The Org

by Henry on April 5, 2013

Ray Fisman and Tim Sullivan (who I know a little and like) are blogging about their recent book on organization management, The Org (Powells, Amazon) over at OrgTheory.net at the moment. It’s both a very good book and an excellent introduction to a particular style of thinking about organizations. The book starts with Ronald Coase’s insights about the relative benefits of contract and hierarchy, and goes from there. Much of the book is devoted to showing how these insights travel across a wide variety of different contexts – Baltimore policing (building on Peter Moskos’ sociology), Christian preaching and the like. Much of the book is also devoted to explaining why apparently frustrating aspects of organizations have a rationale, and may even be the best way of accomplishing something or somethings, given the complex and multiple needs, internal incentive problems and so on. More succinctly, the book sets out to show how the world that Dilbert inhabits may not be the best of all possible worlds, but is better than we realize at first glance, and actually less dysfunctional than the obvious alternatives. It provides a lot of detail and case study to back up this basic claim. And it is in an entirely different league of intelligent argument from other books aimed at business readers.

All this said, I tend to view organizations from a different perspective than the authors, one which didn’t really get any sustained attention in the book. Fisman and Sullivan build on two major traditions in organization and management – one stemming from Frederick Taylor, and the other from Chester Barnard. Taylor emphasized the value of overt incentives, monitoring and information in achieving organizational efficiencies. Barnard emphasized the benefits of fuzzier notions of corporate culture, in creating a more diffuse, but likely valuable set of benefits in interactions between workers and management. Fisman and Sullivan start off with a Coaseian version of Taylor’s arguments, but weave in some Barnardian arguments about the benefits of corporate culture as the book progresses. A good organization is one with clear, well designed incentives, and with a culture of trust.

This, however, plausibly underplays the ways in which Taylorist incentives and Barnardian diffuse trust work against each other. Gary Miller’s excellent book Managerial Dilemmas (which Fisman and Sullivan don’t seem to have read, or at least don’t refer to), makes this argument at length, building on basic results from social choice theory. In jobs where you cannot observe actors’ efforts, you will not be able to reach efficiency with overt incentive schemes alone. Indeed, too much of an emphasis on incentives is likely to turn employees into the Good Soldier Svejk, more interested in gaming the system than in fulfilling its objectives. If Taylorist incentives and fuzzy cultures-of-trust work against each other, then Fisman and Sullivan’s emphasis on efficiency starts to look much more ambiguous.

Moreover, there’s a third account of organizations out there, which Fisman and Sullivan don’t really look at at all. This is accounts of organizations not as human institutions geared to produce efficient outcomes, but instead the by-product of struggles between self-interested actors, in which organizational efficiencies take second place to the interest of powerful actors. While Miller’s own research does not fit into this tradition, he provides a useful overview of it here. Notably, all this work uses the same rationalist building blocks as the work that Fisman and Sullivan rely on, but comes to very different conclusions about the actual organizations that self-interested rational actors will create.

So when reading The Org, I couldn’t help think that there was a shadow-story to the one that they told, one which would have depicted modern businesses and organizations in a different and less pleasant light. This alternative story indeed might explain aspects of their cases that don’t fit into the more efficiency-friendly account that they favor. Early on in the book, they tell a story about a web designer who complained online about how he could design a better site than the horrible American Airlines website in a couple of hours. An American Airlines employee “Mr. X.” then responded in a friendly email, explaining the complex processes that were needed to get all the different players in the organization to sign off on a website redesign. The story suggests that organizations can indeed get stuff done – but that one needs to pay attention to the very complex coordination tasks that they need to undertake to manage this process. However, there’s one bit of the story that doesn’t gel at all with this narrative. American Airlines tracked down “Mr. X,” who hadn’t said anything very uncomplimentary or problematic about the company, and fired him.

While Fisman and Sullivan don’t really comment on this – they simply go on to describe the other kinds of coordination that AA undertakes – it’s hard for me to see how firing an employee simply for explaining how the internal process works to good effect could be efficient. It doesn’t provide any clear, useful incentives to improve overall efficiency. Nor is it conducive to a happy and productive employee culture. The simplest explanation is that Mr. X got fired because his bosses were self-aggrandizing assholes, who saw any public commentary as potential insubordination to be ruthlessly punished, even if this made for a more dysfunctional organization.

