Qualitative Models of Complex Systems Business

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Apr 30, 1999 - Research Topics ... e.g. product form, features, function, performance. – e.g. topology of a firm's .... Selling Model -- “missionary selling, total solution”. – Direct Sales .... Persuasion, negotiation ... Professional presentation.
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Qualitative Models of Complex Systems Business Case Study, Theoretical Ideas, and Research Questions Russell Cameron Thomas President Meritology Labs [email protected] ©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Agenda

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• Introduction – Main Points – Approach – Why Qualitative Models?

• Case Study: Models of Customer Management • A Proposal: Morphology Theory – Historical Context – The outline of a Theory – Research Topics

©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Main Points

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• “Qualitative Complexity” should exist as a sub-field of study within Complexity Science. • Qualitative Complexity is not reducible to quantity without destroying it’s essence. • The business and social sciences are rich in theoretical research opportunities because of Qualitative Complexity. – They are not just “applied” fields.

• Diagrams are a key cognitive artifact of Qualitative Complexity. – Also metaphor, analogy, language, and music (!)

• A Theory of Morphology could formalize Qualitative Complexity. – Look to formal languages to describe state spaces and dynamics. ©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Approach

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• Start with important business problems... – – – –

innovation evolution performance management customer value management

-- business models -- intellectual capital -- distributed change management

...not with Complexity Science metaphors or techniques “ … managementtheory is a mishmash. … an im mature discipline … … roughly in the same state that economics was a century ago. … still awaitsit’s John Maynard Keynes …”

“ Management gurus of often throw out intellectual grappling hooks to older disciplines, such as economics, philosophy, and history; the other academics seldom return the favor.” ©1999 Russell Cameron Thomas [email protected]

“ … the discipline, no less than astrology, is a magnet for charlatans.”

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Approach (2)

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• Represent and model the phenomena itself – e.g. product form, features, function, performance – e.g. topology of a firm’s “possibility space”

• Inter-subjective perspective – Formalize the shared, public cognitive artifacts – Explore non-Newtonian models of time – Intrinsic model incompleteness (implies pluralistic approach) – Bridge between abstract and empirical

• Embrace the multiple forms of uncertainty and ignorance

©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Why Qualitative Models in Management?

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• Qualitative analysis is used extensively, especially diagrams and metaphors. • Qualitative structure is fundamental -- defines the quantitative flows. • Many emergent, abstract state spaces • Possibility is often more important than probability, and certainly comes first. • How people conceive and communicate about qualitative complexity is critical. • No one in business a clue on how to formalize or theorize about qualitative complexity – and many don’t see the need (empiricists, pragmatists). ©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Pointing the Way

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“ …in social affairs,the event that matters cannot be quantified. Itisthe unique event that changes the statistical ‘universe’ and with it what is‘normal distribution’ …”

“To quantify social events that make a difference we would need a mathematics that was first called for by Liebnitz--a ‘calculus of relevance’,thatis a calculus of qualitative change.”

©1999 Russell Cameron Thomas [email protected]

“But so far there is not even the slightest sign of a quantitative method to identify and to define the unique event,thatis ofa quantitative method to show changesin meaning.”

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

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Case Study Models of Customer Management

©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Characteristics of Customer Management

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• The goal of sales & marketing processes is effective relationships, not just process efficiency. • Total system = customer buying processes + relationships + vendor processes (including Channels as a hybrid of “customer” and “vendor”)

• Potential to affect costs and revenues, implies high performance leverage and risk. • High autonomy of sales people, districts, and regions. – Compensation and metrics are crucial factors.

• Sales, marketing, and service have conflicting driving forces, making seamless collaboration difficult. ©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Characteristics of Customer Management

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• Many different organizations touch the customer, not just sales and service people (finance, executives, legal, design, etc.) • Changes become visible to customers and competitors. • Fast changing environment and your destiny may not be in your control, esp. for intermediaries. • Sales and marketing add value above and beyond core product and services.

