Lse 2003 Complexity Connectivity

TOWARDS AN ORG.
CONNECTIVITY FRAMEWORK
TOWARDS AN ORGANISATIONAL CONNECTIVITY

FRAMEWORK
Eduardo Castellano
LSE Complexity Research Programme Workshop
15th July, 2003
London School of Economics (UK)
E. Castellano – CONNECTIVITY - LSE Complexity Research Programme Workshop - 15th July, 2003 1
TOWARDS AN ORG. CONNECTIVITY FRAMEWORK
index
Levels of Connectivity
1. Degree of connectivity – The NK model

2. Complex networks pattern of connectivity – Small World
model
3. Quality of connections – SN theory
4. Future Research Lines
index

model
1. Degree of connectivity – The NK model (1/11)

Description
Model conceived by Stuart A. Kauffman (Origins of Order, 1989): It’s a tunable model of fitness
landscapes, based on random boolean networks, designed to capture the statistical structure of the
rugged multipeaked fitness landscapes seen in nature
In the NK model: N represents the number of parts in a system (genes in a genotype...). Each part
makes a fitness contribution which depends upon that part and upon de K other parts among the N;
therefore K represents the number of linkages, connectivity, each gene has to other genes in the same
genotype
If the fitness contribution of each gene is affected by a large number of other genes (K high), the
possible conflicting constraints are both unknown and likely to be extremely complex. The NK model
attempts to capture the the statistical features of such highly interactive epistatic webs with a random
fitness function
Fitness contributions are drawn from a uniform distribution ranging from 0.0 to 1.0
Each genotype has a “fitness” and the distribution of fitness values over the space of genotypes
constitutes a “fitness landscape”

Example (for N=5, K=2)
(*) table extracted from Mitchell A. Potter, http://cs.gmu.edu/~mpotter/nk-generator/


Properties and insights from the NK model
- Landscape Ruggedness and the Complexity Catastrophe:

As K increases, the number of peaks in the fitness landscape increases and the landscape
becomes more rugged (low correlation between the fitness and similarity of genotypes)
K=0 produces a smooth highly correlated landscape with a single peak – ORDER
K=N-1 produces a landscape that is completely uncorrelated and has very many local
optimal peaks - CHAOS
If K remains small while N increases, landscapes retain

high accessible local optima
As both N and K increase, the height of an increasing
number of fitness peaks falls towards the mean fitness:
“complexity catastrophe'‘ appears as a result of
conflicting constraints among the interdependent choices
of the other genes. Those conflicting constraints imply
that optimisation can attain only ever poorer
compromises.
(*) Picture Eve Mitleton-Kelly, Chapter 2


- “Order for Free” and the square root law

Consider a network with N genes, each gene can be activated (1) or non-activated (0). A boolean
network is a model of N binary genes, where each one receives inputs from other genes and it is
governed by a boolean function that defines its state (1 or 0) depending on the activity combination of
those network inputs. Example of network random boolean dynamics with 3 genes:
K=1; ORDER state - networks with ordered dynamics have few

or just a single state cycle attractor to which nearly all of the
possible states flow into.
# states <proport. growth> #genes
K=2; EDGE OF CHAOS - networks with complex dynamics
have multiple different basins of attraction with a distribution of
sizes, some large, some intermediate, and some small.
# states <sqrt growth> #genes
K=3 or more; CHAOTIC state - networks with chaotic dynamics
have many very cycle attractor separate by small basins of
attraction.
# states <exp growth> #genes

- “Order for Free”, perturbations and power law

In a 100,000 node genetic simulation (the approximate number of human genes), the potential set of
states is 1030,000. However, for K=2 in the Edge of Chaos, even with random connections and random
boolean functions, Kauffman and others found that the model would settle down and cycle through a
tiny state cycle with a mere 317 states on it (the sqrt), as it happens in real cells.
Perturbations
When a single gene of the network is
perturbed…
K=1; ORDER state – a very little avalanche of damage

is observed, the perturbation is damped
K=2; EDGE OF CHAOS - avalanches of damage

follow a power law – like in the SOC model
(*) Pictures from Philip
K=3 or more; CHAOTIC state – avalanches of damage Ball, LSE Seminars 2003
follow an exponential law (butterfly effect)

