Professor Sydney G. Winter is the Deloitte and Touche Professor of Management at The Wharton School of the University of Pennsylvania. The Wharton School consistently ranks as one of the best business schools on the globe. I have read Professor Winter's works before, particularly in combination of the work that he has co-authored with Professor Giovanni Dosi. The title of this article stood out in terms of a good follow through on Professor Langlois' theories.
In the abstract, Professor Winter provides a little more focus in to the theme of this research;
"Schumpeterian analysis requires an intuitively appealing and realistic conceptualization of the distinction between routine and innovative behavior, and in particular, a conceptualization relevant to complex organizations and complex tasks."
Which leads me to ask, is Professor Winter stating that innovation can be handled by the Joint Operating Committee, and "routine" tasks handled by the Military Styled Command and Control Structure? This role definition helps to understand the division of labor
and the barriers of the firm in assigning tasks. However, I would state that these classifications are both right and wrong. The role of the Military Styled Command and Control Structure (MSCC) is not limited to compliance and routine. The most important aspect of the firm is well represented in the case study of Chrysler by Thomas H. Davenport and John C. Beck in "The Strategy and Structure of Firms in The Attention Economy." (This document is behind a paid wall but you may be able to find elsewhere. It is in the March / April 2002 Ivey Business Journal.)
"One example, of both a problem and a solution, is the Chrysler division of DaimlerChrysler. In the early 1990's, it shifted to cross-functional "platform teams" that managed the entire process of developing a new vehicle. Over all, these teams worked well, producing both successful new car designs and shorter development cycles. But the functional organization that had focused attention on producing and maintaining technical skills was no longer in place. Soon, technical experts found themselves working not with others of their ilk, but with manufacturers, marketers and financial experts on cross-functional issues. The result? A recurrence of quality problems that Chrysler had previously solved. The company is now attempting to turn some of its attention to increasing functional and technical knowledge by organizing "Tech Clubs," so that engineers in specific domains of car development can meet with each other and exchange ideas. In general, matrix structures such as these create attention problems; our innate focus on hierarchy and threat / reward does not match well with situations where it is not clear which dimension is the primary one. But Chrysler's Tech Club approach, a kind of "stealth" matrix, avoids this problem by giving only informal legitimacy to a second dimension of structure. It's important to understand that the balancing act here is not about power, but rather about attention; Chrysler needs employees to stay focused on the process of developing new vehicles, but not forget about enhancing their technical skills. The Tech Club structure seems to get that balance just about right." pp. 52
Just as Chrysler needed to redeploy "Tech Club's" to recapture the engineering capability that was no longer being developed in the "platform teams". And it would probably be safe to say the engineering capability atrophied under Chrysler's revised organizational structure. For oil and gas I see the potentially similar atrophy of earth sciences and engineering capabilities by leaving the Joint Operating Committee (JOC) as the only organizational construct and relegating the Military Styled Structure to "routine" tasks. The scientific capability and the strategic land base of the producer are two of the primary areas of responsibility that those members of a producers MSCC are providing. The nature of the MSCC is about the "firm", and the JOC is about the "market" to relate them back to the discussion around Professor Langlois' theories. Professor Winter takes these concepts to the next step with this quote.
