In the face of increasingly turbulent business environment, the organizations of today must be agile in sensing weak signals, making sense of the discerned patterns, deciding promptly on the way forward, and responding to the opportunities and threats in a rapid and concerted fashion. This calls for integration and requisite organizational logic across all concerns.
This blog post makes a case of how the complexity of the environment must be matched with requisite level of organizational response, which, in turn, must be underpinned by a respective organizational logic. A new approach to measure business capabilities in terms of levels and logics is then put forward.
Change is Changing
The nature of change is changing. In the past, technologies and market preferences were relatively stable, i.e. the environment was laminar (see Figure 1). The future was a logical extrapolation from the past. Strategy was about planning for the long range, focusing on finding and defending the right strategic position. Activity systems were optimized with regard to the strategic commitment. Organizational changes were mostly uncomplicated, controlled, short-term, and limited in scope. Large-scale changes were relatively infrequent and carefully carried out in the face of strategic mismatches.
As the technological change accelerated and the preferences of customers diversified, strategy focused more on adaptation to change: adopting new technologies, introducing new products, and re-engineering of business processes. Organizations had to embrace continuous change and open their boundaries more to the external world. Organizational changes tended to be intentionally planned and deliberately managed towards the desired future state. They were characterized by discontinuous transitions from one state to another, proactively carried out based on detected weak signals.
In today’s turbulent environment, however, the technological change has become incessant and the customer preferences unprecedentedly fickle. The strategic focus is on dynamic strategic repositioning: rapidly reconfiguring the organization to changing circumstances on an ongoing basis. Capacity to deal with unpredictable contingencies and to recover from exogeneous shocks must be built in to the organization. The agile imperative calls for strong organizational identity and values as well as ubiquitous embedment of concerns. To continually co-evolve with the environment and to prepare for the unknown, the organization must also reach out to its ecosystems to dynamically leverage co-specialized assets for its fleeting needs.
Complexity of Work Must Match the Complexity of Environment
To survive over time, the complexity of the organization must match or exceed the complexity of its environment (e.g. Chandler, 1962; Andrews, 1971; Miles, Snow, Meyer, and Coleman, 1978). In terms of agility, the internal change of the organization must equal or exceed the external rate of change (Volberda and Lewin, 2003). In other words, organization-wide strategic renewal actions must keep up with the changes in the strategic context over time.
Different levels of the organization are faced with different amounts of uncertainty and are also capable of handling uncertainties to varying degrees (Thompson, 1967). The lowest, technical level of the organization is geared to efficient and reliable production of outputs. Change interventions at this level are limited to improvement and restructuring of existing work systems. As shown in Figure 2, the technical level is requisite in relatively stable and predictable environments.
Under less predictable conditions, the uncertainty and irregularities of the environment are addressed by the managerial level that provides a protective context for the technical work systems (Thompson, 1967). This additional layer of complexity stabilizes supply and demand, procures necessary resources, disposes of the output, determines the technical function to be carried out, and sets the scale of operations as well as operating policies (Thompson, 1967; Petit, 1967). Change interventions at this level are about reengineering the organization to proactively align its product/service mix with the evolving market punctuated by discontinuous events.
The highest level of uncertainty in turbulent environments requires response at the institutional level, where the organization derives its meaning, legitimation and support as a constituent system within the more encompassing ecosystem (cf. Thompson, 1967). The organization is subject to increasing entanglement with the environment and must increasingly rely on value-based controls to maintain cohesion. Whole-system transformations call for fundamental rethinking of the organization’s identity, purpose, norms and beliefs, culture, and distinctive organizational capabilities.
The vast majority of organizations and institutions seem to be chronically underadapted to today’s complex environment.
Levels of Work: Yardstick of Work Complexity
The Levels of Work model (e.g. Jaques, 1989; Rowbottom and Billis, 1987; Hoebeke, 1994; Macdonald, Burke, and Stewart, 2006, 2018; Olivier, 2010; Van Vrekhem, 2015), exhibited in Table 1, provides a more fine-grained yardstick of work complexity. As a parsimonious, vertically differentiated prescriptive structure, it is an actionable basis for organizational analysis, design, and interventions (Jacobs and McGee, 2001).
The lowest work level (I) is about excellence of task. A specified output (product, service or a combination of both) is produced, which is largely prescribed, tangible and measurable. Change is about streamlining of existing processes, waste reduction, quality improvement.
At the next level (II), knowledge and experience are applied to a particular situation within prescribed boundaries and available resources. Work is continually redefined, improved and automated to increase efficiency and reliability of operations. Change pertains mainly to process and quality specifications and tooling.
At Level III, coherent work systems of people, technology, processes, and resources are integrated and managed to meet the current and foreseeable needs of known customers. New products and services as well as alternative ways of meeting the requirements and needs of known clients are developed within the existing framework, resulting in marked improvements in work system productivity.
