Organisational immunity: why warning signals fade

In autumn 2008, the public was informed that a state-owned German development bank had suffered a loss in the hundreds of millions as a result of a transfer mishap. Shortly afterwards, further losses from bonds with the investment bank Lehman Brothers became known. The bank hoped to recover part of the money from the insolvent institution’s estate.

The cause of the mishap was automated transfers that were executed as usual. This happened even though the insolvency of Lehman Brothers had long been expected at that point. According to press reports, a member of the board of directors was dumbfounded: every television viewer had known that day that no more money should be transferred to that bank, only their own bank had not.

The case shows impressively how organisations fail to use available and accessible information internally as such. They then do not make adequate decisions and do not stop or change established routines.

Beyond the dismay at such failures, questions inevitably arise. Why do highly developed organisations with competent managers and employees make such cardinal errors? What causes can be identified when organisations behave as if they did not perceive their environment? How can such phenomena be explained and addressed so that organisations act more wisely?

The following chapters look at these questions from an unfamiliar angle. They work out options that broaden the scope for action.

Anyone observing organisational action notices at first glance that the survival of organisations depends on how far they open themselves to the outside. Every day is marked by intensive transactions: with customers, suppliers, associations, authorities, interest groups and others.

If a system were closed, these transactions could not take place, and the end of the organisation would be sealed. This raises the question of whether organisations are inherently open to their environments, or whether the idea of operational closure fits reality better.

A statement by the Fraunhofer-Gesellschaft on the Hannover Messe gives a clue. In it, Hans-Jörg Bullinger explained that the right degree of openness has a significant influence on a company’s success. According to this, open companies initiate more innovation projects on average than others.

It went on to say that networking and openness are the prerequisite for radical innovation. The majority of companies pursuing more radical innovations had chosen an open innovation approach.

This very emphasis is revealing and leads back to the initial question. If organisations were open of their own accord, openness would not need to be called for specifically and highlighted as a success factor. The demand indicates that openness cannot be taken for granted in organisations.

From the perspective of modern systems theory, organisations are social systems that live and want to stay alive. The basic element of an organisation is neither objects nor subjects nor actions. Social systems consist of communication.

According to Niklas Luhmann, communication is the autopoietic operation that recursively refers back to and anticipates itself and thereby produces social systems. Recursive derives from the Latin recurrere, to run back. Communication therefore exists only as a social system and only in social systems.

In this sense, communication is not an action. It is an event that is there and then passes again. Only when communication continues do social systems arise and persist.

Organisations develop their own idiosyncratic patterns of communication. Over the course of the system’s history, these patterns become condensed and form the basis of self-referential connections, that is, connections that refer to the system itself.

According to Helmut Willke, social systems can be regarded as operationally closed when they develop semantic structures, in particular codes and programmes. These structures force the communicative operations taking place in the system onto self-referential, recursive orbits.

According to Willke, self-referentiality and operational closure are the indispensable prerequisites for a complex system to stabilise and reproduce itself. In this understanding, closure is not a deficiency of the organisation. It is a condition of its existence.

The concept of operational closure is, moreover, the prerequisite for systems to selectively seek points of contact outside their own system. Through these points of contact they couple structurally with relevant environments and thus open themselves to the outside.

In other words: if an organisation did not close itself operationally and chased after every flea, it would not be able to stay alive as a system and offer useful output to its environment.

Organisations play their own tune and can only hear their own music. Rudolf Wimmer puts it this way: in all their operations, organisations draw on what has gone before, on their own history.

This makes explicit processes of reflection all the more important. In them, it is observed where structural couplings take place. Only in this way can the relevant information from the outside world be taken in, communicated internally and thus worked on.

This offers a first explanation of why organisations cannot simply hear and process the music being played outside. Special efforts are needed to filter out of the noise outside the organisation the information that is necessary for survival.

Organisations therefore have to enter into a productive dialogue with their relevant environments in order to recognise the relevant information.

An organisational system exists only by distinguishing itself from its environment. In this sense, every social system is an observer of its environment. In doing so, it draws a distinction between itself, the inside, and the environment, the outside.

Taken together, the environments are more complex than the organisation itself. Organisations therefore select their relevant environments. To do so, they use their own frames of observation, shaped in the past. Each organisation thus develops its own logic of observation and evaluation.

In observing, every organisation uses its own constructions of reality to structure the world it observes. Since not all aspects can ever be observed, the observation and the conclusions drawn from it are always only constructs. They are meant to help the observer find orientation.

The more volatile the relevant environments, the greater the danger posed by the established frame of observation and evaluation. Organisations then do not even perceive important things as relevant. Or they carry experience from the past into the future, even though important influencing factors have changed fundamentally.

Both behaviours can lead to fatal wrong decisions that put the existence of the company at stake.

