Monday, 22 July 2013

Resilience Map of the EU

Resilience is reflects the capability of a system to withstand shocks and extreme events.Based on macro-economic data provided on a quarterly basis by Eurostat, we measure the resilience of the EU member states. The result is illustrated in the map above, where one may see that the most resilient countries are the UK, Italy and Sweden.

In the economy, high resilience does not necessarily imply high performance. It simply measure a sort of "stability" of a system functioning in a turbulent regime. The economy of Germany, for example, performs better than that of Italy but is less resilient. This means that is more fragile and vulnerable in the case of extreme events, shocks or contagion. It may sound counter-intuitive but there are many examples of systems that perform very well and yet are very unhealthy. Think, for example, of medicine. One may be climbing Mount Everest and be gravely ill. Fragility - the opposite to resilience - is an invisible characteristic if one concentrates only on performance. Resilience, therefore, must become a new and strategic KPI of a modern business.

More details on resilience may be found here.

The list of resilience values per country is available here.

Ontonix and Wikirating Announce Collaboration Agreement

Como, Zurich, July 22, 2013 – Ontonix and Wikirating have signed a collaboration agreement with the objective of providing jointly a new and strong message to investors and markets: in a turbulent and globalized economy, new models of rating, beyond the conventional albeit outdated approaches are necessary. "In a turbulent context, traditional ratings don't perform and, as the current crisis shows so eloquently, they can actually become a triggering factor" said Dr. J.Marczyk, the Founder and President of Ontonix. "We believe that in order to avoid the next, worse crisis, ratings must be democratized and turned into a commodity" he added. "Investors need a generally available and reliable rating system but also SMEs should be able to afford a rating in order to participate better in the global economy" he added. "The most important characteristic of such a rating system is that it should be independent, reliable and objective" said D. Credé, the Founder and President of Wikirating. "We believe that the ideal place for such a rating is the internet - the central nervous system of our planet". "Joining forces with Ontonix will be an important step in the direction of providing this new and attractive capability" he concluded.

About Wikirating
Wikirating is a worldwide independent, transparent and collaborative rating organization. It offers an open, editable centralized place for all credit rating related topics, and credit ratings for countries, corporations and other financial products. Wikirating unites rating experts,  economists and normal people, similar to Wikipedia, but with a stronger and stricter peer review concept. Wikirating received a substantial worldwide attention, it was mentioned in more than 50 international press articles in 18 countries among which "Neue Zuercher Zeitung" (Switzerland), "Financial Times" (Germany) and "Financial Post" (Canada). For more information visit our site.

About Ontonix
Ontonix, a privately held company established in 2005, develops award-winning, leading-edge software offering new, innovative analytics solutions to manage risk and optimize performance. The Company and its founder, Dr, Jacek Marczyk, have pioneered the creation of innovative analytic solutions in the field of Quantitative Complexity Management. OntoNet™, the company's flagship product, is a powerful, cloud-based complexity quantification and management system designed to support user applications in identifying potential crisis, securing strategic, business, and economic intelligence, and developing unique analytics metrics, such as near real-time holistic resilience ratings, to create new ways to measure resilience and how well organizations respond to change and turbulence of the global economy. Ontonix is headquarted in Como, Italy. For more information visit the company's website.

Sunday, 21 July 2013

On the REAL debt of EU countries

To find out about the real debt of EU countries, read here (and be prepared for some surprises!).

Saturday, 20 July 2013

Beyond Credit Rating Agencies: A New Post-Crisis Rating System

Avoiding the next financial crisis may not be easy but if there is one factor that may potentially contribute to the next meltdown that is today's rating system. Ratings are a pivotal tool for investors and for the economy in general but, at the same time, a corrupt and subjective rating system is a devastating tool of deception, manipulation and destruction of the economy.

The Financial Crisis Senate Commission in the US has identified the Credit Rating Agencies as the key enabling factor of the financial meltdown. Recently, an interesting article has recently appeared which speaks of "Corrupted Credit Ratings". A section of the article states:

In response to the civil lawsuit filed by the US Department of Justice in February 2013, Standard & Poor’s affirms that its ratings were “objective, independent and uninfluenced by conflicts of interest”. This column presents empirical evidence opposing this claim. The data suggests a systematic rating bias in favour of the agencies’ largest issuer clients.

