Monday, 27 June 2011

Organizational Sociology: Beyond the Hard and the Soft – the Effective

Despite popular criticism, the trouble with the mechanical approach that centers on the "hard" is poor control, while many "soft" approaches that center on the human factor typically ignore the human reality at work.

"Where the cause is not known, we will fail to produce the effect", wrote in 1620 Francis Bacon, the father of modern experimental sciences. His diagnosis holds for today's corporations. The effect sought for is performance by leveraging people's intelligence and energy at work. But what about the cause? Schematically, management tradition suggests two types of answers: one according to the mechanical tradition inherited from Scientific Management, one based on psychology in the wake of the Human Relations movement.

Following the mechanical approach, the main cause is proper structure and procedures, irrespective of the people to whom they apply. This stems from Taylor's idea that the more an organization can work independently of the people who constitute it, the more scientific, and therefore efficient, it is. The good manager is the one able to design the "one best" set of structures and procedures, and performance will mechanically flow from it. If the employee with the right skills profile is put in the right box in the org chart, with the right task instructions and incentives, then the "right man in the right place" is made accountable, and thus performance is under control. It may sound cold and impersonal, but such are the hard mechanics of performance.

Contrarily to Taylor who discarded anything relating to feelings, the Human Relations school centers on this dimension. According to this front, people react to affective stimuli and good internal relationships provide the key to good results. The good leader is the one who inspires the right feelings among subordinates, notably thanks to his/her "leadership style". It may sound soft and fuzzy, but such are the emotional sources of performance

Change efforts often rely on one of these traditions, and sometimes attempt to combine them to leverage the pros and mitigate the cons. A typical cocktail in this respect is restructuring and engineering efforts on the one hand, with people initiatives on the other. Experience suggests that both traditions entail serious traps for today's corporation. Combining them multiplies the risks. Of course, structures and procedures are required to guide the organization towards its strategic objectives. However, the effect of structures and procedures does not simply depend upon their content. The effect also depends upon the way in which the human system adapts and adjusts to these: in short, the behavior they elicit. It is also certainly true that the quality of relationships and mutual feelings between organization members is an important ingredient of group performance. However, it is more a matter of limits than of directions. Overly good relationships among some people can develop at the expense of the mission and of the organization as a whole.

The success of a strategy requires navigating between the traps of both the mechanical and psychological human factor approaches. The solution is not to find a balance between these views. What is needed is an analytical perspective capable of uncovering the real drivers of organizational phenomena and behaviors so as to modify them in full knowledge of the resulting effect on performance.

Traps of the mechanical approach: not too much control, but not enough

In order to become more customer-oriented, a European industrial group completely re-engineered its structure and procedures. The divisional organization was decentralized into small regional units equipped with all the technical, commercial and logistical competencies needed to satisfy the most specific of customer desires. Technical sales staff was given all the autonomy required to deal with the most demanding customers, those requiring customized and innovative services. Decision circuits were simplified and hierarchies were "delayered" to improve responsiveness. The whole reengineering was backed with major internal communication campaigns on customer value and customer satisfaction, highlighting the necessity of moving from just selling technical products to providing customers with full solutions. As a result, customers came in droves.

Faced with the imperative of never saying "No" to customers, the technical sales staff found themselves under increasing time pressure. In order to cope, each sales person autonomously developed a range of automatic responses to each situation. Combining with each other, these behaviors eventually formed routines, leading to a de-facto standardization of services. These came to reflect less and less the specific requirements of customers – particularly those requiring innovative technical solutions. The customers, in their turn, adjusted their behavior: they retained the company for their standard requirements and turned to the competition for value added services.

Structures and procedures that intended to foster customer-oriented service, combined with sincere individual commitment, ended-up having the opposite effect. Why? Because some key variables of the human system lie between the company's targets and the change levers used to achieve these targets. Let's describe this in a simple model of individual goals, resources and constraints.

The new organization based on "The customer is king" motto introduced a new goal for each of the technical sales people: never be seen as the source of a lost deal with customers. With, as a corollary, the time constraints imposed by serving a growing number of customers. However, at the same time, the delayered structure and simplified procedures provided each player with a new resource: autonomy in ways of organizing one's work. If one wanted to remain efficient in the new game, the only rational strategy for each player was then to use this resource to develop individual pre-programmed routines. Cooperation between players worked only around common routines, collectively reinforcing standardization of the company's services.

The problem with the mechanical approach is not that it places too much emphasis on control at the expense of freedom and the warmth possibly needed in human interactions. It is that its control is elusive. The effect of new structures and procedures depends on their impact on the goals, resources and constraints that shape the individual and collective behaviors at the root of performance. Failure to understand these parameters prevents a company from sufficiently controlling the consequences of its decisions.

Traps of the psychological and Human Relations approach: not too much attention to the human factor, but not enough

Opposite to the mechanical bias, the example of a European service group demonstrates the risk of focusing on the workforce's supposed motivations. This group had identified a new service and distribution concept that would strongly differentiate its products in the market place. This concept had implications on the organization: in order to deploy the new concept effectively, administration needed to be re-organized on a customer-segment basis rather than on a geographic area basis. However, this structure would have physically distanced the administrative staff from customers. Administrative departments accounted for a significant portion of the company's workforce. As a result, the whole project was stopped because management believed that "the administrative staff felt that being located close to customers was a form of recognition, given their persistent inferiority complex towards commercial people". Management also strongly believed that recognition created satisfaction and that satisfaction created performance. The status quo remained until an in-depth analysis of the organization revealed a totally different story.

Firstly, the analysis uncovered very tense relationships between administrative staff and their hierarchy. The administrative hierarchy had few levers to manage the workforce, except control and detection of mistakes in the agents' administration of customer accounts. Every time an agent made a mistake, hierarchy used it to justify closer control of the agent's activity. Secondly, the analysis uncovered underlying networks of cooperation between the administrative staff and the closest sales agents dealing with customers. The administrative people could arrange with sales staff to cover and catch their errors, thereby avoiding the unwanted intervention of their hierarchy. In exchange, sales staff would get "free services" from the administrative colleagues they knew, e.g. response to specific customer inquiries that should be internally charged for according to accounting procedures.

In reality, if location was an issue, it was not so much for the sake of "feeling close to customers", but for tangible contacts with the sales people. Given their goal (maintain autonomy towards hierarchy), their constraints (closer control of hierarchy in case of errors) and their resources (sales staff's help in covering and rectifying errors), the administrative agents were placed in a game where the rational strategy was to maintain close personal contacts with the sales people. What was at stake for the administrative workforce was not recognition to supposedly compensate a hypothetical "inferiority complex", but pragmatic preservation of a safety net. Of course, this had a cost (low quality and efficiency) and real performance was much below accounting figures. The problem for the company was not "How can we preserve emotional recognition to preserve performance", but "How can we reshape the game so that the safety net loses relevance for administrative players". This meant redesigning the role of hierarchy and the error-generating work processes. By dropping the abstract reasoning about assumed psychological needs of administrative departments to seriously tackle these issues, it was possible to implement the new strategy.

It was not the administrative agents who had blocked the way to successful change – it was the faulty reasoning that had been applied to understand them.

The problem with the psychological approach that developed in the wake of Human Relations is not over-emphasis on the human factor. It is that the lenses it uses – with all their assumptions about pre-existing needs and motivations – make it impossible to understand the real human system at work.

Reconciling strategic and human issues

Strategy requires an integrated understanding of the internal and external facets of the field of operations. This is one of the clear benefits of organizational sociology when it incorporates the most advanced results from systems analysis, game theory and micro-economics.

To understand an organization, a rigorous approach must be based on what people actually do, rather than on what they are supposed to do according to the role procedures ascribe to them, or according to the psychological needs we expect them to feel. Then, actions must be analyzed in the light of the context individuals are confronted with, given the resources they can use and the constraints they must overcome. However, the behavior of a human system and the collective capabilities of an organization – in mobilizing around the right priorities, mastering the right technologies, understanding its markets, etc. – is not the simple addition of individual efforts and capabilities. Therefore, analysis must also uncover the system dynamics resulting from the often-unexpected combination of individual behaviors.