©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Grand Challenges of Customer Management

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• Process-driven customer value management • Performance management and metrics • Systematic relationship management

Highlighted in this case

• Collaboration, internal and external • Agility • Innovation • ROI of Investments in Customer Information • Increasing complexity of sales and marketing models • Revenue management • Capturing the “Voice of the Customer” • Privacy and Security ©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Case Description -- “SoftCo”*

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• Leading Software Company -- $350M in sales WW • Products -- document management, database, workflow, CAD/CAM – order size range: $30K - $3M

-- Service is 20% of revenue

• Markets – Government -- 30% of sales from top 10 customers – Financial Services -- 60% of sales in North America, 30% Europe – Pharmaceutical – Engineering/Manufacturing – Other (fastest growing segment)

*fictionalized -- a composite of several companies

• Selling Model -- “missionary selling, total solution” – Direct Sales Force: 60% of sales – Value-Added Partners (fastest growing channel) • Integrators • 3rd Party Software • Resellers – Distributors (serving smaller resellers, integrators) ©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Case Description -- “SoftCo”

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• Competitors – Other proprietary, turnkey vendors – Component vendors for “do-it-yourself” (e.g. Microsoft) – New generation of web-based products – Niche specialists (Autodesk in CAD, etc.) – Manual, paper-based methods (i.e.“no sale”)

• Challenges – Lower price points = less margin for selling – New customer categories with different purchase process. – Web products are threatening to redefine category – Forecasting accuracy has been poor – Need to upgrade IT infrastructure from “start-up” to “enterprise” capability

Task: Redesign the sales model to meet the Challenges ©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Defining “State” by Level of Abstraction

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Abstract Intangible Qualitative

Visceral Feelings

Values

Vision

Concrete Tangible Quantifiable

Qualitative State Architecture, Strategy

“Qualitative State” = structural attributes of the system – – – –

What are it’s components? How is it configured? What is the end result? How is it fundamentally different from alternative systems? – What are its properties?

Design, Plan, Tactics

Projects, Tasks, Activities

©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

SoftCo’s “To-Be” Sales Processes Microsoft Corporation Missouri Project

15 Supporting Documents:

CC1.9 Take Orders Level 2 process map

Customer/ Partner

Order New Marketing Collateral Note: This process is defined as any noncharge item requiring fulfillment

CC1.9.1 Select correct collateral

CC1.9.1 Select correct collateral based on customer need *

Mktg Collateral

CC1.9.23 Check Availability *

CC1.9.24 Is Product Available?

Yes

CC1 Pla Ord

No

Customer Care Agent Yes

New Order Product Change Order

B p4

Order Status

C p5

A p2 No Retur

CC1.3 Understand Needs

Cancel Order

D p6

Information Systems

File: CC1.9 Take Orders2.vsd Owner: [email protected] (KPMG)

©1999 Russell Cameron Thomas [email protected]

CC1.9. 25 Backorder Product ?

CC1.9.22 Order Alternative Product ?

* Information flow to all activities marked with asterisk

Customer Care Information System

Process Segment:

Customer Care

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

Revision Level: VERSION Last Modified: 12/10/98

4/30/99

The Interaction Between Selling and Buying Processes Buyer

Relationship Stages

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Seller

Identify need

Purchase Processes

Design Solution

“Prospect to First Order”

Preparation

Usage Processes

Order Implement

“Order to Cash”

Use

Evaluation Processes

Upgrade?

“First Order to Long-term Customer”

Value Chain links ©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

SoftCo’s “To-Be” Value Chain Links

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Information flows, transactions, material flows, collaborations SELLER-TO-BUYER Links Source

Destination

Link

Value

1. Consulting

IT Mgr

2. Sales rep

IT Mgr

solution justification architecture Price Lower Price Negotiation

3. Service rep

Technician

Installation Support

Mutuality?