"But the edge of production set is the edge of an abyss so far as technical knowledge is concerned: We there encounter the Great Unknown. When an attempt is made to introduce the phenomenon of technological change into this conceptual scheme, the theorist is almost forced to try to play the new game by the old rules. This means that certain production possibilities are suddenly extracted from the Unknown and added to the Known. There is ordinarily no analysis as to why particular possibilities rather than others should be thus discovered, and considerations of mathematical convenience determine, by default, the path of technological development is such a theoretical world." pp. 3
The oil and gas industry is not static. We are entering a time where the demands of the engineers and geologists is accelerating at a ferocious rate. Innovation will straddle both the JOC and MSCC organizational constructs. How much of these capabilities, innovation capabilities and scientific capabilities, are captured, managed, enhanced, tested, and redeployed within the JOC and MSCC? What I want to do here is ensure that the "routine" tasks of "transaction costs" and accountability are not the only responsibility of the MSCC. I would suggest the MSCC is the "research" and the JOC is the "development" in the traditional Research and Development classifications. This is an overall objective of this re-organization of the industry, to enhance the speed, innovativeness and capability of the producer
and the industry. Professor Winter adds some more problems and opportunities to these concepts;
"But "knowing how to bake a cake" is clearly not the same thing as "knowing how to bring together in one place all of the ingredients for a cake". pp. 4
and
"Just to have a label, let us call this level of discussion of a technique the conceptual level as distinguished from the operational level discussed earlier. Two points should be made about it." pp. 6
Here we have a clear definition of the roles within the various organizations. Are you able to bake a cake, or know how to build a kitchen for the Chef to bake many cakes? Do you know how to drill a well, or do you know how to advance the science of geology and engineering? Professor Winter continues with some additional issues regarding the capability and ability of staff within these classifications.
"When a corporation president whose experience is in finance succeeds one who started as a production engineer, the technique that the corporation is using changes even before the new president makes his first phone call: The same procedures are now embedded in a new frame of experience and analogy." pp. 6
and
"Knowing your job' in such an organization is partly a matter of having the necessary repertoire of actions, and partly knowing which actions go with which incoming signals. Each individual has some ability to perform a considerably larger set of actions than are called for in his job, but to the extent that "practice makes perfect" he will acquire superior skill in the ones actually called for. [The man who graduated as a chemical engineer becomes gradually specialized first in petroleum refining and then in those particular aspects of particular refining methods that are central to his job.] As emphasized previously, a large part of any individuals conceptual understanding of his job consists of images of other peoples' jobs." pp. 7
Within the producer there will be those that are practiced at drilling wells effectively and those that conduct research effectively due to the nature of their jobs and previous experiences. The cultivation of two separate and disparate "types" of employees is not necessarily new, it is necessary that these be clearly differentiated within the producers JOC and MSCC. The interactions and communications between employees and particularly between the two organizational constructs is answered here:
"Any single individuals conceptual understanding of the firm in its entirety is mainly at an extremely abstract and aggregative level." pp. 7
"By far the most important coordinating and organizing force is the invisible interlocking structure of mutually consistent expectations held by the various members of the organization: Each correctly expects that he will receive familiar signals from the others, and will respond in the familiar ways" pp. 7
These last quotes emphasizing the tacit interactions that are so prevalent in today's organizations. Dr. Winter then quotes directly from Schumpeter;
"It is easy to see that the characteristic of being in a higher rank, the function of superintendence in itself, constitutes no essential economic distinction. The mere circumstance that ranks one worker above another in the industrial organization, in a directing and superintending position, does not make his labor into something distinct. (p.20)"pp. 8
"But we see at once that the necessity of making decisions occurs in any work. No cobbler's apprentice can repair a shoe without making some resolutions and without deciding independently some question, however, small." (p. 20) pp.8
"... insofar as individuals in their economic conduct simply draw conclusions from known circumstances -- and that indeed is what we are here dealing with and what economics has always dealt with -- it is of no significance whether they are directing or directed. (p. 21)" pp.8
"The data which have governed the economic system in the past are familiar, and if they remain unchanged the system will continue in the same way. (p.22)" pp.8
Winter then comments on the difficulties of how these definitions are understood by the "worker" as classified as the "manager" and "entrepreneur".
"In short, the manager of a firm, when the economic system is in an equilibrium circular flow, is just another guy who knows his job in a firm full of people who know their jobs. The firm in equilibrium knows the technique it is using because it is using it, and has been for some time past." pp. 8
and
"Carrying out a new plan and acting according to a customary one are things as different as making a road and walking along it. (p.85)" pp. 9
Walking along this road will be difficult. The changes that are being realized and instilled within this software that we are developing will initially provide comfort to few. Change is a difficult and necessary action that is being driven, I suggest, by societies demands for energy, and peoples need to be "less" burdened by the demands of their work. I wrote extensively in the "Plurality" document about Dr. Anthony Giddens and Dr. Wanda Orlikowski and their structuration theory and model of structuration
here. Review and familiarity with these theories will help to understand the role of change.
