Evolving Novel Organizational Forms

Kevin Crowston

School of Business Administration University of Michigan

July 26, 1996

Submitted to Journal of Computational Organization Theory

This paper is based on a version originally published in K. M. Carley and M. J. Prietula (Eds.), Computational Organization Theory. Hillsdale, NJ: Lawrence Erlbaum, 1994, pp. 19-38.

The author gratefully acknowledges the support of the Ameritech Foundation, through the Information and Organizations Program of the University of Michigan Institute for Public Policy Studies, the University of Michigan Center for Parallel Computing, which is partially funded under NSF Grant CDA-92-14296 and the Massachusetts Institute of Technology Center for Coordination Science and NSF IRI Grant 92-24093.

The paper has benefited from discussions with Michael Gordon, Helen Klein, Michael Cohen, Brian Pentland, Martha Feldman, Tom Finholt, Ojelanki Ngwenyama and Kathleen Carley.

Table of Contents:


A key problem in organization theory is to suggest new organizational forms. In this paper, I suggest the use of genetic algorithms to search for novel organizational forms by reproducing some of the mechanics of organizational evolution. Issues in using genetic algorithms include identification of the unit of selection, development of a representation and determination of a method for calculating organizational fitness. As an example of the approach, I test a proposition of Thompson's about how interdependent positions should be assigned to groups. Representing an organization as a collection of routines might be more general and still amenable to evolution with a genetic algorithm. I conclude by discussing possible objections to the application of this technique.

1. Introduction

It is common place to note that the environment in which organizations operate is changing rapidly. Businesses are facing increased pressures to design and produce products with higher quality, more rapidly yet more cheaply. At the same time, new technologies are rapidly relaxing fundamental constraints on organizational design, for example, by making communication and data storage much cheaper or by facilitating previously impractical interactions across time or space.

Such rapid changes may pose problems for organizations that have evolved to fit the old environment. In particular, the changes may make novel organizational forms more appropriate. Organizational ecologists explain the diversity of forms by analogy to biological species competing for resources (e.g., Singh and Lumsden, 1990) those with forms more appropriate for the environment are more successful at acquiring resources and thus tend to survive while those with less effective forms tend to fail. Over time, this selection results in an observable match between organizational forms and the environment in which they operate.

Unfortunately, these theories do not provide much insight into exactly what kinds of new form might become desirable; they say only that if the environment changes, new forms may eventually replace existing ones and describe the processes by which this occurs. Indeed, Romanelli (1991) calls the question of the origin of new organizational forms, "one of the critical unaddressed issues in organizational sociology".

In this paper, I will discuss the use of computer simulations to search for novel organizational forms by reproducing some of the mechanics of organizational evolution. The metaphor of organizations competing and being selected on the basis of their fitness is a compelling one. Natural selection is also the basis of a heuristic search technique known as the genetic algorithm (GA) used to search large problem spaces (Holland, 1992.) If we can describe the space of organizational forms, we can use this algorithm to search it.

Using the GA to search for possible organizational forms has the advantage that variations in organizational forms explored are not restricted by social factors, institutional pressures (DiMaggio and Powell, 1983) or human ingenuity. However, this advantage is simultaneously a major concern about simulations: the potential lack of external validity. Computer models necessarily abstract from real organizations; the features simulated must be chosen carefully to ensure that conclusions drawn from the models can be applied more generally (Burton and Obel, 1980).

In the rest of this paper, I describe the GA and discuss some issues in applying it to organizational forms. To illustrate the potential of this approach, I then present a simple model of an organization and some preliminary results from using the GA. I conclude by discussing possible bases for a more general organizational model and general caveats about the approach.

2. Genetic Algorithms

A genetic algorithm works as follows. Given a problem, a random population of possible solutions is generated. For example, in this simulation, the population was of organizations represented as various arrangements of positions into groups. Solutions in the population are evaluated and the most promising ones used in proportion to their fitness as the basis for the next generation of possible solutions. In this simulation, fitness was determined by the number of number of tasks the organization performed, as explained below. New solutions are created by cross-over, that is, by taking two existing solutions, dividing each in two parts and exchanging parts to create two hybrid solutions. In this simulation, the parts are partial assignments of positions to groups. As well, a small number of mutations are introduced, although in most GAs, these changes play only a minor role. In this simulation, in approximately 1% of the organizations a position is moved from one group to another. The process is repeated until one of the solutions successfully solves the problem, until a certain number of generations pass with no improvement in the solutions or, as in this simulation, for some fixed number of generations.