- “Order for Free”, P-parameter and Biased boolean functions (nature of interactions)
P: the fraction of the 2K positions in the Boolean function with either a 1 response or a 0
response, whichever is the larger fraction, P will range from 0.5 to 1.0. The deviation of P
above 0.5 measures the internal homogeneity of the Boolean function. (A=5/8)
CBF: These functions have at least one input that defines the value of the next value of the
regulated gene despite the values of the other inputs. In table – if A is 0, then C will change to
0 despite the input values of A and B. Many real genes use these BBF
The biased degree of the boolean

function has been suggested as a
measure equivalent to the
Strength of Couplings in Social
Network Theory
(Marion, 1999; Boisot & Child,
1999)

Properties and insights from the NKCS model
- Co-evolution between different species in the NK model and SOC:

Consider two species with certain coupling between its
landscapes. As the first specie searches higher fitness
peaks in its fitness landscape, it changes the fitness
landscape of the second specie (fly-frog).
This co-evolving system present a 2 states of behaviour
(order, chaos, and a transition phase)
From the simulations it can be seen that through the co-evolutionary dynamics each specie adapt
its K towards the transition phase (Edge of chaos) becoming more efficient – showing a power
law distribution of avalanches in the extinction events (SOC – Self Organised Criticality).
Other examples of co-evolutionary models that exhibit similar

avalanche potential laws:
Natural extinctions of species in the last 650 mill. years; Power
grids outages; Stock economic fluctuations (S&P 500); Traffic
fluctuations; Technology and Products growth rates; Organizations
growth rates…

Properties and insights from the NKCS model
- The effects of C and S:
Emergence is a process of adjusting, with its ultimate outcome being the Nash equilibrium.
During the emergence stage, species engage in a pre-Nash dance in which they compete for
position in the network:
- For K>C, short pre-Nash dance

(High K, quickly lock-in in a sub-optimal peak)
- For K<C, very long pre-Nash dance
- After Nash is achieved, low K players do better
- As S increases, the pre-Nash dance takes longer and even not obtained. Also the mean
fitness of the organism in the network decreases
(*) See McKelvey, “Avoiding Complexity Catastrophe in Coevolutionary Pockets: Strategies for Rugged Landscapes”, ORG SCI 1999
for a complete description of K-C-S effects in the Organizations and Firms Strategy context: K≈C and slightly lower than competitors
1. Degree of connectivity (9/11)

Properties and insights from other random Boolean network models
- The Origin of Auto-catalytic Nets: (…very close to the idea of Small World netwoks)
Consider a reaction between two chemicals being catalyzed by a third. A collection of chemicals, where
each reaction between two of its number is catalysed by another member of the same collection, is
called an auto-catalytic set. Kauffman argues that such auto-catalytic sets are to be expected to occur
via natural self-organizational processes.
Now imagine strewing a multitude of buttons randomly about a bare floor. Now pick two buttons at
random and join them by a thread. Put them back. Choose another two, connect and return them.
Continue this process, keeping track of the number of buttons in the largest connected cluster.
Kauffman's computer models of this experiment show that this largest connected cluster grows slowly
until the number of threads is a little more than half the number of buttons. Then, suddenly, it grows
large very quickly. Plotting a graph of maximal cluster size against number of threads yields a steep S-
curve.
Kauffman calls the resulting graph a reaction network. Kauffman asserts that beyond some level of
complexity (critical mass of diversity), autocatalytic sets can be expected to emerge spontaneously,
much as the large maximal cluster did in our random graph.
On this view, life emerges as a phase transition in sufficiently complex reaction systems. Also seen in
Economic networks as a driver of growth creation.

