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The Ingenious Enterprise: Competing Amid Rising Complexity

May 07, 2013 by Martin Reeves and Jussi Lehtinen
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In This Article
  • Today’s business environment, characterized by sharply rising complexity, is putting a growing premium on sophisticated approaches to problem solving.

  • Understanding how to frame and approach key problems will thus be an increasingly critical competitive differentiator among businesses going forward.

  • “Ingenious enterprises” see problem solving as a critical capability and have explicit strategies for managing it.

 

“Creating a great culture, finding the right people, managing them to do great things, and solving problems creatively and systematically are challenges faced by all organizations. What differentiates [organizations] is how they approach these challenges.”

Ray Dalio, Founder, President, and CIO, Bridgewater Associates


Business, at its heart, is about solving problems. Problem solving is performed both explicitly by analysts and computers and implicitly by your organization as a whole. And the way your organization is designed—the structure, processes, communication policies, incentives, training, and talent management you have in place—shapes the way your problems are approached and solved. Many organizations, however, lack explicit strategies for problem solving. This has come at little cost to these organizations historically, given that many of the problems they faced could be solved using straightforward, well-known methods. But today’s business environment, characterized by sharply rising complexity and hence increasingly complicated problems, is putting a rising premium on more sophisticated approaches to problem solving.

The rise in complexity—defined as the number of calculation steps required to reach a solution—is being driven by the rapid growth of three variables: data, interconnectedness, and the speed of change.

First, the volume and variety of data available are expanding exponentially. From 2002 through 2012, the amount of digital data generated annually increased from 5 to 2,800 exabytes, or roughly 400 times the number of grains of sand in the world.

Second, companies, individuals, and machines are increasingly interconnected. Also from 2002 through 2012, the number of Internet users rose from 500 million to 2.4 billion. But the degree of interconnectedness among those users is increasing even more sharply. While the number of Facebook users increased from 13 million to 700 million from 2007 through 2011, for example, the number of connections between those users increased from 600 million to 70 billion.

And third, the rate of change in the business environment is accelerating. Whereas it took 64 years for the telephone to reach 40 percent penetration in the U.S., it took the mobile phone only 18 years to reach that level and smart phones only 10 years to do so. For Facebook, it took only 4 years.

Many problems, by their sheer nature, are rising in complexity even more quickly than the growth rate of these variables would suggest. Take the challenge of parsing Facebook’s user population, for example. While the number of connections among Facebook users increased by a factor of 11 from 2007 through 2011, the problem of identifying the largest number of users who are not “friends” now takes 1.4 x 10^51,599,743 times the number of computations it took a decade ago. This sharp rise in complexity means that, for the most complex problems—those involving many variables or a high degree of interconnectedness—finding an exact solution becomes infeasible.

Fortunately, there are a growing number of ways to reach approximate solutions to such problems, including metaheuristics, new approximation algorithms, and social problem-solving methods such as crowd sourcing. Some companies are already taking advantage of these new tools and techniques, and, in the process, they are raising the competitive bar for problem solving in their industries.

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