While the GA seems random, it turns out to be an effective method for searching a large search space and it has been used to evolve solutions to many kinds of problems, including strategic games, optimization problems, mechanical design and image classification (Booker, et al., 1987) and even LISP programs (Koza, 1992). It can be shown that the individuals in the current population encode large amounts of useful information about combinations of features, called schemata (Holland, 1992). These schemata implicitly represent numerous similar individuals not actually present in the population. Furthermore, as the individuals are selected and bred, schemata are also reproduced in the population in proportion to their fitness. In essence, by manipulating a modestly sized population, a GA implicitly searches in parallel a much larger portion of the space.

As the above discussion make clear, there are two main issues in applying the GA to a problem such as organizational design.

Representation. First, we need a representation of the organizations to be evolved, general enough to represent any organizational form of interest. Representing only different kinds of hierarchies, for example, would not allow us to consider market mechanisms for the same transactions (Williamson, 1975).

Fitness. Second, we need to represent the environment in which the organizations perform and, explicitly or implicitly, a fitness function to identify "good" organizations. By varying the environment, we can look for forms that may be desirable under different conditions.

2.1 Representation of Organizations

The first question is how organizations should be represented, or alternately, what constitutes an organizational form? Romanelli (1991) notes that researchers have proposed several approaches to this question but concludes that there is no general agreement. Obviously this question is governed primarily by researchers' theoretical commitments and the kind of research questions they hope to investigate. For example, an interest in the use of information technology suggests a focus on factors that are directly influenced by the application of such systems, such as communication patterns, costs or capabilities.

The use of the GA does place some constraints on the representation, however. First, we require a representation in which cross-overs between individuals make sense. This requirement implies viewing an organization as a collection of features which can be combined and recombined in various ways--what Romanelli (1991) and Hannan and Freeman (1986) describe as organizational genetics. Most models of organizations do not have this property. For example, Hannan and Freeman (1986) note that much of organizational research has used conventional classifications of types of organizations--"[w]e routinely distinguish hospitals, prisons, political parties, universities, stock exchanges, coal mines and fast-food chains" (p. 54)--but it is unclear, what a cross between a hospital and a coal mine is (for example) or how it could be represented.

Hannan and Freeman (1986) and Romanelli (1991) review several candidates for organizational features, including organizational building instructions, transactions and routines. Given a set of features, organizations can be represented using simple bit strings to encode the presence or absence of a feature. Such a representation has the advantage that it can be easily manipulated by the GA. Organizations can be easily crossed: both are split at a randomly chosen cross-over point (e.g., after the 10th bit); the first half (e.g., bits 1 to 10) of the first is concatenated with the second half of the second (e.g., bits 11 and on) and vice versa to create two new hybrid strategies. As well, solutions can be mutated by changing one or more of the bits. A significant disadvantage is that this representation often determines in advance the size and shape of the final solution, i.e., it is not sufficiently dynamic (Koza, 1992).

A second requirement is that we would prefer that the space of possible organizations be "dense", that is, modifications to the representation of one organization should usually result in another viable organization. Simply representing the formal structure of an organization might be unsatisfactory, for example, because the effects of replacing one department (marketing say) with another (manufacturing) will usually be a non-functioning organization (one with two manufacturing divisions but no marketing).

Michalewicz (1992) suggests that for the GA to perform better it is necessary to incorporate, "more problem-specific knowledge in the chromosomes' data structures" (p. 7). Bean (1994) has experimented with several techniques for mapping a dense and simple space into the desired space, e.g., mapping a sequence of N random numbers into a route for the travelling salesman's problem or a schedule for a machine shop. More complex representations, similar to the hierarchical LISP programs used by Koza, could allow for a wide variety of forms, including forms with complex internal structures, such as organizations.

2.2 Fitness

Second, we need a mechanism to assess the fitness of individual organizations. The most straightforward approach to this problem is to choose a task and measure the success of the organization at performing it (e.g., the time required to perform the task, number of tasks performed in unit time, total cost, etc.). Picking a good task is key--it must be abstract enough to simulate but have clear application to a real situation. Better yet, it should be one that could be done in many ways, with no clear dominant best form, and for which the features of the organization of theoretical interest are thought to make a difference in performance. For example, if we chose to model communication patterns within an organization, then the task evaluated should be one for which theory suggests how those patterns affect the outcome (e.g., by affecting how long it takes to perform the task).

Characteristics of the environment also determine in part the fitness of organizations. As with organizational forms, there are many characteristics of the environment that could be represented. Freeman and Hannan (1983), for example, examined the effects of environmental variability and patchiness. The characteristics of the environment modelled are those that are presumed to affect the performance of the organization on the task.

