The Fractal Organization: What Complex Systems Have To Do with PPM

In today’s post, instead of just griping, we will focus on our two foundational articles on traditional project portfolio management and make a few initial constructive suggestions. How could a modern “PPM ecosystem” look?

Our suggestion: let’s take a step back and look at basic patterns that emerge when people interact in organizations. Complexity theory is very helpful here. It observes and explains what happens when independent entities interact with each other. This method has been used to explain various physical-technical phenomena such as the butterfly effect, as well as social phenomena such as the destructive arms race between two nations. (For an example, please see Meadows, Donella Thinking in Systems, Chelsea Green Publishing, White River Junction 2008). Complexity theory has also modified some perceptions of “right” and “wrong” in the field of project management. (Please see as an example: Cicmil, Svetlana / Cooke-Davies, Terry / Crawford, Lynn / Richardson, Kurt: Ex-ploring the Complexity of Projects: Implications of Complexity Theory for Project Management Practice, Newtown Square: Project Management Institute (2009)). Accordingly, some tenets of agile project management can be traced back to lessons learned from system and complexity theory.

A Brief Look at CAS

People as a “Complex Adaptive System”

Complexity theory refers to people interacting with each other as a “complex adaptive system” (CAS).  This is characterized by specific properties. Complex adaptive systems have some interesting properties, for example:

• The system is part of a larger system that is organized in a fractal manner.
• Feedback loops: the system makes assumptions about the environment, communicates with it, and learns from the actual result.
• The system organizes itself and is not dependent on a central control instance.
• Emergence: the development of the system is not predetermined.

We would now like to take a closer look at what we can learn from this as related to PPM.

Emergence

Emergence means that something completely unexpected happens in one fell swoop, in or with a system. Thus, emergence is exactly the opposite of control and foresight. This condition emerges precisely when a system has enough degrees of freedom in development, but can, nevertheless, fall back on a certain minimal foundation of set rules. This is exactly what is referred to as “barely sufficient” in agile project management.

Applied to PPM, this means that you should not confront your PPM system with a myriad of rules, such as the previously discussed question lists, complex prioritization rules, set planning maps, or reporting paths; on the contrary, you should define a clear objective, a vision, a beacon toward which all involved can be oriented and can decide for themselves how to achieve this objective.

Fractal

Fractal means that a system is made up of several other systems but obeys the same rules. On close observation, classic fractals such as the Koch snowflake always consist of identical, repeating structures. Accordingly, a fractal organization consists of elements that are subject to the same rules as their children. But what does that mean for PPM?

• In continuation of our foundational articles on PPM [1, 2], the PPM system is a nesting of various systems such as departments, business divisions, or domains.
• Each system acts for itself autonomously.
• Each system must “play by the same rules.”
• Communication between systems takes place on one level.

Communication with the Environment

In a CAS, communication with the environment takes place. The internal system develops a system of rules with which it tries to predict the environment, its functional principle, and its reactions. It gives impulses to the environment, receives a result, and, based on feedback, recognizes whether the system of rules needs to be adjusted. When applied to PPM, this results in the following findings:

1) Communication from external to internal

• The external system represents the environment. This means that the external system supplies all resources such as money, people, and materials with which the internal system can develop itself.
• The communication takes place in the form of an exchange about priorities and results: in accordance with the theory on complex systems, the external system cannot specify exactly how the internal system solves its task, but can provide objectives/vision/guiding principles to indicate to the internal system the direction in which development should proceed.
• As a consequence of this non-interference with the priorities and operating procedures of the internal system, it becomes clear that the external system cannot assign exact amounts and/or time requirements, but rather can distribute the available resources relatively across all internal systems. So the external system does not decide: “€200,000 for the next year for project A of department 1,” but rather: “in the next quarter, 70% of available money will be used for initiatives of department 1, and the department will also receive external resources as needed.”

2) Communication from internal to external

• As a consequence of the learning process, the internal system will always provide the presumably best answer to the external challenges. If the system can present project results as possible answers, it will inevitably always attach the greatest importance to the project that promises the most benefit. The clear result is that in PPM, from the perspective of complexity theory, it is not possible for a previously specified plan to be followed; instead, a series of projects, a backlog, is compiled and constantly reprioritized. In contrast to traditional PPM, the prioritization is not carried out from “top to bottom,” but rather from “bottom to top” – as a response by the internal system to the objectives from the external system.
• When the results are being presented, the “internal” system must be given the opportunity to adapt its understanding to the requirements of the external system (the client). It is therefore necessary to find methods for this that enable the regular delivery of results. Agile methods are suitable here as well as iterative processes or traditional processes with corresponding milestone and review requirements.

3) Communication cycle

Since individual areas can, in turn, be broken down into sub-areas, the work taking place there must also be discussed on a regular basis. So it is evident that the review cycle in the internal system must be shorter than in the surrounding system. The more “internal,” the shorter the cycle must be, so that the external system has the opportunity to learn from the results of the internal system. Agile methods adopt precisely this pattern and scale up from the “daily” meeting to short sprints or longer release cycles. This is exactly the pattern that should be established for PPM.

Self Organization

When CASs set themselves apart because their agents do not require central control, this means that:

• The resources of a system should have a multidisciplinary composition. As opposed to current practice, where people are arranged in similar departments, silos, and put through a development process geared toward specific subjects, teams should be able to handle a wide variety of tasks so that they can stand on their own. This way, they will consist of people with different backgrounds instead of single-subject experts. It is therefore necessary to reduce the number of dependencies in the organization to such an extent that a project team can act autonomously.
  The result is exactly the sought-after mini-organization within the organization, a fractal organization.
• Teams remain stable over time: Contrary to current practice, where project teams, unlike departments, are dissolved after the end of a project and sent back to the line, the interdisciplinary teams should be permanent. This brings with it the major advantage that teams get used to each other after some time and become much more effective than a new team going through the well-known phases of team building.

The Fractal Organization: Summary

An example fractal PPM organization could look as follows:

Your minimal rule set could, for example, consist of a “client” system opposite a “contractor” system:

• The organization is nested. Each system follows the same rules.
• Each system can expect regular (interim) results from the internal system.
• Each external system assigns materials and resources and distributes them relatively to the internal systems.
• It is the task of the external system to specify, convey, and adapt clear objectives, a vision, a guiding principle.
• The individual systems act autonomously, but always within defined, externally specified limits such as a specified budget or resource set.
• The internal systems generate a list of prioritized projects and reconcile this as a feedback loop with the external system.
• The systems have a multidisciplinary composition.
• The systems are permanent.

Is the Fractal Organization Actually Applicable?

Naturally, we are dealing with an organizational change here, often a real heavyweight. My personal belief is that the organization will need to implement this change sooner or later in any case. It is simply too clear that companies are moving in precisely this direction and becoming faster, more flexible, and even more attractive as a result. So the question is not if, but when.

In modern times, organizations simply must adapt quickly to changes in basic external parameters and must process environmental impulses as quickly as possible. Complex adaptive systems are an excellent example for this, as they describe life itself. And so far, at least, they do it successfully.

At this point, we do not wish to go into more detail about aspects such as organizational necessity and the implementation of the change. However, we do recommend the following reference literature:

Appelo, Jurgen: Management 3.0, Person Education, 2010.
Laloux, Frederic: Reinventing organisations, Nelson Parker, 2014.
Robertson, Brian: Holocracy, Pengiun, 2015.

For more information about fractal organization:

Hoverstadt, Patrick: The Fractal Organization, Wiley, 2009.
or (somewhat older): Beer, Stafford: Diagosing the System for Organizations, Wiley, 1995.