So, you think the world is complex today? Wait until you see yesterday. In 1967, James D. Thompson single-handedly made our world less complex by providing a jump-shift in our understanding of it with the publication of his pioneering book, Organizations in Action. He passed away just six years later, which is why you may not have heard of him. Still, that book is one of the half-dozen most influential on organisations written in the 20th century.
Thompson taught us that organisations are human creations that use wonderfully rich and varied ways to solve problems – how to make better decisions and how to co-ordinate our work, for example. His decision framework is useful to this day; it helps us think about types of decisions and approach them more effectively. His co-ordination framework is similarly robust; it helps us consider what “organisational capacity” really means and how we can put it to best use.
Allow me to digress. Thompson, a sociologist, lived at a time of remarkable change in society. The 1950s and 1960s witnessed a postwar industrial boom, as technology was revolutionising business and academic life. This was not happening in a vacuum; the study of how organisations address change expanded massively, and Thompson disseminated these findings in a journal he helped create, the Administrative Science Quarterly, still among the most influential in the field.
While most writers on organisations saw the changes sweeping through society, they generally subscribed to the “one right way” school. They assumed there was a single way to solve organisational problems, and that all companies would aspire to that solution. Thompson realised that organisations, even within one industry, faced vastly different pressures, and that each had to work out strategies to match its circumstances. This later became known as the contingency theory, with Thompson considered one of its founding fathers.
Having had different jobs before his academic career equipped Thompson with a critical skill: he saw organisations from a variety of perspectives, or “independent viewpoints”. In Organizations in Action he called attention to perceptual barriers that prevent us from seeing overarching trends. The notion of independent viewpoints connects neatly to current discussions about equipping graduates to move deliberately between modes of thinking: integrative, critical, systems or design, for example.
Thompson’s book also outlines his framework for decision-making. His quadrants (see below) classify levels of complexity. One dimension reflects ends: are the goals or preferences known or unclear? The other reflects means: are the cause-and-effect relationships that achieve those goals known? Depending on the quadrant in which a decision lies, the strategy for addressing it should be computational, judgmental, compromising or inspirational in nature. He defined his strategies as follows:
Computational: When goals are certain, and the means of achieving them are known, one simply follows logic.
Judgmental: When goals are certain, but the means of achieving them are not, an organisation has to rely on judgment – an educated guess based on past experience. Thompson did not use the word, but it is natural today to associate this with a “consultative” form of leadership.
Compromise: Goals are uncertain, but the decision-maker has a clear sense of the means of achieving various outcomes. A compromise between parts of an organisation may be needed. Coalitions may be built to rely on negotiating and bargaining; again, a style of leadership.
Inspirational: There is uncertainty in both dimensions. This requires what Thompson called “inspirational leadership”. He associated this scenario with times of crisis, but today we can see its relevance to a range of fast-paced businesses where reset and redefinition are the norm. Effective leaders build alignment by inspiring others, not through logic or command.
Thompson bent the path of the world’s understanding of organisations, and his work helps us think about the companies we need today. He wanted to ensure that managers designed structures and processes that fit their organisations’ capabilities, external environments and opportunities. We know what can result when this alignment fails: the recent financial crisis is a sad example of what happens when environmental pressures are more complex than firms and managers expect.
Business schools have to develop leaders and managers who will recognise this kind of misalignment, and who will speak up when business activities spin out of control; when self-interest oversteps legal and ethical boundaries; and when firms need inspired and responsible leadership in times of uncertainty.
The writer is the Bank of America dean of the Haas School of Business of the University of California Berkeley