The Collapse of Complex Business Models [View All]

Complex societies collapse because, when some stress comes, those societies have become too inflexible to respond. In retrospect, this can seem mystifying. Why didn’t these societies just re-tool in less complex ways? The answer Tainter gives is the simplest one: 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. Tainter doesn’t regard the sudden decoherence of these societies as either a tragedy or a mistake—”Under a situation of declining marginal returns collapse may be the most appropriate response”, to use his pitiless phrase. 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.

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The ATT guys, part of a company so committed to the sacred dial tone it ran its own power grid, had correctly understood that the income from $20-a-month customers wouldn’t pay for good web hosting. What they hadn’t understood, were in fact professionally incapable of understanding, was that the industry solution, circa 1996, was to offer hosting that wasn’t very good.

This, for the ATT guys, wasn’t depressing so much as confusing. We finished up the call, and it was polite enough, but it was perfectly clear that there wasn’t going to be a consulting gig out of it, because it wasn’t a market they could get into, not because they didn’t want to, but because they couldn’t.

It would be easy to regard this as short-sighted on their part, but that ignores the realities of culture. For a century, ATT’s culture had prized—insisted on—quality of service. Their HR Department worked to identify potential employees who would be willing to cut corners, but the point of identifying those people was to avoid hiring them. The idea of getting into a business where those would be the ideal employees was heresy. ATT, like most organizations, could not be good at the thing it was good at and good at the opposite thing at the same time. The web hosting business, because it followed the “Simplicity first, quality later” model, didn’t just present a new market, it required new cultural imperatives.

http://www.shirky.com/weblog/2010/04/the-collapse-of-complex-business-models/