In this classic 1993 article by Professors Richard L. Daft and Robert H. Lengel, Newtonian "reductionist" thinking is contrasted with chaos theory. And the implications of our world of chaos for leadership and organizational design are described.

It explains some of the theoretical reasons why the Market Organization is superior to hierarchical command-and-control and engineered processes.

Key points:

• "Newtonian thought assumes the world is like a large mechanical system that is understandable and thus amenable to prediction and control."

• "It asserts that the world is objective and can be understood by gathering data to explain the linear cause-effect relationships.... Phenomena... can be understood by reducing them to their smallest parts, a process called reductionism, then studying the cause-effect laws surrounding each part."

• "The important skills needed... are gathering information through precise measurement, analyzing relationships, predicting outcomes, and making decisions."

• "Chaos [theory] acknowledges apparent randomness in many phenomena, recognizing inherent unpredictability that can't be removed by a simple process of collecting and analyzing data."

• "The chaotic world is locally unpredictable, but has a global pattern that is stable. Chaotic systems thus display disorder within order.... Physicists call this overall pattern a strange attractor. The attractor sets a boundary within which the random events occur."

• Imagine a bank managing its loan officers. "The Newtonian approach would be to predict and control each loan officer's response to every loan application, so the bank would need lots of rules and regulations.... A huge administrative and bureaucratic structure would be put into place to precisely define behavior, thereby shrinking the space for random behavior."

  [Note: Replacing loan officers with AI makes those bureaucratic processes less expensive, but they're even more inflexible and less capable of recognizing the wise outlier. Giving loan officers AI as a tool may deliver the best of analytics and empowered people.]

• "An alternative is... to define overall boundaries in the form of a corporate culture, shared values, and guiding policies. Loan officers could then respond within this boundary depending on the loan situation, as long as their responses fit within the prescribed guidelines."

• "In a chaotic system, the manager's job is to verbalize the guiding vision and define the mission, not to add rules. This management approach allows a rich and diverse set of responses to an unpredictable external environment."

• The butterfly effect is when "patterns are 'infinitely' sensitive to the past. Small, unmeasured events have cumulative effects far beyond their initial strength.... Tiny deviations don't cancel each other out. They trigger the recursive process, and accumulate with exponential speed.... A butterfly flapping its wings over Peking can create air disturbances that eventually affect the weather conditions in the United States...."

• "Sensitivity to initial conditions means that it is impossible to predict very far into the future anything about the weather or organizations."

• "Management theory has assumed that organizational success comes from gathering more data, faster and cheaper.... This will not work in a chaotic system.... Chaos theory says more data for prediction is not better. It's not a linear world out there."

• Chaos theory also describes unexpected challenges, or opportunities. "Bifurcation means that unexpected catastrophic changes also occur in a system." These events can present great opportunities for innovation.

• "...successful organizations recognize and nurture butterflies, which means operating with positive feedback loops.... Positive feedback occurs when managers recognize unexpected happenings as opportunities for growth and possible spectacular transformation. In chaotic systems, fortunes are made and places in history reserved for those people and organizations who become the butterflies that have disproportionate impact on the peole and world around them."

  [Note: The notion of enterprise strategies cascading down through the hierarchy into each group's objectives, as with Objectives and Key Results (OKR) planning processes, does not accommodate a chaotic world. That cumbersome, time-consuming cascade process and the maintenance of a detailed hierarchy of objectives is not practical when strategies can change at any time.]

• "...chaos adds up to a new way of... leading and designing organizations. The place to start is with an overall vision or mission that can serve as a strange attractor, an outer boundary that leaves lots of room for creative behavior or groups and individuals."

• "After the vision... the next step is to harness the 'invisible' forcefield in organizations, the magnetic-like energy that connects people through relationships, culture, and shared values. Invisible leadership skills supplement traditional procedures, management by objectives, and close supervision.

  [Note: Those "invisible forcefields" are the ecosystem within which we work.]

• "In a chaotic world, managers can relax their vigilance for data, and quiet their desire for prediction and control, relying instead on a broad vision for the future and facilitating the flow if information and positive emotion among employees."

It's true, process engineering is systems thinking; but it's a static system. Engineered processes are designed to be homeostatic, to remain stable despite a chaotic environment, to "stay on track." In other words, they're designed to resist, not allow, breakthrough opportunities.

Process engineering is very valuable when applied to routine, well-structured processes (like assembly lines). But that doesn't describe the work of most managers and professionals. This is not an approach that can be used to design entire organizational operating models in a world of chaos.

On the other hand, designing an organizational ecosystem based on the business-within-a-business paradigm is systems thinking at the "meta" level — a dynamic (not static, deterministic) system of organizational systems that continually adapts its processes to meet ever changing challenges.

The Market Organization is an agile, dynamic system. It's a vision of how to design an organizational ecosystem such that people are empowered, relationships are clear, innovation is everywhere, and agility is inherent in the organization's ability to quickly recombine its capabilities to address any new opportunity or challenge, without a restructuring or fundamental change in its organizational operating model.

Leaders would do well to design their organization's ecosystem, and empower people who work within it to achieve their objectives the best way they know how.

Then, within that ecosystem (and indeed, because of it), people will pursue improvements in the appropriate processes, without stifflng their agility or opportunities for creativity.

PDF: The Challenge of Chaos
by Richard L. Daft and Robert H. Lengel (1993)

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