Sunday, May 22, 2016

How can organizations succeed?

We all participate, have participated or will participate in some organization, either as members (perhaps founding members), as workers, as donors or as leaders. That is why it may be interesting, even for non-professionals, to read about what social scientists who have investigated the failure and success of organizations have to say. A useful starting point is the "Handbook of Organization Economics," edited by Gibbons and Roberts in 2013. But more recently a useful survey has been published in the Journal of Economic Literature about "Why Organizations Fail: Models and Cases," by Luis Garicano and Luis Rayo. Although the case examples they give seem a little bit superficial (for example, the Spanish savings banks or "cajas"), their theoretical arguments provide a useful list of topics to care about if one is involved in an organization. For example, from the theories about the multi-dimensionality of effort, successful organizations tend not to care too much about the short run, although this implies overcoming the constant temptations to put too much emphasis on it. And successful organizations tend to think very carefully about the allocation of talent. In particular, organized groups should acknowledge that talent is heterogeneously allocated. This is so in the double sense that some people have more of it (so that more talented individuals should be located in a hierarchy to have an influence on the rest of the organization), and also in the sense that talent is also multi-dimensional, and some individuals have specialized talent that should be allocated with precision in the point of the organization where it can be most productive. Of course, making organizations succeed is as much an art as a science, and there is a lot of randomness involved. But thinking about these issues will not hurt anyone that worries about the future of his or her organizations.

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