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CHANGING ORGANIZATIONAL BOUNDARIES

Lane Tracy
Department of Management Systems
Ohio University
Athens, OH 45701
Organizations are evolving rapidly in response to technological change and competition. As a result, the boundaries of both the organization and its subsystems and components are being altered. Outer boundaries are becoming more porous and distended, leaving organizations open to environmental threats and loss of resources. Inner boundaries are also loosening in order to reduce barriers to the flow of resources within the organization. This paper explores the implications of these changes for the viability of organizations as living systems.

Keywords: living systems, organizations, boundary, decider, security, efficiency, resources.

Although the essence of a living system lies in its template and decider subsystem, the system is often most readily identified by its boundary. That is because the boundary is on the perimeter of the system and is ordinarily quite visible, whereas the template and decider are coded and hidden within the system.

Business organizations used to be readily identified with a particular location: a plant or a store, for instance. The primary activities of the organization transpired within the perimeter of that location. Even as they grew and extended themselves into other locations, business firms could still be identified with a headquarters in which the primary decisions were made.

That picture has now changed for large business organizations. Modern communications technology has allowed geographic dispersal of decision making and many other system processes, so that the boundary of the organization may be found in thousands of locations and in the "ether" between them. At the same time, customers and suppliers are being brought across the boundary and invited into the decision processes of the firm. What implications do these changes have for the viability of global corporations as living systems? How can such a distended and permeable boundary perform its function of protecting the system?

Internal boundaries, that is, the boundaries around subsystems and components of the organization, are also changing. Some of the traditional departmental structure in business organizations is being dissolved as firms seek to facilitate the smooth flow of goods and information. Departmental boundaries are seen as creating barriers to that flow. Does the elimination of internal boundaries really make the organization more efficient and, if so, at what cost?

In smaller business organizations more and more subsystem processes are being dispersed to other firms as each firm focuses on what it does best (Peters & Waterman 1982). Small firms are becoming increasingly partipotential and thus vulnerable to their environment. They rely on symbiosis with other specialized firms, What effects do these changes have on the viability of small organizations?

Governmental and voluntary organizations thus far appear to be less affected by these trends. Their evolution is not driven by competition to the same extent as business organizations. Nevertheless, the influences of technological change and electronic communications are felt everywhere, and some change in the boundaries of governmental and voluntary organizations is inevitable. What evolutionary changes can be expected in these organizations?

This paper will attempt to answer these questions as it documents and explores what is happening to modern organizations. Living systems theory will form the basis of the analysis (Miller 1978).

Boundaries
The boundary of a living system is the critical subsystem that "separates the system from its environment. It surrounds and protects vulnerable components, acts as a barrier to free movement of matter, energy, and information in and out of the system, and filters inputs and outputs by allowing some but not others to pass (Miller & Miller 1992; 23)." This definition recognizes that the boundary performs four processes that are critical to the health of the system. The four processes are:

(1) separating the system from its environment,
(2) protecting the components from environmental stresses,
(3) acting as a barrier to free movement of resources in and out of the system, and
(4) selecting what enters and exits the system.

In the typical organization these four processes are provided both by employees and by artifacts. For instance, the organization may have buildings and grounds that separate it from its environment and protect it from the stresses of weather. Employees such as guards and lawyers may provide additional protection from other kinds of stresses. Guards, receptionists, receiving and shipping clerks, secretaries, salespeople, order takers, interviewers, researchers, and loading dock workers are among the employees involved in acting as a barrier and selecting inputs and outputs of employees, customers, vendors, tools, machines, raw materials, parts, subassemblies, finished products, purchase orders, bills, payments, and ideas. They may be aided by artifacts such as gates, computers, application forms, and testing instruments.

A distinction may be made between the matter-energy boundary of a system and its information boundary (Miller & Miller 1992: 33-34). Some of the components of the boundary may process only matter or energy, others may process only information, and some process both. For instance, loading dock workers mostly work with materials, although they may also process bills of lading and other forms of information. Clerks and researchers process primarily information, although they may also have to deal with the matter-energy markers on which the information is recorded.

Organizational boundaries differ in important ways from the boundaries of lower-level systems. In keeping with the fray-out process, organizations have had to adapt the boundary subsystem to changed circumstances and complexities that do not exist for cells, organs, and organisms (Miller & Miller 1990: 157-158). One such adaptation is that the matter-energy boundary of groups, organizations, and higher-level systems is no longer the same as the perimeter of the system's territory. “The territory [of a group] is usually larger than the space occupied at any given time. While a group's territory is often fairly regular in shape and slow to change, the boundaries of the living systems vary in shape as components change their positions in space (Miller & Miller 1992: 31-32).

