Reducing Complexity by Creating Complexity: A Systems Theory Perspective on How Organizations Respond to Their Environments

• DOI: http://doi.org/10.1111/joms.12206
• Author: Anselm Schneider,Christopher Wickert,Emilio Marti
• Published date: 01 March 2017
• Date: 01 March 2017

Reducing Complexity by Creating Complexity:

A Systems Theory Perspective on How

Organizations Respond to Their Environments

Anselm Schneider, Christopher Wickert and Emilio Marti

Stockholm Business School, Stockholm University; VU University Amsterdam; City University London

ABSTRACT Organizations have to cope with the complexity of their environment in order to

survive. A considerable body of research has shown that organizations may respond to

environmental complexity by creating internal complexity – for example, by expanding internal

structures and processes. However, researchers know less about how organizations create

collaborative complexity collectively – for example, by establishing alliances or developing

common standards. This paper uses social systems theory to explore how organizations

collaborate in response to complexity and to analyse the conditions under which they create

either internal or collaborative complexity (or both) to address environmental complexity.

It also examines how these types of complexity feed back into environmental complexity.

To illustrate our conceptual model, we use corporate social responsibility (CSR).

Keywords: collaborative complexity, corporate social responsibility (CSR), environmental

complexity, internal complexity, interorganizational collaboration, social systems theory

INTRODUCTION

The question of how organizations respond to environmental complexity, commonly

defined as ‘the number of items or elements that must be dealt with simultaneously by

an organization’ (Scott, 1992, p. 230), has been central to organizational research from

early on (Burns and Stalker, 1966; Emery and Trist, 1965; Lawrence and Lorsch, 1967)

and has surfaced repeatedly in many works (Chandler, 2014; Child and Rodrigues,

2011; Faulconbridge and Muzio, 2015; Reus et al., 2009). The common assumption

that organizations respond to increased environmental complexity by modifying their

structures, processes, rules, or routines (Daft and Lengel, 1986; Galbraith, 1982;

Galunic and Eisenhardt, 1994) stems from early research in cybernetics (Ashby, 1956).

Address for reprints: Anselm Schneider, Stockholm University, Stockholm Business School, Kr€aftriket 3, SE-

106 91 Stockholm, Sweden (anselm.schneider@sbs.su.se).

V

C2016 John Wiley & Sons Ltd and Society for the Advancement of Management Studies

Journal of Management Studies 54:2 March 2017

doi: 10.1111/joms.12206

Since then, many scholars have extensively examined how organizations cope with envi-

ronmental complexity at the level of individual organizations (Ghoshal and Nohria,

1989; Pache and Santos, 2010; Scott and Meyer, 1987; Siggelkow and Rivkin, 2005;

Weick, 1976). Many of these works analyse organizational responses to environmental

complexity from the perspective of mathematical complexity theory, building on con-

cepts such as chaos, non-linearity, and unpredictability (Anderson, 1999; Boisot and

Child, 1999; Maguire et al., 2006; Tsoukas, 1998).

In contrast, much less is known about how organizations interact in order to respond

to environmental complexity (Aldrich, 1979; Borch and Arthur, 1995; Wood and Gray,

1991). While collaboration among organizations is a widely observed phenomenon

(Ahuja, 2000; Dyer and Singh, 1998; Gulati et al., 2012; Hardy et al., 2003; Huxham

and Vangen, 2005), little is known about how collaboration may help organizations cope

with environmental complexity. In view of this gap, our research objective in this paper

is to explore the phenomenon of collaboration between organizations and to investigate

the conditions in which organizations address environmental complexity either on their

own or in collaboration with other organizations. Examining collaboration as a possible

response to environmental complexity is of great theoretical and practical relevance

because collaboration is becoming increasingly important among organizations – partic-

ularly among business firms – in complex and pluralistic environments.

To develop our ideas, we draw on social systems theory, which offers a complexity-

based sociological perspective on how social systems respond to challenges in their envi-

ronment. This theory postulates that a system (such as a business firm) is necessarily less

complex than its environment (Luhmann, 1995) because, to operate efficiently, a system

selects only a limited amount of all the information that is available outside its bounda-

ries. The resulting complexity differential between a system and its environment is the defin-

ing element of all social systems.

The existence of a complexity differential implies that a social system cannot simulta-

neously take into account all the elements of its environment (such as emerging issues

that suddenly become relevant to the system) and how these elements interconnect

(Luhmann, 1995; Seidl and Becker, 2006). If the complexity differential becomes too

large, however, a social system may no longer have sufficient information or the knowl-

edge to process available information in order to make informed decisions (Daft and

Lengel, 1986). As a result, in such a situation a system can no longer respond even to

crucial environmental demands that can threaten its viability. Consequently, in order to

survive when the complexity differential increases, a system needs to increase its own

complexity relative to that of its environment and thus reduce the differential again to a

manageable level.

Drawing on social systems theory, we develop a conceptual model that explains why

firms respond to environmental complexity by creating either internal or collaborative

complexity. In this paper, ‘internal complexity’ refers to an organization’s internal

structures and processes. Increasing internal complexity may be accomplished by means

of functional specialisation, structural differentiation, or by enhancing organizational

processes. ‘Collaborative complexity’, in contrast, refers to the joint creation of struc-

tures and processes by at least two organizations so that they can collectively respond to

factors that they simultaneously regard as an increase in the complexity of their

183Reducing Complexity by Creating Complexity

V

C2016 John Wiley & Sons Ltd and Society for the Advancement of Management Studies