The Quality Attributes of Organizations

If a quality attribute is an adjective describing something, and an organization is a set of people segmented by purpose, then what kind of quality attributes could be used to describe an organization?

A good place to begin is with a segmentation of purposes. What is the purpose of the organization?

I am bathed in neoliberalism. You might even say that I have been marinated in it. Pickled. The first segmentation that comes to mind each contain the term profit. There are for-profit organizations, non-profits, and not-for-profits. Profit-as-a-Purpose predisposes an organization whole range of quality attributes. Non-profits and not-for-profits are predisposed to another set of quality attributes. Profit motive offers one cleavage for segmentation. It’s obvious because it’s the neoliberal thing to do.

Another quality attribute is about just how centralized or decentralized it is.

I am at the beginning a deep exploration of Decentralized Autonomous Organizations, or DAO’s. Part of that work involved making new connections among several lobes of knowledge and assumptions I have about decentralized technology, philosophy, the public sector and the private sector. Part of that journey has taken me deep into the economics of collective action, another part took me deep into the leadership literature, and some took me into philosophy. For instance, E.S. Anderson’s book on Private Government [1] is particularly useful because it helps to think of the similarities between the private and public sectors and the differences among private networks and public networks.

Ultimately though, purpose may be the superior cleavage. There are many ways to segment organizations by their core purpose.

I’ve heard rationales for why the profit motive isn’t the true purpose of some for-profit organizations. It is very difficult, likely impossible, for me to know the ground truth. A worker on the assembly line at Tesla may believe the story that the primary purpose of their organization isn’t profit, it isn’t to buy Elon jet time, but rather, it’s to save the planet from carbon. Likewise, a software engineer at a bank may believe the story that their organizations purpose is to help people through the expert allocation of capital. To what extent do these stories hide or disguise the purpose of profit and to what extent do those stories have some ground truth? I’ve never engineered a test so I don’t know. People are stories and people lie to themselves about their stories. I have cause for skepticism.

There is quite a sharp contrast amongst those who argue that the maximization of profit to the extent of planetary and social destruction is the social good, and those who argue that profit is a necessary feature of the system that improves the aggregate social good.

The set that I will label as Profit Extremists believe they have a fiduciary duty to the shareholders to bribe politicians, manipulate public opinion, and pursue the legalization of poisoning, looting, and slavery if that is what is necessary to maximize profits. Who, after all, are the proles to seek liberty and justice? And if they become too organized, maybe we can cut them a single square from the chocolate bar. It’s quite the strawman, but, if I can imagine the position, is there not a non-zero likelihood of some group of people holding it?

Profit Maximalists, on the other hand, may advocate for lower regulation and lower taxes, but would agree with the statement that the state must exist, humans have rights, and they want to have a society in which their children can breathe the air, drink the water, are safe from murder, kidnapping and abuse, and can grow up into productive, good, warm people. Maximalists believe that the profit motive can be controlled to improve society. Extremists reject any limitations and will seek absolute power over the public sphere [2].

In the short term, profit is an incredibly simplifying optimization objective. It creates wonderfully simple heuristics. If you want to really maximize the profit this quarter, you need to maximize your revenues and minimize your expenses and investment. So go ahead, stiff your suppliers, introduce new fees and bury them in the contracts, maybe even recognize revenue that will probably come in any day now! Maximize that profit! This is thought conserving. Short term thinking drives a form of functional stupidity [3] that has uses. As a quality attribute of an organization, maybe it’s useful to make the quarter? Maybe too much functional stupidity adds up into a deteriorating position?

All of the real complications in for-profit organizations comes from the implications of the medium and long term. Sure, you could screw the suppliers this quarter, but they’ll learn not to trust you. They have preferences too. Maybe supplies don’t arrive until you pay in advance? Maybe customers cancel? Maybe the competition creates a better product because they improved and you didn’t? Where the real complications in profit maximization come from time frames and the ability of the organization to continue existing in an ecosystem where it can maximize its profits. Some for-profit organizations have quality attributes that make them more sustainable [4] because they can develop dynamic capabilities [5] and others do not.

For-profit organizations have the advantage of a very simple measurement in one axis, denominated in currency, and a complex axis denominated in vague notions of time mixed with the ideas of the realism of threat from new technology and disruptive entrants. We shouldn’t spending nearly as much time worrying about Atlas shrugging — what about Kronos?

Nonprofits are supported indirectly by the state through tax exemptions and do not generate a profit for their owners. Not-for-profits are not supported by the state through tax exemptions and do not generate a profit for their owners. The distinction is important, because a non-profit has to create a public good that is deemed a public good by the state, and a not-for-profit does not. That’s basically the deal the state makes for the tax exemption. Each structure favours different quality attributes. What is a public good? What is a good for the members of a not-for-profit? A lot of people spend a lot of money arguing over that.

Not-for-profit and nonprofit organizations have two complex axes, one denominated in the nebulous notion of a public good, and the second denominated in the nebulous notion of time. The nonprofit struggles with variable funding year over year, which makes it a particular challenge for the organization to build and refine capabilities. It has to tell stories to donor and prospective donors about the effect it has on the world, while reporting on a set of performance indicators that are not as concrete as profit. Social balance sheets are nebulous and rhetorical [6]. The not-for-profit struggles with telling stories to the members it serves, and often engages in struggles for reputation and face. The demands of these environments create the quality attributes of these respective organizations.

I like to think of Decentralized Autonomous Organizations (DAO’s) with these frames because I’m not sure they can are entirely immune from the very real pressures that neoliberal institutions exert on everything. What is the real motive of a DAO? Can those motives persist in spite of the pressures to engage in capital extremism at most, and capital maximalism at median? Not-for-profits and non-profits struggle with the complexity of connecting their mission through time and activities to tangible outcomes. Non-profits, in particular, suffer from short planning cycles imposed by the fiscal calendar. Clarity and profit aren’t the only quality attributes that matter.

I would prefer an outcome that emphasized DAO’s, as a tool, could be used to level opportunity out. It would be fantastic if the underlying pressures could be somehow alleviated and resolved. Can the contradictions created by overlapping pressures and organizational heuristics be dissolved?

Sources

[1] Anderson, E.S. (2017). Private government: How Employers Rule Our Lives (and Why We Don’t Talk about It). In Private Government. Princeton University Press.

[2] Savage, L. (1990). Thunder in the mountains: The West Virginia mine war, 1920–21. University of Pittsburgh Pre.

[3] Alvesson, M., & Spicer, A. (2012). A Stupidity‐Based theory of organizations. Journal of management studies, 49(7), 1194-1220.

[4] Schumacher, E. F. (2011). Small is beautiful: A study of economics as if people mattered. Random House.

[5] Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic management journal, 18(7), 509-533.

[6] Merkle suggests flattening social good to a single number between 0 and 1. https://merkle.com/papers/DAOdemocracyDraft.pdf