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The Autopoietic Organization - Overcoming Structure-Determined Innovation with Foresight

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How can organization become more innovative? This thesis stresses the importance of foresight and its role in irritating the status quo as well as an awareness of structural determinism to improve the innovation capabilities of organizations.

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The Autopoietic Organization - Overcoming Structure-Determined Innovation with Foresight

  1. 1. The Autopoietic Organization Overcoming Structure-Determined Innovation with Foresight MASTER THESIS submitted in partial fulfillment of the requirements for a Master of Arts (M.A.) degree in Futures Studies to the Department of Education and Psychology at Freie Universität Berlin by THOMAS KLAFFKE born on 31.07.1988 in RAVENSBURG Student No.: 4835459 thomas.klaffke@gmail.com 1. Examiner: Univ.-Prof. Dr. Gerhard de Haan 2. Examiner: Dr. Bernhard Albert Berlin, February 6, 2017
  2. 2. The Autopoietic Organization - Overcoming Structure-Determined Innovation with Foresight I Table of Contents INTRODUCTION 1 1 AUTOPOIETIC, STRUCTURE-DETERMINED ORGANIZATIONS 3 1.1 Radical Constructivism and the Santiago School 4 1.2 An Introduction to Social Systems Theory 10 1.3 Organizations as Autopoietic Social Systems 13 1.3.1 Maturana and Varela's Concept of Autopoiesis 13 1.3.2 Luhmann's Concept of Autopoiesis 15 1.3.2.1 Decisions as Basic Elements 16 1.3.2.2 Decision Premises as Organizational Structure 18 1.4 Structural Determinism and Organizations 19 1.4.1 Structure-determined Organizations 20 1.4.2 Organizations and Structural Coupling 21 1.4.3 Constructing Realities within Organizations 22 1.4.4 Organizational Learning and Change 23 2 SHAPING THE FUTURE AS AUTOPOIETIC ORGANIZATION 24 2.1 The End of Structure Shapes Strategy? 24 2.2 Approaches to the Concept of Innovation 28 2.3 Key Capabilities of an Innovative Organization 32 2.3.1 Learning Capability and Susceptibility to Irritations 33 2.3.2 Structural Flexibility and Processing Irritations 35 2.3.3 A Culture for Innovation 37 2.4 The Role of Foresight Regarding Innovation 39 2.4.1 Anticipating Irritations 42 2.4.2 From External to Internal 45 2.4.2.1 Mindfulness and Deconstruction 46 2.4.2.2 Perspective Shift and Redundancy 48 2.4.2.3 The Future: An Infinite Process of Becoming 51 CONCLUSION 53 BIBLIOGRAPHY 56 DECLARATION OF AUTHORSHIP / EIDESSTATTLICHE ERKLÄRUNG 67
  3. 3. 1 Introduction "It must be considered that there is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things."1 Niccolò Machiavelli Sociologist Ulrich Beck contends that the various dynamics that have transformed the modern world that we live in, have simultaneously led to a new paradigm in which we see ourselves increasingly confronted by the (inadvertent) side effects and contradictions of modernization (e.g. global warming, migration). This process is leading to an erosion of the fundamental institutions and truths of modernity while succeeding structures and solutions have yet to be found. The consequence is increasing uncertainty with regard to universal knowledge, assumptions and the future.2 In such an arguable world, means that help us unshackle from the chains of outdated and dissolving norms and traditions inherited from the past, and consequently assist us in regaining agency with regard to shaping the future, are increasingly sought after. This becomes more and more important not only for businesses struggling to survive and maintain their profit margins, but likewise for public institutions and NGO's in need of novel ideas and structures to solve the problems caused by modernization. In this regard, there is one theme that has received a massive surge in attention in recent years: namely, innovation.3 Innovation is generally considered a means for renewal and progress that brings new value.4 However, studies show that organizations are still struggling to 1 Machiavelli, N. (1950): The Prince and The Discourses. in: The Modern Library College Editions. New York: Random House Publishing. p. 21 2 see Haan, G. de and Rülcker, T. (eds.) (2009): Der Konstruktivismus als Grundlage für die Pädagogik. in: Berliner Beiträge zur Pädagogik. Vol. 7. Frankfurt a.M.: Peter Lang Verlag. pp. 14-16 and Beck, U. et al. (2001): Theorie reflexiver Modernisierung - Fragestellungen, Hypothesen, Forschungsprogramme. in: Beck, U. and Bonß, W. (eds.): Die Modernisierung der Moderne. Frankfurt a.M.: Suhrkamp Verlag. pp. 11-59 3 see Ernst & Young (2016), The Innovation Paradox - The Age of Uncertainty. Section 1. Online: https://betterworkingworld.ey.com/disruption/the-innovation-paradox [21.01.2017]. and OECD (2015), The Innovation Imperative: Contributing to Productivity, Growth and Well-Being. Paris: OECD Publishing. Online: http://dx.doi.org/10.1787/9789264239814-en [26.05.16]. and Urama, K. und Acheampong, E. (2013), Social Innovation Creates Prosperous Societies. in: Stanford Social Innovation Review, Summer 2013. Online: https://ssir.org/articles/entry/social_innovation_creates_prosperous_societies [21.01.2017]. 4 see Tidd, J. et al. (2005): Managing Innovation - Integrating Technological, Market and Organizational Change. Third Edition. Chichester: John Wiley & Sons Ltd. p. 40
  4. 4. 2 successfully implement innovation capabilities that help them survive.5 One common problem that arises is that actions taken in the past have led to structures, processes and mindsets that continuously constrain or influence the way in which an organization can move forward.6 This is especially important when considering the role of foresight with regard to innovation, as both fields essentially aim to explore or build something that is yet to exist. The question of "[...] how the new is produced amidst the existing [...]"7 is at the center of an organizational theory that has largely been ignored in organization and innovation studies.8 Inspired by the works of the two Chilean neurobiologists Humberto Maturana and Francisco Varela9 , German sociologist Niklas Luhmann10 developed a comprehensive social systems theory that offers a fresh perspective on how organizations develop and evolve. His theory does not only provide the means to reflect upon the very essence of knowing, it also offers an explanation to the organization's simultaneous challenge of conserving internal coherence and accommodating or building new structures.11 The implications of Luhmann's theory present a new, fundamental approach to innovation and foresight that has the potential to create valuable insights for both fields. By applying Luhmann's social systems theory, this thesis seeks to explore how foresight as an organizational capability can help overcome structure-determined innovation. This thesis ought to be viewed as a high-level approach to the topic of innovation and foresight's role in relation to it, focusing primarily on the main implications of Luhmann's theory. In doing so, the first part of the thesis will provide a comprehensive outline and analysis of Maturana and Varela's autopoietic systems theory as well as look to its application in 5 see Alon, A. et al. (2016): 2015 US Innovation Survey: Clear Vision, Cloudy Execution. Accenture. Online: https://www.accenture.com/us-en/insight-innovation-survey-clear-vision-cloudy-execution [21.01.2017]. and McKinsey & Company (n.d.): Growth & Innovation. Strategy & Corporate Finance. Online: http://www.mckinsey.com/business- functions/strategy-and-corporate-finance/how-we-help-clients/growth-and-innovation [21.01.2017]. 6 see Christensen, C. (2015), The Innovator’s Dilemma. The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Reprint Edition. New York: Harvard Business Review Press. and Simon, F. (2015): Einführung in die systemische Organisationstheorie. Fifth Edition. Heidelberg: Carl-Auer-Systeme Verlag. pp. 46-49 7 Bakken, T. et al. (2010): An Autopoietic Understanding of "Innovative Organization". in: Magalhaes, R. and Sanchez, R. (eds.): Autopoiesis in Organizations and Information Systems. Advanced Series in Management, Vol. 6. Elsevier Science Publishing. p. 169 8 see Baralou, E. et al. (2012): Bright, excellent, ignored: the contribution of Luhmann's system theory and its problem of non-connectivity to academic management research. In: Historical Social Research, Vol. 37, Issue 4. Online: http://nbn- resolving.de/urn:nbn:de:0168-ssoar-383840 [14.01.2017]. pp. 289-290 9 hereafter, Maturana and Varela 10 hereafter, Luhmann 11 see Bakken (2010): An Autopoietic Understanding of "Innovative Organization". pp. 169-170
  5. 5. 3 Luhmann's organizational theory. To the extent that it remains relevant, the thesis will touch upon the biological basis of Maturana and Varela's theory (known as the Santiago School) and analyze its influence and role with respect to the constructivist school of philosophy. With due consideration to the origins of each concept central to this thesis, the main focus will consequently center on Luhmann's application of Maturana and Varela's concepts to organizational theory. In this context, the theories' assumptions of the structures and processes that constitute an organization and more specifically determine its capabilities to innovate and change, will be examined thoroughly in chapter 1.3 and 1.4. The second part of this thesis, commencing with chapter 2, will then apply the perspective of Luhmann's theory to the field of innovation, and more specifically to the role of foresight in relation to innovation. Chapter 2.3 will outline and analyze some of the key organizational capabilities for innovation found in innovation literature whilst also looking at the interplay between the evolution of strategy and innovation as well as the term and concept of innovation itself. This analysis will take place against the backdrop of Luhmann’s organizational theory. Finally, the thesis will ‘zero in’ on the role of foresight in fostering innovation, exploring how foresight, from the perspective of Luhmann's theory, can improve the innovativeness of organizations. 1 Autopoietic, Structure-Determined Organizations The benefit of a theory that thoroughly explains the logic behind the functioning of the organization from the ground up, seems obvious. This is especially true considering that organizational theory is rarely taught in business studies while it becomes more and more important to be able to understand and explain the effectiveness of actions in the context of the organization and its relations to its members and environments.12 Even if sociological approaches are applied to organizational or management studies, it is usually Luhmann's social systems theory that is being ignored while other approaches enjoy a more substantial role and impact.13 The main reasons for this are summarized by Baralou et al. claiming that firstly, Luhmann's writing style is considered by many as extremely complex, himself even saying that he deliberately writes enigmatic and that he constructed his theory "labyrinth- like"; secondly, only few of his writings were translated into English, limiting his influence 12 see Simon (2015): Einführung in die systemische Organisationstheorie. pp. 7-8 13 see Baralou et al. (2012): Bright, excellent, ignored. pp. 289-290
