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How Organizations Become Institutions – How Institutions Die

Submitted by on September 17, 2009 – 4:51 pmOne Comment

I recently wrote a Radar post that generated a fair amount of discussion titled, “Stop Giving Newspapers Your Advice.  They Don’t Need It.” The point in that post was that we should stop doling out our advice to the newspapers because:

the news industry doesn’t suffer from a shortage of ideas or possible revenue models, it suffers from a different but more acute malady: being an institution during a time of disruptive change.

While we have all been busy telling the newspaper institution what they should do differently we have missed one big point: Institutions are structured to precisely NOT do much of anything different.

As part of the writing exercise  I wrote out my imaginary timeline of how a group of entrepreneurs becomes an “institution.”

  • An entrepreneur or small team of leaders blaze a trail – set the tone and culture of an organization – Think of the small geek-team for Microsoft in the early 80s.

MS_Albuquerque_Group_1978

  • The initial company flourishes as an informal organization of people that know each other intimately.
  • In order to perform at scale, interpersonal agreements are codified into process, procedural and policy documents, and legal contracts governing relationships.
  • New employees are given orientation on “how things get done around here”
  • A layer of middle management is put in place to promote efficiency, enforce policy and mitigate risk.
  • Individuals, normally guided by self-interest, quickly become rule-followers committed to preservation of the codified norms of the institution. In this regard, institutions become a force unto themselves. They protect themselves  from the individual interests of their constituents. Institutions generally demand conformance and reject difference.
  • The true decoupling of human intent and institutional intent occurs when the institution becomes publicly traded. At this stage the institution answers to an amorphous mass of “shareholders” whose only basis for judgment lies in quarterly growth figures.
  • If institutions gain enough mass – such as the Auto Industry since the 50s or Microsoft in the 90s they disappear entirely from the “free market” that brought them into being.  They bully through lobbying, threats of job relocations and boards of interlocking directorates that stifle competition.

When an institution encounters disruptive change it will either die (music, newspapers  in the face of the Internet) or, if large enough, kill off the source of change (auto industry in the face of electric cars).    If an institution’s capacity for adaptation does not exceed the rate of environmental change for a sustained period of time – extinction follows.

I have been wondering a lot if there is a middle path where organizations can actually learn at scale and respond to disruptive change in a positive manner.

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