In 1980 Peter Drucker had compiled a list of more than forty “excellent” companies. In 2001 Jim Collins brought to our notice eleven “good” to “great” companies. Where are these companies today? Many of them are dead. Some of them are severely languishing. They could not confront the onslaughts of disruption, largely caused by the technology, globalization and demographics.
It was as if the earlier pace of disruptions were not adequate, the COVID has put the same on steroid. Companies are pushed to the extreme end, leading to frequent amygdala hijack like early human beings, who would keep themselves always on alert before being devoured by some carnivorous (sound synonymous to Corona virus!).
As per the 2nd law of Thermodynamics the persistent pull of Entropy leads every system to continual deterioration and finally in long run to death. The length of long run could be shorter if the company concern is deaf to the clip-clop sound of usurper start-ups and handicapped to take appropriate proactive actions.
So, what could be instilling the sense of complacency and lethargy in such? Well they progress towards entropic deterioration and death when their purpose becomes policies, which become procedures, and which become the deep-rooted paradigm. They develop a rigid dominant logic and lose perceptual acuity of external environment. Moreover, they are so rigidly structured and heavily invested that it becomes difficult for them to quickly flex and adapt.
In 2001 Stephen Hawking said that “Entropy is nothing more than a measure of the total information contained in a system”. In an organization this information will either be consumed or remain as excess energy with inefficient usage of resources. This unused energy, or resources, results in gradual randomness & slack in the system (and increase in entropy) leading to a situation from where reversal is just not possible.
Every system has a finite amount of energy. The additional energy comes from the system’s external environment. In terms of an organization, such energies could be capital, talent, customer, vendor, etc. However, it is important to note that a chaotic organization will not have required energy to align their capabilities with the eco-system players and multiply its energy.
An organization needs to develop a culture of continuous learning for how to simultaneously exploit today and stay ahead of rivals; while also exploring to determine what it needs to do to integrate with the eco-system to be successful in the future.
An organization can fight back against the pull of entropy. How?
- By periodically looking at embedded dominant logics and challenging them for their continued value.
- By creating a simple & single threaded organization structure and setting clear & continuously stretching targets.
- By bringing digital led problem-solving mindset and very high bias for implementation.
- By allowing and encouraging people for experimentation and celebrating successes& intelligent failures.
- By organizing individuals into a small cohesive team.
- By creating a candid, transparent, empowered and talent dense organization.
- By seeding & growing a great sense of entrepreneurship with a commitment to develop and serve customers.
- By creating a great sense of purpose, passion, and pride among people.
- By ensuring that all the information, resources and energies are used efficiently and effectively and not creating heat in the organization.
Organization must expend energy to create stability, structure, and simplicity. Random & slack organizations are less likely to produce a sustained predictable and positive outcome. Entropy will be always into play causing far more disorderly variations than orderly ones. Steven Pinker puts it nicely -“The ultimate purpose of life, mind, and human striving: to deploy energy and information to fight back the tide of entropy and carve out refuges of beneficial order.”
In today’s time, when organizations’ mortality rate is high, they must adopt disruption as a chosen strategy to thrive. They must shed the inertia induced by the immediate profitability pressures, legacy mindsets, established job functions and incumbent talent. Leaders should ask the right & powerful questions, encouraging people to unleash their potential and have confidence to take risks. Leaders should champion, celebrate and reward disruptive innovations. Company must have an intense focus on listening to and learning from the customers in a highly socially networked, fast-paced global community where technology is driving transparency at all levels. The ideas of disruptions more likely come from outside an organization. So, listening to external environment and learning from them would be critical competence for today’s organization. Partnering and collaboration with the key players of the eco-system will help an organization to come up with a disruptive idea much ahead of being disrupted. Thanks to digital transformation industry boundaries are becoming fuzzy. For continuous rejuvenation of an organization investing in right technologies will be of paramount importance. Right technologies will enable an organization to compile and integrate all the information, cerate insights for new products & business and implement them and scale with speed.
The low entropy winning organization will generate more Economic Value Added or EVA (ROCE-WACC). The low EVA organization will fall into the trap of Nature of gradual high entropy leading to deterioration and then to demise.