  6. 6. 4 on the German speaking academia; and finally, a lack of possible, empirical applications and research due to the nature of his theory locks it to a high level of abstraction.14 The following analysis consequently aims to do Luhmann a service. In doing so, this first part of the thesis will begin with a look into the roots of Luhmann's theory, namely Maturana and Varela's autopoietic systems theory. A thorough analysis of the theory's epistemological implications is essential as these implications play a major role in regards to innovation and foresight activities. This analysis will therefore provide the epistemological basis for the thesis. However, the subsequent chapters will then focus on the main concepts in Luhmann's theory, providing a comprehensive overview and breakdown of how organizations, in terms of their structure, processes, interactions with their environments, and their evolution are viewed from the perspective of Luhmann's theory. 1.1 Radical Constructivism and the Santiago School "We shall put aside our daily tendency to treat our experience with the seal of certainty, as though it reflected an absolute world."15 Since this last century, constructivism has increasingly challenged the longstanding and dominant view of human knowledge, that there is a perceivable ontic and universal reality that we live in. While there is no unified theory of constructivism, the basic congruent understanding of all schools of constructivism is that knowledge about the world does not come from a juxtaposition of subject and object or a depiction of the object by the subject, but is rather constructed by the subject itself. Constructivists believe that one cannot make an assertion about how the world "out-there" in reality is constituted. All knowing is subject to our human sensory system, our experiences, and our cultural story. The constructivist perspective brings the subject itself and its relation to the object as well as the context surrounding that into focus and asserts uncertainty on all perception and subsequent reasoning. These basic statements about human knowledge and perception are the sole commonalities the various schools of constructivism share, beyond this, the 14 see ibid. pp. 290-293 15 Maturana, H. and Varela, F. (1987): The Tree of Knowledge - The Biological Roots of Human Understanding. Revised Edition. Boston: Shambhala Productions Inc. p. 25
  7. 7. 5 distinct theories diverge substantially.16 While this thesis does not make the attempt to render a comparative study of constructivist theories, the subsequent analysis tries to briefly point out some of the ideas, commonalities and differences of radical constructivism and the Santiago school in order to give the reader a better understanding of where the concepts central to this thesis fit in. Radical constructivism is primarily a critique of epistemological realism. The latter being the prevailing philosophy of the past 2500 years that follows with the understanding that "[...] a fully structured world exists independently of any experiencing or knowing human subject; [...] [and] that the human subject has the task of finding out what that “real” world and its structure are like."17 Radical constructivism relativizes knowledge about the world by declaring objectivity impossible. Ernst von Glasersfeld, one of the most prominent thinkers behind radical constructivism, calls it "an effort to eliminate [the] conceit [of knowing]."18 He saw a crucial problem in the representationist view in philosophy in that it assumes a perception- or experience-independent access to the world, when all knowing originates from the individual who is always bound to his or her perception and experience, as he states. Von Glasersfeld claims that in order to prove that an individual's knowledge about the world is true, one has to be able to compare that knowledge to an objective, "true" reality, which however requires an access to reality that is independent of the knower, or in other words an access to reality before the knower gets to know it.19 With this claim, radical constructivism does not deny an ontological reality, but it denies the possibility of acquiring a true representation of it.20 The basic principles of radical constructivism according to von Glasersfeld are as follows: "1) Knowledge is not passively received either through the senses or by way of communication, but it is actively built up by the cognizing subject. 2) The function of cognition is adaptive and serves the subject’s organization of the 16 see Maturana and Varela (1987): The Tree of Knowledge. p. 31 and Glasersfeld, E. von (1996a): Radikaler Konstruktivismus. Frankfurt a.M.: Suhrkamp. p. 150 and Foerster, H. von (1999): Sicht und Einsicht. Versuche zu einer operativen Erkenntnistheorie. Heidelberg: Carl-Auer-Systeme Verlag. p. 40 and Gergen, K. J. (2002): Konstruierte Wirklichkeiten. Eine Hinführung zum sozialen Konstruktionismus. Stuttgart: Kohlhammer. pp. 50-51 17 Glasersfeld, E. von (1996b): Aspects of Radical Constructivism. Online: http://www.univie.ac.at/constructivism/EvG/papers/191.pdf [10.01.2017]. pp.1-2 18 ibid. p. 2 19 see Glasersfeld, E. von (1987) The construction of knowledge: Contributions to conceptual semantics. Intersystems Publications: Salinas CA. pp. 137–138 20 see Glasersfeld (1996b): Aspects of Radical Constructivism. p. 5
  8. 8. 6 experiential world, not the discovery of an objective ontological reality."21 Von Glasersfeld's line of Radical Constructivism is characterized by a sharp focus on epistemology, on human knowing. He stays very close to the philosophical domain of inquiry into our possibilities of knowing, which is quite different to Maturana and Varela's work that relates to different areas such as "[...] cellular biology, experimental epistemology, neurophysiology, language, visual perception, and the 'definition of the living', among others."22 In their work, Maturana and Varela attempt to - and this is crucial in terms of its application to social systems - explore the biological basis for knowledge.23 Whereas earlier notions in contemporary biology have focused on the necessary properties of the components that make a living system possible, Maturana and Varela started their endeavor into the origins of human knowledge by asking the question: "[...] What is the necessary and sufficient organization for a given system to be a living unity?"24 The two Chilean neurobiologists explored the organization of living systems from single cells, to various multicellular organisms, to humans and asserted that there is one common precept at the basis of all living organisms: a self-reproductive process which they termed autopoiesis. Autopoiesis describes the process in which the different elements of a living system act in such a way as to produce and re-produce the elements of the system. Thus, through it's elements the living system continuously produces itself, creating a unity in the space in which the elements of the system exist.25 How this process works and what specific implications it has, will be discussed in the following chapters in detail, of importance in this chapter is mainly Maturana and Varela's main points and the differences to von Glasersfeld. For Maturana and Varela, living is knowing: 21 ibid. p. 2 22 Kenny, V. (2007): Distinguishing Ernst von Glasersfeld’s “Radical Constructivism” from Humberto Maturana’s “Radical Realism”. in: Constructivists Foundations, Vol 2, Nos. 2-3. Online: http://www.oikos.org/distinguishingevg'sradicalcomstructivism.pdf [10.01.2017]. p. 58 23 see ibid. p. 63 24 Varela, F. et al. (1974): Autopoiesis: The Organization of Living Systems, Its Characterization and a Model. in: BioSystems 5. Amsterdam: North-Holland Publishing Company. p. 187 25 see Leyland, M. (1988): An introduction to some of the ideas of Humberto Maturana. in: Journal of Family Therapy, Vol. 10, Issue 4. Online: http://onlinelibrary.wiley.com/doi/10.1046/j..1988.00323.x/epdf [14.01.2017]. pp. 358-359 and Maturana and Varela (1987): The Tree of Knowledge. pp. 43-44 and Simon (2015): Einführung in die systemische Organisationstheorie. pp. 24-26
  9. 9. 7 "Indeed, we will propose a way of seeing cognition not as a representation of the world 'out there' but rather as an ongoing bringing forth of a world through the process of living."26 They assert that we as observers always admit knowledge whenever there is an effective behavior. Thus, this means that all action that results in a conservation of the autopoiesis of the living system is knowing, and that knowing or cognition therefore is a characteristic of all living systems independent of a nervous system or brain.27 "To live is to know (living is effective action in existence as a living being)."28 Maturana and Varela hereby explain that knowledge about a universal, ontic reality, i.e. the congruence between a subjects representation of the world and the "true" reality of it, is of no importance to us as living organisms. The only thing that matters to an organism is the survival of the living system itself, the conservation of autopoiesis, for which, in any given situation, not one "true" but a plurality of alternative options exists. This theory of cognition places the structure and the processes of the living system in center stage: "[...] all behavior is a relational phenomenon that we, as observers, witness between organisms and environment. An organism's range of possible behavior, however, is determined by its structure. This structure specifies its realms of interaction."29 The response and the subsequent changes of a living system in regards to its environment are never determined nor instructed by the environment, the latter merely triggers an effect, whereas it is the structure of the living system that determines the changes that result from the interaction. Hence the term structural determinism.30 The relationship between the system and its medium or environment is described by Maturana and Varela as structural coupling (both concepts will be discussed in greater detail in chapter 1.4). Without a coupling to its environment the system would be unable to conserve its autopoiesis, or in other words, without an environment there is no living system: "[...] each living being begins with an initial structure [,] [...] at the same time, it is born in a particular place, in a medium that constitutes the ambience in which it emerges and in which it interacts."31 26 Maturana and Varela (1987): The Tree of Knowledge. p. 11 27 see ibid. pp. 138, 142, 174-175 28 ibid. p. 174 29 ibid. p. 171 30 see ibid. pp. 95-96 and Simon (2015): Einführung in die systemische Organisationstheorie. pp. 25-26 31 Maturana and Varela (1987): The Tree of Knowledge. p. 95
  10. 10. 8 The implicativeness of structural determinism and structural coupling led some to assert that Maturana and Varela are not constructivists per se and that their concepts rather sit in a space between realism and constructivism.32 In fact, Maturana and Varela themselves stress the importance for us as observers not to fall into both the trap of representationism and of solipsism: "we must learn to take the middle road, right on the razor's edge."33 As Kenny and Proloux point out, Maturana and Varela describe a theory of knowledge in which the observer brings forth his or her own reality by living or enacting it: "knowledge is in the space of emergence where knower and known meet and co-influence each other."34 It is the structural coherences of the system in its medium or environment that co- define each other. "Survival depends on the simultaneous double conservation of “internal coherence” and of “external fitting”."35 According to some scholars, one of the biggest distinction between Maturana and Varela's and von Glasersfeld's theories is the inside-outside distinction.36 As opposed to Maturana and Varela, von Glasersfeld makes a clear inside-outside distinction, asserting that everything that is outside oneself (in the environment, the ontic reality) is a "black box" from the perspective of the individual or knower. One has only access to one's own world through one's individual sensory system and lived experiences. Therefore, everything we perceive is merely an individual model of the world, whereas the "true" outside world is inaccessible to us, if it was to exist in the first place.37 For Maturana and Varela, however, the living system in its environment "[...] is the result of millions of years of co-ontogenic structural drift. Rather, for Maturana, the person operates not only as if there is no 'black box' but as if there were no 'outside' at all."38 A simple analogy that Maturana and Varela use in their book to describe this, is that of a submarine captain who is unable to "see" the outside, but who, through the instrument panel, navigates the submarine. It is only an 32 see Proloux, J. (2008): Some Differences between Maturana and Varela's Theory of Cognition and Constructivism. in: Complicity: An International Journal of Complexity and Education, Vol. 5, Issue 1. Online: https://ejournals.library.ualberta.ca/index.php/complicity/article/view/8778/7098 [14.01.2017]. and Kenny (2007): Distinguishing Ernst von Glasersfeld’s “Radical Constructivism” from Humberto Maturana’s “Radical Realism”. p. 62 33 Maturana and Varela (1987): The Tree of Knowledge. p. 133 34 Proloux (2008): Some Differences between Maturana and Varela's Theory of Cognition and Constructivism. p. 23 35 see Kenny (2007): Distinguishing Ernst von Glasersfeld’s “Radical Constructivism” from Humberto Maturana’s “Radical Realism”. p. 62 36 see ibid. pp. 60-61 and Proloux (2008): Some Differences between Maturana and Varela's Theory of Cognition and Constructivism. pp. 20-23 37 see Proloux (2008) p. 20 and Glasersfeld (1996): Aspects of Radical Constructivism. pp. 2-3, 6-7 38 Kenny (2007): Distinguishing Ernst von Glasersfeld’s “Radical Constructivism” from Humberto Maturana’s “Radical Realism”. p. 62
