Complexity and institutional change

It is now commonplace to regard formal organizations as complex adaptive systems. From this perspective, all forms of social institutions, such as business firms and government agencies, are viewed as aggrupations of large numbers of interacting individuals who autonomously and spontaneously adapt to each other’s actions and to changes taking place in their environments. This manner of interaction is similar to that observed among flocks of birds, schools of fish and crowds of people.

Like their counterparts in the biological and physical worlds, complex social systems have a number of distinguishing characteristics. Foremost among these is their extreme sensitivity to their initial conditions. This means to say that their behavior may fluctuate widely, depending on even the slightest variation from their original states, making them seemingly erratic and unpredictable in their working.

The state of social systems at any point in time is the outcome of their past histories. They evolve through time in a manner that is best described as path—dependent and, by extension, irreversible, a process not unlike the evolution of plant and animal species.

Because social institutions evolve along different paths, each organization is unique in all its relevant attributes and unlike any other in the same genre. It goes without saying that social systems cannot be made to revert to any previous state. Neither, for that matter, can they be projected a preferred future state. They pretty much have a mind of their own.

This characteristic of social systems has important implications for the management of organizations, particularly on the management of change. Because each organization is one-of-a-kind, courses of action that are appropriate for one organization are not necessarily applicable to others. In other words, choice criteria in organizations are context-specific and should not be regarded as universal in their application.

Social systems have yet another unique characteristic that sets them apart from their counterparts in nature.

As they age, social institutions tend to fossilize and lose their adaptive capacity. Through time, they tend to serve the narrow interests of their dominant stakeholders rather than those of society as a whole. Compared to newly organized entities—or “startups” as they are called in the business world—long-established organizations tend to lose their self-organizing character.

A case in point

The University of the Philippines (UP) represents what is arguably the greatest concentration of intellectuals anywhere in the region and has the potential of being a truly great institution. However, these gifted individuals have tended to pursue their respective narrow interests in relative isolation from one another and, as a result, failed to capture the huge potential benefits arising from networking and the sharing of complementary knowledge and information. They have failed to meld into a vibrant, cohesive and productive institution.

As a result, UP has become an anomalous situation where the whole is actually less than the sum of its parts. Complexity Theory tells us that it should be the other way around.

Whole communities, entire societies and many organizations, including government agencies, charitable organizations and professional associations, exhibit essentially the same characteristics, known among students of Philippine culture as the “kanya-kanya” (promote one’s own interest) syndrome. Consequently, they become remiss in benefiting the constituents that they are supposed to serve.

Managing change in organizations

Unlike their counterparts in the biological world, formal organizations are notoriously resistant to change. This is so because their structural configurations, governance mechanisms and cultural characteristics tend to be more and more deeply entrenched and institutionalized as they age. As a result, they lose their resiliency and become unresponsive to changes taking place in their environments.

What, then, is an effective strategy for “managing” change in organizations?

A novel approach to decision-making developed by University of Chicago Behavioral Economist Richard Thaler provides a promising strategy for promoting change in organizations. Known as “choice architecture,” this method is one by which individuals are “nudged” to make choices that are beneficial to them and to their organizations. This is achieved by artfully limiting the number of alternative choices that are available to them, describing these options in a manner that is appealing, presenting them in a sequence that induces them to make the most beneficial choice that first comes to their attention and by specifying the default option should they fail to make a specific choice. In this way, individuals make decisions “on their own,” with a minimum of instructions or directives from persons of authority.

Choice architecture may also be implemented by purposely redesigning the organization’s hierarchical configuration, reformulating its administrative mechanisms and recreating its culture in order to make it conducive to change.

To make them more adaptive, formal organizations should be designed to have a number of basic characteristics. These include the following:

Structural characteristics

Structurally, formal organizations should be organized horizontally into few levels of authority and vertically into broad classes of problems or issues assigned to organizational members, rather than by function or technical expertise. In this way, strategic choices tend to be more timely because they are made by organizational members who are most knowledgeable and technically capable in dealing with the issues at hand and who have immediate access to relevant data, rather than by those who are in authority but who do not have the knowledge to deal effectively with the day-to-day problems faced by the organization.

Cultural aspects

To foster institutional change, organizational leaders must attempt to create a culture that encourages collaboration, and sharing of knowledge and expertise among organizational members in dealing with problems and issues that are of common concern, rather than devote their resources and energy to further their parochial self-interests.

Governance mechanisms

An adaptive organization requires that individual members should be given a wide latitude of freedom in making decisions, and neither depend on orders or instructions from their superiors nor become limited in their actions by restrictive rules and regulations.

Finally, an essential component of governance mechanism is a performance and compensation system that rewards organizational members for their contribution to the achievement of organizational goals, rather than for their inputs in terms of time and effort. INQ

The article reflects the personal opinion of the author and not the official stand of the Management Association of the Philippines or MAP. The author is a retired professor of economics and management at UP Diliman. Feedback at [email protected] and [email protected].