Sunday, March 15, 2009

Aristotle and the Business

(Translated from Aristote et l'entreprise)

When the name of Aristotle is uttered, many ears close. How boring! How pretentious! And yet, if we speak like students in a high school, he was not so stupid, this Aristotle…

Consider the four types of causes he has counted: final, formal, material, moving (or efficient) cause. For a long time I did not understand them, but as I kept some memories of the course in philosophy I could see that computerization was the material cause of the financial crisis (see Comprendre la crise) because it has made this crisis possible - and if you cogitate a little, you understand that once the crisis was possible, it was in fact inevitable.

Wondering what place could play in our businesses the three other types of causes, I discovered to my surprise that they stack in a familiar pattern.

If Aristotle were alive today, he certainly would be interested in the business, because it is the locus of the action of mankind in the biosphere - but French philosophers, in their majority, prefer to denigrate business rather than observing it.

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Final cause

Final cause is frowned by scientists because it has been invoked indiscriminately to explain natural phenomena: things are as they are, said the scholastics, because it is the will of God. Then it is no worthwhile, they said, to experiment in order to understand how things work.
But if you look at the actions of animals (humans in particular) you see that finality plays indeed a role. Predators hunt for food and we, humans, formed the plan of a house before building it, and more generally designed a project before realizing it: thus our work is always oriented towards a goal. Our institutions, our businesses, too, are designed for the accomplishment of a mission.

Admittedly the definition of the mission of a business is not unequivocal. Is it “doing something useful”, or “creating value for the shareholders”, or creating jobs, distributing purchasing power? The mission of any institution is a subject of conflict between stakeholders, each of which trying to impose its priorities.

Unequivocal or not, final cause is present in our work, our institutions, our businesses, and the conflicts it causes underline its importance.

Formal cause

We can define an institution by its legal form and its organization, this latter term meaning both the structure of legitimate decision-making powers and the procedures implemented in the workplace.

This form is indispensable to the action of the institution: without legal existence, without organization, an institution would be unable to act. But often the formality of the organization, the letter of procedures, contradict the mission. The formal cause may conflict with the final cause: this dialectic animates the life of each firm, of each institution.

Any institution is an organic body where several organs operate simultaneously, each of them obedient to a specific protocol: the overall functioning of the body results from their exchanges and their potential conflicts. We will come back to this point later.

Material cause

The material cause of a phenomenon is its condition of existence or of possibility. The state of the art of the techniques and the state of natural resources define what is physically possible (thus also, in a complementary manner, what is impossible).

The material cause is necessary because whatever is impossible can never happen. But it is not sufficient: may be a possible phenomenon will not happen. Often, however, does the material cause give in fact rise to the phenomenon : if you put some compost in an open container placed outside, it is possible that plants grow there - in fact it is certain because the wind will always bring some seeds. Similarly if an opportunity is offered to predators, it will be certainly exploited, be it after a delay, because predators are vigilant and alert.

Computerization appears as the material cause of the financial crisis: it offered to financiers many powerful tools (automation of transactions and back-office, computerized models, networks) but they were not mature enough to understand the risks of computerization. As they were subject to fierce competition, it was inevitable that they seek to take advantage of new opportunities and then take poorly controlled risks.

Moving cause

The firm is guided by a final cause, organized by a formal cause, equipped with a material cause. But it receives also shocks from the outside: initiatives of competitors, political and geopolitical events, regulatory changes, innovations, etc.

These shocks set it in motion: they are a moving cause, if one updates the idea of Aristotle (he thought the cause lay in speed, but we place it in force, or shock, which causes an acceleration).

Shocks and surprises coming from outside may encourage a firm to change its purpose, or form: it is reoriented, then it reorganizes itself, after what new final and formal causes come into play. Innovations also transform the possible and therefore modify the material cause.

Symphony of the four causes

There is a relationship between these various causes. The final cause can be defined only within the possibilities offered by the material cause: it would be inefficient, unreasonable to follow an unattainable goal. The moving cause may inflict shocks and modify the other three causes. The formal cause, stiffening the business organization, can alter the effects of the material cause by limiting the possibilities.

Here we encounter a familiar pattern. Cutting an organic body in a few layers is always debatable, but this allows us to think this body where several phenomena play simultaneously, each obeying a specific protocol of its own, and they are connected through interfaces that make them communicate.

Sometimes they can be stacked in layers as in the OSI model, sometimes it is not possible to represent the body by a stack of layers: the organs are connected by a network that combines relationships in the form of a tree and of a star.

In the case of business the various causes seem to form a ring, the last interfacing with the first. We can indeed say that the material cause, defining the possible, delimits the space in which what is intended can be expressed as the company's mission, its final cause. The organization must be able to achieve the mission by a concrete action: the final cause determines the formal cause (which often turns against her, but that's another matter). Finally, the action of a business causes shocks on other businesses through innovation and competition: hence the formal cause generates the moving cause, which itself transforms what is possible and changes the material cause ...

This sketch should be made more precise: the various interfaces do not play at the same place or with the same temporality and the same rhythm. But this is not the time to go into such detail.

*     *

A firm is not a banal being, even if we perceive it through the grid of a repetitive and dull everyday: it is an organic being whose organs maintain not only dialectical relationships (conversation and possible conflict between two of them), but a counterpoint, a polyphony which in periods of crisis turns to cacophony. In some meetings this cacophony becomes staggering: how to clarify a fuzzy jumble of contradictory and irreconcilable, inconsistent opinions?

Here some thought processes are useful. Bearing in mind the four causes and their relationships helps to understand what happens. When the positions seem irreconcilable, it is often because different people think in different layers and because interfaces are malfunctioning.

This one, concerned with strategy, thinks in terms of orientation: final cause; another one is concerned by the possible and thinks in terms of technique: material cause; another one is more sensitive to competition, to the risks of the outside world: moving cause. Let us not forget the organizer, who has usually a conservative temperament: formal cause ...

We must meditate the firm, analyzing the interaction of logics, rhythms, symbolisms, their reflection in the imaginary: this will allow the CEO to see where it can put a lever for articulating and then sharing an orientation.

*     *

One explains the financial crisis by the behavior of financiers (but how to explain this behavior?) One applies financial remedies; one says that finance will act differently after the crisis. This reasoning, locked in finance, runs around like a cat chasing its tail.

Suppose that the brakes of your car are worn out: cause. It falls over a precipice: consequence. What should you do? First, climb the wall of the precipice: immediate remedy. Hence cause, consequence and cure belong to three different physical universe. But knowledge of the cause is useful for the future: you will better control the brakes on your next car, so you will not fall into another precipice ...

Computerization is the material cause of the financial crisis; we are presently at the bottom of the hole and for coming out there is probably nothing else to do in the immediate that financial measures. But when we're out, we will have to remember what caused the crisis, and therefore to mature our understanding of computerization.

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I don't know if a licensee philosopher (which I am not) would estimate correct this interpretation of the four causes: I am ready to discuss and amend it if necessary.

In any case this Aristotle was not so stupid, wasn't he?

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