Firm as complex adaptive system

A firm can be conceptualised as a complex adaptive system (Baets, 2006; Holland, 2014;

Stacey, 2010), which provides a useful lens for corporate sustainability. The theory of complex adaptive systems can help firms cope with uncertainty.

Swilling and Annecke (2012, p. 4) propose that “a theory of complex adaptive systems helps to create the basis for the kind of sustainability science that can cope with uncertainty without obliterating hope”. Complex adaptive systems, developed through research on ecological systems, are open systems made up of parts which are whole systems, which operate in accordance with their own intentions and rules and adapt to each other. It is this interaction which over time results in order in the overall system (Cavanagh, 2006). The complexity associated with systems within systems creates the capacity for these systems to adapt.

Complex systems can be divided into two types of systems, namely complex physical systems (CPS) and complex adaptive systems (CAS). Whilst CPS have fixed elements, the elements in CAS are agents that learn or adapt through interactions with other agents. This means that the elements change as the agents adapt (Holland, 2014). Information is exchanged across

permeable boundaries in CAS (Espinosa & Porter, 2011). Control of a CAS is decentralised:

coherent functioning of the system results from dispersed decision making by agents (Waldrop, 1992). Viewing a firm as a CAS broadens the focus from top-down hierarchical approaches to include a simultaneous focus on emergence:

“It is unusual for CAS agents to converge, even momentarily, to a single ‘optimal’

strategy, or to an equilibrium. As the agents adapt to each other, new agents with new strategies usually emerge. Then new agents offer opportunities for further interactions, increasing the overall complexity” (Holland, 2014).

Seen in this way, a firm as a CAS is embedded in economic, environmental and social systems and has the potential to recognise and utilise its agent status in a wider and complex range of interconnected and dynamic systems (Metcalf & Benn, 2012). Many of the challenges

outside of the system boundaries, thereby radically increasing the openness of systems (Chu et al., 2003). This increases the unpredictability of the system but also the potential to leverage emergence.

The radical openness implies that the extent of the embeddedness of the system has widened, and thus a broader range of interactions can occur. This can be seen in Figure 2.6, where the system on the right composed of interacting elements is embedded in the containing system in the middle. Whilst not all the elements will influence the system, the interaction of some

elements may open the system up even further, as is seen on the left. In the context of globalised markets or challenges associated with sustainable development, this wider set of influences is a critical consideration.

Figure 2.6: Radical openness in systems Source: Chu et al. (2003, p. 24)

This process of co-evolution of the firm and its wider containing system transitions through equilibrium points, self-organisation and environmental adaptation, where order is emergent rather than achieved through hierarchical control (Dooley, 1997; Waldrop, 1992). A complexity approach is optimistic in that “All well-studied CAS exhibit lever points, points at which a small directed action causes large predictable changes in aggregate behaviour” (Holland, 2014).

Whilst complexity theory has been applied to organisational management, Richardson (2008) suggests that managers focus on complexity as a philosophy to make limits to knowledge and underlying assumptions explicit, rather than using it as a tool to enhance prediction and control (Stacey, 2010).

Addressing this radical openness of systems in sustainability requires the application of

complexity principles beyond a single complex adaptive system to consider how the principles apply to social and environmental phenomena - that is, considering the firm in the context of its containing systems. This broader focus associated with corporate sustainability and

sustainable development requires that we draw from a plurality of approaches to sustainability.

“Embracing pluralism provides a way out of the ideological and epistemological straightjackets that deter more cohesive and politically effective interpretations of sustainability” (Sneddon, Howarth, & Norgaard, 2006, p. 253).

The application of complexity science to sustainability offers a valuable way of working in complexity. Wells (2013) developed a useful complexity and sustainability framework (Table 2.1) which applies the widely accepted complexity principles of non-linearity, networks, hierarchy, feedback, emergence and self-organisation (Cilliers, 1998; Morin, 2008b;

Richardson, Cilliers, & Lissack, 2001; Woermann, 2010) to social and environmental sustainability.

Non-linearity Rate, unpredictability, rapid change, surprise, thresholds, tipping points

Irreversibility, non-renewability, cradle to grave, accounting, long-term thinking

Feedbacks Dynamic processes, uncertainty, unknowability, degrees of risk, probability

Social and environmental thresholds, tipping points, rapid change, and abrupt change

Networks Network causality, networked

consequences, coevolution,

Hierarchy Observers, contexts,

changes in human impact on societies and environments

Self-organisation Life, reproduction, dynamic equilibrium, vulnerability,

Table 2.1: Complexity and sustainability framework Source: Reprinted from Wells (2013, p. 48)

Whilst this study focuses on emergence, “nonlinearity, feedbacks, networks, and hierarchy, are in turn central principles for understanding the processes of self-organisation and emergence”

(Wells, 2013). Emergence will be unpacked in greater detail with reference to corporate sustainability later in the chapter.

Complexity science offers a means of dealing with the complexity inherent in the wicked problems associated with sustainable development and corporate sustainability. The

development of corporate sustainability literature, encompassing key waves of development