The Emperor has no clothes — Consequences of Cutting Feedback Loops

This is a general guide to post-pandemic business management.


Ryan Gosha

2 years ago | 3 min read

If you view your business as a Complex Adaptive System, you learn to appreciate the importance of feedback loops. Feedback loops are an integral part of complex adaptive systems. Oftentimes, business managers cut feedback loops that are inherent in a system.

The patterns viewed at the global system level are influenced by feedback loops that exist at the agent level. Feedback loops thus drive the behavior of the system as a whole. Business managers often cut out feedback loops because they view them as problematic. They do so because of the negative effects of a negative feedback loop.

Inadvertently, they also cut down the positive effects that emanate from the positive feedback loop. However, any form of feedback in a complex adaptive system is critical because it provides insight into the behavior of the system. A system devoid of feedback loops becomes very complex. It is not easy to view that system and observe its characteristics.

The phrase “the emperor’s new clothes” is a slight aberration of the phrase “the emperor has no clothes”. It comes from an old fairy tale whereby a lavish Emperor of a certain kingdom is obsessed with his clothes. He spends nearly all the tax money generated by the empire on fine linen and special clothing.

The emperor is conned by two men who visit the town promising to make the best clothes ever, from a special garment. The clothes would be so special that they would be invisible to those who are unqualified to do their jobs and those that are simply stupid.

The men are hired, but they do not have any special garments. Several eunuchs and courstmen observe that there is no garment being made, but fear raising their concerns because doing so would fulfill the pre-laid criterion of being either unqualified or stupid.

The emperor (secretly knowing that he is unqualified) comes to see the progress and he is afraid of admitting that he is not seeing anything. The emperor is made to wear the new clothes (which is of course nudity) and everyone claims to see the clothes. No one wants to say out in the open that the emperor has no clothes.

No one wants to tell the person next to him that he cannot see any clothes for doing so would be confirmation of being either unqualified or stupid. The emperor’s new clothing is unveiled in the town square. Everyone glorifies the emperor's new clothes, except for one child who shouts out loud that the emperor is not wearing any clothes.

After the small child, one by one, everyone admits that they are not seeing any clothes. And the emperor admits that he is not wearing any clothes.

This is a leadership lesson. An environment characterized by fear and lies cuts off feedback loops, and this applies to the business manager as well.

The business leader should not make people fear him or her. If you are not being honest with yourself, you create a leadership style whereby people are not honest with you. They lie in your face because they fear the consequences of telling the truth.

Most business managers take a leaf from Machiavelli, who lived hundreds of years ago before organizations became complex, and freedom became embedded in human expectations.

Machiavellian principles no longer work in many spheres of life. It has become outdated just like how feudalism was uprooted by better ideas of organizing human socio-economic affairs. Machiavelli says it is better for a ruler to be feared than loved.

Nowadays businesses are evolving into DAOs with no rulers. If you perform a higher-level function in the team, and you impose your will and fear as if you were a ruler, the consequences are that of eliminating feedback loops, which eventually leaves you naked.

Businesses have evolved. Business management has to evolve as well. You can no longer afford to build an organization based on lies and fear. The organization will not last. Lack of feedback loops will lead to suboptimal decisions.

In systems analysis, the pure meaning of feedback loops pertains to the system’s outputs that loop back around to be used as inputs. In this outright sense, a feedback loop cannot be totally eliminated. In fact, a business manager who tries to cut down feedback loops only covers up the feedback loop but does not really eliminate it.

An example is customer complaints. A business manager can choose not to entertain customer complaints. The business manager will not hear any complaints from customers.

However, in reality, the customer complaints will still be there, as a feedback loop into the system. Customer complaints in this period influence future buyer behavior from those customers and from potential customers in the next period.

Customer complaints are essentially an example of a negative feedback loop. It comes back to bite the organization with lower sales in future periods. Positive customer reviews create a positive feedback loop. These loops will remain in existence even if the business manager is not aware of them.

Examples of feedback loops in business:

  • Customer complaints
  • Product reviews and ratings
  • Employee morale levels
  • Employee grievances
  • Productivity levels
  • Staff turnover



Created by

Ryan Gosha

I write creative solutions on business management, business models, macroeconomics, central banking, fintech and financial analysis.







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