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Dr. Herbert Simon presenting the John Gaus Lecture at the 2000 annual meeting of the American Political Science Association
This video captures Dr. Herbert Simon presenting the John Gaus Lecture at the annual meeting of the American Political Science Association in 2000. He talked about the role of public administration in today's world of markets and organizations, the mechanisms that make complex organizations effective instruments for carrying out human purposes, and the kinds of organization structures that facilitate change and innovation. He emphasized the limitation of thinking power of human actors in a global economic environment where uncertainty has called into question the usefulness of optimization problems to improve the performance of complex organization structures. In addition to examining markets and organizations respectively, he examined boundaries between the two, characterizing mutual inter-dependency (and Adam Smith's invisible hand), and the problem of coordination especially in situations that require us to secure coordination without obvious central planning, without a common interest among the participants, and where third order effects (externalities) increase complexity. He emphasized the role of contracts and so-called "temporary organizations." Project-based organizations?
Corporations have become the principal coordinators of tasks that serve society. The vast bulk of our economy occurs through organizations, not markets. Ours is an "organization economy," whose transformation has been concomitant with the evolution of electronics and communication technologies. The "world wide web" and e-markets provide unprecedented opportunities for "coordination at a distance." The fact of this technology medium does not suggest the dissolution of organizations.
Coordination is not a good but a necessity. It is costly and imperfect. We wish to introduce no more of it than the structuring intricacies of our goals calls for. Organization design balances the gains from coordination against its cost, against each person not being able to do their own thing. The first step in designing an effective organization is to determine what kinds of inter-dependencies in activities will benefit from coordination and then to minimize the amount of coordination by dividing the work in to pieces so each sub-part of the organization can be as independent in its activities of the others as possible. There is much more coordination and interaction within each unit than between units in a well designed organization. High rates of rapid communication are maintained among activities that are highly interdependent; much less frequent communication among activities that can be carried on in near inter-dependence. We call systems like this nearly decomposable.
A second component of good organizational design is the special contracts between the organization and its participants. One must not underestimate the role of employee contracts (and stock and bond contracts for contribution of capital and sales contracts for buyers). Employee contracts buy participation of employees. More than economic motives, once installed in the organization the employees are surrounded by information and influences quite different from those that would surround them in another setting, inducing strong identification, not only motivational but also cognitive (with the organization and its goals).
It is the mechanism of organizational identification, the change that takes place in each one of us, when we become the employee of an organization and learn the culture - this was missed by Adam Smith when he concluded that large organizations cannot be efficient. Organization identification is powerful, rooted in values and the need to build a mental model of the world that focuses on one's own responsibilities and work environment. This is distinct from self-interest. Organization identification gives organizations more than anything else their remarkable power to secure coordinated behavior of large numbers of people to achieve goals. It also regrettably causes some people identified with particular groups to commit terrible atrocities against others. It is a mistake to separate organizational identification and ethnic identification, and we should see the role of organizational identification in human affairs generally and what changes need to take place before it ceases to have regrettable consequences.
Innovation and adaptation to change, complexity, and complex systems have drawn attention to the fact that most complex systems seen in the world are nearly decomposable systems; they have range and levels, hierarchies in authority and division of work, and each lower level is subsumed to one above. Why is this so universal in both organic and inorganic systems? Near decomposability is a means of securing the benefits of coordination while holding down its costs. So to design complex systems to operate efficiently, we must divide them with their components as cleanly separated as possible. Nearly decomposable systems of parts with near interdependence will adapt to changing environments and gain in fitness more rapidly than systems without this property. The rates of success depend on the degree of dependence and coordination among teams who can operate independently to solve the problem of adaptive change without central coordination in a changing environment.
If complex systems must operate in constantly changing environments, they must modify their structures at a corresponding pace. We must limit what we can pay for coordination; we must enable separate parts in a system to evolve independently. With our increasing understanding of building large organizations (large groups of people who collaborate) that achieve high levels of coordination while maintaining a sufficient approximation of near decomposability of their components, we have enlarged greatly the area in which large organizations are more effective than markets. This matters in order to cause distribution of power and distribution of social products.
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