Organizational

Change through the Lens of

Complexity Theory
with Application to Corporate Restructuring / Reorganization
Irena Yordanova November 4, 2014

MSOD 618 INTERNATIONAL OD & LARGE SCALE CHANGE

Dr. Gary Mangiofico, Pepperdine University Graziadio School of Business

COMPLEXITY THEORY

The main concepts of complexity theory talk about systemic thinking and participative
practice. The following analysis puts these concepts through the lens of corporate restructuring.

SYSTEMIC THINKING
Systemic Interconnectedness & the Butterfly Effect
To think systemically means to deal with the paradoxes of human organizing by thinking
in terms of both/and complementarities (Shaw, 2002, p. 21). The study of complex adaptive
systems reveals that we are in dynamic mutual interaction with our environment and are part of
the process that creates and influences it. In the old Newtonian paradigm of seeing the world and
organizations in a mechanistic way where control means order, fluctuations and disturbances are
seen as signs of trouble. However, the state of complexity embraces paradox; its a space where
both order and chaos exist simultaneously (Keene, 2000, p. 16). As Griffin, Shaw & Stacey
(1999) note, the paradox that characterizes organizations in general is that they must both
cooperate and compete: they must stabilize to have predictable routines and meet deadlines,
while in the long term they must change and sustain the life of the organization by surprising
their competition (p. 301-2). In a case of corporate restructuring, an organization has to change
its legal, ownership and/or financial structures for higher profitability or adjustment in response
to a major crisis or change in the business, while at the same time maintain those established
practices that support operating effectively during the transition; also the paradox of M&As.
A major implication of the chaos-complexity perspective is that in complex nonlinear
systems small incremental changes can produce large quantum effects, also known as the
butterfly effect (Morgan, 2006, p. 255). In other words, a key message of the theory of
complexity is that: Our world is not a reality of things independent of ourselves, but a world of

COMPLEXITY THEORY

relationships and the quality of those relationships will determine the quality of our reality
(Keene, 2000, p. 16). As also explained by Daneke (1997), living systems is the study of
relations which sees the socio-cultural system in terms of communication nets. Looking at
corporate restructuring through this lens, a reorganization strategy would be approached in a
holistic way taking into account maintaining healthy interrelationships between all information
units in the change process, and not treating them out of context of the whole. For example, a
demerger may require changes not only in the firms financial management, but changes also in
its reposition to consumers, re-engineering of operational processes to support efficiency and
productivity under new leadership structure, functional reorganization with vendors and
distribution, even potential renegotiation of labor contracts for retention. All these different parts
of the business share deep relationships of congruence between each other as well as the
industrial environment in which the firm exists. And the quality and harmony of their total
interconnections, in addition to their individual well functioning, would be seen crucial for the
organizations success in a restructuring effort.
What complexity theory shows is that changing / restructuring one element of a system
immediately impacts changes elsewhere, setting up continuous patterns of perpetual dynamic
interaction. If a reorganization initiative were to be executed from a systems perspective (Figure
1), it would likely not take into account interconnection patterns into its strategy. Morgan (2006)
explains, as an effect many of the problems that organizations encounter are connected to
viewing their environment as a world out there that has an existence of its own (p. 248). It can
be seen across multiple failed restructures. Morgan (2006) urges organizations managing in the
midst of complexity to rethink the meanings of hierarchy and control, learn the art of managing
contexts and the art of using small changes to create large effects (p. 255).

