Chaos Theory (as a Management Style)

For generations, science allowed us to think we could control nature. Today we know better (thanks to Chaos Theory). How could this make us better managers?

Sir Isaac Newton’s deterministic claim that we can predict future events with absolute certainty stood firm for 300 years – then along came Kurt Gödel’s Incompleteness Theorem and Werner Heisenberg’s Uncertainty Principle. Applying this new science to the most widely used management style (i.e. directive) and comparing it to more empowering techniques, I look at how this could inform management tactics (as well as social media policy and corporate social responsibility).

The boring science-y bit

In 1931, Kurt Gödel declared a formal proof that every system (even the all-empassing Principia Mathematica) contains inconsistency, and is therefore incomplete. In 1927, Heisenberg’s uncertainty principle declared that all physics (when examined closely enough) contains a degree of chaos. This was in contrast with established Newtonian determinism that saw the universe as a giant clock – if we could only see the cogs in enough detail, we could predict future movements. When combined with other theories (such as random Brownian Motion, Lorenz’ Butterfly Effect and Schrödinger’s Quantum Mechanics), a movement developed that came to be known as Chaos Theory. This embraces the idea that we can never truly foresee an outcome, because small fluctuations can cause large long-term effects.

More recently, in books on macro-economics such as Freakonomics and The Tipping Point, there has been an understanding that growth cannot be infinite (e.g. the occupy movement) and an awareness of wider sustainability issues. This isn’t a hippy-dippy resurgence of 60’s flower-power – it’s actually a natural result of looking ever more deeply at what was previously only thought of in abstract terms. Rick Levine and Christopher Locke discussed the problems of directive management styles in their book The Cluetrain Manifesto. In it, a major study showed that although barking orders at employees often generated higher profits in the short term, (when compared with the long-term gains of more empathic management techniques) it is actually unprofitable in the long-term – the management equivalent of King Canute daring the tide to change.

Today’s management structure prevents information flow

So how do these scientific and high-level mathematics theories apply to management styles – what could they possibly both have in common? In each case, they listened to the details – instead of ignoring them (because they didn’t fit the established pattern). This often a precursor of innovation – and why smaller companies can do this better than larger ones. Chaos Theory demonstrates that, (as a manager) it’s scientifically impossible to predict what will happen. Directive, short-term management patterns don’t listen for the details – they determine large-scale changes from previous experience. As global weather will testify – what happened yesterday – or last year – isn’t necessarily the best indicator of what will happen tomorrow.

Internal communications within multi-level management organisations are not constructed to allow these details to be filtered upwards. In a typical management meeting, there’s only time for the larger problems to be discussed, so smaller problems must be ignored – until they grow large enough to be on the agenda (requiring more expensive solutions). This is also true for many efficiency and streamlining processes – managers spend so little time on the ‘shop floor’ that they are unaware of improvements that are suggested by those who are closest to the problem – the workers.

When the going gets tough, the CEOs get out

What appears to be a quick easy fix (such as closures and lay-offs) can show as instant profit on this year’s balance sheet – paying for the expensive CEO’s golden handshake, but will typically back-fire. In addition, it proposes a ‘boom and bust’ mentality that causes many CEOs to lose their jobs (as soon as the bust hits). High drama makes for great headlines, but poor management. As with climate change, there may be no single radical solution that solves a major problem completely – but a large number of smaller improvements (when added together) can prevent the need for dramatic action.

There are other ways to solve this problem more creatively – David Cote (Honeywell), Dan Price (Gravity) and Bob Chapman (Barry-Wehmiller) perhaps being the most famous examples, but in recent times FedEx, Hewlett-Packard, and The New York Times have all cut base pay (with most lowering management salaries more than workers) instead of letting people go. Even Larry and Sergey at Google only take a $1 annual salary. In Japan, a popular belief in business ethics is that businesses (and people) who pursue money first eventually fail – most notably employed by Haruka Nishimatsu, who humbly waiting in line for food with his employees and took the bus to work when times got tough, as good leaders should fight alongside their troops. Simon Sinek used a similar battle-based analogy (but the same family motif) as the basis of his book Leaders Eat Last.

Since the 1980s, much of business ideology has been influenced by military techniques (e.g. goals, strategy, objectives, tactics) — however, the comradeship factor has been conveniently left out. This just doesn’t add up.

Social media – “The Truth Will Out”

Tax avoidance schemes eventually come home to roost. Getting the state to pay for Walmart’s employee benefits (while the company makes record profits) is just not sustainable – and the new-found power of consumers in social media is the best place to disrupt this sort of carefully-planned (and deterministic) marketing plan. Social media closes the feedback loop, allowing information to freely bubble to the top.

From William J. Conaty, who ran human resources at General Electric (GE) for 14 years:

“People have long memories. They’ll remember whether they think they were dealt with equitably.”

CSR and fair compensation

What, then is the most scientifically accurate management style that best depicts a model of reality? How can we take advantage of broad advancements in science and mathematics to be more effective, better understood, with more customers, and achieve higher profits (with happier and more motivated staff)?

Simple – be more humane when managing fellow humans. This is the use of supportive instead of directive management techniques. In a business sense, it leads to more profit. For employees, they are happier and feel valued. Customers benefit through a better level of service.

This is why Henry Ford doubled the minimum wage in 1914, why the Cadbury brothers created the town of Bournville for their staff and pioneered pensions in 1879, and more recently Facebook have created their own company town – these (eventually) lead to higher profits. Fair compensation (and recognition – which is free, after all) is often all that employees ask for. These are some of the earliest examples of Corporate Social Responsibility – which seems these days to be completely divorced from employee benefits, and has turned into a form of corporate philanthropy (i.e. for those outside the company) instead.

Typically, smaller family-run businesses support their employees, and listen to customer and production’s potential problems – and are thus able to fix them while still in their infancy. This long-term approach is often lambasted by more ‘profit-driven’ management executives – but we should be thinking in terms of being in sync with our customers, clients and colleagues for decades – not trying to rip them off as quickly as possible and hoping there’ll be a new sucker born every minute.

Business relationships are a conversation (not an argument)

By freeing up the information flow, respecting each other’s practical, management, and user experience, we can create highly-optimised yet fluid and responsive solutions that evolve organically over time. By listening to our colleagues, we learn to embrace chaos — and respond quickly to the unknown because we knew it was always there.

In our new knowledge economy, thoughtful application of new sciences and technology using the above techniques will inevitably lead to brand loyalty, less employee churn, deeper customer engagement and higher profit margins.

Isn’t that what we all want?

But how?

The best way to go with the (chaotic) flow isn’t to throw your hands up in despair — roll up your sleeves, use good judgement and demonstrate leadership. It’s best encapsulated by Saint-Exupéry (author of The Little Prince) in this TED talk by Julia Galef about the ‘Scout Mindset’:

“If you want to build a ship, don’t drum up your men to collect wood and give orders and distribute the work. Instead, teach them to yearn for the vast and endless sea.”