The concept of autopoiesis was developed by the biologists Humberto Maturana and Francisco Varela and adopted into the social sciences by Luhmann. The term derives from the Greek, from autos for self and poiesis for creative activity or work. In biology, it means that systems create themselves as distinguishable units through their internal biochemical processes.

Autopoiesis therefore means that systems reproduce themselves out of themselves and, in a certain sense, decouple themselves from the environment in doing so. This is operational closure. Heinz von Foerster speaks of a system that produces further operations from the state into which it has put itself.

According to Luhmann, autopoietic systems are operationally closed and, in precisely this sense, autonomous systems. A system can be operationally closed and at the same time extremely dependent on a constant supply of very specific resources. Luhmann cites the brain, which depends on the bloodstream.

Operational closure thus only means that the system can operate exclusively in the context of its own operations and in doing so depends on structures produced by those very operations. In this sense, one also speaks of self-organisation or, in relation to organisations, of structural determinism.

This view has far-reaching consequences. Organisations decide for themselves which issues they regard as significant. They also decide which issues from outside their own system are considered relevant internally, evaluated and used for decisions.

In this process, history, accumulated experience, existing assumptions and frames of observation, and established communication routines play an enormous role.

Luhmann describes both directions. As a recipient of communications, the organisation’s own structures determine by which information it allows itself to be irritated and stimulated to process information. An autopoietic system can therefore only inform itself. As a sender of communications, the organisation decides what it wants to communicate and what not.

According to Maturana, such systems are structurally determined: their structure, fixed within the system, determines what happens in them. Environmental events can only stimulate or trigger these self-steering systems to perform their own operations. They cannot determine them, that is, they cannot define or fix them. Maturana calls this kind of relationship with the environment, which serves to secure the system’s own life, structural coupling.

Wimmer builds on this. Living systems, like social systems, have specific openings through which contact with the environment runs. It is precisely at these points of coupling that systems often have the ability to generate irritations stimulated by the respective area of the environment.

Systems have therefore developed extremely selective points of contact with the environments relevant to them. These points are not arbitrary. They are closely linked to a system’s specific conditions for survival.

This selectivity is very important. No system could observe itself and its environments if it had to respond to every event in the environment with a state of its own. According to Luhmann, concern for the connectivity of its own operations to its own operations presupposes a sharp limitation of sensitivity to external events.

The concept of operational closure allows the relationship between inside and outside to be considered in a very differentiated way. It helps to recognise how important concepts for structural coupling with the relevant environments are.

They are the prerequisite for important changes in the relevant environments to be recognised, evaluated and fed into decisions. Only in this way do internal structures such as processes and routines adapt constantly and evolutionarily to external requirements.

A mature concept of structural coupling helps an organisation to recognise signs of relevant change early. It ensures that these observations are fed into the organisational communication process in such a way that internal structural change becomes possible.

The assumption that organisations are autopoietic and operationally closed systems explains why wrong decisions are made even though relevant information is available.

The self-preservation drive of organisations and their self-referentiality can make them blind to relevant changes in their environment. Self-referentiality here means that internal connectivity takes priority over external connectivity. This defence against disturbances from outside is the organisation’s immune power.

Since the basic element of organisations is communication events, communicative interactions take on great importance. Organisations cannot perceive their environments themselves. They therefore depend on the perceptions of people.

Whether an organisation can use the existing knowledge of individuals for its own decisions depends on how the communication process is designed. Fritz B. Simon put this question pointedly under the title “Gemeinsam sind wir blöd!?”.

Wimmer points out that every check of whether knowledge is appropriate to reality depends on suitable communication with others. If this possibility is missing, it seems inevitable that the difference between one’s own world and the world in which one organises survival together with others becomes threateningly large.

All perceptions and available information first have to pass through the eye of the needle of communication before the organisation can benefit from them. To access the existing system intelligence, leadership must, according to Simon, enable communication free of hierarchy without dissolving the hierarchy.

The construct of structural coupling makes clear that an organisation must pay close attention to where in the system communicative openings are established in order to couple with relevant environments.

It is very important to observe constantly whether the current selection of points of coupling is sufficient. It must also be checked whether these points are able to generate the necessary irritations stimulated by the respective area of the environment. This is how Wimmer formulates the standard.

For necessary changes, the organisation has to enter into a productive dialogue. According to Willke, this requires a continuous change of perspective: between self-reference and external reference, between the organisation’s internal concerns and possibilities and the external demands and constraints.

In doing so, it is necessary to let go of the idea that change can be brought into the organisation from outside. Changes to internal structures, routines, processes and values always require the organisation’s own decisions. These decisions must in every case come about through the system’s own communication processes.

For this reason, leadership is particularly called for in the company. Leadership has the task of designing communication processes so that observations from the environment become connectable internally and established routines can be reviewed, stopped or changed in good time.