Does everything have to be simple? The case for complexity in business

On some accounts, we are moving from a world of hierarchy to a world of networks. A common feature of hierarchies, with its emphasis on communications as instructions, has been to promote simplicity, assigning low value to what lies outside of its frame of reference. So, can complexity now make a comeback in business?

I work in the co-operative sector. Co-ops are different and much of this, as I see it, comes down to the fact that co-ops tend to be characterised by complex purpose.

We are set up primarily to meet needs, not to generate profits. Our owners have overlapping interests, as they are both investors and participants in the enterprise (such as customers or workers). We are expected to live up to seven different (internationally agreed) principles and how we do that – our culture – is shaped by a range of ethical values.

Telegraph pole outside a co-operative nursery, Seoul

A tide of simplicity

In contrast, the wider business environment within which we operate is increasingly characterised by assumptions of simple purpose: return on capital for external investors.

In most markets, the shift to simple has shaped institutions and policies, such as accounting standards or taxation, that are designed to encourage performance against that purpose. As a result, as co-ops, we are often swimming against a tide of simplicity.

How do co-ops around the world track their performance or design their reporting systems? This is the topic next week in London (neatly falling in the UK Co-operatives Fortnight with its theme of the Co-operative Difference) for an international symposium on co-operative accounting and reporting, organised by the great co-op business school, Sobey (from St Mary’s Halifax, Canada).

Accounting, set up to make clear what is true and fair, is a case study of simplicity versus complexity in business. The move to harmonise international corporate accounting standards over the last decade looks to reduce the costs of complexities at a global level of different accounting traditions – a worthwhile goal (even if somehow in the process, the complexity of delivering global standards further reinforces the dominance of the big four accountancy firms).

But the drive for accounting simplicity can cross over into an attempt to reduce diversity. From time to time, international accounting policy makers want to move member capital from an asset, co-invested in a joint endeavour, to a liability, assuming that it is a promise of money owed by the business to those who participate in it. Why? For simplicity only, as if all companies could be treated as if they were owned by investors, rather than other stakeholders. But for financial co-operatives, among others, a move like this could mean instant closure.

For and against

Simplicity in business, in terms of return on capital, has significant strengths of course, including these five:

  1. Decision-making. It is easier within the business to judge trade-offs and investment opportunities.
  2. Capability. There are plenty of tools to draw on, plenty of expertise to bring in.
  3. Communication. Not surprisingly, simplicity is easier to communicate. Expectations are clearer, the chance for conflict reduced.
  4. Comparison. With net profit, return on capital and share prices, it easier to see and to compare how a business is performing.
  5. Accountability. Simpler purpose makes simpler accountability, because it is clearer what to account for – less room for people who use complexity as a source of obfuscation.

Staircase at the National Co-op Centre, Warsaw

But simplicity becomes an obstacle, when the context changes and these same strengths turn to weakness:

X Decision-making. Chasing financial results, like share price, makes companies act for the short-term rather than on long-term drivers of success.

X Capability. More subtle aspects of the business, such as culture, are less valued.

X Communication. The purpose of making someone else money is not motivating for the workforce or for customers.

X Comparison. Simple metrics can be misleading, encouraging conformity rather than diversity and learning.

X Accountability. Wider social responsibility or stakeholder concerns are sidelined, generating the potential for risk and backlash

The case for complexity is that businesses operate in complex and fast-moving environments. To succeed, they need sufficient complexity in their own feedback and learning systems to adapt and improve.

One example is innovation. The two most common sources for business innovation are workers and customers. Where you are owned by your workforce, or by your customers, as in the co-operative model, you stand a better chance of capturing those ideas and adapting in line what they offer.

A second example is loyalty. Where people identify personally and collectively with the purpose of a business, going beyond simply making money, they are likely to be more engaged and more loyal to the business, as workers, suppliers or as customers.

The third example is the challenge of sustainable development, increasingly the focus of policy concern and action. Business is challenged to act on a complex array of risks and opportunities that are hard to reduce to simple metrics.

