Complex Adaptive Systems

A complex adaptive system (CAS) is a special class of systems comprising a large collection of diverse, interacting parts that are interconnected in a hierarchical manner such that the organizational system functions without centralized control. The notion of a CAS has roots in complexity and chaos theories and has the potential for contributing to better understanding of the behavioral and social sciences. Complex refers to the numerous attributes of the world; the most important aspect is the nonlinear nature of relationships in the world. Adaptive relates to the focus on change and evolution, which are central behavioral traits of agents—individuals, groups, and societies—in response to their external environments. Finally, system focuses attention on the interconnections between agents within defined boundaries. The all-encompassing nature of reputation makes a compelling case for looking at it through the CAS perspective.

Resource-based strategic management theory regards reputation as a valuable intangible organizational resource. As such, it is important to understand how reputation is created, how it contributes to the value-creating activities of the firm, and how to maintain it and improve its quality. The standard inquiry processes applied to answering these questions are closely linked to specific levels (hierarchies) of organizational abstraction. The weakness of these methods is that they individually provide a fragmented understanding of reputation. Additionally, management prescriptions tend to have a narrow focus. Consequently, a CAS can provide a holistic understanding of how reputation affects the entire organization. This entry discusses the unique properties of CASs, discusses reputation as an emergent systems property, and then addresses the implications of CASs for the “managing” of reputation.

Reputation as a Recurring Theme

Business organizations are CASs. There is usually some form of hierarchy present in all organizations, work is organized into specializations with specific goals that contribute to organizational goals, and agents (employees) interact within this system to carry out their responsibilities. The result is that the organization’s observable macrobehavior is a function of actions guided by both individual and organizational objectives, which are not necessarily compatible. A defining property of CAS, called emergence, results from the microlevel interactions of organizational agents that collectively produce macrolevel system behaviors.

Managing a CAS requires a different skill set than is commonly employed by managerial decision makers. High levels of causal ambiguity and increased response time to change create a decision-making environment that is not well-suited for the bounded rationality that managers bring to bear on the situation. In business systems especially, change is often a specific intention of purposive human agents. Gaining insight into how the system may react to potentially significant changes should be an important factor in the design of change instruments and policies. The unique characteristics of CASs need to be considered, in addition to simply the objectives of the policy itself.

• Sensitivity to initial conditions: Due to feedback, nonlinearity, and emergence, relatively small changes in the organizational systems’ initial conditions can lead to relatively large differences in the overall system dynamics.
• Conflicting constraints on the fitness landscape: Changes in one system component to promote fitness may be limited by properties of other system components that are also designed to promote fitness. Essentially, one department’s ability to improve itself may be constrained by other departments’ attempts to improve their positions in the organization.
• Coevolutionary fitness landscapes: Improvements in System A’s fitness prompt adaptive coevolutionary moves in other systems that could reduce A’s fitness possibilities under its new configuration, prompting yet further adaptation in System A. Since all departments are part of the same organization, the actions taken by one group in support of its own objectives may change the environments of other departments, which will adjust accordingly.
• Irreducibility of system behavior: Because emergence is a systemwide phenomenon, system behavior cannot be understood and designed by studying a single agent or group of agents. A holistic perspective on the organization is needed.
• Irreversibility of system states: Because the current system state is a product of all information that has flowed through the system to that point in all past states, the system dynamics cannot be reversed to past states but only steered into new directions that approximate where the past might have led if different decisions had been taken.
• Impermanently optimizable fitness: Because of coevolutionary fitness landscape effects, superior fitness cannot be permanently “locked in,” and attempts to do so might be counterproductive. Thus, the management strategy must remain flexible and have a process, rather than a solution, orientation.
• Unpredictable future states: Taking all of the CAS properties into account, the future states and “big” events of a system are not predictable over relevant time horizons.

