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Capitalizing on Complexity in Modern Business Environments

A Network-Based Perspective for Projects and Organizations

 

FEATURED PAPER

By David Tain

Alberta, Canada

 



The advancement of technology has substantially changed the way knowledge is created and transmitted. Modern interaction platforms allow information to expand at proportions and speeds without precedents, enhancing the potential to access and combine perspectives from different settings and shaping the mechanisms of collaboration and competition. Furthermore, these advancements have progressively unleashed important networks effects across multiple sides of the market, creating innovative business models that, in some cases, are orthogonal to scale and have led to the rise of niche activities: E-bay, for instance, connects groups of buyers and small sellers scattered across the globe (Teece, 2018). A global oil corporation engaging technological initiatives with competitors, individuals joining efforts to advance an open source software, a student that obtains an online degree or simply the guy that learns how to repair a leak in a fridge via YouTube are just a few examples that show how interconnectivity has progressively shaped business environments in the last decades.

The evolution of modern business environments has made more evident the agent-based nature of knowledge creation and has challenged the linearity in traditional models where growth is visualized as the combined effect of aggregated contributions of agents, the efficiency of adequate organizational structures and the optimization of resources. Furthermore, the creation and transfer of knowledge catalyzes strategic transformation: massive flows of available information and the actions of other agents are determinant in replacing old assumptions, triggering adaptation modes in organizations and projects that do not follow basic notions of linearity, rationality and equilibrium. Essentially, knowledge is no longer “caged” within institutions (e.g.: universities, corporations), and it does not always follow structured processes of inductive or deductive analysis.

Traditional approaches to design organizational and project structures are insufficient. They don’t account for non-linearity (results greater than the sum of the parts of a system) or the behavior of agents into larger schemes. By building on the characteristics and dynamics of Networks, it is possible to engineer organizational architectures that induce transformation and dynamically capitalize on changes in the business environment, strategically adjusting structures and synchronizing organizational growth with the evolution of internal and external contexts. To achieve this, it is necessary to adopt an open-systems approach that allows visualizing the dynamics and permanent reconfiguration of organizational networks, understanding the role and contributions of agents in these reconfigurations and setting strategic initiatives to effectively orchestrate information flows and resources.

Linearity in Traditional Frameworks: A Brief Overview

From a traditional neoclassical perspective, markets are formed and shaped based on aggregated contributions of individuals that, by acting rationally, seeking their own interests. The division of labor and specialization are considered the most basic mechanism for economic growth and sustainability [Note 1], thus organizations are conceptualized as market entities that, through mechanisms of coordination and hierarchization, reduce transactional costs of activities carried out by individuals acting alone (Coase, 1937). The specific constraints of a region and the outputs of organizations operating locally will shape supply and demand, characterizing the market and defining the growth prospects for each organization.

Keeping in mind that economic growth is the key indicator for the performance of organizations and projects, multiple economics models have attempted to predict how growth occurs. One of the most notable, Robert Solow’s growth model, built on previous econometric models to parametrize output as a function of two key resources: Capital and Labor (Solow’s model also accounts for productivity gains due to technological progress). However, as resource utilization increase, inefficiencies will naturally emerge around coordination, specialization and space, progressively reducing the potential of these resources to generate value. This negative effect, known as the Law of Diminishing returns to scale (a key result from Solow’s model [Note 2]), is self-intuitive when organizations are observed as closed systems: Suppose the execution of an activity needs to be optimized (e.g. transporting goods, production line, construction, etc.) using a particular strategy or technology. A marginal point will be reached where adding more resources is counterproductive (e.g.: limitations in space will generate conflicts between laborers, simultaneous operations will reach a maximum, equipment capacities will be reached, changing technology is not economical, etc.)

