Organization Theory: Strategy Implementation Process

1. Organization Theory: Strategy Implementation Process Steven E. Phelan June, 2006 Complexity theory Critical theory Corporate social responsibility

2. Overview • Chaos and complexity theory • Morgan Ch 8, Beinhocker, Eisenhardt • Critical theory • Morgan Ch 9, Phelan • Corporate social responsibility • Martin, Vogel, Cameco case

3. What is Chaos Theory? • Chaos theory can be compactly defined as: • "the qualitative study of unstable aperiodic behavior in deterministic nonlinear dynamical systems" • Famous for the butterfly effect (or sensitivity to initial conditions) and the concept of strange attractors

4. Logistic Equation

5. Map of x against x-1

6. Chaos in the Real World • If the economy is a chaotic system then planning is doomed • Better learn to react and learn quickly rather than prepare • It feels chaotic, but there is little evidence that the economy is a chaotic system

7. What is complexity theory? • Based on an agent…an ant in a colony, an electron in an atom, a worker in a company... • A complex system is defined asany network of interacting agents (or processes or elements) that exhibits a dynamic aggregate behavior as a result of the individual activities of its agents. • An agent in such a system is adaptive if its actions can be given a value (performance, utility, payoff, fitness etc.) and the agent behaves so as to increase this value over time.

8. Complex Adaptive System • A complex adaptive system is one in which agents adapt to higher levels of fitness over time • A fitness landscape is simply a visual representation of the payoffs from taking different strategies • Fitness landscapes can be rugged (with many peaks or troughs) or smooth • Co-evolution creates a ‘dancing fitness landscape’

9. Key Result Areas • Some key results in complexity theory have proved important for management • Emergence • Agent-Based Search • Patches

10. Emergence • Emergence • Simple rules can produce complex behavior! • See logistic equation, for example • “Order for free” – no need for central control! • Just find the right simple rules for agents to follow • Artificial Life Example • Craig Reynold’s Boids Program • Eisenhardt uses this principle in “Strategy as simple rules” • How-to, boundary, priority, timing, exit rules

11. Agent-Based Search • Exploring a rugged fitness landscape by trial and error to try and find the highest peak can take a long time • Using agents to explore the landscape and zero in on promising regions may be faster • Beinhocker uses this principle in “Robust Adaptive Strategies” • Keep moving • Deploy platoons of hikers • Mix short and long jumps • “Populations of strategies”

12. Patches • Stu Kauffman found that dividing an NK lattice into several patches and minimizing the energy in each patch without reference to the global energy level gave better solutions than global search on very rugged (i.e. complex) landscapes • Having sub-units optimize their part of the problem may be better than trying to find an optimal solution for the whole organization • Kauffman suggests that multi-divisional organizations might benefit from less rather than more centralized control

13. Complexity as Metaphor • Complexity theory has been extended from biology and physics into other arenas • Undoubtedly, societies, economies, and organizations are complex adaptive systems, too. • If an organization is like an NK model then…

14. Interpretation • Adaptation (biology) rather than efficiency (machine) should be promoted • A variety of small experiments should be undertaken to explore the “fitness landscape” • Rely less on central controls • Recognize that change can yield big (or small) results and solutions can emerge from the interaction of agents (workers)

15. Strengths and limitations of flux metaphor • Strengths • We think of the limits of forecasting, prediction, and control • We think about adaptation rather than optimization • Limitation • Is there really an analogy between the results of computer simulations of physical systems and business?

16. CRITICAL THEORY

17. Organizations as instruments of domination • Equality of opportunity – do we have it? • Arguably, life is not a level playing field • Those with poor initial endowments of resources, especially health, safety, and education have poor prospects • These people often don’t have a voice • Issue of hegemony and false consciousness • Concept of “Ideal speech situations” • Democracy as window dressing for the elites

18. Example of critical management theory • Given that: • Marketers sometimes create needs and sometimes meet needs • Entrepreneurs are sometimes self-sacrificing and sometimes self-serving, and • Corporations sometimes use monopolistic strategies and sometimes use competitive strategies THEN Why are the negative behaviors virtually unstudied by management academics or even taboo (undiscussable and subject to sanctions)?

19. Chomsky’s Propaganda Model of the US Media Industry • Corporate ownership • Need to protect advertising revenues • Sourcing of news stories • Flak • Anti-communist ideology RESULT: Self-censorship or auto-censorship Positive stories that support the dominant elite

20. Filters for business school academics (in the US) • Career path • “…the people who make it into positions in which they're respected and recognized as intellectuals are the people who are not subversive of structures of power…the whole education system involves a good deal of filtering...and it's a kind of filtering toward submissiveness and obedience” (Chomsky & Otero, 2003). • Doctoral students • Enormous power of ‘internal’ doctoral committees • Assistant professors • ‘Publish or perish’ in top journals. • Up or out system. • Compensation • A lot of compensation (and workload) tied to performance • Executive teaching, summer teaching, overall workload and level of instruction, merit pay raises, promotion to full professor

21. B-school Filters (ctd) • Recruitment/endowment • Radical research will affect reputation with recruiters and other academics leading to lower rankings and less recruitment (recruitment akin to advertising for media) • Poor relations with business also result in lower endowments for buildings and endowed chairs • Advisory boards • Advisory boards can provide ‘flak’ to a Dean • Data sourcing • a poor standing with business also blocks access to data collection • Relatively minor

22. Weaknesses • Likes all structural models it suffers from over-determination and a lack of attention to difference • As such, it ignores: • National institutional differences • Hegemony and competing discourses • Structuration and agency issues

23. Benefits • Educates us on the importance of conditioning (positive and negative) in ideological control • Invites us to explore mechanisms to create an emancipatory (free speech) environment • Are business researchers knowingly complicit in the production of half-truths about business life? • Chomsky thinks this is the wrong question • I think it is a question we should all ask ourselves.

24. Other critical Issues • Primary and secondary labor markets • Stress and workaholism • Occupational Disease • Exploitation of people and resources • Class, race, gender, world regions • Green (environmental) issues • Poor working conditions in developing countries and responsibilities of MNCs • Implications for strategy implementation?

25. Corporate Social Responsibility • Virtue Matrix (Martin) • Civil Foundation (instrumental) • Benefits society and creates shareholder value • Choice (norms, customs) vs compliance (laws) • Varies around the world – is there a race to the bottom? • Frontier (intrinsic) • Strategic (possible benefit to shareholders) • Structural (no benefit to shareholders) • Governments, NGOs, corporate coalitions may trigger investments • Migration over time • From strategic to choice to compliance • From structural to compliance

26. Criticism of CSR • Vogel • CSR is a niche business • To protect reputations against activists targeting high profile brands • As a component of branding (e.g. Body Shop) • Only 2% of mutual fund assets in CSR funds • CSR doesn’t seem to pay • High profile firms under-perform competitors • CSR irrelevant to profitability • Consumers don’t care enough to vote with their cash • Is your firm increasing or decreasing CSR spend? • Is CSR seen as an intrinsic or instrumental obligation? • How important is CSR to your firm/industry?

27. Cameco Case • Who are the stakeholders and what are their interests? • What actions should Duret take to immediately to address the crisis? • What could Cameco do to rebuild its relationship with the nearby communities and country over time? • Is Cameco’s corporate social responsibility policy adequate • Does Cameco get good value for its investment in corporate social responsibility? • Are the shareholders’ interests being looked after?

28. Homework • Watch the DVD “Syriana” by next class (6/30) • Interpret the film through the lenses of: • Chaos theory • Critical theory • Corporate social responsibility