Conclusions
The NK model is a is a simple model (based on homogeneous random Boolean networks)

but powerful framework to place different complexity principles in:
edge of chaos, degree of connectivity, interdependence, emergence and self-
organisation in the creation of new order by auto-catalytic sets, co-evolution and
SOC NKCS model, exploration of the space of possibilities and adjacent
possibilities, …
It has been applied to several organizational science domains:

knowledge, innovation, technology, centralized-decentralized org. forms,
modular product and process design, strategy…
It can be useful to analyse the quality of connectivity connections (SN Theory) in terms of
the Complexity framework (P-parameter and biased Boolean functions)

Some critics
“…Every parameter of the NK[C] model is a much simplified approximation of a real world event in a firm. Thus the
validity of the model leaves much to be desired. Nevertheless, the NK[C] and other agent based models may offer useful
insights about adaptive progression in coevolutionary groups of firms as the models are reformulated to improve their
validity”. (McKelvey, “Avoiding Complexity Catastrophe in Coevolutionary Pockets: Strategies for Rugged Landscapes”,
ORG SCI 1999)
From the IT-Lagecy System Project: “ It should be noted that this kind of modelling has certain limitations. Although the
frequency of interactions was studied, the quality of the interactions could not be taken into account (since the
connections can have only two values 0 or 1). Consequently, as it stands, the NKCS model cannot account for what the
people gain from the interactions and whether their perceptions before and after the discussions are any different. As the
issue of the quality of interactions is of the essence in this kind of research, we concluded that the NKCS model, cannot
inform our line of investigations, but only to a limited degree.”
The P-parameter of the NK model can help to differentiate the strength of couplings but this is not enough.
An ABM is necessary to specify more complex cognitive capabilities of the agents and their
interrelationships. For example, type of objects in BLANCHE (Noshir Contractor):
Attributes: is a numerical value, equation(s), that defines a property of a node over time. A node can have
any number of attributes or none at all.
Relations: is a set of numerical values that define interactions between nodes.
Cognitive Attributes: represent everyone’s view of everyone else’s attributes.
Cognitive Relations: represent everyone’s view of every one else’s relations.
index

model
2. Complex networks pattern of connectivity – Small World model (1/4)
“…Recent studies have revealed a surprising result: the

interaction networks displayed by most complex systems are
highly heterogeneous (S. H. Strogatz. "Exploring complex
networks", Nature 410 (2001) 268-276)…
The degree distributions are skewed (i. e. show long tails) so
that most nodes are connected to a few ones and a small
number are linked to many other units. These distributions are
thus very different from the Poissonian shape expected from a
simple (Erdos-Renyi) random graph.
Different types of networks are observed: from exponential to
scale-free (SF) (L. Amaral et al. Proc. Natl. Acad. Sci. USA, 97
(2000) 11149-11152) indicating different basic types of
organization. Additionally, complex nets also display the so-
called small-world (SW) effect: they are highly clustered (i.e.
each node has a well-defined neighborhood of ``close'' nodes)
but the minimum distance between any two randomly chosen
nodes in the graph is short, a characteristic feature of random
graphs (D. J. Watts and S. H. Strogatz. Nature 393 (1998)
440-442)…” (Ricard V. Sole web page about networks, 2003)

“Ordinarily, the connection topology is assumed to be either completely regular or completely random.
But many biological, technological and social networks lie somewhere between these two extremes…
We find that these systems can be highly clustered, like regular lattices, yet have small characteristic
path lengths, like random graphs. We call them ‘small-world’ networks, by analogy with the small-
world phenomenon (popularly known as six degrees of separation)”
“Procedure: Starting from a ring lattice with n vertices and k
edges per vertex, we rewire each edge at random with
probability p. This construction allows us to ‘tune’ the graph
between regularity (p=0) and disorder (p=1)…”
“We quantify the structural properties of these graphs by their

characteristic path length L(p) [measures the typical separation
between two vertices in the graph (a global property)] and clustering
coefficient C(p) [measures the cliquishness of a typical neighborhood (a
local property)]”:
Regular networks: High clustering (robustness) but low global
connectivity (low spread of information…)
Random networks: Low clustering but high global connectivity
Small world networks: there is a broad interval of p (the introduction of a
few long-range edges) over which L(p) is almost as small as Lrandom
(high spread of information) yet C(p)>>Crandom (robust). [Watts & Strogatz, 1998]
Properties
Most of these SW networks exhibit power law connectivity
distribution (LAN Amaral, 2000, Scale Free Networks - AL
Barabasi, 1999). They are highly stable under random removal
of nodes providing an extraordinary resilience against failure of
individual units, but also highly fragile under intentional attack
directed to highly-connected nodes (AL Barabasi, 2000).
Examples
Collaboration graph of actors, electrical
power grid western USA, human language,
scientific citation and collaboration networks,
social network (6000 M – 6 steps), WWW
(1700 M – 19 steps), topology of food webs,
cellular and metabolic networks, Zipf law
(size and freq. of cities, firms), Pareto law
(rent distribution in a country, rent distribution
in the world wide)…
In the Social Network Theory, R. Burt “Structural Holes Theory and Social Capital” - shows some
implicit drivers/rewards to create this kind of topologies [Burt, 1996, 2000]:
Structural holes separate non-redundant contacts/partners, creating bridges and shorter paths
Structural hole theory describes how the structure of a network is a competitive advantage for certain people
over others
People better connected across structural holes are better positioned to broker the flow of information, and
unlike exchanges creating entrepreneurial opportunities for third parties
index