The environment may also include the other individuals in the population making the success of a particular individual dependent on the behaviour of the other individuals. For example, Axelrod (1987) used the GA to evolve strategies for playing prisoners' dilemma games, which we measured by their success in playing against other strategies. Such a model can exhibit behaviours that depend on the interaction between individuals, such as symbiosis or parasitism. In such a model, an individual's fitness may be defined only implicitly by its relative success in acquiring resources, as in Holland's Eco models (1992).

3. Example: Assignment of Positions to Groups

In this section, I will provide an example of the use of GAs for organizational design. In this example I model entire organizations by encoding an organization's formal structure. The GA is then used to modify these structures, eventually identifying particularly fit organizational forms.

At this initial stage of research, I believe it is most useful to address questions for which there is already some theoretical agreement. This replication will allow us to develop some confidence in the technique before applying it to novel problems. As well, a theoretical base is necessary to suggest what features of organizations and the environment should be modelled. The experiment presented here was developed to test a proposition of Thompson's (1967) about how interdependent positions should be assigned to groups. Thompson suggested that "[i]n a situation of interdependence, concerted action comes about through coordination" (p. 55) and further notes that coordination requires decisions and communication (in varying amounts), which make coordinating costly. He therefore proposes that "[u]nder norms of rationality, organizations group positions to minimize coordination costs" (1967, Proposition 5.1, p. 57). In other words, the problem of organizing is to determine which positions should be assigned to which groups.

It is clear that we need to consider two other factors that influence organizational design and which are only implicit in Thompson's formulation. First, we need to note the benefit of coordinating. In Thompson's view, this benefit is "concerted action", which I will interpret as increased task performance. For some tasks, concerted action might not matter, and so no coordination cost is worth paying; for others, coordination might be necessary do the tasks at all. Second, there must be some restrictions on how positions are grouped. There must be a maximum group size, or else the easy answer is to simply put all positions in the same group. Similarly, there must be some restriction on the number of groups to which a position can belong, or else there could simply be one group per task. In some environments, positions can only be in one group; in others, it might actually make sense to have one group per task. Taking these factors into account, Thompson's proposition can be restated as, "under norms of rationality, organizations group positions to optimize the tradeoff between the benefits and costs of coordination, subject to limits on the size of groups and the number of groups to which a position can belong". It is this restatement that I will test in this experiment.

3.1 Experimental design

To design the simulation, I addressed the two issues discussed above, representation and calculation of fitness.

3.1.1 Representation

To begin simply, I created a model with positions restricted to belong to only one group. In this model, an organization is a set of N positions, each belonging to one of 2M groups. The group to which a position belongs can therefore be represented as an M-bit binary number, and an organization as an NM-bit string. In these experiments there were 10 positions and 16 possible groups, so each organization was represented by a string of 40 bits, for a total of 240 or approximately 1012 possible organizations. Sixteen groups was chosen to allow each position to be in its own group.

3.1.2 Fitness

The model is characterized by a number of other parameters, as shown in Table 1, but for the experiments reported here most were held constant. Two of the parameters were varied and form the experimental conditions for the experiments: the interdependence between positions and the relative benefit of coordinating.

Table 1. Parameters of the simulation and settings in the reported experiments.
ParameterSetting in reported experiments
Generations 200
Number of positions10
Number of groups16
Number of tasks/position10 selected (see text)
Interdependence between positions0, 2, tasks overlap (see text)
Coordination cost1/9 (see text)
Coordination benefit-.5, 0, .3, .7, 1.2, 1.7, 2.25 (see text)
Mutation rate1/40 % chance of a mutation per bit
Maximum and minimum normalizedfitnesses100 and 1
Interdependence between positions. To model interdependences between positions, positions were assigned overlapping sets of tasks. In these experiments the degree of interdependence was varied from none (each position works on a unique set of tasks) to total (all positions work on the same set of tasks). The overlapping sets of tasks were created by deterministically assigning each position some number of tasks and randomly assigning others. For example, if five of ten tasks were deterministically assigned, then there would be 50 tasks total (5 tasks times 10 positions) and the interdependence would be 5. Position 0 would be assigned tasks 0 through 4 plus five tasks chosen randomly from the remaining 45 tasks assigned to other positions; position 1 would be assigned tasks 5 through 9, plus five other randomly chosen tasks, and so on. If all ten tasks are assigned deterministically, then each task would be assigned to only one position and the interdependence would be 0; if only 1 task is assigned deterministically, then each position would perform the same set of ten tasks and the interdependence would be 10. A typical set of positions is shown in Table 2. Table 3 shows the interdependence between the tasks performed by these positions, calculated as the number of common tasks divided by the total number of tasks.