What Fisman and Sullivan provide is a picture of the organization where various apparent inefficiencies are actually-efficient solutions to political or other problems within the organization. Another lens would see these as actual inefficiencies resulting directly from the politics of actually-existing hierarchical organizations, and the fact that there is a structural divergence between the interests of those at the top of the organization and those at the bottom. Clearly, the latter view isn’t always right either (sometimes, hierarchy is necessary, or at least useful; workers can be jerks too etc). But I would certainly be interested to see Fisman and Sullivan responding, and thinking more explicitly about the possibility conditions for their more optimistic account of how organizations work.

{ 25 comments }

1

shah8 04.05.13 at 8:38 pm

Thanks for the new tabs on my pdf reader.

One thing about the AA scenario…Large organizations that aren’t public non-profits tend to treat decision-making practices in said org as proprietary information. Not least because such entities have a public face and a public profile maintained by their relations department for the various social entities the organization interacts with. Details of actual practices is probably contradictory to the public info. Hypocrisy is a key technique in large organizational playbooks.

Of course, that does not obviate the “asshole bosses” answer, either. Discipline does not have to be severe like here, or like what happened after Pycon…

I also think there is a necessary big difference between what goes for effective organization depending on the business and institutional umvelt related to that prospective group of people. Prison contractors necessarily have different internal organizational style relative to a pharma startup.

2

Tim Silverman 04.05.13 at 9:05 pm

there is a structural divergence between the interests of those at the top of the organization and those at the top

This may be true, but I suspect it is not what you meant to write…

3

Henry 04.05.13 at 9:06 pm

Tim – thanks – just spotted this myself and will correct.

4

William Timberman 04.05.13 at 9:21 pm

It’s not the boss. It’s the system that’s the asshole. Everybody from Marx to Scott Adams says so, so it must be true, yet apparently management consultancy is still considered a promising career choice. Go figure.

5

Dan Kärreman 04.05.13 at 9:33 pm

There is a largish subgenre in management theory, critical management studies, that questions , if not outright reject, the frankly ridiculous assumption that all organization member’s interests are always aligned, and that management always is the best interpreter of this interest. More interestingly, Cyert and March’s behavioral theory of the firm , which is basically an extension and development of Barnard’s argument, posited in the sixties that organizational dynamics always is driven by different stakeholder interest, and that the key management function is to balance conflicts, i.e. to put politics at the front of managerial activity. It never stops to baffle that large portions of organizations studies assumes that they have a license to simply forget about this, and just assume that politics and power is somehow not part of organizational reality.

6

Bill Tozier 04.05.13 at 9:42 pm

A case where the inefficiencies created in the service of unremarked coordination ritual become the culture itself: Universities

7

Bruce Wilder 04.05.13 at 9:55 pm

I’ve never understood why anyone would just assume that any organization member’s (or market participant’s) incentives are aligned properly (whatever meaning might be assigned to “properly” in a particular context), or could be, between desired or required behavior and outcome or consequence. My life is all blocky steps and rocky paths — I wish something would align; it never does.

8

Main Street Muse 04.05.13 at 10:33 pm

What is their rational for including AA? As a case study in efficiency? Agree that the anecdote about firing an employee for noting higher-ups need to approve web changes is a bad example of efficiency or leadership.

I had a chat with an AA employee some years ago at a school function; it sounded like one of the worst run orgs in America (http://bit.ly/XizHEN). They were in bankruptcy earlier this year (http://nyti.ms/16CCThf) and have now merged with US Air. Would love to know how AA exemplified “org” in a good way – or perhaps the company was used to show how not to run things?

9

nnyhav 04.06.13 at 12:00 am

whilst you were posting, this came up over to bookforum’s omnivore:
http://www.improbable.com/2013/03/09/a-stupidity-based-theory-of-organizations/

10

caleb 04.06.13 at 1:59 am

[editor] – snide personal attack on other commenter removed – if you would like to make a substantive point and can learn to handle tone better, you’re welcome to try again.

11

Metatone 04.06.13 at 7:31 pm

I still haven’t had time to read this book, so I can’t do more than give reactions after a skim.

– I quite like that someone has made some attempt to take a more balanced view of hierarchy, process and rules. None of us like it all that much on a personal level, but it needs to be acknowledged that they are often the most economically efficient way to get various things done in our current economy.

– Less impressed, similar to Henry’s comments, that there’s little acknowledgement of the role of power and politics in organisations.

– Also referenced by Henry, this book does nothing to take on the doubletalk and doublethink about incentives. The empirical evidence on incentives is even more negative about them than Miller’s (good) work. Really I think you have to write an account of organisations working despite the use of simplistic incentive schemes, rather than crediting incentives for the success.

