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Why organisations resist innovation

One of my good friends at 11FS referenced Conway’s Law the other day.  I wondered what it was, as I know Moore’s Law and the Law of Diminishing Returns in economics, but Conway’s Law?  What’s that?

It’s a thesis created by Melvin E. Conway, a computer programmer, back in 1968 which states:

Any organization that designs a system (defined broadly) will produce a design whose structure is a copy of the organization’s communication structure.

I love this thesis, as it really shows why it’s incredibly hard to innovate internally.  The internal innovator is like some strange virus infecting the organisation.  The internal innovator may be encouraged to challenge and question the way the company works, but anyone dealing with such a creature finds them objectionable.   You challenging me?

It reminds me of when I was a graduate inductee way back when.  After six months in the organisation, I had a whole raft of things that I thought were stupid rules and questionable procedures.  Things that were holding the firm back and, if adapted or changed, would release far more productive operations.  I set up a meeting with my boss, submitting my paper beforehand.   The meeting didn’t last long, with his opening statement going along the lines of I’ve been here for twenty years and know how this company works and what makes it work.  When you’ve been here as long as I have, then you can submit a paper like this but, today, you need to understand our business before you question it.  With that he dropped the paper I had sent in the bin with a look on his face as though it were pooh, and pointed to the door indicating the meeting was over.

Sure enough, I never had another new idea in that company ever again.  But then I left shortly after due, in large part, to that meeting.

The point is that a company has a culture and that culture reflects the people they hire, and who stays and leaves the company.  The company tends to avoid reinventing itself for this reason, as it would rather replicate itself rather than reinvent itself.  It is the reason why innovators have their dilemma.  You cannot innovate in an organisation that will do its utmost to resist change.

This isn’t actually what Conway’s Law says, although it is the reason why the constraints of innovation are there.  Melvin’s paper is all about you cannot design any new system without communicating across the organisation.  This means that the more people involved, the more it reflects the existing organisation.

The basic thesis of this article is that organizations which design systems (in the broad sense used here) are constrained to produce designs which are copies of the communication structures of these organizations.

You can read Conway’s original paper here, and his conclusion is that companies need to be flexible in their communications and approach to design.  I wish.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • Mark Kovarski

    Chris, the issue is deeper than this. It has to do with how banks and other industries are organized and management gets rewarded. Take cloud as an example, it will shrink the size of a bank’s IT department but yet in order to be an executive at a bank you have to have X amount of fulltime employees in your department/division. Why would an IT bank exec want cloud then? They do not get rewarded for shrinking the size of their empire…. So the issue is deeply rooted (and NOT talked about) about the risk/reward system ingrained into institutions.