contributing to this Change? 3Presentation/Date/Initials

4. Present Business Paradigm 4Presentation/Date/Initials

5. “Always Change a Winning Team” 5Presentation/Date/Initials

6. There Is Hope: the “Calvary” Is on the Way 6Presentation/Date/Initials

7. A man was walking home one dark and foggy night. As he groped his way through the murk he nearly tripped over someone crawling around by a lamp post. "What are you doing?" asked the traveler. "I’m looking for my keys." Replied the other. "Are you sure you lost them here?" asked the first man. "I’m not sure at all," came the reply, "but if I haven’t lost them near this lamp I don’t stand a chance of finding them." 7Presentation/Date/Initials

8. Until recently science has been restricted to the illuminated area, but the advent of computers and the internet has made it possible to explore the shadows and further. A new light is being switched on that is resulting in a paradigm shift that can facilitate future growth and prosperity. 8Presentation/Date/Initials

9. Stages of an Enterprise This picture and those marked by “MT” used with the permission of the MT Taylor Corporation 9Presentation/Date/Initials

10. System A system is a set of dynamic, interacting elements, organized for a goal. 10Presentation/Date/Initials

11. Closed System A closed system is one that is isolated from its environment. This kind of system uses its own internal reserve of potential energy, and as reactions take place, entropy rises irreversibly to a maximum. Thermodynamic equilibrium is reached, and the system can no longer produce work. 11Presentation/Date/Initials

12. Open System An open system is one in permanent interaction with its environment, with which it exchanges energy, matter and information. Because of the energy flow through the system and the dumping of “used” energy into the environment, its entropy is maintained at a relatively low level. Thissystemis capable of performing work. 12Presentation/Date/Initials

13. Complex System • Large variety of elements. • Elements organized in hierarchical levels. • A high concentration of connections between the elements. • The interactions between the elements are nonlinear. 13Presentation/Date/Initials

14. Positive Feedback Positive feedback loops contain the dynamics for change in a system, growth and evolution. 14Presentation/Date/Initials

15. Positive Feedback 15Presentation/Date/Initials

16. Example 16Presentation/Date/Initials

17. Negative Feedback Negative feedback loops represent control and stability, the establishment of equilibrium and self-maintenance. 17Presentation/Date/Initials

18. Negative Feedback 18Presentation/Date/Initials

19. Example 19Presentation/Date/Initials

20. Combination of Positive and Negative Feedback This is commonly occurring behaviour, rapid growth followed by stabilisation 20Presentation/Date/Initials

21. Combination of Positive and Negative Feedback 21Presentation/Date/Initials

22. Example 22Presentation/Date/Initials

23. The Dynamics of Maintenance and Change The properties and behaviour of a complex system are determined by its internal organisation and its relationship with its environment. 23Presentation/Date/Initials

24. The Dynamics of Maintenance and Change (Continued) Every system has two fundamental modes of existence and behaviour: maintenance and change. The first, based on negative feedback loops, is characterised by stability. The second, based on positive feedback loops, is characterised by growth (or decline). The coexistence of the two modes is at the heart of a complex system 24Presentation/Date/Initials

25. Homeostasis: Resistance to change Formally: The ability or tendency of an organism or cell to maintain internal equilibrium by adjusting its physiological processes. 25Presentation/Date/Initials

26. Homeostasis: Resistance to change Informally: A homeostatic system (an industrial firm) is an open system that maintains its structure and functions by means of a multiplicity of dynamic steady states rigorously controlled by interdependent regulation mechanisms. Such a system reacts to random changes in the environment to maintain stability. 26Presentation/Date/Initials

27. Evolution For a complex system, to endure is not enough; it must adapt itself to time dependent changes in the environment and evolve. Otherwise outside forces can disorganise and ultimately destroy it. A key to unlocking this apparent paradox can be found in diversity. 27Presentation/Date/Initials

28. Natural Selection • Occurs by random mutation • Much too slow to explain speed of evolution 28Presentation/Date/Initials

29. Sharing of DNA • Gene pool required: (the richer, the better) • Sharing of genes: (sharing ideas, resources, etc.) 29Presentation/Date/Initials

30. Homeostasis vs. Evolution 30Presentation/Date/Initials

31. Diversity The law of requisite variety from Ross Ashby (1956) states that the regulation of a system is efficient when it depends on a system of controls as complex as the system itself. Variety permits a wider range of response to potential forms of aggression. Variety also produces the unexpected, which is the seed of change. 31Presentation/Date/Initials

32. Auto Catalytic Behaviour 32Presentation/Date/Initials

33. Reactions (e.g. Chemical)MT 33Presentation/Date/Initials

34. Reactions • Without catalysis: (A + B = AB) • With catalysis: (A + B + C = AB + C) 34Presentation/Date/Initials

35. Auto catalysis TM 35Presentation/Date/Initials

36. Auto catalysis • Catalysis BA: A + B + BA = AB + BA • Catalysis AB: A + B + AB = BA + AB 36Presentation/Date/Initials

37. Under certain conditions this auto catalytic process can lead to exponential growth, for instance the exponential growth of the compound AB. 37Presentation/Date/Initials

38. Emergence of Auto catalysis TM 38Presentation/Date/Initials

39. Four Zones of Auto catalysis TM 39Presentation/Date/Initials

40. Four Zones • Zone 1: much diversity but little interaction. • Zone 2: a lot of interaction but little diversity. • Zone 3: too little diversity and interaction. • Zone 4: the right balance. 40Presentation/Date/Initials

41. Connectivity 41Presentation/Date/Initials

42. Boolean Networks TM 42Presentation/Date/Initials

43. Three Modes of Behavior • Chaos: too much connectivity (random changes can cause avalanches of change; positive feedback) • Order: too little connectivity (random changes are damped and system returns quickly to ordered state; negative feedback) • Edge of Chaos: right balance between positive and negative feedback leading to adaptation of the network 43Presentation/Date/Initials

44. Two Necessary Conditions for Evolution • “Right”level of diversity. • “Right” level of connectivity. 44Presentation/Date/Initials

45. Interlude 45Presentation/Date/Initials

46. The New Paradigm 46Presentation/Date/Initials

47. DC3? 47Presentation/Date/Initials

48. F16? 48Presentation/Date/Initials

49. What Kind of Company Do You Want? 49Presentation/Date/Initials

50. Complexity Science and Business 50Presentation/Date/Initials