Global Organizations

As the components of organizations become more dispersed geographically, it is becoming increasingly difficult to identify organizational boundaries or territories. Computers and electronic communications have made it possible for organizations to scatter themselves all over the globe and to maintain matterenergy and information boundaries that interpenetrate those of other organizations (Davidow & Malone 1992). Obviously, distance and interpenetration create difficulties in surrounding and protecting components, as well as in filtering inputs and outputs.

Protection. One of the basic concerns of today's global organizations is secure communications. Electronic messages can be easily intercepted. Thus there is currently a great deal of interest in public-key encryption (Bacard 1995). It provides an almost unbreakable means of encoding and decoding internal communications. With public-key encryption electronic messages are as secure as a private conversation.

Physical protection of the organization's territory is another matter of concern. Electronic security systems offer some protection, but methods of defeating them seem to be developing as fast as the systems themselves. Fortunately, perhaps, organizations are increasingly defined by the information they possess rather than by plants, machinery, or products (Peters 1992). Thus, survival of the organization seems to depend less and less on material things and more and more on information. If the information-processing subsystems can be protected, the organization can probably survive losses of matter and energy.

Containment. Large organizations do not seem to worry much about the security of individual components. Managers and salespeople are often sent to far corners of the earth with relatively little training in the language, laws, or customs of the country to which they are posted. The attrition rate of employees sent on such assignments is high. Some organizations do try to lower the attrition rate through better selection and training, but even a high rate doesn't threaten the existence of the organization.

A more serious threat would be the loss of organizational "secrets." Organizations wish to avoid having key employees hired away by competitors. Yet in today's business climate it is difficult to prevent contact with those competitors, because they may also be clients or customers in some other part of the business. Some organizations have simply acquiesced to the situation. For instance, computer consulting firms are so used to having their clients hire away their employees that they simply build into the contract a fee for the service.

This is but one example of the many ways in which the tie between organizations and their individual components has become loose. If it were not so, corporate headhunting would not be a viable business and portable pensions would not be a major concern in the U.S. Business firms have learned to live with the effects of relatively high turnover of individual components by emphasizing orientation, training, and socialization of new recruits into the corporate culture. They plan for replacement of lost human components just as they plan for replacement of obsolete and worn-out machinery, or as organisms cope with the loss of dead cells.

Even the central headquarters as a symbol of the organization may be disappearing. In one sense it disappeared long ago because in global corporations only a small percentage of the employees may ever see or communicate with the headquarters. But it may also be waning in some companies because most real decisions are made on a regional basis or in conference calls (Peters 1992). There is no need for the top-echelon decision makers to be gathered in a central location. Logitech is an example of a company that seems to lack a headquarters (Jolly & Bechler 1993).

Shared Decision Making

Another trend that seems to threaten the systemic integrity of business organizations is the practice of inviting customers and suppliers to help in designing products and developing new methods and materials (Peters 1992: 740751). Just-in-time manufacturing techniques also call for close coordination between firms (Ohno 1988). In other words, certain aspects of decision making are being upwardly dispersed to a loose coalition of firms. Yet the decider subsystem is supposed to be the one critical subsystem that cannot be dispersed outside of the system (Miller 1978: 67).

One way to look at this development is to say that the coalition has become the vehicle of viability. Groups of symbiotic organizations are perhaps stronger as living systems than any single organization, and organizations that are components of a successful coalition are more viable than those that try to act alone. Ultimately, any business organization must satisfy its customers in order to succeed, so why not consult with the customers about what products or services they want?

Boundaries within the Organization

As they grow, organizations quickly develop internal boundaries between functional groups. Further growth usually results in the development of formal departments. Work groups and departments become living systems in their own right, and boundaries are formed between them. Specialization and differentiation of functions is supposed to increase the efficiency of the system. But the boundaries between components impede the flow of matter-energy and information within the organization.

To avoid impediments and ease the flow of resources within the organization, business firms are increasingly eliminating departmental divisions or providing linking mechanisms across the boundaries (Peters 1992). Linking mechanisms include task forces, steering committees, project teams, coordinators, expediters, and matrix organizational form. The purpose of these mechanisms is generally to facilitate communications between departments that may have divergent goals and different vocabularies.

High degrees of specialization are being replaced with cross training and flexibility in work assignments. In part this is a response to the problem of turnover outlined above. In a flexible workgroup the loss of a member does not bring the work of the group to a halt. Work is reassigned and the group carries on. Flexible work groups also cope better with environmental uncertainty and rapid technological change (Peters 1987: 339-465).

Both cross training and linking mechanisms represent additional costs to the system. These costs can be justified only if they are offset by improved organizational performance. A number of case studies have suggested that performance improvements do indeed result from greater organizational flexibility and fewer internal barriers, but the findings are not definitive.

National or regional divisions within a multinational company likewise impose internal barriers to the free flow of goods and information. To solve this problem, General Electric's CEO Jack Welch sought to make the company 'boundaryless,' both internally and with respect to boundaries between nations and between GE and its customers and suppliers (Mitroff, Mason, & Pearson 1994: 116-117).