Ratings are easy to manipulate, especially by the largest and most powerful clients and, of course, by those who control the rating agencies themselves. This is called conflict of interest.

Given the current state of the rating industry, reforming the system won't work.

What our troubled economy needs is a rating system that everyone can rely on. It must have at least the following characteristics:

  • Independent: no issuers involved, investment funds don't control it
  • Objective: human judgement must not used to issue the final rating
  • Consistent: the same results must be obtained using the same data 
  • Scientific: ratings must be obtained scientifically, not based on subjective opinion.
  • Global: the system must be web-based, guaranteeing everyone access
  • Fast: given that the economy is turbulent and fast a rating changes accordingly
  • Affordable: even SMEs must be able to purchase a rating
  • Specifically built for a turbulent economy: current ratings are anachronistic - they use outdated technology which has been conceived in a World which no longer exists.

Such a rating system exists - it is called Rate-A-Business. It works for any business, both for small companies as well as for multi-national corporations.

But there is more. Rate-A-Business not only provides a rating, it also indicates any potential weaknesses and shows you where to intervene in order to improve the state of health of a business. ABC ratings are incapable of delivering similar information to the public.

Click the image below to access the system.

Try it for FREE here.

Read a Resilience Rating Tutorial here.

See numerous examples here.

Rate-A-Business is science, not opinions.

Friday, 19 July 2013

How to Best Breakup The Eurozone?

The Eurozone is in an extremely fragile situation with a one-star resilience rating for the past year and a half. The system is reaching critical complexity very quickly and inexorably (current complexity is approximately 390, the critical value at which breakup is inevitable is around 426).

First of all, highly complex systems, such as today's economy, are basically out of control - the current crisis is sufficient empirical proof - and their dynamics is beyond our comprehension. There is no way we can describe such a system using traditional mathematics. No model will work here. Secondly, politics is not only unwilling to intervene, it is incapable of any form of intervention because of the immense complexity of the problem and, if that were not enough, political agendas are imposed by finance. Governments are giving up sovereignty whether they like it or not. This compounds the problem further. It appears the system will break up.  There is talk of establishing a two-speed EU.

We have performed an analysis of a set of hypothetical scenarios, in which the system would be "split" into clusters of countries with a certain degree of affinity. We have measured the resilience of each cluster. The following groups of countries have been analyzed:


EU 15 (this is the entire system):
Complexity = 167.1, Resilience = 56%

G7 (France, Germany, Italy and UK):
Complexity = 52.7, Robustness = 66%

G7 - UK
Complexity = 38,7, Robustness = 67%

PIGS (Portugal, Ireland, Greece and Spain)
Complexity = 57.6, Robustness = 58%

MED (France, Greece, Italy, Portugal and Spain)
Complexity = 72.1, Robustness = 59%

MED - Greece and Portugal
Complexity = 41.9, Robustness = 59%

EU 15 - G7
Complexity = 116.8, Robustness = 55%

Northern Countries (UK. Sweden, Finland, Denmark, Netherlands)
Complexity = 76.1, Robustness = 66%

EU15 - G7 - Northern countries
Complexity = 86.6, Robustness = 56%

The following conclusions can be drawn:

  • The entire system (EU15) has a low robustness - 56%
  • The G7 countries as a group have a robustness of 66%, that is 10% higher than the entire system
  • The G7 group, excluding the UK (which hasn't adopted the Euro) is slightly more robust - 67%
  • Placing Italy in the MED group would make little sense because the robustness would be only 59%
  • The Northern countries enjoy a robustness of 66%
  • The remaineder of EU15 - the G7 and Northern countries would have a robustness of 56%, equal to that of the entire system today

The point is now this. Since trying to manage a huge, higly complex and fragile system is risky business, it is better to break it up into less complex and more robust sub-systems, attempting to fix each one. This does not guarantee that the whole will perform better. However, the fact is that today the entire system is extremely vulnerable. Before we start to fix the problem we must cast it in a form in which a fix may be attempted and with better chances of success. We therefore suggest to "break up" the EU15 into the following clusters of countries:

  1. Germany, France and Italy - the robustness of this group is 67%
  2. UK, Sweden, Finland, Denmark and the Netherlands - the robustness is 66%
  3. All remaining countries - robustness is 56%

The idea is not to institute different currencies in these groups. The idea is to cluster countries into more homogenous groups, so that a more specific cure can be deployed in these groups, not in single countries. Italy, for example, does not belong to the PIIGS, as it has a solid banking system and the EU's second largest manufacturing industry, not to mention that it has a low level of private debt. Imposing severe austerity measures on a country like Italy is counterproductive. The recent tax increases are contributing to the destruction of the real economy, favoring only the speculators.

