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Tag: network actors

On energy loss in a system

Every system is in its essence a network of actors that perform it from moment to moment into existence. The participants in the system, or actors in the network, enact and perform it through their daily routine operations.

Some of these routine operations are beneficial to the system being performed, and some are not. Some add to the energy of the system and therefore reduce entropy, while others take away from that energy and increase entropy. If the former outweigh the latter, we can say the system is net positive in its energy balance because it generates more energy than it wastes. If the latter outweigh the former, we can say the system is net negative in its energy balance as it wastes more energy than it generates. How to distinguish between the two in practice?

The rule of thumb is that any action that increases complexity in a system is long term entropic for that system. In other words, it increases disorder and the energy costs needed to maintain the internal coherence of the system and is therefore irrational from the system’s perspective. For example, this includes all actions and system routines that increase friction within the system, such as adding steps needed to complete a task, adding reporting paperwork, adding bureaucratic levels a message must go through, etc. Every operation a piece of information needs to go through in order to travel between the periphery, where contact with external reality happens, and the center, where decision making occurs, comes at an energy cost and generates friction. Over time and at scale these stack up and increase entropy within the system.

Needless to say, the more hierarchical and centralized an organization is, the more entropy it generates internally.

In addition, what appears as a rational action at a certain level is irrational from the perspective of the system as a whole. For example, if a layer of management increases paperwork this is a perfectly rational action for that management layer, because it makes it more needed and important within the system’s internal information flow; however, this is a totally irrational action from the point of view of the system because it increases its internal operational costs.

Put differently, from the point of view of a system such as a large hierarchical organization or a  corporation, the only actions of the agents comprising it that can be considered rational are the ones that increase the net positive energy balance of the system – i.e. reduce internal friction and/or increase external energy intake.

Importantly, this should be viewed across a time axis.

For example, when it comes to a complex operation such as a merger between two departments, or two companies, it might be a good idea to compare the before and after energy net balance for the two systems and the new system that has emerged as a result of their merger. It is also important to look in high enough granularity in order to understand the specifics of each network within the system, and its operations in time.

Say you had two admin structures servicing two different departments, and, now that the departments have merged, senior management optimizes the two admin structures into one, and cuts 50% of the stuff due to ‘overlapping roles’. On the face of it this is logical and should reduce internal energy drag, as admin structures are net negative – they don’t bring in new energy and have no contact with external reality.

However, the new merged admin structure now must service a twice larger part of the system than before, and as a result ends up delegating 30% of that new work back to the front line staff it is nominally servicing. As a result, the front line staff now have to perform 30% more reporting paperwork, which is net energy negative, and that much less time to bring in new energy into the system. In effect, the long-term effects of this ‘optimization’ are net energy negative and result in increased friction within the entire system that was supposed to be ‘optimized’.

Management entropy and the Red Queen Trap

I had an interesting conversation about my essay on the Red Queen Trap with someone on LinkedIn, and it made me think about something I did not explain in the essay.

In an ideal environment each element of a system will be acting rationally and striving towards its own preservation and, by extension, the preservation of the system. Rational action here can be understood as the action resulting in optimal energy efficiency from a given number of viable options, where optimal energy efficiency is a function of the energy that must be spent on the action vs the energy that is gained from performing the action. The scenario I describe in the Red Queen Trap essay is set in such an ideal environment.

However, in the real world individual network actors do not often act rationally towards their own or the system’s preservation. This is not necessarily out of stupidity or malice but is often due to limited information – what Clausewitz called ‘the fog of war’ – or a host of other potential motivations which appear irrational from the perspective of the system’s survival. What is more, the closer an actor is to the system’s decision-making centers, the higher the impact of their irrational decisions on the overall state of the system. The irrational decisions of front-line staff [the periphery] are of an entirely different magnitude to the irrational decisions of senior management [the decision-making center].

In practice this means that in complex hierarchical systems decision-making centers will have much higher entropy than the periphery. In other words, they will be dissipating a lot of energy on internal battles over irrational decisions, in effect actively sabotaging the internal cohesion of the system. As a reminder, the lower the internal cohesion of a system, the more energy the system must spend on performing itself into existence. The higher entropy of decision-making centers may be harder to observe in the normal course of operations but becomes immediately visible during special cases such as organizational mergers or other types of system-wide restructuring.

Interestingly, it is in such special cases when senior management is often tempted to make the internal environment of the system even more competitive – through the layering of KPIs or other means – in order to ‘optimize the system’ and protect its own position in the hierarchy. While on the face of it this appears to be a rational decision, it invariably ends up lowering internal cohesion even further, thereby increasing energy costs and routing even more resources away from the periphery and contact with reality [market competition].