Outsourcing

Small and medium-sized American companies are increasingly concentrating their resources on the core competencies of the firm and relying on other companies and consultants for processes that are not in the core (Mitroff, Mason, & Pearson 1994: 105-111). The result is that such organizations are more partipotential and dependent on each other. Symbiosis develops between a company that focuses on manufacturing and the firm that does its marketing and distribution. Each depends on the success of the other. The same is true of a firm that outsources its human resource management function, relying on a service company to recruit and select workers, train them, design a compensation system for them, and so forth. Symbiosis is becoming the keynote of the business world, with only the largest firms attempting to be totipotential.

The strategy of concentrating on the core and relying on other systems for many critical processes might seem to undermine the long-term viability of many business firms as living systems, yet it is touted as a strategy for survival and success. It works because the companies and consultants to which processes are outsourced are specialists who are able to perform those processes better (Peters 1992: 318-335). In other words, while business firms have been reducing specialization among their employees, they have become more specialized as organizations. So long as there is an ample supply of specialized firms to offer the necessary critical processes and competition among them to maintain quality, there seems to be no reason to fear that the strategy of partipotentiality and symbiosis will threaten the survival of small and medium-sized business organizations.

Governmental and Voluntary Organizations

Governmental bureaus are slower to change than their private sector counterparts. Yet they are subject to many of the same forces of technological change and increasing size. The trend in the U.S. government, for instance, is toward geographic dispersal of divisions and bureaus. In today's electronic age there is no longer any necessity to keep their offices close together or near the President. Security, concerns about crowded conditions, and political interests often are better served by dispersal.

Security has dictated that a portable electronic headquarters follows the President wherever he goes, The President is always in touch with the decider subsystem, even when visiting another nation. Dispersal of government bureaus also means that the government is less susceptible to destruction by an attack on Washington. Thus, mobility of the headquarters and dispersal of components, far from threatening national security, are integral parts of the plan to protect it.

Voluntary organizations, which generally have fewer components, have remained somewhat more traditional and compact in their structure. Yet even they have taken advantage of technological advances to evolve into new forms. There are electronic church congregations held together by television broadcasts, for instance, and interest groups whose only contact is through bulletin boards on the internet.

Summary
Business organizations appear to be evolving rapidly. Originally they copied many of their systems characteristics more or less directly from groups and human individuals. But the environment of business organizations is different today and it is also rapidly changing due to improved technology. Consequently, business organizations have found that they need to modify the structure of their boundary, their decider subsystem, and many other subsystems and components in order to prosper.

In particular, firms have had to learn how to operate globally, utilizing electronic communications to overcome the barriers of distance and time. They have had to find ways to hold the organization together and protect it from predators and competitors in spite of the facts that the boundary is distended, the territory is ill-defined, the employees are in constant contact with the environment, and the firm is interpenetrated with many other organizations. They have had to learn to share decision making and coordinate their efforts closely with customers, suppliers, stockholders, government agencies, and other stakeholders. They have also learned to focus on their special competencies and rely symbiotically on other organizations for many of their critical processes. And they have broken down internal barriers in order to operate in a more fluid manner.

The result of all of these changes is a new kind of business organization, one that tends to be smaller, flatter (i.e., less hierarchical), more informationbased, more partipotential, and more flexible than its predecessors. It is increasingly dependent on and symbiotic with other organizations. It relies more on tapping the full range of knowledge and skills of its human components, yet at the same time it has replaced many of those components with automated machinery, computers, and electronics. It is more a cyborg than a purely human system.

As a product of evolution, this new kind of organization seems well suited to its environment. It is geared to take advantage of the opportunities afforded by a global economy and rapid technological change. So long as those conditions continue, the new organization appears to have a competitive advantage over its more traditional rivals.

Governmental and voluntary organizations have been somewhat slower to change, but they too are evolving to cope with new technology and increased size. It appears that all organizations everywhere have been affected particularly by advances in communications technology. Electronic communications pose both a threat and an opportunity. Organizations that do not respond to the threat by taking advantage of the opportunity may soon find that they are obsolete.

One interesting aspect of the rapid evolution of organizations, from the viewpoint of living systems theory, is that it offers a glimpse into the fray-out process. We can study how a particular level of systems adapts the characteristics of life that it inherited from lower levels, coping with new levels of complexity and taking advantage of new opportunities to develop emergent properties. We can also view the effects of intense competition and rapid diffusion of new ideas on a population of systems that can evolve more quickly than any purely biological population.

The templates of organizations, being composed primarily of memes, can change within one generation, whereas genetic templates require several generations (Tracy 1995). Thus, we may be able to learn something about evolution at other levels from studying how organizations evolve.

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