Austerity measures and other policies should be applied in a coordinated fashion and, most importantly, to "homogenous" groups of countries to be most effective. This will avoid weakening countries that can help those in trouble and will allow to treat the system in a way that takes into account its natural structural properties. Trying to fix the problem based on uncoordinated ad-hoc interventions, focusing on one country at a time and strangling its economy, is going to favor the domino effect which everyone wants to avoid so badly (really?).

Wednesday, 17 July 2013

No Measurement No Science

Can there exist a science, any branch of science, that doesn't measure the object of its investigation? Imagine physics with no measurements. Imagine the laws of gravity or the laws of Newton without measuring the mass or acceleration of bodies. Imagine doctors trying to lower cholesterol without ever measuring it. The evolution of science is man's struggle to invent new ways of measuring and inventing metrics, to come up with ingenious means of squeezing more precision and accuracy. Recall the experiments of Cavendish or Michelson-Moreley which provided us with values of the Gravitational Constant and speed of light. What would modern cosmology be without Hubble's constant?

The act of measurement is not only an act of courage, it is also when science gets serious. The rational practice of measurement, classification and ranking of objects or phenomena constitute first step towards scientific activity. Science has the scope of establishing theories which can help explain natural phenomena and understand Nature. Measurements, provide ideas, insights, these in turn suggest conjectures which may end up one day as established theories (until a better theory is proposed).

But when can you actually call something a theory? People often use the expression "I have a theory" about this or that. However, from a strict and scientific point of view, a theory is something that can be verified (or falsified) via an appropriately designed and repeatable experiment that can be performed by an independent team of scientists. Once a theory has been established and accepted, it typically produces:

  • a law, or a fundamental theorem (or series of theorems)
  • a characteristic constant (G, h, c, etc.)
  • a basic equation (or equations)

Consider now the so-called "complexity science" which has been around now for a few decades. It has produced none of the above: no characteristic constant, no equations, no laws. What is most disconcerting, it has never produced a workable definition of complexity, not to mention a measure thereof. Scientists engage in long disquisitions as to complexity and its mysterious properties, they even say that something is more complex than something else, and yet, without ever measuring complexity. How is that possible? Can we call this science? Certainly not.

One of the objects of this "complexity science" are storms of birds, typically starlings, which every now and then get together by the thousands and offer elegant and breathtaking displays of their ability to avoid collisions and, at the same time, to give rise to beautiful and organized shapes. All this is done without a master choreographer, spontaneously. Complexity scientists say, in awe, "now that is a complex system". How they come to that conclusion is a bit of a mystery. The surprising thing is that they are never curious as to how complex that thing really is. 55, 70, 150? Well, we are. We have measured the complexity of storms of starlings. In particular, we have analyzed four scenarios originating from the same storm.

Scenario 1

Scenario 2

Scenario 3

Scenario 4

Here are the results, with the corresponding Complexity Maps. Your intuition may be challenged.

Scenario 1: Complexity = 121.5
Scenario 2: Complexity = 230.4
Scenario 3: Complexity = 269.1
Scenario 4: Complexity = 128.6

It may not be a result of any particular practical use. Today. However, the above is a small piece of modern complexity science.

Are Complex Businesses More Fragile?

Just before the Global Financial Crisis hit, there was a number of high profile businesses that were making very high profits. Then, seemingly in the blink of an eye, these businesses had failed – for some reason their wheels had fallen off.

How could companies that were making so much money one minute be ruined in the next? Clearly they were very fragile in some way.

If you remember the stories in the press, it seems that many of these companies were either selling complex products or they had complex structures, or both.

So, does complexity in business contribute to fragility in the face of surprising and extreme events such as economic changes and natural disasters?

Could it be that there is a necessary level of robustness or resilience in a business that gives it a good chance of overcoming the fallout from these sorts of events? If so, how would you measure the level of robustness or fragility of your business?

