It may seem like most organizations make rational choices based on deliberate decision-making, but that’s not really how companies run at all. Instead, firms are guided by long-held organizational habits, patterns that often emerge from thousands of employees’ independent decisions. No one makes a solitary, deliberate decision. Rather, dozens of habits, processes, and behaviors converge until a decision is made.
These organizational habits—or “routines,” as Nelson and Winter called them—are enormously important, because without them, most companies would never get any work done.Routines provide the hundreds of unwritten rules that companies need to operate. They allow workers to experiment with new ideas without having to ask for permission at every step. They provide a kind of “organizational memory. Routines reduce uncertainty. But among the most important benefits of routines is that they create truces between potentially warring groups or individuals within an organization.
Most people are accustomed to treating companies as idyllic places where everyone is devoted to a common goal: making as much money as possible. In the real world, that’s not how things work at all. Companies aren’t big happy families where everyone plays together nicely. Rather, most workplaces are made up of fiefdoms where executives compete for power and credit, often in hidden skirmishes that make their own performances appear superior and their rivals’ seem worse. Divisions compete for resources and sabotage each other to steal glory. Bosses pit their subordinates against one another so that no one can mount a coup. Companies aren’t families. They’re battlefields in a civil war. Most companies roll along relatively peacefully, year after year, because they have routines—habits—that create truces that allow everyone to set aside their rivalries long enough to get a day’s work done.
Organizational habits offer a basic promise: If you follow the established patterns and abide by the truce, then rivalries won’t destroy the company, the profits will roll in, and, eventually, everyone will get rich. So at most companies, an unspoken compact emerges: It’s okay to be ambitious, but if you play too rough, your peers will unite against you. On the other hand, if you focus on boosting your own department, rather than undermining your rival, you’ll probably get taken care of over time.
Routines and truces offer a type of rough organizational justice, and because of them, Nelson and Winter wrote, conflict within companies usually “follows largely predictable paths and stays within predictable bounds that are consistent with the ongoing routine.… The usual amount of work gets done, reprimands and compliments are delivered with the usual frequency.… Nobody is trying to steer the organizational ship into a sharp turn in the hope of throwing a rival overboard.
Most of the time, routines and truces work perfectly. Rivalries still exist, of course, but because of institutional habits, they’re kept within bounds and the business thrives.If you could somehow diagram all your work habits—and the informal power structures, relationships, alliances, and conflicts they represent—and then overlay your diagram with diagrams prepared by your colleagues, it would create a map of your firm’s secret hierarchy, a guide to who knows how to make things happen and who never seems to get ahead of the ball.
Routines—and the truces they make possible—are critical to every kind of business.But truces are only durable when they create real justice. If a truce is unbalanced—if the peace isn’t real—then the routines often fail when they are needed most.
Some might suggest that the solution is more equitable truces.That’s a good start. Unfortunately, it isn’t enough. Creating successful organizations isn’t just a matter of balancing authority. For an organization to work, leaders must cultivate habits that both create a real and balanced peace and, paradoxically, make it absolutely clear who’s in charge.
But even perfectly balanced truces can become dangerous if they aren’t designed just right. An organization has to implement habits that balance authority and, at the same time, choose a person or goal that rises above everyone else. Habits and truces have to be adjusted just enough to make it clear who has ultimate responsibility , and everyone is empowered to act, regardless of whose toes they might step on.
Shifts are possible at any company where institutional habits—through thoughtlessness or neglect—have created toxic truces. A company with dysfunctional habits can’t turn around simply because a leader orders it. Rather, wise executives seek out moments of crisis—or create the perception of crisis—and cultivate the sense that something must change, until everyone is finally ready to overhaul the patterns they live with each day.
The Tao Of Wealth 