Who Controls

Positive

Buyer

Negative

Buyer

Positive

Seller

Problem Resolution

BUYER-TO-SELLER Links

©1999 Russell Cameron Thomas [email protected]

Source

Destination

Link

Value

Mutuality?

Who Controls

1. Payables

Receivables

Payment less admin.

cash flow,

Mixed

Buyer

2. IT Mgr

Sales Rep

Functional Specs

accurate proposals

Positive

Buyer

3. Purchasing

Finance

Special Terms

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

SoftCo’s Processes vs. Relationship Stages

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“Ideal” Channel Field Sales

Large

S i z Medium e

NonCustomers

Potential Customers

Trial Customers

Repeat Customers

Retail, Web

Small

Relationship Context

Telesales

“Avoiding”

“Exploring”

“Establishing & Validating”

“Expanding, Streamlining”

Lead Management Pro-active Selling

Customerfacing Processes

Registration Customer Care Contract Admin. Post-sales Service

“Suspects”

©1999 Russell Cameron Thomas [email protected]

“Prospects”

“New Customers”

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

“Installed Base”

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From State to State Space

State

Target Segments

Encode

Process

Channels

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Formal State Specification

Organization

Evaluate

State Space Global Structure

You are here

©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

A Framework For State-Space Specification

What Value Does Sales Create?

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How Does Sales Create Value?

Opportunity discovery Market intelligence

Vision & Goals

Leadership, coordination

Value-added Services

Relationship, Trust

Planning, Forecasting

Relationships & Structures

Persuasion, negotiation

Transactions, workflow

Culture & Values

Process & Systems

People & Resources

Proposal, Offer

Qualitative State = What + How Space = Structured Domain of Possibilities ©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Nine Dimensions of Value Creation

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Opportunity discovery

What Market intelligence

Leadership, coordination “Thinking” Relationship, Trust

Value-added Services

“Feeling” “Doing”

Persuasion, negotiation

Planning, Forecasting

Transactions, workflow

Proposal, Offer

• Possible sales models determined by industry, market, technology • Seek the best/simplest match to market, customers • Combination of specialist units often out-do a single generalist ©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

SoftCo’s “To-Be” Value Creation Models

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What

Market intelligence

Opportunity discovery Leadership, coordination

Relationship, Trust

Value-added Services Planning, Forecasting Transactions, workflow

Persuasion, negotiation

Value-added Services Planning, Forecasting Transactions, workflow

Proposal, Offer

Major Account Management

©1999 Russell Cameron Thomas [email protected]

Market intelligence

Opportunity discovery Leadership, coordination

Relationship, Trust Persuasion, negotiation Proposal, Offer

Outbound Telemarketing

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Five Dimensions of Organization Transformation

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How

• Strategic decision-making dimensions – Vision & Goals – Relationships & Structures

Strategic Decision-making

• Operational dimensions – Processes & Systems – People & Resources

Vision Vision & & Goals Goals

Operational

• Internal Context – Culture & Values Relationships Relationships – (interconnections) & & Structures Structures

Culture Culture & & Values Values

Process Process & & Systems Systems

People People & & Resources Resources

©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

SoftCo’s “To-Be” Transformation Strategy How

• • • •

Empowered people Agile organization Continuous renewal Leading other parts of the organization

• • • •

Sales as a competitive advantage Source of added value Externally focused Shared vision

Relationships Relationships & & Structures Structures

• • • •

Vision Vision & & Goals Goals

Culture Culture & & Values Values

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IT to enhance productivity Metrics linked to performance Process Reengineering Full value from information assets

Process Process & & Systems Systems

People People & & Resources Resources

• Effective coordination • Balance of control and flexibility • Sales people who manage the value chain • Hybrid channels

©1999 Russell Cameron Thomas [email protected]

• • • •

Professional presentation Systematic training/development Sales manager role in selling Specialized selling resources

