Organizing Complexity

“It’s a puzzlement!” – King Mongkut of Siam (Yul Brynner)

From the movie “The King and I” 1956

Leading effectively in today’s organizations is more difficult than at any time in history. This is because today’s organizations are more complex than they have ever been.

Hikers finding their way to Delicate Arch, Arches National Park, UT

Rarely a day goes by that one can’t open the business section of some major publication and find an article that describes some new and innovative business model or warns of some new and emerging management challenge.

Organizing Is More Complex Today

The reasons for this are legion.  There are many arguments about the causes and consequences of trends that seem to make the work environment so difficult. Here we discuss a few of them with a particular emphasis on why each makes leadership more challenging.

Making Sense of Public Art in Copenhagen, Denmark 2014

 

Globalization

In 2005, best selling author Thomas Friedman wrote a book with the anachronistic title, “The World is Flat”.  Well, given Friedman’s definitions and arguments, if anything the world is even flatter and smaller today.

Businesses and their global supply chains include complex institutional structures of all stripes. These range from relatively straightforward investment oriented ones like international direct investment, wholly owned subsidiaries, equity partnerships and joint ventures to more operationally focused ones like strategic partnerships, contract manufacturing and outsourced service provisioning.

What has emerged is an ecosystem of complex interconnected and interdependent businesses along with collections of vital exchange relationships that are both complex and evolving.  This means that the physical and institutional infrastructure of business is constantly changing organically in response to events. The very meaning of “organization” has transformed from a machine-like bureaucratic structure to a living system of interdependent entities connected by common concerns and objectives. But this is only the institutional structure.

Perhaps even more profound are the social and technology changes and the complexity that these imply. Indeed, we are increasingly sharing a common world-culture experience, even as nationalism and nativism surface again as political movements. Around 40% of the world’s population is connected to the internet, and about half of us are on Facebook.  It’s not just the numbers that signal a sea change:  The really amazing thing is that connection around the globe is nearly instantly. It offers live streaming video and audio around the world to either one person or many, instantantly.

The complexities born of globalization are not only about trade differences and geopolitical risk.  They have changed the meaning of time and more importantly, they are shaping what it means to be a community, how we understand one another, how we work with one another.  And yet, we still try to manage much as we have for centuries.

Technology Disruption

Technology disruption born of digitization is not new, of course.  But almost everything happens much more quickly in the digitized world that the real world, and the pace is accelerating.  Unless the boss is keeping secrets, the days are gone when top management could assume they knew more than anyone else in the room. In the digital world, everyone knows more than everyone else about something.  The question is: does what a particular person knows matter? And if so, how does one find out what that is?

Today’s business world has the capacity to deploy the best information gathering sensors ever possible at any time in history. So much about so many things can be known by so many different people. “Just Google it.” The challenge is harnessing and channeling this power, directing the sensors toward what matters, and then processing the information that results to determine what is relevant and how it is useful.  This is another kind of complexity.

Organizing today has two faces, we organize our real world faces when we meet on the street or in the office, and we organize our digital, virtual faces when we text, Instagram, send email and watch Facebook live. Organizing has never been this complex.

The Rise of the Flat Organization

New technology and global supply chains have enabled increasingly flat organizations.  Where there used to be whole departments for mailing and even word processing, now this is done on the desktop or on the phone. Where in the past, each part of a product or service was conceived, designed, engineered, constructed and assembled in house,  now many if not most of these functions are or can be contracted out or outsourced and maybe even to multiple countries.

Management hierarchies were the mainstay of the bureaucratic organizational form.  The bureaucratic hierarchy managed information flow, both funneling information in from individuals at the boundaries ,  processing in it, and the focusing key issues that required decisions at the top.  And then, once a decision was taken, directives would flow from the top and begin cascading downward through control gates, the issues and contexts being framed step by step, along each distinct channel, separating data and clarifying its relevance to various departments and work groups.

