View stunning SlideShares in full-screen with the new iOS app!Introducing SlideShare for AndroidExplore all your favorite topics in the SlideShare appGet the SlideShare app to Save for Later — even offline
View stunning SlideShares in full-screen with the new Android app!View stunning SlideShares in full-screen with the new iOS app!
A what,why and how explanation of the unique Ontonix approach to Quantitative Complexity Management
A what,why and how explanation of the unique Ontonix approach to Quantitative Complexity Management
Who are Ontonix & what do you do?
Ontonix is a privately held software and services firm. The international management team
collectively holds over sixty years of experience in unconventional risk and complexity management.
Established originally in 2005 in the USA, Ontonix is headquartered in Como, Italy, and develops
OntoSpace™ the World’s first system which allows one to measure and manage the complexity of a
business or a dynamic process. Through our exclusive services we help our clients view business
strategy and risk management from a radically innovative and holistic perspective. Based on the fact
that excessive complexity is the source of exposure, we have devised a new theory of risk which is
particularly suited for a turbulent global economy.
Ontonix offers an innovative on-line self-rating capability, OntoNet™, which allows one to perform
a real-time check of the structural resilience of a business or corporation. The on-line service
generates intuitive Complexity & Risk Maps™ which pinpoint the sources of complexity and fragility
within a business process. The solution breaks new grounds and allows corporations to go beyond
conventional risk rating. With the Internet as the backbone of this global service, our goal is to
deliver complexity management to every corner of the economy, helping our customers cope better
with our turbulent times.
OntoDyn™ is a specific product for customer-retention analysis at banks or insurance companies. It
processes batches of customers and measures their stability, signalling those that may be at risk of
being lost. The driving idea behind OntoDyn™ is to provide an early-warning system on a
weekly/monthly basis. The kind of analysis that OntoDyn™ performs is unique in that it measures
the stability of each client over a given period of time. Clients with a low value of stability are
indicated as those at risk of being lost.
Ontonix is strongly committed to innovation and interdisciplinary R&D. The company's underlying
philosophy is to research and identify the dynamic patterns occurring in Nature which manifest
themselves in diverse and often disjoint fields. This is done without resorting to traditional
mathematical modelling techniques and using the concept of complexity as a bridge between
disciplines. As a result, we are able to quickly transfer knowledge from one discipline to another with
a remarkable multiplier effect.
The company has offices and representatives in Europe, United States, South America, South Africa,
Asia and in the Middle East. In 2007 the company was featured as Gartner's “Cool Vendor”.
In 2009 Ontonix spun-off, US-based, - a company dedicated to developing its
quantitative complexity technology specifically in the medical field. Visit the Ontomed website.
In 2010 engineering-focused spin-off was launched in the USA. Visit the Oensys
In 2010 Ontonix UK Ltd was formed by David G Wilson.
What is “complexity”?
It’s the “bits” that haven’t
been measured before.
The inter-connections within a
business (network, community,
process, etc.) that we weren’t able to
reliably measure before…because we
didn’t have the technology!
A business is a system created to
perform a variety of functions
through which it generates income
and, hopefully, profit.
The structure and activities are, by their very nature, interdependent, yet, for management purposes
we create internal “silos” and measure performance as if they were independent. However, the
reality is that, the overall performance of the system and its ecosystem e.g. credit, marketplace,
national economy, supply chain, etc. is reliant upon the nature, number and effectiveness of these
interdependencies. Unless we measure the system as a whole we cannot establish where the system
is working well (is robust) or not (is fragile).
are based upon a
practical and rational
means of measuring
complexity. Our analysis
equivalent of risk
corporate strategy into
a single unified scheme
and is based upon a
quantitative and holistic
view of the state and dynamics of a corporation as it interacts with its environment.
Why manage complexity?
Simple...Complexity can seriously damage your wealth!
Global Management Consultancy firm, A T Kearney, believe that managing complexity can add up to
5% to your profits. Unless the complexity within a business system is managed the system can
become fragile – unstable, unpredictable and difficult to manage. Every dynamic system has an
upper limit of complexity above which it loses functionality.
By managing the inherent complexity within a business it can be maintained in a robust state with
the resilience to withstand the randomness of a turbulent economy in a changing and uncertain
Complexity isn’t “new”…Albert Einstein saw it as a great challenge…and as society, products, services
and communications have become more complex the NEED has increased rapidly.
Ours is a solution based in science and mathematics not the creation of marketers or consultants!