Table 2. Example of positions and tasks with 5 tasks assigned deterministically.
Assigned task
11111    1    1        1 1            1            
   1 11111 1               1       1        1     
          11111   1 1   1       1     1           
     1 11      11111                        1 1   
1  1     1          11111                1       1
        1      1        111111         1       1  
       1         1            11111      1   1 1  
 1             1      1       1    111111         
                        11 1    1      111111     
1   11  1                          1         11111
Note: a 1 indicates the task is assigned to the position; assigned tasks are underlined.

Table 3. Overlap between actors' assigned tasks (# shared tasks/total # tasks) for positions in Table 2.
Position 0 1 2 3 4 5 6 7 8 9
0 1.0 0.2 0.2 0.0 0.4 0.1 0.0 0.2 0.1 0.2
1 0.2 1.0 0.1 0.4 0.2 0.2 0.1 0.1 0.2 0.3
2 0.2 0.1 1.0 0.1 0.2 0.1 0.1 0.1 0.2 0.0
3 0.0 0.4 0.1 1.0 0.0 0.2 0.2 0.1 0.1 0.3
4 0.4 0.2 0.2 0.0 1.0 0.1 0.1 0.1 0.2 0.2
5 0.1 0.2 0.1 0.2 0.1 1.0 0.1 0.2 0.4 0.2
6 0.0 0.1 0.1 0.2 0.1 0.1 1.0 0.1 0.2 0.2
7 0.2 0.1 0.1 0.1 0.1 0.2 0.1 1.0 0.2 0.1
8 0.1 0.2 0.2 0.1 0.2 0.4 0.2 0.2 1.0 0.0
9 0.2 0.3 0.0 0.3 0.2 0.2 0.2 0.1 0.0 1.0

Relative benefit of coordinating. In order to calculate the tradeoff between the benefits and costs of coordinating, we must state them in a common metric. In this model, the fitness of each organization is defined to be the sum of the number of tasks each position performs, which in turn is proportional to the time spent on those tasks. Each position was assumed to start with an initial allocation of time. Conceptually, each position then talks to each other position in its group, which diminishes the time available to work on tasks by a constant factor per position talked to. For this experiment, this cost was fixed at 1/9 of a position's initial time so that a position that talked to every other position would have no time left to work on any tasks (i.e., a group that included all positions would get no work done).

To model the benefit of coordination, the time a position spends on a task is increased for each other position in the group that is assigned the same task. The amount of the increase is called the coordination benefit and is stated as a percentage of a position's initial allocation of time. The coordination benefit was varied from condition to condition as shown in Table 1. Negative values of the coordination benefit were included primarily as a sanity check on the algorithm.

3.2 Hypotheses

Organizations in this model are subject to two countervailing forces: as positions are assigned to the same group, they can take better advantage of the synergies between tasks (depending on the degree of interdependence between positions and the value of the coordination benefit), but suffer a reduction in the time available due to the need to communicate with other group members.

Interdependence. For conditions with no interdependence between positions, there is no benefit to being in a group; therefore, for this condition there should be one group for each position. On the opposite extreme, when all positions perform the same tasks, the benefit for being in a group with others is high; if the benefit is high enough, one group should form that includes all positions.

Coordination benefit. When the coordination benefit is zero or negative, again, there is no benefit to being in a group, so again each position should be in its own group. On the other hand, when the coordination benefit is high, all positions should be in the same group, since the benefit will outweigh the cost. For intermediate values of the coordination benefit, groups of intermediate size should form, grouping positions with high interdependence.

To summarize:

Hypothesis 1: When the interdependence is 0, the number of groups will be 10.

Hypothesis 2: When the coordination benefit is negative or zero, the number of groups will be 10.

Hypothesis 3: When the coordination benefit is high and the interdependence is high, the number of groups will be 1.

Hypothesis 4: For intermediate values of interdependence and coordination benefit, groups will form that group positions with relatively high levels of interdependence.

These forces and predictions about the number of groups are summarized in Table 4.

Table 4. Summary of conditions, hypothesized forces and expected organizational forms.
Coordination benefit
Negative or zeroLowHigh
Inter-dependence Favoured resultMany groupsFew groupsOne group
ZeroMany groupsMany groupsMany groupsMany groups
MediumFew groupsMany groupsFew groupsOne group
HighOne groupMany groupsFew groupsOne group

3.3 Implementation

The simulation described here was written in C and run on a 64-node KSR2 parallel computer. As Grefenstette (1991, p. 192) notes, GAs map easily on to a coarse-grained multiprocessor. In particular, evaluation of individuals in a generation can proceed in parallel, as can the breeding of members of a new generation, resulting in nearly linear speedup on these phases. The program has also been run on a single processor Sun-3 and a Macintosh with Symantec Think C.

