This presentation develops a view of sustainable organizations as adaptive, process-centered, open systems. Such systems are marked by transformation processes (i.e., those that convert inputs into outputs); transaction processes (i.e., those that focus on exchanging outputs for new inputs); and alignment processes (i.e., those that center on maintaining a “fit” between the organization and its environment, in particular, its stakeholders. In a very real sense, organizations are recurring cycles of events or infinite loops, as shown in the little diagram above. Organizations also have a functional dimension (i.e., as clusters of functional areas such as sales, finance, marketing, manufacturing, HR, etcetera). These functional clusters exist for good reasons but the organization’s functions and processes must be woven into the same fabric else the organization’s fitness – its ability to deliver value to its customers, obtain value from its providers, fend off its competitors and maintain a good fit with its environment will be compromised. In short, its sustainability will be jeopardized. Let’s begin with a simpler view – one of an organization as an empty box.
All we have at this point are the organization’s boundaries. But we don’t know anything about what is inside – or outside for that matter. And, speaking of “outside,” that raises the issue of what’s “out there” – in other words, the larger environment, the context in which the organization exists and operates.
The environment of an organization can be segmented. Moreover, different organizations in different industries are likely to be paying attention to different segments. The ones shown here are general enough to apply to many organizations but they are meant more as illustrative than definitive. In any case, organizations do exist and operate in a larger environment. Next, let’s start looking inside the box.
Many people are aware that an organization can be viewed as a processing system; that is, it takes in outputs and converts or transforms them into outputs. This view is shown in the diagram above. For some people, it stops there. But there is more to an organization than the mere transformation of inputs into outputs. So let’s go a little farther.
Organizations, as “open” systems, carry out transactions with their environment. Two environmental segments stand out from all the rest: (1) customers or clientele and (2) providers (including what we normally think of as “suppliers”). The organization’s outputs (i.e., products or services) make their way to customers via transaction processes (e.g., sales and order fulfillment to name just two). A similar set of circumstances exists in relation to providers. Inputs don’t appear magically; they are obtained via transactions with providers (e.g., purchases and wages to name two). Some general categories of inputs needed to sustain and operate an organization are listed next to the Providers box in the diagram above. (And, yes, Investors are providers – of capital.) Together, the transformation and transaction processes, in interaction with customers and providers, constitute a recurring cycle of events, a continuous loop as was shown on the title page. This is the definition of an open system (see “The Social Psychology of Organizations by Katz & Kahn, 1966). An open system is also an adaptive system, which is to say it strives to maintain alignment with its environment so as to continue the cycle of events that defines it. The ability to continue this cycle of events is the very essence of sustainability.
There are, then, Alignment processes as well as Transformation and Transaction processes. As shown in this diagram, the transformation and transaction processes may be thought of in tandem as the organization’s or system’s “operating” processes. They are concerned with doing whatever it is the organization does. Alignment processes are concerned with adaptation, with the fit between the organization and its larger environment. Alignment processes rely on intelligence about what is occurring in the environment, intelligence about internal conditions, the implications of environmental conditions for internal conditions, and they generate changes to those internal conditions so as to correct, improve or create a good “fit” with the organization’s environment, especially its customers and providers. But the alignment process is concerned with the “fit” with all stakeholder groups, not just customers and providers. As the title of this diagram indicates, an organization can be viewed as an adaptive, open system. There are other ways of viewing an organization.
Here we are back at the organization as an empty box. If you ask people to say what goes in the box, many will respond with words like “sales,” “marketing,” “finance,” “manufacturing,” “HR” etc. They generally have in mind two things: commonplace organizational functions and the organization chart.
Again, the labels here are meant to be illustrative, not definitive. The components below the executive level are sometimes referred to as “silos” and sometimes as “stovepipes.” Both terms get at the vertical nature of the functions in an organization chart – reflecting, of course, the vertical or hierarchical nature of authority. We do indeed distribute authority among the boxes on an organization chart. But we group other things there as well. We create clusters of responsibility, resources, expertise, people, and work. The people who and machines that do the work of an organization are “housed” in these clusters. It is the grouping of resources, people, authority and work into these clusters that gives rise to that aspect of management known as “the division and coordination of effort.” Now, let’s look at what happens when you overlay these clusters on the process view of an organization.
What happens is that processes get fragmented, broken up and distributed among the clusters, resulting not just in “white space” between the clusters but also white space between the process fragments. Although it is true that the work of the organization is performed by people and machines and these people and machines are “housed” in functional clusters, the work that creates value and that maintains fit is performed in processes that span or cross the boundaries of these clusters. More commonly said, many organizational processes are cross-functional. As a consequence of process fragmentation, many organizations don’t perform as well as they might. And adaptation or maintenance of “fit” is made more difficult than it might otherwise be. Both pose considerable risk for the organization. So, what to do?
One thing to do is to move the organization’s value-producing processes to the forefront, as shown in this diagram. The organization’s transformation and transaction processes are the means by which it operates and continues to operate (i.e., delivers value and obtains the inputs necessary to continue delivering value and thereby sustain itself). The vertical (clusters) and the horizontal (process) dimensions of an organization must both be managed, resources must still be allocated to clusters, specialized expertise must still be grouped as must people, authority and responsibility, but the impact on process must be a consideration in matters such as resource allocation. The sustainable organization must be process-centered. There are two more things to touch on.
Customers and employees are two important stakeholder groups but there are others. Investors or shareholders are one. Lenders form another. The community is a third. Society itself is a fourth. Organizations, if they are to succeed on a continuing basis, must address the needs and requirements of all their stakeholder groups. Another element of an organization’s environment consists of its competitors. They compete not only for customers but also for suppliers, and they don’t wish their competitors well in their efforts to adapt and stay aligned with the environment. They’d just as soon see their competitors go out of business. However, just to be clear, competitors are not stakeholders. A stakeholder is someone or some group with an interest in having things go well; they have a stake in success. Organizations need a competitive advantage to “survive and thrive” and, ultimately, there is only one sustainable competitive advantage: consistently outperforming your competitors and doing a better job of satisfying the needs and requirements of all your stakeholder groups. Recognizing that they are adaptive, process-centered , open systems can start organizations on their way to obtaining that edge. Continuing success signals sustainability.