The future of organizations

A friend recently asked me where I thought the future of organizations was heading.  It was one of those deceptively simple questions on which few professors can resist taking the bait.  And, like any good speculative sociologist, I think not in outcomes but in the opposing forces shaping those outcomes (letting me make forecasts without making predictions). My quick response hinged on how technology and organizations interact over time, and so was worth exploring further. 

Two of the major technological forces shaping the future of organizations today are (1) the centralization of information (enabling the flow of decision-making, coordination, and control to the core) and (2) the decentralization of capability (enabling more potent actions at the periphery)

Organizations are increasingly able to channel information to the very top levels. Those movie scenes in which White House politicians watch, in real time, the actions of soldiers in the field are not unrealistic.  Through the miracle of enterprise software, top executives at retail chains, for example, can watch and respond to the daily revenue numbers of individual stores; sales executives can track daily progress of their salesforce.  Large organizations like Walmart can now respond with a speed and flexibility unheard of for their size, or for any size 10 years ago. 

At the same time, individuals and small teams at the periphery of these organizations can now take actions that control the fates of those organizations. Two traders, Michael Swenson and Josh Birnbaum, were able to save Goldman Sachs from the subprime meltdown (Goldman's traders, not bosses, deserve credit). And Andrew Hall, a trader at Citigroup whose small group (Philbro Corp.) was able to make big bets on energy prices and, by being right, generate 10% of the net income of Citigroup for 2007 ("Trader hits jackpot in oil"). Citigroup's response reflect the dilemma posed by these opposing forces:

"Questions about the future of Phibro could add to the problems facing Citigroup and its new CEO, Vikram Pandit. A sprawling company with 300,000 employees, Citigroup is trying to nurture entrepreneurial talents like Mr. Hall, while curbing risk-taking elsewhere. The bank can ill afford to lose top performers after a tough 2007, in which it wrote off billions of dollars in failed mortgage bets." [by rogue traders, no doubt -ed]

And this is not always a good thing. Individuals and small groups at the periphery are also becoming capable of toppling those same firms. The Cavelese disaster, in which a single pilot flew recklessly low, severing a gondola cable and killing 20 civilians, triggered an international incident.  These actions, while tragic, seem to pale in comparison to business, where we've seen "rogue" (but nevertheless junior) traders like Nick Leeson and Jerome Kerviel take down  longstanding and well-respected financial institutions (Barings and Societe General).  Increasingly, we're seeing these demonstrations of the power and capability that has been created at the periphery of organizations today.ves viable.

The Red Queen within

Between these opposing forces of centralization and decentralization we have, in essence, a red queen effect.  The Red Queen is named after a character in Alice in Wonderland.  As Lewis Carrol wrote.

"It takes all the running you can do, to keep in the same place."

The Red Queen describes positive feedback loops in competitive systems--where each side advances (sometimes very rapidly) in response to each other's advances. Or, as the poet Robinson Jeffers wrote:

"What but the wolf's tooth whittled so fine
The fleet limbs of the antelope?
What but fear winged the birds, and hunger
Jewelled with such eyes the great goshawk's head?"
                (Robinson Jeffers in "The Bloody Sire", 1941)

The flow of information and decision-making to the core and of capability to the periphery in many ways reflects a Red Queen effect--a set of interdependent evolutionary forces that, by interacting with each other, creating rapid change in organizations.

The more capability flows to the periphery, the more effort will go into providing the core with control over those frighteningly large peripheral capabilities. Conversely, the more coordination and control at the core, the more the organization creates capability  on the periphery. Control without the capacity for action is wasted, and action, by definition, lives on the periphery.

This Red Queen effect has forced large organizations to simultaneously centralize decision-making and decentralize raw power. And so with all the running they must do, they are in the same place--no less secure for all of their centralized control and distributed capabilities.

And so it seems that one of the most important lessons we can be teaching our next generation of leaders is to understand and manage what will become an increasingly unstable aspect of organizational life.  The illusion of control over resources that can, on any given day, bring  the entire organization to its knees.