reforming european governance old problems or new

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Administrative SciencesInternational Review of

DOI: 10.1177/00208523016730032001; 67; 415International Review of Administrative Sciences

Les MetcalfeReforming European Governance: Old Problems or New Principles?

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Reforming European governance: old problems or new

principles?

Les Metcalfe

The resignation of the Santer Commission in March 1999 was a turning point in

the history of the European Commission. It may even have a decisive influence

on the future development of European integration. As well as triggering a pro-

gramme for reforming the internal management of the Commission it has prompt-

ed a wider review of the future shape of European governance. What precipitatedthe fall of the Santer Commission was the publication of a damning report by the

Committee of Independent Experts appointed under the auspices of the European

Parliament and the Commission on 14 January 1999 with a mandate to examine

the way in which the Commission detects and deals with fraud, mismanagement

and nepotism including a fundamental review of Commission practices in the

awarding of all Commission contracts. The Committee of Independent Experts

worked with remarkable speed. Its first report, submitted on 15 March, concluded

that [T]he studies carried out by the Committee have too often revealed a

growing reluctance among the members of the hierarchy to acknowledge theirresponsibility. It is becoming difficult to find anyone who has even the slightest

sense of responsibility (Committee of Independent Experts, 1999a: 144).

Despite attempts to limit the political damage, the criticisms had a devastating

impact on the credibility of the Commission and provoked a chorus of demands

for root and branch reform.

The replacement of the Santer Commission before its full term had expired

marked a sharp break with the past. Only four of the outgoing Commissioners

survived. More important, the appointment of Romano Prodi as President was

made on the basis of a clear commitment to reforming the management of theCommission. Although there had been reform and modernization initiatives

before, notably those led by Henning Christophersen during Delors Presidency

and Erkki Liikanen during Santers, this was the first time that there had been

public commitment on the part of an incoming Commission to overhaul the entire

organization. Even before the official installation of the Prodi Commission, steps

were being taken to prevent the recurrence or even the suggestion of the recur-

rence of the problems that caused the crisis. As a symbol of political intent, Neil

Les Metcalfe is Professor of Public Management at the European Institute of PublicAdministration, Maastricht, The Netherlands. CDU: 341.231 (4).

International Review of Administrative Sciences [00208523(200109)67:3]Copyright 2001 IIAS. SAGE Publications (London, Thousand Oaks, CA and NewDelhi), Vol.67 (2001), 415443; 019224

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Kinnock was appointed Vice President with responsibility for administrative

reform. He immediately set to work to produce a White Paper delineating a

reform strategy with a detailed route map and timetable for implementing

changes. Subsequently, in a speech to the European Parliament, President Prodi

broadened the terms of debate to wider questions of European governance (Prodi,2000). This is important and problematic. Reform of the Commission has been

discussed as if it were a localised problem of upgrading the efficiency of the

existing organization, unrelated to wider issues of integration. But it raises issues

of a more fundamental kind. The White Paper on European governance is

intended to bridge the gap and even go further in presenting proposals for new

forms of European governance that will be a step towards a model of global

governance (European Commission, 2000a).

While acknowledging that the concept of governance is not yet well defined at

the European level there is little doubt that it is a topic that needs to be high on theEU agenda. The biggest ever enlargement of EU membership is in preparation

and a new institutional framework is urgently needed to cope with this major

transformation. From autumn 2000 the political momentum of the reform process

was sustained and given operational form by the preparation of a Commission

White Paper on European governance, published in the summer of 2001. Despite

widespread initial scepticism, governance may prove to be the big idea of

the Prodi Presidency. Not only does it place reforming the Commission in the

broader perspective of the functioning of a system of multilevel governance, but

it also highlights the neglected issue of ensuring effective performance in the EU

as a whole. Reform of the Commission alone will not achieve this, especially if it

continues to be treated in restricted terms as a technical exercise of improving

operational efficiency within the organization. Little thought has been given to

strategic management questions about the role of the Commission and how it

should evolve to meet the emerging needs of European integration (Matlary,

1997). But, with major changes in the whole pattern of European governance in

the offing, fundamental questions about the future role of the Commission are

certain to arise. This is a challenge for theory as well as practice. Despite the

upsurge of academic interest in the Commission in recent years most research has

focused on the Commission as it is (Edwards and Spence, 1994; Cini, 1996;

Nugent, 1997, 2001). Furthermore reform of the Commission has been addressed

in isolation from broader questions about the institutional architecture of the

system as a whole.

