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Organizational Elephantitis
Apr 12, 2006, 8:22a

As organizations grow in size, things slow down. There's no question about this. People who have been in any org for a long time get tired of doing the same thing over and over again, and energetic newcomers have fewer oppportunities to have a big impact. Oldies have fewer incentives to work hard, and newbies may not have the sense of ownership to feel like they're empowered to improve things. So, what do you do if you want to build a great organization, specifically, what do you do to stay innovative, especially when innovation is no longer necessary for survival?

Car companies are a good example. Every car company has its own R&D group, who is responsible for innovation. However, innovating in a 100+ year old industry is tough. Sure, there are occasional innovations in car form (e.g. aerial atom, smart car) and car function (e.g. hybrid engine, GPS), but they're mostly evolutionary improvements rather than revolutionary leaps. Once the GPS infrastructure was put in place, it was obvious to integrate it into cars. However, it's revolutionary to discover internal combustion and apply it to mobility - that changed the world in a way that, if the key people involved didn't do what they did, the world would be a very different place today.

In other words, they did something *big* that wouldn't have happened if they hadn't been involved. Rather than focus on obvious improvements that are likely to happen no matter who's involved, individuals in an org should focus on creating revolutionary innovations.

New organizations are able to take an idea, improve on it, and then execute it quickly. The best new organizations do this successfully, and if they're lucky and determined maybe even produce something truly revolutionary (e.g. Google, iPod, automobile, airplane, personal computer). The organization then reinvests its revenue and profits in itself, so the organization grows in size. This helps them shore up their competitive position and provides relief to the individuals that have been working their asses off, but it may cause them to start suffering from elephantitis.

Big organizations have a lot of inertia. The larger an organization becomes, the harder it is to steer. Something that takes a day or a week to do when the organization is small ends up taking several months, if it happens at all. This inertia is the symptom of many diseases:

1) Spiralling communication costs - For each person added to an organization, that's another person to communicate the same information to, and another person to receive repeated information from. Few individuals provide new insights that haven't been considered in the organization before. The signal to noise ratio goes down, so the cost of managing and filtering communication (e.g. email and meetings) goes up.

2) Shared infrastructure costs - For each piece of infrastructure built within the organization, clients within the org are expected to use it. In a start-up, there isn't time to build your own infrastructure, so you end up using as much commercially and freely available infrastructure as possible. For example, a start-up website doesn't try to write the operating system for their servers - they just use Linux (free) or Windows (cheap and well-supported). However, as an organization grows, individuals start building their own infrastructure components. This is not necessarily bad, and is frequently good, but it means that features that would have been added using publicly available infrastructure wait until the internal infrastructure is put in place. The internal infrastructure always takes longer than expected and is less stable than the publicly available infrastructure, which means that it takes more time and effort to build on top of. Meanwhile, the local start-up is running circles around you in terms of features and product improvements.

3) Bureacracy - In a large org, fewer people feel empowered to make a decision, so decisions take forever to reach. Instead of just making a simple change to a website or weekly newsletter, the proposed revision is circulated, revised based on feedback, circulated some more, debated, until finally someone says "this is good enough, let's ship it". It certainly gets better based on the feedback, but how much better, and when is enough enough and the feature should just be shipped? Successfull small organizations have clear leaders who feel empowered to make decisions and move on.

4) Politics - As organizations grow, things seem to become more political. By this I mean that not all individuals are striving to do what's best for the organization as a whole, but many strive to do what's best for themselves individually. This just leads to a breakdown of trust, where you can never really tell what people think about a topic.

5) The burden of the brand - If an organization has established a prominent, respected reputation for itself, it becomes more risk averse because it's worried that change may be harmful to its brand. Thus, it becomes less willing to take the risks necessary for revolutionary innovation (e.g. it may not launch a product because it thinks it doesn't live up to its brand, even if the product would have been very successful in the market).

These are just 5 of the many problems large organizations face when it comes to stifling innovation.

So what's to be done? Here are some ideas:

1) Everyone can change anything - In this model, every individual in the organization can change anything in the organization. If the org is a web-site company, that means that anyone can add any feature they think will be useful or change the site in a way that they think will improve it. This is basically a core tenet of Wikipedia, and they've been successful for this and other reasons. The major problem with this approach is, what do you do if there is substantial disagreement. On Wikipedia, the tendency is to fork the discussion into separate pages or to include multiple opinions in the same page (e.g. wikipedia entry for abortion). This works well for textual products, but not as well for other products. Overall, I'm very skeptical that this is the right solution, but it's certainly an idea.

2) Push power down - This is a bit of a compromise on the first idea. Instead of letting anyone change anything, appoint gatekeepers who approve specific changes. This is the approach commonly taken in small and large organizations. However, what frequently happens in large organizations is that specific individuals consolidate gatekeeping power in themselves, rise in the organization, and then become bottlenecks. Ideally, each individual would get some gatekeeping power, but only as it relates directly to their position. Managers would provide recommendations, but would rarely block changes from teams within the org.

3) Increase ownership - I'm not sure exactly how to do this, but it could involve any combination of incentives tied to the success of your work, distributing actual "shares" in your project, and other things to increase psychological ownership of your project. With increased ownership, people care more about their work and feel more empowered to make improvements.

These are just some ideas; I think this is an important problem and worth further discussion.

Read comments (2) - Comment

omar - Apr 13, 2006, 11:24p
as my friend halldor said on my blog when i started to go all HR/business organization styles on it, maybe you should get an MBA (he also pointed out that there are another bazillion things that could be done... as i'm sure you're aware)

as for push power down, i thougt you meant something completely different.. ie: the company has done what it set out to do, and can no longer do much else effectively. set up an endowment, let it do what it's doing, and actually *shut down* the company in all growth respects.


Prasanna Iyer - Apr 27, 2006, 12:46p
A “for good” organization is one that focusing on improving the lives of people. For an organization to steadfastly commit to this mission, it should not charge people for its services.
I believe Google is successful in many ways (financial growth, employee satisfaction, brand name, public goodwill) because the satisfied Google users or fans are not the sources of its revenue. People using Google’s search or maps or desktop etc., do not pay for those services. Therefore, here there is a relationship that is built purely on superior service. The absence of financial motivation in the relationship with customers is also the reason why Google is able to thrive on innovation and focus on constantly improving its service.
On the other hand, when the user has to pay for services, the user tries to buy the most value for money (whatever gets the work done) and not the most superior service. Therefore there is a clear threshold to innovation and the service quality. For example, if Google started charging for its online search facility, say with the following pricing structure –

1 – 50 results / search – Free
1 – 100 results / search - $10 per month
1 – 1000 results / search - $100 per month and so on.

In this situation, Google’s motivation would be to provide better quality as price increases, and certainly not to improve the lives of all people.

The challenge would be to apply Google's business model to other services.

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