Recent Reflections on Organizational Permeability and Dynamics

There are a number of posts from the old list serve that look like they can stand on their own as relatively independent threads. But I was struck by the number of them that seemed quite related. There might have been a good deal of time that had passed between them, or they may have been sparked by independent events or ideas, but I kept on noting how they were related. They didn’t feel like they could stand up as independent threads – they felt like they needed to be adapted such that they could be combined into one coherent line of thought. Some of those linkages were clear at the time, but others not until I was faced with this task of figuring out how to coherently move them to another platform.

These particular posts address issues like organizational permeability & dynamics, mapping shareholders & stakeholders, how economic power might be best defined by the extent to which individuals have roots in multiple organizations, and even one about how social movements might affect the trajectory of business firms. The principle that is unifying these for me at the moment is something that always hovered around the edge of our work, but I don’t feel like I ever said explicitly until now – we can’t really understand how any firm will behave at any given point in time without a fuller historical perspective on how past firms have traversed through their entire life cycle.

This problem was especially acute in the entrepreneurial field that we were in. Almost all the studies with which we interacted were about new firms. What can we tell about the likelihood of success of an entrepreneurial endeavor from their initial behavior? It looks like this perspective obstructs us from key insights that comes from the patterns that firms settle into as they get older (and frequently as they die). To what extent does adherence to or deviation from those patterns tell us about how firms that are new to the world might fare (beyond the old platitudes like willingness to innovate, being lean and efficient, having the will/desire to grow, and all that nonsense).

I think this principle was implicitly behind your thinking when you pointed out the variability in the commonly held notions of what constitutes an entrepreneurial venture that led to our “elements of entrepreneurial success” framework. As you said at the time, some see an entrepreneurial venture solely as the time of enormously high return on an initial investment where it is important to exit before the firm settles into established patterns. Others see it as the growth of a fledgling firm into a large concern that employs many people and creates a large multiplier effect. We had other varying definitions as well. But this perspective only makes sense if one steps back from the specific behaviors of any one (or any series of) new firm and looks at the problem from a broader context that looks at a wide variety of firms in different contexts and at different life stages.

I suppose we had an even simpler implementation of this broader perspective when we did the functional differentiation study. While that still involved newer firms, we did ask a broader question of how the functions the entrepreneurs were doing when they first started the firm differed from what they were doing after they had been at it a few years. Again, we had to take a broader perspective for this to make sense. From my recollections of those times, we were taking these steps implicitly. The thinking still seemed implicit (present, but implicit) in many of these posts we placed on the list serve. For me, this is only becoming more explicit (though I am struggling to be articulate about it – it still needs work) as I try to think about the best way to make sense of and organize some of these previous thoughts.

Perhaps there is literature that has already made this jump (I saw a vague Facebook post not long ago that referred to a political piece that appeared to be making reference to multi-organizational economic power theory), but I don’t remember it from the time we were active. I remember pieces that made reference to the idea of the life cycle of firms, but I don’t remember those as much more than perfunctory. Then again, perhaps there was an extensive literature to which we didn’t pay a lot of attention because we didn’t fully grasp its applicability.

I’d be curious to hear your reactions and recollections around any of this. I felt like there might be some sort of revelation here when it first occurred to me, but my difficulties in articulating it are giving me second thoughts. Maybe I haven’t put my finger on what’s uniting these posts, but I’m pretty sure there’s something that does.

2 thoughts on “Recent Reflections on Organizational Permeability and Dynamics

  1. There were so many interesting thoughts in your post. I copied some of your ideas that I wanted to highlight and added my thoughts.
    Organizational permeability & dynamics
    Mapping shareholders & stakeholders
    How economic power might be best defined by the extent to which individuals have roots in multiple organizations – multi-organizational economic power theory
    How social movements might affect the trajectory of business firms.

    The above items are inter-connected, I think, and our thinking on this could also be informed by recent studies on social networks, entrepreneurial networks, social movements, network power, knowledge networks and dynamics of innovation, and collaboration and cooperation networks. Taken together, the above can be an indication that Schumacher was not an idealist, after all – small can be beautiful in today’s connected world, and the economic rationale for hierarchies is diminishing in importance, given the rising network power of small firms and start-ups.

    The principle that is unifying these – we can’t really understand how any firm will behave at any given point in time without a fuller historical perspective on how past firms have traversed through their entire life cycle. Patterns that firms settle into as they get older (and frequently as they die). To what extent does adherence to or deviation from those patterns tell us about how firms that are new to the world might fare (beyond the old platitudes like willingness to innovate, being lean and efficient, having the will/desire to grow, and all that nonsense). “Elements of entrepreneurial success” 

    This is an interesting idea, especially because it implies the use of historical analysis. I wonder, however, what we mean by historical perspective. Would studying the emergence and historical development of firms like Ford and GM, or even Microsoft help? Or is the new networked world so different that this is no longer relevant and we need to confine us to studying only post- era companies?

    Functional differentiation study – I would like to reflect on this more. How do the functional differentiation patterns change in light of the new developments, mentioned in 1 above? Do our findings from the 1990s hold?