There are many variations on the GA. The one used for this paper is what Davis (1991, p. 35) describes as a "traditional GA". Fitnesses were normalized using linear normalization (Davis, 1991. p. 33), that is, organizations were sorted in decreasing order of evaluation and fitnesses assigned starting at a maximum value and decreasing linearly to a minimum value. Davis points out two benefits to the use of this technique. First, normalizing the evaluations spreads out closely spaced organizations, thus heightening the competition in a close race. Second, using linear normalization allows a "super" individual to be strongly selected, but not so strongly that it entirely dominates the population. As well, reproduction was elitist (Davis, 1991, p. 34), meaning that the two best individuals from each generation were simply copied to the next, thus preventing them from being eliminated by the vagaries of random selection. Davis notes that this strategy usually improves the performance of the GA.

3.4 Results

For this experiment, the GA was run 30 times with a population of 500 for 5000 generations for each set of conditions. In each run, therefore, a total of 2.5x106 organizations were considered which is significantly less than the total number of different forms possible. The best performing organization seen in each run of the simulation was saved. Each run of 49 conditions took approximately one hour to complete. A sample of the output from one run for one set of conditions is shown in Table 5. Each position is assigned to a group; in this case, all positions are in separate groups. Table 6 presents the average number of groups formed, by interdependence and coordination benefit; Table 7 presents the average size of the largest group formed.

Table 5. Example final organization form (5 task overlap, no coordination benefit).

Position 0, Group: 6

Position 1, Group: 0

Position 2, Group: 13

Position 3, Group: 4

Position 4, Group: 9

Position 5, Group: 15

Position 6, Group: 5

Position 7, Group: 12

Position 8, Group: 10

Position 9, Group: 2

Table 6. Average number of groups by interdependence and coordination benefit.

<---------------------Coordination benefit------------------------>
PenaltyNo effect<-------------LowHigh-------->
Zero        0 
Total      10

Table 7. Average size of largest group by interdependence and coordination benefit.
<---------------------Coordination benefit------------------------>
PenaltyNo effect<-------------LowHigh-------->
Zero        0
            8 7.206.676.477.03
Total      10

3.5 Discussion

Hypothesis 1, that when the interdependence is zero, there would be one group per position, is supported. As Table 6 shows, for these conditions, the average number of groups is 10. The relevant question is whether this is a significant result, that is, one that is unlikely to be a product of chance. The role of traditional statistics is to answer such questions by comparing a result to a theoretically derived distribution of the measure in order to determine how like the result it. Often, the assumption is that the underlying data is normally distributed. Unfortunately, for this experiment the underlying distributions are not known and are almost certainly not normal. Techniques have been developed to deal with such measure; for example, Friedman and Friedman (1995) suggest using the bootstrap method, which involves resampling the data generated to approximate the underlying distribution. Fortunately in this case, the underlying distributions are directly calculable. To test Hypothesis 1, the distribution of the number of groups was determined empirically by randomly generating 5000 organizations and counting the number of groups. According to this analysis, organizations with 10 groups occur by chance less than 3% of the time (134 times out of 5000).

Hypothesis 2, that when the coordination benefit is negative or zero, no groups would form, seems to be supported. Again, for these conditions, the average number of groups is 10, which again is unlikely to occur by chance.

Hypothesis 3, that when the coordination benefit is high and the interdependence is high, there will be only 1 group, seems to be contradicted by the results in Table 6, which show an average around 2. Still, this number of groups is significantly fewer than expected by chance: of the 5000 randomly generated organizations, only 6 had 4 groups and none had fewer than that. Closer examination of the data shows that organizations with only 1 group are found in some but not all runs. Table 7 shows that the average size of the largest group is quite large. It appears that in the remaining runs most of the positions are gathered into one group, with a few stragglers in their own groups. It should be noted that there are only 16 organizations with 1 group, while there are 16x15x...x7 or approximately 3x1010 ways to form organizations with 10 groups. As a result, it is much easier for the simulation to find organizations that satisfy Hypotheses 1 and 2 then it is to find those for Hypothesis 3.