model
3. The Quality of Connections – Strength of couplings (1/2)

Depending on their strength (amount of time, frequency of interaction, emotional intensity,
similarity, mutual trusting, reciprocal services…) different properties may arise – SN Theory:
Tight couplings (strong ties) within networks Loose couplings (weak ties) within networks create
facilitate local cohesion, homogeneity- bridges and shorter paths between non-redundant
cliques and the diffusion and exploitation of dissimilar partners, facilitating heterogeneity,
codified knowledge novelty and diversity creation (tacit knowledge)
EXPLOITATION DRIVERS: EXPLORATION DRIVERS:
Current competencies, productivity, Develop new capabilities, flexibility, ability to

efficiency, standardization, optimization of change and innovate, generalists…
linear processes, best practices, TQM,
economies of scale, specialists…
Both are needed in order to solve the paradox of stability and change (EvE dilemma):
Strong ties for the exploitation and maintenance of existing identity, knowledge and practices, with
a certain amount of control and coordination (integrated org forms), and weak ties for the
exploration of novelty and diversity, innovations and change, agent diversity -The pool of weak ties
(Granovetter, 1973) among agents and weak-tie “bridges” across structural holes (Burt 2000)-,
with a loosening of control and coordination (dissintegrated org form of autonomous units).
Uzzi (1997) shows that the best advantage, the more effective networks within or across groups,
comes from an optimal mixing of weak (novelty) and strong ties (efficiency).
3. The Quality of Connections – Strength of couplings (2/2)
Agents in general may be defined as behaving in a threshold-gate manner - Cohen and

Levinthal’s (1990) “absorptive capacity” acts as a threshold gate (capability of absorbing new
technical information). High threshold gates turn weak-tie fields into no longer working
connections.
Nooteboom (2000) relates the concept of absorptive capacity to the “cognitive distance” in the
context of effective communication and knowledge diffusion: Outside sources of complementary
cognition require a “cognitive distance” which is sufficiently small to allow for understanding
(strong ties) but sufficiently large to yield non-redundant, novel knowledge (weak ties).
index

model
4. Future Research Lines (1/4)
To establish a bridge between the border areas of Complexity, Networks and Organization
Sciences Domains. Identify research gaps, as well as search for new insights and synergies
within them to extend their theoretical frameworks…
Relationship between the Social Sciences’ Exploration vs. Explotation Org. Cycle , the New
Org. Forms Models, and the Complexity NK model relationship, to identify the correct degree
of intra&inter-org. connectivity as a function of the environment context.
Relationship between the Social Capital Concept from the Social Theory and the Complexity
Small World (SW) Model patterns and dynamics.
Relationship between Social Network Theory strength of couplings, EvE Cycle and
Complexity Models (NK and SW models).