Level IV is about interrelating and coordinating a functioning set of products/services, structures, systems, internal and external relationships. Weak signals are sensed and transformed into innovative new product and service concepts to maintain viability in an evolving environment.
At Level V, the organization’s identity and intent are defined and articulated to provide internal coherence and determine external position in the present and future. In terms of change, this is manifested as innovation of new business models and value configurations. Such value innovation may also entail far-reaching changes in technology and result in creation of new industries.
The Levels of Work literature customarily accounts also for levels VI and VII, mostly relevant to large corporations. Those levels are not addressed herein.
Table 1. Levels of Work and respective nature of change and innovation.
Level | Essence | Nature of Change and Innovation |
V – Business | Define and articulate the organization’s identity and intent to provide internal coherence and determine external position in the present and future. | Value innovation: new business models, value configurations. Far-reaching changes in technology. Creation of new industries. |
IV – Function | Interrelate and coordinate a functioning set of products/services, structures, systems, internal and external relationships to maintain viability in a changing environment. | Innovation and introduction of new product/service concepts. |
III – Practice | Integrate and manage a coherent work system of people, technology, processes, and resources to meet the current and foreseeable needs of known customers. | Marked improvements in work system productivity; product/service development. |
II – Process | Apply knowledge and experience to a particular situation within prescribed boundaries and available resources. | Change in process and quality specifications and tooling. |
I – Activity | Produce a specified output (product, service or a combination of both), which is largely prescribed, tangible and measurable. | Streamlining of processes, waste reduction, quality improvement. |
Organizational Logics: The Depth Dimension of Work
Organizational logics are “sense-making frames that provide understandings of what is legitimate, reasonable, and effective in a given context” (Guillén, 2001). These logics can be positioned vertically on a spatial scale (Spicer, 2006). Organizations develop through different stages, solidified as levels of work, by increasing the number of dimensions from which they experience an object (Van Vrekhem 2015, drawing on Jaques 1989 and Kegan 1994). Complexity increases each time a dimension is added and each new dimension will include the previous one. A scale of organizational logics is exhibited in Table 2.
Table 2. Organizational logics (Korhonen, in press).
Organizational Logic | Description |
5 – Collaboration | Characterized by trust, commitment, honesty, integrity, enthusiasm, and interpersonal collaboration. |
4 – Coordination | Characterized by innovation, adaptability, continuous learning, employee empowerment, accountability, and coordination of interactions. |
3 – Co-operation | Characterized by effectiveness, mutuality, proactiveness, adaptation and change. |
2 – Competence | Characterized by standardization of work, efficiency, expertise, independent thinking, simple abstractions and generalizations. |
1 – Conformance | Characterized by absolutes, immutables, avoidance of conflict, obedience to authority, order, stability, and predictability. |
The conformance logic is characterized by absolute belief in one right way, immutable laws, obedience to authority, order, stability, and predictability (cf. Beck and Cowan, 2005; Laloux, 2014). Problems are assumed to be well-structured (Joiner and Josephs, 2007) and beliefs are relatively unexamined and unjustified (King and Kitchener, 2004). Conflicts are avoided (Cook-Greuter, 2005; Torbert, 2004).
The competence logic values efficiency (McMorland, 2005; Torbert, 2004) and expertise in one’s craft (Torbert, 2004). As opposed to the conformance logic, this logic encourages independent thinking and does not eschew confrontation (Joiner and Josephs, 2007). Different perceptions are recognized (Van Vrekhem, 2015), and simple abstractions and generalizations are used to think beyond the present moment and to imagine possibilities (Fowler et al., 2004).
Under the co-operation logic, organizations are recognized as co-operative systems rather than products of mechanical engineering. The logic is characterized by effectiveness, mutuality, and proactiveness (cf. Torbert, 2004).
In the coordination logic, the perspective shifts from internal to external. It is characterized by adaptability, continuous learning, employee empowerment, and accountability (Barrett, 2006). It is attracted by difference and change more than by similarity and stability (cf. Torbert, 2004). The perspective is relativistic (ibid.) and has a contextual, subjective, and interpretive epistemology (cf. King and Kitchener, 2004).
The collaboration logic is about mutuality and autonomy. It is characterized by trust, commitment, honesty, integrity, and enthusiasm that beget an increased capacity for collective action (Barrett, 2006). Strong interpersonal collaboration is emphasized and formal control is replaced by social control and self-discipline (Greiner, 1998).
As illustrated in Figure 3, each level of work complexity calls for a progressively more advanced organizational logic that then pervades all structural levels. This is the depth dimension of work.
