One of the most seductive assumptions in business is cause and effect. If we take action X (e.g. cut costs, or launch a new product) outcome Y (e.g. profit or market share) will be the result. This linear cause-and-effect mental model gives rise to another set of models, including strategic planning, budgeting and resource allocation. It has also been the source of the structural form of the firm: hierarchical layers of authority designed for executive management to implement cause-and-effect execution.

Overcoming the fallacy of causal control

But the world doesn’t bend to such simplicity. This mental model is wrong.

Markets and customer preferences shift unpredictably, employee behavior defies management mandates, competitors rewrite the rules of the market, and technology evolves in unanticipated directions. Yet, the residual faith in management control leaves firms rigid and reactive in adhering to the cause-and-effect illusion despite the radical change going on all around them. They need to accept and embrace the world of emergence. The free interaction of individuals with each other and with multiple system components in subjectively specified contexts morph spontaneously into new patterns of outcomes that could never be predicted. The cause-and-effect model simply does not apply.

Complex adaptive systems: reframing the firm

Happily, we have new mental models available to us through the science of complex adaptive systems. A complex adaptive system is an open dynamic network of relationships and interactions between component parts (such as individuals and teams in a firm), and all the artifacts they use (such as computers and spreadsheets and machine tools and money) and the context in which they are embedded (defined by markets and service providers and partners and regulations and customers). A firm is a complex system, incorporating a set of sub-systems, and embedded in a larger ecosystem with multi-dimensional interactions at every level. There’s no linear cause-and-effect at work, and the system can’t be managed. It evolves in ways over which there is no control to be had.

As a consequence of this new understanding, the lens through which we view the firm must change from causes to context.  The firm is a dynamic and ever-changing kaleidoscope of relational patterns to be monitored but not managed. It’s not possible to control outputs through top-down directives or planned actions. We need another goal for organization. That goal is coherence: a constellation of concepts, values, perceptions and practices shared by a community that gives it a wholeness in the form of a particular pattern of relationships and is the basis for the way the community self-organizes.

Constraints: shaping coherence.

What are the organizational tools to shape coherence? They’re tools of design called constraints – soft touch tools such as cultural norms, values, conditions, and shared purpose. In the old paradigm, constraints were obstacles to remove, like bottlenecks on the production line. In the new paradigm, constraints provide a new cohesive living order, subtly aligning individual actions without explicit commands.

Constraints shape the possibility space for firms. They are conditions that limit some possibilities and enable others, actively reshaping the possibility space that’s open for the organization. They’re not causes that dictate outcomes, but they channel energy and behavior. A constraint such as a cultural and operational focus on customer service, for example, can nudge the organization towards a coherent engagement with evolving market needs. Constraints are intentionally designed to amplify desired patterns – like innovation or agility – while dampening dysfunction and dissent. 

Context is king.

Constraints can’t shape a system’s coherence in a vacuum. All systems are embedded in larger systems, and these affect what’s possible in the sub-system. They provide the context that is the ultimate shaper. Context includes industry and economic trends, competitor actions and patterns, societal shifts, cultural norms, technology trends, the talent and educational ecosystem and many more elements, all shifting and moving unpredictably. Coherence can’t survive a misreading of context, while an accurate and adaptive reading can point to opportunities to amplify some constraints and loosen others.

The two flavors of constraints

In context, constraints come in two broad types, each with distinct roles in organizational design.

Context-Insensitive Constraints: These are universal guardrails, unshaken by external conditions. For firms, they include the imperative to generate profit, compliance with legal and regulatory frameworks, adherence to accounting standards, and even basic operational necessities (e.g., maintaining cash flow). They’re the bedrock of stability, ensuring survival across contexts. But over-reliance on them breeds rigidity—profit-maximizing thinking can stifle long-term innovation.

