Organizational Learning’s relevance to business – Elite Series

Today, as Salvatore (2006) points out, we are living through the management revolution where organization is changing “in ways that are not yet fully evident or understood.” Carstedt and Senge (2001) point out in a very interesting article that while the machine model inspired the industrial age we are now moving towards a genuine post industrial age inspired by the living system as well as that “a new environmentalism is emerging driven by innovation, not regulation…..More and more businesses are recognizing the opportunities this creates.”

The new approach needed for the future was actually named “alien” by the World Bank Vice President for South East Asia Mieko Nishimizu and quoted in Senge’s (2010) latest article. Senge goes on to say that the basic fundamentals for sound leadership in this “alien” future are: systems intelligence, building partnerships across boundaries and openness of mind, heart and will; capacities not yet existing in the toolbox of the majority of managers. Scharmer (2010) also on his latest article suggests that we are moving from Capitalism 2.0 towards creating the Capitalism 3.0 in the form of a regenerative ecosystem economy identifying also several key concepts of economic thought that need to be reframed.

If those exceptional scientists are right indeed, then we are probably about to experience a huge shift in management, let alone international management. And if this shift is indeed starting, or has already started, then perhaps the best we can do right now is prepare our toolboxes accordingly. This toolbox, is what this book aspires to provide you with.

Theoretical/fundamental implications

The concurrent theory of the firm assumes that the objective of a firm is maximazation of wealth or in other words of the value of the firm. The present value of the firm is calculated with the sum of all expected future profits discounted to the present. Practically in terms of managerial decision making, the theory of the firm assumes that managers consider short and long term profits to be equally essential and consequently direct through decision making the firm by continuously balancing both in the most efficient and effective manner.

This approach is radically different from short-term maximazation which was the assumption that the theory of the firm was based in the past. Such an objective assumes that managerial decision making is based upon only short -term profit maximazation that would result in a completely different behavior of the firm focused and directed only towards present profit. The existence of the Millennium goals (UN, xxxx) is a sane proof that this shift from short term to a balanced maximization approach has taken place already.

The concurrent theory of the firm is clearly superior from the short-term mazimization since it is based on a much broader bounded rationality of top management’s decision making process that takes under consideration much more variables (present and future), its immediate effects as well as side effects any time in the future resulting in a much more rational and mindful behavior. On the bottom line, short-term maximazation has been practically proven long time now to be a non valid assumption as the firm’s primary objective since highly popular investments like RnD, market research or renewing equipment and infrastructure do sacrifice current for higher future profits (Salvatore, 2006).

Someone could argue that this shift, is not really dramatic and does not constitute a degree of complexity and interdependence that is hard to be managed with the existing knowledge. Even with this shift, we are still in known grounds, we are still within our comfort zone. Let us explore if this is the only shift that humanity’s artificial systems have undergone until today. What if there were many more shifts happening in parallel during the last few decades? Would we still be able to manage that degree of complexity with our existing knowledge and experiences? In other words, is this OL and ST toolbox really needed?

References:
Salvatore, D. (2006) Managerial economics in a global economy. 6th ed. New York: Oxford University Press.

Senge, P. and Carstedt, G (2001). Innovating Our Way to the Next Industrial Revolution, MIT Sloan Management Review, 42 (2), pp. 24-38

Senge, P. (2010). Systems Citizenship: The Leadership Mandate for this Millennium, Reflections; The SoL Journal on Knowledge, Learning and Change, 7 (3), pp. 1-8

Scharmer, O. (2010) Seven Acupuncture Points for Shifting Capitalism to Create a Regenerative Ecosystem Economy, Oxford Leadership Journal, 1 (3), pp. 1-21

During the last three decades the world has completely changed. From technology to economy, politics and society, nothing is the same as in our grandparents’ or even parents’ time. A characteristic example is the internet; a single technological advancement with a profound impact on almost all aspects of human activity that has changed our work and life completely.

The shift that has taken place is unprecedented and obvious and addressed by all kinds of current leaders while the lack of experience on the new modalities of this reality is creating fear and uncertainty as well as errors due to experimentation.

Palmisano (2006) reviews this shift from a corporate point of view highlighting that business is fundamentally changing due to geopolitical, technological and standardization developments from multinational companies to globally integrated enterprises. The key development that we can identify in Palmisano’s (2006) article is the shift of business focus “from products to production”. This is a shift at a different dimension than the shift that we had identified earlier. This shift has in practice fundamentally changed the reason of existence for companies, their purpose, and consequently everything related to business. Companies now according to the author have a new goal: “integration of production and value delivery worldwide” (Palmisano, 2006)

The most significant developments deriving from this fundamental shift in purpose are also outlined by Palmisano (2006). Global integration changed the location of production as well as the ownership of production and management itself. Today, as the author is pointing out, global integrated enterprises maximize their profits by strategically locating every single operation in the host country with the greatest relevant competitive advantage without distance being of great importance any more. Ownership of a production operation, or as Palmisano (2006) points out who produces, is no longer evident by the brand name. Each operation can not only be located in distant places but can be performed by a completely different company under the form of outsourcing agreements or partnerships. Management and organizational design has also completely changed to accommodate the new conditions of a this globally integrated enterprise taking the form of smart business networks (van Heck and Vervest, 2007) instead of one multinational company.