  11. 11. 9 outside observer who can see the relations between the submarine and its environment, but not the system or the submarine captain himself. Similar to the captain in the submarine, "[...] for the operation of the nervous system [too], there is no inside or outside, but only maintenance of correlations that continuously change (like the indicator instruments in the submarine) […].”39 Maturana and Varela's theory suggests that we can know the "reality" we are living in, because it is us ourselves who bring it forth. This however is more in line with solipsist thinking than with constructivism. If it is only us who bring forth our individual "realities", then everything that we perceive might as well be an illusion and as such, it is only our own existence that we can be certain of. Yet, Maturana refutes being a solipsist on the following grounds: firstly, we do not simply experience ourselves as alone or isolated. After all, and as aforementioned, it is the commensurability and interaction between the operations of a system and its environment that bring knowledge forth.40 Secondly, one can only classify an illusion as such by being able to relate it to something that is not experienced as illusory, which is impossible according to his theory.41 However, one could argue that Maturana hereby avoids talking about certain consequences of his theory, especially when he emphasizes his exclusive interested in understanding and explaining the operations that generate and form our experiences and that defending any kind of epistemological theory is not his concern. In addition, one could assume that our ability of self-awareness - which allows us to become self-reflective observers (in the first place)42 - makes us lenient towards the idea that our fellow human beings are self-aware and therefore non-illusory beings as well. In spite of that, Maturana also unmistakably refuses to be classified as a representative of constructivism and rather calls himself “[...] a super- realist who believes in the existence of innumerable equally valid realities. Moreover, all these different realities are not relative realities because asserting their relativity would entail the assumption of an absolute reality as the reference point against which their relativity would be measured.”43 39 Maturana and Varela (1987): The Tree of Knowledge. p. 169 40 see ibid. p. 134 41 see Maturana, H. and Poerksen, B. (2011): From Being to Doing. The Origins of the Biology of Cognition. Second Edition. Heidelberg: Carl-Auer-Systeme Verlag. pp. 32-33 42 see ibid. p. 35 43 ibid. p. 34
  12. 12. 10 To sum up, while the main ideas of Maturana and Varela are highly congruent with the basic principles of constructivism, a more in depth look at the concepts the two neurobiologists developed as a result of their ground up, biological approach to cognition, makes their association to constructivism questionable or at least blurry. Nevertheless, the concept of autopoiesis and its epistemological implications have had a highly significant impact on constructivist thought and various other avenues of science in the last decades, and has inspired several scholars to come up with their own derived theories. Most notably German sociologist Niklas Luhmann. 1.2 An Introduction to Social Systems Theory Before the following chapters go into more detail regarding the particulars of Luhmann's systemic organization theory44 , such as his reconfiguration of autopoiesis, the subsequent paragraphs try to briefly examine some general aspects of his theory, especially his concept of communication and the role of human beings in social systems. Luhmann, inspired by, inter alia, the works of Maturana and Varela, argued that the basic idea of autopoiesis does not exclusively apply to biological processes but could likewise apply to non-biological systems. According to Luhmann, autopoiesis occurs simply whenever the elements a system consists of, are reproduced by the elements of the system. Thus, apart from living systems, Luhmann states that psychic and social systems are also autopoietic systems. While the self-reproducing elements of psychic systems are thoughts and feelings, the self-reproducing elements of social systems are communications.45 Furthermore, Luhmann differentiates between three sub-types of social systems: societies, organizations and interactions.46 All these social systems and sub-systems are structurally coupled and considered to be each others environments. For the purposes of this thesis, however, the focus is set on Luhmann's systemic organization theory. In order to understand Luhmann's theory of social systems and the subsequent systemic organization theory, one needs to understand his concept of communication. Instead of persons or actions, Luhmann identifies communications, or more precisely the event of 44 own translation of the German term "systemische Organisationstheorie"; hereafter sometimes also referred to as autopoietic theory or Luhmann's theory 45 see Simon (2015): Einführung in die systemische Organisationstheorie. pp. 19-24, 27 46 see Seidl, D. (2004): Luhmann's theory of autopoietic systems. Munich Business Research. Online: http://www.zfog.bwl.uni-muenchen.de/files/mitarbeiter/paper2004_2.pdf [14.01.2017]. pp. 5-6
  13. 13. 11 communication, as the basic, recursively produced elements of a social system. He rejects persons as an element due to the fact that an organization is more than the sum of its members and can still continue its existence even if members of the organization leave the latter while the rules of the organization stay the same.47 Actions, on the other hand, can be attributed to one person which is not possible when it comes to communication. This is due to the definition of communication that Luhmann uses. For him, communication is understood as an event in which a threefold selection is made, in terms of information, utterance, and understanding. "Every communication selects what is being communicated from everything that could have been communicated. [...] One can say, the utterance is the selection of a particular form and reason from all possible forms and reasons. [...] For a communication to be understood the information has to be distinguished from the utterance: what is being communicated must be distinguished from how and why it is communicated."48 Information, utterance and understanding together form the unit of communication. Thus, communication cannot be attributed to one person but emerges from the interaction of at least two persons. It is through this unity of selections that human behavior within a social system becomes meaningful and that social systems arise and form.49 It is however not the understanding that other persons have or select, but "[...] the understanding implied by the ensuing communications - in the same way as the concrete meaning of a word in a text is only defined through the following words in the text"50 - that the meaning of communication is defined by. Furthermore, the transition from one communicative event to another is made by what can be considered a fourth type of selection, the acceptance or rejection of the meaning of the communication. This also means that the communication gets its meaning retrospectively through its relation to other communications. Hence, the autopoiesis of social systems is the network of communications that produces the communications.51 Maturana and others criticize Luhmann's reductionist choice of communications as basic 47 see Simon (2015): Einführung in die systemische Organisationstheorie. pp. 16-19 48 Seidl (2004): Luhmann's theory of autopoietic systems. p. 7 49 see ibid. p. 8 and Baralou, E. et al. (2012): Bright, excellent, ignored. p. 294 50 Seidl (2004): Luhmann's theory of autopoietic systems. p. 8 51 see ibid. p. 9 and Simon (2015): Einführung in die systemische Organisationstheorie. pp. 23-24
  14. 14. 12 elements of autopoiesis and its implications regarding the role of human beings within social systems.52 As in biological organisms, molecules produce other molecules without external help, according to Maturana, communications can only be produced with the help of human beings. In Luhmann's theory, human beings are however excluded from social systems whereas Maturana believes it is "their properties [that] create the unique character of a social system."53 However, as mentioned above, for Luhmann, each of his non-living autopoietic system is considered an environment of the other. Therefore, a human being is a construct of a social system formed in the conglomerate of both organic and psychic systems, which are each operationally closed and structurally coupled to one another. Each system consists of different self-reproducing elements (biochemical elements, thoughts and feeling, and communications) and consequently, can only irritate (or perturbate)54 other systems and vice versa. Hence, the social system would not exist without a psychic system, in fact, it depends on it. Communications in the social system trigger thoughts in the psychic system which again trigger communications in the social system. However, this again only occurs through structural coupling and mutual irritations and is always determined by the structure of each system.55 "[...] Psychic processes are synchronised with communication processes and, in this way, they 'know' when to contribute irritations to the communication process in order to make the reproduction of the social system possible."56 For Luhmann, the counterintuitive treatment of human beings as environment of social systems does not marginalize their importance but rather emphasizes it.57 The differentiation between system and environment allows for an analysis of social and psychic phenomena in their own right but at the same time stresses their dependence on each other. As Luhmann explains: "Systems theory begins with the unity of the difference between system and environment. The environment is a constitutive feature of this difference, thus it is no less important for the system than the system itself. [...] The environment may contain 52 see Maturana and Poerksen (2011): From Being to Doing. p. 109 and Baralou, E. et al. (2012): Bright, excellent, ignored. pp. 291-292 53 Maturana and Poerksen (2011): From Being to Doing. p. 109 54 herafter, the terms irritation and perturbation will be used interchangably 55 see Simon (2015): Einführung in die systemische Organisationstheorie. pp. 35-41 und Seidl (2004): Luhmann's theory of autopoietic systems. pp. 9-10 56 Seidl (2004): Luhmann's theory of autopoietic systems. p. 11 57 see Luhmann, N. (1995): Social Systems. Stanford: Stanford University Press. pp. 212-213
