Fractal Organizations

From: John Conover <>
Subject: Fractal Organizations
Date: Wed, 6 Dec 1995 01:17:37 -0800

A few weeks ago I posted the observation to the "Learning Organization
Conference" that the figure on page 81 of the "Fifth Discipline" would
exhibit characteristics of a fractal, (if there were any random
variables in the process.) Continuing on with the concepts that were
presented on page 133 regarding revenues, I made an attempt to link
organizational issues (which I presumed to have fractal
characteristics,) to the corporate P&L. To do this, I had to treat the
corporate revenue returns as a fractal. Using some remedial techniques
that are used by "program traders," I evaluated several market places
in the North American Electronics Industry and found that there is
reasonable evidence (depending on your point of view,) that they
exhibit fractal characteristics-which would make analysis of the
corporate P&L and organizational development issues merge into one
single analysis-at least in principle. Interestingly, one of the
paradigm issues in fractal environments is agility-the organization
that does the most the quickest, wins.

The analysis is largely machine written, and can be obtained by
sending an email with the following structure (the electronic
equivalent of the SASE:)

        Subject: archive


to get the Postscript version of the manuscript. It is about 2 Mbytes,
and you will have to use uudecode and GNU gunzip, after concatenating
the files, to reconstruct it. This contains the theory (what there is
of it,) derivation, analysis, and bibliography for the methodology
used. It expands to a little over 5 Mbytes, and prints to 412 pages.
The "C" sources to the programs used, (about 30 of them-with "man"
pages,) and the LaTeX sources to the document, plus all data obtained
from the DOC, FED, etc., are available by sending an email with the
following structure:

        Subject: archive

        get fractal.tar.gz.uuencode

Again, you will have to have uudecode and GNU gunzip, after
concatenating the files, to reconstruct it. The file is about 0.25
Mbyte, and expands to about 17 Mbytes after reconstructing
everything. You will probably have to reconstruct things on a Unix
system, or do a lot of work-the reconstruction is run out of

If you want either of these and you do not have uudecode or gunzip,
contact me,, and I'll see what I can do.
The machine johncon has a low bandwidth connection to the Internet, so
please, do not request any more copies than necessary.

    This manuscript presents some personal notes on a fractal analysis
    of various market segments in the North American electronics
    industry. Although a very simple model is presented to analyze the
    dynamics of the industry's markets, there is, probably, reasonable
    evidence presented that the market segments do, indeed, have
    fractal characteristics. Although the model presented does not
    offer significant advantages over other quantitative
    methodologies, the qualitative analysis, without having access to
    any other data other than the time series of the market's rate of
    revenue returns, would seem to predict that:

        Research, development and infrastructural investments seem
        reasonable at about 12 to 20 percent of the rate of revenue
        returns for the market segments analyzed. This seems
        consistent with the industry.

        Venture success rates at 60 months seems reasonable at about 1
        in 12, which is commensurate with the industry.

        Project success rates, of 8 month duration, are about 1 in 3,
        which is consistent with numbers from the Application Specific
        Integrated Circuit business, which could be considered as

        The "80/20 rule" that 80% of an organization's revenue comes
        from only a few, (3 was shown to be typical,) products is
        really, probably, 84.13%, or one standard deviation-which is
        consistent through the industry. This was derived analytically.

        The "80/20 rule" that 80% of an organization's products should
        be "industry standard," and the remainder "proprietary" is
        probably, one standard deviation, or 84.13%. This was derived

        Although the prediction of product life cycle will be shown to
        be "pessimistic," it is, none the less, depending on the
        reader's point of view, reasonable, and was fairly consistent
        with industry averages.

        The inventory control dynamics presented seem to be consistent
        with the markets analyzed.

        The failure rate of Fortune 500 Companies seems consistent
        with predicted failure rate of organizations in the markets
        analyzed, although the rate of failure will be shown to be
        "optimistic," when related to re-investment strategy.

    Additionally, it would seem to be shown that visibility into the
    future, regarding rate of revenue returns, was only a few months,
    at best. This would seem to be in disagreement with the prevailing
    concept that "strategic planning" should be "long term." An
    interesting interpretation of this may be that these industries
    require a more dynamic management methodology, perhaps using
    "rolling" budgets, etc. to approximate an immediate feedback
    mechanism. But this would seem to be inconsistent with
    methodologies where objectives are monitored on an annual basis-it
    would seem that profit and loss issues are very dynamic, and,
    probably, require detailed attention at no more than a monthly
    rate, including inventory and project management issues.

Finally, a word of caution. The manuscript and programs are from my
personal notes-just formated by LaTeX-and should not be considered a
meticulous, rigorous endeavor. The Preface elaborates. See the
Colophon for details of other programs used-they are all freely
available on the Internet. Finally, under no circumstances should the
manuscript be regarded as financial advise-on how to run a company, or
invest in the stock market, or anything else for that matter. (One
pundit-Mark DeGroot to be exact-made the observation that what the
manuscript detailed was "theoretical marketing, which is an



John Conover,,

Copyright © 1995 John Conover, All Rights Reserved.
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