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Qualitative Models of Complex Systems Business Case Study, Theoretical Ideas, and Research Questions Russell Cameron Thomas President Meritology Labs
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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
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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
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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
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“ … 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
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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
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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
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“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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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“Prospects”
“New Customers”
Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management
“Installed Base”
4/30/99
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
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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
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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
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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
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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
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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
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• • • •
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
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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
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Telesales
Telesales
Business basic Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management
“Selling Engines”
4/30/99
“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
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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
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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
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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
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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
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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
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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
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“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
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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
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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
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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
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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
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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
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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
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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
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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
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Qualitative Models of Complex Systems Wharton Workshop on Complexity and Management
4/30/99