  15. 15. 13 many things that (from whatever perspective) are more important for the system than the parts of the system itself, and the converse may also be so."58 In addition to human beings or the conglomerate of organic and psychic systems, actions are also of vital importance in Luhmann's theory. For Luhmann, communication is not action, because the communication unit includes understanding which is not a part of the activity of the communicator. Thus, similar to persons, action is also treated as a construct of the social system. Social systems observe communications as actions attributed to persons. These actions serve as a simplified image or self-description of the respective social system, and therefore as orientation for its self-reproduction.59 1.3 Organizations as Autopoietic Social Systems The concept of autopoiesis lies at the foundation of both Maturana and Varela's as well as Luhmann's theory. However as briefly mentioned above, Luhmann modifies Maturana and Varela's original concept. Thus, there are substantial differences between what either party understands as autopoietic system. The following chapters will examine these varied concepts of autopoiesis in more detail. Due to the importance of Luhmann's systemic organization theory for the subsequent analysis in this thesis, a focus will be set on his idea of autopoiesis. 1.3.1 Maturana and Varela's Concept of Autopoiesis As briefly described in chapter 1.1, Maturana and Varela began their endeavor into human cognition by exploring the question of what distinguishes living and non-living systems.60 By looking at the inner workings of cells and the ongoing interactions between the molecular components of a cell, they made the observation that the biochemical transformations or the "[...] cell metabolism produces components which make up the network of transformations that produces them."61 The subsequent membrane (quasi boundary) that some of these components form then not only limits the extension of the self-producing network but also participates in it. This is what forms the unity of the cell. 58 ibid. p. 212 59 see Seidl (2004): Luhmann's theory of autopoietic systems. p. 12 60 see Varela et al. (1974): Autopoiesis: The Organization of Living Systems, Its Characterization And A Model. p. 187 and Maturana and Varela (1987): The Tree of Knowledge. pp. 43ff and Simon (2015): Einführung in die systemische Organisationstheorie. pp. 24-26 61 Maturana and Varela (1987): The Tree of Knowledge. p. 44
  16. 16. 14 There is no separation between product and producer, and the process is not a sequential one but rather a unitary phenomenon. Everything that happens in the system's unity forms as part of the unity itself. Being able to distinguish one thing from the whole - the system from the environment - depends on the integrity of the processes that make it possible.62 "The most striking feature of an autopoietic system is that it pulls itself up by its own bootstraps and becomes distinct from its environment through its own dynamics, in such a way that both things are inseparable."63 The autopoietic organization remains as such only so long as this organization is continuously realized or re-produced. This means that if the network of productions is disrupted, the unity disintegrates. The result of the phenomenology from an autopoietic organization is its autonomy as a system. Maturana and Varela, in their own words, define the autopoietic organization "[...] as a unity by a network of productions of components which (i) participate recursively in the same network of productions of components which produced these components, and (ii) realize the network of productions as a unity in the space in which the components exist."64 This unity-forming, recursive network of self-production leads to one key characteristic of autopoietic systems: operational closure. An autopoietic system can only be distinguished from an environment or medium, if it is operationally closed, i.e. if there are no operations entering the system from the outside nor any going out from the inside.65 Operational closure does not mean that the system is fully closed to anything external, autopoietic systems have contact with their environment as well. This contact with the external, however, is regulated by the self-referential system itself, determined by its structure. The autopoietic system, with its internal operations invariably reacts only to its own, internal operations or structural changes which are triggered by the external environment. However, again, this is not to say that a direct information transfer between system and environment takes place, nor is it possible. The system-specific operational logic is only consistent with the system and does not work outside from the system, in the environment 62 see ibid. pp. 45-47, 63 63 ibid. pp. 46-47 64 Varela et al. (1974): Autopoiesis. p. 188 65 see Maturana and Varela (1987): The Tree of Knowledge. p. 89 and Simon (2015): Einführung in die systemische Organisationstheorie. p. 25
  17. 17. 15 (see chapter 1.4.1 for more on that).66 The operational closure becomes apparent when looking at cognitive processes. As outlined in chapter 1.1, it was only by applying ideas of autopoiesis to the process of perception, whereby Maturana and Varela realized that the concept of living is directly related to the concept of cognition. By defining cognition as an effective behavior, an action that conserves the autopoietic system, "living as a process [becomes] a process of cognition."67 Thus, the nervous system itself, as Maturana and Varela assert, is characterized as an operationally closed system, as well. For example, if we put our hand into a fire, the rapid movements of the atoms that make up the fire would trigger qualitatively completely different operations within the nervous system, which are determined by the existence of specific structures within the nervous system that let us eventually perceive the sensation of what we call heat. Heat, however, is not something that exists in the fire.68 1.3.2 Luhmann's Concept of Autopoiesis The next step is then to take these ideas and not only apply them to cognitive systems, but to social systems, e.g. organizations. However, as Maturana and Varela are concerned about living systems, and autopoiesis speaks to specifically those, it is not possible to transfer the original concept directly - although some scholars have tried to do so.69 Luhmann chose another way; by abstracting a general, trans-disciplinary concept of autopoiesis from Maturana and Varela's living systems theory in order to be able to re- specify it into the autopoiesis of particular types of social systems as described in chapter 1.2. "[...] If we find non-living autopoietic systems in our world, then and only then will we need a truly general theory of autopoiesis which carefully avoids references which hold true only for living systems."70 He suggests that autopoiesis applies whenever the elements of a system are reproduced by the elements of a system. Because then, also non-biological systems, such as organizations, meet the criterion. 66 see Seidl (2004): Luhmann's theory of autopoietic systems. p. 3 67 Maturana and Varela (1987): The Tree of Knowledge. p. 13 68 see Seidl (2004): Luhmann's theory of autopoietic systems. pp. 3-4 69 see ibid. pp. 4-5 70 Luhmann, N. (1986): The Autopoiesis of Social Systems. in: Geyer, F. and Van d. Zeuwen, J. (eds.): Sociocybernetic Paradoxes: Observation, Control and Evolution of Self-Steering Systems. London: SAGE Publishing. p. 172
  18. 18. 16 Luhmann modifies the concept of autopoiesis in two significant ways: temporalization and de-ontologization. He radicalizes the temporal aspect of autopoiesis by using events of communication as basic elements of autopoiesis. While the elements of the biological systems that Maturana and Varela analyzed are comparatively stable chemical molecules that only replace from time to time, events of communication are rather transient without any duration, vanishing as soon as they come into being. This means that in Luhmann's modified concept of autopoiesis, due to the momentary nature of the elements, the system has to constantly reproduce new elements or otherwise it disappears.71 In addition to that, Luhmann emphasizes that elements outside the system or independently from it, have no status as elements, but are defined as elements only through their relation to other elements and the function they fulfill for the system. He calls this de-ontologizing the concept of elements as the element only emerges as an element by being used, i.e. by being related to other elements.72 These self-reproducing communication processes hereby not only result in the emergence and conservation of the social system but likewise importantly cause the distinction between system and environment.73 1.3.2.1 Decisions as Basic Elements While Luhmann treats communications as basic elements of social systems, in the context of organizations, he suggests a specific form of communication as the basic self- reproducing element: namely decisions. This does not mean that there aren't any other forms of communication within organizations, it does however state that it is only decisions (or decision communications) that contribute to the autopoiesis of the organization.74 For Luhmann, decisions are compact communications that communicate their own contingency, i.e. besides communicating the content that has been selected they also - explicitly or implicitly - hint that other alternatives could have been selected instead. This creates a paradox: the more a decision communication hints at real alternatives to the one selected or decided upon, the less the decision will ultimately be accepted as decided, and thus more likely appear as unjustified. On the other hand, other possible alternatives will 71 see Luhmann, N. (1995): Social Systems. Stanford: Stanford University Press. pp. 65-66, 287 72 see ibid. p. 22, 215 73 see Simon (2015): Einführung in die systemische Organisationstheorie. pp. 22-28 74 see Luhmann, N. (2000): Organisation und Entscheidung. Opladen/Wiesbaden: Westdeutscher Verlag. pp. 63, 69
  19. 19. 17 come across less as alternatives and a decision will appear less as a decision, the more the ultimately selected alternative is communicated as the justified, right selection.75 This however means that even the rejection of a decision consequently is a decision as the conservation of the autopoiesis of the organization demands further decisions. It further suggests that a decision is only completed when subsequent decisions connect to it by retrospectively realizing the decision or giving it meaning. Hence, "every decision is the product of earlier decisions and gives rise to ensuing decisions."76 It is important to note that whenever ensuing decisions connect to decisions, the uncertainty of previous decisions - i.e. in terms of which alternative to choose - is absorbed. Every decision is based on knowledge and ignorance77 . An organization's past experiences form its knowledge, while the ignorance consists of the unknowable future (which hasn't been experienced yet) and also other information the organization is not aware of. This ignorance is what constitutes the problem of uncertainty. A decision and ensuing decisions absorb that uncertainty by making it "invisible". The organization decides for one presumed future, thus replacing uncertainty with the risk of having chosen the wrong future. However, connecting decisions are absorbing the uncertainty in the present and the contingency of the future, turning a world full of possibilities, uncertainty, and ambiguity into one of a defined, certain future.78 In addition to that, the paradox of decision, i.e. selecting one alternative in a pool of other alternatives, becomes even more complex. Luhmann asserts that all given alternatives in a real decision situation are equally valid, because any other decision situation would be - at least theoretically - calculable. Organizations solve this problem by deparadoxification, i.e. they defer the paradox until it becomes unnoticed - for instance, by choosing a specific decision rule such as selecting the most profitable alternative. According to Luhmann, most organizational structures and processes function as tools for deparadoxification and most problems within organizations can be traced back to this decision paradox.79 75 see ibid. pp. 63-64 and Seidl (2004): Luhmann's theory of autopoietic systems. pp. 15-16 76 Seidl (2004): Luhmann's theory of autopoietic systems. p. 17 77 in the sense of lack of knowledge 78 see ibid. p. 17 and Simon (2015): Einführung in die systemische Organisationstheorie. pp. 66-67 79 Seidl (2004): Luhmann's theory of autopoietic systems. pp. 20-21 and Simon (2015): Simon (2015): Einführung in die systemische Organisationstheorie. pp. 68-69
