Fish, Pandas and Finance – Applying Complexity Science as an Everyday Practice  

We gathered in a semicircle in a classroom at Regents University – sun streaming through the windows.

Orit Gal, Professor of the Complexity Studio at Regents University, beamed with her red hair and big smile at the front of the room:   “I want to share with you that fish are not a species.   In actuality there are certain fish that have more DNA similarities to a banana than they do other types of fish! Their ‘sameness’ is defined by the constraints of their environment.

I’d like to ask you – what are the constraining factors of the ‘ecological diversity’ of the finance system?   How are you growing new niches in finance? What ‘fitness’ criteria are needed for their growth? Where is there movement for change in the system?”

Understanding complex systems is essential if we are going to address today’s ecological, economic and social challenges.   For too long we have seen the world as a machine. For too long we have attempted to solve our problems in this way.     If we are going to radically change our systems we need to understand and align to how the world really works and design our change strategies accordingly. And we need to learn from complex systems that work well – like nature.

Working in partnership with The Complexity Studio, The Finance Innovation Lab and its’ community are building their capacity to apply complexity science to practical action.  We gathered specifically to talk about ‘How do we grow new niches in the finance system’? We are particularly interested in this question as The Finance Lab gears up to launch The Finance Foundry in 2015. The Finance Foundry is 9 month incubation programme that will help to grow and scale new business models in finance that have a positive impact.

So what did we learn from Orit and the Complexity Studio that we will apply to our work? What new questions do we have that we’d like to explore further?

A better understanding of a complex system

So what is complex system? A complex system is any system whereby:

  • There are many simple actors who together make the whole
  • There is no one central controller or ‘set design’
  • There are many interactions between actors and some interactions may have surprising effects
  • The actors learn and evolve over time which leads to all kinds of dynamics

The financial system is a complex one. It has no one ‘designer’, it is prone to unexpected outcomes from small perturbances and there are many actors working at a local level.

To understand complexity, one needs to comprehend dynamics, relationships and patterns . Understanding ‘process’ is as important as understanding ‘content’ in complex systems.

The reality is that we can’t control the financial system.   The best we can do is to ensure that we nurture diversity in the system – and diversity that has the qualities that are relevant to today’s context – such as social, ecological and economic fairness, equality and responsibility.

Andy Haldane of The Bank of England speaks of the need for a diverse system in this FT article and in The Transforming Finance Video – “In complex systems, diversity matters more than diversification”.

There are multiple players making local decisions

It is impossible to ‘work at a systemic level’ because a system is made up of a collection of all local actions. This means that no one person is really to blame for financial system failure and dysfunction.   We all make up the system.   And we all have responsibility to take for our local actions.

However it is true to say that in complex systems there are ‘nodes’ or ‘super-spreaders’ of influence and power that influence a system in unique ways. In the financial system this could be actors such as investors, media, civil society entrepreneurs and policy makers.

Key Questions:

  • What responsibility do we have for our own role within the system?
  • Who are the key nodes or super spreaders who can positively or negatively influence systems change?

Thriving species need to be able to fit within existing environment

What are the fitness criteria of ‘species’ or organisations who thrive in an ecosystem?

As Orit explained, Panda’s actually have a very low fitness criteria. They should be extinct as they have not been able to evolve fast enough to cope with the pressure on their habitats. However they have been able to survive because of their ‘cuteness’ (and thanks to WWF’s work!). This is their new fitness criteria.

As we have seen in banking, the large banks are scurrying to adapt their business models or ‘fitness qualities’ in a rapidly changing landscape.   In a world which is seeking values of responsibility, relationship and relevancy we are seeing those banks such as crowdfunders, peer to peer and local banks thrive. They have fitness qualities that have opened new opportunities for expansion and growth compared to thebig incumbent banks.

Key Questions:

  • What is the new fitness landscape of the financial system?
  • What qualities do leaders and organisations need to evolve the new AND work within the existing reality?

Constraints on ecological diversity

As we saw with the fish analogy – the water that the fish swim in is the constraining factor in their development.   In complex systems it is important to pay attention to the constraining factors and to understand the emerging niches unique role in that system.

For example, Ryan Air is a great demonstration of how a new niche has developed a unique role in the system and has worked within current ecological constraints. At the end of Cold War there were many Airforce bases that were close to London but were left as an underutilised asset.   Many of the big incumbents like British Airways or Virgin could not take advantage of this untapped resource. One reason being – – these airports were too small and far away from city centres to be meet existing client expectations from major airlines.   This opened space for the low cost carriers, or new niches like Ryan Air, to take advantage of this valuable resource in the ecosystem. This led to the complete disruption and shift in the aviation sector.

Key Questions:

  • What are the key constraining factors in finance – the equivalent of water?
  • Where is the potential for new niches to grow within these constraints?

Evolution is constrained by existing conditions and propelled by emerging ones

It is important to look at the political (power), cultural (attitudes), economic (prices and values) and organisational (infrastructure of system) dynamics that are changing over time in a system. Where are the shifts occurring? In the workshop with Orit we mapped systems conditions and came up with some interesting insights around the technology boom, housing needs, decentralization, increasing inequality, vested interest of UK power brokers – all of which are influencing/have the potential to influence the financial l system.

Key Questions:

  • What are the new emerging conditions that are supporting a more diverse finance system?
  • How can a cultural awakening to ‘values based banking’ spur change in the financial system?

How will we apply complexity science to practical action going forward?

We will to continue to develop our application of complexity science in our strategy development and our learning and evaluation. This will help us make better decisions on how we can help our community intervene and accelerate change. In particular, we will be paying close attention to the ‘fitness criteria’ we need to incubate in the new business models through the Finance Foundry as well as what conditions are needed ‘to scale’ these new niches.

So keep an eye out for more activities in the future including workshops and talks that The Finance Lab and Regent University’s Complexity Studio will be hosting around the application complexity science.

Orit’s top tips for learning more about complexity science

Adapt – Tim Harford

A New Philosophy of Society- Assemblage Theory And Social Complexity: Manuel Delanda

Complexity: A Guided Tour Melanie Mitchell

History of Future Cities – Daniel Brook

Santa Fe Institute (free online course on complexity)