How the Law of Conservation of Complexity Inhibits Business Growth

Most of us learn the Law of Conservation of Energy in high school, which states that energy cannot be created or destroyed. Since we learn of this Law in physics class, most of us don’t realize just how much it affects our lives in every way, including business or any human organization. This is because energy is equivalent in nature to complexity, and complexity follows the same laws of nature as energy. In other words, complexity cannot be created or destroyed, only moved.

In the world of software development, this Law is called “Tesler’s Law” and has been a growing concept for frustrated software developers to try and explain their living hell to closed-ears employers and entrepreneurs. However, the Law is actually a law of nature itself (thermodynamics specifically) and applies to any system, organism, or organization. In regards to business, the success of any enterprise is determined by its ability to manage as much complexity as possible internally, and reduce complexity to the customer.

Law of Conservation of Complexity Explained

Let’s start with some simple examples. While we don’t have a unified system of measurement for complexity, we are going to go ahead and start with the number “100” to represent “total complexity.” Here is how that looks regarding coffee:

Grinder and French Press
Only used by masochistic coffee hipsters.

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Coffee Maker and Coffee Grinds
Your grandparent’s preferred coffee source.

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Keurig Machine (as long as it’s working)
Let’s face it, we all give in eventually.

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As you can see, the more straightforward a process is for a customer, the more complex the tools, systems, and back-end infrastructure is to support it. A Keurig is pretty much the easiest cup of coffee you can get, but not only is the machine complex but there is an entire back-end of manufacturing, distribution chains, and logistics to bring you those little cups now littering the planet.

Utility Increases Complexity

In the above example, we used “100” as the total complexity number. However, complexity is not static. The more utility desired the more complexity goes up. Starting with a base of 100 again, here is how we see that in action with cafes:

McDonalds Cafe
Basic choices mostly provided with syrup

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Dunkin Donuts
More variety, still mostly syrup, but more syrups!

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Starbucks
OK, they still use syrup, but dang they have a lot of options!

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The more utility you want to offer the customer, the more complexity exponentially grows in the backend. This is why Starbucks has baristas, but McDonald’s has… Jeff.

The Complexity Barrier

Getting back to the main point of this article, businesses live or die on their ability to manage growing complexity and shift complexity away from the customer. This is because while complexity cannot be destroyed, it can be managed. The better an organization is at identifying, sorting, and creating processes to manage complexity, the more “complexity tolerant” it is and the more simplicity and utility it can deliver to the customer.

If a business is aligned to their market (demand = value), the only barrier to growth is the organization’s tolerance for managing complexity. Taking on more customers increases complexity, offering customers more utility increases complexity, and reducing complexity for customers brings more complexity into the organization. It works like this:

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If your organization’s tolerance for complexity is less than the increased complexity growth or competitive demands for improved utility and simplicity brings, you will hit a wall. In other words… Tolerance >= Complexity

Complexity Doesn’t Have to Be Chaotic

Chaos and complexity are not the same things. Complexity simply refers to how many interconnected elements there are in a situation. Chaos and order are emotional words that reflect how much that complexity burdens our own minds. If the burden of complexity is handled by processes and systems, we see that as order. If the burden is left for us to handle, that is chaos. (Just think about how you would make a double espresso non-fat, latte with extra foam at home with a Mr. Coffee.)

Another great example is a messy room. Once you clean and organize a room, the number of items in that room remains the same (unless you Marie Kondo’ed it all). Putting everything in a place with intention doesn’t reduce complexity, it reduces the burden on you. “Hey, where’s my wallet? Oh, right where it should be.”

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Order is so important because it removes the burden of complexity from our own thoughts, freeing us up to tackle more complexity, or just give us a chance to think clearly at all. Burnout, anxiety, and extreme stress in the workplace are often a symptom of trying to internalize too much complexity.

Working Smarter is About Managing Complexity

When it comes to dealing with complexity, there are only a few options:

1) Hire more people
As complexity grows, you can always hire more people. However, the more people you hire, the more you experience a diminishing return. A human mind is a limited machine, just like any other. The more people you hire, the more complexity each individual has to manage. This means you get less productivity out of each person as you grow without other methods. Sure, some people can handle more complexity than others, but only in the same way that some of us can jump higher than others. It just doesn’t make that big a difference.

Example: Imagine an old-timey bucket brigade putting out a fire. Ten people in the line carrying the bucket from the well to the fire are taking too long as they have to walk from person to person. Ten more people come, closing the distance required to pass the bucket and now it goes faster. Then ten more people come and join the line, but now everyone is too close together and the added time to hand the bucket to more people slows the line down again.

2) Create processes
Processes reduce the amount of complexity a person has to internalize. The more processes which are created to manage an element of complexity, the more productivity increases per-person. However, processes, themselves, have to be managed. Processes do not reduce the need for more people; it only improves the productivity of those people.

Example Cont.: To improve the effeciency of the bucket brigage, the fire marshal tells everyone that the maximum number of people per line is 20, and that any new people should form a new line, even if that line is slower than the first. Then he gets the lines to coordinate so that while each line is pouring the bucket onto the fire, the next line is preparing the next bucket. This process keeps the total water being poured onto the fire continually increasing..

3) Automate processes into systems
Automated systems are the only thing that augments the need for more people. Of course, they never eliminate the need for people as people are needed to run, maintain, and improve them. Using technology to automate complex systems is the most effective way to increase an organizations ability to deal with complexity.

Example Cont.: We built firetrucks. That’s why we don’t have bucket brigades anymore.

