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Anatomy of Agile Enterprise

Janne J. Korhonen

Stratification Underlies Agility, Concluding Remarks

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Organizational hierarchy is often seen as antithetical to agility. A number of alternative approaches have been put forward in an attempt to outline the form of social organization that would better befit today's requirements for organizational agility: matrix arrangements, team organization, network. In this series of blog posts I have delved into the theory and principles of Requisite Organization by Elliott Jaques (1998). Jaques defends hierarchy as a natural form of social organization and argues that organizational dysfunctions pertain to poor structuring, not the hierarchy, per se. Likewise, I tend to think that hierarchic layering of capabilities and managerial accountability constitutes the fundamental underpinnings of a business organization and in fact underlies its agility. In the following, I will appeal to the notion of requisite variety to back up my claim.

In cybernetics, variety refers to the measure of the number of different states in a system. For instance, a light switch that can be in two states, on and off, has a variety of two, and a single-digit display has a variety of ten. Variety grows rapidly with the complexity of system. A system of two light switches has a variety of four and a two-digit display a variety of 100 (22 and 102, respectively). Real-world systems have variety which is virtually infinite.

According to W. Ross Ashby's Law of Requisite Variety, the variety of the controller needs to be at least as great as the variety of the system or situation to be controlled. In other words, "only variety can destroy variety". Ashby (1956) exemplifies requisite variety with the following exercise:

A guest is coming to dinner, but the butler does not know who. He knows only that it may be Mr. A, who drinks only sherry or wine, Mrs. B who drinks only gin or brandy, or Mr. C who drinks only red wine, brandy, or sherry. In the cellar he finds he has only whisky, gin, and sherry. Can he find something acceptable to the guest, whoever comes? (Ashby, 1956; 11.4 ex. 4)

So in this example, the variety of drinks in the cellar is requisite to cater the needs of the usual guests. But what if a hypothetical Ms. D suddenly turns up, who drinks only wine or brandy? The butler will now be in trouble, as indeed he should be: what kind of butler has no wine in the cellar?

In a similar vein, individuals or organizations may have requisite variety to cope with the business as usual, but be in trouble in the face of sudden discontinuations in the circumstances that call for unprecedented responses. An effective system must encompass requisite capabilities to deal with predictable contingencies in its environment, but also be able to endogenously engender new capabilities addressing disruptive discontinuations in circumstances that call for profound transformations. Agility, in essence, is about capacity to continually change; to constantly make the future rather than to defend the past.

The increasing complexity of the business environment must be matched with requisite behaviors to effectively deal with that complexity. These behaviors are enacted in roles with increasing degrees of freedom (i.e. variety at disposal). The roles must be filled by people whose capabilities at least match the complexity of the role. Otherwise, the people will pull the organization down to their lower level.

Requisite stratification cascades the control of variety onto discrete strata, each of which entails its own objectives, language and systems that separate it from other strata. As pointed out by Beer (1972), the varieties that diffuse through the organization tend to equate, but they usually do so by accident rather than design. Requisite Organization principles are valuable in explicitly designing organizations to effectively match the complexity of their environment.

As the emerging business environment is increasingly nonlinear, uncertain and changing, organizations must be more resilient than before in the face of unexpected and unpredicted changes and events, such as technological discontinuities, new regulations or geopolitical upheavals. The complexity of such dynamic environments calls for matching Stratum VI+ capabilities. The organizations need to be able to co-adapt to other organizations, to continually question the modus operandi and to dynamically reinvent business models and strategies as circumstances change. Mere minimization of costs and maximization of profits no longer suffices, but well-justified trade-offs need to be made to optimize the organization with respect to a number of concurrent objectives: efficiency, effectiveness, innovation, and long-term viability and sustainability.

When the internal capabilities of the organization do not match with the external complexity, it may appear that hierarchy is to blame. However, resorting to alternative organizational arrangements in such case without first giving due consideration to proper structuring of capabilities and managerial accountability will be fundamentally misguided and actually exacerbates the organization's mismatch with the requisite variety imposed by the environment.

References

  • Ashby, W.R. (1956). Introduction to Cybernetics. Chapman & Hall.
  • Beer, S. (1972). Brain of the Firm. London: Penguin Press.
  • Jaques, E. (1998). Requisite Organization: A Total System for Effective Managerial Organization and Managerial Leadership for the 21st Century. Revised second edition. Baltimore, MD: Cason Hall & Co. Publishers.

Janne J. Korhonen provides insights into how information technology can be applied strategically to catalyze organizational change and responsiveness. Drawing from both theory and practice, he discusses agile enterprise and its governance.

Janne J. Korhonen

Janne J. Korhonen is an independent business and IT consultant,specializing in enterprise architecture, business process management,service-oriented architecture and pertinent governance models. He has over ten years of experience as an architect and consultant in a variety of extensive and mission-critical IT projects. With strong theoretical underpinnings, his consulting encompasses systemic co-development of business, organization and information technology.

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