Page 88 - The Complexity Perspective 20 02 18

Why is The “Edge of Chaos” Idea Interesting?

The idea of Edge of Chaos is a metaphor for a well-recognized problem
in a business organization: the tension between organizing to explore
or organizing to exploit!

Discussed most notably by Cyert & March (1963), the explore-exploit
problem is linked to the short-term - long-term profit problem. Profit

maximization (desired by investors in the immediate term) requires
operational optimization; operational optimization eliminates the
'slack' required to allow exploring the context for new opportunities.
Conversely, devoting resources to exploration to ensure long-

term survival reduces short-term profits; exploration also requires
different people with different personalities and will lead to a different
culture versus exploit-thinking. This is also known as the

Ambidexterity Problem: being able to do both.
The link to crisis happens when the context shifts. In a firm is

organized to exploit, a crisis can destroy its viability. A firm organized
to explore should survive a crisis, but could also fail to settle to exploit
any reinvention.

When discussing the Ambidexterity Problem, the literature

suggests several solutions; for example, serial acquisitions where
buying-in new offerings to feed a stable delivery engine refreshes the
organization (e.g., pharmaceutical industry). Setting up NewCos where
the optimizing business is kept culturally separate from the OldCo

(this is the so-called spin-out solution). Creating internal 'skunk
works' or developing a culture of independent time for inquiry (the 3M
solution).

88
©Business Games Works 2018 (Version 1)