Daily Archives: April 7, 2010

Kevin Kelly on principles: The Peter Principle and the Shirky Principle

Kevin Kelly coins a new term, The Shirky Principle: “complex solutions (like a company, or an industry) can become so dedicated to the problem they are the solution to, that often they inadvertently perpetuate the problem.” Sadly, though, he refers to the Peter Principle in devising the term.

The Peter Principle
“says that a person in an organization will be promoted to the level of their incompetence. At which point their past achievements will prevent them from being fired, but their incompetence at this new level will prevent them from being promoted again, so they stagnate in their incompetence.” It was developed by Dr. Lawrence Peter in the 1960’s. I think it may have had alot of revelance in the 1960s and the 1970s, but when I started working in the 1980s, a new phenomena was occurring. In the 1980s, you had the notion of plateauing. With plateauing, no one was being promoted, competent or incompetent. The Peter Principle was, if not void, was severely limited. People at higher stations in the company who started work in the 1950s and 1960s may have experienced the Peter Principle, but people who started work after the baby boomers had been promoted did not. Indeed, may people who suffered from plateauing had a different outlook on work than the baby boomers, an outlook that was resigned to not getting promoted, and looked at work differently.  The same was even more true for new employees that came after that.

That leads me back to The Shirky Principle.  I wonder at what point it will no longer be true. It may be that it has no sooner been stated that it is already becoming obsolete.

What’s wrong with Clay Shirky’s post on The Collapse of Complex Business Models

This post by Clay Shirky, The Collapse of Complex Business Models, has been getting alot of attention, as it should. Let me cut to the chase and by slightly paraphrasing Shirky, highlight the main idea:

“Complex societies collapse because, when some stress comes, those societies have become too inflexible to respond….When societies fail to respond to reduced circumstances through orderly downsizing, it isn’t because they don’t want to, it’s because they can’t.

In such systems, there is no way to make things a little bit simpler – the whole edifice becomes a huge, interlocking system not readily amenable to change. … Furthermore, even when moderate adjustments could be made, they tend to be resisted, because any simplification discomfits elites.

When the value of complexity turns negative, a society plagued by an inability to react remains as complex as ever, right up to the moment where it becomes suddenly and dramatically simpler, which is to say right up to the moment of collapse. Collapse is simply the last remaining method of simplification.”

I think this is a valuable analysis of a complex system, and for complex systems where all the inputs and outputs are tightly linked together, I think that this collapsing behavoir is one you would expect to see.

I also think his examples of media companies and AT&T are good ones, because you have companies where all the input (the lines of business and associated revenue streams) are tightly coupled to the output (profitability). Furthermore, the dominant lines of business (e.g. print) constrict the subservient but more profitable lines of business (new media).

I think there are a few things wrong with this idea, however, and they center around the ideas of complexity and collapse. Some of the organizations with complex business models that are due for a collapse aren’t just in trouble because of complexity; they are also in trouble because they are singularly focused. There is little if any diversification. They are not just inflexible: they’re like one big tower of playing cards. Smart investors and businesses diversify their portfolio. Not only that, but smart businesses should have parts of their businesses in different phases of development, so that if a new line of business collapses, other new lines of business or mature lines of business will continue to support the growth of the company. Indeed, in most organizations, the mature lines of business may be complex, but the new lines should be less so. If not, then this is an organization behavioral problem more than a complex business model problem.

There is also the notion of how you manage collapse. For example, smart businesses recognize mature lines of business and know how to milk them while preparing for their eventual demise. There is not so much a collapse as there is an orderly winding down of the business. It takes discipline and an acknowledgement of the circumstances, but the collapse is orderly, not catastrophic (walking down stairs versus tumbling down them). Companies that don’t have discipline and don’t acknowledge the circumstances will fail catastrophically.

A number of years ago CityTV in Toronto took on a new, cheaper approach to gathering the news. It was simpler and cheaper than the way other media companies did it. But it was effective, and it forced the other companies to do that. The other media companies did not collapse, however. They adjusted, however painfully.

I think Rupert Murdoch is trying to make the adjustment as well. He is experimenting with different forms of media (MySpace) and different ways of generating revenue. He is failing to some degree, which makes it easy for people to say he is a failure. He may fail completely, unable and incapable of generating new business models to support his company. But if he succeeds, he will have found a way to be profitable with new media and likely generating new, simpler business models that will support them. Other companies will follow his lead. (Or someone else’s lead.)

I think media/communications companies may have to abandon some of their business models, but I think such companies will remain and they will eventually develop new mature and complex business models.

Anyway, some thoughts on Shirky’s post. It’s a great post, and a great extention of the idea of collapsing complex societies to collapsing complex business models.