Friday, 23 August 2013

The Principle of Fragility



The following equation, which we call the Principle of Fragility, has been coined by Ontonix in early 2005 and indicates why complexity management is a form of risk management:


Complexity X Uncertainty = Fragility        


In order to understand the Principle of Fragility let us borrow Fourier’s idea of variable separation and create a useful parallel. Let us assume, without loss of generality, that the term “Complexity” is specific to a certain system, e.g. a corporation, while  the term “Uncertainty” concentrates the degree of turbulence (entropy) in the environment in which the system operates, e.g. a market. The equation assumes the following form:

Csystem  X Uenvironment = Fragility         

or, in the case of a business,

Cbusiness model X Umarket = Fragility         

What the equation states is that in a market of given turbulence a more complex business model will be more fragile (exposed). In practical terms, the equation may be seen as a mathematical version of Ockham’s razor: with all things being equal a less complex compromise is preferable.