A Tool to Assess Organizational Vitality in an Era of Complexity

Published in Technological Forecasting and Social Change
Fall 2000: 64, 101-113

Richard Vicenzi
Gary Adkins

The Context

The advances in technology that are shaping the global marketplace of the 21st century are also having a profound influence on the nature of work and the ways in which businesses function. Previously, mass-market industries that relied on volume and economies of scale could be effectively analyzed using a linear machine model with a primary focus that is internal to the organization. This model worked when applied to industrial processes that can be fine-tuned through standardization, specialization and synchronization. However, today's more knowledgeable customer is rarely interested in a mass-produced, generic product or service.

There is a valid argument that the rapid communication and access to information made possible by the Internet and related technologies will have as profound an impact on business and people's lives on a global scale as the printing press, the steam engine, electricity and railroads have had in earlier times in the developed economies. We already have evidence of the possibilities in the extremely rapid growth of several developing nations with their ability to compete internationally and with their rising standards of living.

What the Internet, along with other technologies, makes possible is a more complete and immediate communication between customers and suppliers about the range of products available, and the interests and desires of potential customers. A significant majority of developed economies today are driven by services requiring rapid access to and transfer of information. Even many "hardware" products rely on "software" components that acquire and interpret data that enhances the product's performance (e.g. "smart" refrigerators, self-tuning cars, etc.). This progression from an industrial to an "information-based" or knowledge economy can be regarded as revolutionary, requiring fundamental organizational shifts.

The linear industrial model that has been successful in the past is inadequate when contending with a marketplace where the product's value to the customer is predicated on a rapid response to each customer's individual and particular requirements. Succeeding in this kind of market demands high levels of customization, cross-functional processes, and incorporating inputs from a range of information sources both inside and outside the "producing" organization. These inputs must be rapid, accurate, high quality, and up-to-date in order to be valuable. The ways in which organizations function in this type of environment will have nonlinear characteristics: all variables cannot be determined; the sources of critical information are unpredictable; initial conditions have a strong bearing on outcomes; remote events have local consequences; and, positive feedback mechanisms create occasions where the whole is equal to more than the sum of its parts.

"The Space for Creativity"

An organization's ability to compete successfully in this emerging "information-based" economy demands creative thinking, innovation, and rapid adaptation to relevant information generated in the marketplace. Core Competencies must continually be upgraded and enhanced through application and internal sharing [Ref. 1] and never be allowed to congeal into "core rigidities [2]." Linkages and communication with related resources involving critical capabilities are required. The adaptive abilities of the organization will be heavily dependent upon the use of and the value it places on the expertise, talents, skills and experiences of its members. The critical components of today's products and services are not raw materials and energy, but the ability of people throughout the organization to anticipate and respond to complex and shifting customer requirements. Employees at all levels must be prepared and willing to make judgments and take actions that are in the best interests of the business. In a competitive industry, every possible source for new ideas on approaches and solutions to issues must be mined diligently. The successful firms in the knowledge economy will be those who effectively manage the consistent creation, sharing, harvesting, and leveraging of their people's abilities and knowledge into intellectual capital. This is a profound change in the nature of work and of the relationship of the employee to the organization. It shifts emphasis from efficiency to effectiveness and away from the traditional allocation of financial, material plant and equipment resources to resources that are specifically contained within the motives and talents of the workforce.

Historically, investment in the "people" elements of organization design has been difficult to justify from a cost standpoint in relation to quantifiable return on investment and bottom line performance. The model supplies a powerful argument for these investments. When an organization acquires an employee population diverse in both cultural and cognitive attributes, and invests in the continuing development and training of that workforce, it creates an opportunity to leverage that differentiation into new knowledge. When that new knowledge is shared and harvested, it can be leveraged into intellectual capital: intangible assets that are the seed for new products and services. Intellectual capital, when recognized by customers and shareholders, creates a market value that is significantly beyond the book value of the company. Emotional competence [3] comprises the interpersonal skills that enable employees in their individual roles to share, harvest, and leverage that knowledge int intellectual capital by creating and nurturing the relationships that matter to the susccess of the organization. Increased emptional competencies coupled with the organization's anxiety cntainemtn efforts increase the business' emotional capital, thus allowing for increased valuation. The market valuation of intellectual capital is what allows companies like Microsoft, GE and 3M to achieve a market capitalization that is many multiples of their book value [4]. Market capital can be leveraged into financial capital to invest further in human capital and restart the process. By successfully creating and recreating these leverage points, the process develops into a virtuous cycle.

