People Driven Organizations

When organizations were first formed they were largely people driven. Before we delve any further, it would be useful to first understand what being people driven really means. An organization basically required four types of inputs to function successfully viz -

  1. Land
  2. Labor
  3. Capital
  4. Enterprise

A people driven organization is dependant on specific people for these inputs. For instance if only specific laborers have the skill to perform certain activities hat are required by a business, then those laborers are bound to team up and use the bargaining power to increase their wages.

An organization will be people dependant always i.e., it will need people to provide it with the inputs required. However, the idea is to create an organization that is not dependant on specific people. This means that if a laborer or a group of laborers decide to leave the organization, the organization should still be able to continue its normal operations without too much of a setback.

Also being people driven imposes certain limitations on the organizations which have been listed below:

  • Limitations of Time: Specific people have only a certain amount of time to devote to the organization. Being people dependant, therefore places a cap on the total amount of time that is available with the organization to utilize to achieve its objectives.

    For instance there are certain strategic decisions (activity) that can only been taken by the entrepreneur (specific individual), it limits the amount of decisions that can be made by the time that the entrepreneur has.

    A process driven organization would try to map out the mental model of the entrepreneur and create a set of rules. Then other people and systems can be used to ensure adherence to these rules. This will enable the number of decisions to increase without the quality of decisions take the slightest hit. Only exceptions will reach the entrepreneur.

    Over time, the process will be strong enough to ensure that there are no exceptions at all and that all decisions can be handled by the process itself.

  • Limitations Of Skill: In the previous example we have assumed that the entrepreneur has the requisite skill to make the decisions. In reality this is not always the case. The entrepreneur may not have enough skill or knowledge about all the areas in business like HR, Finance, Supply Chain, Operations, Marketing, Sales etc.

    A people driven organization will function on the basis of incomplete knowledge that the entrepreneur has. This is because the knowledge is nested in people who have limited ability to learn.

    A process driven organization on the other hand will hire the best consultants in this regard, map their mental model and create an set of rules which regular employees can follow. This organization will use average employees as inputs to create above average results because of the process approach.

  • Heavily Dependant On Factor Markets: The people driven model assumes the availability of people with requisite time and skills.

    There is an underlying assumption that the company will be able to procure them within the allocated costs in the factor markets (labor markets). However, historically it has been shown that labor is mobile across industries. For example, the prospects of more wages in IT industry could mar the hiring plans of a manufacturing company because they just cannot hire more.

  • Agent-Principal Conflict: The last problem with a people driven organization is that of moral conduct.

    If the organization relies on the good faith of its employees to execute its operations, it is an inherently unstable structure. A few immoral employees acting in their interest rather than the organization’s interest could cause the company to collapse.

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