Some dynamics can be positive for the company, resulting in economic performance, organizational learning, innovation and cohesion. These must be maintained and developed. Other underlying dynamics may be negative from the standpoint of competitive advantage and performance. Neutralizing those will save from endlessly dealing with symptoms rather than causes. A structured and analytic approach of the whole continuum – from market challenges to the company's value proposition, then to its human system at work – can identify and shape the causal factors needed to create competitive advantage.

Strategies of movement (internationalization, mergers and strategic partnerships, redefinition of the strategic boundaries of businesses, etc.) and adaptive strategies are increasingly critical. The resulting complexity requires an even more rigorous and innovative approach in setting up an organization that will best mobilize people's intelligence. A rigorous and structured approach of the human reality of a company does not limit its strategic ambition, it energizes it.

Copyright Yves Morieux 2011

Monday, 17 May 2010

Quote of the Day

"Power is America's last dirty word. It is easier to talk about money - and much easier to talk about sex - than it is to talk about power"
Kanter, Rosabeth M, (1979), "Power failure in management circuits", Harvard Business Review

Tuesday, 6 April 2010

Friedberg's "Local orders: dynamics of organized action"

Occasionally, I will add a review or summary of interesting points from works important for organizational development. Here then is an outline of Friedberg, Erhard, (1997) "Local orders: dynamics of organized action", Monographs in Organizational Behavior and Industrial Relations, Vol 19, London: Jai Press. All quotes below are from this text.
The book details
how organisations can be appropriately analysed and changed in practice. This is not in the resume since for practical purposes people should refer to the text.

Subjects covered:

Human Relations
Achieving goals (things) with organization
Bounded rationality
Structural contingency
Privileged positions, the environment and resource-dependency
Rational strategies of individuals
Rules and formal structure
Interactions make structure
Power and cooperation
Cost of Adjustment
Sources of Complexity
Difference with markets

Human Relations

The Hawthorne experiments at Western Electric concluded that humans do not respond in a perfectly predictable manner.
"They showed a parallel increase of both group morale and productivity…this increase was not tied to variation in the working conditions or in salary…" (p20)

These results can not be explained by the classical view of organization. They led to the school a new study of human relations:
"It corresponds to a richer vision of man at work: the individual is motivated not only by an appetite for gain but by his affective states and more or less conscious psychological needs as well." (p20)

By training managers to have better, or more interactions with workers the human relations movement aimed to improve productivity.

The human relations movement, especially in the United States, morphed into a psychological rather than a social school of thought.
"It is as though, the proponents of the human relations movement, interpersonal relations develop in a social vacuum, in a field with no constraint other than the logic of feelings. At the same time, the movement remains trapped in the Taylorian vision of an individual who is involved only passively in work, who responds in stereotyped ways to the stimuli to which he or he is subjected. One has only added affective stimuli to economic stimuli. " (p21)

The most known output of this line of thinking is Maslow's hierarchy of needs. Structures should cater for predictable emotive responses based on ubiquitous psychology. To fulfil all our psychological needs the intrinsic compensation of tasks and individual autonomy have to be increased:
" The normative conclusion came naturally: It was to create structures congruent with this new profile of man, that is "de-bureaucratized" structures, which increase the intrinsic compensation of tasks, (Herzberg, 1966), and which provide space for individual autonomy, that is, a work structure in which one can find opportunity for self-investment and self-fulfilment." (p22)

In Europe this is reflected in the Nordic trend known as industrial democracy, or in the wider spread efforts in humanization of work and working conditions improvement.

Achieving goals (things) with organization

The human relations movement prompted greater research into the range of human motivations. The classical assumption in the existence of uncontested organizational goals is undermined by the variation in individual goals, and the superior relevance of individually held goals:
"…the "recalcitrance" of human means, a term Selznick (1949) uses to designate the reluctance people feel to let themselves be transformed into the simple instruments in the service of organizational goals that are defined without reference to them." (p36)

The success of organizational goals depends on the organization's members contribution to those goals:
"An organization's behavior depends on the way in which it succeeds in motivating its members to participate (Argyris, 1964), that is, to accept the goals of the organization and to contribute to their implementation (March & Simon, 1958), or on the way it obtains and legitimizes
compliance, that is, the obedience and conformity of its members (Etzioni, 1961)." (p37)

Organization structure influences the goals that individuals have as individual goals depend in part upon their relative position.
" … it [organizational structure] partially conditions the temporal ordering of problems and solutions, and, finally, because it distributes rights of access to the decision makers and allocates energy to them." (p46)

If one wishes to see organization's as having goals then these are a consequence of the net of collected individual goals:
"On the one hand, organizational goals and structures can no longer be assumed as given but must be seen rather as the product of a process of aggregation; on the other hand, these goals and structures can no longer be seen as external to the field of interaction among organization members, but must be viewed as an integral part of these processes of interaction, which they structure as much as they are shaped by them." (p38)

The calculation of what will motivate, force or align members has to include the goals individuals already have. Organizational goals may be chosen according to the external environment, but there are also real efforts made by members to achieve a variety of ends. Goals are not unidirectional, moving in one dimension down the organization.
"…the question becomes understanding structural characteristics as a solution for the problems that human affectivity and cognitive bounds create for all collective efforts, especially for the satisfactory operations of firms." (p42)

In analysis, there is no reason to privilege the control system set up by the center:
"Indeed, in the analytic perspective that refuses to accept the postulate of a unified and all-inclusive social system, there is no longer any reason to confer a preeminent and central place to the "political system," that is, to the totality of "norms, mechanisms, and institutions" that govern, in a restrictive way for the whole of society, the assignment of authority, the designation of leaders, the resolution of conflicts, and the allocation of resources (Leca & Jobert, 1980, pp. 1125-1126). Nor does anything justify the central place traditionally given to the State and its apparatus in this political system, nor to the postulate of their unity and coherence." p127

There are no a priori conditions or goals that all humans share in such a way that a system can be said to exist from these, that there is a "system" of something has to be shown from evidence (and not assumed as for example, in systems thinking):
"This use of the term
system is therefore contradictory to any a priori functionalist perspective that, through deductive reasoning assigns "prerequisites" to a human group, that is, conditions that all human systems must fulfil and that the analysis is designed to reveal from behind the abundant complexity of reality…it is precisely up to the research process to demonstrate the existence of this minimum of order by empirically reconstructing its actors and their interdependencies, its boundaries, its balances of power and its effects." p165-166

Bounded rationality

The classical view of organization has some remarkable conditions for decision-makers. First, they all have all pertinent information and a limitless information processing capacity. Secondly, the decision maker knows exactly per each and every decision what is wanted. There is no uncertainty, no incoherence and no clouded prioritization. Thirdly, the decision maker can simultaneously calculate all solutions and their consequences to infallibly come up with the optimum solution:
"In the first place, such a model is founded on the idea that a decision maker has all the information he needs at his disposal and a limitless capacity for processing it: In other words, we find ourselves not only in a world of transparency but also in a world of cognitive omnipotence. Second, this same decision maker is presumed to have a clear idea of his preferences, which are considered as stable, coherent, and hierarchichized givens. Third, this decision maker is capable of a synoptical reasoning, which enables him to compare in an exhaustive and simultaneous manner all possible solutions with their probable consequences, and thus to optimize his choices, that is, to select the one best solution as a function of his preferences. " (p25)

Herbert Simon challenged this with a view of bounded rationality in the fifties.
"For Simon, organization theory could never justify its usefulness without first admitting that human rationality is subject to limits, that these limits are themselves a function of the organizational environment in which a given decision maker is placed, and that explaining these limits or bounds more closely was therefore one of the first tasks of theory." (p25)