When you look at the components of these various kinds of capital an interesting relationship between these components and the succeeding element becomes evident. There is a lot of "stuff" here that all needs to be part of the equation in order for all of the pieces of the puzzle to fit. For example, what we are learning is that components of human capital must be perpetually differentiated in order to be leveraged and integrated into knowledge capital. The components of knowledge capital must be continuously differentiated in order to be leveraged and integrated into intellectual capital. The components of intellectual capital must be constantly differentiated in order to be leveraged and integrated into market capital. We begin to see elements of paradox in how this world operates. The paradox lies in the skills needed to differentiate the elements of each capital category while simultaneously integrating them into the succeeding leverageable capital component of a continuous value enhancing chain.

So the question becomes: How do you identify these leverage points which can move an organization into this virtuous cycle? How do you break into the paradox get a handle on the dynamics? How do you sift through the relationships to identify potentially beneficial variants and, just as important, potentially detrimental anomalies. We have developed a model that is informed by emerging theories of complex adaptive systems, by post-modern organizational theory, and by the idea of a "vitality spectrum," that provides a window into these questions.

Ralph Stacey, in his recent book Complexity and Creativity in Organizations, postulates that the ability of individuals, groups, or organizations to innovate is closely linked to concepts that have grown out of recent advances and insight in the understanding of complex adaptive systems [5].

In a complex adaptive system framework, the organization, the groups of which it is comprised, and the individual members of those groups each occupy a position on different, but sequentially embedded, "fitness landscapes [6-9]¹." Agents in a complex adaptive system respond to each other's behavior with the intent to improve their own behavior as it pertains to their individual survival or success. This process is called coevolution[10]². An organization must be looked at as both an agent adapting within its own ecological system, including its industry, the global marketplace, and its communities, as well as a collection of agents (individuals and groups) that make up the organizational system. Because of coevolution, none of these entities can be viewed as separate entities. As any agent, on any level, shifts its strategy or behavior, its own landscape shifts. This has an effect on the topography of the other landscapes in the embedded sequence. Coevolution requires that any other agent, at any of the embedded levels -- individual, functional department, organization, marketplace, etc. -- upon becoming aware of that shift, reexamine the implications of that shift for its own survival and success. In order to achieve mutual advantage, agents can, under the right conditions, spontaneously self-organize into a pattern of collective behavior that provides more benefit to each agent than any of them can achieve following their own course. It is the interactions between the various agents that are crucial to this phenomenon. In an organizational context, this understanding demands that an organization strike a balance between stakeholders if overall fitness is to be cultivated.

Complex adaptive systems are adaptive only when they operate in a paradoxical state that is simultaneously stable and unstable, where both cooperation and competition are valid, and where variances might be either amplified or inhibited. Stacey calls this environment "The Space for Creativity." In organizations, an environment where creativity and innovation thrive (Vitality), as opposed to where control (Rigidity) or turbulence (Fragmentation) impede the conditions for innovation, is primarily dependent upon five variables: 1) how information is channeled and used within the organization; 2) the degree and quality of connections between components of the organization as well as its external stakeholders; 3) with whom power and influence within the organization reside; 4) the degree of diversity within the organization, measured in both cultural and cognitive parameters; and 5) the degree to which the organization is able to contain the level of anxiety that the destruction of the status quo inherent in any creative or innovative activity generates in the system's members.