Taking these, the case for complexity in business can perhaps be expressed in these five characteristics:

  1. Realism. The context within which companies operate is complex, so matching this can lead to more realistic decisions.
  2. Responsiveness. Embracing complexity encourages a culture of openness and enquiry, helpful for listening and learning.
  3. Safety. Companies that look at their interactions with the world through a lens of complexity are less likely to be blindsided when risks arise.
  4. Strategy. In complex models, no one aspect is weighed alone without addressing the totality, supporting companies in moving forward in an integrated way.
  5. Sustainability. The challenges of sustainability are complex and companies that succeed will be those able to sense and adapt to hard-to-predict changes.

There are other, more philosophical grounds too to affirm complex purpose – as a counter to the ‘financialisation’ of life, as an expression of freedom and as a component of cultural diversity.

The search for middle ground

As I see it, the response of business policy in many jurisdictions is to mitigate the weaknesses of simplicity, by interventions that encourage and require compensating actions to restore some complexity.

In a European context, stakeholder engagement and to a degree, stakeholder accountability, is a longstanding tradition. Having workers on the boards of German companies (co-determination), a tradition with roots post-war in the co-operative model, has been good for the German economy.

The Nordic countries have led the way on gender diversity, again with the argument that company boards need mixed perspectives rather than narrow unity – just one more example of the ‘law of requisite variety’: that you have to be able to reflect the complexity of your context in order to succeed in that context over time.

In the UK, the draft new governance code from the Financial Reporting Council is an overt attempt to move listed companies towards a greater degree of complexity – encouraging a focus on long-term purpose, engagement with the workforce, values and culture.

To that extent, companies are being encouraged to be more co-operative, more complex. And these are areas in which co-ops have tended to lead – on values for example. As I point out in my book, Values: how to bring values to life in your business, values evolved as a collaborative decision-making tool in the context of complex options. Values are a short-cut way of making decisions – as one co-op procurement lead says to me, “values are our handrails.”

So, should co-ops also move the same way, adding to complexity, further complexity?

My view by and large is no. There are of course some of those opportunities, evident in the rise of more participatory tools for decision-making, and the hopeful interest in multi-stakeholder models of governance.

I would argue that if co-ops need to change, it is usually towards more simple complexity.

An example is the UK’s consumer retail co-ops. For larger and more longstanding co-ops, there can always be a degree of drift in the sheer accumulation of expectations. To succeed, a co-op needs to be clear on how it makes a difference to its members.

Lincolnshire Co-operative has been going through exactly this process, with some support from us at Co-operatives UK. Successful, with over 250,000 members, and 150 years under its belt, the Chief Executive, Ursula Lidbetter has supported a process where the Board and members develop a clear forward purpose for the society: a few words, simple to say but still rich and complex in content and intent for what makes it so different as a business.

With a clear focus on what matters, what value is for members, it is then easier to choose the metrics that can paint a picture, alongside other forms of feedback, of performance. Merthyr Valley Homes tracks a range of indicators, including spending in the local economy and weekly levels of litter. The results are open to the members: residents and staff. For one social club in Yorkshire, the lead indicator is barrels of beer sold weekly. Members tell them what else they should be doing – the benefit of a participatory co-op, but key indicators help to balance that complexity of expectation with a more simple story of performance over time.

That is something which we are helping with, through the development of guidelines for the co-operative sector in narrative reporting.

More simplicity or more complexity?

The balance between simple and complex is one many others have considered. The words of Oliver Wendell Holmes, a late nineteenth century US Supreme Court Justice, are worth the repetition: “for the simplicity that lies this side of complexity, I would not give a fig, but for the simplicity that lies on the other side of complexity, I would give my life.”

The great mathematicians and philosopher Alfred North Whitehead, said in a lecture a century ago: “we are apt to fall into the error of thinking that the facts are simple because simplicity is the goal of our quest. The guiding motto in the life of every natural philosopher should be, ‘Seek simplicity and distrust it.”

I appreciate the modern Law of Conservation of Complexity, also called Tesler’s Law, after Larry Tesler, the computer scientist who is credited with inventing cut/copy and paste. This states: Every application must have an inherent amount of irreducible complexity… The only question is who will have to deal with it.

