Miscellaneous Thoughts

Entropy - in organizations and individuals!

Entropy

What is entropy?

The first law of thermodynamics says that the total quantity of energy in the universe remains constant. This is the principle of the conservation of energy.

“Energy can neither be created nor be destroyed. If one form of energy disappears it will reappear in other forms without any loss of energy”

The first principle establishes the equivalence of the different forms of energy (radiant, chemical, physical, electrical, and thermal), the possibility of transformation from one form to another and the laws that govern these transformations. This first principle considers heat and energy as two magnitudes of the same physical nature.

The second law of thermodynamics states that the quality of this energy is degraded irreversibly. This is the principle of the degradation of energy. About 1850 the studies of Lord Kelvin, Carnot, and Clausius of the exchanges of energy in thermal machines revealed that there is a hierarchy among the various forms of energy and an imbalance in their transformations. This hierarchy and this imbalance are the basis of the formulation of the second principle.

“Energy spontaneously tends to flow only from being concentrated in one place to becoming diffused or dispersed and spread out”

In fact physical, chemical, and electrical energy can be completely changed into heat. But the reverse (heat into physical or chemical or electrical energy) cannot be fully accomplished without an inevitable spend of energy in the form of irretrievable heat. This does not mean that the energy is destroyed or lost; it means that it becomes unavailable for producing work. The irreversible increase of this non-disposable energy in the universe is entropy (from the Greek ‘entrope’, change). Example: Electrical (or natural gas) energy is transformed into heat to cook the food, while not all the heat goes towards only cooking (as we can feel the heat near the stove while cooking).


What are the benefits and harms of entropy?

We can equate entropy to paying the fee for converting energy from one form to another – kind of currency exchange fee when you convert money from one currency to another. When the fee is high, it is not representing a judicious move to convert energy – just like paying a huge fee for converting money. The fee paid on such conversion not available for spending! In a way, without entropy we may not be able to convert energy into some forms while excess of entropy robs us of good use of energy. In a lighter way we can say that entropy is a necessary evil – like taxes!

How does a thermodynamics concept relate to an organizational system? What is similar and what is different?

The laws of thermodynamics are applied to systems. System is defined as “a set of interacting elements assembled together towards a common goal”. The business organizations are also operating as a system where different areas of the business are interacting with each other to accomplish a common goal. The organizations convert the input they get from suppliers to products or services to the customers, through various interactions within and outside the organizations. This is equivalent to converting energy from one for to another. While calories (or Kilocalories) are the units of measure of energy transformation, money is the unit of measure for organizations. The laws of thermodynamics that apply to energy transformations apply equally to the organizations that change the inputs to outputs. The following figure illustrates the relationship.

Entropy


Entropy in organizations



While we are able to understand entropy in energy transformations, identifying and measuring entropy in business organizations is not easy.

“In 1922 A. J. Lotka proposed the interesting "law of maximum energy," which he applied to biological evolution. The law said that one of the factors that seem to have the most importance in the survival of an organism is the production of a large quantity of energy. This energy is used in maintaining the structure, in reproduction, and in growth. The creation of maximum power thus appears to be a condition for survival in the struggle for life. This law is also valid for human organizations.” (source: Macroscope Three: http://pespmc1.vub.ac.be/macroscope/chap3.html)

What does organizational entropy mean?

When an organization does not realize the full value in money for their output we have entropy. Theoretically, it is the difference between the monetary value of the inputs and the transformation processes including the entitled profits less the money realized by selling the outputs. To define it in equations:

Sales revenue – (Inputs cost + Transformation process cost) = Profits earned

Organizational Entropy = Entitled profits - Profits earned


How do we identify organizational entropy?

We can relate the entropy to the cost of poor quality in the organization, though cost of poor quality is usually restricted to non value added activities. Entropy may include any necessary activity to sustain the continuance of the business – or enabling activities which may not be categorized as non value added activity e.g. taxes paid by the organization on its profits. If the actual profits derived are exactly equal to the entitled profits, we can state that there was no entropy. That boils down to the question of ‘what is our entitled profit?’

This means arriving at the ‘potential’ of the organization in terms of profit for the existing level of operation. Easier said than done! While industry averages and bench marking may provide some guidance on what that ‘potential’ might be, the way to arrive at that potential is to have a closer look at the costs – both for inputs and transformation processes – to identify the entropy elements in those and derive at the potential – as a percentage of the present level of operations.

How can we measure organizational entropy?

It is easy to quote illustrations or examples for organizational entropy but not so easy to measure it! Since the market determines our entitled sales revenue and the input costs – assuming that we have paid and received the just amount, we can focus on the entropy associated with the transformation processes. By applying the definition of ‘entropy’ as the dispersion of energy that has not been converted into the desired output or the ‘fee paid’ for converting the energy into useful output, we can critically review each of the transformation processes cost to identify the percentage of the entropy. This may require a detailed activity/task analysis to identify the energy spent (in monetary terms) that did not directly create useful output of that process. The measurement in terms of money is more out of the need to make it easy for understanding – rather than because of its completeness as it is not possible to measure all the impacts of an organization in terms of money.

So some questions to think about!

1. When is organizational entropy good and when is it bad?

2. What are the symptoms of organizational entropy and how do we identify the root causes?

3. How do we eliminate/mitigate the root-causes?

4. Is there an optimal setting? Is there an ideal setting?

5. How do we manage the organizational entropy? How do we achieve ideality or optimality?


References
http://www.tim-thompson.com/entropy1.html
http://www.secondlaw.com/
http://www.tim-thompson.com/entropy1.html

Further readings:
http://nsl.blogspot.com/2004_04_01_nsl_archive.html#108205474521230199
http://www.cd-vm.com/rainmakers-forum-entropy.htm
http://physics.njit.edu/~janow/Paper20040228njit.pdf & http://physics.njit.edu/~janow/Talk20031102OrgEntropyNJIT.PDF
http://www.communityarts.net/readingroom/archivefiles/2004/09/donot_do_it_org.php http://en.wikibooks.org/wiki/Entropy

There is not much new in this so far. You can see through these links that a lot of folks have gone much deeper in this subject and this small list is only indicative of what others have thought about this.

What really made me wonder about this was how this concept of entropy relates to my beliefs! Since I believe every action has a purpose, entropy also has a purpose. And since every system gets/gives just what it deserves, I believe that entropy is the factor indicating what the system deserves! So I can understand what a system deserves simply by trying to find the entropy – higher the entropy higher the gap between the organization’s current state and the best case state – though I think it can get closer to the best case only by making it “deserve” better. The word “deserve” includes achieving the capability or potential.

I also think this concept is equally valid for individual – individual entropy is the good indication of the gap between where we can be and where we are. But my personal experience shows that it is very hard to identify the personal entropy mainly because I am too close to make any objective judgment. I feel lots of times that I should get better things, treatment etc., but all I get – I guess – only what I deserve, and I find it very difficult to accept. May be Schumacher is right :-)

“Our intentions tend to be much more real to us than our actions, and this can lead to a great deal of misunderstanding with other people, to whom our actions tend to be much more real than our intentions.”
E. F .Schumacher (1911-1977). A Guide for the Perplexed, 8, 1977

One way of looking at the personal entropy is to identify the difference between our intentions and our actions/results of our actions. I am still trying on that basis to find my personal entropy. May be one day I will find out my individual entropy for various key actions I take and do a better job of “deserving” more. To end this note I quote Albert Einstein:

“The thinking that has brought me this far has provided new problems that this thinking can not solve”.

posted by ரங்கா - Ranga @ 1:40 PM