In order to actualize and capitalize on the potential for the creation of intellectual capital within the organization, The Space for Creativity must exist. It is what enables today's knowledge worker to respond inventively to the demands of the emerging context of the information-based economy. The organizational assessment tool that we have developed tests for the presence or absence of this success factor.

The Diagnostic Tool

We have augmented Stacey's ideas, as well as the concept of the "Organizational Vitality Spectrum" put forth by the Praxis Group, to devise a diagnostic tool meant to gain insight into several vitality elements, or building blocks of organizational performance³. We use an enhanced systems framework⁴ to examine the whole organization and its environment, as well as the linkages between its parts: the group, at the functional area or team level, and individual employees. The quality of solutions resulting from this systems, or holistic, paradigm make the organization more competitive and hardy. Each of the four areas outlined below are rich in terms of what they can tell us about the influences on organizational performance. Each vitality element has a number of important variables. These variables are indicators that have surfaced in previous work by the authors in large scale organizations and are informed by Stacey's five variables as described above. The purpose of this assessment and analysis is to get an overall picture of where the organization is healthy and where there are signs of disease. Organizational disease is defined here as momentum away from vitality and towards either fragmentation or rigidity. We are looking for clues as to where potential interventions will provide the highest leverage for improvement of organizational performance.

• Organizational Purpose and Values -- A healthy and vital organization has a strong sense of purpose and direction, expression of opinion is encouraged, and information about the business is widespread and accessible. In a healthy organization, employees at all levels are aware of the key constituencies upon which the success of the organization depends, and acknowledge the necessary relationships that contribute to that success. Solutions to issues tend to be approached from a systems framework, are measured against a consistent value-laden foundation, and include an examination of alternatives that results in broader and more appropriate output. This requires a broad network of consistent and proactive information sharing both within and across subgroups in the organization, as well as with their external stakeholders.

  Components of this vitality element that we assess are: a sense of organizational mission or purpose, articulation and congruence of values, the level of anxiety on an individual and group basis, the degree of linkages between groups, and the amount of information exchange.

  A paradigm is an entire constellation of human perspectives, achievements, values and actions. Organizations that are hidebound by old organizational paradigms with excessive or obsolete rules (once useful, but unexamined for relevance in today's environment) tend to stagnate into group think. They become victim to boundaries, turf, hierarchies, and walls that stifle creativity. On the other hand, organizations can also fragment because of an environment that lacks boundaries. Indications of impending fragmentation can be absentee leadership, or leadership not directed by clear mission or purpose. Life in this kind of organization is hectic, even chaotic, like being on a rudderless ship, following whatever winds or currents happen to come along. Eventually this ship will disintegrate upon the rocks of competition and the marketplace.

• The Quality of Leadership and Trust -- Leadership is guidance and influence, as opposed to control and direction. Leadership is the foundation upon which the Vitality of the organization rests. An organization is a dissipative system: one that breaks down, or dissipates, without the continuous input of energy. Organizations are frequently run as if they are equilibrium systems, requiring no effort to retain structure and a great deal of energy to change it. Dissipative systems require great effort to retain structure and no effort to change it. We see leadership as a primary source of the energy that feeds and nourishes an innovative, self-sustaining organization, and level of trust as an indicator of that energy.

  We examine the perceptions about leadership in the organization in terms of where influence resides, the level of trust that seems to prevail, and how values, purpose and vision translate into individual and group behavior. Also, we look at how well competing stakeholder demands are balanced as relationships are deepened.

• Diversity and Innovation -- Creativity and innovation cannot exist in an environment where new ideas or potential solutions are not allowed to flourish. A creative environment recognizes individual differences as a source of potentially illuminating perspectives and frames of reference. This is a source of strength and competitive vitality when contained within a healthy organizational value system. Without a strong core value system and sense of purpose, extensive diversity tends to break down into unresolved disagreement and factionalism. The signs of health that we look for in this vitality element include people easily expressing individual identities, ideas and needs, a willingness to question assumptions, having issues and problems out in the open, and the presence of widely practiced and effective techniques for constructively working through differences and disagreements, as well as managing a diverse knowledge base.