  20. 20. 18 1.3.2.2 Decision Premises as Organizational Structure As decisions are in a web of relations with one another, Luhmann stresses the significance earlier decisions can have by forming structural preconditions that define or create further decisions. Such decision premises can limit or restrict the decision making by creating a particular decision situation and not another. In other words, previous decisions not only create new occasions for decision making, but also define the scope of ensuing decision situations and alternatives.80 Luhmann distinguishes four types of decision premises: programs, communication channels, personnel and organizational culture.81 • Programs define conditions and goals for correct decision making. They either provide rules when specific conditions are met - if this, then that -, or they define specific goals the organization aims to achieve.82 • Communication channels as decision premises describe the organization or architecture of the organization. An example is a hierarchical organizational structure where communication channels as decision premises only run vertically.83 • Personnel concerns the decision making power of individuals, in terms of recruitment and organization of personnel.84 • Organizational culture was introduced by Luhmann in his later writings to account for what he called "undecidable" decision premises, i.e. decision premises which are not explicit decisions but a by-product of the decision processes.85 The four decision premises are coordinated through the creation of positions within the organization. These can be considered as nodes between the four types of decision premises, coordinating the latter with regard to concrete decisions and providing an orientation for decisions on the integration or creation of new decision premises.86 In Luhmann's theory, organizations are operationally closed on the level of their operations and structures, similar to systems in Maturana and Varela's theory. As already stated, 80 see Simon (2015): Einführung in die systemische Organisationstheorie. pp. 67-69 81 see Seidl (2004): Luhmann's theory of autopoietic systems. pp. 17-19 and Simon (2015): Einführung in die systemische Organisationstheorie. pp. 70-75 82 see Luhmann (2000): Organisation und Entscheidung. pp. 256-278 83 see ibid. pp. 302-329 84 see ibid. pp. 279-301 85 see ibid. p. 145 86 see Seidl (2004): Luhmann's theory of autopoietic systems. p 19 and Simon (2015): Einführung in die systemische Organisationstheorie. p. 72
  21. 21. 19 organizations exclusively self-reproduce on the basis of decisions, and the autopoiesis of the organization is conserved as long as any decisions are produced within the system. However, the nature and the scope of the decisions is determined by the above listed decision premises, which form the structure of the organization. Thus, self-reproducing decisions give rise to the autopoietic organization and create a structure that serves as orientation for self-reproducing decisions.87 The following chapter will discuss in greater detail what this closure and the differentiation between system and environment mean and examine the ramifications of those concepts. 1.4 Structural Determinism and Organizations "[...] Our experience is moored to our structure in a binding way."88 As described in the previous chapter, the autopoietic process of an organization results in an operational closure on two levels: the operations and the structure of the organization. This has several consequences which will be discussed in the following paragraphs: namely structural determinism and structural coupling. According to Maturana and Varela, any autopoietic system's behavior is determined by its own structure. From the self-reproductive operations of a system emerges not only its operational closure and the differentiation between system and environment, but also a structure that determines the realms of interaction the system undergoes.89 Hence, a system can only undergo changes of state (changes of structure without loss of identity) or disintegrations (changes of structure with loss of identity) that are determined by its own organization. Again, such changes of state or disintegrations are determined by the inner- structure of the system and not by the properties of a disturbing agent (i.e. other systems or the environment) with which it interacts. Interactions are merely irritations (or perturbations) which must be responded to by the interacting system in a recursive way upholding the autopoiesis of the system. The concept of irritation is related to that of information. While information can be understood as a defined surprise, an irritation is an undefined surprise that is based on the environment, yet remaining a product of the system itself. Thus, the system specifies how it behaves when stimuli trigger responses and not the 87 see Seidl (2004): Luhmann's theory of autopoietic systems. pp. 19-20 and Simon (2015): Einführung in die systemische Organisationstheorie. p. 75 88 Maturana and Varela (1987): The Tree of Knowledge. p. 23 89 see ibid. pp. 95-96
  22. 22. 20 stimuli or the information, because "the information has no existence or meaning apart from that given to it by the system with which it interacts."90 Thus, Maturana and Varela call the concept of instructive interaction an illusion and consequently accentuate the concept of individuality and uniqueness of living systems.91 1.4.1 Structure-determined Organizations In Maturana and Varela's theory, the use of the term structure is literal and means the biological structure of a living organism that adapts to its environment - here, their aforementioned definition of cognition as adequate action becomes relevant. However, the concept of structural determinism also applies to social systems, such as organizations. Here similarly, the external or environment does not influence or have any effect on an organization in a causal, linear way. The impact that changes in the environment have on a specific system is always determined by the internal structures of the organization in the moment of interaction. External impulses are neither transported from the outside to the inside nor reproduced in any form internally. External impulses merely trigger reactions inside the organization. These reactions are determined by the structure of the organization, i.e. by the operations within the organization which conserve its autopoiesis: decisions and decision premises.92 The decisions made and the consequent decision premises also bring with them certain expectations and topics that trigger, influence and determine ensuing decisions. Both the expectations and the topics of communications provide a way to narrow down certain possibilities of communication out of all possible communications serving as a necessary tool to enable better communication in the first place but at the same time creating a close-mindedness and bias within the organization.93 "Whenever an expectation is met by an adequate communication the expectation is confirmed and thus likely to continue to function as a structure. However, if the expectation is repeatedly not met the expectation might be changed."94 90 Leyland (1988): An introduction to some of the ideas of Humberto Maturana. p. 361 91 see ibid. pp. 360-361 and Maturana and Varela (1987): The Tree of Knowledge. pp. 95-96 and Maturana and Poerksen (2011): From Being to Doing. p. 71 92 see Simon (2015): Einführung in die systemische Organisationstheorie. pp. 23-28 93 see Seidl (2004): Luhmann's theory of autopoietic systems. p. 9 and Simon (2015): Einführung in die systemische Organisationstheorie. pp. 46-49 94 Seidl (2004): Luhmann's theory of autopoietic systems. p. 9
  23. 23. 21 1.4.2 Organizations and Structural Coupling A necessary consequence of the interactions between a system - such as an organization - and its environment as well as other systems is the concept of structural coupling. Structural coupling occurs as a result of "[...] a history of mutual congruent structural changes [...]"95 between two systems, creating a sort of interlocking, reciprocal and consensual domain. Structural coupling emerges whenever there is some structural congruence between two systems and exists as long as the autopoietic process of either system does not disintegrate.96 In the context of organizations, the structural coupling between the organization and its environment (i.e. employees as psychic systems, other social systems and the "external") becomes particularly interesting. According to systemic organization theory, the main goal of an organization as a social system is survival, in other words, the preservation of its autopoietic system. Although an organization might have a specific goal or purpose (e.g. increasing shareholder value or making transportation sustainable) and its founders might have created the organization in order to accomplish that purpose, the latter ultimately only functions as a means to the conservation of the autopoietic system of the organization. Furthermore, any organization consists of a multitude of parties that themselves take part in the realization and preservation of the organization based on their own individual purposes. Consequently, the concept of a unifying purpose to which all parties adhere to is an illusion.97 The underlying, basic purpose of the organization to survive, demands environments - i.e. economy, industry, society, partners, employees and more - that ensure just that. As discussed in chapter 1.1, there does not exist or emerge any autopoietic system without an environment. It is through the interaction with relevant environments that the organization strives to first and foremost conserve its autopoiesis before other subordinate purposes are addressed. Thus, in order to ensure survival, the organization finds itself in a constant quest for relevant environments.98 Yet, environments can change, structural congruencies between systems can dwindle away and deterministic structures can limit an organizations 95 Maturana and Varela (1987): The Tree of Knowledge. p. 75 96 see Maturana and Poerksen (2011): From Being to Doing. pp. 85-86 and Maturana and Varela (1987). pp. 75, 99 97 see Simon (2015): Einführung in die systemische Organisationstheorie. pp. 29-30 98 see ibid. pp. 31-34
  24. 24. 22 perspective and action. This leads to the question about how organizations act as observers of their environments. 1.4.3 Constructing Realities within Organizations Whenever an organization communicates or makes decisions about its environments, the organization is transforming the external world into an inner world. This is a consequence of the operational closure and structural determinism of the autopoietic organization. Because if the environment only perturbates the organization, it is within the organization where images of the external are constructed.99 Any knowledge about the market, the customers, the industry, etc. that the organization acquires through observation, is a product of the organization itself. Here, knowledge is defined as adequate action or behavior of the organization.100 This is analogous to Maturana and Varela's definition of cognition as explained in chapter 1.1. The network of self-reproducing decisions that leads to organizational action, which is defined as the structure of the organization, becomes, in this sense, moreover the knowledge of the organization about its environments. From this point of view, the knowledge created within the organization must always be considered not as the "true" knowledge about the external world, but as any knowledge that enables the organization to conserve its autopoiesis. For the organization, there is not one "true" perception of an environment or even of the present reality nor the future, but there are as many perceptions as are compatible with the survival purpose of the organization.101 For example, how the organization perceives its industry is determined by the organization's structure, the latter being itself a built-up result of perceptions about the industry and other environments throughout the organizations ontogeny. It is important to understand that from this viewpoint, the organization's structure and thus also the way in which it perceives or gathers knowledge about its industry, is only one way of perceiving the industry that serves the survival purpose of the organization, i.e. the conservation of autopoiesis, of self-reproducing decisions. However, there are also many other ways of perceiving the industry that likewise serve the survival purpose of the organization as well as any subordinate purposes. One consequence of this would be the imperative to question 99 see Simon (2015): Einführung in die systemische Organisationstheorie. pp. 58-59 100 see ibid. pp. 66-67 and Hejl, P. and Stahl, H. (eds.) (2000): Einleitung - Acht Thesen zu Unternehmen aus konstruktivistischer Sicht. in: Management und Wirklichkeit - Das Konstruieren von Unternehmen, Märkten und Zukünften. Heidelberg: Carl-Auer-Systeme Verlag. pp. 16-18 101 see Simon (2015): Einführung in die systemische Organisationstheorie. pp. 58, 63
