Designed emergence as a path to enterprise sustainability

Societal and environmental dynamics

Interdependence among people, organizations, and nations, as well as among disciplines and technologies, will increasingly be a 21st-century societal and environmental characteristic. As interdependence increases and boundaries diminish, the interface among people, units, businesses, organizations, nations, and so on will change. Relationships will shift from hierarchical to egalitarian networks, and with that shift the nature of the transactions will become more fluid and complex (Miles et al., 2000, Friedman, 2005). Also, there will be increases in uncertainty, economic-social-technological transitions, dispersion of specialized expertise, and a merging of science and practice (Nowotny et al., 2001). These changes will produce both the need and the opportunity to create organizations that are diverse, responsive, innovative, and integrated, and whose competitive advantage will be the ability to learn and change in ways that serve society (Friedman, 2005).

Interdependence, turbulence, and emergence

The turbulence created by increased rapidity, complexity, uncertainty, and interdependence limits the effectiveness of autocratic plans and procedures and prompts emergence. The emergence may be chaotic or patterned, depending on the network of governing principles and the conflicts within the system. In either case, whether chaotic or patterned, the outcomes will not be controlled directly by the hierarchy, but rather will arise from dynamic interactions. Chaos and complexity theories provide a holistic understanding of an organization’s underlying dynamics; that is, organizations are self-organizing, non-linear systems whose elements are interdependent and mutually causal.

An organization can be defined by its underlying order and the principles that give rise to its characteristics (DNA). With clear and consistent underlying principles, intended patterns may be achieved, making it possible for an enterprise to be fluid and disciplined at the same time. Some processes of the enterprise may be designed to be close to the edge of chaos to foster innovation, while other processes might be designed to encourage integration; thereby, innovation and integration are achieved in a complex and chaotic environment without the enterprise itself becoming chaotic (Brown & Eisenhardt, 1988; Anderson, 1999; Lichtenstein, 2000; Eisenhardt & Sull, 2001).

Two responses to a turbulent context

To illustrate some of the dynamics of emergence, two sources, one in the Harvard Business Review and the other in the California Management Review, are summarized in Table 1 to show contrasting management approaches. Excerpts from these sources are integrated into the text. Southwest Airlines, as compared to American Airlines, utilizes governing principles, self-directed and self-controlled behaviors, organization design, and leadership styles that encourage emergence. Southwest Airlines performed substantially better than American Airlines in flight turnaround times.

Dynamics of sustainable enterprise

The purpose of the sustainable enterprise is different from that of the conventional organization. The sustainable enterprise creates long-term success for itself by serving societal needs. It is proposed that sustainability is derived from synergistic relationships and interactions, for example self-directed and trusting attitudes, behaviors, and feedback loops (see Figure 1). The connectivity and force that emerge from the enterprise’s governing principles and enterprise intent are strengthened by an increase in interdependence and turbulence

and a decrease in hierarchical control. The emergent behaviors from these two forces (governing principles and enterprise intent) influence and are moderated by the enterprise’s competitive mode, organization design, and leadership, which in turn create the enterprise’s competitive posture. Competitive posture, mediated by industry competition and environmental agents, determines the enterprise’s performance, innovation, and sustainability. Failure to enable the emergent process and/or to align the various elements will lessen the likelihood of sustainability; for example, if competitive posture and management decisions for actions/strategy are not aligned, there will be a lessening of effectiveness and efficiency—dissidence and entropy.

Surrogate model

Argyris and Schön’s (1996) Model I and Model II theories-in-use are introduced as surrogates for the governing principles that underlie and distinguish “conventional” and “sustainable” enterprises. Model I exemplifies “conventional” hierarchical structures and Model II exemplifies the transformation-emergent dynamic and the “sustainable enterprise.”

Governing principles

Argyris and Schön (1996) make a distinction between “espoused” theories and theories-in-use. They state, “By espoused theory we mean a theory of action which is advanced to explain or justify a given pattern of activity. By theory-in-use we mean a theory of action which is implicit in the performance of that pattern of activity.” A theory-in-use is not a proclamation that is advocated, but rather it is what is evident in any pattern of action. In this paper governing principles (principles-in-use) are distinguished from espoused principles in a similar manner. They are the core principles and values evidenced in ongoing behaviors and relationships. An example of principles that are “governing” (in-use) rather than merely “espoused” is evident in a statement made by Bill Hewlett when asked about Hewlett-Packard’s enduring success. He said, “The HP Way as it became known, reflected a deeply held set of core values that distinguished the company more than any of its products.” Collins (2001) concludes, “[C]ore values are essential to enduring greatness.”