Context-Sensitive Constraints:
These are dynamic, weaving coherence by linking actions to their environment. Experiments can generate a results matrix of what works and what doesn’t, narrowing the range of investment into a targeted sphere. A firm’s customer feedback loops can constrain product development to align with market needs, creating mutual dependence between teams and clients. Enabling constraints (e.g., cross-functional collaboration norms and external partnerships) spark coordination networks, amplifying energy flow—think of a sales team energized by real-time data from R&D. Constitutive constraints (e.g., a shared purpose and mission) define the firm’s identity, while governing constraints (e.g., cultural values) steer from above, like Adam Smith’s invisible hand. Together, they generate emergent behaviors—new strategies or products—without rigid structures.

Catalysts and Loops: The Engines of Coherence 

Constraints don’t just sit still—they iterate. Economic catalysts (e.g., a new technology) and feedback loops (e.g., customer reviews driving product tweaks) self-organize, creating self-governing systems that persist through repetition. Values play a starring role here: a commitment to sustainability, for instance, constrains decisions across a firm, from sourcing to marketing, forging a coherent identity. These loops amplify energy, turning individual efforts into collective momentum. For leaders, the lesson is clear: nurture feedback-rich constraints to sustain alignment.

Persistence: The Art of Enduring Coherence

Coherence is a patterned wholeness shaped by shared values, perceptions and norms. Coherent firms thrive for decades, not through static stability but “dynamic kinetic stability”—mutual dependencies held together by constraints. A firm’s processes, relationships, and culture store information, enabling coherence even as people come and go. Constraints align individual energy streams into relational states, freeing energy for innovation. Think of a retailer whose customer-centric ethos persists through staff turnover, emerging as a competitive edge. Persistence favors firms that balance stability and adaptability.

Maintaining Flow.

Constraints can calcify. Sedimented norms—think “we’ve always done it this way”—and entrenched practices (e.g., legacy tech systems) limit adaptability. Path dependence weighs heavily: a firm’s early focus on a specific market can bias future moves, blinding it to new opportunities. Firms must spot these traps, relaxing outdated constraints to keep the possibility space open.

Keeping Constraints Agile

Too many constraints—or the wrong ones—threaten coherence. As contexts shift (e.g., digital disruption), governing constraints can lag, stifling response. Successful firms reconfigure their constraint regimes, using scaffolds (e.g., agile frameworks) and templates (e.g., decision protocols) that preset possibilities yet adjust over time. Evolution preserves the firm’s identity and unity while embracing change. Consider how Netflix pivoted from DVDs to streaming, retaining its customer-focus constraint while shedding operational relics.

From Chaos to Order: Many-to-One Dynamics 

Coherence emerges when disparate actions (“many”) harmonize into streamlined patterns (“one”). Social norms, trust, and networks within a firm reduce friction, aligning efforts toward shared goals. A sales team’s varied tactics, constrained by a unified value proposition, coalesce into a coherent market presence. This many-to-one shift isn’t forced—it’s sculpted by constraints, yielding qualitatively distinct outcomes like brand loyalty or operational efficiency. These are flow states in the context of the KFSO.

Beyond Hierarchy

Forget rigid pyramids. Firms thrive as interdependent dynamic wholes where autonomous teams are nested within larger systems. No single unit or level dominates. A firm’s culture constrains behavior top-down, yet without coercion; a project team self-organizes bottom-up, guided by shared norms. Adjusting constraints—tightening collaboration rules or relaxing approval layers—reconfigures the possibility space, unlocking emergent qualities like resilience or speed. This isn’t anarchy—it’s coherence that doesn’t require control.

Conclusion: Designing for Emergence

Traditional organizational design seeks to eliminate uncertainty. Designing for emergence flips the script: uncertainty is the valued raw material of innovation, shaped by constraints into coherent action. Leaders must become sculptors, crafting regimes that balance context-insensitive stability (profit, compliance) with context-sensitive dynamism (culture, feedback). The result? Firms that don’t just survive but evolve—persistent, adaptive, and whole. In a world where context changes everything, constraints are the key to unlocking what’s possible.