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Defining Dimensions as Continuum

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How Greater emphasis, investment, & complexity

Vision & Goals

Business basic

Relationship & Structures

Autonomous, market

Process & Systems People & Resources Culture & Values (Interconnections)

©1999 Russell Cameron Thomas [email protected]

Simple, manual

Core competency

Interconnected, network

Sophisticated, automated

Low skill, interchangeable

Victimized, rigid

Simple, few

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

High skill, unique

Empowered, agile

Many, complex

4/30/99

“SoftCo” State Space (1)

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How

Vision & Goals Core competency

“Lone Rangers”

“Complex Team Selling”

“To-Be”

Relationship & Structures

Direct Sales Force

Autonomous

Interconnected

“As-Is” Direct Sales Force “As-Is” “To-Be”

“Order Takers” ©1999 Russell Cameron Thomas [email protected]

Telesales

Telesales

Business basic Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

“Selling Engines”

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“SoftCo” State Space (2) How

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People & Resources “Lone Rangers”

Differentiated

“As-Is” Direct Sales Force

Process & Systems

“Complex Team Selling”

“To-Be”

Direct Sales Force

Simple

Sophisticated “As-Is” Telesales “To-Be”

“Order Takers” ©1999 Russell Cameron Thomas [email protected]

Telesales

Interchangeable

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

“Selling Engines”

4/30/99

The Topology of State Space

An Evolutionary Theory of Economic Change

• “We use the term “topography” in a metaphorical sense to suggest the role of the cognitive conditions [of] search. The topography of innovation determines what possibilities can be seen from what vantage points, how hard it is to get from one spot in the space of possibilities to another, and so forth.”

Nelson & Winter, 1982

• “…the great size and uneven topography of the set of all possible projects…”

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• “…R&D may be represented as a gradual filling-in of the details of an overall rough design idea…” • “There is a ‘neighborhood’ concept… varying a few elements in the design…” ©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Micro-structure of State Space

?

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Uncomputable

Contradictory Emergent Current State

Incommensurate

Ambiguity

Fuzziness

©1999 Russell Cameron Thomas [email protected]

Multiple Frames of Reference Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Summary: From Qualitative State to Morpho-Dynamical Systems Target Segments

Channels

Encode

Process

Formal State Specification

Organization

Operations

State

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State Space Global Structure

Evaluate

Apply

Evaluate

Evaluate

State Space Micro-structure

Local Dynamics & Evolution

You are here

Functions, Dynamical Systems ©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

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A Proposal: Morphology Theory

©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

History -- Life before Quantification

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Pre-1300 AD “ … They perceived reality as an uneven heterogeneous sort of thing … fire rose and rocks fell… because they were different, period.”

“ … space was assertively finite… spherical, and qualitative in structure.” “ …time’s shape was no more than approximate.” “[they] doted on symbolism … ” “ … [they] did not have a vivid conception of causation through time, oflineage of factors...”

“The writings of Plato and Aristotle celebrate an un-,an almost anti-metrological approach … ”

©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

History pt. 2 -- The Quantitative Revolution

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1275 - 1325 AD

Accrual Accounting

Perspective Drawing

Music Notation ©1999 Russell Cameron Thomas [email protected]

“The West was making up itsmind to treat the universe in terms of quanta uniform in one or more characteristics… This is how we reach out for physical reality, push aside its darling curls, and and take it by the nape of the neck.”

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

History pt 3 -- Hegemony of Numbers

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• “… mathematics proved to have transcendental qualities that intoxicated those trying to reach through the scrim of mundanity for truth.” – Alfred Crosby, Historian

• “When you can measure what you are speaking about and express it in numbers you know something about it; but when you cannot measure it in numbers, you knowledge is of a meager and unsatisfactory kind.” – William Thompson, Lord Kelvin

But in the 20th Century, the developments such as Quantum Mechanics, Gödel Incompleteness Theorem, Fractal Geometry, and Formal Languages have changed our view of quantification as an all-powerful tool. ©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

When Does Qualitative Complexity Arise?