COMPLEXITY THEORY

Chaos & Complexity Logics of Change Attractor Patterns & Power of Context
According to Morgan (2006), transformation change ultimately involves new context /
understandings. He believes that this is the key problem that blocks many organizations trying to
restructure or transform themselves. Because of the power of the established context, they end up
trying to do new things in old ways (Morgan, 2006, p. 259). As the author further explains,
resistance arises when the forces of an established attractor are more powerful than those of a
new or emergent one. So the challenge is to shift the balance. He also shows that by exposing the
system to new information about itself or its environment and by encouraging double-loop
learning, the system can begin to challenge and change its operating norms, paradigms, and
assumptions that sustain its established attractor patterns. New actions such as experiments,
prototypes, changes in rewards or key personnel, a fiscal crisis, staff layoffs and other events
catalyze further changes as the system adjusts itself to the new reality (Morgan, 2006, p. 260).
Corporate restructuring generally provides strategic alternatives to resolving large
financial and operational issues. The structural changes provide context for self-organization in
light of the newly emergent reality, with the goal of addressing issues through the different
reordering of elements. But as groups processes change, so do the activities between people
involved who, in turn, begin to find and create new ways of relating and performing. It is
interesting that even when self-organizing networks dominate a system, anarchy does not reign
because patterns of order emerge from the decentralization chaos (Daneke, 1997, p. 257). So,
Think about knowledge in a network as the embodied pattern of relationships between
agents. New knowledge would then be changes in those patterns of relationships,
changes which could occur only at the edge of chaos. Knowledge is the current
manifestation of what state the evolving system is in at that point and new knowledge
emerges through the spontaneous self-organizing and competitive selection processes that
drive the evolution of the whole network. What that new knowledge will be is
unpredictable until it emerges. Uncertainty in the form of radical unpredictability is the
creation of new knowledge (Griffin, Shaw & Stacey, 1999, p. 303).

COMPLEXITY THEORY

To understand these logics of change one has to understand that there is interconnected and
contextual relationship between systems and their environment namely that environment is not
separate but a part of the system (Morgan, 2006, p. 244). As Morgan (2006) presents, the notion
of complexity theory reveals that patterns of activity have an order or logic of their own, which
emerges under spontaneous self-organization processes and can only be guided.
From a systems perspective, corporate restructures are needed to institute order and push
systems back into established equilibrium states; they would generate chaos and instabilities if
not controlled hierarchically. But, from a complexity lens, as noted by Griffin, Shaw & Stacey
(1999), a system that is only in the phase transition at the edge of chaos is capable of
producing new patterns, by shifting attractors from one trajectory to another (p. 302). Also,
managers are seen as high-levers in changing currently operating contexts by finding indicators
for intervention within their sphere of influence (i.e. tensions between status quo and desirable
future states) and creating successful experiments or prototypes or getting key opinion leaders
behind an initiative (Morgan, 2006, p. 261) to guide effective change and create new contexts.
PARTICIPATIVE PRACTICES
Management by Values (MBV) in Managing Change
In complex dynamics, chaos cannot be entirely controlled, but it can be guided by
behavioral parameters, such as values, which act as disorder organizers or attractor patterns
(Dolan, Garcia & Auerback, 2003). Working with values does not mean forgetting objectives.
What traditional management approaches fail to achieve is a confident reliance on human
adaptation to turbulent environments. (Dolan, Garcia & Auerback, 2003). The presumption is
that rules, policies and procedures will be enough. As the authors explain, MBI (management by
instruction) and MBO (management by objective) do not incorporate dealing with changes into

COMPLEXITY THEORY

their principal philosophy. The challenge for managers is to know how to guide chaotic
dynamics to achieve desired objectives. Reorganizations create turbulence, identified by
unexpected changes, lack of control, difficult decisions, high performance demands under tight
resources, etc. As Dolan, Garcia & Auerback (2003) explain, the reason we want to control
uncertainty is emotional. People feel insecure under the unknown, which brings discomfort and
feelings of powerlessness. (p. 26). Values and beliefs serve as an important guide and glue that
holds an organization together when confronted with change or turbulence (Dolan, Garcia &
Auerbach, 2003, p. 34). The key question then is how to build values in organizations.
The Role of Leadership & Art of Dialogue
Important implication of the chaos-complexity perspective rests in the idea that the
fundamental role of managers is to shape and create the parameters that define the context in
which appropriate or desired forms of self-organization can occur (Morgan, 2006). The biggest
challenge during a restructure is to hold a situation under the influence of a strong attractor
pattern that minimizes disrupting influences. In a complex system, order is seen not as a state
that can be externally imposed on a situation through hierarchical means, but as an emergent
state from internal and external fluctuations pushed in edge of chaos situations (Morgan,
2006). Thus an advanced understanding of collectivism and a high EQ (especially within the
leadership team) shows crucial in managing a successful corporate restructuring initiative.
For centuries, the benchmark of a well-run organization focused on meeting immediate
objectives. Todays successful leader recognizes the need for change and the importance of
relationships in achieving success in fast moving landscapes: a successful leader is someone
who conducts the orchestra in a way that harmonizes the brilliance of each instrument (Keene,
2000, p. 15). As Keene (2000) explains, the start of this process is to value people and to express

