| Complexity
and Organizational Structure by Emily F. Breuner |
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Chapter 3 |
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Genesis of this ThesisIn the summer of 1994, I was interning at Regis McKenna, Inc., a marketing consulting firm in Silicon Valley. As Regis McKenna's clientele is almost exclusively in the high tech arena, the hype surrounding the Internet had become an important topic for the firm. The clients wanted to know what they could do with the Internet in a strategic marketing sense, and RMI needed to become highly knowledgeable about the topic quickly in order to be able to add value to clients' electronic marketing efforts. Getting the firm to a high level of understanding was a perfect project for a summer intern from MIT, was it not? |
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| I had used the Internet at a previous job, but had not really understood its structure. All I knew was that I could send email to almost any place in the world at no marginal expense to my company. As I began to do research into the Internet from the perspective of how it could be used strategically for business, however, I became fascinated. I came to realize the awesome power the Internet gave to each individual who had access to it, and at the same time, I realized how unique its structure was in that no one was in control of it---by design. Somehow this thing had pervaded the country and many parts of the world, yet it had largely escaped central control and regulation in any meaningful way. |  |
| Back at Sloan in the fall of 1994, I registered for Professor Thomas Malone's class "Inventing Organizations of the Twenty-First Century," the purpose of which was to invent, or at least envision, organizational forms of the future given astounding advances in information technology and its ability to coordinate increasingly complex activities across different kinds of boundaries, be they organizational, geographic, temporal, etc. Through the readings in that class and discussion with my peers, I came to see the Internet as a possible model for how such an organization could be structured, and became interested in learning more about how the Internet actually works in an organizational rather than technical sense. | |
| Also as part of Professor Malone's class, I had the opportunity to hear from Dee Hock, CEO of Visa International from 1968 to 1985. Hearing Hock describe the structure of Visa, and hearing why he chose to design it the way he did, led me to believe that Visa and the Internet had much in common. When Professor Malone asked for people who were interested in a structured thesis project at the Center for Coordination Science, I jumped at the opportunity, hoping that I could examine these commonalties in more detail. | |
| As a participant in the structured thesis project at the Center for Coordination Science (CCS), I was assigned to study Visa International, and Professor Malone suggested that a comparison of Visa with the Internet could yield interesting insights. I joined a team of students(1) who decided to study the two organizations and try to capture their similarities and differences using 1) the emerging concepts of coordination theory and 2) the methods for representing coordination processes being developed as part of the research at CCS. A brief summary of these two topics follows. For a more complete description, see the respective papers defining these theories. | |
Center for Coordination Science(2)The Center's work focuses on three project areas:
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| Coordination theory draws upon a variety of fields, including economics, computer science, organizational theory, information systems, management science, and psychology. (3) | |
| The Center hopes that by classifying dependencies between the individual activities within a process, patterns of coordination and resource utilization will emerge, upon which theories of effective dependency management can be based. A summary of early research on dependencies appears below in Table 3.1. If indeed these dependencies are the keys to managing coordination, then understanding how they can be managed may help us transform current organizational forms to new paradigms that will be important in the next century. This research is likely to be especially applicable to the increasing fraction of business that are based upon the effective use of knowledge and information. | |
Of particular interest is how information technology creates new opportunities
for coordination. To understand the effects of information technology on
organizations and coordination costs, Malone and Rockart used the notion
of coordination costs to develop a predictive framework with three orders
of effect:
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| In aggregate, these effects have several implications: operations that require a great deal of coordination (virtual corporations, geographically dispersed teams, etc.) may become possible; and, the scale of a coordinated activity can increase dramatically. | |
| Development of the Process Handbook In order to advance the study of coordination science, Malone and Crowston develop methods for representing, classifying, and then analyzing processes in terms of their ability to coordinate, i.e. manage dependencies. Out of this work has come the Process Handbook.(5) |
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| The first phase of development focused on process representation and software support. Refinements in these areas continue. The second phase of the development focuses on collecting example processes from organizations. This latter phase generated this structured thesis project. By comparing how various processes manage dependencies and by creating an extensive catalog from which to choose established processes, Malone et al intend the Process Handbook both to help create new processes and to show how different processes might be applicable in new situations. | |
| The Process Handbook Methodology The principle goals of the Process Handbook project are first to help theoreticians imagine new organizations and second to help consultants, managers, and others understand and redesign existing organizations. The key challenge is devising a notation or representation method for describing processes in such a way that they can be indexed and clearly understood. In order to do this, the process handbook leverages ideas of inheritance from software design and dependency management from coordination theory. The sections below elaborate on the terminology, representational tools and the analysis methods from the Process Handbook. |
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| Terminology The real value begins with a clear understanding of the terminology used in the Process Handbook. These distinctions capture how this methodology creates a more robust way to represent processes and their embedded dependencies than alternate systems of process representation.
