Getting before and beyond the Firm
The Problem with Organization Design Series: Part 2
By Dara Blumenthal, PhD and Nathan Snyder
Large organizations are struggling to keep up with the pace of technologic and cultural change. The high degree of complexity within a matrixed organization, paired with increasing economic volatility, the harder it becomes — for anyone working within these companies — to get anything done. As startups drive toward insatiable growth and scale too rapidly, they are replicating the problems which are germane to legacy companies. Meanwhile, automation is eating jobs, computers are getting smarter, and there is a new disruptor on the scene every month. Forget innovation, most of these organizations are merely trying to survive.
As organization designers we are constantly brought into big conversations about how people should coordinate to get work done amidst these trends. Sometimes the answer is ‘change to adapt’, other times the answer is ‘do more of the same, but work smarter and with a better process’. We’ve worked across corporations large and small, and a diversity of categories including legacy financial services, insurance, food and beverage, educational, and multinational conglomerates. The tricky part is making a recommendation and developing an intervention approach that enables quick wins while growing toward long-term resilience.
We did much of this work while at Undercurrent — a now defunct experimental organization and strategy consultancy that served the Fortune 100 and still maintains a following. Since Undercurrent, we’ve greatly matured our theory and approach. In the development of our own methodology, it became necessary to tackle a polarity that often arises in our discipline. Attention given to this polarity, in tandem with the dialectic introduced in Part 1, will help us begin forging new pathways for addressing the structural-temporal challenges organizations face today. (In addition to Part 1, what we are introducing here is nuanced, complex, and important; therefore the full conversation will unfold through multiple parts. We recommend reading all of them.)
Two Sides of a Strategic Spectrum
The polarity we’re constantly negotiating, within most organizations, can be described through two theoretical approaches. Those are Contingency Theory, which seeks to build a structure for internal effectiveness based upon unseen demands; and Institutional Theory, which seeks external legitimacy and support in order to build an effective structure.
In a bit more depth:
Institutional theory describes how organizations, over time become more like one another, such that they create an Institution (with a capital I). They follow trends in the marketplace, mimicking one another and coalescing into a particular typology of organization. The typology forms through a “best practice” lens that other organizations in the category adopt, utilize, and conform to whenever possible. This, in turn, creates a self-fulfilling loop that deters internal novelty in the interest of historic continuity. In Institutional theory, organizations are shaped by their wider institutional environment or the field in which they are located.
Think: Design derived from outside influence, and the implementation of industry’s best practices
Contingency theory describes an ideal organization structure realized by attempting to identify and interpret the future events and occurrences it will face (i.e. contingencies) and then develop a structure to match. This approach is all about measuring ‘internal effectiveness’, which basically just means attaining goals. This approach seeks to shore up future success through setting goals and the prediction of events that will impact resources.
Think: Design optimized for internal prediction and response
Our work at Undercurrent focused on a souped-up contingency approach to organization design, yet the approach itself was arguably derived from existing self-organizing and startup institutions. It was already a management movement within such companies as, W. L. Gore, Valve, Zappos, Github, Automattic, 37Signals, and Semco to name a few. Consider, a client situation, where we might introduce and coach a company into adopting the ‘Spotify Model’ as a Contingency approach to the onslaught of change our clients were facing because of volatile market conditions. Our reasoning for making this recommendation however, was derived from the institutional legitimacy the model had as a ‘best practice’.
Simply put, while the “Spotify Model” and the like are optimized for contingencies, our organization was working with it as a best practice, because it was “responsive” and therefore it was being recommended from more of an Institutional perspective. This paradoxical situation isn’t necessarily problematic in and of itself. In fact, both sides of the polarity often show up together inside of the organizations we work with/in, as further explored below. Nevertheless, what is important when both sides of the polarity are present, are the ways in which the two approaches are, or are not actively and intentionally brought into a transformative relationship within the organization design process. This unfortunately, was not the case with the majority of our client relationships at Undercurrent.
Locating the Polarities
The current Contingency approach to organization design that has become popularized in the last decade is due to a few important factors. Those factors include the rapid expanse of the $100 million pre-IPO pipeline and the advancements of digital trade and consumption, which have contributed to the decline of the legacy “Firm” that historically, operated within an industrial development paradigm of some sort.
To illustrate how significant the impact is on legacy organizations, our work-life, and economy, consider that the average lifetime of a company on the S&P index in 1958 was 61 years (which was already a decline from the norm). That number continued to shrink steadily, and by 1980 it was only 25 years. Today the average lifetime of a company on the S&P 500 is only about 18 years. Whatsmore, from 2002 to 2012 50% of the S&P 500 was entirely replaced. At the current rate of replacement, an S&P 500 company is being replaced about once every two weeks. “If the trend continues, approximately 75% of companies on the index will be replaced by 2027” (Richard Forester).
Part of this shrinking was caused by the continual flow of startup business, a number that “has been more or less steady for two decades.” Overtime, startups coming into the economy have not only drawn talent from legacy corporations, they have also automated tasks which those corporations used to profit from.
Many people making organization design recommendations in the past 5 years have been influenced by these socio-economic trends. They are provoking the legacy corporation to act more like an entrepreneurial startup — it is, after all, startups that are capitalizing on the inability of legacy corporations to overcome the structural-temporal challenges they now face.
Putting it Together
The encouragement of legacy corporations to adopt startup practices can be described through our two frameworks introduced above. Firstly, it is important to recognize, as noted earlier, that these two approaches typically show up together within organizations. That presentation is typically more like a pendulum swinging, from one end to the other, depending on the current state of the organization. Where one year or one quarter an organization might be working to adopt best practices in order to stay competitive, and at another time, be focused on internal issues and putting out fires due to a major unforeseen change event.
While this strategic confusion can be destabilizing and disempowering for employees, the even greater issue derives from organizations and consultants using these approaches in isolation. Those ignoring or flat out lacking the awareness of how they show up, will be utterly unable to change the swing of the pendulum year in and year out.
The risk we currently face as organization designers, is that we only increase the speed of the swinging pendulum, and not actually transform it. That is, never actually breaking the patterns and evolving the polarity into a higher order spectrum of organization design in the first instance, and a more evolved and multi-dimensional approach in the second. Without bridging these polarities we are merely performing consultant theatrics — just offering the engrained patterns new forms of expression. In Parts 3 and 4 we unpack this in greater depth. We introduce how to actually make transformation with/in organizations a possibility, while accommodating the existing historic trends of their legacy, and the binary introduced in Part 1.
- Much of this thinking was made possible in part by the work of Burton, R.M.; Eriksen, B.; Håkonsson, D.D.; Knudsen, T.; and Snow, C.C.and we’d be remiss not to acknowledge that directly here.
Read More! Part 1: The Root of the Problem and Part 3: Laboring While Human
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