James March, Jon Elster, Karl Weick and others examined how structure itself shapes decisions by focusing attention and allowing possible solutions to emerge. Examination of preference formation showed that preferences are not precise, coherent, and univocal. What we choose is framed by our individual experience:
"The preferences and the goals of actors are not fixed but rather are discovered and modified by action." (p29)

Decisions are not independent of the conditions of the decision. Sometimes, we use them for ends other than those requiring the decision to be made, consciously or not.
"In their theoretical and empirical work on decision making, Jon Elster, Albert Hirschman, Charles Lindblom, James March, and Karl Weick, to name only a few, make four fundamental statements about preferences: (1) the preferences of a decision maker at a given moment are not precise, coherent, and univocal but, on the contrary, are multiple, fluid, ambiguous, and contradictory (Cohen & March, 1074; March, 1974; March, 1978); (2) these preferences do not necessarily proceed action but can also come into being
afterward; created by that action and its dynamic (Lindblom, 1957; Hirschman, 1967; Weick; 1969; March, 1974); (3) preferences are not stable and independent of the conditions of choice, but, on the contrary, adaptive and subject to endogenous modifications, that is ,produced within and by the situation itself (Elster, 1983), and, finally, (4) they are not intangible, but, rather, subject to voluntary or involuntary, conscious or unconscious manipulations on the part of the decision-maker (March, 1978: Elster, 1979)." p28

In 1963, Cyert and March say organizations serve to remove conflict between rational individuals who wish to defend and increase their resources:
"Cyert and March, in a book published in 1963 along with many other studies by member's of Simon's group…see the essential function of organizational structures and goals in the fact that they allow decision making and a way of functioning that is not excessively conflictual to operate within the conditions of bounded rationality characteristic of the behavior of all participants. Extending Simon's perspective, they start from the idea that within organizations (in their book, they deal with business firms), individuals act consciously (within the limits of their rationality) to defend and increase their resources in the ongoing resource-allocation processes." p41

In "The Power of Power" (March, 1966), March goes further in an attempt to account for organizational focus in spite of bounded rationality. Using routines March gave a functionalist limit influencing the anglophone countries to turn away from social action:
"…the book takes up a rather reductive functionalist view by insisting on the positive functions of organizational routines in order to give some order and focus to the bounded rationality of actors…the bounded rationality of actors is of no great consequence, since there are organizational structures and procedures…"p158

Structural contingency

The structural contingency research programme dominated organization studies in the German and Anglo-Saxon world for at least fifteen years from the mid-sixties. It employed advanced statistical techniques to the sampling of organizational variables (size, performance, etc) and sought explanatory variables in the environment of the sampled organizations.
"It was only in the mid-1960s that the notion of the environment took a central place in research on organizations, along with the new trend of "structural contingency" (Lawrence & Lorsch, 1967), which was to dominate Anglo-Saxon and German thinking about organizations for the next 15 years or more. The ascendancy of this latter approach, coinciding with the period during which organizational studies won autonomy as a discipline and became institutionalized in universities and business schools, corresponded to the emergence of a new "paradigm," in which research interest moved away from internal processes and began to focus on organizations as formally structured entities, the evolution and structural characteristics of which are to be described and explained…researchers began…to develop a comparative and quantitative method for highly sophisticated statistical studies of samples of organizations, with the aim of contributing to the gradual establishment of a science of organizational forms, of their effectiveness and of their evolution. In more concrete terms, this trend aimed to identify, describe, and if possible measure the influence that the major contextual factors exercised on an organization's structures, operation, and performance." (p52)

The conclusions of this research should then furnish an environment-dependent answer. It is not research that says anything about internal mechanisms of organization. It is fully compatible with the classical view of organization while not explicitly endorsing it:
"The process of adaptation is henceforth viewed as a unilateral and quasi-mechanical process in which an organization, in order to avoid an insufficient and "sub-optimal" performance and thus ultimately its elimination from the market, has no choice but adopt certain structural characteristics which are imposed on it by what is treated as the "objective" and unambiguous requirements of its context (see Hage & Aiken, 1970, for a good formulation of these premises)." (p54)

Many studies have shown that an organization's performance in an environment can not be explained by its structure. Firstly, no description of environment is ever detailed enough to fully explain organizational performance. Secondly, the results of the research repeatedly showed that several organizational structures can be successful in some definitions of environment at least for a time:
"Organizational success can be fostered by any number of structural arrangements (Lawrence & Lorsch, 1969; Child, 1972; Pennings, 1974), and no analysis of environment, however deep and detailed, can by itself determine the good organization and the stages of its realization." (p55)
"There is no way around the evidence: Whatever the range of environmental "factors" studied (whether the list is limited to material factors or includes cultural, nonmaterial ones), and however refined and sophisticated the grasp and statistical treatment of these factors may be, no model that sees organizations as entities simply adapting to the "problems", "requirements," or characteristics of their environment can account for the complexity of events and relationships that determine how organizations react to their environment. Burns and Stalker's very rich study amply contradicts the original assumption that structure conditions performance." (p55)
"…in some of the terms studied [Burns, T., & Stalker, G.M., 1961,
The Management of Innovation, Tavistock, London] the characteristics of the mechanical model have strengthened their influence, in spite of – or perhaps because of – the greater turbulence of the environment. Environment, then, influences organization in ways that are neither univocal nor mechanical." (p55)

Such a programme of research performs a base and unacknowledged characterization of organizations; it creates typologies by isolating what can be measured as a suitable candidate for research – as if measurability is a criteria of relevance to an assumption of a homogeneous behavior of organizations. Such research is static, masks reality and encourages bias:
"…it [a classificatory perspective for constructing "typologies"] encourages a static view of reality, where the functioning of an organization is seen, at most, as a state of equilibrium, a view that never really explains the passage from one state to another, nor how such states are maintained and reproduced. It tends to reify its objects rather than constitute them through the research process, restricted as it is to the formal level and accepting, as it does, organizations as natural givens…; it encourages, whether deliberately or not, a deductive approach, which shapes, prestructures, and thus biases the perception and observation. …The question is no longer '"How does such and such an organization function?" but becomes "Which category does it belong to?" p135

Privileged positions, the environment and resource-dependency

The strategists postulate that rather than there being a direct link from environment to organization, leaders mediate their organization's environment in their formulation of strategy. Directors choose which external factors to take up and mediate. Child speaks of a "dominant coalition".
"Child's critique of contingency theory focuses on this political mediation of environmental influences. Following Chandler (1962) and relying on Cyert and March's (1963) conceptualization of the firm, Child shows that a firm's strategy, or the set of choices made by its executives or "dominant coalition," in the deployment of available resources, shapes its structure. This means that an intermediate, that is, the organization's strategy as formulated by its "dominant coalition," mediates between environmental influences and an organization's structure." (p56)

Again, this view says remarkably little about internal functioning. It assumes that leaders are of a different nature to others on the organization whom they control perfectly:
"Their [Cyert and March, 1963] argument rests on the distinction between a political level and an organizational level. The first level involves the world of strategic relationships among decision makers; the second involves organizational routines reserved for the rank and file. The first level is capable of completely structuring the actions of the second level. " (p57)

The belief in an ubermensch that forms a political class whose decisions are sufficient explanation is wide-spread:
"…the very restrictive understanding that most economists – and more surprisingly, a good number of political scientists, brought and still bring to what is thought to be the "organizational" dimension is assimilated to mean the routines defined by the top executive level, which, itself plays politics." p42

All can play politics and there is no reason to privilege the center in establishing understanding:
"…it [the political system] is in fact omnipresent in the host of local regulations through which members of a society establish their mutual cooperation and collective action, and that there is therefore no need to privilege any action just because it unfolds at the center." p129

People who are by their nature political have different goals and it is this that is the basis for understanding organizations:
"Organizational reasoning, then, builds on the premise of non-congruence of interests (this is the autonomy it refers to). It studies the process by which partial congruence is obtained…based on mechanisms of power… These processes are, by nature, political since their aim is to secure the contribution of other people, getting the Alter to do what is needed to realize Ego's plans." p197