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• Abstract state spaces (mostly) • Emergent state spaces (sometimes) • Intricate, irregular structures, relations, tangled cause-effect links, confluence, symbolism, etc. • Partial ordering of elements rather than complete ordering – gives rise to graph structures which can’t be mapped to integers, real numbers, etc, rather than linear sequences which can be mapped easily.

• Multiple, incompatible points of view • “Unruly” forms of uncertainty and ignorance not easily handled by probability ©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Morphology Theory

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• A tool for understanding Qualitative Complexity • Goal: Formalization of qualitative structure and associated dynamics • Dictionary definition: “The study of form and structure of living organisms… of earth features….of word formation” • Proposed definition: “The representation, dynamics, and logic of abstract structure and form”

©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Foundations of Morphology Theory

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• Mathematics – Graph theory – Topology – Abstract algebra

-- Category theory -- Hyper sets

• Cognitive science – conceptual structures – generative grammars

-- mental models -- metaphors in language

• Computer science – Computability Theory -- models of languages and machines, algorithmic complexity – Formal languages, esp. production (rewrite) systems, graph grammars – Emergent computing

• Dynamical Systems Theory • Non-standard logic – tools for non-stochastic forms of uncertainty and ignorance – partial, multi-valued, non-monotonic, intentional logics ©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Core Issue -- Ignorance and Uncertainty

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Is it Multiple? Does it require non-standard logic? Ignorance Incompleteness

Error Uncertainty Delusion Vagueness Distortion Fuzziness Inaccuracy

Absence

Emergence

Undecidable

Stochastic Probability

Non-specificity

Confusion

Infidelity

Uncomputable Inconceivable

Contradiction Ambiguity

Irrelevance Untopical Taboo

Adapted and Modified from: Ignorance and Uncertainty, Michael Smithson, 1989 ©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Foundational Research Topics

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• Creating Morphology Theory • Does Morphology Theory give us a language to talk about complexity directly? • Qualitative / emergent state spaces • Dynamics in the qualitative domain • Human cognitive capacity and tools (analogy, metaphor, diagrams, creativity) • Formal systems to characterize qualitative spaces and dynamics (esp. formal languages) • Is uncertainty and ignorance really multiple or is it reducible to probability?

©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Management Research Topics Using Morphology Theory

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• Business Models • Business Value of Information and IT • Intangible Assets • Virtual Organizations • Transformation and Change Management • Innovation • Strategy • New foundation for Economics

©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Closing

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• “These research possibilities point to the need for interdisciplinary (as distinct from multidisciplinary) efforts involving

Ignorance and Uncertainty Michael Smithson, 1989

– mathematicians – cognitive scientists – engineers – psychologists – sociologists – and the professions

• …it is unrealistic to expect [new answers] to arrive miraculously intact in any one specialized filed. Specialization, after all, is a form of systematic ignorance.”

©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99

Very Short Reference List

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• Ignorance and Uncertainty, Michael Smithson, 1989 • Social Ecology, Peter Drucker, 1993 • Economics of Time and Uncertainty, G. O’Driscoll, M. Rizzo, 1985 • Industry Recipes, J-C Spender, 1989 • Vicious Circles, Jon Barwise & Lawerence Moss, 1996 • Diagramatic Reasoning, Glasgow, Narayanan, Chandraskaran, 1995 • Analogy-Making as Perception, Melanie Mitchell, 1992 • Multidimensional Man, Richard Atkin, 1982 • Complexification, John Casti, 1994 • Republic, Phadrus, Plato, ~250 BC • The Witch Doctors, John Micklethwait & Adrian Wooldridge, 1996 • An Evolutionary Theory of Economic Change, R. Nelson & S. Winter, 1982

©1999 Russell Cameron Thomas [email protected]

Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management

4/30/99