This is an attempt to dive into
“entropy” a concept in thermodynamics - and explore its
application to the study of organizations. Can entropy
be a barometer of organization health, and a method to
test organization design solutions?
The energy available in the system to do useful work or
rather the energy in the system not available to do
useful work is the thermodynamic definition of entropy.
For e.g. friction wastes the energy generated in an
engine from its original objective of moving pistons.
The concept of entropy has been already applied to
information science to connote the uncertainty in our
knowledge of a variable. Physicists know that the
entropy of the universe increases with time.
To the lay person, entropy connotes disorder or absence
of predictability.
What is entropy in organization context?
a) Organizational effort that are not directed to
meaningful outcomes
b) Uncertainty in organizational knowledge about payoff
matrix, i.e. what actions will result in what
consequences
c) Uncertainty in organizational knowledge about its
execution abilities, i.e. plan vs actuals
How do we quantify entropy? At least can we compare
organizations or business units on their level of
entropy? Is duplication of effort also entropy? Is high
rejection rate on a product line a surrogate for
entropy? Can we measure entropy at individual level as
well and does it have implications for workforce
development? How is entropy different from waste? Can we
consolidate the 3 notions of entropy above into a single
factor that must be minimized in every organization?
While absolute quantification of organizational entropy
is a big ask, we can definitely use the notions of
entropy to guide large systems intervention or systems
optimization
Effort Dissipation
In your function / organization – how much time is spent
in internal interfaces – whether communication or
decision making or monitoring. This is organizational
effort not directly translating into outcomes. Over a
period of time, is this quantity (of effort) decreasing
or increasing? How to decrease this effort spent at the
internal interfaces should drive organization design and
business process re-engineering solutions. Entropy is a
higher order concept than waste and addresses the core
issue of poor design whereas waste is a consequence.
Similarly duplication is effort dissipated.
Payoff uncertainty
If you are in compensation function and do not know what
will happen if I provide an upside potential in sales
incentive plan or if you are in marketing and do not
know what will happen if I drop the price by 5%, then
you have entropy of a different kind. You are not able
to extrapolate the future through data and analytics, or
you do not know your optimum “betting point” and this
payoff uncertainty reduces predictability of outcomes.
This is entropy you have to attempt to reduce and gain
mastery over all the time. In fact, the essence of all
business or operational planning was to reduce payoff
uncertainty. Of course, dramatic shifts in the external
environment will increase this uncertainty and this
means you have to bring back order by deliberate study
and sometimes even re-write your “theory of the
business”. These dramatic changes are what experts refer
to as paradigm change and where a paradigm change
insight and response is called for.
Execution uncertainty
When we do not know if we will be able to do what we
intend to do, it is execution uncertainty. In projects,
this is measured as schedule variance, effort variance
and cost variance. In programs or in product lines -
rejection rate, service level violations, downtime is
not being able to execute as intended. The whole object
of six sigma and other quality processes is to first
discover our “error rate” or execution uncertainty and
provide for them and hence bring a predictability of
error. This is the first step to mastering this
dimension of entropy.
The thermodynamic and recently the information construct
of entropy are very useful for practitioners of
organization diagnosis and design. It helps think
through the critical issues and levers by which entropy
can be reduced in an organization. This would also help
compare two businesses in a conglomerate or even two
business units in a company as to their relative levels
of entropy. This also gives direction on what kind of
things to benchmark and what is the key construct of
entropy for various kinds of business.
Hopefully, with more investigation, a more
mathematically precise definition of entropy for an
organization is not far away and a very desirable
construct for organizational consultants.
Can we extend this from organization to business unit
and business unit to team and finally to the individual.
Can this notion of “my entropy” be a compass for self
development?
Is there personal entropy?
Yes, of course. It is not difficult to see that poor
knowledge of what actions of mine will have what
outcomes (payoff uncertainty), effort spent that does
not advance my goal pursuit (lack of focus) and under or
overestimation of my capabilities (poor self awareness
leading to execution surprises) are the individual
equivalent of organizational entropy.
Similarly the notion of entropy must be used to test
workforce development solutions offered and self help
solutions offered by books to the individual.
In the end, it is good to remember and expect that
similar to the physical universe, entropy will increase
with time. The continuous changes in the external
environment cause personal and organizational entropy to
increase and they require deliberate efforts to
re-produce a new order and that is the whole object of
creatively responding to change.
R Anand, HR Director – Organizational Effectiveness
PS – The views expressed by the author in this article
are his own