A fairly simple way is to ask your people how robust or fragile things are in the way they deal with your customers every day? They’ll be getting the feedback from your customers about any problems or opportunities to improve. They’ll also be hearing the comments from your staff about their reactions to the customer feedback. This is a structured, qualitative approach, but we’ve found it to be very useful over 15 years in finding how well your systems hang together when they come under stress.

Another way is to calculate (or estimate) the net profit that comes from each customer over a period of time, say three months or even a year. Analysis of most businesses reveal that the top 20-30% of their customers deliver 120-150% of the profits while the bottom 20-30% of customers actually take away all this extra profit. We’ve noticed over the years that the causes of this severe loss of profits by the bottom range of customers lie mainly in the complications of dealing with difficult customers, the product range being too broad and therefore costly to manage, or the fact that the internal systems are too complex for people to do good work easily. So analyzing which customers (or customer groups) are being serviced at a loss will help you locate where your business is fragile.

There’s a simple way to check if complexity is making it hard for people in a business to do good work – this is to track the trends in the ratio of Total Revenue / Total Wages paid. If everything is working well and employees are getting better at what they do through better training, systems, amenities and marketing, then as each year goes by, the total sales output per unit of wages paid should increase slightly. If this ratio is flat or decreasing, it means that something is getting in the way of good work. This something is generally unnecessary complexity within the business.

A fourth way is to calculate the Complexity Factor developed by John Mariotti and described in his book The Complexity Crisis (Adams Media 2008). This factor comprises input such as the number of products, customers, market segments, suppliers and staff, the different legal entities and main sites of the business. It calculates a factor that describes the level of complexity and hence the level of danger to the business. Mariotti’s formula reflects the added risk, complexity and fragility caused by a proliferation of legal entities (doing business in many countries) and entering many different market segments in the search for revenue growth.

Finally, the European company Ontonix Complexity Management has developed an elegant way to compare the relationships between different financial, production and economic variables that describe the performance of a business.

The input to this analysis is a spreadsheet of the value of variables such as sales, profits, product numbers, customer numbers, various costs, assets and liabilities, stock levels, employee numbers etc. They don’t have to be the same variables for each business, nor in any particular order – they just have to be complete and placed into rows of a spreadsheet that represent different historical times such as days, weeks, months, quarters or years.

This Ontonix Self-Rating analysis allows you to calculate the level of complexity in your business based on the data you have input. Naturally, the more data you put in to the spreadsheet (eg the longer the history of the variables), the more accurate your complexity measurement becomes.

The complexity level is then translated to a Robustness Rating for the business. This is done via a Star Rating – 5 Stars is very robust while 1 Star means it’s very fragile and may react badly to an external or internal change event or crisis.

Finally, the service delivers you a report that shows how much each of your business variables contributes to the overall complexity of your organization. Some complexity is necessary in any business, but too much complexity is a bad omen.

The diagram below comes from a report for a public financial institution. You’ll see that the majority of the complexity of this business resides in a number of variables at the top of the diagram.


This is a huge benefit because it guides you to where to start to change your business to make it more robust, profitable and sustainable. And this is where the Simpler Business Institute comes in – we have more than 20 years experience in removing unnecessary complexity and simplifying business to increase performance, profits and sustainability.

The Simpler Business Institute has worked with both Ontonix and John Mariotti to offer a world-first service of measuring, diagnosing and treating costly complexity in business. Ontonix provides the ability to measure the complexity of any system (eg a business). John Mariotti can interpret the impact on a business of complexity as defined by his Complexity Factor. The Simpler Business Institute gives guidance on how to treat the profit-sucking complexity.

The small relative cost of the Ontonix self-rating diagnosis offers huge value in understanding your business in a way you’ve never known before.

To access the Self-Rating service, go to and click on the Rate-a-Business logo on the top right. You’ll then access the service, download a free white paper and example reports and be on the way to knowing how robust or fragile your business really is in the face of the types of change we are seeing in business these days.

Applying the Ontonix techniques to businesses in the same sector, we start to see benchmark data supporting the argument that the higher the complexity, the lower the profitability. We’ve thought this for years and now we’re getting the proof.

Complexity analysis is part of the business education and coaching services offered by the Simpler Business Institute, so take the opportunity soon to attend one of our seminars or request some help by contacting us directly at

Simply does it!
Posted by Ian Dover - Simpler Business Institute.