Monday, April 27, 2009

Escape from the Panopticon

This post is a continuation of "The paradox of the Panopticon," posted on April 25, 2009...

The way out of the
Panopticon is through organizational redesign and transformation based upon the Toyota Way. In other words, to escape the Panopticon, we must transform organizations into lean enterprises, which have two critical features:
  1. Radical decentralization of decision making; and
  2. Cybernetic control of quality and finance.
Radical decentralization

As every good American should know, and as Jeremy Bentham--architect of the Panopticon--himself taught, the greatest social good is achieved when we let every individual decide for himself or herself how best to conduct his or her affairs. Naturally, to escape the Panopticon, we should want to design organizations that preserve the benefits of free market thinking as much as possible.

The Toyota Motor Company has done something very much like this for large business organizations in the form of kaizen or continuous improvement. At Toyota, it is the job of all employees to find defects and fix them, in as close to real time as possible, without asking for permission. Toyota's model is perfectly general, having been successfully applied in many industries, including healthcare. So long as the scientific method is employed in doing so, employees as well as managers are empowered to implement countermeasures on the spot. In effect, a lean enterprise is a community of scientists conducting and acting upon their own experiments in an internal market for organizational knowledge. In this sense, a lean enterprise is radically decentralized and thus is like that most extreme example of radical decentralization: the free market.

Cybernetic control

With all of those empowered employees running around, however, radical decentralization might degenerate into anarchy without an appropriate control mechanism. Who is to say that employees will not pursue their own experimental interests at the expense of the organization's?

We said that to escape the Panopticon, organizations should be as much like free markets as possible. How are free markets controlled? In a word, they are "cybernetic." The term "cybernetic" is from the Greek for "self-steering." When economists say that they expect markets to "self-correct," they are referring to the cybernetic quality of markets to return to equilibrium without government intervention. When we refer to cybernetically controlled organizations, we are not referring to computerized controls, but to the natural tendency of appropriately designed organizations to "self-correct" without executive intervention.

This is a far cry from management accounting, the control mechanism employed by most large organizations in the world today. Management accounting mirrors the Panopticon and Foucault's Discipline and Punish more readily than the laissez faire of the marketplace.

Within a lean enterprise, hoshin kanri is the mechanism that provides the coordinating benefits of organizational control--including financial control--without compromising the utilitarian ideal of freedom by instilling in every employee a common notion of the organization's strategy. Through an elaborate process of negotiation called catchball, all managers within the lean enterprise establish both the financial targets and the process improvements by which those targets will be met. For a more detailed explanation, please see my earlier post, "What is lean management?" The result of this process is a system that is essentially cybernetic.

What does this mean?

Lean organizations like Toyota are able to produce goods and services at much higher quality and far lower per unit costs and with far fewer layers in their management hierarchies than Panopticons like General Motors:
  • Womak and Jones (in their groundbreaking The Machine That Changed the World) estimated that a lean enterprise produced twice the product in half the time at half the normal defect rate with a fraction of the required work-in-process inventory; moreover,
  • lean enterprises require fewer managers (at its height, GM had as many as 33 layers of management, while Toyota has about 9.)
Although no one is saying that Toyota is a free market, it is clear that the radical decentralization of empowerment and the cybernetic control of hoshin kanri create an extraordinarily productive and adaptive organization form. My point is that in doing so Toyota has resolved the Prinsoners' Dilemma and shown the way out of the Panopticon.

Tom Jackson
Portland, Oregon

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