Additional analyses were necessary to test Hypothesis 4, that for intermediate values of interdependence and coordination benefit, groups will form that group positions with relatively high levels of interdependence. A matrix of interdependences between positions is calculated by counting the number of tasks they have in common, as in the example in Table 3. Once positions are collected in groups, a subset of the interdependence matrix can be identified that includes interdependences only between positions in the same group. To test Hypothesis 4, it is necessary to determine the similarity between these matrices. There are many ways to determine this similarity; usually a technique would be chosen based on the properties of the underlying data so statistics can be done on the measure. It is clear that the data in these matrices are not well distributed, making traditional statistics difficult, but again, traditional statistics are unnecessary since the actual distributions can be directly calculated for any measure chosen. I therefore chose to calculate the Pearson's correlation between the upper diagonals of the matrices. Table 8 shows the average correlation for the intermediate results, i.e., those with fewer than 10 but more than 2 groups; presumably any other measure would give essentially the same results.

Table 8. Average correlation between position interdependence and group assignment for intermediate conditions.

                        Coordination benefit                         
                     Low                    High         
Interdependence   .30    .70    1.20    1.70    2.25      
        1                                .69     .74       
        3                .63     .72     .72     .73       
        5         .38    .65     .75                           
        7         .59                                               

The significance of this measure was determined by comparing the calculated correlation to an empirically derived distribution developed by randomly generating 5000 pairs of environment and organization for each level of interdependence and calculating the correlation between the resulting two matrices. Based on this analysis, all of these correlations are much greater than would be expected by chance; in fact, as Table 9 shows, in all but one case the significance of the minimum correlation found in the 30 runs is in the upper 5%. In the exceptional case (interdependence 5 and coordination benefit .30), the benefits of coordinating just outweigh the costs and in 5 of the 30 runs, no groups were formed, resulting in a correlation of zero which is not significant. The significance of the correlation in the remaining 25 cases is in the upper 10%. Based on these results, it appears that Hypothesis 4 is also supported.

Table 9. Significance of minimum correlation found.

                        Coordination benefit                         
                     Low                    High         
Interdependence   .30    .70    1.20    1.70    2.25      
        1                                .96     .99       
        3                .97     .99     .99    1.00       
        5         .25    .99     .99                           
        7         1.00                                               

The model has several possible extensions. First, positions can currently belong only to a single group; the model could be extended to allow positions to be in multiple groups simultaneously. Second, positions could be allowed to form a hierarchy, further testing Thompson's propositions.

4. Example: Interacting Problem Solving Agents

To apply the technique described in this paper more broadly, a more general model of what organizations do is necessary. For this purpose, it may be interesting to examine how an organization can be represented as a collection of routines or what Nelson and Winter (1982) call memes. Similarly, McKelvey (1982) describes an organization as a collection of comps, the "base units of knowledge and skill that make up what the organization knows how to do" (Romanelli, 1991, p. 85).

These routines can be modelled as rules or productions indicating the appropriate action to be taken in a situation. For example, a meme could be represented as a production in a classifier system; such systems have already been successfully used with the GA (Holland, 1992). Such a representation seems particularly appropriate for use with the GA because of the claimed robustness of a rule-base to additions or deletions of individual rules. A disadvantage is that identifying routines may be problematic; as Romanelli (1991) points out, routines are "empirically elusive" (p. 87).

4.1 Representation

The most direct approach is to view an organization as a collection of routines represented as a bit string encoding the presence or absence of a particular rule. These bit strings can then be evolved as discussed above. Alternately, a collection of routines could be represented as a program that takes the current state of the world as input and outputs what actions to take. This program can then be evolved using techniques similar to those used by Koza (1992), who evolved LISP programs by picking two programs and exchanging randomly chosen subtrees (i.e., entire subexpressions) from each. This approach has the advantages that is could develop new rules if a cross occurred in the middle of the representation of a rule.

A second strategy would instead model the competition and cooperation between subunits within an organization to show how these interactions result in a particular organizational form--what Carroll (1984) calls the organizational level. The individuals being evolved in this approach are the components of the organization; the entire population would therefore represent a single organization. In this case, it would be desirable to develop some mechanism by which subunits could specialize for a particular role in the organization. This approach could also be used to explore the emergence of organizations by modelling interactions between independent actors; however, in this case we would need to develop criteria--perhaps related to patterns of interaction --for when an organization has emerged and which subunits are included.

4.2 Fitness

A key difficulty with models based on routines will be calculating fitness. One approach is to simulate the performance of a collection of routines in performing some organizational process, but there is a danger that such simulations will be all or nothing: either the necessary routines are present or they are not. As well, developing these simulations will be time consuming (at least at first).