Argyris and Schön identify two sets of dissimilar governing variables—Model I and Model II theories-in-use, which generate particular learning and performance dynamics. Model I generates dysfunctional behaviors and routines, thereby limiting commitment, deep learning, and change. Alternatively, Model II facilitates deep inquiry/learning and openness to change. These two theories are used to demonstrate the role of governing principles in the sustainable enterprise. It is not to suggest that Model I and Model II are the only sets or that Model II is the exclusive positive set of governing principles. Yet, the nature of the outcomes of Model II would be generally consistent with positive governing principles, such as trust building. McKnight et al., (1998) and Das and Teng, (1998) suggest that building trust is a prerequisite for successful interorganizational activities.

Governing principles are manifested in the behaviors and behavioral routines of relationships. These principles influence performance, learning, and innovation. “Like DNA, routines are the genetic material from which organizations are reproduced” (Feldman & Pentland, 2003: 99). Behavioral and relational routines by their nature provide stability, but by themselves do not direct or motivate (Feldman & Rafaeli, 2002).

Enterprise intent

Enterprise intent is the commitment to an ongoing role and to both short-term and long-term outcomes. Also, it may or may not be limited to a particular organization, for example it may include organizations that are partners with regard to their roles, commitments, and decision making. It is different from strategic intent, as defined by Hamel and Prahalad (1989), in that it does not have the 3—5-year timeline with metrics and rewards to control behaviors. It is less directed toward competitors and more directed toward its role in society. Like strategic intent, it should create a sense of urgency especially about whether or not the competitive posture, strategy, and enterprise intent are aligned. Also, enterprise intent is distinguished from “vision” in that enterprise intent is about commitments to the short term as well as the long term—not about the organization’s future, but rather about the role and outcomes to which the enterprise is committed on an ongoing basis.

To be effective, enterprise intent must be shared and aligned at all levels. Intentions have the potential to coalesce individuals and groups into highly energized and coordinated actions, but such actions are also dependent on the social structures of the enterprise. The social structures that communicate and validate the intent have their own values and governing principles (Granovetter, 1985; Pappas & Wooldridge, 2002).

Actions that are not transparent—not open to public observation or testing—are called “self-sealing behaviors” by Argyris (2000). Self-sealing and defensive reactions fracture the social structure and limit the social network’s effectiveness. Conversely, Model II’s principles of shared information and free choice, and the trust that it prompts, not only enable the social network, but also reinforce and align the social structure with the enterprise intent.

Enterprise intent is similar to Von Krogh et al.’s (2000: 103) “knowledge vision.” It provides a mental map for the enterprise in three related domains: “1) the world they live in, 2) the world they ought to live in, and 3) the knowledge they should seek and create.” This vision is a beacon that signals commitments and opportunities to stakeholders and potential partners. It serves to attract talent that is aligned and motivated by this intent. The sustainable enterprise would seek and create the link between enterprise intent, strategic intent/strategy, and societal value, for example by developing strategies that incorporate social and environmental sustainability (Marshall & Brown, 2003).

UN global compact: The role of principle and intent

The declared intent of the United Nations Global Compact is to address, through businesses, United Nations’ goals such as eliminating hunger and poverty. The Global Compact has ten principles that more than 2,000 business members support. There is no central planning or control for the Global Compact members. Their actions emerge from Global Compact principles and intent as well as their own. “The United Nations Global Compact asks participating companies to embrace, support, and enact, within their sphere of influence, a set of core values in the area of human rights, labour standards, the environment, and anti-corruption. This set of core values now includes nine principles” (Witte & Reinicke, 2005).

Adaptive components

Three components of the enterprise—competitiveness mode, organization design, and leadership—play an important role in three spheres that shape and channel actions. The spheres are: 1) external relationships; 2) organizational level interactions; and 3) individual influence. The governing principles and enterprise intent create only a general direction and general relationships and processes, which might support a wide array of actions. Therefore the enterprise further adapts the enterprise intent and governing principles, focusing and making the emergent forces more robust and action oriented. The greater the alignment and positive downward causation between the adaptive components of governing principles and enterprise intent, the greater will be the power of emergence.

Competitiveness modes

“Competitiveness mode” is the manner in which businesses/enterprises relate to industry rivals and other stakeholders in the marketplace. Some firms relate to the marketplace in ways that are self-serving, with limited concern for building the industry or serving society (Child, 2002; Garten, 2003). In order to examine the connection between governing principles and enterprise intent at the business—industry level, two dichotomous modes of competitiveness are identified. One represents a “conventional” perspective—dominance. The other represents the emergent attitudes and behaviors of sustainable enterprise—balance (Twomey, 2001).