  25. 25. 23 whether the viable decisions made within the organization are the desired or "right" viable decisions out of all viable decisions that were possible, and furthermore, how these decisions lead to a constructed perception of environments that overshadows other relevant environments - or other relevant perceptions of environments.102 1.4.4 Organizational Learning and Change The previous examinations have all shed light on the constraining aspects that define organizations, according to the systemic organization theory. This begs the question how organizations are even able to learn and to change. The first consequence of the idea of knowledge being considered analogous to the structure of the organizational system is that the concept of learning becomes one of structural change. Thus, in Luhmann's theory, a learning organization - in the sense of acquiring new knowledge - is an organization capable of transforming its structures and processes. This means that knowledge and learning are two conflicting concepts. Knowledge describes existing structures whereas learning amounts to the changing or transformation of structure. Where knowledge or structure exists in an effective manner, i.e. where it serves the conservation of autopoiesis, learning becomes redundant. Furthermore, learning in terms of structural change can be very destructive as it can lead to the deconstruction of functional organizational structures.103 These remarks assert that organizations change according to evolutionary principles, through variation, selection and retention. Variations can be triggered by irritations from other systems, but manifest themselves within the organization as changed communications or decisions. However, as explained in chapter 1.3.2.2, decisions only have a sustainable impact on the organization's structure when ensuing decisions consolidate them into decision premises (selection) and furthermore serve as an effective action for conserving the autopoiesis of the organization (retention).104 Thus, Luhmann does not make any distinction between innovation and evolution and associates innovation 102 see ibid. p. 60 103 see Simon (2015): Einführung in die systemische Organisationstheorie. pp. 64-65 104 see Luhmann (2000): Organisation und Entscheidung. pp. 350, 352 and Weick, K. (1979), The Social Psychology of Organizing. Boston: Addison-Wesley Publication. p. 179 and Simon (2015): Einführung in die systemische Organisationstheorie. p. 107
  26. 26. 24 always with structural change (more on this in chapter 2.2 and 2.3).105 To conclude, this means that both learning and not learning - i.e. transformation and stability - are at the same time equally important and destructive. It is the capability of the organization to decide between the two that determines an organization's ability to survive.106 This view of organizational learning and change has many implications for innovation and foresight, as will be discussed in the following chapters. 2 Shaping the Future as Autopoietic Organization The second part of this thesis aims to take the perspective of systemic organization theory and examine organizational capabilities that spur innovation. In this regard, a high level approach will be taken in relation to Luhmann's rather abstract theory. This thesis will therefore not examine any specific innovation processes or methods but explore how organizations can produce novelty amid the existing in the first place. Thus, the subsequent analysis is focusing on the organizational context that enables innovativeness. Whilst looking at the interplay between the evolution of strategy and innovation, this second part will involve analyzing some of the key organizational capabilities for innovation found in the management and innovation literature, and will specifically look at the role of foresight in fostering innovation within organizations. 2.1 The End of Structure Shapes Strategy? Today's business environment is characterized by a plethora of trends caused by an interplay of increasing globalization and progress in information technologies, which together supposedly accelerate the evolution of social processes that are transforming our present social condition into one of globality.107 The trends brought about by the intensifying worldwide social interdependences and the accelerating technological 105 Besio, C. and Schmidt, R. (2012): Innovation als spezifische Form sozialer Evolution: Ein systemtheoretischer Entwurf. TU Berlin, Working Papers. Online: https://www.ts.tu- berlin.de/fileadmin/fg226/TUTS/TUTS_WP_3_2012l.pdf [21.01.2017]. pp. 6-7 106 see ibid. pp. 65, 102-103 and Wimmer, R. (2000): Wie lernfähig sind Organisationen? Zur Problematik einer vorausschauenden Selbsterneuerung sozialer Systeme. in: Hejl, P. and Stahl, H. (eds.): Management und Wirklichkeit - Das Konstruieren von Unternehmen, Märkten und Zukünften. Heidelberg: Carl-Auer-Systeme Verlag. pp. 280f 107 see for example Steger, M. (2013): Globalization - A very short introduction. Oxford: Oxford University Press. Third Edition. pp. 1-16
  27. 27. 25 change108 are, inter alia, considered to be: increased competition,109 a growth of research activities,110 a shortening of product life cycles and innovation speeds,111 an accelerated diffusion of innovations,112 and dissolving industry boundaries.113 The common theme of a business world entrenched in these dynamics is one of perpetual change. Here, competition becomes an incessant process of discovery that destroys existing rules and establishes new ones. In such an environment, pockets of stability are supposedly rather an exception and only temporary as frequent changes and intense rivalry create a perpetual disequilibrium that makes competition and industries inherently unstable and unpredictable.114 It comes therefore as no surprise that from 1958 to today, the average lifespan of a company listed in the Standard and Poor’s 500 index of leading US companies has decreased by 43 years, from 61 to 18 years.115 Furthermore, the once strong correlation between a high market share and profitability is now almost non-existent in some industries. "The probability that the market share leader is also the profitability leader declined from 34% in 1950 to just 7% in 2007."116 In such a discontinuous world - which today is allegedly a characteristic of most 108 see Sood, A. and Tellis, G. (2005): Technological evolution and radical innovation. in: Journal of Marketing, Vol. 69. Online: https://ssrn.com/abstract=903882 [25.01.2017]. pp. 152–168 109 see D’Aveni, R. (1994) Hypercompetition: Managing the Dynamics of Strategic Maneuvering. New York: Free Press Publishing. 110 see Child, J. and McGrath, R. G. (2001): Organizations Unfettered: Organizational Form in an Information-Intensive Economy. in: The Academy of Management Journal, Vol. 44, Issue 6. Online: http://www.jstor.org/stable/3069393 [25.01.2017]. pp. 1135-1148 111 see Kessler, E. and Chakrabarti, A. (1969): Innovation speed: a conceptual model of context, antecedents, and outcomes. in: Academic Management Review, Vol. 21. Online: http://www.jstor.org/stable/259167 [25.01.2017]. pp. 1143–119 and Langerak, F. and Hultink, E. J. (2005): The impact of new product development acceleration approaches on speed and profitability: lessons for pioneers and fast followers. in: IEEE Transactions on Engineering Management, Vol. 52. Online: https://doi.org/10.1109/TEM.2004.839941 [25.01.2017]. pp. 30–42 112 see Lee, H. et al. (2003): The effect of new product radicality and scope on the extent and speed of innovation diffusion. in: Journal of Management, Vol. 29, Issue 5. Online: http://journals.sagepub.com/doi/abs/10.1016/S0149- 2063_03_00034-5 [25.01.2017]. pp. 753–768 113 see Cowan, R. et al. (2007): Bilateral collaboration and the emergence of innovation networks. in: Management Science, Vol. 53, Issue 7. Online: http://dx.doi.org/10.1287/mnsc.1060.0618 [25.01.2017]. pp. 1051–1067 114 see Farjoun, M. (2007): The end of strategy? in: Strategic Organization, Vol. 5, Issue 3. Online: https://doi.org/10.1177/1476127007079960 [21.01.2017]. pp. 199-201 115 see Foster, R. (2012): Creative Destruction Whips through Corporate America. Innosight. Executive Briefing, Winter 2012. Online: https://www.innosight.com/insight/creative-destruction-whips-through-corporate-america-an-innosight- executive-briefing-on-corporate-strategy/ [21.01.2017]. 116 Reeves, D. and Deimler, M. (2011): Adaptability: The New Competitive Advantage. in: Harvard Business Review, Issue July-August 2011. Online: https://hbr.org/2011/07/adaptability-the-new-competitive-advantage [21.01.2017].
  28. 28. 26 industries117 - the traditional idea of competitive advantage becomes transient, and believing strongly in one's competitive advantage more often than not means death.118 Thus, despite still being taught at top business schools and applied by many companies, the classic positioning model that emphasizes an organizations' choice of well-adapted positions in attractive industries where competition is rare and entry is restrained, as well as the more recent resource-based view that stresses an organization's possession of unique, valuable and defensible resources,119 have become increasingly outdated. Furthermore, Farjoun even claims that strategy itself is becoming rather redundant: "[...] the more industries approximate perpetual change, the less business strategy in general, but particularly in the structural sense, is applicable."120 He goes on to conclude that "[...] even the necessity of strategy itself, need[s] to be reconsidered."121 From a social and ethical perspective particularly, traditional concepts are just not favorable anymore in today's world, as they are essentially about securing excess profits without having to make better products or deliver better services. Hence, focus lies more often on defeating business rivals rather than on adding customer or societal value.122 But most importantly, these - for the past few decades dominant - concepts in management theory operate under the subjacent assumption that the character of the external environment or competition facing an organization, determines its strategic opportunities and the potential to exploit these. "The underlying logic here is that a company’s strategic options are bounded by the environment. In other words, structure shapes strategy."123 It is an understanding of linear cause and effect dynamics between an ontic, predictable and 117 see Wiggins, R. and Ruefli, T. (2005): Schumpeter’s Ghost: Is Hypercompetition Making the Best of Times Shorter? in: Strategic Management Journal, Vol. 26, Issue 10. Online: http://onlinelibrary.wiley.com/doi/10.1002/smj.492/abstract [25.01.2017] pp. 903-906 and Brown, S. and Eisenhardt, K. (1997): The Art of Continuous Change: Linking Complexity Theory and Time-Paced Evolution in Relentlessly Shifting Organizations. in: Administrative Science Quaterly, Vol. 42, Issue 1. Online: http://www.jstor.org/stable/2393807 [21.01.2017]. pp. 1-2 118 see McGrath, Rita G. (2013): Transient Advantage. in: Harvard Business Review, Issue June 2013. Online: https://hbr.org/2013/06/transient-advantage [21.01.2017] and Wiggins and Ruefli (2005): Schumpeter’s Ghost. pp. 903- 906 and Farjoun (2007): The end of strategy? pp. 197-199 119 see Barney, J. (1991): Firm Resources and Sustained Competitive Advantage. in: Journal of Management, Vol. 17, Issue 1. Online: http://www.emeraldinsight.com/doi/abs/10.1016/S0742-3322%2800%2917018-4 [25.01.2017]. pp. 99- 120 120 Farjoun (2007): The end of strategy? p. 206 121 ibid. p. 207 122 see Denning, S. (2012): What Killed Michael Porter's Monitor Group? The One Force That Really Matters. in: Forbes, November 20, 2012. Online: http://www.forbes.com/sites/stevedenning/2012/11/20/what-killed-michael-porters-monitor- group-the-one-force-that-really-matters/ - 41f39f43733c [21.01.2017]. 123 Kim, C. W. and Mauborgne, R. (2009): How Strategy Shapes Structure. in: Harvard Business Review, September 2009. Online: https://hbr.org/2009/09/how-strategy-shapes-structure [21.01.2017].
