Why companies should become more chaotic

04/09/2017 09:58 am ET

In 2010 two scientists from the Santa Fe Institute showed that every time the population of a city doubles the productivity of citizens increases by 130 per cent. In fact, not only productivity goes up but innovation too. This feels intuitively correct. In human history it was the advent of cities that created “civilization”. And yet when companies double in size human productivity, as well as innovation, usually drops. In the case of cities the increase in productivity is an emergent phenomenon, the result of self-organization, or chaos. Companies are the antithesis of chaos. One could argue that the main reason we have companies and corporations is to establish order in human productivity; the assumption being that the organization of capital and labour through management, processes and hierarchies, will deliver higher productivity. Given that facts show that only chaos can deliver higher productivity and innovation, how can we resolve this profound conundrum? Is it possible to have “chaotic” organizations? Wouldn’t that destroy business as we know it?

Cities and creativity interconnect.
Cities and creativity interconnect.

The strong correlation in the data explored by the Santa Fe scientists must have a root cause. In a recent paper by MIT scientists used additional data from various sources to explore what that cause may be. They developed a metric called “social-tie density”, which signifies the number of people each citizen can interact with. Their analysis shows a very strong correlation between this metric and the degree of innovation and productivity. But there are many nuances to this correlation. The most obvious are megacities in the developing world where the population may increase without the benefit of increased productivity. In order to have “superlinear scaling” phenomena something else must happen too: people must be able to interact with other people outside their most immediate circle. Because of inefficient transport systems megacities in the developing world are essentially agglomerations of tiny villages. People may live in highly dense areas but they still end up interacting with only a small circle of people around them. In other words, the “social-tie density” metric remains low despite the exponential increase in population. For the magic of chaos to take effect people must be exposed to ideas tastes, conversations that result from chance encounters on a regular basis.

Business organizations scale very much like the megacities of the developing world. Workers are confined within small “communities” (departments, practices, etc.), which are usually silos defended by zealous hierarchies jostling for influence. As companies grow they add more silos in a vertical power structure that stifles productivity and innovation instead of enabling it or empowering it. Perhaps it is about time to rethink what an organization is. The command and control approach traditionally used to build and manage companies is failing. This is evident both from the diminishing lifespan of companies as well as from persistent stagnant productivity levels across every industry sector over the past decades. Perhaps we should start reimagining human organizations like cities, where chance face-to-face interactions are encouraged and enabled.

One way to implement such a model would be via fully automated organizations, which I described here. Using technologies such as cloud computing, AI, blockchain, and IoT it can be possible to accelerate idea cross-fertilization and fast experimentation in companies that are organised like open networks that can easily link to a much wider network ecosystem. The age of intelligent machines provides us with opportunities for more, not less, human-to-human interactions. Using these technologies wisely we can harness the power of chaos to deliver superlinear scaling of innovation and productivity in humans.

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