Posted in Business

Chaos Theory in Strategy

The last century has seen a lot of change, the Business world is no exception. Organizatiaons today no matter how many jargons they try and use, calling themselves Lean, Global, Pioneer or whatever not under the sun, the fact of the matter is organizations today are much more complex than ever. There are so many working parts to this ‘machine’ that the entire business ecosystem has become truly a dynamic system. The micro and macroeconomic variables are so plentiful and sometimes so impactful that it make you wonder if the execs at the strategy level plan the outcome or plan for the outcome. But the question and the holy grail is, Is there a method to this madness, Is there order in this chaos?

Edward Norton Lorenz, the American mathematician perhaps best known for coining the term ‘butterfly effect’ summaries chaos theory as “When the present determines the future, but the approximate present does not approximately determine the future”. This overtly simple summarisation is but the first step of identifying a chaotic system. Lets ask 3 basic questions.

  1. Sensitivity – Do you feel your Business or future cash flow is sensitive to the current micro/macroeconomic environment?
  2. Topographical Mixing – If your Business or future cash flows sensitive to 1 or n variables and I presume you have a fair bit idea of the varying impact potential of these variables, Do you foresee some of the variables either increasing or decreasing in their impact potential over time?
  3. Orbital Periodic Density – Do you feel that there is somehow a cyclicity of these variables and the concepts of business cycles do exist?

If the answers to the above questions are Yes, Congratulations! you have a chaotic system.

So? According to an article written by Mark Goodburn, Global Head of Advisory, KPMG International (Ref:, the average lifespan of a typical Fortune 500 company today is around 40-50 years. A more alarming statistic is the Fortune 500 list itself, Just how many companies today can you find out which had figured even 10 years back? Less than 50%!

 How? Its 3 simple letters really GCA – Goals Capability Action

Goals – Organizations need to go beyond the Vision/Mission statements and look at objectifying Goals. The Goals should ideally be structured and should build upon one another. Only by stage gating the objectives can you bring some order. Elon Musk famously stated his vision of making Humanity an Interplanetary species. On September 27, Musk announced a bold new plan to establish a permanent human habitation on Mars with his company SpaceX. Although SpaceX hasn’t launched a single person into space yet, ask him about the Red Dragon missions and the mission objectives are very clear.

  • Learn how to transport and land large payloads on Mars.
  • Identify and characterize potential resources such as water.
  • Characterize potential landing sites, including identifying surface hazards.
  • Demonstrate key surface capabilities on Mars.

Capabilities – The organization and its structure should be capable of reaching its goal. We all have heard of the organization growth cycles. Its akin to how a person evolves over time, but as we ‘evolve’ over time, so must the organization. Not only must it learn and adapt, it should know how to as well. Evolution is a very generic word, It covers the belief, structure, goals and the means available to an organization. These goals should however be achievable. In the keynote address, Musk was conscious in reminding everyone of the Raptor engine firing in advance of the conference. The Raptor engine is the baby of Musk and is the biggest game changer in heavy propulsion and really gives SpaceX the confidence of planning the 10 year window. Musk has been a visionary of our time but you can see the confidence growing in him. To quote Musk “I’m in Line!”

Action – So often so many opportunities are lost either by the lack of will or conviction or the lack of means or the perception of ability to do so. Any Business comes with an inherent set of risks and rewards. Once the Goals are set and capabilities assessed, the firm should have a strong enough leadership and execution mechanism to bring the goal into fruition. This also means an agile, adaptable and resourceful organization that learns from its mistakes, corrects it and cashes in on the opportunity. An iteration model gives you just that, a stage wise correction mechanism, by adjusting the variations at each stage gate, firms can maintain order in their systems but Action also means that firms should already have this budgeted and should move ahead with the conviction that these deviations would be addressed in the next stage.

The entire theme of this article has been a pro-active engagement by the firm. Isn’t that synonymous with prevention rather than cure and that’s really spot on. For chaos can exist only in the absence of order. The second law of thermodynamics says so much so ‘the total entropy of an isolated system always increases over time, or remains constant in ideal cases where the system is in a steady state or undergoing a reversible process’. Only order can bring sense to the chaos.




Blogger, Travel enthusiast, Now trying to find meaning of life in a Bschool

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