– Also less than impressed by the treatment of org culture, seems pretty simplistic (and judging by the author comments on orgtheory, perhaps a result of their concentration on the org econ literature.)

12

Sev 04.06.13 at 9:11 pm

Well, I’m not up on the theory, but the firing referenced seems all too indicative of the present state of organisations in/with which most of us work, and strongly connected, I think, to the general crisis of democracy and inequality discussed here and elsewhere. A paradox for another Marx, that our age of increasing transparency, which would seem to call for a more collegial workplace culture, is instead rife with petty authoritarianism.

13

mpowell 04.06.13 at 11:11 pm


– Also referenced by Henry, this book does nothing to take on the doubletalk and doublethink about incentives. The empirical evidence on incentives is even more negative about them than Miller’s (good) work. Really I think you have to write an account of organisations working despite the use of simplistic incentive schemes, rather than crediting incentives for the success.

There are really two ways to talk about incentives. One, which doesn’t do very well, is to have a very limited set of quantitative criteria that are used to evaluate employees. I think this is what the studies on incentives that you are referring to are generally getting at, but I could be mistaken. The other way to think about incentives is just as a sense of clear goals or priorities that employees will be evaluated based on. Sometimes this includes quantitative measures of performance, sometimes not. This is what it sounds like they are talking about in the org. It is much harder to cynically game an evaluation process that includes measured reflection by a manager.

14

mpowell 04.06.13 at 11:14 pm

Or reading more carefully, perhaps not. ‘Overt incentives’ sounds like emphasizing simplistic incentive schemes.

15

JE McKellar 04.06.13 at 11:15 pm

As an under-employed liberal arts graduate, I find this sort of bureaucratic dysfunction (or mediocre political functionality) particularly distressing. Supposedly our liberal arts makes us useful for managerial roles in complex organizations, where lots of data has to be sifted through, complex ideas communicated clearly, and multiple perspectives and interests put into balance. But if the functional organization of most bureaucracies actively prohibits liberal discourse and the free flow of information across the organization, especially when any sort of complexity, nuance, or criticism is involved, then liberal arts grads are particularly useless for most organizations. Furthermore, if the hiring lords of individual bureaucratic fiefdoms are more interested in recruiting pawns to maintain the political status quo, rather than free thinkers that could help reform the organization as a whole, then liberal arts grads (real ones, at least) would be positively disqualified.

It feels like a repeat of late medieval politics, with nations run by court toadies with the odd intellectual cleric that the king occasionally found useful. Back then, the military and private commerce provided a space for new organizational forms and leadership to develop, and eventually challenge the decadent inertia of the old regime. Nowadays, with both our military and government run like corporations, not to mention our churches and universities, I wonder where change could come from.

16

emjaybee 04.07.13 at 2:12 am

The original critic said the website was crap. “Mr. X”, by describing how the website came to be the way it was, was in fact *agreeing* that the website was crap; he was just telling the critic *why* it couldn’t be helped. Which embarrassed those who had done the signing-off on the website, and so his head was forfeit.

Whether the corporation is a fuzzy warm-feelings type or into using (usually tiny) carrots and (usually very large) sticks, at the end of the day the worker is still subject to their dictates and, since survival depends on having work, doesn’t have the option of not playing the game. Workers with more desirable skills have more options of course, but they are always at the mercy of changing expectations and technology.

It sometimes feels like being an employee of any company is like being a woman not so long ago; desperately looking for a husband that would accept your labor and fertility as payment for shelter and food, a process that was extremely prosaic but had to be all dressed up in language about love or commitment so no one noticed. The best you could hope for was a husband who wouldn’t dump you when you got too old or abuse you, but the power always stayed with him.

17

Caleb 04.07.13 at 4:09 am

Hmmm. “Snide personal attach on another commenter”. No, not really, if you read my post you’ll see that I was actually agreeing with the other commenter in order to make a broad observation about the discourse on CT in general. You may still view what I said as snide, fair enough. And it’s your site. But the pleasure I used to get on CT has been reduced of late by what I perceive to be a bullying use of moderator privileges by some of you, and for sure I stand by the point made, that the CT community seems to feel comfortable critiquing business and government from within academe and with what appears to be both limited experience (or “emic” understanding) and a blithe lack of introspection about the institutions where most of you make your living. Anyway, good luck, because this isn’t fun for me any more. Enjoy your echo chamber…

18

central texas 04.07.13 at 4:39 pm

emjaybee@16

It seems to me that the important point for the corporation, were it driven mostly by a desire for excellence and survival, would be to understand what both the critic and “X” were saying. As a matter of opinion and as a long-time customer of AA, their website WAS crap. It remained crap for a very long time; to the point that I refused to use it. Fortunately, business travel had made me a highly valued customer who was able to get personal assistance outside the web mess, so I was not forced to go elsewhere. My guess is that many others made different choices.