  2. I’m heartened that you bring up Schumacher – largely because I hadn’t made that connection in the way I’ve been thinking about these issues. I’ve been coming at it more from the perspective of trying to understand the brute power of large scale organizations. But you’re correct, of course – the web of interconnected smaller organizations is diminishing the need for economic hierarchies. I’m glad you’ve raised this again. It can be highly useful in driving further thinking.

    In response to the question of whether the historical perspective should encompass older industrial era type firms or just newer companies that have developed within the more highly networked milieu, I would say both. When attempting to understand broad organizational processes, I’m always wary of the notion that certain types of firms or time frames within which firms have worked are “unique”. Once we start to delve into the details, we normally find that nothing is as unique as it seemed. The good news is that this is an empirical question that can be studied. But any initial inquiry should take as broad a swath as possible.

    The problem with with taking a historical perspective that goes back further is in finding relevant information. Companies like Ford, GM and Microsoft are easy because everyone loves them. They’ve been lionized by those in the entrepreneurial field for years and have had countless studies done on them (of the upper echelons of those organizations, at least). As we’ve said many times before, those organizations are outliers. But what about companies like JC Whitney, Acoustic Research, Pepsodent or ZEOS? Or, God forbid, outfits that did not have the brief spurts of success that those companies did? These are the types of firms that might be more relevant to our hypotheses, but tougher from which to gather useful data.

    As I think back on some of these old hypotheses, I find myself interested in identifying thresholds. For example, I have no doubt that the hypotheses about economic power easily apply to Henry Ford, Bill Gates, Steve Ballmer, or some portion of the Rockefeller, Walton, Rothschild, Dayton (and perhaps even Trump!) families. The question is how far down the chain of command in those companies did or does one have to go before those advantages no longer apply? Do those who have served as the Executive Vice-President of Marketing at Ford have the same freedom to maintain contacts, investments and advantages across multiple organizations as those who have served as CEO? How far down the management chain does one have to go before the intra-organizational freedom is not much different than the average working stiff? I’ve had friends and colleagues that have served as vice-presidents in pretty good-sized firms that have been laid off and forced to pound the pavement like any of the rest of us. While it’s true that some of those people were able to develop more contacts across organizations that are especially helpful in finding new jobs, the process in which they had to engage was not really any different than that required of a standard working or middle class worker. It’s a far cry from the permeability enjoyed by those at the top. Finding the threshold that leads to these qualitative differences is an interesting question to me.

    Obviously, this threshold question is relevant not just within large organizations, but across them as well. How successful does any firm have to be before any member of it can begin to enjoy the fruits of permeability? How much more successful before multiple members can enjoy the benefits? I suppose this goes back to the old questions of how does the economic system welcome new players and what are the limits of new players that the system is willing to absorb, but those are very relevant to this discussion.

    One interesting and fairly “new” opportunity to study some variant of these questions would be to look into the fates of those who started companies that were sold to larger firms that eventually became integral to the further success of those larger firms – those who created things like YouTube or a myriad of other examples that are escaping me at the moment. In addition to taking the money from the sale, some of those individuals went to work for the new parent companies to continue to oversee the development of the products they began. How long do they typically last in those roles? To what extent do they continue to be seen (and maintain respect) as “pioneers” in their industry, or simply become working stiffs for the company to whom they sold their concern? Whenever their affiliation with the company to whom they sold their concern ends (either at point-of-sale or after some period of transition), what becomes of them? For those who try to stay relevant within their industry, how many do so successfully? How many think that they can repeat this pattern with other new ventures, and how many are successful at doing so? I’m guessing the answer to this latter question is not many – the venture capitalists probably do better on this front than the entrepreneurs do. But this leads to another question – how many of these might use the money from the sale of their original firms to try to become venture capitalists for others? The fate of this particular group of individuals would be one interesting way to begin to frame these threshold questions.

    Think of it this way – for the Schumacher connection to make sense and have actual teeth, the benefits of organizational permeability have to extend beyond only the richest among us – the one percent, as has become the popular parlance. There are plenty of reasons for optimism, simply because many of these benefits do not necessarily require lots of money. But whether these benefits are well-distributed is an empirical question worthy of further study. If we find they are not (which is what I suspect we would), then it might make sense to advocate for the types of systemic changes that would make it possible. Which brings us back full circle to that social benefits of entrepreneurship paper that we wrote many years ago. Funny how many of the same old issues keep coming back around, isn’t it?

    Your question on our old functional differentiation study is an interesting one – do our findings from the 90s still hold? I suppose I might approach it by asking why wouldn’t they still hold? Have changes in technology and interrelationships among smaller concerns made it such that entrepreneurs are able to divest themselves from more routine tasks before they ever get started? Or have some of those tasks become cheap or easy enough that entrepreneurs can hang on to them longer? I suspect the higher-level planning and strategic direction steps are still being retained, but perhaps the technological and organizational changes are changing the face of the intermediate steps. Or perhaps even the higher level ones – have they become so different that more people are seeking help at those levels? Does the prospect of sale to a larger firm affect the extent to which an entrepreneur maintains (or releases) the hold on a myriad of functions within the firm? All interesting questions…

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