From traditional models, contemporary management were conceptualized around the optimal allocation of resources as a vehicle to generate competitiveness and growth in organizations. Progressively, a myriad of management and strategy frameworks appeared in the 20th century, notably Taylor’s principles of Scientific Management on human productivity (Taylor, 1911) Fayol’s Administrative theory on command and control (Fayol, 1949)] and Weber’s on strategic hierarchization (Weber and Wittich, 1978)] among others. As markets evolved and became more turbulent, process-oriented organizational frameworks emerged to address the increased complexity of competition, focusing on efficiency and competitiveness and shaping the way we see strategic organization today. Some of the most remarkable frameworks include Penrose’s resource-based view of the firm (Penrose, 1959), Porter’s five competitive forces (Porter, 1979), Deming’s quality framework (Deming, 1986)] among others. In a nutshell, these frameworks aimed on generating superior capabilities in the organization that, by guiding the strategic configuration of its internal resources and investments, increase the value generation potential and protect the organization from external threats and competitors.

It is important to highlight is that, when most of these frameworks emerged, sophisticated forms communication like Internet were not yet available. Knowledge transmission and the interconnectedness of agents was limited to regions, sectors and industries. Processes for knowledge generation, absorption and assimilation in the organization depended on a “dominant logic” comprised by influential individuals such as leaders and executives. As a result, Decision-making was framed on personal preconceptions and beliefs of these individuals as “guardians” of the strategic vision, hence loss of corporate knowledge (e.g.: a key employee quits, information leakage, etc) demonstrated to have significant negative effects, compared to the loss of other type of asset in the organization. A remarkable evidence of this effect was experienced by Delta Airlines: in 1991, a high number of experienced mechanics left the company due to the implementation of salary reductions across the organization to offset losses. Senior positions were filled with less experienced workforce, resulting in longer time for the diagnostics and repair of airplanes and other significant inefficiencies. All this translated into substantial flights delays and unhappy customers switching business to competitors (Parisse, Cross and Davenport, 2006).

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How to cite this paper: Tain, D. (2019). Capitalizing on Complexity in Modern Business Environments: A Network-Based Perspective for Projects and Organizations; PM World Journal, Vol. VIII, Issue II (February).  Available online at https://pmworldjournal.net/wp-content/uploads/2019/02/pmwj79-Feb2019-Tain-capitalizing-on-complexity-in-modern-business-featured-paper.pdf

 



About the Author


David Tain, MSc., P.Eng., PMP

Alberta, Canada

 

 

 

David Tain is a Principal Consultant for Project Management and Strategy Execution and a Director at Septentrion Strategic Solutions. For almost two decades, David has worked extensively in the development, execution and start-up of major industrial facilities in North and South America. He has held multiple leadership positions for national and international oil operators, engineering firms and construction organizations. Some of his areas of expertise include project and portfolio management, engineering management, risk management, decision analysis, organizational strategy design, leadership and negotiation with emphasis in human behavior in project settings. David is a Project Management Professional (PMP) and a Professional Engineer (P.Eng.) in the province of Alberta, Canada.

David holds a MSc. in Management from the University of Liverpool and a professional certificate in Strategic Decision and Risk Management Program from Stanford University. He obtained his BSc. in Civil Engineering in Venezuela and progressively expanded his technical knowledge in Project Management, Project Development and Strategy through multiple programs from recognized institutions across the globe, remarkably the Institut Français du Pétrole (IFP) in Paris and Villanova University in the US. David can be contacted at [email protected]

Septentrion Strategic Solutions LTD. helps corporations to achieve their vision and increase competitiveness in today’s markets. With specialized solutions, we enhance operations and decision-making, creating and unlocking value at any stage. Using world-class techniques and innovation, we capitalize on complexity to design customized strategies and management processes, optimizing resources and enhancing organizational interactions to ensure the best possible outcomes for your projects and organizations.

For more information, visit  www.septentrioncanada.com

To view other works by David Tain, visit his author showcase in the PM World Library at https://pmworldlibrary.net/authors/david-tain/