Method for Functional Decomposition of Organizations and Their Environments

Abstract. Lawrence Lessig’s “Pathetic Dot Theory” can be applied alongside our theory of constitutive infrastructure in order to create a comprehensive conceptual framework suitable for decomposing an organization into distinct but related functions. These functions exist in response to extant regulatory forces within the organization’s environment, and insofar as these functions are entrenched in that organization’s legal, economic, social, or technical infrastructures, they can be interpreted as the embodiment of that organization. The goal of this artifact is to specify a method for the survey of an organization’s operating context, as a prerequisite to making recommendations regarding implementation (or reimplementation) of that organization’s constitutive infrastructure, pursuant to that organization’s animating purpose. This method is in use as part of Dynamical Systems Group’s cyberinfrastructure-focused engineering practice.

Conceptual Framework

In Code: Version 2.0, Lawrence Lessig proposes the “Pathetic Dot Theory” in order to illustrate and explain the various ways that individual actors are constrained by the array of forces that act upon them to regulate their behavior. At the heart of Lessig’s theory is a diagram, redrawn below, in which “someone regulated is represented by this (pathetic) dot — a creature (you or me) subject to different regulations that might have the effect of constraining (or as we’ll see, enabling) the dot’s behavior.” Lessig offers it in order to illustrate “how these constraints function together” (Lessig, 2006):

Lessig elaborates on this diagram:

[i]n this drawing, each oval represents one kind of constraint operating on our pathetic dot in the center. Each constraint imposes a different kind of cost on the dot for engaging in the relevant behavior […]. The cost from norms is different from the market cost, which is different from the cost from law and the cost from the […] architecture. The constraints are distinct, yet they are plainly interdependent. Each can support or oppose the others. Technologies can undermine norms and laws; they can also support them. Some constraints make others possible; others make some impossible. Constraints work together, though they function differently and the effect of each is distinct. Norms constrain through the stigma that a community imposes; markets constrain through the price that they exact; architectures constrain through the physical burdens they impose; and law constrains through the punishment it threatens. We can call each constraint a “regulator,” and we can think of each as a distinct modality of regulation. Each modality has a complex nature, and the interaction among these four is also hard to describe. [… F]or now, it is enough to see that they are linked and that, in a sense, they combine to produce the regulation to which our pathetic dot is subject in any given area.

From Lessig’s schema, it is easy to see how the four modalities of regulation (technical, economic, legal, and social) can overwhelm the agency of a single individual, pressuring them from all sides.

Let us look more closely at each of the four modalities of regulation, in turn. The technical mode of regulation consists of concrete limitations on the possible, such as the availability of particular technologies and the specific properties of the (physical and/or digital) materials with which one has the ability to build. The legal mode of regulation consists of rules that are formally enforced by some authority: laws, but also protocols, corporate bylaws, etc. The social mode of regulation, by contrast, consists of norms that are informally enforced among actors distributed throughout a particular social context. Finally, the economic mode of regulation concerns the mechanisms through which constrained resources are allocated among actors within a particular economic context (such as a market, a parish, or a mutual-aid network). A given regulatory pressure can belong to any one of these modalities, or to more than one at once.

To counteract (and distribute the impact of) these environmental pressures, individuals frequently develop associations with other individuals, in order to coordinate collective actions in pursuit of a shared purpose. Once an association has developed sufficient constitutive infrastructure to entrench internal and external boundaries between the people who participate in it and their environment, that association becomes an organization pursuant to its purpose.

An organization’s constitutive infrastructure, then, can be understood as the structures through which that organization establishes and reinforces its boundaries (Zargham et al., 2023). These boundaries mediate between the people who make up its membership and the environmental pressures that would otherwise be able to regulate their behavior unimpeded.

One can think of an organization as a not-so-pathetic dot (Schrepel, 2022), that is, as a structure capable of responding to the impact that regulatory pressures from the broader environment can have on its members, and of exerting countervailing forces that seek to constrain the environment’s ability to regulate the organization’s behavior, while also maximizing the organization’s ability to harness potential benefits from its environment.

A given organization’s constitutive infrastructure also includes the mechanisms with which that organization itself regulates the behavior of its members through the economic, social, legal, and technical pressures generated by the intermediate environment that the organization interposes between its membership and the world beyond its bounds.

An organization’s best response to external pressures may not always be to resist them.

There are four modalities of constitutive infrastructure, corresponding to the four modalities of regulation, although the modality of a given piece of constitutive infrastructure may differ from that of the environmental regulatory pressure(s) to which that piece responds. One can think of the four modalities of constitutive infrastructure as the four kinds of material through which an organization is embodied.

Technical constitutive infrastructure consists of the physical and digital infrastructure that provides the organization’s capabilities, as well as products and their features; it determines the space of the possible. Legal constitutive infrastructure consists of entities like LLCs, along with bylaws, contracts, terms of service, contributor agreements, NDAs, and the code and protocols that determine what subset of the field of the possible is permissible in accordance with the organization’s rules (such as the code that implements access controls, permissions, or “property rights” within that organization’s paradigm). Social constitutive infrastructure includes brand identity and reputation, team culture, and community norms. Finally, economic constitutive infrastructure involves business models, KPIs, SLAs, compensation policies, and other financial and non-financial incentive structures.

