by Chris Billowsin Business Beller0 commentstags: Comprehensive Analysis, Corporations Don't Think, Defining Life, Foolishness, Institutional Learning, Summarizing a Business Organization
I can’t recall how I stumbled onto this concept and websites, but a while ago I found this riveting theory which I believe explains why most modern organizations are so inadequate at times and spend far too much time chasing the wrong priorities. I have touched on parts of this in previous blogs such as Driven to Distraction and Even the Best Systems Fall Victim and A List of Guidance. The reason why this happens is they fail to embrace Complexity Science. Basically, it is because our social institutions continue to operate like machines, believing that events can be tracked in a linear fashion and have measurable inputs that neatly match known outputs. While there is no denying that some institutions do operate like machines (take most factories), the fact that humans end up doing most of the work leaves the model sorely lacking. What is more accurate is to realize that all human based organizations are non-linear and complex. It is common for these systems to exhibit the following characteristics: Small inputs can lead to dramatically large consequences. Very slight differences in initial conditions produce very different outcomes. Global properties flow from aggregate behavior of individuals. Emergence (of order) […]
by Chris Billowsin Business Beller0 commentstags: Corporate Corruption, Foolishness, Human Condition
I was reading about Bernie Madoff’s investment scandal and it suddenly struck me that defined-benefit pension plans (public and private) operate on the same principal as Madoff’s Ponzi plan. Bernie Madoff defrauded his investors of $65 billion dollars with a massive ponzi scheme. Madoff was smart by never offering suspicious high returns to everyone, but did guarantee a steady and modest return regardless of the state of the stock market. This latter point should be suspicious to any intelligent investor. Yet that is exactly what our public and private defined benefit plans are doing. They guarantee a return or benefit rate. Yet how can they do this? Just like Madoff did, by using new money brought in from new investors (or pension contributors) to help meet the payout obligations. As long as new citizens grow up and are forced to contribute to the pension plans, the plan remains viable. But, perhaps we would all be better served by a defined-contribution plan, where the return is based on how well one’s money is managed, instead of compelling citizens to make pension contributions to maintain unsustainable payouts.
Recent Comments