Some complexity facts from Ontonix:
The amount of fitness of a system is proportional to its complexity – higher complexity
implies higher fitness
The amount of functionality of a system is proportional to complexity – more complex
systems can perform more functions
Each system can only reach a specific maximum value of complexity
Close to the upper limit the system is fragile – it is unwise to operate close to this limit
High complexity = difficulty in management – highly complex systems are able to perform
more functions but at a price: they are not easy to manage
When a system is very complex and becomes difficult to manage, it is necessary to
restructure it, add new structure or to remove excess entropy
More components don’t necessarily imply more complexity – systems with few components
can be more complex than systems with many components
When presented with two equivalent options, for example in terms of performance, risk or
profit, select the one with the lower complexity – it will be easier to manage
Spasms or dramatic changes in dynamical systems are always accompanied by sudden
changes in complexity
In nature, systems tend toward states of higher complexity, but only until they reach the
corresponding maximum. This poses limits to growth and evolution
Systems with high complexity can behave in a multitude of ways (modes)
Systems with high complexity are more difficult to manage and control because of the need
A system with a given complexity will be more difficult to manage if it is made to operate in
a more uncertain environment
"High complexity is incompatible with high precision" – this is known as L. Zadeh’s Principle
of Incompatibility. In essence, you can’t make precise statements about a highly complex
The amount of sustainable development a given system has is proportional to the difference
between its critical complexity and current value of complexity
A fundamental characteristic of highly complex systems: they are robust yet fragile!
How do you measure the complexity of
By analysing the available financial data (Figure 1) our unique technology creates an image of the
complexity (structure and entropy) present within the business system.
Using the same information (or more) we are able to prepare analyses that provide an insight that is,
otherwise unavailable and can only be revealed by interrogating the data that verifies the activities
undertaken by the business
Figure 1: SME sample data input
Whilst this information enables the business owner, advisors, lenders, HMRC, etc. to measure what
was required (inputs) to deliver the results (outputs) it is limited in what it tells us about the actual
“health” of the business: its strengths and weaknesses; the interdependencies within the businesses;
the main drivers of performance; whether the business can withstand the impact of unforeseen
stresses arising internally or externally.
“Running a company based on just the financials is like driving a car by
only looking at the rear view mirror!” Dr Jacek Marczyk, Founder & CTO of Ontonix s.r.l.
How do you rate the structure of a
Conventional ratings, such as those issued by rating agencies, focus on the financial aspects of a
business. While this is important, it is not sufficient to provide a global idea of the overall state of
health of a corporation.
Complexity-based ratings offered by Ontonix are stratified into five levels. This is in accordance with
the Principle of Incompatibility - highly complex systems cannot be described precisely. Examples are
illustrated above. Complexity-based ratings focus entirely on structural aspects of a business not
on its financials or financial performance. Excessive complexity of a business is a fundamental source
of its risk exposure as it points to a structure that is easily altered, both via endogenous as well
exogenous sources. Since excessive complexity is a “disease” which is invisible to conventional
techniques, the idea of a complexity rating is to establish a marker which can expose it. Moreover,
high complexity is undesirable because it may lead to surprises and unexpected behaviour.
The interpretation of complexity ratings is as follows:
1-Star: The business is globally close to its critical complexity. Its structure is weak. The business is
unsustainable and very fragile. Exposure is very high and the business is highly inefficient and very
difficult to manage. It is impossible to make forecasts and define realistic goals.
2-Star: The business is highly complex and difficult to manage and control. Exposure is high as well
as inefficiency. The structure of the business if fragile, hence vulnerable. It is difficult to make
3-Star: Business complexity is moderately high but its structure is fairly robust. Predictability is
acceptable. Exposure is moderate.
4-Star: Low complexity points to a robust business structure. Predictability is high, exposure is low.
Business sustainability is quite high. The same may be said of efficiency.
5-Star: Very low complexity indicates a very strong business structure as well as very low exposure.
The business is manageable and it is possible to make credible forecasts. The business is potentially
highly sustainable and efficient.
In the case of businesses with 1 to 3 star ratings complexity reduction is a must. In those cases,
Complexity Profiling is the tool to adopt. It helps identify the sources of high complexity and points
to potential solutions.
For 4 and 5 star businesses, Complexity Profiling should be used from a monitoring perspective in
order to keep the business at a safe distance from critical complexity.
An example of the structure of a business is illustrated below:
When & where can OntoSpace™ help?
