The Adaptive Cycle is a seminal model for the global ecological and resilience community. It is not a new or obscure theory; although I am relatively sure this is new territory for most business consultants. The foundational models I have been using for (redacted) are a synthesis of theory and practice that represent a multi-disciplinary approach to the complexity and uncertainty inherent in 21st century. Our understanding of how these models work and how they interact is a work in progress. It is an opportunity for (redacted) to develop additional concepts and ideas that increase our ability to respond to emerging problems and opportunities facing our clients.
The Life-Cycle Model (C.S. Holling, Panarchy) : The model is all about resilience. It describes the typical life-cycle of an ecological system such as a coniferous forest or, for our purposes, a business.
It can be two dimensional showing connectivity and capital accumulation, or three dimensional showing connectivity, capital, connectivity and resilience. For a quick (3 min.) and very user-friendly video of the cycle click here Hamilton. Ohio State applies the adaptive cycle to resilience in the power grid, and its concept of “enterprise resilience” as it relates to business:
A resilient enterprise continues to grow and evolve in order to meet the needs and expectations of its shareholders and stakeholders. It adapts successfully to disruptive changes by anticipating risks, recognizing opportunities, and designing robust products and processes.
Today the Adaptive Cycle is a qualitative model, meaning there are no numbers on the axes.That’s why we can’t specify or predict, with any precision, where a business may be in the strip at any given time. Its value lies in providing the client with better insights into the operating environment, to better understand the cyclical nature of business.
The Adaptive Cycle Model, however, much more robust than the BCG model. It can be used to explore different elements in a corporation’s hierarchy of subsidiaries or lines of business, hence the term Panarchy… multiple hierarchies.
“The cross-scale, interdisciplinary, and dynamic nature of the theory has led us to coin the term panarchy for it. Its essential focus is to rationalize the interplay between change and persistence, between the predictable and unpredictable.”
I just call it the Adaptive Cycle Model. “Panarchy” sounds a little pretentious.
“Nested” cycles show that the life-cycle can be in different stages in different hierarchies within an organization (think: maturity of subsidiaries in a corporation). This helps us think about thresholds, tipping points, strategies to forestall catastrophic failure and strategies for recovery should a systems-wide catastrophic failure take place.
To factor in “resilience” we add a 3rd dimension. Now the graphic depiction of the model gets a little hairy. The logic of the model, however, is quite simple: when capital and connectedness are at a maximum, resilience is at a minimum.
You have accumulated wealth. The business is mature, and you have become very good at what you do. You have “optimized” your potential. The network of buyers and suppliers, your channels of distribution, etc. are well-connected and also optimized. Everything is “wired together.” All waste or slack is taken out of the system. However, the cost for this optimization severely degrades your ability to absorb shocks (internal or from the external environment).
Any business whose strategy is to optimize capacity has to consider a trade-off between resilience and connectedness; and between optimization and slack in the system. As the system is optimized it also becomes fragile and vulnerable to catastrophic failure.
“…a catastrophe is a sudden, discontinuous change in the system and in its environment. It is an event that may be anticipated, but cannot be predicted, at least with any degree of precision as to when or where it will take place..”
It is sort of like a marble rolling off a table top. One second it’s there, the next…It’s gone. That’s a step change. Recovery, back to the original equilibrium point may neither be possible nor desirable…depending on the significance of the change. Insight: sometimes it pays to fail gracefully rather than wage a losing battle. Automakers incorporated this strategy in cars designed to crumple on impact.
Today’s “Gremlins” — Complexity & Uncertainty
Consider an airline that has fine tuned its daily flight schedule and passenger seat pricing with yield management techniques. The strategy is set to optimize asset deployment and return on investment for a flight. And that works very well until the system becomes destabilized .
One or more planes “go down” and become inoperable as they experience unexpected equipment failure and are grounded. Depending on a number of factors, like degree of connectivity and interdependency, you might see phenomena called “cascading failure” as the failure of one “node’ (or the grounding of one airplane) cascades through the system scrambles connecting flights and strands ticket holders awaiting the grounded airplane.
The chief scientist for a corporation that pioneer airline yield management described the problem: “John, I made a fortune for airlines through incremental increases in pricing and scheduling strategies over the years. The result was a very fragile system.”
You will see similar examples of these phenomena in the electric grid, the financial market (systemic risk), and in the spread of contagion through pandemic, counterfeits entering the supply chain or adulterated food in the supply chain.
.The Adaptive Cycle model can certainly help us better understand this environment. And while this particular model does not have the precision to offer pinpoint predictions, it is a way of introducing concepts like hedging and real options theory, which do have predictive value and can offer an acceptable level of quantification around strategic or tactical alternatives over time.
And as you might guess, network theory and other tools in our complexity tool box can provide insights and “what if” alternatives to re-wiring highly complex time dependent systems such as yield management systems. The pertinent question is no longer focused on optimality; rather, the focus shifts to expediency and survivability. The beauty of network theory is that it can add value to describing an enormous number of problems and opportunities.
The same theory holds for commercial aviation, the layout of cities and its use in urban planning, supply chain applications are almost infinite, and its military applications (some of which business can borrow) are the foundation of “netcentric operations” where real-time communications link levels of command on the battle field. And as you might surmise, network theory is the foundational theory for communication systems and, more recently has been incorporated in to social media analysis. The Adaptive Cycle Model can be used to explore a variety of management and policy issues.
