Q9: Structural Remedies: When do organizations need them?
To wrap up our first series on ecosystem applications, I want to shift gears a little bit. We’ve thus far discussed the benefits of resource optimization (Q6), trust building (Q7), and fast-tracking of innovation (Q8). Equally, for all these pieces, we focused on the setup (orchestration, if you will) of ecosystems and how transitions between community-focused and structural ecosystems are key activities in having organizations convert on these value propositions. But what if your bottleneck is not the transition into a structural ecosystem — but rather, the structure itself? What if after orchestration and associated transitions, one is left with a system that falls short? What is the remedy?
Structural Change is Radical Change
Well, to begin with, it is worth considering that the impact of a structure never can be placed in a vacuum. A well-known model in information systems highlights how a sociotechnical system, which any organization can be seen as, has four core elements — technology, tasks, people and, of course, structure. If a technology simply makes completing a task easier (and perhaps cheaper), without affecting someone’s work, you have little to no disruption. Now, if the implementation does affect the way people complete their tasks, we’re left with more significant second-order changes that, in addition to changing their task completion approach, also revamp people’s relationship with technology.
This is the reason as to why isolated task automation is such a win for a company or organization — it need not account for an organizational adjustment, even for the people who may have been completing the task before. There are natural worries around the extent to which this can happen without resulting in job displacement for the people involved, but on behalf of an organization and given the common incentives, it is a no-brainer from nearly every standpoint to make task automation a core business priority.
The model in question further posits that there are various levels of organizational change, and that for first- and second-order changes, structure does not play a part at all. The interplay between technology, tasks and people can still occur without involving changes around the standardization and workflows of a particular organization, in large part by simply focusing on task-specific optimization enabled by implementation of new technologies and people’s adjustment to the same.
Structure provides a significant contrast here. What you will find is that structural modifications entail the highest order of organizational change — and are thus equally the most impactful yet difficult form of reengineering. It is well known that revamping business processes — a subset of structure — very often fails in organizations, in large part due to the order of change it implies. Unless you account for its impact on tasks, technology and (most importantly) people, you’ll likely be left with something worse than what you started with.
Figure 1. Third-order (structural) change. The glasses-labeled arrows regard the second-order change of the given system (encompassing the impact of tasks and technology on people), and the scissors-labeled arrow represents the first-order change surrounding interplay between technology and tasks (automation). From O’Hara et. al. (1999).
Actionability in Organizational Change
So, what do we do? Well, the natural point of departure is addressing lower-order change to see if the conditions improve. Task automation is the most natural attempt at that for the reasons we outlined. Integrating technology in people’s existing workflows and processes is the next step. If neither works, we’re left with the necessity of structural change.
If that turns out to be the case, the effects on technology and tasks are of course a concern, but even more so due to the extended impact that it may entail for people. I say that due to people being the most important yet least predictable component of the system, including the potential resistance to change that can accompany any new implementation for organizations. What if task automation leads to fears of job displacement? What if the new ERP software has better functionality but also a learning curve that makes employees avoid it? And, what if the structural changes make the transition even rockier by introducing new tasks and procedures? I could go on.
Point being, that just pushing people to abide by the proposed change is likely not a good option if you want optimized results — and it’s likely not on the ethical side of things either. That is, unless by “pushing”, we mean “transparently incentivizing.” If structural changes also embed the incentives necessary for people to benefit from getting on board, the extent to which said changes will pose a barrier to improvement can be expected to diminish significantly. The field of incentive-centered design (ICD) relies on this premise and is widely applicable to this type of activity.
Most of the incentives we see in organizations are financial ones, like commissions and bonuses — but could we get more creative? The blockchain space and its emphasis on tokenization has led to conscious attempts at expanding on the ways by which we express the value we see in something. As an organization, we align with this, which likely gets reflected in how broadly we speak of incentives. Nonetheless, in the end, with our current systems, it’s difficult to see how even other forms of tokenization (targeting time, levels of convenience, or other contextual value) aren’t assessed relative to the most fundamental token at our disposal — which is money.
Multiple Incentives: One Holistic Outcome
We could naturally get into how money is a global representation of our perception of value (as other abstractions and standardizations are very tricky due to differing incentives and motivations between audiences), and what this implies on the macro level — but that’s a topic for a different time. Point being: tokenization, regardless of whether it is money or any other form of token, only does so much to serve as an incentive — especially if the introduction of new incentives interferes with our benefits on other ends, or requires additional bandwidth to track.
However, if one in some shape or form is part of the same value chain, there is a unique dynamic that should be emphasized: that a united vision and/or goal can account for multiple different sets of incentives and motives simultaneously. Think of a large corporate firm that has multiple teams tackling the same objective but from different angles. Organizational incentives are often somewhat tied to particular KPIs. Sales managers want to increase revenues. HR managers want to increase retention. Client success managers want to increase customer satisfaction and lifetime values. But these all feed the same holistic incentive for the organization — the bottom line. So, if the goal is to strengthen the bottom line, the incentives of all the sub-groups making it possible must be catered to.
Whether we like it or not, this is the global incentive set for organizations by our societal structures. There is a valid debate to be had around what can be done to better incentivize intrinsic value generation on the macro level and allow for rewards to be reaped accordingly. There is also a discussion to be had around the form of governance required to make such an endeavor sustainable. In fact, it’s what got Marco and me passionate about building an organization that recognizes these gaps.
Nonetheless, the principle I’m pointing out here stands on the firm level. Regardless of whether the holistic incentive is the bottom line or something else, there are instances in which a particular plan can feed the given motives, all while accounting for the incentives held by entities forming a subset of the whole. That’s what ecosystems are all about — enabling complementarities between players by gearing them toward a coordinated outcome that is beneficial for all. This is where, based on our consulting engagements, we see that larger corporations have significant difficulties — both in how they enable groups to communicate their incentives and intended outcomes, and how they set up structures to account for the same. And due to the prospects outlined, this is where more work needs to be done to ensure there is a return on structural change.
Tracking and Enforcing Incentives: To What Extent?
Another question is how far we can go with incentives alone. One could make the case that AI, blockchain and other emerging technologies could help us better track incentives and fluidify our structures — and that may be somewhat true (considering how time- and resource intensive those activities currently are). However, we have to be very conscious of the extent to which we commit to these capabilities being ubiquitous rather than case-specific, in the interest of avoiding increasingly computationally deterministic paradigms. I don’t mean to depict a WestWorld-like scenario — my point is simply that societal structures reflect our beliefs, and if our prime belief is that we trust computers more than humans in every instance, I think we’ve lost track of the beauty humanity affords us, and our ability to surmount problems over time as we face them.
So with that, the final point: as useful as structures can be, they cannot account for everything, and we likely don’t want them to. This is what we touched on in Q5 — that when structures fall short, positive social embeddedness is the main vehicle for desired outcomes, and helps manifest through human interaction and trust. The behaviors that emerge when people (employees and executives alike) transcend the structures (macro and micro) applied to them — whether it be by organically changing job tasks, finding new ways to communicate with colleagues and leadership, taking a more holistic mindset to work, or anything else under the sun — are in the interest of organizational dynamism and, dare I say, societal prosperity. The moment we add structures where we shouldn’t, we decrease the probability that this occurs organically, and that, we should be wary of. Expect the next piece to explore this point further.
Bardia Bijani
Managing Partner, FuzeQube Group