Relationship between the Social Sciences’ Exploration vs. Explotation Org. Cycle , the New
Org. Forms Models, and the Complexity NK model relationship, to identify the correct degree
of intra&inter-org. connectivity as a function of the environment context.
Exploitation alone leads to an org. becoming better and better at an increasingly obsolescent technology, but is
required to survive in the short term. Exploration alone leads to an org. that never realizes the advantages of its
discoveries, but is also required to survive in the long term. Exploitation requires the maintenance of existing
identity, knowledge and practices, with a certain amount of control and coordination, and exploration requires
their change, with a loosening of control and coordination. The EvE Cycle (exploration vs. exploitation cycle)
links both Exploration & Exploitation through a path of 5 stages (consolidation, generalization, differentiation,
reciprocation, novel combinations) that explains the process of novel structures emergence in the context of
Innovation Systems Theory, Theory of Life Cycles and Evolutionary Economics. The EvE Cycle should be
analysed under the framework of the Complexity concepts and the NK model in order to profound in its
properties and give further insights about its dynamics.
Associated with the different stages of the discovery process there are different entrepreneurial modes:
disintegrated forms of organization (decentralized forms - loose couplings/weak ties within network that facilitate
diversity, turnover…) perform best in the turbulent stage in which novelty arises, while more integrated forms
(centralized forms - tight couplings/strong ties within network that facilitate diffusion and exploitation of
knowledge) are best in the stage of consolidation. New Org. Forms balance both opposite dynamics in an
unique organizational structure; creating the discontinuities of novel combinations by means of decentralization
of autonomous divisions with suffiently weak ties, and to benefit from its advantages of integration, by
maintaining a capability for systemic alignment, with strong ties, in the later stages of consolidation and in the
stage of generalization.
Relationship between the Social Capital Concept from the Social Theory and the Complexity
Small World (SW) Model patterns and dynamics.
In the Social Network Theory, R. Burt “Structural Holes Theory and Social Capital” states that, in the
organizational context, structural holes (weak connections) separate non-redundant contacts/partners, creating
bridges and shorter paths. Structural hole theory describes how the structure of a network is a competitive
advantage for certain people over others; people better connected across structural holes are better positioned
to broker the flow of information, they have higher social capital, creating entrepreneurial opportunities for third
parties; and shows some implicit drivers/rewards to create this kind of topologies in the context of Social
Sciences.
What Social Network Theory call cliques and bridges, are named as clusters and long-range edges in the SW
model. The same network patterns have been identified in both science domains. This coincidence should be
explored in further detail.
Relationship between Social Network Theory strength of couplings, EvE Cycle and
Complexity Models (NK and SW models).
Social Network Theory exposes that depending on the quality of connections or strength of couplings (defined
as amount of time, frequency of interaction, emotional intensity, similarity, mutual trusting, reciprocal
services…) different properties may arise:
Tight couplings (strong ties) within networks facilitate local cohesion, homogeneity-cliques and the diffusion
and exploitation of codified knowledge. This explains the existence of the clusters found in the SW model. And
also can be interpreted as Exploitation Drivers (EvE Cycle), needed for the short term survival; current
competencies, productivity, efficiency, standardization, optimization, best practices, economies of scale,
specialists…
Loose couplings (weak ties) within networks create bridges and shorter paths between non-redundant
dissimilar partners, facilitating heterogeneity, exploration of novelty, diversity creation and tacit knowledge. This
explains the existence of long-range edges found in the SW model. And also can be interpreted as
Exploration Drivers (EvE Cycle), needed for the long term survival; new capabilities, flexibility, ability to
change and innovate, generalists…
A first look over these ideas shows that the SW Model network pattern of clusters and long-range edges, from
the Complexity Science, has its origins on the necessity of solving the paradox of (short term) stability and (long
term) change of the Exploration vs. Exploitation dilemma, and, as the Social Network Theory states, this can be
achieved through an optimal mixing of strong ties (cliques – efficiency short term exploitation drivers) and weak
ties (structural holes bridges – novelty long term exploration drivers). Further research should be developed.
Main references (1/2)

NK model
S. Kauffman (1993) “The Origins of Order: Self-Organization and Selection in Evolution”. Oxford
University Press
S. Kauffman (1995) “At Home in the Universe: The Search for Laws of Self-Organization and Complexity
Investigations”. Oxford University Press
S. Kauffman (2000) “Investigations”. Oxford University Press
B. McKelvey (1999) “Avoiding Complexity Catastrophe in Coevolutionary Pockets: Strategies for Rugged
Landscapes”, ORG SCI, Vol. 10 (3)
Small World models

