What Business Schools should say about the future of the business organization
The quest for a new paradigm
The reason for the violent ups and downs of some companies, and the death of others, is that so long as the paradigm is value-driven, it will highlight internal cooperation and decrease the ability to adapt to dramatically variable internal and external environments. This is what is happening now and will continue to happen in the 21st Century
Nothing more practical than a good theory, so the Spanish saying goes. It is the basic theories that light and guide us on our path. Without them, learning would be harder. They facilitate the transmission of concepts which, when applied to concrete situations, help disseminate new ways of doing things.
In the business world, theories have always gone hand in hand with practice. Since Taylor, at the turn of the century, developed his theory of "Scientific Management", various paradigms which have arisen from real-life applications have developed new conceptions of the company. By the 70's, it was known that the prevailing conception of the company was under challenge. It was the time when the social paradigm of "human relationships within the organization", developed by eminent North American professors such as Mayo, Roethlisberger, Likert and McGregor, collapsed. Then, the theories of Waterman and Peters, described in their book "In search of excel-lence"(1), which describe the importance of values as a binding factor in businesses, became the universally ac-cepted paradigm for under-standing the functioning of organizations. This was the institutional paradigm. We had gone from stressing sciences such as engineering and economics to stressing sciences such as anthro-pology and ethics, passing through an intermediate phase on the way where sociology and psychology were paramount.
Looking for a new theory
Kuhn, the social science philosopher, says that a paradigm is followed by another when it is shown to be unable to provide an answer for the new dilemmas facing reality. Lakatos says that there are no false theories, only superseded theories. And this seems to have been the history of business organization theories. One theory is followed by another, superseding it - not by going against it, but by going above it. Psychosociologists such as Mayo do not oppose Taylor's option or the contribution of Fayol - the French author of administra-tive theory - but integrate them within a more complete model. The same thing happens with the institutionalists, such as Selznick or Pérez López, who contribute the concept of values and their anthropological significance, with respect to the psychosociologists. Institutional theory has been the latest distinctive step forward, the latest paradigm to have established itself, first hesitantly, since the late 70's, and then with increasing confidence. All scholars and practitioners acknowledge its worth although some continue to operate within the previous paradigms.
The theories seem to have been anchored on this model since the late 80's. Thus, we are justified in asking whether, as Fukuyama talks of "the end of the history", not "the end of the story" in business organization theory. Perhaps the only thing we can now expect from the researchers of this re-ality are minor touches and refinements to the model, without challenging any of its substantial parts or introducing any revolutionary changes. On the other hand, Handy, probably the most original of the business sociologists, calls this stage "the era of uncertainty". That is, a time when managers and entrepreneurs must face a series of changes that they find difficult to assimilate. Thus, it has become an urgent task to discover a new model or essentially improve the present model.
In its book "The organization of the future", the prestigious Peter Drucker Foundation(2) brings together the thoughts of today's most renowned "gurus": Hammer, Pfeffer, Hesselbein, Prahalad, Ulrich. In their prolog, the editors say: "The organization is not a mere tool. It is a manifestation of values...". In other words, they are positioning themselves within the institutional model. However, they go on to say: "agility and flexibility should be the primary design criteria". To combine values which give conceptual stability to the organization with agility may seem to be a contradiction in terms, unless one of the values is precisely to promote change and innovation.
Some of the main companies exemplifying Peters and Waterman's paradigm and depicted in their book as excellent have had to undergo major traumas to overcome the static mentality that gave them their genetic code of values. IBM has been one of them. This company has had to throw out a lot of ballast in order to survive. Of course, it was necessary to reduce headcounts but, above all, it was necessary to change concepts about the nature of the company itself and the industry it operates in. Others have not been able to withstand the pressure of change and have succumbed. Some, such as Hewlett-Packard, con-tinue to follow their path.
The reason for the violent ups and downs of some of these companies, and the death of others, is that so long as the paradigm is value-driven, it will highlight internal cooperation and decrease the ability to adapt to dramatically variable internal and external environments. This is what is happening now and will continue to happen in the 21st Century.
Consequently, the new theory must maintain the importance of cooperation, through shared values, while at the same time searching for a distinctive feature that will enable the company to survive in a competitive market.
How can this be done?
One cannot ignore the importance of cooperation. In his book "The loyalty effect"(3), Reichheld states that survival is only possible on the basis of the loyalty and trust built up in the circular relationship: partners-employees-customers-partners... A company needs to have responsible shareholders to maintain employees who trust in the shareholders' intentions to survive. It needs to have employees who, for their part, will give a good service, who will lock in their customers' loyalty and generate a revenue flow that is sufficient to adequately reward capital. These are the keys to Reichheld's model. It is cooperation between capital and labor, overcoming the classic dilemma of capital-labor confrontation by going above it. The arguments that have raged round this dilemma have marked the history of the 20th Century. The new element introduced in the model is the customer. Without the customer, there can be no company; and the customer is loyal only insofar as the company is market-efficient. These are the rules of the game. The presence of the customer, of the market as dominant institution, demands efficiency, innovation, competitiveness. Qualities that seem to be the opposite of cooperation. So we need to find a conceptual model that will enable us to go beyond this dichotomy.
There is an organizational model that seems to be the most efficient for achieving this goal: that of the Western-type democratic societies combined with the market economy, the MCPD (Market Capitalism with Parliamentary De