Conformance logic is requisite at Level I and in the face of essentially unchanging (and thus theoretical) environment. At the other end of the spectrum, the collaboration logic enables Level V responses in a turbulent environment. Any lower level logic applied in that context would be maladaptive, i.e. inadequate for the organization to adapt to its environment.
In Table 3, these logics are applied along five fundamental organizational aspects: 1) customers/market, 2) production / service delivery, 3) product/service development, 4) continuous improvement, 5 business enablement, and 6) transversal aspect.
Table 3. Organizational logics manifested along essential organizational dimensions.
Dimension | 1 | 2 | 3 | 4 | 5 |
Customers/ market | One-off interactions | Issue-specific services | Segment customers | Customization, personalization, contextualization | Dynamic integration |
Production / Service Delivery | Prescribed output | Situational response | Systematic provision | Comprehensive provision | Field coverage |
Product / Service Dev. | Optimize work | Changes in work specs | Work system dev. | Conceptual innovation | Value innovation |
Continuous Improv. | Ad-hoc improv. | Reactive improv. | Proactive improv. | Quantitative improvement | Dynamic improv. |
Business Enablemnt | Informal, unmnged | Basic support | Full practice | Strategically federated | Embedd'd |
Transversal | Opportun. | Rules and routines | Distinct expertises | Coordination of competencies | Integrated and fluid capability |
As per the conformance logic, engagement with customers is perceived in terms of discrete, one-off interactions. The output of production or service delivery is prescribed with little situational latitude. Development of products and services is limited to optimization of work to remove waste from the process. There is no culture of continuous improvement, but it happens ad hoc at best. Business-enabling functions (e.g. HR, Finance) tend to be informal and unmanaged. The transversal dimension, dealing with cross-cutting aspects such as leadership, governance and culture is characterized by opportunism.
The competence logic takes into account situational variety and recognizes individual differences. Accordingly, customer engagement is abstracted in terms of issue-specific services, and production and service delivery adjust to customer preferences and situations. Development of products or services has impact on the work specifications. Improvement is more managed than ad-hoc, but it is reactive to the requirements. Business enablement functions provide basic support. Transversally, the organization is characterized by rules and routines.
The co-operation logic is applied to systematically position and provide products and services in a recognizable market segment (Van Vrekhem, 2015). Change is about design, development and optimization of work systems. The stance on continuous improvement is proactive, business-enabling practices are full-fledged, and the overall approach is about arm's-length co-operation of these distinct expertises.
The coordination logic is employed in integrating and controlling the interactions between a number of systems (cf. Macdonald et al., 2006). The provision of the product/service mix is comprehensive (Rowbottom and Billis, 1987) and customized based on more nuanced customer profiles and the context of value creation. As per this logic, altogether new product or service concepts are innovated to keep up with the evolving competitive context. Continuous improvement is quantitatively measured. Coordination of competencies is systematic and business enablement respectively federated across the enterprise.
The collaboration logic further deepens the integration and cohesion of the organization. The products and services integrally constitute the value proposition that addresses a broader field of needs (cf. Rowbottom and Billis, 1987). Through value innovation, this value proposition and the respective business model may be transformed. Development, change and improvement are continuous and dynamic. Business-enabling functions are intrinsically embedded in the interweaved fabric of the organization. The organization is integrated, coherent and agile.
Organizational Logic as a Measure of Business Capability
Management thinker Peter Drucker is often quoted as saying that “you can’t manage what you can’t measure.” To manage and develop business requires appropriate diagnostic tools to measure it along pertinent dimensions.
Our Organizational Logic Scan is a diagnostic that helps assess the organizational logic along all essential aspects of the organization. It is based on a survey and an interpretative workshop
The measured dimensions of the survey instrument are exhibited in Table 4. The questionnaire features 72 forced-choice questions on a five-step scale, addressing a wide variety essential concerns in a business organization. It is applicable to production and service companies alike and is intended to provide a quick overview to inform further analyses and action.
Table 4. Essential organizational dimensions.
P – Production & Delivery
| C – Customers and Markets
| D – Product/Service Dev
|
I – Continuous Improvement
| T – Transversal
| E – Business Enablement
|
The diagnostic is:
Cross-functional: The metrics cut organizational structures and have a common interpretation across the organization.
Accessible: Data collection can be done with modest effort. The results are timely.
Transparent: The scale is uniform for all indicators and is based on a sound theoretical foundation. Calculation of numeric results is straightforward.
Actionable: The resulting report provides practicable recommendations for specific actions to be taken. It objectifies subjective perceptions of organizational dysfunctions and legitimizes interventions that are required.
Apart from the specific diagnostic instrument, the concept of organizational logics provides a powerful backdrop for analyzing virtually any organizational aspect-system. What is the business capability that you would like to assess?
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