L. Amaral et al. (2000) “Classes of behavior of small-world networks” Proc. Natl. Acad. Sci. USA, 97,
11149-11152
A.L. Barabasi., R. A. Albert and H. Jeong (2000) “Error and attack tolerance of complex networks” Nature,
406, 378-382
A. L. Barabasi and R. Albert (1999) “Emergence of Scaling in Random Networks” Science 286, 509-512
R. Burt (2000) “Structural Holes versus Network Closure as Social Capital”, chapter in Social Capital:
Theory and Research edited by N. Link, KS Cook and R. Burt. Aldine de Gruyter (2001). See also in
Financial Times 5/10/96 “The Social Capital and Entrepreneurial Managers”
D. J. Watts and S. H. Strogatz. (1998) “Collective dynamics of small world networks”, Nature 393, 440-
442
Main references (2/2)

Strength of couplings
M.S. Granovetter (1973) “The strength of weak ties”, American Journal of Sociology, Vol 78 (6)
B. Uzzi (1997) “Social Structure and The Paradox of Embeddedness”, Administrative Science Quarterly,
Vol. 42 (1)
Threshold, absorption capacity, cognitive distance

M. Boisot, J. Child (1999) “Organizations as Adaptive Systems in Complex Environments: The Case of
China”, ORG SCI, Vol. 10 (3)
W.M. Cohen, D.A. Levinthal (1990) “Absorptive Capacity: A Bew Perspective on Learning and
Innovation”, Administrative Science Quarterly, Vol. 35 (1)
B. Nooteboom, (2000) “Learning and Innovation in Organizations and Economies”, London, Pinter
Other general refs

R. Marion (1999) “The Edge of Organization”. SAGE Publications
RV Sole web page, nets: http://complex.upf.es/~ricard/complexnets.html

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TOWARDS AN ORG.

TOWARDS AN ORGANISATIONAL CONNECTIVITY

1. Degree of connectivity – The NK model

1. Degree of connectivity – The NK model

1. Degree of connectivity – The NK model (1/11)

1. Degree of connectivity – The NK model (2/11)

(*) table extracted from Mitchell A. Potter, http://cs.gmu.edu/~mpotter/nk-generator/

1. Degree of connectivity – The NK model (3/11)

- Landscape Ruggedness and the Complexity Catastrophe:

If K remains small while N increases, landscapes retain

(*) Picture Eve Mitleton-Kelly, Chapter 2

1. Degree of connectivity – The NK model (4/11)

- “Order for Free” and the square root law

K=1; ORDER state - networks with ordered dynamics have few

1. Degree of connectivity – The NK model (5/11)

- “Order for Free”, perturbations and power law

K=1; ORDER state – a very little avalanche of damage

K=2; EDGE OF CHAOS - avalanches of damage

1. Degree of connectivity – The NK model (6/11)

The biased degree of the boolean

1. Degree of connectivity – The NK model (7/11)

- Co-evolution between different species in the NK model and SOC:

Other examples of co-evolutionary models that exhibit similar

1. Degree of connectivity – The NK model (8/11)

- The effects of C and S:

- For K>C, short pre-Nash dance

1. Degree of connectivity (9/11)

1. Degree of connectivity (10/11)

The NK model is a is a simple model (based on homogeneous random Boolean networks)

It has been applied to several organizational science domains:

1. Degree of connectivity (11/11)

1. Degree of connectivity – The NK model

2. Complex networks pattern of connectivity – Small World model (1/4)

“…Recent studies have revealed a surprising result: the

2. Complex networks pattern of connectivity – Small World model (2/4)

“We quantify the structural properties of these graphs by their

2. Complex networks pattern of connectivity – Small World model (3/4)

1. Degree of connectivity – The NK model

3. The Quality of Connections – Strength of couplings (1/2)

EXPLOITATION DRIVERS: EXPLORATION DRIVERS:

Current competencies, productivity, Develop new capabilities, flexibility, ability to

3. The Quality of Connections – Strength of couplings (2/2)

Agents in general may be defined as behaving in a threshold-gate manner - Cohen and

1. Degree of connectivity – The NK model

4. Future Research Lines (1/4)

4. Future Research Lines (2/4)

4. Future Research Lines (3/4)

4. Future Research Lines (4/4)

Main references (1/2)

Small World models

Main references (2/2)

Threshold, absorption capacity, cognitive distance

Other general refs

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