  Empowerment and the Containment of Anxiety -- A certain amount of stress and anxiety is necessary to perform at peak levels, both for individuals and organizations. Beyond a certain level, however, anxiety ceases to be beneficial and becomes detrimental to performance. A level of anxiety that becomes an obstacle to performance we call distress. A key element in fostering innovation from an organizational standpoint, then, becomes creating an environment that encourages high level performance but contains the anxieties that become obstacles to performance.

Levels of Stress Perceived in Two Different Organizations

Most people's comfort levels hinge on predictability, a factor not highly compatible with innovation. As the pace of change with which the organization has to contend accelerates, the degree to which the future becomes predictable decreases. In spite of this, an individual's anxiety can be contained, and their ability to contribute at high levels sustained, if they feel that they retain some influence over their own future and are given resources to develop the skills that can keep them competitive in the marketplace. We attempt to assess the degree of anxiety containment by looking at trust levels, at personal efficacy, at performance feedback, and at the prevalence of business literacy (adequate knowledge of the company's relationship with the industry and with the marketplace). We also assess the degree of empowerment by looking at the opportunity, ability, motivation and authority to constructively influence work and decision processes.

This assessment is conducted through interviews with a representative 25% to 35% sample of the employee population. The interviews are conducted in a conversational, rather than interrogatory manner, to shed light on perceptions and attitudes that might not be comfortably shared with co-workers or other internal representatives. Knowledge of these perceptions gives us a window into what the members of the organization respond to and form their beliefs around.

Accessing and assessing what gets talked about, and what does not, provides a picture of what fundamentally guides people's perceptions, decisions and behaviors -- in essence, a picture of the organization's values. These decisions and behaviors become the articulation of individual and group strategic adaptation, attempts to move up the fitness landscape. The key to maximizing organizational effectiveness is how the information generated by the process is used to the advantage of the organization.

When trying to influence change, even a small but vocal minority, if given appropriate tools and resources, can have a positive effect that goes far beyond its strength in numbers. Alternatively, a small but influential pocket of dissonance and negativism can sow seeds of discontent that subtly but powerfully undermine thoroughly planned change initiatives. This is positive feedback in action -- the amplification of a small variance through the acquisition and growth of a constituency to the point where it emerges as a legitimate alternative to the status quo and, if more in tune with perceived advantage, replaces it as the way of doing things. Part of the purpose of this assessment tool is to recognize the elements that can be highly leveraged to identify, develop, and support change agents appropriate to the success of the organization. Applying that information across the elements outlined above allows us to suggest where attention and intervention can help leadership improve the organization's ability to be aware, adaptive, and competitive. Leadership in turn can rely on well-positioned and highly developed change agents to implement these interventions and amplify innovation.

Perceptions of Vitality in Two Different Organizations These charts contain plots of employees' perceptions of their organization's current position and its momentum on the Vitality Spectrum. Letters (R, V, F) indicate current position (Rigidity, Vitality, Fragmentation) and the arrows indicate the direction of momentum.

A Comparative Case Study

We were asked to assess about 30% of six organizations -- all high technology, global formations whose members are technically sophisticated, yet range from union represented associates to Director Level management. All organizations are distinct groups within their own Fortune 100 corporations. The interviews were analyzed along the four organizational vitality elements and the multiple variables of each element, with special attention to what Stacey calls "The Space for Creativity." The findings were reported orally and in writing to the leadership teams of all organizations before the results were cascaded down into the targeted organizational groups (herein referred to as ïgroup'). A combination of town hall meetings, conference calls, web site pages, and focus groups were used to cascade the findings throughout the entire membership of each group (numbering in the thousands of employees).

