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The diseased organisation

Like humans, organisations can be afflicted by genetic disorders that hinder performance and threaten survival but these can be understood and cured

Management

Most management books focus on getting from ‘good to great’, like manuals for coaching incremental improvements in elite athletes. But real world leaders know that most management is about simply staying well, avoiding mistakes, maintaining a healthy culture and avoiding bad habits. We all have experience of dysfunctional organisations, ones in which some underlying pathology is reducing their performance and perhaps threatening their existence. In medicine, evolutionary science and genetics have recently thrown light on the causes of and cures for genetic disorders. In the same way, an evolutionary perspective on organisational behaviour illuminates the failures of life in companies and guides approaches to creating a fit firm.

Just as the first step in managing genetic disorders is to understand the basics of genetics, so diagnosing and curing your organisational problems begins with grasping the analogous management science (see figure).

In biology, an organism’s phenotype of anatomy, physiology, behaviour and other traits is guided by its proteome, its complete complement of proteins. The proteome is the expression of the genome, which itself is built upon the base pair sequence. In exactly the same way, an organisation’s strategy, structure, culture and other traits are dictated by its complete complement of capabilities, its capabileome. These are the expressions of its thousands of organisational routines, its routineome, which, like genes, stores information and can be replicated. And routines are built on collections of skills, relationships and activities that we call microfoundations. This evolutionary perspective on organisations, which now has decades of research behind it, allows us to make sense of dysfunctional organisations in the same manner as a geneticist can make sense of a genetic disorder. The parallels between the two areas of science are both illuminating and practically useful. Three kinds of disease can affect your firm and, as in medicine, diagnosing them is the first step to curing them.

Single gene defects

Arguably the easiest diseases to understand are those that result from single gene mutations. In humans, there are over 6,000 of these and my research points to a similar multitude of organisational disorders. For example, many firms are afflicted by organisational routines in decision-making processes that involve sharing responsibility widely in the name of ‘alignment’ or ‘buy-in’. The negative consequences of this mutated routine are seen in excessively slow and wasteful strategy execution. In the same way, the routine for setting individual goals is often a deleterious mutation that fails to create genuine commitment and motivation. In the case of such single-routine mutations, the cure involves first identifying the routine and then replacing it, like a genetic engineer, with a more appropriate routine that expresses the necessary capability. In our first example, effective firms have routines that involve consultation followed by the appropriate individual taking ownership of the decision. In a second example, the simple and often one-way method of setting goals is replaced with a more complex but more effective discussion that does not end until honest and wholehearted commitment is achieved. The replacement of faulty routines, while superficially simple, is in practice as difficult as it is important. Just as single gene diseases like cystic fibrosis can ruin lives, the pervasive effects of faulty organisational routines can destroy organisations, especially those in competition with fit rivals.

Complex, polygenic diseases

In human pathology, many of the most chronic and difficult to manage conditions are the combined result of many different genes. Heart disease, arthritis and many forms of cancer fit into this category. In the same way, many of the chronic and survival-threatening dysfunctions of life science companies can only be understood, and hence managed, as a result of the interaction of several different organisational routines. For example, many life science companies fail to bring genuinely differentiated value propositions to market, a disease that damages profitability and, ultimately, survival. Although many companies in this situation try to improve their performance with simple solutions, for example sales team training, sustainable solutions depend upon addressing at least three faulty organisational routines. At its simplest, poor differentiation can be attributed to faulty routines in creating market insight, market segmentation and extended proposition design. Weak companies have routines that are inappropriately designed around quantitative analysis alone, categorisation rather than segmentation and product-oriented propositions. Effective companies have routines that blend different types of data, segment usage contexts and design value-oriented propositions. We see similar pervasive and damaging organisational pathology in the way that firms localise global strategy. Those firms whose routines allocate resources according to market size and involve standardised local planning processes often fail to internationalise to their full potential. Other firms, whose routines allocate resources according to segment populations and allow for local cultures, seem to outperform others in this respect.

Mitochondrial diseases

At the risk of stretching the analogy, there is a third useful parallel between biological and business diseases. Some of our genes are, of course, housed in our mitochondria rather than in our cell nucleus. Mutations of our mitochondrial genes appear to be responsible for some rare but important diseases. In the same way, many of the organisational routines upon which our business efficacy depends are housed not in our firm but in our partners, such as suppliers, agencies and consultancies. Mutated, dysfunctional routines in those entities can harm our organisation in exactly the same way that a faulty mitochondrial gene can lead to a life-threatening disease. For example, many life science companies depend upon external partners for market research and strategy advice. While the routines of these partners may be effective and appropriate, they may also be dysfunctional in the context of the firm’s particular marketplace. A current example of this can be seen in the traditional, standardised approaches to strategy development offered by many of the large consultancies with specialised life science divisions. When firms are operating in changing and turbulent markets and are seeking genuinely new business models, the historically appropriate organisational routines offered by such firms are often anachronistic in today’s context.

Easier said than done

This evolutionary view of why some firms are less able to compete than others is misleading in its simplicity. The fundamental tenets of evolutionary science, that information-storing routines combine to express capabilities, is quite obvious. So too are the implications for diagnosis and therapy. All a life science leader has to do is to identify the culpable routines and replace them with those that are a better evolutionary fit for the firm’s current and future environment.

But the parallels with biology also warn us that this is far easier said than done. The gap between characterising the human genome and the first effective gene therapies reminds us of the challenge of translating basic science into the clinic. In the same way, the fruits of 40 years of management research into the evolution of firms is only now reaching the C suite. There are three important reasons for this delay. Firstly, it is rarely obvious which organisational routines are responsible for the firm’s suboptimal performance. As in genetic medicine, attributing symptoms to their specific causes requires a careful, scientific analysis. This is especially true when the routines in question are housed inside some other organisation, such as a consultancy, since it can be very hard to examine the workings of those external organisational routines. Secondly, the replacement routines must be designed carefully. Not only must they express the necessary capability, they must also have the minimum pleiotropic effects. For example, routines that involve taking decision responsibility must not fracture team dynamics. Routines that combine quantitative and qualitative data must not sacrifice methodological rigour. The replacement of faulty routines with new, effective ones is of course even more complicated in the case of complex organisational problems, when several routines must be edited at the same time.

However, the biggest single reason that most firms fail to understand and manage their diseases is also one with strong parallels in medicine. Even today, armed with an arsenal of scientific knowledge and gene editing techniques, the first default position for many medical practitioners is to treat a condition symptomatically. The same is true for many leaders in the life science industry. Faced with the choice between a possible cheap and quick palliative and an expensive and difficult cure, many executives opt for the former. As will be obvious from most industry conferences or from LinkedIn feeds, the market for fads and fashions is much greater than that for genuine, research-based solutions. One can only hope that, as the evolutionary science approach to understanding how organisations work becomes better understood, genuine cures will become more common. Just as our society would like to cure genetic diseases such as cystic fibrosis and cancer, our industry should strive to eradicate organisational diseases like inefficient management and poor differentiation.

Article by
Professor Brian D Smith

is a world-recognised authority on the evolution of the life science industry. He welcomes comments and questions at brian.smith@pragmedic.com

28th April 2017

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