Evolving individual subunits of an organization might avoid at least the first problem: most organizations (i.e., populations of subunits) will include all necessary routines, but different patterns of distribution of this know-how will result in different performance. However, to implement such a model in a GA, there must be some mechanism that distributes the payoff the organization receives among the subunits that contribute to the result. Subunits that contribute more to an organization's success can then be selected and used to breed the next generation of organizational subunits, thus changing and hopefully improving the entire organization. The distribution of these payoffs might be another way to determine which subunits are part of an emerging organization.

4.3 Proposed Experiment

To illustrate the possible applications of these ideas, I will briefly discuss how they could be used to represent an organizational model such as Malone's (1987) hierarchies and markets. (Again, it seems useful initially to attempt to reproduce findings for which there is some theoretical prediction.) In Malone's model, the problem faced by an organization is processing tasks (e.g., building cars). Tasks arrive at some point in the organization but must be decomposed into subtasks to be processed by specialized processors. Organizations that process more tasks are more successful. Malone compared the performance of four pure forms, namely, functional and product hierarchies and centralized and decentralized markets, each composed of a number of actors of different types.

Each type of actor behaves in a characteristic fashion. Although Malone did not describe them in this way, we can analyze each actor's behaviour as a set of routines for primitive operations and for interacting with other actors, as shown in Table 10. Malone's analysis considered only pure organizational forms and therefore only a limited variety of organizational actors: by mixing these basic capabilities we may be able to generate a wide variety of intermediate forms, such as a cross between a processor and product manager that performs some tasks on its own and delegates others to another actor.

Table 10. Capabilities of different actor types in Malone's (1987) model organizations.
Actor typeCapabilities and knowledge
ProcessorPerform assigned subtasks Respond to bids in a market
Product managersDecompose tasks into subtasks Know one processor for each type of subtask Communicate with processors to assign subtasks Integrate results of subtasks
Functional managerKnow multiple processors for one type of subtask Pick best processor for a given subtask Communicate with processors to assign subtasks
General managerDecompose tasks into subtasks Know one functional manager for each type of subtask Communicate with functional manager to assign subtasks Integrate results of subtasks
Buyers in a decentralized marketDecompose tasks into subtasks Know multiple processors for each type of subtask Request bids for each type of subtask Evaluate bids to pick best processor for a given subtask Communicate with processors to assign subtasks Integrate results of subtasks
Buyers in a centralized marketDecompose tasks into subtasks Know one middleman for each type of subtask Communicate with middlemen to assign subtasks Integrate results of subtasks
Middlemen in a marketKnow multiple processors for one type of subtask centralized Request bids for one type of subtask Evaluate bids to pick best processor for a given subtask Communicate with processors to assign subtasks

In the GA, each actor starts with a random selection of routines and connections to other actors. As well, each actor would have a fixed set of rules for basic interactions, such as "if you want something that you know someone else has, one way to get it is to ask for it". In each generation, the behaviour of the actors is simulated and their interactions determine the performance of the organization. Actors that contribute to the success of the organization, weighted perhaps by some measure of their cost to the organization, are then selected and bred to form the next generation of actors.

Using such a model, the effect of changes in underlying parameters could be assessed. For example, Malone's models included parameters for various costs, such as performing a subtask, maintaining a unit of production capacity and sending a message and he predicted the type of organizational form that would be most efficient for different combinations of the parameters. A GA model can be validated against these predictions as well as used to identify hybrid forms that might be more appropriate for novel circumstances.

By substituting a different set of routines, entirely different types of organizations could be modelled. For example, Crowston (1991) modelled the activities performed by participants in engineering change processes and Pentland (1992) modelled the moves made by software support hotline specialists.

5. Conclusions

This example illustrates several possible results of using GAs for studying organizational questions. First, the process of formulating the model required a more explicit statement of the proposition of interest. Running the model illuminated the relative balance between the underlying factors. For this simple model, the trade-off might have been directly calculated, but for more complex models, such calculations are likely to be intractable. Finally, the GA can find suitable forms for intermediate conditions where the theory makes no or contradictory predictions.

Two objections may be raised to this approach to the study of organizations. First, groups of positions (as in the first example) is a rather limited view of an organization. This is undeniable. Identifying appropriate tasks and organizational features is key to the utility of any kind of model. It should be noted, however, that these choices are not determined by the use of the GA, but rather depend on the organizational theories of interest. Thompson's (1967) proposition is also only about positions and groups, although a natural language presentation provides linkages to other concepts. In principle, any set of interesting features could be used, although the GA does require that they be recombinable in various ways. As the second example suggests, it may be possible to develop quite general models of organizations that can be used with a GA.