In the classical conception of organization, the operational members are arranged functionally, separated from one another and the environment. In reality, staff face some environment external to their unit's given goals. All members, not just a top tier, respond to their environment:
"…the relationship between an organization and its environment grows out of the way in which all the individuals and groups that make up the organization, from the top of the hierarchy to the bottom, perceive and analyze the opportunities and constraints that exist "objectively" in the environment and decide to integrate them into their behavior. And it is easy to imagine that this evaluation will not come about independently of the conditions of the game in which they are engaged in the organization itself, but rather that it will take those conditions into account. All of which means that the "internal" constraints, which include a political dimension at every level, will naturally structure the perception of the environment and hence to the reality to which, in a second phase, the members of the organization will try to respond." (p58)

The environment experienced by organizational members is characterized by interactions and specific relationships:
"Indeed, the members of an organization do not interact with an abstract environment but with a limited number of real people who become the privileged correspondents. Tied to the organization by more durable relationships of exchange and power, these patterns come to personify entire segments of the environment, eventually ending up "representing" their segment of the environment when dealing with the organization, while at the same time becoming its "relay" (Grémion, 1970; Crozier & Friedberg, 1977) or "spokesperson" (Callon, 1986, 1988; Akrich, Callon & Latour, 1987) within their segment of the organization." (p59)

The resource-dependency view takes the strategic view further by assigning to an organization an innate aim of dependency reduction, and strategy as a means to implement this aim:
"A related approach, known as resource-dependence theory (see especially Pfeffer & Salancik, 1978; Pfeffer, 1981; Grandori, 1987, pp. 69-10"), conceptualizes organizations as active entities that seek to reduce their dependence on the environment. The work of this school relies on the perspective developed by Thompson and McEwan (1958) and Thompson (1967), for whom organizations, in order to be able to manage their activities, must seek to control the uncertainties that, particularly in the immediate environment (the "task" environment"), condition the pursuit and accomplishment of these activities. From this starting point, this approach tries to describe and understand the strategies that organizations put into operations with the aim of controlling the uncertainties linked to their dependence on the environment for the resources they need in order to function. Organizations here are viewed as driven, as it were "naturally," to apply strategies that will reduce this dependence through the establishment of alliances and agreements going across strict organizational boundaries. In short, organizations are led to displace their own boundaries selectively and to constitute a "negotiated environment." p56

The aim of greater autonomy from the environment leads organizations to have organizations have quasi-optimum solutions:
"organizational slack, which is the idea that the operation of a complex organization always depends on resources held in reserve. These resources provide the organization with a minimum of autonomy with respect to its environment and allow it to continue to function with quasi-optimum solutions, with redundancies, and with a sub-optimal allocation of resources, that is, in a word, with all the consequences that bounded rationality entails and that cause its functioning to "deviate" from the postulates of classical economics." p33

Reducing resource dependence is however a general aim of interactions, be it for individuals, units or organizations. The excess resource that an organization creates can be used or duplicated in excess resource created at a lower level (by smaller units down to individuals) as a way of protecting their autonomy from others within the organization:
"In fact, since each participant's ability to negotiate with other people is linked to the uncertainty that he has to get under control when dealing with them – linked, in the final analysis, to the potential unpredictability of his behavior – he quite naturally has an interest in protecting, indeed enlarging, his personal margin of freedom, or, to put it another way, in reducing the interdependence that binds him to others. He can accomplish this all the more easily as the organization has some "slack", which enables it to tolerate a sub-optimal allocation and utilization of resources." (p44-45)

Structure therefore reintroduces competition since units will seek autonomy from one another by the capture of resources:
"The structure of relations between various departments, between actors, and between hiearchical levels reintroduces competition in the very real functioning of the organization". p124

Rational strategies of individuals

As organizational members seek autonomy, organizations can not be characterized as cohesive units with one goal but are marked by heterogeneity:
"There is no homogeneity or fluidity in the organization's makeup, but rather heterogeneity and discontinuity, even break ups. No linear and homogeneous causality binds the elements in a field,…participants in an organization, in the attempt to protect, even increase, their autonomy and capacity for action, naturally seek every chance to limit their dependence on others by "uncoupling'" their own functions from that of others, to whatever extent possible. p73

A member's autonomy determines their potential for unpredictable behavior:
"The other source of power for each of the participants is the margin of freedom or the autonomy that he has in transactions with others, a margin of freedom that determines the predictability of each other's behavior." p82

Strategies of unpredictability are context dependent. It is the potential for unpredictability that matters more than its use:
"…the more strict and regulated the context, the greater the importance to all the participants of the remaining degree of unpredictability, and the more that unpredictability will reinforce the possibilities of bargaining,… in a less rigid context… an actor may find his willingness to temporarily renounce the possibility of exit, thereby becoming more predictable to others, can be a source of power, at least in the short term. But even in this situation, what gives value to this more or less tacit agreement is the ultimate threat of breaking it… potential unpredictability must not be confused with its actual use." p83

An actor's rationality can not be separated from context:
"…, the actors' preferences are in part forged in and by interaction. Therefore, the analysis always reconstructs simultaneously the rationality of actors and of the situation." p160

Actor's can increase their relevance by making information they control pertinent to nominated problems:
"Ego can also try to convince Alter of the importance of problems for which Ego had already found a solution but which Alter has perhaps not yet perceived…In defining a problem, one also defines the appropriateness of areas of expertise, of savoir faire and of the possibilities of action that are at the disposal of the different actors concerned by the particular problem." p81

One can also increase in importance by making oneself irreplaceable in a relationship, or making others substitutable:
"Ego's attempts to structure the exchange in such a way as, on one hand, to increase Alter's substitutability by creating for himself alternative solutions and alternative partners, and, on the other, to restrict Alter's choices and margin of freedom by decreasing his own substitutability…" p84

Competence can lead to the control of uncertainty, hence one increases one's relevance by practice of competence, and therefore we have an interest in some uncertainties that allow us to exercise competence:
"…the practical knowledge (the know-how) that enables an actor to control the uncertainty which for others is an event to be avoided, can only be developed in being exercised, and it will be developed all the better the more it is applied under difficult conditions and in complex cases. It follows from this that at least some actors have an interest in the fact that the event to be avoided (the uncertainty) happens from time to time, and poses difficult and possibly new problems…the very complexities (uncertainties) they are able to master (to control) guarantees them an advantageous bargaining situation that is less easy to eliminate or to simplify, thus decreasing the interchangeability of the "experts"" p200

Formal structure and rules change the rational options for individuals by changing the options for predictable versus un predictable behavior:
"They [formal structure and formal rules] create new uncertainties that arise from the difficulties encountered in the day-to-day implementation of their prescriptions.
This is the real paradox of all the formal devices (the organizational chart, formal rules and procedures, management tools, etc.) with which organizations try to structure the premises on which members make their decisions, and thereby regularize and make their functioning more predictable. All these formal devices can never eliminate uncertainty altogether; they can only displace it and create other uncertainties, which in turn may be used by the members of the organization, in the pursuit of what they consider their own interests, thus further complicating their operations by partially stabilizing the field of action." p103

Rules are a resource for workers:
"Far from being simply a tool in the hands of thee upper echelons of the hierarchy, they [internal rules] become a resource for those very workers whose behavior they are supposed to structure." p103

Rules and formal structure

Organizations can be said to be bureaucracies in that they employ rules that seek to motivate or align people from a distance, and provide the appearance of impartial treatment. The rules replace the need for interactions between members. The application of the rules becomes a means for employees to reach ends other than those intended.
"Gouldner [1954; 1955] explains this recourse to an increasingly impersonal mode of functioning by what he calls the "latent functions" of rules. He distinguishes five of these: (1) rules allow for control from a distance; (2) they constitute a screen and a protection by reducing interpersonal relationships; (3) they restrain the arbitrariness of hierarchical superiors and legitimize the imposition of sanctions; (4) they make apathy possible as a form of retreat, in which employees restrict themselves to applying the rules and no more; and finally, (5) they allow for bargaining with the hierarchy. In short, rules do not merely serve the interests of the hierarchy that imposes them: they are also a tool in the hands of those charged with applying them." p39

