Institute for Simplicity

“The greatest shortcoming of the human race is our inability to understand the exponential function.” Albert A. Bartlett 

The american physician Albert A Barlett was referring to the growth of population. Our ability to judge has problems to understand the speed and quantitive effects and consequences of exponential phenomena. A similar example for this are the effects of compound interest rates. 

A rather simple example shows the exponential effect: Light bulbs can be either „on“ or „off“. 5 light bulbs gives us 2⁵ = 32 possible combinations, 10 light bulbs give us 1024 combinations (2¹⁰) and 20 light bulbs more than 1 Million (2²⁰). 

Also when considering complexity our imagination and judgement fails. This is often the case when we add items to our assortments, when we add options to products, when our companies expand into foreign countries. We have difficulties imagining the exponential increase of general expenses. We often believe that a little more does not hurt, it would be nice, we can easily do it, it only takes an additional few minutes and and we will generate more revenues. 

However, with each additional element or activity we increase our complexity, means our general cost and we jeopardize reliability and functionality: 

• With every additional item we consider important (a german Hard Discount retailer installed refrigerators for so called convenience items).
• With every country in which a company decides to expand to (what did the german Metro Cash & Carry seek in Vietnam?). 
• With every booking class and additional service, sometimes including, sometimes to be charged to customers (Lufthansa and their so called low-cost airline Germanwings and numberless conditions and offerings). 
• With every additional country which enters to the European Community.

There is a trap in our perception: we can measure additional revenues but we are ignoring the hidden indirect cost. Every item which we add needs to be negotiated, advertised, stored, ordered and a contract with the suppliers has to be administered. Every delivery has to be checked and the invoice paid. 

Brain researcher Wolf Singer confirms: „We have no intuition for complexity“. Because of our cerebral limitations and our poor senses we can only understand linear problems and we can only notice partial information. We use wrong assumptions and not the proper systems. Therefore we are surprised when things do not develop as we expected. 

Managers of today need a profound understanding of complexity in order to apply the right structures and architectures in their businesses. They have to have as well the  ability to abandon, to do without all those temptations. It is about concentration on what is „just enough“ and what is essential regarding their business model.