Complexity is to Economics as a Vacuum is to Nature

“Nature abhors a vacuum” declared by Aristotle, or “horror vacui” in the original Latin, is a well-known principle of nature. Just as nature rushes to fill a vacuum, markets rush to dump complexity. We all want less complexity in our lives, and we are biologically programmed to look for any opportunity to move complexity away from ourselves.

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Battles between giant tech companies like Apple and Microsoft can be almost entirely defined by which company provides consumers the simplest experience while still facilitating the required utility. Amazon.com’s epic rise and domination of retail have been exclusively built on its ability to absorb the complexity of eCommerce, logistics, distribution, and the consumer experience; reducing the whole process of shopping down to a verbal command. “Alexa, I need more toilet paper.”

Why Businesses Fail to Grow Complexity

It may seem obvious that growing tolerance for complexity in a business is a good thing, but there are significant reasons why business owners often resist. The biggest reason is that increasing tolerance for complexity inevitably means creating processes and systems that exceed any one person’s capacity for understanding and managing all of it. The idea of depending on processes and systems beyond our own understanding is scary for anyone, especially business owners.

This is a phenomenon every generation experiences. From the invention of indoor plumbing, to kitchen appliances, to computers, and to smartphones, there is always an immediate reaction of “I don’t trust it.” That is, of course, until we learn to love the utility these complex systems bring us. Growing complexity requires entrusting parts of your organization to different people and teams, just like we have to trust the businesses that bring innovation into our lives. And as we have learned, sometimes that trust is violated (looking at you, Mark Zuckerberg).

The other barrier to growing complexity is the Veil of Expertise. There is often a gap of knowledge between those who want the utility of a system and those with the capacity to build it. Business owners often assume a system should be as simple and easy to create as it is to use. “Why can you just make this work?” rings in the nightmares of engineers around the world. But the more utility demanded of system, and the simpler it needs to be for the customer, the more effort and time goes into it. Often the patience of both parties expires before the goals can be achieved.

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In the end, many business owners chose to restrict the level of complexity they bring into their business to a level they can personally manage. It’s not necessarily a wrong decision, but it can cause a lot of stress and confusion throughout an organization if it is not made intentionally. If people know there is no desire to grow the complexity of an organization, they can choose if they are good with both the peace-of-mind it brings as well as the restrictions.

Sadly, most business owners, unaware of the choice they are making, torture their employees with demands that literally violate the laws of physics. As complexity grows, they simply demand that the employees “keep up” and “do better.” It makes business owners feel like they have incompetent employees and builds resentment throughout the organization. It creates a culture of blame, distrust, and paranoia as everyone is affected by forces beyond their control. On the bright side, it keeps therapists busy.

How to Be More Complexity Tolerant

Having an organization that can tolerate and absorb complexity is largely a matter of culture. Ironically, becoming more complexity tolerant is not… complicated.

Acknowledge complexity
The first big step is to simply acknowledge complexity. As discussed, the consequences and effects of complexity in an organization are often misattributed to incompetence. If business leaders first start with the assumption that chaos and inconsistency in an organization are signs of growing complexity, identifying it becomes easier. Not that incompetence isn’t ever an issue, but addressing complexity first makes identifying true performance issues easier as well.

Isolate complexity into roles, processes, and systems
Stop expecting people to manage ever-increasing complexity. Studies have shown that multi-tasking and switching focus is the greatest cause of stress and reduced productivity. For an organization to grow, people need to be able to focus on doing a few things well. Make it a priority to move everything possible into a process or system, and when it’s not possible, assign roles based on areas of common focus.

Assign people to run processes and systems, not process and systems to run people.
The most common reason organizations fail to implement processes and systems is because they implement them backward. Defining a process, or buying software for your team to use, and then expecting them to follow and use it is not realistic. This is because that also creates split-focus. People will naturally end up focusing more on the details of their work instead of using the processes and systems.

The only way processes and systems work is if it’s someone’s job to focus on using and maintaining them. If you create a process, someone has to be in charge of that process. If you implement a system, someone has to be in charge of maintaining and updating that system. A system imposed upon an organization is a despised despot, a system competently managed by someone in the organization is a beloved savior.

Treat your organization like software
Great software products are constantly updating and iterating, and great software teams learn to practice “Agile” methodologies which, in a nutshell, mean that you learn to constantly define, update, test, and implement small changes on a frequent basis. Everyone in an organization should be encouraged and empowered to make or recommend iterative changes to processes and systems. Doing this makes change a part of an organization’s culture and daily habits, as opposed to causing disruptions and internal drama.

Make a Choice

Businesses cannot be internally simple and provide simplicity to customers at the same time. Business owners have to face the need to build internal tolerance for complexity through processes and systems OR make choices to limit growth, reduce utility, or move complexity to the customer. Ultimately, businesses that reject complexity will either fade away or be overtaken by other businesses that absorb complexity better.

Managing complexity intentionally and competently is called elegance, but ignoring it is misery.

You Don’t Have to Take My Word For It…

Here are some more great resources on complexity:
Tesler’s Law: 
http://www.nomodes.com/Larry_Tesler_Consulting/Complexity_Law.html
Energy and Complex Systems Dynamics:
https://pdfs.semanticscholar.org/0030/4d14c3a4cb4da164ab1489b93ef8d31580a5.pdf
The thermodynamics and evolution of complexity in biological systems:
https://www.ncbi.nlm.nih.gov/pubmed/9773494
Explaining the Law of Conservation of Complexity:
http://www.humanist.co/blog/law-of-conservation-of-complexity/
Good Ol’ Wikipedia
https://en.wikipedia.org/wiki/Law_of_conservation_of_complexity