Firing “X” merely underlined the fact that AA was a disfunctional entity. Good management might have been able to see that and act to improve/rescue the company. Clearly that did not happen and continued right up to the point that AA ceased to exist as an independent entity. Upper managment was STILL placing protection of their fiefs above the survival of the organisation.

19

bianca steele 04.07.13 at 6:05 pm

I think it doesn’t matter much why X posted what he did. (I don’t know whether X’s firing seems justifiable, but I haven’t read the book. Since the posting was public, I assume “The Org” includes a full account of its contents?) He might have been venting about what it takes to get things done within the organization, or he might have been trying to get specific people associated with the website into trouble; or he might have been explaining patiently why the whiny customer was being overly demanding, only in a ludicrously incompetent manner.

20

Jason Weidner 04.08.13 at 1:24 am

It sometimes feels like being an employee of any company is like being a woman not so long ago; desperately looking for a husband that would accept your labor and fertility as payment for shelter and food, a process that was extremely prosaic but had to be all dressed up in language about love or commitment so no one noticed. The best you could hope for was a husband who wouldn’t dump you when you got too old or abuse you, but the power always stayed with him.

Best comment I’ve read in a while, and one of the reasons why, with apologies to Caleb, I continue to enjoy reading Crooked Timber.

21

Jerry Vinokurov 04.08.13 at 2:23 am

Ironically, the AA website is still terrible and barely-functional. It just looks a bit nicer now.

22

Trader Joe 04.08.13 at 12:56 pm

Near the top of the OP Henry mentions the key organizational attributes of incentives and corporate culture – in my experience communication and management skill are the cement which holds these attributes together and pulls an organization forward.

Incentives without and understanding of how they align with culture will be gamed. A culture without incentives tends to become a pep rally without a game…a lot of hype, but no reason to follow through. In organizations where good managers communicate how personal behaviors will drive both organizational objectives and incentives the results can be amazingly powerful.

Another part of the equation is maintaining that energy, communication and culture through the growth/success that inevitably follows. Its understandable why early employees might behave in high allignement with the organizational mission, translating that culture and incentivization into 100s and then 1000s tends to require different management and communication than simply starting up. Many hold up organizations such as Google and Apple as companies that managed these transitions successfully but even these organizations have had stumbles.

When you think about how global and complex some businesses actually are – literally thousands of people making tens of thousands of decisions daily – its actually somewhat remarkable that so many of them are capable of functioning in a way that is both useful and efficient.

What shouldn’t be surprising is that many of them, such as in the AA example, get derailed. I don’t know the whole hirearchy of AA but I’d suspect it took only 1 or 2 individuals looking out for themselves rather than the organization to turn a process as complex as an airline website down a path that was un-recoverable without a complete do-over – whether Mr. X was in fact one of these people is also the subject of some speculation as this story has been around for awhile.

23

Peter 04.08.13 at 7:31 pm

I read this book from cover to cover (doesn’t take long – there is less content than in an average blog post) and am amazed anybody could find anything worth reporting in it. So shallow, no theoretical insights are advanced, and the practical observations are so lacking of any coherent narrative, honestly you would learn more about orgs from one or two Dilbert strips (not to mention an entire volume). The most dissapointing book I have read in a long time, my eyes fell out when I saw that at least one of the authors is actually faculty member at a reputable university. (One wouldn’t seriously give this text to even some junior college student as an introductory reader on organisations?) Why the pulled punches in this review, I don’t get it, sorry. “Organizations not as human institutions geared to produce efficient outcomes, but instead the by-product of struggles between self-interested actors, in which organizational efficiencies take second place to the interest of powerful actors…” Oh really? I’d rather go back to read Coase.

24

George 04.09.13 at 12:58 pm

Any recommendations for a popular or semi-popular book about the “
third account of organizations out there, … organizations not as human institutions geared to produce efficient outcomes, but instead the by-product of struggles between self-interested actors, in which organizational efficiencies take second place to the interest of powerful actors. ” ?

25

KatherineKChen 04.11.13 at 4:20 pm

George, I would recommend Robert Jackall’s Moral Mazes – it discusses how bureaucracies operate more like fiefdoms where who you support and whether you make the boss look good, rather than what you do (or don’t do) matters. For a perspective on governmental organizations, I would look at James Q. Wilson’s Bureaucracy.

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