Chaos theory

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Chaos theory - strategy - ToolsHero

This article explains the concept of chaos theory in a practical way. After reading you will understand the basics of this powerful strategy tool.

What is chaos theory

Chaos theory is initially a scientific principle that describes the unpredictability of systems such as weather patterns, eco systems and water flows. Although these systems may appear to demonstrate random chaotic behaviours, they can be defined by mathematical formulae and they are not as a chaotic as people think they are.

In the 1960s, the meteorologist Edward Lorenz, discovered the butterfly effect, in which he asserted that a butterfly flapping its wings in Tokyo can impact weather patterns in Chicago. Unstable forces cause minuscule changes in the atmosphere to have a major impact elsewhere.

What may appear to be negligible, can lead to large effects on the entire system.

Dripping water faucet

In mathematics chaos means that an apparent disorder is nevertheless exactly determined and is generated according to an algorithm. A well-known example is a dripping water faucet, in which water does not drip at a constant rate.

The timing of the drops cannot be predicted accurately but it is possible to calculate how much water drips from the faucet per hour. When systems become dislodged from a stable state, they swing back and forth between order and chaos.

This means that each system has the potential to fall into chaos.

Random change

The entire form is dependent on the smallest of parts. In organizations it is therefore important to consider the smallest of parts. Each part of a complex system has the potential to change randomly and is therefore unpredictable.

This is why the chaos theory can also be applied to organizations. The environment of an organisation is never stable for which reason the chaos theory shows the need for effective leadership, a guiding vision, strong values, organizational beliefs and open communication.

Chaos theory, a decision making process

The chaos theory ensured that decision-making processes in organizations began to change in the 1980s. In self-empowered teams, it became apparent that a designated manager is not always effective.

It is actually the emergence of an informal leader that ensures that there is a sense of loyalty and a willingness to shoulder the tasks at hand. The needs of the group are expressed more clearly and the relationship between the (informal) leader and the team members is exceptionally good, which is to the advantage of the organization.

It should be noted that the relationship between the (informal) leader and the team members also changes constantly.

Uncertain environment

In the 1980s, Tom Peters wrote a handbook of the chaos theory, which was specifically intended for managers.

He indicates how organizations can deal with the uncertainties arising from the environment including competitive markets and the fluctuating global economy. His advice to address customer responsiveness, fast-paced innovation and investment and the deployment of staff.

Organizations must learn how to deal with a constantly changing environment.

Quick adjustment

Tom Peters indicates that the changing global economy and technology are evidence of a clearly visible chaos.

Businesses should respond to these changes and not sit aside, observe and accept them. It is especially the permanently-installed hierarchical structures that cause the lack of flexibility in organizations.

This is why modern companies must restructure and adapt to the environment, expand their markets and keep up with the rapid technological developments. Organizations must believe that they can achieve their objectives in different ways and they should start focusing on the things they are good at.

Most organizations should therefore relinquish their fixed structures and patterns.

Permanent revolution

Tom Peters believes in a permanent revolution and the power it exudes. Companies can survive in a changing environment. They will ultimately be successful because they are open to change and willing to embrace it.

This is why organizations should go back to the core of their existence, review their vision and mission and work and adopt a more customer-responsive approach. By being curious in doing business and dealing with problems creatively, they can survive in the chaos theory.

Even the smallest adjustments and changes may generate a range of substantial benefits

It’s Your Turn

What do you think? Is the chaos theory still applicable in today’s business companies? And if so, how do you use it and what are the general results? Are the basics the same or are there new ones? Share your experience and knowledge in the comments box below.

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More information

  1. Levy, D. (1994). Chaos theory and strategy: Theory, application and managerial implications. Strategic management journal, 15, 167-167.
  2. Peters, Tom. (1987). Thriving on Chaos. New York: HarperCollins, 1987.
  3. Thietart, R. A., & Forgues, B. (1995). Chaos theory and organization. Organization science, 6(1), 19-31.

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