Dominance: “Competitiveness” reflects ongoing relationships within an industry, for example enhancing the ability to perform at a high level. It is distinct from short-term “competition” between rivals, such as increasing the percentage of market share for a particular quarter. The “dominance” competitiveness mode is defined as behaviors designed to unilaterally control an industry by building one’s strengths while weakening or limiting others—akin to Model I governing variables. Governing principles are sometimes evident in managers’ use of words like “war” that speak to destroying or diminishing. The focus is on controlling and winning each battle in an effort to increase one’s influence in that marketplace. Limiting “choice” for consumers and for society is one outcome of dominance. In the “dominance” mode, executives are apt to see their role as serving the stockholders and themselves rather than society, for example they may subscribe to Milton Friedman’s concept that the purpose of the firm is to increase shareholder wealth. In like manner, terms such as “profit maximization” imply Model I governing variables—everything is subservient to the firm’s profits.

Behaviors that emerge from firms’ competitiveness modes affect, whether directly or indirectly, the firms’ and the industry’s value to society. Drawing on the parallels between Model I and dominance, one might conclude that “dominance” mode decisions and behaviors would include a preference for unilateral control, strategies to maximize winning and minimize losing, and smoothing over and rationalizing underlying differences.

Balance: The “balance” competitiveness mode is defined as behaviors designed to raise the overall value of the industry to society and at the same time compete forcefully. The “balance” mode integrates cooperative and competitive behaviors by sharing information and influence as well as by fostering collaboration on industry and societal issues. The resultant focus on both short and long term, and the valuing of rivals within the industry, contributes to the industry’s wellbeing as well as to the welfare of society. In an increasingly networked economy, disregarding the welfare of other industry members is not a viable strategy. Barabási (2003) uses the Compaq—Cisco Systems outsourcing network collapse to show how hierarchical (win—lose) thinking does not fit a network economy. Unilateral actions to protect oneself do major damage to all. Porter (1998), in describing competitive advantage, shows how cooperative—competitive clusters enhance the success of both the industry and the firms within the cluster.

Firms with “balance” competitiveness modes engender positive synergies within industries and markets, raising the value of the industry to society. Furthermore, they will be better positioned within the industry for long-term competitive advantage and collaborative opportunities. In essence, firms increase industry value by cooperatively creating a level playing field. For example, professional sports associations actively address the issue of industry value by giving the weakest team the first choice for new players for the next season, in an attempt to raise the competitiveness within the league to sustain fan support.

Potential Consequences: Firms engaged in “dominance” competitiveness modes tend to focus on the competitors rather than the customers, and foster an “attack—defend” dynamic with its associated negative synergies. Industries in which the largest firm is in the dominance mode often stagnate and become less competitive across the industry, until the dominant member loses its grip on the market. Typically, at that point, the dominant firm is unable to sustain itself. Examples include AT&T, major airlines, and steel companies. Dominance as defined here is not about leadership or market share within an industry. For example, a firm in the balance mode with a large market share would be a positive force for the industry and society.

The consequences of these two opposing modes are more apparent in environments that allow greater degrees of freedom for participating firms. For example, domestic markets, within the USA and other developed countries, are governed by many laws and regulations that, in essence, create a “level playing field” for all the industry members. When operating internationally, especially in small developing countries, MNCs frequently have overwhelming size and economic impact. This, along with fewer and less rigorous laws about employees’ rights, environmental protection, competition and restraint of trade, and so on, gives substantial power and freedom to the MNC. Those in a dominance competitiveness mode, with a narrow focus on winning, for instance increasing the short-term wealth of stockholders, can easily slip into exploitation of a country’s economic and natural resources (Crossette, 2000).

If we view the effects from a macro economic perspective, the “dominance” mode, with its accompanying decisions and behaviors, could be seen as driving a dynamic that contributes to economic disparity, especially between developed and developing countries. “The [World Bank] economists said that while the global economy grew by 2.3% a year between 1965 and 1998, the gap between rich and poor countries is 10 times wider than it was 30 years ago” (Hofheinz, 2000: 2A).

Organization design

The formal and informal structures, roles, and relationships within an organization influence how effectively employees will perform. The governing principles and enterprise intent provide a basis for organization designs that foster the emergence of self-directed and self-controlled behaviors and cooperative action. These designs, in turn, reinforce the governing principles and strategic intent. Of particular importance in a turbulent competitive environment are knowledge creation and integrity. Innovation depends on the conceptualization of tacit knowledge, and control depends on the infusion of integrity. Both knowledge creation and integrity require self-initiated and self-directed behaviors. With diminishing hierarchical control these emergent behaviors are increasingly influenced by the firm’s governing principles.