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| Representation Tools Activity Lists An activity list is simply a chart that provides an opportunity to characterize the activities in a process. Table 3.2 shows a basic blank activity list. |
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| Process Maps These are graphical representations of processes, showing objects arranged in a hierarchical network.Decompositions flow down the map. Solid lines represent this flow. Specializations flow to the right. Dashed lines represent this flow. A heavy arrow shows the dependency between sub-activities. | |
| In Figure 3.1, the activity "pay for purchase" decomposes into two sub-activities "Determine $" and "Give $." There are three specializations which can be used to pay for the purchase: pay cash, pay check, or pay credit card. Each of the specializations inherit the two sub-activities (though not shown in this diagram). | |
| Analysis Documenting processes shows how things currently operate. Analysis looks at best practices and speculates on how people might work together differently, in particular by using new kinds of information technology. Diagramming a process surfaces the dependencies between activities. Then the processes used to manage those dependencies can be identified and represented as well. The Process Handbook serves as a library of processes, organizing by means of a common taxonomy. After mapping a process, analysis of the activities or of the dependencies may reveal opportunities to improve the process's effectiveness in accomplishing its objective. In addition, processes may be compared across industries to spark new ideas on how a process in one industry may offer insights applicable to another industry's processes. |
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| The Process Handbook Software Researchers at the Center for Coordination Science are at work on an application that will portray process maps, including activity lists and description screens for each object (process, activity, specialization, or dependency) within the maps. Visual Basic, a Microsoft Windows development tool, serves as the development platform for this application. |
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Research Performed
Interviews I also interviewed two former Visa employees: Dee Hock, Visa's first CEO, and the man responsible for designing Visa's structure, and a great wealth of information because he deliberately set out to invent a new organizational form. This thesis would not be possible without Mr. Hock's participation. Scott Loftesness, former Visa executive in charge of the development of its information systems which are central to Visa's raison d'être. Mr. Loftesness's insights into Visa are important both because he now works in an organization that performs the same function that Visa does but is structured differently, and because his job function was central to the coordination of Visa's members. In order to get the perspective of a member institution, I interviewed Deborah Rossi, Executive Vice President of Merchant Card Services for Wells Fargo Bank in California and until recently a member of one of Visa's advisory boards. Serendipitously, she is also developing Internet payment systems on behalf of Wells Fargo Bank. John Rugo, Director of the Bay Area Regional Research Network (BARRNet) which was recently acquired by BBN, one of the original Internet design contractors. Additional interviews on the Internet were conducted by Tor Ramsøy with whom I am collaborating in analysis of the Internet's coordinating mechanisms.(7) |
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| Source Materials The most important source of information for understanding Visa 's structure is the document "International By-Laws and Regional Board Delegations (15 November, 1994). This document clearly defines Visa's structure; it can be thought of as Visa's constitution. Other sources include articles from journals and a number of books chronicling the history of the credit card industry. |
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| Diagramming Once I had gathered this source information, I developed diagrams using the process handbook notation. Working with Tor Ramsøy and Charles Osborn, a research scientist at the Center for Coordination Science visiting from Babson College, we developed generalizations of the coordination activities of the governing structures of the Internet and Visa International, thereby developing the Generic processes described in Chapter Six. | |
| Other Important Theoretical Lenses In the course of performing this research, both because of Mr. Hock's philosophical views on organizations and because of my own, and in order to understand some of the underlying reasons for the particular coordination mechanisms employed in the Internet and Visa International, I explored two other theoretical bodies of knowledge that I used as lenses for understanding these two organizations. One is Karl E. Weick's theory on the social psychology of organizing, and the other is chaos and complexity theory. Both of these bodies of theory are covered in the analysis in Chapter 6. |
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Footnotes (1) The team of students was comprised of William Lyon, Tor Ramsøy, and Jon Wilcox. We have all shared knowledge and research about the Internet with each other, and this thesis would not have been possible without their collaboration. In particular, Tor Ramsøy's insights have been essential to the comparisons in this thesis. (2) The discussion of the Center for Coordination Science and the Process Handbook was developed jointly by members of the structured thesis team: Martha Geisler, William Lyon, and Emily Breuner. Some subset of this material appears in their theses by agreement. (3) www-sloan.mit.edu/ccs/research.html, "CCS Research Overview," 1. (4) Malone, T. W. and Rockart, J. F. 1991. "Computers, networks and the corporation," Scientific American, 265, 3, 128-136. (5) T. W. Malone, K. Crowston, and B. Pentland, "Tools for inventing organizations: Toward a handbook of organizational processes," working paper, Cambridge, MA: MIT Center for Coordination Science, 1992. (6) Malone, T. W. and Crowston, K., "The Interdisciplinary Study of Coordination." Working Paper #157. Center for Coordination Science, Massachusetts Institute of Technology, Sloan School Working Paper #3630-93. November 1993. pg. 6. (7) Ramsoy, T. J., "The Governance of The Internet: Coordination without Central Control," MIT Sloan School of Management Master's Thesis, June 1995. |
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