External Forces and Internal Dimensions of Organization

One of the primary challenges any organization faces is to maintain its economic vitality. As the external environment changes, the nature of what the organization does and how it does it may also have to be modified. One result of MIT's Management in the 1990s research program was to provide evidence and a conceptual framework that helps to explain this central evolutionary task.

Two important and widely influential scholars originated the core idea of figure 7.1. The first idea, already referred to, was that of the business historian, Alfred Chandler. When he was on the faculty at MIT in the 1950s, he wrote a seminal book, Strategy and Structure. In this he traced the history of four then-leading firms: Du Pont, General Motors, Standard Oil of New Jersey, and Sears Roebuck. Chandler showed how, as the firms grew from their origins in the 1880s, they had modified their organization structure to match their evolving strategy. Chandler was the first to show a causal, two-way link between an organization's strategy and its structure.

Figure 7.1: Dynamic Tension between External Forces and Internal Dimensions of the Organization (adapted from Scott Morton 1995)

At the same time, totally independently, an organizational behavior professor, Harold Leavit, then at Carnegie-Mellon University, showed that a large element of what is important to managers and organizations is captured by four forces: task, technology, people, and organizational structure. These four are dynamically and mutually interdependent. The sum of the tasks being worked in an organization at any moment in time represents its enacted strategy, so it is logically consistent with Leavit's ideas to substitute the word "strategy" for "tasks" in his diagram.

Figure 7.1 takes Chandler and Leavit's work and makes three additions. In reading their original work in light of the concepts and vocabulary of the 1990s, it became clear that both Chandler and Leavit spent considerable time describing and discussing dimensions of what we would now call "processes".These can be thought of as the set of activities that keep the organization together and moving toward its goal and objectives. Hence in figure 7.1, processes have been made another of the key dimensions of an organization.

A second addition has been to draw on Ed Schein's (1984) work that established the central role of corporate culture in shaping what an organization is in practice. By "culture", Schein means the shared values of the organization. People in organizations build up a set of shared values that help determine how processes will operate and what the organization structure will mean in practice.

The third addition is to put Chandler and Leavit's view of the organization in a slightly wider context. In particular, strategy must ultimately be focused on a set of customers if the firm is to have any meaning at all. These customers are inevitably and inextricably part of the external environment in which firms live and work. Both the customers and the larger social, political, and economic environment set the context for the firm, so they are raised explicitly in figure 7.1.

Figure 7.1 then helps to frame the discussion so far in terms of the changing external environment, the discontinuities in technology and the new kinds of organizations that are emerging. No one of these forces dominates. It is the dynamic interplay among them that determines the outcome over time. The Management in the 1990s research program showed how the failure to invest in the central ellipse (people and their skills, management processes and incentives, operational processes and their re-engineering, and appropriate organizational structures) has blocked effective change in many organizations. As figure 7.1 shows, the strategy cannot be changed to match the customers and the technology unless changes are made to some combination of organizational structures, processes, and human skills and incentives.

The central argument is that the new expanded and evolving forms of IT can, if used creatively and embedded in the organization, radically affect production of goods and services and communication between all parts of an organization. This is very likely to affect which product is cost-effective to create, what work needs to be done to create it, and where and when such work should be done. These factors all become subject to change. Such sweeping change in where and when work is done will very frequently, perhaps inevitably, result in a very different organization. Finding an effective way to recombine these new productive forces is part of what drives the seven organizations above and is certainly the central message from the most interesting example that emerged from the Interesting Organizations project—Schneider National.

Schneider enjoyed the advantage of starting small, and therefore had minimal embedded legacy practices to overcome. Schneider was further helped by being privately held by a creative and dynamic owner. There are, however, many companies that meet these two conditions. Schneider is one of the very few to have succeeded in a way that suggests it will last.

The Schneider story is one of the "digitalization" of a company coupled with the creation of a culture and supporting practices. The term "digitalization" is not about computers and the back office or about supply chains or customer systems or any other of the myriad technology "solutions" that fill the business press. Rather, it is about completely re-making a business, and eventually an industry, and delivering a wholly different level of service far more efficiently and effectively in ways that benefit all participants, including the final consumer.

This example comes from what some would see as a boring industry: longdistance full truck-load transportation. Schneider has been able to transform traditional trucking into a highly-skilled, value-adding premium service. It evolved from simply moving a freight from A to B into moving the freight plus guaranteeing levels of quality, timeliness, and cost unobtainable before. This has resulted in an entirely new standard of performance for the industry.