As external consultants perceived to be subject matter experts, we were asked to present the findings to the leadership team, and to the original town hall meetings, before giving over that task to in-house teams of change agents. These in-house change agents were, for the most part, trained by The Solutions Group to deliver the material in an effective manner and to answer most questions as they came up in discussion. Comments were collected and design teams were set up to plan high leverage and cost effective interventions to improve on each group's culture. End in mind, vision, and benchmark statements were used to determine the gap between the assessment results and their year end targets. For example, distressful levels of anxiety and performance impairment were uncovered by the assessment in some groups, driving the post assessment design team to target the group sources of individual distress for immediate intervention. This anxiety containment effort is central to the Space for Creativity we spoke to earlier.

Some of the findings for both groups uncovered leadership failings and governance problems. For instance, in both groups the local management team was perceived to have healthy leadership and role model attributes, yet the organizational leadership was distrusted due to behaviors described as unethical, self-interested, non-communicative and lacking in support, if not in purpose. The ensuing tension and anxiety resulting form contradictory perceptions between the two entities (the group and the organizational leadership) became a cause for concern and for improvement opportunities. When an organization does not provide the necessary guidance and support to local groups within the organization, then resistance to change grows, as was made evident by both these assessments and confirmed by the organization's own yearly surveys. The assessment's advantage over the survey was in clearly defining where to make an intervention and what kind of interventions is necessary. We have seen, a year after the design team was formed to investigate and implement solutions to the ïtrust' issue and governance problems, a dramatic improvement in the corporate-wide survey results pegged to the issue. Previously, year after year, no improvement was seen., we believe because in the absence of sound data, previous intervention efforts were either misplaced or too dispersed.

System linkages, such as those between the workload and the dearth of knowledge management processes, were unidentified in most of the groups, and thus, unaddressed by previous efforts to improve the cultural vitality and organizational creativity. Creatively tackling workload issues using the resources at hand was often deferred. For example, since levels of employee diversity were low and employees had high levels of seniority, this led to a rather limited pool of creative ideas. In fact, idea creating sessions were practically non-existent, much less the trust levels needed to stimulate ïout-of-the-box thinking and the sharing and harvesting of new knowledge for either the group or the organization to leverage. In the face of little sharing of how other project teams solved similar problems and with few "improvement idea" sessions being held, it meant that work became a series of fires to put out, where reinventing the wheel to solve customer needs was rampant. The systems approach of linking employee diversity to knowledge creation to intellectual capital formation, and hence marketplace success, was left voiceless. Leadership was not providing necessary linkages to facilitate building the relationships that matter between group members and their process stakeholders. Business literacy, change management skills and personal empowerment were sketchy and not consistently defined. Normal levels of anxiety turned into distress.

The vitality of the groups differed -- some more vital than others, yet all were in danger of being swamped by organizational dysfunction and the lack of leveraging and linkage skills. The paradox of highly technical employees who were also underdeveloped in knowledge intensive interpersonal / relational skills was at the root of most of the siege mentality facing the leadership and employee body. This is true regardless of where they thought they presently were in the Vitality Continuum.

The assessment uncovered a series of learning opportunities and growth potentials that the groups are still attempting to integrate into the fabric of their work. The assessment also served as an energy catalyst engaging literally scores of volunteers in work environments that had previously been ïapathetic,' ïturned off,' or ïretired in place' (language used by local management teams). These learning opportunities included, yet is not limited to, the following:

• Educating employees in the business to leverage for growth by building synergy between aggressively pursuing diversity (cultural and cognitive), leveraging diversity, aggressively pursuing knowledge management, leveraging knowledge, and aggressively maximizing intellectual capital.

• Strengthening forums for linking each group with their organization, within processes, and across disciplines to leverage core competencies for future projects, lowering employee anxiety.

• Actively seeking out creative abrasion sessions to build sparring teams based on equity and core organizational values.

• Seeking out training on facilitation skills, dialogue skills, knowledge management skills, and leveraging diversity skills.

• Actively supporting communities of practice including creating physical environments conducive to idea sharing, creating on-line cafes and suggestion systems -- project management and publicizing idea histories.