Second, even if the GA did successfully identify factors that contributed to the performance of an organizational form, it may be that the performance per se is only part of the reason for a form's success. For example, based on simulations of the evolution of competing forms, Carroll and Harrison (1992) suggest that long term success of a form may be due as much to chance as actual fitness because of the path dependent nature of the competition. Hannan and Freeman (1986) argue that institutionalization is important for the success of a form: when other powerful actors endorse a particular form's claims for resources or when it becomes unquestioned that one form is the right one to use, the difficulty of starting an organization and mobilizing resources is greatly reduced. Therefore, organizations may adopt forms without regard to their inherent performance; indeed, as Stinchcombe (1965) notes, "forms tend to incorporate and retain packages of characteristics that were fashionable or legitimate in the period when the form takes shape" (p. 53). In other words, the arrangement of positions into groups may be done for historical reasons instead of to meet the demands of the current task structure. Finally, organizational forms may differ in ways beyond those used to calculate fitness, for example, in the quality of work life they provide for their employees, how much positions holders like each other and want to be in the same groups, etc.

These caveats are certainly significant for empirical studies that attempt to explain an observed distribution of forms and such factors will certainly affect the final implementation of novel designs. For the task of suggesting new forms, however, these objections are far less damaging. Indeed, computerized implementations of organizational evolution are best seen as powerful tools for the imagination, used to help visualize novel organizational forms.


Axelrod, R. (1987). The evolution of strategies in the iterated prisoner's dilemma. In L. Davis (Eds.), Genetic Algorithms and Simulated Annealing. London: Pitman.

Bean, J. (1994). Genetic algorithms and random keys for sequencing and optimization. ORSA Journal on Computing, 6(2), 154-160.

Booker, L. B., Goldberg, D. E. and Holland, J. H. (1987). Classifier Systems and Genetic Algorithms (Technical Report No. 8). CSMIL, University of Michigan.

Burton, R. M. and Obel, B. (1980). A computer simulation test of the M-form hypothesis. Administrative Science Quarterly, 25, 457-66.

Carroll, G. R. (1984). Organizational ecology. Annual Review of Sociology, 10, 71-93.

Carroll, G. R. and Harrison, J. R. (1992). Chance and Rationality in Organizational Evolution (Unpublished manuscript). University of California at Berkeley.

Crowston, K. (1991). Towards a Coordination Cookbook: Recipes for Multi-Agent Action. Unpublished doctoral dissertation, MIT Sloan School of Management.

Davis, L. (Eds.). (1991). Handbook of Genetic Algorithms. New York: Van Nostrand Reinhold.

DiMaggio, P. and Powell, W. (1983). Institutional isomorphism. American Sociological Review, 48, 147-60.

Freeman, J. and Hannan, M. T. (1983). Niche width and the dynamics of organizational change. American Journal of Sociology, 88, 116-45.

Friedman, L. W. and Friedman, H. H. (1995). Analyzing simulation output using the bootstrap method. Simulation, 64(2), 95-100.

Grefenstette, J. J. (1991). Strategy acquisition with genetic algorithms. In L. Davis (Eds.), Handbook of Genetic Algorithms (pp. 186-201). New York: Van Nostrand Reinhold.

Hannan, M. T. and Freeman, J. (1986). Where do organizational forms come from? Sociological Forum, 1(1), 50-72.

Holland, J. H. (1992). Adaptation in Natural and Artificial Systems (2nd ed.). Ann Arbor, MI: University of Michigan.

Koza, J. R. (1992). Genetic Programming. Cambridge, MA: MIT Press.

Malone, T. W. (1987). Modeling coordination in organizations and markets. Management Science, 33, 1317-1332.

McKelvey, B. (1982). Organizational Systematics: Taxonomy, Evolution, Classification. Berkeley: University of California.

Michalewicz, Z. (1992). Genetic Algorithms + Data Structures = Evolution Programs. New York: Springer-Verlag.

Nelson, R. R. and Winter, S. G. (1982). An Evolutionary Theory of Economic Change. Cambridge, MA: Harvard.

Pentland, B. T. (1992). Organizing moves in software support hotlines. Administrative Science Quarterly, 37, 527-548.

Romanelli, E. (1991). The evolution of new organizational forms. Annual Review of Sociology, 17, 79-103.

Singh, J. V. and Lumsden, C. J. (1990). Theory and research in organizational ecology. Annual Review of Sociology, 17, 161-193.

Stinchcombe, A. L. (1965). Social structure and organizations. In J. G. March (Eds.), Handbook of Organizations (pp. 153-193). Chicago: Rand McNally.

Thompson, J. D. (1967). Organizations in Action: Social Science Bases of Administrative Theory. New York: McGraw-Hill.

Williamson, O. E. (1975). Markets and Hierarchies. New York: Free Press.