For example, Holling said his model looked at “the tensions between change and persistence.” In modern management parlance we can examine the problems with “path dependent” behavior. The theory is simply this: past events (it could be in the use of certain technologies or success with certain business models or market strategies, or even the business development model that uses CREs) set corporate patterns. Whole complex processes are developed and interconnected to optimize the path or pattern. This sort of connectivity can deliver brilliant results or, as the environment changes, be ultimately fatal to the institution.
The quintessential example is taken from Barbara Tuchman’s Guns of August (1962) that once German mobilization for World War One began, an activity that was inexorably tied to precise and highly interdependent actions synchronized with the German railroad operators, it could not be stopped without throwing the entire mobilization into chaos taking weeks to recover. In the mean time leaving Germany helpless to respond to any attack. Once they started to mobilize there was, literally, no turning back without complete and utter confusion. War was inevitable.
Path dependency is a phenomenon that occurs when there is no physical or intellectual slack is built into the system. “In the strongest version of path dependencies, path transformation is presumed to be highly unlikely except through rare radical ruptures or re-orientations, which are associated with violent external shocks.” 
Are there theories and tools to help overcome path dependency risk and the other risks associated with highly connected and interdependent systems?
Into The Matrix – Adding new tools and perspectives
The Matrix is another foundational model. In this case, it is my own design. I wanted a way to portray the right tool or approach for the right level of complexity and uncertainty. One of the things we see with successful consulting firms is the tendency toward a certain path dependency of their own when it comes to preferences in models and approaches.
Or like Warren Buffet said, “Beware of Geeks Baring Formulas.”
There is an overwhelming bias (Kuhn would say it is a product of our “received knowledge” that we learn from school through professional certification to client engagement) toward focusing our problem solving approaches inside the red circle of The Matrix.
The tools inside the red circle, e.g. cost-benefit, linear programming, ROI, predict-then-act models etc., do not work in environments exhibiting high levels of complexity and uncertainty, e.g.. complex adaptive systems (aka CAS). They work for the industrial engineer dealing with relatively simple systems designed and run by human beings. The value of the Tool Matrix is that it puts methods, and client expectations, into a realistic perspective.
And yes, it has been used by me and with my clients at the Department of homeland Security, Science & Technology Directorate, Risk Sciences Division. I introduced this model to the client along with some of the ideas of Thomas Kuhn on paradigmatic shifts (another of my foundational models). Homeland Security generally faces extremely high levels of complexity and uncertainty often called “wicked problems.” The vehicles for introducing these concepts included white papers, presentations and a lot of talks with the client. You need to cultivate a ‘trusted advisor” relationship to walk the client through ideas which may be foreign and even threatening at times.
And what was the outcome? It started to change how people thought about risk at DHS. The objective was to influence the client organization to “reach beyond” the status quo. The term “wicked problem” was introduced into the lexicon, seminars usually dominated by traditional operations research and decision sciences models now talked less about probabilities and the rational choice model as assumptive conditions. Complexity science became a research track joining operations research and decision sciences at DHS’ centers of excellence.
These are the 5 models from which I have drawn many underlying themes and ideas in my work on complexity and resilience. They are mutually supportive….they fit together to present what I think is a coherent whole
First, increasing complexity is not a passing fad. It is the new norm and it continues to produce high levels of uncertainty and change that are challenging the basic assumptions that made us successful in the past.
Second, change is not continuous or smooth. It comes in bursts. It is like a house cat that sleeps most of the day and then, suddenly starts “bouncing off the walls” That’s why we are so interested in agility and resilience.
Third, the market is brutally efficient. As the prevailing paradigm fails it will be replaced by new norms, assumptions, values and expectations. What doesn’t work is replaced – that’s evolution. That holds true for business models, political constitutions, and consulting firms. The irony is that while CAS are inherently unpredictable, there is a deterministic certainty that we can’t avoid complexity, and that we need to build in resilience in our systems/businesses if we want to make the evolutionary “cut.”
Forth, all risk is transitive. If you are at risk on the Internet, and I depend on you, then I too am at risk.
 John Marke, April 2013, draft paper
 Gunderson and Holling, Panarchy: Understanding Transformations in Systems of Humans and Nature, Chapter 1, p.5, reproduced at Resalliance.org.
 Technically speaking the arrow depicting resilience is pointing in the wrong direction. The convention is to point from the (0,0,0) coordinate outward toward either a positive or negative integer. Resilience is at a minimum when wealth and connectedness peak. When resilience is at a maximum, connectedness and wealth are at a minimum and the system exhibits the greatest potential to grow and adapt.
 Gremlins are mythical little creatures that are said to live solely to infest mankind’s machinery and tear it apart. Especially found around airfields or on airplanes, as they originated as a story told by British pilots to explain various mechanical failures on their planes.
 Our econometric models, by and large, are based on the assumption of stability and equilibrium, assumptions that rarely hold true for complex adaptive systems.
 Marie-Laure Djelic, Sigrid Quack, Overcoming Path Dependencies: Path Generation in Open Systems: in Theory and Society, 36(2) 161 – 186, (2007) Springer
 Not enough time/space to adequately address all of the models in detail or how they support each other.