In practice we can see, as Palmisano (2006) highlights, that contemporary business is done through continuously reassembling the various operational parts within an internal, that we could also name first-tier, and an external, or second-tier, smart business network of global level. What used to be one organization is now a first-tier smart business network and what used to be competition is now a second-tier smart business network. As a consequence the market leaders of an industry or sector are no longer few companies but in practice one as also Shenkar and Luo (2008) are pointing out with several societal, geopolitical but also technological implications.

For example, the implications for the technology that an organization might use in its supply network are numerous. Coupling (Slack et al, 2010) appears to be of increasing importance as technological integration is developing to meet the needs of growing smart business network structures. Networked Business Operating System introduced by van Heck and Vervest (2007) as an additional operating layer coordinating all sub-systems take a whole new meaning with the potential to become key components of process technology in a globally integrated business environment. Networked information technology is already a standard while we already can see shared editing through wikis to be used not only in crisis management like in the IBM case study (Slack et al, 2010) but also from a whole nation in order to draft its constitution (Siddlque, 2011) making impossible to predict where this technology will be used next or even after its further advancement. Integrating technologies (Slack et al, 2010) might be also of increasing use and importance for the new form of supply networks. Remember we are exploring in this paragraph only the technological implications!

No matter the resources invested, an estimation or a forecast might prove inaccurate since the fundamental assumption used is that the environment will not be subject to any radical change (Geus, 1997). But history is full of examples of radical changes that were not predicted, a risk that has been significantly increased during the current period. Palmisano (2006) is highlighting this very point in terms of organization in his paper saying that “Many parties to the globalization debate mistakenly project into the future a picture of corporations that is unchanged from that of today or yesterday”. Another aspect or dimension of the shift in organization and business is the institutional overpopulation with Arie de Geus highlighting that “Do you realize that there is nothing, absolutely nothing, that a human can do today without an institution being somehow involved!” (SoL Greece, 2010).

In this indeed “alien” (n.d.) situation within a fast changing environment and continuous advancements on multiple dimensions, it is really difficult to predict how any aspect of our artificial systems will look like even one month from now.

Now, this is indeed a degree of complexity that beyond any doubt requires a new advanced toolbox.

In addition, as it was clearly illustrated earlier in this chapter, the organization and the socioeconomic system of the future is “alien”; no one knows yet how it will look like and how we – humans – are going to coordinate our relations and actions within it. In simple words, the new environment and its dynamics need to be discovered. However, there is no one – individual or organization – that has the capacity to actually discover it, simply because the knowledge to create it does not fully exist yet! What does exist, is the knowledge about systems, their dynamics and their evolution process (i.e. their learning skill), and it is only the collective intelligence of humanity that holds the capacity to use this knowledge in a way that will reveal that new environment, its relations and coordinations.

The level of collective intelligence needed at this specific time for this specific endeavor is of the kind/qualities/characteristics that indicates that the sum of the practitioners around the world are co-creating this new environment, its relations and coordinations. We will be able to identify this new environment only at the time that a critical mass of humanity will be already living in its full deployment/expression. If you are reading this book, you are most probably one of these practitioners. And in case, nobody else will have the opportunity to know of your valuable contribution, please allow me to make use of my opportunity here to express gratitude in advance for you valuable contribution in the co-creation of our new reality in wellbeing. Thank you.

References:
de Geus, A. (1997) The Living Company: Habits for Survival in a Turbulent Business Environment. Boston: Harvard Business School Press.

Salvatore, D. (2006) Managerial economics in a global economy. 6th ed. New York: Oxford University Press

Senge, P. (2010). Systems Citizenship: The Leadership Mandate for this Millennium, Reflections; The SoL Journal on Knowledge, Learning and Change, 7 (3), pp. 1-8

Palmisano, S.J. (2006) ‘The globally integrated enterprise’, Foreign Affairs, 85 (3), pp. 127-136

van Heck, E. & Vervest, P. (2007) ‘Smart business networks: how the network wins’, Communications of the ACM, 50 (6), pp. 28-37

Shenkar, O. and Luo, Y. (2008)International Business. 2nd ed. California: Sage Publications, Inc

Slack, N., Chambers, S. & Johnston, R. (2010) Operations management. 6th ed. Harlow: Prentice Hall/Financial Times

Siddlque, H. (2011) ‘Mob rule: Iceland crowdsources its next constitution’The Guardian [Online]. Available from: http://www.guardian.co.uk/world/2011/jun/09/iceland-crowdsourcing-constitution-facebook (Accessed 6 August 2011)

SoL Greece (2010) SoL Greece Conference Highlights part 3/3, SoL Greece YouTube Chanel [Online]. Available from: http://www.youtube.com/watch?v=kcqHGe5mRmo (Accessed 15 August 2011)

Continuous improvement, which is in practice OL’s result, is a good way for an organization to acquire the strategic imperatives and core competencies for contemporary business highlighted by Nadler and Tushman (1999) among many others. It is highly unlikely to actually achieve perfection whether it is in a product or service, or in a process or operation, but by a continuous improvement culture, strategy and focus the product, service, process and/or operation can always be competitive in the market and consequently also the organization. On the bottom line, space for further improvement is the prerequisite for evolution. And, if evolving is one of the fundamental purposes of a human being and/or of the whole humanity, as all the cultures that conceive life as a learning journey (e.g. Hellenic, Indian, Chinese etc) highlight, then space for further improvement always exists. Otherwise, human being would had fulfilled their purpose in life and consequently would had seized to exist following the laws of nature.

References:
Nadler, D. A.., & Tushman, M. L. (1999) ‘The organization of the future: Strategic imperatives and core competencies for the 21st century’, Organizational Dynamics, 28 (1), pp. 45–60