Entropy and Equilibrium in organizations


My pal Dennis Howlett and I were discussing today morning about what makes a large company resist change. A lot of thoughts ran through my mind and I thought I better write it down . Strangely – my thoughts revolved around laws of physics when I looked for answers . No idea why , but this is roughly how I try to answer the question .

Entropy is a measure of disorder in a system . Generally, higher the entropy – the more energy a system needs to just remain a system . There is very little energy available to do something else . Remember the first law of thermodynamics – there is only a certain amount of energy available to a system . Organizations are like that too – given a certain resource level , there is only so much that can be done .

What a company stands for changes with time . Pre-IPO , there is a great focus on increasing the valuation of the company . Size of the company is small and most of the employees have stock options as their primary compensation (or upside ) . When that unity of purpose is there – everyone has the same goal for the most part . If I work in engineering and my buddy works in sales and all we can hire is one extra person – it is relatively straight forward to figure out which team gets the extra headcount .
Both of us know that if the company gets valued higher – we both will be sufficiently compensated to not worry about who has a bigger team and whose team earned more kudos .

Now let’s say the company went public and we still can hire only one person . Now the company has many goals – revenue , profit , employee morale , net promoter score and a hundred other KPIs . Every team is aligned to a subset of the goals – and only a small number of people (occasionally only the CEO and CFO) are measured on all KPIs . Compensation is now not primarily stock for most employees – it is MBO driven . So entropy kicks into high gear – a lot of energy gets spent in just keeping the company running – by optimizing across different goals . This leaves hardly any energy to do anything to move forward .

That is what makes larger companies resist change in my opinion . I think this is one of the biggest causes for innovator’s dilemma . Someone with low entropy and more energy to spare comes along and wins the market while you are fighting your inner devil (which you created yourself and sustained ) .

Physics – statics and dynamics – uses the concept of equilibrium a lot . Inertia is a big deal – unless an unbalanced external force doesn’t act on it, an object just continues to move like it always had , or will sit dead on its tracks . Organizations display this behavior in spades .

This is why incremental changes don’t always give much impact in many companies – those are easy to balance out . Often times – individuals try to push really hard to make a difference . But force is proportional to mass and acceleration . Individuals have less organizational mass and hence need tremendous acceleration to show impact . On the other hand – establishment has plenty of organizational force and just needs a tiny acceleration to provide the balancing force . So things come back to equilibrium pretty soon . Maybe there is an exception like Steve Jobs where the CEO is the individual forcing the change – but even then, we have seem the world doesn’t have too many who could pull off what Jobs was able to .

I should stop now – I am not even sure if this line of thought is useful . But I did promise my daughter that I will help her organize her toys ( does that count as decreasing entropy?) . So off I go 🙂

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3 thoughts on “Entropy and Equilibrium in organizations

  1. I think you have the concept of entropy wrong.From wikipedia: In thermodynamics, entropy (usual symbol S) is a measure of the number of specific ways in which a thermodynamic system may be arranged, commonly understood as a measure of disorder.

    So rearranging your daughter’s toys might not reduce entropy; getting rid of them. If you have lesser number of toys lesser will be the ways you can rerrange them in.

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  2. “But force is proportional to mass and acceleration . Individuals have less organizational mass and hence need tremendous acceleration to show impact .”

    The obvious corollary is that whatever your level of commitment, it will be amplified in a smaller organisation. This may just another way of saying that smaller organisations are more agile (English language definition, not the agile methodology), but it may explain why startups (for example) attract the best and brightest – they already have the “acceleration” and they’re leveraging their force by applying it to a smaller organisation.

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