The belief that resources need controlling gives rise to procedures and rules:
",…Gouldner proposes three complementary interpretations of the process of bureaucratization that he observed. First; he sees in this process the manifestation of a vicious circle based on the problem of surveillance of control. The new manager, witnessing the workers' lack of motivation in the wake of his decisions, fought back with stricter surveillance procedures; this further reinforced the employees' apathy and withdrawal behavior, which in turn prompted the manager to reinforce his control, and so on." p40

Formality reinforces or weakens cooperation:
"…everywhere "investments in form" seal and stabilize cooperation and interdependence among actors (Thévenot, 1986), and everywhere the actual practice of these same actors always manifests some departure from the prescriptions inscribed in these forms. Everywhere, formal and informal regulations, "regulations of control" and "regulations of autonomy" (Reynaud, 1989) maintain the same creative tension, sometimes joining forces, sometimes weakening each other."

Formal organization gives context to negotiations:
"… the formal characteristic of an organization is not to determine behavior directly but rather to structure contexts of negotiation and games between actors." p105

Rules and their impact are ambivalent since people's contexts allow them to use rules in a variety of ways rather than being predictably constrained by them in always the same manner:
"The actors,…, express this ambivalence very well in their behavior, which is also ambivalent, consisting as it does as much of attempts to at rule evasion (trying to twist or get around the rules) as of rule affirmation (in a defensive mode, using the rules against others' attempts to influence). In the latter case, not only do the actors not try to get around the rules, but on the contrary insist on their prescription in order to force other actors to "respect the rules" and to keep them for existing them." p121

The effect of formal rules is uncertain:
"…formal rules structure the field of action and actual behavior to the extent that their application can be adjusted or even suspended, that is, to the extent that their implementation is fundamentally uncertain." p104

Formal rules do not tell us how an organization works since they do not include rules on the many ways in which they themselves can be applied, or the circumstances by which they can be bypassed:
"…the formal rules of an organization are never anything but a very approximate description of the organization's true functioning. Actual work is far from being the same as prescribed work. The lines of the hierarchy can be short-circuited and diverted; …real problem solving involves unexpected and surprising actor constellations, which respect neither the formal limits of the organization nor the distribution of rights and duties as laid down in the organizational diagram and in the manuals of "good management"." p102

Rules that are observed are not the result of a decree by one individual:
"To the extent that they [rules of the game] are the result of negotiations, they are like compromises and can therefore not be reduced to the desire, goals, projects of only one of the interested parties." p120

Formal structure lags behavior since in part it is a response to that behavior:
"…regulation by formal structure can never be complete. Its attempts at regulation are constantly being transgressed by patterns of behavior that do not respect the prescriptions it contains." p101

Formal elements of structure are not independent of people's practice. New rules can arise due to the effect of rules in place.. As components of people's contexts, they are not superior to other elements:
"The formal structure is in fact not independent of the field of forces that it is designed to shape. It wields no rationality superior to the one producing the behavior it seeks to channel and the practices it seeks to regulate. On the contrary, formal structure is an integral part of behavior and practice." p101

Formal structure is therefore not just the representation of rational attempts at efficiency although it may be explained as being such:
"…formal structure is not just the expression the a logic of efficiency. As an instrument for governing and regulating the organization, formal structure is the result of a negotiation between its members; …, a balance and compromise that is also supposed to fix in stable configurations. Formal structure, then, is linked to the praxis of the various participants (from top to bottom of the hierarchy), a praxis that depends on the organizational capacities of those very participants,…" p101

Different contexts are subjects of differing amounts of formal organization and to distinguish we can ask:
What is the relative explicitness and codification of a bit of the structure? ; What is the relative clarity of the goals of mechanisms of regulation?; What is the participants' relative awareness and internalization of these goals?, and; How much do some participants assume at least partial responsibility for the enforcement of regulations?
"It is then possible to imagine a continuum of fields of action according to the degree and the characteristics of their "organization," such as: the relative explicitness and codification of structure, the relative clarity of the goals around which mechanisms of regulation are articulated, the participants' relative awareness and internalization of these goals, and, finally, the degree to which some participants assume at least partial responsibility for the enforcement of regulations." p109

Interactions make structure

Meaning is established by people via practices involving others.
"Neither problems, nor solutions, nor constraints, nor opportunities, nor physical objects, nor nonmaterial devices, nor formal structures; nor institutions – none of these exist in themselves, as such, outside and independently of human agency."

Things are construed in certain ways for a purpose, understanding this helps explain how these things are relevant for action:
"Examining a system of actors always means examining how it uses these [objects, techniques, and instruments] devices, that is, how it manipulates, defines, stabilizes, and, at the same time, transforms them. It is an effort to understand the investment that human actors have made in these objects and devices and the extent to which they consider them as a constraint or resource for action." p151

The relevance of technical knowledge or expertise depends on people making use of it:
"The distinctive feature of technical knowledge within organizations is its dependence on interfaces, that is, it must be implemented through relationships of exchange and cooperative behavior. New technologies or new expertise becomes operative only if supported by adequate networks of cooperation." p239

Structure is established by interaction and also contributes to the context in which interactions take place:
"What we are dealing with is actually a process of inter-structuration, as in every case of social action. The actors construct their action, their cooperative ventures, their alliances, and their undertakings on the basis of the given structure and properties of the context, which, at first approximation, they must take as it is. But by their very actions, the actors transform their contexts in turn by introducing new structurations, which either replace the old ones or juxtapose themselves to them. " p96

Structure and interactions feedback on each other:
"The local order – which, after all, does prevail – and the rules and mechanisms of regulation that sustain it, are neither given once and for all, nor are they independent of these processes of interaction and negotiation. They are the product of such processes and therefore always contingent and problematic by nature." p74

The feedback of interactions and structure stabilizes both:
"Left to itself, with no interventions or disturbances from the outside, the structuration of a field tends to perpetuate itself and to accentuate its characteristics, properties, and equilibria, becoming inflexible and top-heavy through the actions of the mechanisms of self-maintenance that are simultaneously the sign and ransom of its autonomization." p86

Interaction happens between interdependent actors, and the structure is the stability of their negotiations:
"… how these [organizational] processes bring about and perpetuate the structuration of a field of action; this question leads us to a political analysis of the endogenous dynamics of interaction…, linking together interdependent actors in a given field of action…the nature of this structuration, or of the mechanisms meant to regulate and stabilize the process of negotiation and power between the actors involved." p74

The stability of the system addresses the autonomy, and particularly potential defection of actors:
"The autonomy of Alter really is, in this perspective, the essential social problem, since this autonomy implies that Alter can defect, a possibility that raises the problem of the potential instability and fundamental precariousness of relations and transactions. It is precisely this problem that the system allows to be managed by stabilizing exchanges, that is by setting up rules governing the potential defections on the part of any participant." p180

Whatever the problems and solutions that emerge from structuration, they prevent other problems and other solutions:
"The emergence and the ultimate stabilization ("irreversibility") of these problems and solutions are themselves neither totally arbitrary nor totally intentional. Whether they are the result of will, intention, or concerted action on the part of one or several actors, or whether they are due to chance or to the unwanted or unexpected consequences of other actions attempting to "resolve" other "problems," they will always be dependent on a preexisting structure that restricts the actors, which creates imbalances and unanticipated consequences. However, once these "problems" or these "solutions" exist, …they themselves become elements of the structuration of the field, playing a role in stabilizing relationships, and in so doing, preventing (or at least rendering more difficult) the appearance of other "problems" and other "solutions." p119