The implication is that designers can help ensure that the simple is not over-simplistic and the complex is not over-complicated. Computers, since Tesler’s days at Xerox have become more complex in terms of technology but more simple in terms of ease of use. In turn, complex software, such as the open source Unix operating programme suite, might be designed on the basis of simple subsets, collaboratively assembled, that do a single task well.

In business, it seems that simplicity alone is of value, complexity a necessary constraint. In terms of business philosophy, simplicity sells.

Ceiling at a coop and trade union education centre, Helsingor

I argue the opposite. There is a value to complexity, and a growing value at that. And yet, the need for simplicity remains a necessary constraint.

Like a flock of birds, wheeling in the sky, complex systems can emerge from simple rules, while retaining a function, of collective intelligence, what Geoff Mulgan calls ‘the bigger mind’ – or to the observer, beauty – which can’t simply be reduced down to those rules.

For my colleagues in the co-operative sector, the moral is that we should embrace complexity – and promote our understanding on how best to organise around it.

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Footnote

This is all an example perhaps of a wider challenge that goes to the heart of a generation of debates on economics. A substantive body of work looks to redefine wealth and progress beyond the simple aggregate of money flows in the economy (or Gross Domestic Product), to integrate the context of unpaid labour, well-being, economic externalities and sustainability thresholds.

What we have learned is that while a new map (such as the triple bottom line) can sometimes become part of the landscape itself, a static description is not enough. There needs to a dynamic perspective that integrates things – a theory of change.

You can, for example, have as many different forms of ‘capital’ as you like in your (satellite) national accounts, but if they don’t make it easier to build an account of what is happening across the complexity of those domains, they don’t necessarily help. Of course, the simple option, which is to use money as a common denominator simplifies may help even less if it assumes that we can buy our way out of one or another dimension of collapse in environmental functions that are critical to habitable life.

The United Nations Sustainable Development Goals gives one interpretative framework and offers an important reference point. It is good to see it used by so many co-ops and Fairtrade organisations worldwide in their planning. And yet, as a complex array, it does not resolve the challenge of displacing the dominant simplicity of economic growth.

The struggle for what Paul Ekins and Manfred Max-Neef many years ago called ‘Real-Life Economics’, reflecting the complexity of human nature and natural systems, continues…

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There are energy co-ops coming across Europe – a landmark success, but is it too late for the UK?

One of the most attractive features of co-ops is our willingness to work together, to co-operate.

An example of this was the formation a few years back of a network of European renewable energy co-ops, ResCoop.eu, prompted by an inspiring co-op in Flanders and sheltered initially by Cooperatives Europe, the regional network of the International Cooperative Alliance.

Creating a common voice and platform has now paid historic dividends, as European policy makers have recognised the model as a vital one for mobilising people around low carbon energy systems.

The European Parliament and the Council this week agreed rules for how Europe will roll out renewable energy over the next decade. This is part of the so-called Winter Package, overhauling the energy system across the continent.

The EU now has a binding objective of increasing renewables by 32% by 2030, with the possibility to review the target in 2023 in order to revise it upward.

For the first time ever the rules now provide an explicit role for citizens and communities through co-operatives in the future of renewables. The Renewables Directive contains a strong definition of ‘renewable energy communities’ as well as a definition of ‘self-consumption’. The Directive provides rights, as well as a basis for developing national rules and enabling regulatory frameworks to help them flourish throughout Europe.

This includes ensuring they are taken into account in national renewables support schemes and it encourages the role of renewable energy communities in helping vulnerable customers and alleviation of energy poverty. The Directive also lays down strong rules to ensure households who use the renewables they generate without feeding it into the grid are exempt from grid charges.

Dirk Vansintjan, the visionary President of REScoop.eu, now a network of 1,500 energy co-ops, comments that: “this is a remarkable day for European energy citizens. Up until yesterday they had no recognition in Europe’s energy policy. Now, they have a set of tools to empower themselves and their communities so that they can prosper in the energy transition.”

It is now over to member states to look at how they will implement this, encouraged along by co-ops in every country. The timetable stretches longer than the UK, with Brexit, is set to remain.

