Corporate entropy

In business thermodynamics, corporate entropy is a loosely defined term referring to a loss of productive energy inside the working actions of a corporation. In short, the concept of corporate entropy is the application of the thermodynamic definition of entropy, as the portion of a system's energy that cannot be converted into external work, to the description and operation of corporations. Said another way, in the phrasing of Clausius, it is the work the molecules, e.g. human molecules, of the system do on each other that is lost irreversibly. [6]

One of the first to write in this frame of logic was French author C. H. Berry, as discussed in his 1978 working paper Alternative Dimensions of Corporate Diversification: an Entropy Approach. [1] The first to use the term in a figurative sense was American author and professor of management science Russell Ackoff who in his 1981 book Creating the Corporate Future outlined a design for the use of managerial time and energy at work in a way that corporate energy, what he defines as “wasted energy”, is minimized. [2] Into the late 1980s and 90s, the term had begun to slowly sink in and authors were beginning to devote short sections to the topic of corporate entropy and phraseologies such as the “second thermodynamic law of management”. [4]

History of concept
In 1978, French author C. H. Berry published the working paper Alternative Dimensions of Corporate Diversification: an Entropy Approach. [1] The 1987 book The Creative Corporation, by authors Karl Albrecht and Steven Albrecht, uses the word entropy nine times and has a section devoted to “Entropy and Synergy: In Search of the Corporate Force”. [3]

Ackoff’s 1981 definition
One of the first to outline a reasonable definition of corporate entropy was American author and professor of management science Russell Ackoff. In his 1981 book Creating the Corporate Future Ackoff outlined his views of the analogy idea of corporate energy, using the logic that if a manager utilizes his board meeting time in a way that stimulates the function of his subordinates, he will have reduced corporate entropy.

To outline this logic, first he cites data showing that the average number of distinct activities that a manager can think about simultaneously is seven. Next, he states that the boards generally meet for no more than four hours per month and that if a manager is on ten or fewer boards (most are on less than ten) that he or she would spend no more than forty hours per month, or no more than 25 percent of their time at work. This framework, he states, leaves plenty of time for other activities in that most of his or her responsibilities can be fulfilled through participation in these boards.

Through them, he argues, the manager can “coordinate and integrate the work done under him and his own work with that of others, and to keep abreast of what is going on above and alongside.” Skipping a few details, Ackoff notes that most managers and other members of an organization, who are worth their salt, are always planning either consciously or unconsciously, and that the design he presents, as outlined above and further in his book, “organizes this huge informal effort and extracts more its great potential (on the analogy of chemical potential) than is realized from the disorganized way it is usually carried out.” He continues, “once under way, it actually saves time over the entire enterprise”, in that “it taps the energy wasted in worry, complaints, beefing, and partial, hence abortive, efforts at reform by converting corporate entropy into useful work (on the analogy of free energy), play, and learning.”

Moreover, as he concludes, “it provides all those who feel that they are either being served unfairly or are serving inadequately with a chance to put up or shut up.” He calls this a “design for participative planning” and suggests that it need not be introduced to an entire organization at once, but can be implemented independently in a unit, department, or a division and that once the functionality of the design catches on it will “spread to other parts or levels of the organization”. [2]

DeMarco and Lister’s 1999 definition
The very-popular 1999 book Peopleware – Productive Projects and Teams, by American software business consultants Tom DeMarco and Timothy Lister, has a half-page section devoted to corporate entropy. They define entropy in a corporation as “levelness or sameness” and that “the more it increases, the less potential there is to generate energy or do work.” [4] Furthermore, in a corporation or organization, according to DeMarco and Lister, “entropy can be thought of as uniformity or attitude, appearance, and thought processes.” They suppose that “just as thermodynamic entropy is always increasing in the universe, so too corporate entropy is on the rise”.

There definition of what they call the second thermodynamic law of management is that “entropy is always increasing in the organization”. This, to note, is incorrect to suppose special “human laws of thermodynamics”. [5] In any event, they postulate that the effect of the second law of thermodynamics, via entropy, is the reason that “elderly institutions are tighter and a lot less fun than sprightly young companies.” To fight the effect of entropy, the argue that the most successful manager is the one who “shakes up the local entropy to bring in the right people and let them be themselves, even though they may deviate from the norm of the corporate norm.”. [4]

References
1. Berry, C. H. (1978). “Alternative Dimensions of Corporate Diversification: An Entropy Approach”, Centre de Recherches Interdisciplinaires Droit-eÌ conomie, Institut des Sciences Economiques.
2. Ackoff, Russell, L. (1981). Creating the Corporate Future: Plan or be Planned for, (pg. 69-70). New York: John Wiley and Sons.
3. Albrecht, Karl and Albrecht, Steven. (1987). The Creative Corporation, (section: “Entropy and Synergy: In Search of the Corporate Force”, pg. 23). Publisher: Richard D Irwin.
4. DeMarco, Tom and Lister, Timothy. (1999). Peopleware – Productive Projects and Teams, 2nd ed. (Section: “Corporate Entropy”, pg. 98). New York: Dorset House Publishing.
5. See: laws of thermodynamics (section: misconstrued ideas about the laws and human life).
6. (a) Clausius, R. (1865). The Mechanical Theory of Heat – with its Applications to the Steam Engine and to Physical Properties of Bodies. London: John van Voorst, 1 Paternoster Row. MDCCCLXVII.
(b) Thims, Libb. (2007). Human Chemistry (Volume One), (preview), (section: Clausius' entropy, pgs. 56-59). Morrisville, NC: LuLu.

Further reading
● Klein, Jonathan I. (2000). Corporate Failure by Design: Why Organizations are Built to Fail, (epilogue: “Entropy in Human Systems – A Grand Theory of Organizational Self-Destruction”, pgs. 261-70). Westport, CT.: Quorum Books.
● Anon. (2002). "Entropy (strategy focus)", Norelli & Company, Norelli.com.

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