As the system includes feedback, its properties are dynamically sustained and not the fixed values proposed by culturalist analysts:
"This "labor relation" and the dynamics of interaction that sustain it naturally produce and (re)produce values, norms, status hierarchies, identities and representations. But contrary to the culturalist analysis that takes these as givens and as the expression of the "essence" of a society,…try to show us how they are produced, and, in so doing, place in a concrete and above all dynamic perspective what cultural or culturalist analysis has always presented as static and fixed." p175-176

System analysis must be based on observations of behavior:
"… [complex human] systems can only be known ex post, that is, by the analysis and more systematic comparison of their configurations and empirical characteristics, as revealed through the empirical observation of behavior and the structures of the relationships among actors." p78

The starting point of systemic analysis is to hypothesise the strategies of individual actors:
"…begin with the idea that if we can empirically observe (inter)dependencies and the regularities of individual behavior …, there must also be a game that produces the coordination and integration of divergent, if not actually conflictual, strategies of the different participants" p78

System autonomization must take account of at least four factors (p90-92):
1 Minimum resources for all
2 Resources/assets specific to a relationship (interdependency has to be protected by the organization to reduce transaction costs)
"By increasing the mutual dependency of partners in the exchange, asset specificities increase the danger of potential defection by any one member, and hence intensify the need to be protected by an "organization" of exchanges, by the introduction of what Williamson calls "hierarchy", or governance (Williamson, 1990b), a term that brings us back to the themes of autonomization and the politicization of the exchange." p91
3 Available measurement techniques accepted and mastered by all actors concerned
"…, it is clear that being party to and controlling information on the performance of the other will always be one of the central stakes in such relations." p93
4 Ease of transferring costs to third parties
"Finally, the autonomization of cooperative arrangements and of the game constructs underlying political exchange depends on the ease with which the actors involved can transfer the costs on to third parties (Dupuy & Thoenig, 1986, particularly pp. 248-251), that is, actors who are not included in their exchanges." p92

Power and cooperation

Power is determined by the distribution of resources:
"…power…is to be found in the preexisting structures of the field of action, or rather, in the asymmetry of the resources these structures make available to the actors in order to conduct their transactions,…" p78

The inequity of resource distribution causes an inequality of actor power:
"…the actors will never have the same resources and consequently are not equally indispensible." p119

Power is the ability to impose and retain a position regardless of behavior:
"…, one could propose another definition of power, which would be the ability of making others accept mediocre quality and imperfect solutions, without getting oneself excluded from the game and subsequent transactions." p96

Conflict does not necessarily indicate power relations:
"…, the connection between conflict and power is contingent. The exercise of power can entail conflict, but the presence of conflict is not a necessary condition for qualifying a relation as one of power." p94

Power is a consequence of the desire for action as this entails dependence:
"…the resource that contains all the others, that is their [actors] autonomy and the relevance of their own behavior, which brings us back to our starting point, power as the capacity for action." p196

People enter power relationships to get something from others:
"One does not enter gratuitously into power relationships just for the pleasure of having them. One enters into a power relationship to get other people to cooperate in order to carry out a project,…" p78

Power is necessary to the success of cooperation since those cooperating do not have convergent rationale:
"[Power] is the daily and inevitable mechanism that mediates and regulates the exchanges of behavior indispensable to the maintenance, indeed to the success, of a human cooperative endeavour characterized by the coexistence of relatively autonomous actors, who develop logics of action according to their own bounded rationalities, which, for this very reason, are at least divergent, if not contradictory, or to put it in a more neutral way, not spontaneously convergent. " p188

Cooperation is needed to solve things we cannot solve alone and does not imply a lack of competition:
"…the central question is to understand the social processes leading to the construction and organization of the competitive cooperation between a set of actors who are mutually dependent for the solution of a common problem, which they cannot solve by themselves and for the solution of which they have to secure the cooperation of partners who are also potential rivals." p122

Cooperation is sustained by dependence and power:
"The cooperation of actors around "problems" and their "solutions" is thus always sustained by power and dependence relations, …through which actors try to "sell" their behavior to others at the best possible price, while "buying" the behavior he needs from others at the least cost." p120

Cooperation depends on the recognition of its results, and therefore how it is assessed. Also cooperation depends on knowing what there is to cooperate with:
"…the awareness of the results of cooperation or noncooperation …is contingent on… the instruments and devices for measurement, evaluation, and qualification,…as well as the positive results of cooperation and its attendant modalities. The second level is that of the mutual knowledge of the interacting parties and of the degree of information they have about each other, information that conditions their ability to anticipate reciprocal strategies." p110

Accepting the measurement of results of cooperation moves towards conscious management of collective action:
"The introduction and acceptance of explicit means for measuring the result of cooperation and the transformation of these measurements into goals that can be accepted and internalized but all the participants will allow for the development of a more conscious and goal-orientated cooperation and consequently create a second threshold in the evolution toward more consciously managed structures of collective action." p113

Lack of options for change of a power relation does not signify acceptance:
"As long as either or both partners cannot modify the power relation that supports the terms of the compromise that concludes the test of power, these terms will be respected…It does not mean that the rules become contractual, therefore legitimate, in the eyes of all the parties involved." p121

Cost of Adjustment

All change involves regulation:
"…regulation or deregulation, even though in itself inadequate to the job, is nonetheless an essential feature of the processes of change." p116

We have to concern ourselves with how things can change:
"…peasants will not find their daily lives turned upside down, and they will not really have taken possession of the land, just because a revolutionary committee in the capital has decided to turn land over to them…by what empirical social processes – have these general conditions been able to transform the nature and rules of the local game; on the other hand, conversely, how have the preexisting characteristics of the local game in turn influenced, modified and refracted – that is, slowed down or accelerated the penetration of – this new deal and its accompanying transformation?" p128

Change is facilitated by a shift in understanding:
"In sum, the feedback of results, that is, the process of communicating them to the interested parties and discussing them, provides another way of understanding the system. In some sense, it can be considered as a way for structuring collective interviews by which the analyst can further develop his understanding of the underlying structures of the context being analyzed." p229

To understand an organization in order to change it requires investing in acquiring that understanding from observation of the organization in question:
"No universal law, no general determinism, no abstract principle, can fully explain how an organization functions. There are no explanations except local ones, based on empirical knowledge of the conditions of work and cooperation among real, concrete actors." p238

Choices concerning human systems are unavoidably political and were there an objective criteria of evaluation, its objectivity would be irrelevant to the success of the choice:
"Taking the initiative for such a change is a political action in the fullest sense, and therefore is not governed by the logic of optimization nor even that of maximization. As political action, planned change draws its rationale and legitimacy only from the actors who support it and press it into a context,…" p237

Change is constituted by people changing behavior and that requires an investment in management:
"…what intervention must really aim for is the modification of actual behavior, all of which implies investment in a process over time and, especially, management of this process."

