In 1865, a German physicist, Rudolph Clausius (1822-1888), coined the term entropy during his research on heat. The word’s meaning “a turning towards” (in Greek, en+tropein), “content transformative” or “transformative content.” Claudius used the concept to establish a mathematical foundation for the second law of thermodynamics: without the injection of free energy, all systems tend to move (however gradually) from order to disorder, if not to chaos.
In their latest book, Repeatability: Build Enduring Businesses for a World of Constant Change (published by Harvard Business Review Press, 2012), Chris Zook and James Allen observe, “In business, entropy often leads to waste and loss of focus in the daily operations of complex organizations, such as the emergence of self-contained, internal activities without direct linkage to, or value for, the customer. Yet, when organizations grow and become more complex, internal units proliferate…As the forces of entropy strengthen, more time is taken up with internal meetings, or written reports, or preoccupation with narrow, often political, agendas that come with complex organizational structure. The customer becomes less central and suffers, and the strategic priorities become less clear.”
What to do? Briefly, Zook and Allen recommend three design principles: A well-differentiated core, clear nonnegotiables, and closed –loop learning. Guided and informed by them, business leaders must
• focus on what really matters
• ground strategy in their company’s heritage
• co-create and communicate constantly
• sustain direct contact in all areas…and especially at the front line
• support initiatives through key performance indicators, recognition and rewards, etc.
• install processes to force feedback
• Institutionalize capabilities for experimentation, adaptation, and modification
“Vagueness and indecisiveness are the handmaidens of entropy,” Zook and Allen suggest. “They lead to loss of discipline, to inconsistency, to ineffective learning, and ultimately to costly diseconomies of scale.” Effective leadership is essential. Without it, the customer loses out. “Entropy is the enemy of repeatable models [of business success]. Absent the right leadership, entropy wins every time.”
Organizational entropy is so subtle that it is almost invisible, driven by ever-increasing complexity that – over time — depletes efficiency, productivity, profitability, and finally, solvency. Growth gives way to stagnation, then decay, and eventually death.