Thus far, our formulation of the “not-so-pathetic dot theory” has suggested that organizations only take shape in response to negative pressures from their environment, but this is an oversimplification. One must not forget that an organization’s best response to external pressures may not always be to resist them; it is no less important for an organization to be able to capitalize on opportunities that its environment may present. Mitigating environmental effects is one vital function of constitutive infrastructure, but harnessing potential environmental benefits from external pressures is another.

The four modalities of constitutive infrastructure and the four modalities of regulation interact in complex ways. Depending on how they are designed, for example, incentive structures can be a component of both an organization’s social and economic constitutive infrastructure. An organization might set up an LLC in order to limit its legal liability, but doing so also imposes new costs and other economic constraints that the organization must take into account. An organization might employ self-executing code as part of its technical constitutive infrastructure, but such code may serve a dual function as part of the organization’s legal constitutive infrastructure as well, insofar as it enshrines and/or enforces a subset of that organization’s rules. (Self-executing code is a particularly interesting case, in that it can serve as a partial implementation of each of the four types of constitutive infrastructure, depending on the context and purpose in which it is employed.) While each regulatory pressure or component of an organization’s constitutive infrastructure can participate in, or interact with, more than one modality at once, a thorough inventory of all four modalities on both sides of the organization’s internal and external boundaries will capture all of the forces that determine how those boundaries are drawn.

Application

Performing a functional decomposition for an organization consists of a standard sequence of steps:

1. Begin by identifying the organization’s people (who is, and is not, subject to its governance; its constituents, or other “stakeholders”) and its animating purpose, in terms of both what the organization intends to accomplish and what it actually does in practice (Alston, 2022).
2. Identify all of the regulatory pressures that the organization’s environment is exerting on the organization, and determine to which of the four regulatory modalities each pressure belongs. (A regulatory pressure can arise from a single regulatory modality, or from the interaction of multiple modalities.)
3. Identify each component of the organization’s constitutive infrastructure, and determine to which modality or modalities of constitutive infrastructure each component belongs. (One piece of constitutive infrastructure can belong to one or more modalities: An organization’s compensation policies, for example, could be a component of its economic constitutive infrastructure, but also influence that organization’s internal culture and behavioral norms, thus making them part of the organization’s social constitutive infrastructure as well.)
4. For each component of constitutive infrastructure in (3), determine:
   • (a) Which of the negative environmental pressures identified in (2), if any, that piece of constitutive infrastructure helps the organization resist, and how.
   • (b) Which of the positive environmental pressures identified in (2), if any, that piece of constitutive infrastructure helps the organization harness, and how.¹
   • (c) How that piece of constitutive infrastructure itself exerts regulatory pressures on the organization’s members and/or subsystems.
5. Determine whether the sets of regulatory pressures, constitutive infrastructure, and interactions between and among these categories identified in (2), (3), and (4) are sufficient to explain the relationship between the organization’s intended purpose and the actual outcomes that it produces, as identified in (1). If they are, the process is complete (for now); if not, go back to (2), and repeat the process, identifying additional regulatory pressures and components of the organization’s constitutive infrastructure until your functional decomposition is capable of explaining the observed behavior of the organization.

Once this process is complete, you will have a map of the forces acting on the organization, the structures and mechanisms that the organization has developed to enable itself to either resist or harness those forces, and the new pressures that these structures and mechanisms exert on the members of the organization in question. With this map in hand, it becomes possible to identify what is enabling, or interfering with, the organization’s ability to achieve its goals. This, in turn, makes it possible to engineer (or re-engineer) constitutive infrastructure that will close the gap between the organization’s intentions and the outcomes of its actions.

Limitations and Related Techniques

This methodology presumes that the regulatory forces acting on an organization from its environment are not, themselves, susceptible to direct influence by the actions of the organization; it describes a situation in which the organization can control the composition of its constitutive infrastructure, but can only observe the composition of the regulatory pressures acting upon it.

If, in the process of this analysis, something that initially appeared to be an “environmental” pressure proves instead to be something that the organization in question can influence directly, then the source of that pressure must be identified as a “peer” organization and differentiated from the environment writ large. In such cases, an extended analysis is necessary in order to model the relations between the organization, its peers, and the broader environment that they share.

Further consideration of peers should focus on the (not necessarily balanced) power relations between the organizations in question, which may include the alignment (or misalignment) of their respective purposes, the specific ways in which they have directly influenced each other’s behavior in the past, and the means by which their interactions might impact future decisions under each organization’s control. In practice, peers can be expected to exhibit both competitive and collaborative actions with respect to each other, depending on the circumstances of the interaction. A more detailed extension of this methodology focused on heterogeneous ecosystems of peer organizations is reserved for future work.

The extended method is also useful for decomposing the internal dynamics of an organization, allowing its components to be viewed as subsidiary organizations operating within the shared environment provided by the overarching organization in which they all participate.

With thanks to David Sisson, who provided valuable feedback based on his experience applying this method of decompositional analysis in the context of client projects.

Suggested citation: Zargham, M. & Ben-Meir, I. (2023). “Method for Functional Decomposition of Organizations and Their Environments.” Dynamical Systems Group. https://www.dynamicalsystemsgroup.com/blog/method-for-functional-decomposition-of-organizations-and-their-environments