The purpose of this article is to examine the reforms currently underway and to

consider where they should go in the future. It is important to recognize in doing

so that for management reforms in the Commission to be happening at all is a

major step forward. Until now, reform of the Commission has been discussed in aritualistic way without any real expectation that action would follow. Reform

debates were confined to a few limited topics such as reducing the number of

Commissioners and the protagonists, whether inside or outside the organiza-

tion, could be confident that little or nothing would happen as a result. To be sure,

416 International Review of Administrative Sciences 67(3)

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incremental changes have been made from time to time. New policy responsibili-

ties have been added to the acquis communautaire with little consideration about

how best to give effect to them. The general practice has been ad hoc modifica-

tions of the original organizational framework rather than systematic reorganiza-

tion. Since its formation the Commission had experienced organizational growth,usually through the creation of additional Directorates General, without organiza-

tional development. In other words, its policy responsibilities and (to a lesser

extent) its staff and budget had grown without a matching process of developing

more sophisticated forms of organization and methods of management based on

a fundamental reappraisal of future needs. Ironically, the Santer Commission had

begun to do so within the framework of Agenda 2000 but its efforts were over-

taken by the events leading to the 1999 crisis (Peterson, 1999; Spence, 2000).

Outwardly, the fall of the Santer Commission seemed to transform the political

climate from reform impossible to reform inevitable. The sui generis argu-ments used to defend established practices in the Commission ceased to be

credible. It was no longer possible to justify obsolescent management practices or

defend manifestly inadequate systems of control and accountability. Moreover, it

was clear that solutions were readily available at least for some of the

Commissions shortcomings. The second report of the Committee of Independent

Experts, published in September 1999, attracted much less public attention than

the first, but it proposed useful ways of upgrading the Commissions contract

management and out-sourcing practices through the application of proven

management methods. In any case, the Commission could hardly oppose reform

of its own organization when all member states were conducting some kind of

public management reform and when it was pressing the governments of the

candidate countries of central and eastern Europe to bring their administrations

up to standard. Nevertheless, it remains the case that management reform is a

bitter pill to swallow for an organization whose self-image is that of a policy

entrepreneur rather than a policy manager (Laffan, 1997). While the Commission

has long regarded itself as a leader of the integration process, on the road of

public management reform it appears in the uncomfortable role of a laggard

struggling to catch up with its followers.

Reforming the Commission now has the political momentum that was lacking

previously. There is strong external pressure for reform and political commitment

to push the process forward. The designation of Neil Kinnock as Commissioner

responsible for devising a detailed reform strategy and managing its implementa-

tion provides a mechanism for ensuring that changes do take place. Even so,

success cannot be taken for granted. Political clout is a necessary condition for

reform but it is not a sufficient condition for the far-reaching changes that

are needed. Implementing reforms requires skilful management of change. Allorganizations have defence mechanisms that resist change and ward off threats

to the status quo. Past experience of trying to introduce reforms has shown that

the Commissions defence mechanisms are very strong and particularly well

organized. Perhaps they are the best organized part of the Commission. The issue

Metcalfe:Reforming European governance 417



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of resistance to change is a factor of crucial importance because the current

reform programme aims to go beyond technical improvements in operational

efficiency to change the culture of the Commission. Changing the culture of any

organization provokes resistance because it calls into question cherished beliefs

and mindsets that have been taken for granted. It is particularly difficult in ahighly visible organization like the Commission for two reasons. First, any

process of transformation that seems to threaten the established character of

the Commission is bound to run into the glass walls of an organizational culture

that closely identifies existing structures and practices with the core values of

European integration. Criticizing established practices is perceived as threatening

the fundamental values the organization is supposed to serve. Second, there is the

more subtle, but not less important, point that the culture of the Commission has

never been receptive to management ideas. The current reforms seek to introduce

managerial values and concepts as well as techniques into an organization thathas traditionally regarded them as peripheral if not alien to its core values.