Reputation as an Emergent Systems Property

Reputation is a multidimensional construct that is commonly measured along six primary dimensions: (1) emotional appeal, (2) products and services, (3) financial performance, (4) vision and leadership, (5) workplace environment, and (6) social responsibility. Together, these dimensions provide indicators of the reputational state of the organizational system, but they provide no clear insight into how the firm’s reputation is actually generated. The assumption is that “doing well” on all dimensions will result in a good reputation. However, since organizations are complex systems, initiatives intended to improve on one reputation dimension will affect the other dimensions to varying degrees. The organizational reaction may be counterintuitive, with the net result being an overall decrease in key performance indicators.

There are three standard perspectives on the role that reputation plays in corporate life: (1) the game-theoretic view sees reputation as a signal of corporate intent and actions, (2) the social constructionist perspective conceptualizes corporate reputation as a combination of collective perceptions, and (3) the institutional perspective views reputation as a position in reputation rankings. In this view, reputation emerges from the interactions among many key stakeholders in an institutional context. What is common across these views is that reputation “happens” as a behavioral consequence of organizational functioning. It is an emergent property of functioning business organization.

Managing in Complex Adaptive Systems: Implications for Reputation Management

Systems theory contributes to understanding organizational behavior at all levels of the organization. Each hierarchical level in the firm corresponds to a different type of abstraction of the organization. For example, a firm can be categorized according to a hierarchy comprising products and services, practices, policies, and principles. The standard reputation dimensions cover this range, and superior performance at all levels is required to achieve and maintain a good reputation. Two aspects of this hierarchy are important for theorizing about reputation. First, the importance of interaction effects increases as one moves up the organizational hierarchy to greater levels of abstraction. The second aspect is that the degree of causal ambiguity in the organization also increases with increasing abstraction. Additionally, dynamic response times of system elements also increase with hierarchical level. The strategic perspectives of institutional theory, contingency theory, and the configurational perspective represent the standard modes of theorizing about organizational behavior, including reputation.

The limitation of these perspectives is that they are not anchored in the complex systems paradigm. Decision making at the higher levels of abstraction must be deeply concerned with the role and effects of interactions among all elements of the organizational system, and the effects of behavior over time cannot be ignored. The CAS perspective offers an engagement strategy that encompasses the full range of hierarchical levels in an organization. In this perspective, reputation is an emergent characteristic of the organization. As such, it cannot be “managed” directly. Reputation management in the CAS framework involves providing an organizational context that enables people at the lower levels of the firm to be as effective as possible in their activities, which includes coordination with other hierarchical levels. This suggests that firm managers should apply the tools of systems thinking in the planning and decision making to avoid the systemic dysfunctions of counterintuitive behavior, unintended consequences, and policy resistance.

Conclusion

Reputation is likely one of the most difficult strategic issues that managers confront. It is recognized as an important resource and thus plays a central role in an organization’s activities. At the same time, its characteristics are such that managing it in the traditional sense does not appear to give consistent satisfactory results. At the strategic level, pressure and scrutiny from external stakeholders mean that having a good reputation can ease the firm’s relationships with these uncontrollable forces. Internally, reputation can serve to enhance the acquisition and retention of other important resources—for example, skilled workers.

Measurement of reputation is easier at lower hierarchical levels, where causal relationships are better understood. In this context, reputation may be measured by proxy variables that are directly associated with quality measures. Reputation management at these levels consists of ensuring superior performance in value creation. The study of reputation at higher organizational levels is more complicated. Complex organizational systems exhibit the property of emergence. These are macrolevel behaviors that come about as a consequence of microlevel interactions among the organization’s employees.

Unlike controlling the processes that go into making the firm’s products and ensuring their quality, which are relatively clearly understood, influencing emergent behavior requires that the characteristics of the organizational CASs be considered when planning an intervention. Despite the difficulties of adopting the style of thinking needed to deal with complex systems and using the methods of systems thinking, this new paradigm is an effective strategy for an ongoing engagement with the challenge of organizational reputation.