  29. 29. 27 relatively stable environment and a hereby susceptible, open system.124 Recently, however, we have seen a move away from ideologies that focus on being good at "one" thing and sustaining a competitive advantage with formalized structures, rules and processes towards concepts that emphasize organizational agility and a balance of exploiting existing resources on the one hand and exploring new ones on the other. These concepts propose that organizations should generate emergent strategies and rather shape their environments through innovation than adapting to them.125 In this sense, the organization becomes ambidextrous: i.e. pursuing both exploration (search, variation, risk taking, experimentation, play, flexibility, discovery and innovation) and exploitation (refinement, choice, production, efficiency, execution).126 Ambidexterity requires an organization to be inclined to create a conflicting equilibrium of efficiency and commitment on the one hand, and dynamism, exploration and adaptability on the other. A paradoxical balance that cuts across various disciplines such as organizational learning, strategic management, leadership theory, organizational design and innovation management.127 "Where exploitation builds on an organization’s past, exploration creates futures that may be quite different than the organization’s past."128 O'Reilly and Tushman illustrate that a plethora of recent empirical studies have shown that in uncertain environments, organizational ambidexterity is associated positively with sales growth, performance ratings, innovation, market valuation, and firm survival.129 But as Farjoun points out, the exact balancing of exploration versus exploitation always varies according to an organization's context and is hard to manage: "Dialectic change settings require agility, speed and incremental capability building; 124 see Bakken et al. (2010): An Autopoietic Understanding of "Innovative Organization". p. 174 125 see Kim and Mauborgne (2009): How Strategy Shapes Structure. and Hamel, G. (1998): Strategy Innovation and the Quest for Value. in: Sloan Management Review, Vol. 39, Issue 2. Online: http://sloanreview.mit.edu/article/strategy- innovation-and-the-quest-for-value/ [25.01.2017]. pp. 7-14 and Kotter, J. (2012): Accelerate! in: Harvard Business Review, November 2012. Online: https://hbr.org/2012/11/accelerate [21.01.2017]. 126 see March, S. (1991): Exploration and Exploitation in Organizational Learning. in: Organization Science, Vol. 2, Issue 1. Online: http://www.jstor.org/stable/2634940 [25.01.2017]. pp. 71-74 and Raisch, S. and Birkinshaw, J. (2008): Organizational Ambidexterity: Antecedents, Outcomes, and Moderators. in: Journal of Management, Vol 34, Issue 3. Online: http://journals.sagepub.com/doi/abs/10.1177/0149206308316058 [25.01.2017]. pp. 375-409 127 see Farjoun (2007): The end of strategy? p. 207 and Raisch and Birkinshaw (2008): Organizational Ambidexterity: Antecedents, Outcomes, and Moderators. pp. 375-409 128 Smith, W. and Tushman, M. (2005): Managing Strategic Contradictions: A Top Management Model for Managing Innovation Streams. in: Organization Science, Vol. 16, Issue 5. Online: http://dx.doi.org/10.1287/orsc.1050.0134 [21.01.2017]. p. 522 129 see O'Reilly, C. and Tushman, M. (2013): Organizational Ambidexterity: Past, Present and Future. in: Academy of Management Practices, Forthcoming. http://dx.doi.org/10.2139/ssrn.2285704 [21.01.2017]. pp. 5-7
  30. 30. 28 periods of emergence and transformation require versatility and the capacity to transform; and perpetual change settings require reconciling both types of adaptive responses."130 Furthermore, an organization may also be operating in numerous markets with diverse dynamics and will therefore need to flexibly move between different emphasis' of either exploration or exploitation as well as different ways of implementing ambidexterity.131 This concept of ambidextrous organization relates to the ideas examined in part one of this thesis. It speaks to what Maturana and Varela call the simultaneous double conservation of internal coherence and external fitting, as well as to the concepts of knowledge (exploitation) and learning (exploration) in systemic organization theory. To be clear, the concept of autopoiesis does acknowledge the influence of the environment on shaping the organization, however, it regards the organization as an operationally closed system that observes itself and the environment from its own criteria while performing distinction drawing operations.132 The goal of organizational development then is not merely the ideal adaptation to the external world, but the manifestation of the ability to see oneself as an active player who has a bearing on the conditions of one's own survival and must therefore also answer for it. Thus, this rather contrarian perspective reintroduces agency and emphasizes the organization's influence with regard to shaping the "external" world. Consequently, this has many implications for how innovation is understood and encouraged. 2.2 Approaches to the Concept of Innovation The concept of innovation is very vague, and is used in both science and practice in a plethora of different ways. Anytime anyone does something vaguely new, or a new feature is added to one product or another, the term innovation appears on the radar. If one uses Google Books' Ngram Viewer, which shows the frequencies of specific words in printed books between 1500 and 2008, one can see that talk about innovation has surged 130 Farjoun (2007): The end of strategy? p. 207 131 see O'Reilly and Tushman (2013): Organizational Ambidexterity: Past, Present and Future. p. 14 132 see Bakken et al. (2010): An Autopoietic Understanding of "Innovative Organization". pp. 174-175
  31. 31. 29 tremendously from 1950 onwards.133 In today's business world, the concept is used like a mantra, in various ways. Despite its celebrity status in business, many companies are still struggling with implementing innovative organizational behavior successfully. In a McKinsey poll, 94% of the managers surveyed said they were dissatisfied with their company’s innovation performance.134 To date, the scientific community does not have a universally shared understanding of what innovation really means, but offers numerous perspectives. A review of some of the main understandings in academia might pinpoint to the central notions of what innovation is and reveal the organizational capabilities that lead to innovation. The term innovation originates from the Latin word innovationem or innovare, meaning restoration or renewal.135 According to historian Benoit Godin, it was not until the nineteenth century that the concept of "innovation began taking root as a term associated with science and industry [...], although the language of that period focused more strongly on invention, particularly technical invention."136 That focus shifted around the 1930s due to the works of Austrian economist Joseph Alois Schumpeter. Schumpeter claimed that capitalism evolves through what he coined creative destruction, with innovation destroying old, established structures and creating new ones.137 For Schumpeter, the key difference between invention and innovation was the link to economic analysis and value: "while invention is an act of intellectual creativity [...] innovation is an economic decision: a firm applying an invention or adopting an invention."138 However, later on, Schumpeter himself as well as others acknowledged that innovation is possible without invention and that an invention does not automatically induce innovation.139 In his works, Schumpeter distinguished between five types of innovation: (1) a new or improved product; (2) a new 133 see Google Books Ngram Viewer (2013): "Innovation" 1500-2008. Online: https://books.google.com/ngrams/graph?content=innovation&year_start=1500&year_end=2008&corpus=15&smoothing =3&share=&direct_url=t1%3B,innovation%3B,c0 [21.01.2017]. 134 see Alon (2016): 2015 US Innovation Survey: Clear Vision, Cloudy Execution. and McKinsey & Company (n.d.): Growth & Innovation. 135 see Dictionary.com (n.d.): innovation. Online Etymology Dictionary. Random House Inc. Online: http://www.dictionary.com/browse/innovation [21.01.2017]. 136 Green, E. (2013): Innovation: The History of a Buzzword. in: The Atlantic. Online: http://www.theatlantic.com/business/archive/2013/06/innovation-the-history-of-a-buzzword/277067/ [21.01.2017]. 137 see Cox, M. and Alm, R. (2008): Creative Destruction. in: The Concise Encyclopedia of Economics. Library of Economics and Liberty. Online: http://www.econlib.org/library/Enc/CreativeDestruction.html [21.01.2017]. 138 Godin, B. (2008): In the Shadow of Schumpeter: W. Rupert Maclaurin and the Study of Technological Innovation. Project on the Intellectual History of Innovation. Working Paper No. 2. Online: http://www.csiic.ca/PDF/IntellectualNo2.pdf [21.01.2017]. p. 4 139 see ibid. pp. 4-5
  32. 32. 30 or improved process (new, at least, to that particular system); (3) the acquisition of a new source of raw materials or semi-manufactured goods; and (4) an organizational change (in the firm or the industry).140 Schumpeter, however, never really studied the factors that lead to innovation, nor did he thoroughly explain the innovation process. Vahs and Brehm, well known German scholars in the field of innovation management, characterize innovation as something new that goes beyond the existing level of knowledge and experience. Additionally, they see innovation as something complex in terms of the amount of actors and factors involved, and as something uncertain, in terms of the future result, success, market behaviors and technological development etc.141 Renowned American management expert and consultant Gary Hamel vaguely asserts that; "[...] innovation comes from a new way of seeing in a new way of being."142 In a similar way, Karl Weick, whose enactment theory shares many similarities with Luhmann's concepts,143 places emphasis on the inner-structure of the organization in addition to the external changes that it experiences. He describes innovation as an organization's attempt to construct, or in his terms, enact its environments in a new way. For him, innovation is not merely a reaction to changing environments but moreover includes an active form of variation of the organization.144 The concept of learning, acquiring new or transforming knowledge is seen by many as highly important when it comes to innovation.145 Lawson and Samson, for example, define innovation as the “[...] ability to continuously transform knowledge and ideas into new products, processes and systems for the benefit of the firm and its stakeholders.”146 140 see Schumpeter, J. A. (1934): The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle. Cambridge: Harvard University Press. p. 65 141 see Vahs, D. and Brehm, A. (2015): Innovationsmanagement - Von der Idee zur erfolgreichen Vermarktung. Fifth Edition. Schäffer & Poeschel Verlag. pp. 27-37 142 Hamel, G. (2000): Leading the Revolution. Boston: Harvard Business School Press. p. 120 143 see Hernes, T. and Bakken, T. (2003): Implications of Self Reference: Niklas Luhmann's Autopoiesis and Organization Theory. in: Organization Studies, Vol. 24, Issue 9. pp. 1517-1518 144 see Rupp, J. (1999): Gestaltung und Kopplung - Dimensionen im Innovationsprozess. in: Zeitschrift für Soziologie, Vol. 28, Issue 5. Stuttgart: Lucius & Lucius Verlag. Online: https://doi.org/10.1515/zfsoz-1999-0503 [23.01.2017]. p. 369 145 see Kogut, B. and Zander, Udo (1992): Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology. in: Organization Science, Vol. 3, Issue 3. Online: http://www.jstor.org/stable/2635279 [23.01.2017]. p. 391 and Carneiro, A. (2000): How does knowledge management influence innovation and competitiveness? in: Journal of Knowledge Management, Vol. 4, Issue 2. Online: http://dx.doi.org/10.1108/13673270010372242 [25.01.2017]. pp. 87, 97 146 Lawson, B. and Samson, D. (2001). Developing Innovation Capability in Organizations: A Dynamic Capabilities Approach. in: International Journal of Innovation Management, Vol. 5, Issue 3. Online: http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.457.2621 [25.01.2017]. p. 384