"The general emphasis in Schumpeter's work is, of course, on the entrepreneurial phenomenon in its most pure and dramatic form, where single individuals provide the leadership needed to bring about drastically new ways of doing things. But he does occasionally point out the essential continuity between these instances of dramatic innovation and the smallest sort of adaptation, to changing conditions." pp. 9
"Moral: Sometimes an innovation involving substantial technological novelty is much less costly and difficult than a change which, by standards external to the firm, is simple and commonplace. Viewed from inside the firm, technological novelty is only one among several reasons why an attempt to change techniques may involve large and unpredictable costs." pp. 10
Professor Winter moral provides some evidence that we are traveling the shortest route through these changes. I believe so. How much change the development and use of these systems brings about is unknown, however, the directness of our objectives helps in making the journey shorter, and potentially less painful. Professor Winter goes on in the document to note some principles of Neo-Schumpeterian Theory.
1) Contrary to the received theory of the firm, no sharp distinction can made between techniques known to the firm and those that are unknown. There is, instead, a quite continuous gradation from highly routine behaviour, to highly innovative behaviour. pp. 11
2) Relativity to existing routines: the only techniques which may appropriately be considered "perfectly known" to the firm are those it is actually performing, and has been performing repetitively. Furthermore, if we revert to the metaphor of Figures 3 and 4, the steepest part of the percent known curve is reached very quickly as the firm departs from its existing routines. Costs and uncertainties pile up rapidly for all but the most minor departures from well worn paths - even when the new direction is one already taken by other firms. pp. 11
3) A new method of production is a minor departure from an old one the the extent that (a) the repertories represented by the individuals currently in the firm contain the relevant skills, in roughly the right amounts, and (b) only minor "rewiring" is needed in order to create the interlocking system of signals and expectations that will evoke the appropriate actions at the appropriate time, (c) the relationship between the new technique and the old is correctly conceptualized by most individuals - so that planning for the change can go forward under largely correct premises as to who is capable of what. Similarity of list of ingredients may be a useful proxy variable for some of the considerations, but it is not a fundamental aspect of the closeness of one technique to another." pp. 11
4) Just as the fragmentation of knowledge in the firm makes innovation difficult and the consequences of attempted innovation unpredictable, nor does it tend to frustrate the economist who wants to predict the lines that innovation will take. The firm gradually "learns" a new method of production, vast numbers of details of the routines established will be determined by considerations that play no part in ordinary economic calculus, and may in addition be unknown to most of the firms managers, let alone to the observing economist. Not infrequently, decisions with quite major consequences for the firms future economic transaction will turn on such considerations. "Mere mangers" may behave predictably, entrepreneurs (and the organizations led by them) do not especially if the prognosticator directs his attention only to the economic influence on behavior. " pp. 12
Finally, as with Professor Langlois, I have abused the fair use of Professor Winter's copyright. As with Langlois, I am in contact with Professor Winter to determine what is required to make him whole under this phenomenal document. He leaves with a conclusion that resonates with my thinking of where we are headed too, and to a large extent why;
Thus a neo-Schumpeterian theory of the firm would be a historical theory in the sense that significant differences among firms would be regarded as historically determined; it would be a dynamic theory because only in the context of such a theory can the traditional problems of price theory be confronted anew, and, ideally, it would be probabilistic -- the existence of a multiplicity of unobservable factors that shape firm behavior would be explicitly recognized. Clearly, the program is an ambitious one, involving conceptual, theoretical and empirical questions of great difficulty. Success in building a new theoretical road can not be guaranteed, and the easier choice is to walk the old one. The question is how long are we prepared to content ourselves with a theory that is simple at the price of being simplistic. pp. 11
Photo Courtesy
Kaley Davis
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