Jack Covert Selects - The Org

The Org: The Underlying Logic of the Office by Ray Fisman and Tim Sullivan, Twelve, $26.99, 320 pages, Hardcover, January 2013, ISBN 9780446571593

Just as market theory sits on the foundation of Adam Smith’s ideas, made famous in The Wealth of Nations, the study of organizational economics began with the work of Ronald Coase in a famous article entitled “The Nature of the Firm.” Ray Fisman and Tim Sullivan explain in their new book, The Org:

Coase’s conception of the market involved a lot more friction and discord than Adam Smith’s original vision. It gives us a more complete understanding of why orgs exist and why we don’t trade for everything on the open market, and a way of thinking about how orgs make decisions about drawing their boundaries. Those high costs of transacting business on the market drive people to organize. And Coase’s main insight—that the cost of an in-house transaction needs to be compared with the cost of a market transaction—has served as the basic building block for the modern economic theory of what organizations do.

The authors use that framework to help dissect and remedy the Dilbert-like quality of the modern org. They begin by telling the story of Hewlett Packard. Started in a garage now called “the birthplace of silicon valley,” HP was a nearly ideal org for decades, famous for “the HP Way”—a management style “focused on the people who made up the company rather than on the products.” By 1992, they were employing more than three hundred thousand employees. But HP had lost its famous “Way.”

These days, employee-friendly practices such as telecommuting, flextime, freedom to pursue independent projects, and airtight job security need to pass the “market test.” … When profits and employees’ interests come in conflict, profits win out, as in 2005, when the new CEO handed out thousands of pink slips, to the glee of Wall Street investors. Information Week magazine ran an opinion piece called, “In Praise of [HP CEO] Mark Hurd’s 9,000 Layoffs” in 2010. .… And the newest HP savior, CEO Meg Whitman, announced another round of layoffs in 2012, this time totaling twenty-seven thousand jobs.

It’s no wonder people are not only wary to go to work in such organizations, but are scared to grow their small businesses into larger orgs for fear of what they’ll become. But most of us still make our living, and spend a great deal of our lives, within organizations, and they are still the best way to accomplish tasks we can’t do on our own—“a machine for getting stuff done.” The authors want to modernize that machine without losing the engine that makes it run. Looking at everything from “Designing the Job,” to “Putting Together the Organizational Puzzle,” and “The Economics of Org Culture,” they help leaders and entrepreneurs capture the problems and promise of their organizations in all their complexity and commonality.

As Fisman and Sullivan say, “The org is not a problem. It’s a solution—but one that comes with some messy realities … ” Their book, The Org, will help you tidy up that mess.