  33. 33. 31 Carneiro, in his understanding of innovation, claims that innovation depends on the evolution of knowledge.147 Furthermore, for Damanpour, innovation involves changing an organization not only as a response to changes in its internal or external environments, but also as a pre-emptive activity to influence its environments.148 The active role of the organization in changing its own structure is also emphasized in a definition by Tidd et al., who "[...] suggest that innovation is a core process concerned with renewing what the organization offers (its products and/or services) and the ways in which it generates and delivers these."149 Pleschak and Sabisch emphasize the link between innovation and strategy, asserting that innovation aims to accomplish the goals of an organization in new ways.150 This review of popular understandings of the concept of innovation - while certainly not all-encompassing as such endeavor would go beyond the scope of this thesis - allows us to specify some central notions. Accordingly, we can understand innovation as something that requires both organizational learning, in the sense of acquiring new knowledge and/or new perspectives (i.e. transforming knowledge), as well as some sort of organizational change, in the sense of new structures and processes. This correlation between structural change and innovation is accentuated by Schumpeter's aforementioned theory of creative destruction and his remarks regarding innovation's link to new economic value. Thus, Schumperterian innovation means that innovation encompasses everything from idea to viable market diffusion, while destroying old structures and developing new ones. Finally, as Vahs and Brehm argue, generating and managing innovations entails uncertainty, due to their level of novelty, and in terms of future result and market success. These central notions reflect Maturana and Varela's concept of knowing as effective behavior as well as the ideas in Luhmann's theory examined above in chapter 1.4.4, where innovation is seen as evolution contingent upon structural change. Due to this strong correlation between structural change and innovation in Luhmann's systemic organization theory, this thesis will be focusing on an understanding of innovation that refers to 147 see Carneiro (2000): How does knowledge management influence innovation and competitiveness. p. 87 148 see Damanpour, F. (1991): Organizational Innovation: A Meta-Analysis of Effects of Determinants and Moderators. in: The Academy of Management Journal, Vol. 34, Issue 3. Online: http://www.jstor.org/stable/256406 [25.01.2017]. p. 556 149 Tidd et al. (2005): Managing Innovation - Integrating Technological, Market and Organizational Change. p. 40 150 see Pleschak, F. and Sabisch, H. (1996): Innovationsmanagement. UTB für Wissenschaft. Stuttgart: Schäffer-Poeschel Verlag. p. 1
  34. 34. 32 Schumpeter's theory of creative destruction, where innovation is seen as a means to destroy old structures and create new ones. On these grounds, one could contend that such a view of innovation presumes that all types of innovation (e.g. service, process, product, or business model innovation) require organizational innovation. Furthermore, setting a focus on an Schumperterian understanding of innovation might also emphasize the importance of radical (discontinuous) innovation as opposed to incremental (continuous) innovation. However, from a constructivist viewpoint, defining innovation as radical or incremental is always dependent upon the observer. Whilst an organization might believe its new product is a radical novelty for the market, customers might only view it as a small improvement with regard to satisfying their needs. Thus, this thesis will subsequently analyze both the internal context that stimulates innovation and the consequent ability of the organization to shape or restructure its environments, while specifically focusing on how to overcome structural determinism. 2.3 Key Capabilities of an Innovative Organization There has been lots of talk about the organizational capabilities necessary for innovation. Organizational capabilities are understood as "[...] the collective skills, abilities, and expertise of an organization [...]."151 Scholars tackle the issue from many different angles, some take a more high-level approach, others concentrate on specific aspects. What is clear though is that the organizational context has a key influence on the ability to create and implement successful innovations.152 The following subchapters seek to touch upon key properties that foster innovation within organizations found in the innovation management literature. Tidd et al. provide a comprehensive overview of what they call "components of the innovative organization"153 derived from a great body of literature. Two of the components outlined by Tidd and his co-authors connect perfectly to the central notions derived from the various definitions analyzed in the previous chapter, namely, the learning capability and the structural flexibility. Learning capability, in particular, has increasingly become 151 Smallwood, N. and Ulrich, D. (2004): Capitalizing on Capabilities. in: Harvard Business Review, June 2004. Online: https://hbr.org/2004/06/capitalizing-on-capabilities [21.01.2017]. 152 see Tidd et al. (2005): Managing Innovation. p. 466 153 ibid. p. 469
  35. 35. 33 more important in this context, according to the literature.154 Other components examined by Tidd et al. concern the role of individuals, culture, communication, networking, and more.155 Due to the scope and focal aim of this thesis, some of the factors will only be touched upon briefly. Besides learning and structure, chapter 2.3.3 will explore organizational culture. This is in virtue of Luhmann's remarks regarding culture in one of his books where he deliberately defined organizational culture as a key barrier to innovation.156 Building an innovative organization involves systemic, interdependent and complex processes and structures that are continuously maintained, reflected upon, tested and adapted.157 Hence, caution should be exercised in order not to fall into the trap of regarding each of these capabilities as distinct and independent. On the contrary, these capabilities should rather be seen as mutually enabling and interdependent. 2.3.1 Learning Capability and Susceptibility to Irritations The theme of learning or knowledge management has increasingly become a cornerstone with regard to innovation. As knowledge as a resource is becoming more and more important in today's world, the task of mobilizing and managing knowledge becomes an imperative for organizational survival and innovation.158 Here, knowledge does not only mean new information regarding the market, technologies, or other fields that link to the specific innovation endeavor, but also learning about the innovation process and management itself.159 In general, the literature reviewed by Tidd et al. shows that the key enablers for an advanced learning capability are a high level of participation in innovative problem-solving and the establishment of routines that foster the acquisition of new knowledge. Garvin provides a comprehensive list of key factors influencing an organization’s learning ability: "Training and development of staff; development of a formal learning process based on a problem-solving cycle; monitoring and measurement; documentation; experiment; 154 see ibid. p. 513 155 see ibid. p. 466-513 156 see Luhmann (2000): Organisation und Entscheidung. p. 245 157 see Tidd et al. (2005): Managing Innovation. p. 500 158 see ibid. pp. 502-503 and Carneiro (2000): How does knowledge management influence innovation and competitiveness. p. 87, 97 and Wimmer (2000): Wie lernfähig sind Organisationen. pp. 272-280 159 see Tidd et al. (2005): Managing Innovation. p. 503
  36. 36. 34 display; challenge existing practices; use of different perspectives; [and] reflection – learning from the past."160 In the context of this thesis' focus, one factor in particularly is worth highlighting here, namely: "challenging existing practices". Although establishing routines are essential for learning, due to changing contexts and sudden discontinuities, the literature suggests that "[…] there is a need for a second-order learning approach which retunes the organization’s learning routines to deal with new challenges."161 This is where the topic of unlearning comes in - i.e. questioning and eliminating routines and knowledge that is no longer needed or limiting. Thus, in order to actually acquire new knowledge, organizations are confronted with the challenge of abandoning deeply embedded beliefs.162 This imperative to unlearn and to challenge embedded beliefs is emphasized when one takes the perspective of systemic organization theory. In the autopoietic organization, knowledge and learning are understood as opposites: with new or more knowledge always comes more ignorance and a specific, eventually limiting perspective (see chapter 1.4.4). Thus, one must be aware of the consequences of acquiring new knowledge, and examine the mechanisms of selection that learning or new knowledge is based on, i.e. the differentiations the organization is guided by.163 Luhmann suggests that the advocacy of innovation should be replaced by a focus on upholding and maintaining the irritability of an organization. As ensuing decisions absorb uncertainty and deparadoxify decisions, irritations regenerate uncertainty. Thus, for Luhmann, the sources of innovation are irritations which have to be processed internally by new communications or decisions.164 This is substantiated by Wimmer, who analyzed Luhmann's theory in relation to the learning ability of organizations.165 Wimmer argues that it is essential that knowledge management within the organization functions as a tool for observing the processes and structures within the system itself and to develop alternative differentiations between knowledge and ignorance in order to confront and shake established structures, i.e. to 160 ibid. p. 503; for original source see Garvin, D. (1993): Building a learning organisation. in: Harvard Business Review, July 1993. Online: https://hbr.org/1993/07/building-a-learning-organization [25.01.2017]. 161 Tidd et al. (2005): Managing Innovation. p. 503 162 see ibid. 163 see Simon (2015): Einführung in die systemische Organisationstheorie. pp. 64-65 and Eberl, P. (2001): Die Generierung des organisationalen Wissens aus konstruktivistischer Perspektive. in: Schreyögg, G. (ed.): Wissen in Unternehmen: Konzepte, Maßnahmen, Methoden. Berlin: Erich Schmidt Verlag. pp. 62-63 164 see Luhmann (2000): Organisation und Entscheidung. pp. 219-220 165 see Wimmer (2000): Wie lernfähig sind Organisationen. pp. 284-286
  37. 37. 35 foster irritation and variation.166 An organization must thus create the conditions that open it to irritation and through which learning opportunities emerge and are exploited.167 In addition to the susceptibility to irritations, Wimmer defines the ability or chances to process irritations into actions as a key factor for organizational learning and innovation. Irritations can only spur learning when they are processed internally, which means that they need to trigger new decisions and communications. This leads to the question in what way the organizational structure determines whether irritations are noticed and transformed into effective learnings and consequently foster innovation. 2.3.2 Structural Flexibility and Processing Irritations When it comes to organizational structure, the literature on innovation signals that flexibility is of key significance and that the level of flexibility is mostly influenced by its environment (i.e. market, industry, competition, regulation) and the nature of tasks performed within the organization. Other factors which have been studied for their influence on structure include size, age, strategy and culture.168 In terms of the environmental influence, uncertain, complex environments characterized by rapid changes demand flexible structures, while stable linearly evolving environments call for rigid and consistent structures.169 However, an organization might find itself operating in both stable and uncertain environments for which an ambidextrous capability, as mentioned in chapter 2.1, is needed. Even if an organization develops structurally different divisions catering to environments with different characteristics, the literature suggests that innovation success is still based on the relationships and coordination between those divisions and that interdivisional flexible structures provide more effective coordination and more rapid responses. This is emphasized by the notion that perpetual change is increasingly becoming a characteristic across all industries, and innovation an organization-wide task as opposed to an R&D division's specific function.170 Nonetheless, even if one opposes such claims, it is also being argued that even in less turbulent market conditions in order for an organization to enhance its innovation capability, organic, 166 see ibid. p. 281 and Simon (2015): Einführung in die systemische Organisationstheorie. p. 65 167 see Wimmer (2000): Wie lernfähig sind Organisationen. pp. 282-284 168 see Tidd et al. (2005): Managing Innovation. pp. 474-476 169 see Farjoun (2007): The end of strategy? pp. 206-207 and Tidd et al. (2005): Managing Innovation. pp. 474, 477-479 170 see Tidd et al. (2005): Managing Innovation. p. 474-475

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