If we want all this for the UK, and we have some elements already, we are going to have to build a strong voice by going back to where we started… co-operation.

‘We will never want to leave here” – the story of a young housing co-op in Poland

I have had the pleasure of visiting local co-operatives in Poland, following a Board meeting yesterday of our network, Co-operatives Europe.

You get a sense over time of what to look for. So when I visit a housing co-op, I tend to notice the flowers and plants. The ecology around houses tends to point to the pattern of social organisation associated with the settlement – the freedoms, the responsibilities, the character, the creativity.

So, it was utter joy to see the greenery, the care and the diversity of flowers, land and trees – as well as the people – in the housing co-op, Sluzew Nad Dolinka (SND) south of Warsaw.

There are co-operatives of every form in Poland, but housing co-ops are the most common, with over 3,500 across the country. It is a form of tenure that operated in the communist era, albeit one of the few genuine opportunities for voice and democracy at the most local level (the national level was controlled by the state and some so-called co-ops, now broken up, were simply giant municipal housing projects covering the entire quarter of a city). Founded in 1991, SND is a relatively young housing co-operative, with stock transferred from a larger conglomerate, and has set about creating a peaceful and purposeful community for its members.

By law, post the communist era, members can dissolve the co-op and operate akin to a private condominium, but in fact they have proved to be a popular option.

The co-operative runs an area of forty two hectares, with forty two buildings housing ten thousand people. Seven thousand of these are members of the co-op and the General Assembly is a packed and busy affair, electing its Supervisory Board and debating key investments and the next projects to focus on.

As ever, the difference between a successful and a failing co-op is the extent to which members are involved in governance, so that it is the common good and not simply personal concerns that shape what happens over time.

The elected Board is what has given an emphasis to greener living. The air in the neighbourhood is the cleanest on official data of any quarter around Warsaw. There are spaces for people to grow fruit and vegetables, flowers on the balconies (with hotly contested awards for the most profuse).

59% of the area owned by the co-op is green and as you walk around, the space is open, restful and full of play areas for children. There are one hundred bird boxes put up by members on the wide range of trees on the estate.

The roof of the most recent development has bee hives, while the library opens on to a moss-covered verdant balcony. Inside the library itself, there is a special shelf for books written by members and residents of the co-op.

They do have cameras, following a member resolution and according to police statistics, it is one of the safest housing estates in the region. Members have also enthusiastically backed a range of moving monuments to key moments in the life of Poland, such as curving hedge dedicated to the Warsaw Uprising in the Second World War

People live close to nature here” comments one member, Edyta.

We all love this place; we will never want to leave here.”

Who will win the World Cup according to co-operative values?

The Football World Cup this month is no doubt the biggest competition of the year. But of course, this is a team sport, so to be competitive, you also have to be co-operative.

The idea of co-operating in order to compete is well known in the co-op sector worldwide, where it is understood what values are needed in order to support cultures and behaviours of co-operation.

child-613199_1280

We do have data on the extent to which co-operative values hold across different countries, thanks to the World Values Survey. Last year, I collaborated with the wonderful Tom Crompton of Common Cause Foundation, publishing a report he authored on The International Prevalence of Co-operative Values.

So, without being in any way an expert on football (quite the opposite, recalling my days playing for the one English team, Turnpike Lane, in a Latin American football league on Clapham Common in London), I have run the data to ask the question: if the national strength in terms of values of co-operation was reflected in the national football team and their co-operation as a team defined their chances of success… who would win?

Here are the group stage results, with two winners from each group:

A1  Uruguay
A2 Saudi Arabia
B1 Spain
B2 Morocco
C1 France
C2 Denmark
D1  Argentina
D2 Iceland
E1 Brazil
E2 Costa Rica
F1 Mexico
F2 Sweden
G1 Panama
G2 England
H1 Colombia
H2 Poland

Here are the results of the first round of the knockout stages:

Iceland beat France

Uruguay beat Morocco

Brazil beat Sweden

Panama beat Poland

Spain beat Saudi Arabia

Argentina beat Denmark

Costa Rica beat Mexico

England beat Colombia

In the quarter finals, Uruguay win through (over Iceland) to meet Brazil in the first semi final (over Panama), while Spain win through (over Argentina) and England squeak through with a narrow win over Costa Rica.