COMPLEXITY THEORY

confidence in their abilities. Such confidence will be reflected in the confidence people will have
in themselves. We erroneously see greatness in leadership with what leaders do rather than what
they are and allow others to be (Keene, 2000, p. 17). Keene (2000) further notes that some of
the core skills needed in the nurturing and building of relationships include the ability to listen,
communicate and allow groups to surface and understand their own assumptions.
The message of complexity theory that we are co-creators of our world implies that the
world (including organizations) will only change if we change. Accompanying this notion of cocreation is that of accountability if we are co-creators of our reality we are also co-responsible
and accountable (Keene, 2000, p. 17). During reorganizations (and not only), we want to align
people, bring them up to speed, create congruencies, and motivate them. In that respect,
Appreciative Inquiry (AI) can be applied as an aid in guiding the creation of a positive new
reality. Being a principle-based intervention philosophical theory, as well as a technique, it
emphasizes the role of language, dialogue, and story telling (Watkins, Mohr & Kelly, 2011). It
focuses particularly on imagery, will and intention, vs. methodology, to create positive future
states for the organization. Its effectiveness results in the creation of shared commitment and
values that define new patterns of behavior.
Our blindness to the way we participate in fabricating the conversational realities of
organizing is compounded by the difficulty we have in thinking as participants from within in
process terms, in thinking paradoxically (Shaw, 2002, p. 20). What we label dichotomous is
caused by our limited ability to realize that what we see in parts is always some small piece of a
larger whole, and that it is our choice about whether to see the part or to embrace the whole
(Watkins, Mohr & Kelly, 2011, p. 75). Or as Griffin, Shaw & Stacey (1999) put it reality is a
hidden order and change is the discovery of it (p. 300).

COMPLEXITY THEORY

7
Conclusion

The theories of chaos and complexity are two sides of the same coin, and contribute to a
holistic understanding of change. Many authors agree that the concepts of chaos and complexity
represent natural evolution of patterns of interdependencies, and that it is on the boundary of
chaos that greatest creativity occurs (Daneke, 1997; Dolan, Garcia, & Auerbach, 2003; Griffin,
Shaw, & Stacey, 1999; Keene, 2000; Morgan, 2006).
It appears counter intuitive to think that in situations where the dominant attractor pattern
is sustaining an undesirable state, the rather logical thing to do is to open the door to instability,
or even to create the instability in organizations that will help a new pattern of behavior emerge.
Yet, the analysis of corporate restructuring from the lens of complexity theory shows that
restructuring not only applies when an organization is responding to major environmental
changes and challenges, but should be used to generate better internal functioning to drive
performance and competitive advantage. Additionally, from a complexity standpoint,
reorganization is seen as a planned strategic initiative but also as a naturally emergent state
from changes produced in one systemic element in relation to others as a constant dynamic.
The challenge in complex systems is to realize and accept, as Shaw (2002) puts it, that
power is not an attribute or possession of a single person but is a characteristic of human relating.
And as Block (2001) would add, others will chose to change more readily from the example set
by our own transformation than by any demand we make of them.

COMPLEXITY THEORY

Understanding and Managing Chaos in Organisations, by Dolan, S., Garcia, S., Auerbach, A.,
2003, 23-35.

COMPLEXITY THEORY

9
References

Block, P. (2001). The Answer to How is Yes. San Francisco: Berrett-Kohler.

Daneke, G. (1997). From Metaphor to Method: Nonlinear Science and Practical Management.
The International Journal of Organizational Analysis, 5, 3, 249-266.
Dolan, S., Garcia, S., Auerbach, A. (2003). Understanding and Managing Chaos in Organisations.
International Journal of Management, 20, 1, 23-35.
Griffin, D., Shaw, P., & Stacey, R. (1999). Knowing and Acting in Conditions of Uncertainty: A
Complexity Perspective. Systemic Practice and Action Research, 12, 3, 295-309.
Keene, A. (2000). Complexity Theory: The Changing Role of Leadership. Industrial and
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Morgan, G. (2006). Images of Organization (Updated Edition). Thousand Oaks, CA: Sage
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Shaw, Patricia (2002). Changing Conversations in Organizations: A complexity approach to
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Watkins, J.M., Mohr, B.J. and Kelly, R. (2011). Appreciative Inquiry: change at the speed of
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