Organization design has been evolving in ways that reflect a context of greater interdependence and complexity, both internally and externally. An effective design enables productive relationships and effectively connects resources to produce products and services. Today’s organization designs must also meet the expanding need for learning and rapid response capabilities. Employees today, with greater levels of expertise and a growing array of interactive communication technologies and skills at their disposal, are better prepared to responsibly and innovatively self-manage. Freeman and Louca (2001) describe historical changes in organization design, from partnership to networks: 1) middle 19th century—partnerships; 2) end 19th century—joint stock companies; 3) early 20th century—professional management; 4) middle 20th century—hierarchies; and 5) late 20th century—networks, local and global.

Organization design, according to Aldrich (1999), has three functions: 1) identifying and disseminating the aims of the firm; 2) regulating the flow of information and resources; and 3) specifying and governing the duties, rights, and roles of its members. Child and McGrath (2001) identify emerging perspectives for each—aims and goals are more decentralized, flows of resources are more network based, and rights, duties, and roles are more general and adaptive. The three traditional functions mentioned by Aldrich mirror Model I variables, while Child and McGrath’s emerging perspective mirrors Model II variables.

The conventional design incorporates short-term and top-down control by means of rewards and blame; this requires the day-to-day attention of managers, and drives out the longer-term focus (Janger, 1980; Mintzberg, 1983). Conversely, the emergent design is a co-managed network where the goal is to create synergies between the firm and the industry. In networks, the preferred option is often creating interdependence and trust over the long haul (Powell, 1996). At its core, the network design is about governing principles, behaviors, relationships, and synergies in service of a common goal or vision (Malnight, 2001; Galunic & Eisenhardt, 2001). Emergent designs produce higher energy, less stress and aggression, more innovation and creativity, as well as higher levels of performance (Child & McGrath, 2001; Rindova & Kotha, 2001). In like manner the design of Southwest Airlines (Table 1) emerges from its core principles that drive synergistic relationships, prompting cooperation and high performance. On the other hand, American Airlines’ control and blame processes generate behaviors that limit cooperation and drive out learning (Gittell, 2001).

Knowledge Creation: In the sustainable enterprise model, knowledge creation and knowledge transfer are central to the firm’s ongoing competitive advantage. The conventional organization design may facilitate some information sharing at the explicit-to-explicit level, but it is unlikely to either effectively develop tacit knowledge (insights) or convert it to explicit knowledge. Nonaka et al. (2000) show that knowledge creation depends on a complete cycle (spiral) of “tacit to tacit” (developing trust and insights), “tacit to explicit” (conceptualizing insights), “explicit to explicit” (organizing information), and “explicit to tacit” (developing insights from implementation).

Action learning, another aspect of the knowledge creation spiral, where insights for improvement are derived from implementation (explicit to tacit), relies on inquiring behavior rather than blaming or controlling behavior. Win—lose and control designs, and reward-focused organizations, engage mostly in top-down “explicit-to-explicit” knowledge creation and transfer. There is little space or support for other parts of the knowledge-creation spiral. Furthermore, knowledge creation cannot be forced or demanded; it can only be enabled. Tacit knowledge creation requires a change from an aggressive and competitive internal culture to one that is more caring and trusting because the knowledge-creation process is a social and team-based relational activity (Boiral, 2002; Von Krogh et al., 2000). In Table 1, American Airlines’ top-down measurement system, in the absence of effective countervailing governing principles, appears to block learning. This is in sharp contrast with Southwest where the governing principles, management systems, and supervisory leadership all support learning (Gittell, 2001).

Leadership

Managers and leaders may initiate and/or reinforce governing principles and enterprise intent, but they have the particular role of providing the direction, focus, and motivation to move the organization to action. Leaders can enhance the emergent forces or they can distort or limit them. To demonstrate leadership distinctions that relate to sustainable enterprise, conventional “hero-celebrity” leadership is contrasted with “sustainable” leadership. There is growing evidence that the leaders and leadership styles that were lionized in the late 20^th century do not create sustainable success.

Hero-Celebrity Leaders: Some leaders of conventional organizations manifest a belief that, to a high degree, top leaders determine the success of the firm. In a study of 1,435 large international firms, Collins (2001) found that most company leaders had “gargantuan personal egos that contributed to the demise or continued mediocrity of the company.” The win—lose dominant style characterized by these leaders appears to reflect Model I governing principles.

Sustainable Leadership: Collins (2001) identifies the characteristics of leaders who “build enduring greatness”—sustainable enterprises—which have much in common with Model II governing variables. Collins found that successful leaders:

These four leadership characteristics, like Model II, are synergistic—they create and support internal motivation, learning and change. The Southwest Airlines motto, “Create a culture of discipline in the people—not in the hierarchy,” fits well with Collins’ leadership characteristics.