The Unintended Consequences of Algorithms in Organizations

In modern organizational management, the pursuit of efficiency, adaptability, and fairness remains a dynamic challenge. Many organizations today opt for algorithmic approaches to support role-based autonomy. But the transition from prescribed structures to flattened hierarchies and agile decision-making introduces an inherent conflict. The clash between formalized roles and quality circles leads to the emergence of concealed, informal hierarchies, a compensatory response to the limitations of structured systems. The existence of both transparency and opacity within organizational frameworks represents a struggle between algorithmic-driven formal expectations and the significance of concealed information in informal networks.

The prevalent trend toward hyperformalization, notably observed within agile organizations, reflects a paradoxical reaction to hierarchical constraints and departmental boundaries. While seeking flexibility and adaptability, these entities resort to creating detailed formal role descriptions, which deviates from their common values. This shift towards hyperformalization results in unintended consequences that hinder organizational effectiveness. Stefan Kühl’s study of corporate practices shows the emergence of shadow hierarchies and departments as mechanisms for organizations to sustain agility and functionality.

The pursuit of agility often clashes with rigid formal role descriptions, which are designed as algorithms and implemented through IT systems. While intended to streamline operations and clarify responsibilities, this hyperformalization stifles creativity, hampers decision-making, and diminishes adaptability. Instead of nurturing innovation and agility, excessive formalization puts up barriers that constrain swift responses to dynamic challenges.

Kühl’s analysis shows shadow hierarchies and departments within organizations. These informal structures operate alongside established formal ones, enabling fluid communication, decision-making, while bypassing the rigidity imposed by formal roles. These shadow structures arise organically as a coping mechanism to navigate over-bureaucratization's stifling effects. An implicit recognition that hyperformalization alone cannot sustain agility. It prompts creative workarounds to ensure operational efficiency and adaptability.

Kühl's research shows the inherent tension between formalization and agility. While essential for clarity and accountability, excessive formalization risks stifling the flexibility agile organizations strive to achieve. The emergence of shadow hierarchies and departments reflects an adaptive response—an informal solution allowing organizations to function effectively in dynamic environments.

To support adaptive potential, organizations must continuously strike a balance between formalization and flexibility. They must value formal structures while acknowledging the need for adaptability and responsiveness. Embracing a nuanced approach that integrates formal frameworks with space for informal decision-making is important for organizations that want to be resilient and responsive.

Source:

Kühl, S. (2023), Schattenorganisation - Agiles Management und ungewollte Bürokratisierung, Frankfurt am Main: Campus.