A change strategy is a set of actions that will change the system in such a way that people will choose to acquire a new behavior and will be assisted in acquiring that new behavior:
"A strategy of change must thus invent and assemble a set of custom-made actions, which take into account the specific characteristics of the games and the system of actors the structure of which are to be transformed…, such a strategy can reasonably help the concerned actors learn and adopt new types of behavior, on which depends the ultimate success of the change being sought." p241

Change strategies necessarily include a sub-strategy for the active participation of middle management and supervisors:
"No reorganization project, whatever its intrinsic qualities and however dynamic its leadership, can do anything without the active support of its supervisory staff. Indeed, whenever anyone has tried to use participatory strategies against middle management and other "little bosses," the attempt has backfired, either because the changes so introduced have very quickly come up against the passive, sooner or later, become indispensible partners for change, or because, in the absence of any relay within management in the large sense, it has not been possible for the process of change to make any true headway." p250

The sub-strategy for the active participation of middle management and supervisors requires the creation of options for participating:
"…introducing more participation into the functioning of an organization presupposes the widening and strengthening of the prerogatives, options, and leeway of the management staff. Indeed, without this strengthening, the members of mid-level management are in fact incapable of playing the role of mobilizing, moderating, and managing the complex human interactions that a more participatory way of functioning requires of them." p251

Taking up an option to participate is a risk which people will only bear in return for greater returns:
"…participation commits those who consent to it to the solution that has been discovered in common. Participation is therefore an activity full of risks where everyone has to unveil his or her craft, tricks, arrangements, and secrets: where, in a word, every participant has a lot to lose. Managers, supervisors, employees as well as workers will only agree to commit themselves to participate if they can negotiate certain guarantees (which must be all the greater as one gets lower in the hierarchy) and only if they have the feeling that the game is worth the trouble." p251

Sustainable change requires learning a new way of reasoning, for that precedes changes to behavior:
"Group members now reasoned in terms of human systems; they had acquired a new sensitivity to the human dynamics that support every organization; they had learned to translate the problems of manufacturing process into problems connected to the structure and regulation of actor systems. In short, they had acquired other reflexes and other modes of behavior when dealing with the necessities of change confronting their company. It is probably this in-depth learning that constituted the most enduring benefit of the project group's work, and thanks to it, the project group was able it make itself an incubator for social innovation within the company and initiate a meaningful transformation of its mode of functioning." p279

Sources of Complexity

The degree of desirable differentiation is an unavoidable problem of organization:
"[(Lawence and Lorsch, 1967)] see a fundamental dilemma in the choice that every organization has to make as to its degree of internal differentiation and integration. Every organization, in order to deal with an environment that is neither homogeneous nor unified but diversified, broken up, and segmented, must develop specializations, particular orientations, and specific sectors; in short, it has to accentuate internal differentiation. At the same time, the organization – that is, managers – must integrate this differentiation by setting up organizational procedures to control the centrifugal tendencies, and to manage the conflicts resulting from them." p53

The divisions necessary in large organizations undermine the usefulness of considering the organization as a single thing:
"Large organizations are, on the other hand, divided into many sectors and many functions, all very differentiated from each other, because each division has to establish relations and manage problems with different segments of the environment themselves very diversified. Each one of these various sectors and various functions develops its own rationale, language, technicity, "craft," and logic, which are not easily adjusted or combined. Finally, each one, translating a given problem into its own language and techniques, in turn imposes its own segmentation of problems as well as possible solutions." p242

Difference with markets

A dichotomy between organizations and markets used to be posited. Example theories include agency theory and the transaction-cost approach. Both have major short-comings when dealing with organizations.
Agency theory is unaware of bounded rationality:
"In its various forms, this [agency] theory depends upon the most rudimentary utilitarianism, one blissfully unaware of the contributions of bounded rationality…" p66
"…they [agency theorists] posit individuals who are endowed with totally unrealistic powers of reasoning, calculation, and anticipation." p152
Transaction-cost approach relies on the cohesive, instrumentalist goal-orientated view of the organization:
"the transaction-cost approach to organization, through capitalizing on all the contributions of choice theory with its conceptions of an opportunistic and bounced rationality, is finally based on the view of the functioning of organizations that completely overestimates their unity and cohesiveness. This approach falls back on a conception of organizations as cohesive and goal-orientated instruments,…"p66
The notion of optimizing transaction costs is harder to apply than that of reducing uncertainty:
"I will simply observe that the goal of minimizing transaction costs and information costs has a much more restricted applicability than that of the reduction of uncertainty, which is presented here." p96

There is no cut-off between markets and organizations – merely a spectrum of different sets of rules that govern exchange.

Markets need sophisticated structure in which to exist:
"…a market, in order to function, must be more efficient than the organization in controlling the monopolistic tendencies inherent in the exchange between actors; For this reason, the markets in fact constitute concrete systems of action, which are more sophisticated and more complex, since their existence presupposes the establishment and social maintenance of all kinds of constraints and mechanisms of regulation that are both sophisticated and flexible." p87
Markets need structure for people to be willing to participate:
"The market is organized in the sense that, for example, it has to be guaranteed that people do not cheat, that they do not profit from asymmetries of information and resources, that they do not establish dependence relations and rents. To impose coordination by the market amounts to creating institutional constraints, …" p123

Structure is needed to ensure spot transactions can really take place:
"It is necessary to have very particular constraints and a very specific context to guarantee that spot transactions may really take place be kept in operation. This is the main reason that market exchange cannot exist without organization, and even quite a lot of organization (or "governance" to use a term frequently used by Williamson)." p94

Spot transactions exist within structured relationships:
"As Granovetter (1985) has shown so well, the idea of spot transactions is largely theoretical. Spot transactions certainly exist, but most of the time they will be inserted into larger relational contexts, the regulations of which encompass and structure them as well." p97

Structure sets mechanisms of exchange between persons obfuscating the limits on the space left for transactions:
"However, at any moment, this structure can be understood as a set of games, the rules and conventions of which (be they formal or informal, explicit or tacit) rein in the actors' opportunism by channelling and regularizing the threat of their defection, that is, rendering it more costly, if not always more predictable. At the same time, these rules lay out the zones of possible negotiations by making the mechanisms of exchange more rigid and the space of transactions less transparent." p120

Markets contain political exchange and are not alternatives to it:
"…the existence of money (when conjoined to the heavy constraints typical of, for example, agricultural auction markets) does not succeed in replacing negotiation nor in depoliticizing exchange. New "political" deals always slide into the interstices and onto the margins of commercial transactions.
Economic exchange is intrinsically unstable. Unless institutional or normative constraints prevent them from doing so, the players will always try to include as part of their exchanges some haggling over the terms or the "rules" that govern them:…" p87

Copyright Yves Morieux and Olivia Davies 2010

Monday, 15 March 2010

Cooperation in organisations

Corporations have historically developed according to the logic of their products. Today, however, they are increasingly having to operate according to the logic of their customers, which is quite different. This upheaval impacts the entire corporate social dynamics, ways of working and value creation processes. Organisations have to develop radically new internal cooperation patterns. In learning to develop such cooperation patterns, companies discover an untapped field of growth energy.

Customer First and Corporate Tensions. When the problem was to manage mass production, it was logical for companies to organise themselves around production constraints, i.e. around the sequencing of the various stages needed to work a product out. Thus, if car manufacturers' organisation charts featured design departments, engineering departments, assembly lines and sales departments, it was because one has to design products before engineering, assembling and selling them. If airline companies had ground operations departments on the one hand, and flight operations on the other, it is because planes are first on the ground, and then in the sky. The organisational structuring was nothing more than a carbon-copy of the succession of specific constraints met by the producer. However, the more a system organises itself around its own constraints, the more it is up to others - in this instance, the customers - to adapt and make do with it. It is up to the passenger to supply the “seam” between ground and flight services by queuing for the shuttle bus after check-in. It is up to the car owner to make do with months of waiting before getting his new car, and to accept the defects which arise from disjointed work amongst designers, engineers and manufacturers.

Unless, of course, the customer has a choice to turn towards less demanding competing alternatives.

And, indeed, today's customer has more and more choices. The whole problem has changed. It is no longer the availability of the product that is problematic, it is the availability of the customer. The dominant uncertainty has shifted. However, if the solution to the problem has changed hands, it follows that power balances are being reversed in the exchange relationship: the one in a position to have their own constraints prevail becomes the customer. This situation does not eliminate the operating constraints which still pervade a company. What is removed, however, is the company's freedom to take a direct leap from its constraints to its organisation principle, thereby enjoying a comfort that customers would bear the cost of. This is where resides the decisive upheaval for the whole social fabric of organisations. A human system functions in a radically different way, depending on whether it can organise itself around, and give prevalence to, its own constraints, or whether it has to start from others'.