IMG_20160322_225917It’s hard to image today that it was not long ago that it took weeks or even months to fully implement a given decision as information trickled down through channels, experiencing delays and setbacks along various information channels.  This old world was in this way more forgiving.  There was more time to make adjustments.  Errors could be corrected along the way, mistaken assumptions could be corrected before the damage overwhelmed to value of a project, adjustments and clarifications could discussed and implemented. In bureaucratic organizations, being partially right was good enough to get started because it took a while for the project to really get going. Everyone knew that there would be many opportunities to fix things along the way.

Today, at 2 o’clock in the morning, an email can go to thousands of people across the entire organization all around the world.  Like a starting gun, everyone jumps forward at once, bouncing off one another, unsure how their piece fits in.  The roar of confusion on the office floor can be deafening:  “Here we go again!” What are they doing up there?” “Just ignore them.” “Keep your head down and just do you job.” “Things will settle down.” “They’ll get their act together.”

Flat organizing makes it harder to get things done. Instead of streams flowing down mountain ravines, all of the information falls across the organization at once.  All of this digital water flows at once over a glistening cataract.

2010-PacificNorthwestVacation-Seattle 054Although the today’s communication flows are more efficient in some ways, at the same time, it’s much harder it is to get it right, and get it exactly right the first time.  When time is compressed, interaction affects are accelerated.

Under these conditions, trouble that could have been dampened or corrected in slower times can easily spiral out of control. The challenges of integrating the workforce are bared for all to see.

This is organizing complexity, and often it’s not pretty.

The Gig Economy

The “gig economy” means that more work gets done by freelancers, specialists at a particular aspect of business, User Experience (UX), Brand Promise, Big Data, User Centered Design, and so forth.  Rather than teams of employees, much of the work is directed and completed by teams of independent contractors, each of whom will soon move on to the next “gig”.

The resulting increased specialization and compartmentalization changes what it means to be a community. It calls into question for each individual, whether employee or contractor, his or her sense of identity, both individual and collective.  And it makes the integration of work activities and the relationships that make them work, more about negotiated contractual relationships than about the trusted give-and-take that arises from a sense of collective purpose and shared intention.

Surely, out-of-pocket cash costs are lower. But what are the long term costs to the enterprise of the increased organizing complexity that results from these fragmented identities and overly legalized integration?

The Sharing Economy 

Closely related and perhaps even more confounding is the rise of the “sharing economy”. This refers to business models that involve transactions where the ownership of capital assets, like a car or a home, is separated economically from their value-in use.

Conceptually similar arrangements have been a staple for industry for centuries.  In industry, all or portions of the economic value of large owned capital assets, like office buildings, hotels or ocean-going freighters and more recently aircraft, were often allocated to others through capital or operating leases. Historically, these arrangements were limited to heavy industry because they usually carried significant legal overhead costs associated with credit and insurance concerns.

Once again, technology has changed this. Information and communications technology allows the economic usefulness of owned assets to be brought to the masses in bite-size pieces. A ride in a car through Uber, a room in a New York Fifth Avenue townhouse through Airbnb, a ride in a private jet through XOJet, and even massive data processing capabilities through cloud computing from Amazon Web Services (AWS) or IBM Bluemix are all examples of this.

If you think about it, this is another case of the “gig economy”. In the gig economy, the owned asset is the knowledge capital of a specialist. For the sharing economy, however, knowledge is replaced by a the use of an owned physical asset (the convenience of a car with a driver) and  an instance of “use” replaces the “gig”.

In many ways, technology has enabled derivatives in the real economy just as it enables derivatives in financial markets.

This is only the Beginning

And just wait.  This is only the beginning. Stay tuned for future Leadership Science Blog posts about other developments and how they might impact your organization.  For example, although Bitcoin itself may be a fad, its core enabling innovation called Blockchain is here to stay, and the coming wave of its impact is already gathering offshore.

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