Management reforms are inducing culture shock in the Commission because

deeply held beliefs about how things should be done are being called into

question. Labelling management reforms as Anglo Saxon is symptomatic of the

defensive attitudes that the current reforms have evoked. In such circumstances, a

prescriptive top-down approach to managing change is more likely to increase

resistance to change than reduce it. Lasting changes in values and beliefs depend

on building support and securing the informed commitment of reform coalitions

among those who implement changes. Attempting to impose reforms unilaterally

produces superficial compliance and temporary adjustments without changing

underlying attitudes and values. Once political pressure is reduced old habits will

reassert themselves. Reformers will have to demonstrate the congruence of new

methods of management and new forms of governance with the values and goals

of European integration.

Old andnew

This raises a key question. Is the Commission facing old problems for which

there are tried and tested management solutions or is it confronting new chal-

lenges that can only be met by developing new patterns of management based on

new principles? How far can reforming the Commission rely on applying proven

principles to well-understood problems? How far do reformers face a situation

that calls for an innovative response? In broad terms, the realistic answer is that a

combination of both old andnew is needed. At least to begin with, reform can be

regarded as a catch-up process. The Commission has such a poor record of reform

and such a weak tradition of management that there is ample scope for reforms

based on familiar principles that have already been applied elsewhere. Suchreforms can make the Commission better at what it currently does. But there are

also challenges in the field of European governance for which standard manage-

ment solutions are inadequate and inappropriate. As reforms move out to broader

issues of European governance less reliance can be placed on technical methods




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of upgrading organizational efficiency. The need is for new thinking and innova-

tive solutions to extremely difficult problems of multilevel governance and

interorganizational management. The pluralistic trajectory of European inte-

gration requires new network-based governance regimes and the management

capacities to make them work.As discussed in the next section, the major challenge is to devise new princi-

ples to guide the process of dealing with the EUs management deficit

(Metcalfe, 1992, 1996a). But since the downfall of the Santer Commission public

debate has been heavily oriented towards familiar problems where standard

management solutions seemed to promise rapid results. In the aftermath of the

resignation of the Santer Commission this was understandable. The strong desire

to avoid any repetition of politically embarrassing problems put the emphasis on

taking swift action to remedy manifest organizational defects. The White Paper

Reforming the Commission (European Commission, 2000b) took this line. Itsmain focus is on modernizing the internal organization and management of the

Commission so as to achieve greater operational efficiency together with clearer

accountability. For the first time in its history the Commission has embarked on

major reforms of its structure, organization and management. These include

changes in the status, terms of appointment and accountability of Commissioners;

changes in the composition and role of Commissioners Cabinets; the creation of

subgroups of Commissioners to improve internal coordination and changes in

structure and top-level personnel of the Commissions Directorates General

(DGs) and services. Codes of conduct have been defined to make explicit what

Commissioners and Commission officials are expected to do and refrain from

doing. This reform programme has a very familiar look because solutions to old

problems are on hand from two different sources, reflecting the distinction

between the unique character of the Commission and the more general experience

of public management reform.