Quantitative Complexity analysis services for:
Systems – Processes – Networks – Operations – Organisations – Portfolios
Complexity Management (aiding quantitative decision-making)
Advanced risk identification, analysis & management
Risk rating (credit, financial, operational)
Structural & Operational robustness
Systemic risk assessment
Due Diligence – Mergers & Acquisition
Forensic financial audit incl. post loss
Portfolio (diversification strategy tool)
Conflict and crisis anticipation (identification of failing states)
Research & Studies
Social, economic, environmental & political
Medical – Research & Clinical trials
Product, system, process development
Monitoring & analysis (incl. “real time” crisis anticipation)
Industrial and critical process monitoring
Medicine, patient monitoring & diagnosis
Engineering design (CAD/CAE verification & testing)
IT infrastructure & networks
Business Intelligence & Corporate Performance Management (BI & CPM)
Mapping: Interdependence – Structure – Organisation – Process – Network
– System – Operation
Change management & alignment:
“i2o” [inside to out] business re-modelling
Benchmarking (Competition, Division, Office, Branch)
Case studies & client references
Business Intelligence and Corporate Performance Management
It is known that when a system functions in the proximity of its critical
complexity, it is very difficult to manage and grow and, at the same
time, quite risky. In such situations the system may develop
unexpected modes of behaviour. Based on corporate data it is
possible to measure the evolution of corporate complexity and
therefore to track in a holistic fashion the manageability and growth
potential of the corporation. Before critical complexity is reached the
management may either decide to re-structure (drain entropy) or
consider a merger. In the latter case the corresponding critical
complexity threshold is elevated, thereby increasing the growth
potential. Critical business units (hubs of the business) are indicated
in red in the process map.
Advanced Portfolio Design and Asset Management
The Ontix is a holistic complexity-based index conceived by Ontonix
and issued to track the complexity of stock markets, asset portfolios
or generic financial products. The image above illustrates a Process
Map built automatically using real-time values of the following indices:
ATX, BEL-20, CAC 40, DAX, AEX General, OSE, MIBTel, ISE, Madrid
General, Stockholm general, Swiss Market and the FTSE 100. The plot
of the Ontix index the map are refreshed every 30 minutes and may
be viewed in the home page of our site. Complexity-based methods of
portfolio design go beyond the limitations of the covariance-based
The sub-prime crisis in the US became known to the wide public in
August 2007. However, based on our analysis of the US housing
market data spanning the period 2004-2007, we have shown
how during 2006 the complexity and entropy of the
market rose steeply by about 40%. None of the conventional methods
delivered early warnings of the upcoming crisis while complexity-
based technology indicated clearly that the market was building up
entropy at least a year before the August blow-up.
Real-time Monitoring of IT Systems
IT systems in banks are extremely complex dynamical systems,
composed of disparate hardware platforms, disk, routers, software
applications, and are accessible by the bank's customers via the
internet. Clearly, the correct operation of a bank's IT infrastructure is
of vital importance. Real-time monitoring of the complexity (and
fragility) of a large IT system may be used to issue early warnings to
the system's managers, helping intervene before the systems reaches
a state of crisis.
Identification of Financial Crisis Precursors
Recent developments in the international financial arena show how
conventional risk rating and risk management tools and techniques
prove inefficient in a highly turbulent and globalized economy. Sudden
default of AAA companies is a fact which has been observed on more
than one occasion in the past few months. The cause of these failures
may be attributed to a substantial increase of complexity without the
management's knowledge. It is known that excessive complexity may
in fact “drown" a business if it is unprepared. Therefore, it is
mandatory to measure and manage complexity. In the near future,
risk management will become complexity management.
Trends in World Economy
Analysis of data which is published by Central Banks and the WTO is
used to periodically conduct analyses of the trends of complexity,
entropy and state-of health of the World's economy, as well as that of
specific regions and market segments. In the period 2004-2007, for
example, the complexity of the World economy has doubled, while
entropy has increased by 50%.
Conflicts and Failing States
A socio-economical system becomes fragile when it functions in
proximity of its critical complexity. At critical complexity a system
becomes vulnerable and extremely fragile, as often a minute change
in any of its parameters may trigger transitions to unwanted and
unexpected modes of behaviour. Social unrest, civil war or armed
conflicts are examples of such modes. Terrorist attacks are examples
of triggers. Moreover, critically complex countries are ideal terrorist
sanctuaries. Process maps, complexities and the corresponding critical
complexities may be established for single countries or regions. Those
regions in which complexity grows at high rate require closer
Figure 2 @August 2010