Advances in science and engineering have enabled us to understand increasingly complex natural systems like those in physics, chemistry and biology. Some of them, e.g., the solar system, are relatively simple and predictable. However, a common thread across all of these disciplines -- and many areas of knowledge over the past half-century -- has been the understanding that such systems, while composed of large numbers of relatively simple components, frequently exhibit very complex overall behavior. Rather than seeing the universe as a mechanistic, deterministic, Newtonian clockwork, we now understand that most complex systems in nature are highly dynamic, and while their components might be simple, the fact that they are interconnected and continually changing makes their behavior essentially “emergent”, i.e., unpredictable. Turbulent weather, chemical reactions and most systems in biology are examples of such complex natural systems.
With complex man-made or engineered systems, we can also translate our increased understanding into better designs through the development of improved tools, processes, analytical techniques, simulations and similar methodologies. For example, in the last hundred years we have made major progress in the engineering of physical objects like bridges, skyscrapers, automobiles and airplanes. Similarly, we have seen the designs of computers and their components improve significantly in the last twenty years, including microprocessors, PCs, servers, networks and software of all sorts.
Complex systems like businesses and organizations stand somewhere between natural and "classic" engineered systems, sharing some properties of both. They are clearly not "natural"; they are most definitely man-made. However, they are unlike bridges, airplanes, microprocessors and other man-made objects which, once designed and built, are pretty much done. Businesses and economies have to keep adapting to the changes around them and evolving, especially in times like the present when we are exposed to frequent changes driven by forces like the Internet, globalization, commoditization and deregulation. In that sense, they have more in common with natural systems - especially biological ones, - than with man-made physical systems.
Can you apply engineering design principles to a complex, dynamic, unpredictable system like a business, an industry ecosystem or an economy? I believe so. The study of these kinds of complex systems is now poised for some very important advances. For the last few years I have felt that we are at the onset of a technology-based business and organizational revolution with the potential to alter the shape of companies, industries and economies. It could have an impact on the 21st century as profound as the Industrial Revolution had on previous generations.
The rise of the Internet, the spread of open industry standards and the availability of increasingly powerful and affordable technologies are driving much of the innovation around us -- in the same way that the advent of steam power and machine tools of all kinds were largely responsible for innovation during the Industrial Revolution. But - the advances of the Industrial Age were grounded in a more mechanistic view of nature, which had inherent limitations. Our present understanding of emergent, complex adaptive systems is not only more accurate, but also much richer in innovative potential -- including the potential for improving human institutions like those in business, government, health care, education and all other spheres of society.
If we look at how progress has been made in the design and understanding of complex engineered systems over the years, we see that a major factor has been the decomposition of such systems into their base components, which can then be put together in a variety of ways. Similarly, the deconstruction of a business into modular components and the standardization of many of these business components are among the most important innovations enabling us to apply engineering principles to business. To this end, business design, analytical and simulation tools are becoming increasingly important. But the dynamic quality of a business significantly impacts how you apply engineering principles to its design. Its design is essentially never done.
Flexibility is paramount to enable the business to keep up with the necessary changes and continuously evolve. Productivity and efficiency are very important so the business can stay competitive, which implies that its processes must be improved frequently, using tactics such as automation and outsourcing as appropriate. The unpredictable nature of business means that real time information must constantly be gathered and analyzed to anticipate both competitive opportunities and potential risks. When market environments change as rapidly as they do now, previously successful business strategies may no longer work, so the business needs to keep looking for opportunities to differentiate itself and innovate. In such a "Darwinian" climate, a business that does not adapt and change runs the risk of becoming marginalized or extinct.
More than ever, we need science and engineering to help us advance, but in addition, since the business needs to be in a constant state of analysis and re-design, we also need to be very sophisticated in the management and operation of the business. That is why one needs a new, interdisciplinary approach to these new kinds of complex, continuously evolving systems. Beyond science and engineering, we need solid management and industry knowledge, as well as a good understanding of the socio-political issues affecting the business. In the last few years, a number of universities have established such interdisciplinary research and educational programs like MIT’s Engineering Systems Division where I am personally involved as visiting professor.
The opportunity to apply science, engineering and management principles to complex systems like a business and similar human institutions is truly one of the most important and fascinating endeavors ahead of us.