First, so far as the unique character of the Commission is concerned there is

an established reform agenda going back to the Spierenburg Report (1979). It

focuses on questions such as the number of Commissioners, the roles of their

cabinets, the number of DGs, the way DGs are organized and the arrangements

for coordination among them. The general lines of solutions were debated for two

decades without much practical effect. Their implementation now depends pri-

marily on political will. Second, public management reforms in the member

states and elsewhere offer guidance about how to deal with conventional

problems of organization and management, although care has to be taken to allow

for institutional differences in drawing out their implications for the Commission

(Pollitt and Bouckaert, 2000). Examples are financial control, personnel manage-

ment, information systems and performance monitoring. The White Paper,Reforming the Commission, covers these areas and sets out a comprehensive

programme of reform and a detailed timetable for implementation. It must be said

that some of the current reform programme originated in changes started during

the Santer era under the banner of Agenda 2000 or as part of the DECODE




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exercise (European Commission, 1999). DECODE, Designing Tomorrows

Commission, was a kind of internal management audit; a stocktaking exercise

to provide an overview of the existing organization; carried out by the Com-

missions Inspectorate General. It was not, as its name appears to suggest, a

process of redesigning the Commission to adapt it to changed circumstances. It issymptomatic of the previous neglect of management in the Commission that

nothing like DECODE had been done before. It is also significant in pointing, if

only obliquely, towards one of the strategic issues that reformers will have to face

in the future: how to redesign the Commission and adapt it to play a new role in

the development of the EU.

The management deficit: a capacity question

Where the Commissions old management problems are amenable to them, it is

most efficient to use standard management models and techniques. There is nocase for reinventing the wheel. But using off-the-shelf solutions and imitating

what has been done elsewhere is only a partial solution and, in a sense, a training

ground for the challenges ahead. Reforming the Commission is more than a

matter of playing catch-up. It requires innovation as well as imitation. The

environment in which the Commission now operates is undergoing profound

change. Unprecedented problems are emerging and new kinds of solutions are

needed. The EU is moving into uncharted territory where it will have to face

problems of management and governance that are much broader in scope than the

current focus on the internal organization of the Commission. In this longer-term

perspective the 1999 crisis takes on a different aspect. Rather than being purely a

consequence of the neglect of management within the Commission it is better

regarded as a symptom of more deep-seated problems of European public

management. Previous experience in public management reform at the national

level is much less useful here. Reforming the Commission is a vital part of

dealing with the larger problem of the EUs management deficit. Like the

democratic deficit, the management deficit is a systemic problem for which new

kinds of solutions have to be developed. It is not just a matter of inadequate

resources or management skills in the Commission. The EU, as a political

system, has a structural bias towards taking on more than it can deliver. Political

decisions about new policies are made without adequate consideration of how to

give effect to them. This is a more intractable problem than it is at the national

level because the basic units of European public management are organizational

networks spanning different levels of government and extending across all the

member states. Responsibilities are widely dispersed and mechanisms for inte-

gration and coordination are inadequately developed.

As things stand, the Commission is in an awkward predicament. It can neitherprevent the growth of EU policy responsibilities nor ensure that they can be

handled effectively. Yet it is always liable to be the scapegoat when things go

wrong. The basic source of problems is that there is no organized process for

assessing governance needs or developing management capacities and no locus




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of responsibility for doing so. Decisions about future commitments are not in

the Commissions hands and it lacks the authority and legitimacy to insist on

increases in management resources commensurate with the growth of EU (legal)

competences. External political pressures and established patterns of EU

decision-making have a built-in bias towards increasing the scale and complexityof responsibilities much more rapidly than management and governance capaci-

ties. This is a recipe for a chronic, and potentially acute, management deficit.

President Prodi has sought to contain the problem by insisting that the Com-

mission will not accept new responsibilities unless the Council of Ministers

provides it with additional resources. But the Council has rarely heeded pleas for

self-restraint in the past and the enlargement process is certain to increase the

policy management workload very substantially. Moreover, as discussed later the

main thrust of institutional reform is towards making it easier to take on more

tasks rather than increase capacities. In any case, an increase in the capacities ofthe Commission alone would have little direct impact of the performance of the

system as a whole. Rather than hoping to limit the growth of demands it is much

more important to take a proactive stance towards building the capacities to

handle them effectively. This will not be easy. A much larger and more diverse

EU will require, not just a more efficient Commission, but a Commission

equipped to play a capacity-building role that contributes to strengthening co-

operation among networks of organizations within well-designed frameworks of

governance.

