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 🙂