Thursday, 23 April 2009

Building up a comprehensive theory of business

After 3 days of debate, and at the cost of sounding pompous, we decided to go on with the title. Do read on.....

PART A: Why industries and companies exist
- All organisations are in the business of processing information. Be it the software business/ tire business/ rise from the ability to convert matter from one form to another.

- Industries differ in the type of information they process.

- Within industries, companies differ in how efficiently they process the information.

Effectively, all competition boils down to innovation, which is the application of creative and original thinking to business issues.

When innovation ends, businesses become commodities.

B. The role of organisation structure:

Within companies, organisational structures are created to maximise the efficiency of information exchange. Two critical drivers of structure are therefore:
- people
- information technology

Organisation structures inherently move in the direction that best aligns its people and its information technology. Organisation structures fail when this match of people and information flow is misaligned.


A command and control system fails when the maturity and competency of people is high and they demand more "lateral" freedom. If the access to information within the organisation is also easy, rigid structures come in the way of development of people and ideas.

A matrix structure fails when the employees have not yet learned the benefits of collaboration. Furthermore, if information is not easily available, the "gate keepers of knowledge" inherently become the power centres. The matrix fails.

When processes and systems of an organisation are insufficient for information to flow freely (horizontally and vertically) in an organisation, "politics" becomes critical.

C. Organisational Politics

Politics in an organisation, like in all other fields, is the development of power "implicitly". Implicit power is necessary when:
- explicit power is not well defined.
- explicit power is not efficient (i.e. the processes prevent recognition of the value creation within the organisation).

"Perception management", an integral part of office politics, becomes important when an organisation lacks transparency - in structure (information flow is weak and hence the performers and non-performers are both invisible) and in its processes (definition of value adding activities is actually not clear so people don't know what is expected of them).

D. Talent management:

Given that (and this is true mostly of developing economies) the number of higher level educational institutes has not kept pace with economic growth, talent is indeed scarce.

Unless organisations invest to develop talent,
- the talent it already has will disappear, seeking more competent companies.
- the dissipating talent will be hard to replace
- insufficiently trained people will be elevated higher up the organisation.
All three are key reasons to why industries rise and fall over time.
Lack of talent means lack of innovation means lack of excitement means exodus of talent.

Industries commoditise for lack of ideas. Period.

Ritu and Venkat

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