• Operationalizing such values as respect, empowerment, encouragement and integrity. Don't leave such core ethical governance issues undefined and misunderstood.

These and many more suggestions, some broad and some more specific, became the agenda for design teams in each group, and eventually in each location, to determine a course of action including feedback, metrics, and milestones. The objective was to weave these practices into the very fabric of work and hence into the culture of a highly vital and functional complex adaptive business system.

Conclusion

This diagnostic tool has been effective in not only generating pertinent and useful information for the teams to prioritize and design interventions but also in providing a way for us to learn from the work in progress. By identifying the amount of, type of information, and methods of information exchange taking place in the organization, we can identify and begin to correct short circuits in the learning and creation processes. Mapping internal and external connections between stakeholders simplifies bridging existent gaps information access that produce blockage. Understanding current dynamics around power, influence and trust allows targeted education and development of the interpersonal skills necessary for raltionships that matter to be generated and sustained. Realizing the depths and patterns of cognitive and cultural diversity extant in the organization has provided a platform for identifying conformist tendencies and how to recruit additional perspectives. In turn, a better understanding of these four elements helps us identify drivers opf anxiety and suggests helpful approaches for individuals and teams to work with and use both internal and external dynamics to reduce the more corrosive effects. Finally, the concept of an Organizational Vitality Continuum has provided employees with an appreciation of their organization's dynamic momentum and has enabled these teams to give focused attention to their efforts both as teams and as individual contributors.

This praxis, or blending of theory and practice, allows us to identify on an ongoing basis new areas of concentration as they pertain to leadership issues, to the effective use of emotional competence on the individual level as it relates to the containment of anxiety on the organizational level [7], to the adaptation of the organization to changing industry and economic parameters, and to the changing roles of insider employees as organizations continue to restructure, flatten, outsource, and rethink their internal capabilities.

In their book The Character of a Corporation, Goffee and Jones postulate that external economic and internal adaptive forces are pushing companies toward disintegration, what they call "an organizational erosion that often leads to financial failure over time." Our experience in large organizations, especially those with long histories, suggests strongly that they tend to exist mostly in rigidity, with segments in fragmentation or disintegration, as they attempt to cope with issues of adaptation to these forces. This discrepancy suggests further areas of study to identify if there are stabilizing and unifying elements of a well-entrenched culture and whether younger organizations fit more into the pattern that Goffee and Jones propose exists. "The Space for Creativity" is thought to be found on the boundary between the two.

Footnotes
¹ "Fitness" in this sense is the suitability of the strategy that a given agent pursues to achieve its purpose: its survival or success compared to the relative suitability of the strategies used by other agents in the system of their fitness. A three-dimensional plot of the fitness of all the potential strategies that could be employed by the agents that compose the system environment gives us the fitness landscape. This landscape consists of a range of peaks and valleys whose heights correspond to the advantage or disadvantage that a given strategy offers compared to the other potential strategies. The peaks represent strategies that lead to success; the valleys represent strategies that lead to extinction. (See Waldrop 1991, Lewin 1992, Casti 1994, Goodwin 1994 [6-9].)
² Every agent attempts to maximize its own survival potential by continually modifying its strategy in an attempt to become more "fit," steadily moving its strategic position "uphill" closer and closer to a peak. Changing strategy changes an agent's relative adbvantage or disadvantage to every other agent, moving it t a different point on the landscape. At the same time, the other agents can potentially change their own strategy in response to the shift. So the landscape for the system continually shifts through the coevolution of the various agents. This means that successfully manking your way to a peak is no guarantee that you can stay there becuas the peak may shift right out from under you! (See Kauffman 1993 [10].)
³ Praxis defines a truly vital organization as one where employees are willng and able to meet competing stakeholder demands and all stakehlders are willing to continue the relationships.
⁴ Informed by the Science of Complexity in general and Stacey's elements of "A Space for Creativity" specifically, as well as post-modern theories of organizational culture and behavior.

References

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