In concrete terms, the change boils down to this: the more an organisation attempts to take into account its customers' constraints, the more it undergoes new internal tensions. On the one hand, the organisation experience a greater need for joint decisions between functions. The customer's logic is not sliceable. The more compelling the customer's logic, the more the various internal segments must act in a coordinated fashion. But, simultaneously, the human system at work experiences an increase in goals differences among participants. Demanding customer requirements result in cost pressures and increased internal competition for resources. The more resources within a system are rationed, the more the solutions of one participant may result in problems for another: in the allocation of staff, of investments and of lead times. Poorly managed, smothered with superficial “customer is king” slogans and abstract debates on structures (horizontal, flat, etc.), these tensions weaken an organisation instead of stimulating it.

The Cooperation Imperative. The only way to manage such tensions is to go beyond the apparent contradiction they pose: by learning to cooperate, which means, precisely, to act together even though spontaneous agreement is unlikely. A constant observation is that every time people fail to cooperate, it results in additional resources requirements. However, nothing has prepared organisations to such learning. The very historic principle of organising people around a succession of tasks says the contrary: if everyone, in his or her place, does what he or she has to do, there is no need for cooperation. Accordingly, it is not unusual for organizations to react to such tensions along the classical approach: instead of learning how to cooperate, with more face-to-face situations and less interfaces, management strive to refine jobs descriptions; tasks definitions are being reinforced by new norms which consecrate the necessary and sufficient content of each “silo”. The organisation produces regulation, “client-supplier” internal contracts, but it does not improve integration. At the same time, due to cost pressures, resources are being cut down in each “silo”. However, if the functioning mode remains constant and the level of cooperation is unchanged, any reduction of resources can only degrade the results achieved. And, the more the results deteriorate, the more the resources are being trimmed back. So on and so forth, until a crisis point is reached.

Learning how to Cooperate.
An organisation's ability to produce cooperation among its members, its functions and its expertise domains, has become a critical competence. How can a human system learn how to cooperate? Firstly, by recognising that cooperation cannot be decreed. Secondly, by observing that cooperation is not, on the other hand, just a matter of people's psychology and getting on well. A human system's aptitude to function in a more integrated way does not boil down to good interpersonal relationships. Cooperation is about reconciling conflicting constraints, not personalities. In fact, to learn cooperation,it is more efficient to consider that people act rationally, i.e. that their behaviours are adaptive, “strategic”, responses to the concrete problems they are confronted to, given the resources and constraints they face. Resources and constraints include competencies, operating procedures, rules, performance criteria, structures, etc. And it is only if cooperating turns out to be a rational strategy for each player, i.e. a solution to his or her problems, that people will cooperate. If, in spite of incantations and heartfelt appeals to team spirit to overcome “shared challenges”, playing in a more collective way never pays off, the functioning will remain compartmentalised.

Which Levers to Improve Cooperation? Responses are specific to each company. However, sociological analysis of organisations helps identify a constant factor: cooperations are all the stronger as there are room for manoeuvre and possibilities of influence between players. In that sense, power distribution is a key variable of action for more integrative processes to emerge in an organisation. Indeed, airlines really started to work in a more transversal mode when power stopped being concentrated on technical functions. Other strong players stood up (that were in charge of marketing, yield management, etc.) with enough weight not only to become unavoidable, but also to take the risk of moving out of insulation. Only those players which can act on a problem critical for others, i.e. which control a pertinent uncertainty (thanks to their competencies, information, possible initiative taking, etc.) will find room in the exchange relationship which underlies cooperation. And it is not because a function, or any other category of people, have always been looked down to and kept aside that it will necessarily want to engage in the new “hand-in-hand company project” and jump in the cooperation bandwagon: it takes a minimum of good cards to take the risk of playing in a more open way.

Growth and success suppose to identify ambitious targets and to mobilise every individual energy to achieve them. Cooperation is at the heart of such mobilisation. Senior executives have a fundamental role to play in organising the “good games”, i.e. those which lead to efficient cooperations. Sociological analysis, if totally integrated into the corporation's overall strategic approach, can help them formulate the appropriate choices, both in day-to-day operations and in large scale change programs. It allows for identifying and understanding factors of resistance to change and, at the same time, to discover solutions to overcome these obstacles in order to mobilise energies towards corporate objectives.

Copyright: Yves Morieux, 2009

What is compensation compensating for?

The financial crisis triggered an important and often impassioned debate over compensation, punctuated with even violent protest. Do we, though, clearly see what lies behind compensation and what compensation means about the relation between individuals and their company?

Drop in engagement and satisfaction at work
Surveys indicate a drop in engagement and a growing dissatisfaction at work. This trend dates back at least twenty years. According to Towers Perrin, only 11% to 23% of employees felt engaged at work in 2004 in the largest Western European countries. In 2001, an Ifop-Gallup survey had to resort to a new concept – "active disengagement" – in order to classify the 28% of the French who may go as far as to act against their company’s interests. According to the Conference Board, the percentage of Americans who declared themselves satisfied at work has gone from 61% in 1987 to under 50% in 2007. The percentage of American executives who say they are excited about their job has fallen from 65% to 55% in eight years.

Trying to compensate for the hardly compensable
What must an organization do when it can not produce the engagement it needs? It must compensate by purchasing engagement, through extra-incentives such as bonuses and perks of all sorts. The going rate then rises with the scarcity of capabilities. Is the crux of the problem in the amount thus reached, in its potentially public funding, or in the cause? The cause is the company’s inability to generate the engagement and loyalty it needs without top-up incentives. The moralizing criticism is currently fuelled by the distribution of such incentives in poorly performing companies, sometimes in the very units responsible for corporate losses. But this criticism further conceals the real issue. The incentives in question were designed not as reward for past performance, but to procure future engagement. Such incentives were not the retrospective expression of gratitude, but the price settled to secure prospective attachment.

Poor social contract
The social contract is the unwritten but compelling reciprocal commitment between the firm and the individual. Under the old social contract, individuals provided loyalty and engagement and in return the corporation protected their job. This contract disappeared with the pressure surge of hyper-competition. Yet, companies require a level of engagement that goes well beyond just fulfilling the rules. Rule fulfillment is less and less sufficient to confront the increasingly complex problems faced at all company levels. Hence the slogans on collective mobilization, identifying with the company's mission, and the importance of a shared vision. Yet, when things go wrong, one is invited to go share elsewhere.

A substitute social contract has then emerged: performance for employability. The individual commits to developing or implementing high performance strategies, and in return the corporation maintains their employability on the job market by developing their skills. This is often a poor social contract, so contributing to disengagement. Its main weakness is the inability of companies to maintain employability due to management roles that are too disconnected from people development. Extra-incentives have a twofold objective that they imperfectly fulfil: on a day-to-day basis, to buy the engagement that the organization does not intrinsically generate; over time, to make up – “compensate” – for a poor substitute social contract.

Tackling the real issue
In a nutshell, the problem is the contradiction between the organization’s growing need for the engagement of its members, and its frequent incapacity to obtain such engagement without over-promising. How can a company produce, in a sustainable way, through its very operations and organization, the engagement it needs?

Firstly, by keeping a firm hand on its growth trajectory.It is elusive to decree growth. But to be led by growth is hardly preferable. The more growth is uncontrolled, the greater the risk of ups and downs.

Secondly, by developing productivity as one of the most sustainable protections against competition. The issue is not so much individual productivity. The individual is often the bottleneck of productivity improvement, having already been put under maximum tension through the progress of flexibility and the elimination of dead times. The new front is collective productivity, i.e. cooperation. This requires going beyond all the incentive schemes based on individual performance metrics. Cooperation, one of the most valuable behaviors, cannot be measured.

Thirdly, by transforming the role of management. When managers are distanced from operations by complicated and over-stratified structures, when they spend 40% of their time writing reports, and then 30% in coordination meetings, they cannot perform their real work, notably developing people. Management has become abstract, and abstracted from its real job. Management must be provided with the means to do its concrete work: direct knowledge of operations rather than the surface of KPI-monitoring to which it is confined; real power rather than virtual or dotted-line org charts; and, instead of the sophisticated gloss over "leadership styles", a leadership rooted in incarnated values.

Copyright: Yves Morieux, 2009