180524_LOGO_COOPSDAY_BANNER_702X4683Some of the quarter finals, as it happens, fall on the United Nations International Day of Co-operatives, Saturday July 7th – which takes place worldwide under the theme of Sustainable societies through cooperation – as well as the culmination of Co-operatives Fortnight here in the UK.

The finalists are then Brazil and Spain…

…and the winner is Brazil.

You could say that there were flaws – pretty deep flaws – in the modelling. Footballing skills in particular are not a factor, and that has always held my country, England, back. Don’t put any money on my forecast.

But as a light look at the wonderful skills of co-operation and teamwork on display, it is a reminder of something important.

We succeed when we find good ways to work together.

The Case for Co-operative Development Bodies

The ‘fourth right of citizenship’, alongside rights such as participation, is advice and information. So declared the great social innovator and co-operative champion Michael Young in the late 1970s.

It was around this time that a generation of co-operative business advice agencies came into being, supported by local authorities and designed to spur the growth of co-operatives. That they did, but the resource squeeze that faces those working in the field has got sharper and sharper over time.

In the report for the National Co-operative Development Strategy, we pointed to the accelerating loss of capacity and knowledge in these typically local bodies: “the co-operative development bodies that have survived [since the 1970s] have done so by operating entrepreneurially. Their emphasis is typically on face-to-face and generic advice and hands-on business development, and there are some outstanding examples of impact – often unsung if subject to commercial confidentiality.”

As a result, “the provision of and access to co-operative business advice is therefore patchy. Wales is well supported with co-operative advice, while Scotland receives government assistance that does not exist in the same way in England and Northern Ireland.”

There are other bodies that provide advice and support – in particular federal bodies that support co-operative models in specific sectors, whether credit unions or community shops. As the late Robin Murray suggested in his work for us, these have eight potential roles as a catalyst and community for co-operative ventures in their sector. But they too have faced a resource squeeze in recent years. Infrastructure is stretched and one way or another, there is an underinvestment in resources and no easy solution, beyond co-operation across co-operatives, to remedy that.

eight roles

So, it is welcome that there is a substantive new research report published in the run up to Co-operatives Fortnight by Alex Lawrie. With long experience as an innovator and entrepreneur, plus skills of research and philosophy that shine in the report, Alex explores options for co-operative development bodies, with opportunities rooted in new ways of working – being an embedded participant and partner in new ventures, rather than being purely responsive to existing clients.

report

This has to include moving outside of the ‘values ghetto’, as the report puts it, by finding new ways in which people can work together with trust. “Trust is not a matter purely of goodwill and altruism, but to a considerable degree is the security that emerges from protocols fixing interdependence.”

Some of this can be rooted in physical spaces. Somerset Co-operative Services, where Alex works, for example manages a hot desking hub for co-operators at 10 East Reach in Taunton, where the new social enterprises taking shape include an urban farming collective, the UK’s first co-operative train operating company and a community business developing tram systems.

As part of these systems for ‘community and calculative trust’, and alongside more consistent ‘systems of practice’, giving people a voice in enterprises as they emerge is particularly powerful – “the findings of this study are that… accountability repays the investment made in it.” And he points to the scope for an ambitious agenda for co-operative education and training – pointing to the example of the recently opened Dyson Institute in the UK.

He makes the case in the report for co-operative development bodies, but cautions that, without change in practice and steps like these, “the winnowing of the co-operative development movement is far from over.”

The recommendations for practitioners are carefully thought through and include the following steps:

  • lock clients into long term obligations to repay all of the costs of co-op development when they are able to do so
  • develop co-operative incubators
  • invest in knowledge and skills
  • adequately capitalise new co-ops, incubators and co-op development bodies themselves by involving investors in mutual relationships, including the use of multi-stakeholder co-operatives.

This is an important contribution in a debate that is important for all concerned with and supportive of co-operative development.