Corporate Entropy and the Evolutionary Arrow in Business

Dec 22

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The Business Big Picture Game

Happy 2021!

With just a few days left from what turned out to be one of the craziest years of our lives, I would like to take this opportunity to thank you for being part of the Ofmos community and to sincerely wish you a much better 2021! —Cristian

P.S. This is a great time to try Ofmos Classic (Free Print & Play). Enjoy it as a strategy tabletop game. Better yet, use it as your new favorite "spherical cow" for learning, teaching, or researching.

READ AND PASS ON.

Toward a Notion of Corporate Entropy with a "System of Particles" Perspective

The movie Tenet has recently brought into the spotlight the idea of entropy and the arrow of time. Given that the Ofmos worldview and the set of theories that comes with it sees companies and economies as systems of ofmos (offering-market cosmos) — much like a physical system of particles — it seems only natural and timely to think about this concept in a business context.

Corporate Entropy as "Energy Spread"

One way to think about the entropy of a system is to think about the energy distribution inside it (watch the 12-min video). With that in mind, when it comes to business, we can think of an environment's friction and the effort that a company must exert to overcome it. New products and new markets will create high-energy ofmos (offering-market cosmos), while common products in existing markets will create low-energy ofmos. Young companies will have their energy concentrated in a few business spaces (=> low entropy), while the old ones will have their energy more spread out (=> high entropy).

Corporate Entropy as "Information Spread"

Another way to think about the entropy is to look at how the "surprising" (as in valuable) information is distributed (watch the 12-min video from 1:16:00). In business then, we know that new knowledge is concentrated. Successful new products come from laser-focused, minimalist efforts that deliver outsized value to the customers. From the perspective of a mature company, with all of its possible actions, such realization comes from a small set of knowledge-driven actions. Young companies concentrate their valuable information behind a few actions (=> low entropy), while old ones spread it out (=> high entropy).

The Evolutionary Arrow in Business

These ideas provide new ways of exploring how companies and economies evolve as complex systems. We previously explained the phenomenon of commoditization from the perspective of collective learning or accumulation of knowledge in the marketplace. The notion of corporate entropy provides a different lens and supporting argument for the same insight that, without intervention (i.e., innovation, M&A), companies and economies naturally evolve toward a state of high entropy (watch the 26-sec visualization), where energy is maximally dissipated and information is maximally diluted.

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Read our recent newsletters:
+ It's the Business Education, Stupid! (Nov '20)
+ Your Ofmos Case: End of IBM? Use the Board to Explain Your View (Oct '20)
+ Business and Economic Understanding at Large Scale | Free 'Introduction to Complexity' Article (Sep '20)

+ Beyond Firm-as-a-Function with a Complex Systems View (and a Game) (Aug '20)

+ Toward a Full Self-Driving Economy | Play and Experiment (Jul '20)

and stay tuned for our Stanford Continuing Studies course CORPORATE STRATEGY AT SCALE: EMERGING THINKING ON HOW COMPANIES AND ECONOMIES EVOLVE (8 weeks, Live Online, April 15 - June 3, Registration starts on February 1st).