Dealing with the management deficit requires innovative solutions. The key

challenge in the current situation is developing new forms of multilevel govern-

ance complemented by the management capacities to enable them to function

effectively and reliably. Reforms of the Commission along the lines currently

envisaged will make little impact on the EUs management deficit unless they are

conceived as a first phase of an effort to improve European public management

on a much broader front. The White Paper on European governance sets out

political guiding principles. Managing European policies requires highly

developed and reliable organizational networks supported and regulated by

appropriate frameworks of governance. This will place new and qualitatively

different demands on the Commission as catalyst for the wider process of

developing the management capacities that will meet the future needs of the

European integration process. The Commissions unique position means that

it faces a set of management challenges that are unlike those that most public

management reforms have encountered. The main purpose of this article is to

construct an analytical framework for addressing these capacity-building issues at

the interorganizational level. It proposes new principles for managing EU

policies addressed to (1) the micro level of relationships among individualorganizations, (2) coordination within networks and (3) the macro level of the

functioning of networks as policy regimes. At the micro level new principles

are needed to guide the design of partnerships among organizations. Non-

hierarchical principles of coordination are needed to strengthen capacities for




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governance without government. Finally, there is a need for new principles for

managing large-scale structural reforms and steering reorganizations at the macro

level.

Presuming convergence or managing diversity?Although it has never attracted anything like the same amount of attention as the

democratic deficit, the EUs management deficit is hardly a secret. There has

long been a chronic problem of inadequate capacities for managing EU policies

and an under-current of criticism about performance. But not much has been done

to remedy the situation. Political decision-makers and other actors in the EU

policy process have generally operated on the assumption that the big issue was

where to go, not how to build the capacities to get there. Not only has there been

little effort to build capacities but, when EU responsibilities have increased, con-

straints have even been imposed on the use of capacities available to the memberstates (Scharpf, 1994). As a consequence, a gap has emerged between ambitious

policy commitments and limited capacities for fulfilling them. Unless action is

taken, the management deficit will move from being a chronic to an acute

problem as deepening and widening sharply increase the workloads associated

with managing integration.

The need to give priority to building governance capacities has been masked

partly by a persistent belief that the management deficit could never become

really serious because European integration generates a process ofconvergence

that simplifies policy management by standardizing it. Where one EU regime

replaces many national regimes, for example, the single market or the single

currency, there appears to be a reduction in diversity through the elimination of

national variations in policies and practices and convergence on a common

approach. Expectations are regularly raised that differences in national practices

and approaches will disappear and similarities will grow as a result of converg-

ence on a common European model. But belief in convergence is based more on

wishful thinking than observation. It relies too much on negative integration and

disregards strong counter-tendencies towards increasing diversity and a growing

need for positive integration as the EU moves into more policy fields and incor-

porates a more dissimilar set of member states. The progress of integration has

generated divergence in the institutional architecture of policy regimes rather

than convergence. But the increase in institutional diversity has been obscured by

faith in a dominant model of policy management; the Community (or Monnet)

method: the key feature of which is the transfer of policy competences from the

national to the supranational EU level albeit with continuing national participa-

tion in policy management. The Community method was exemplified from the

beginning by the Common Agricultural Policy.The orthodoxy, often couched in messianic rhetoric of ultimate goals and

European destiny, was that the Community Method was a long-term aspiration as

a model of policy management even if present-day reality failed to live up to it.

The capacities required and the configuration of the system envisaged in this




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model corresponded to a state-building model of integration (Bulmer, 1993).

Existing institutional arrangements were portrayed as approximations to it or

intermediate steps on a state-building trajectory. However, this is not the way the

EU has evolved. Rather than amalgamation into a federal state it is developing

along a pluralistic trajectory (Deutsch et al., 1968). A new form of polity isemerging in which a variety of policy management and governance networks co-

exist. The Community Method remains an important mode of EU policy manage-

ment but it is not unchallenged as a one-size-fits-all normative model. There is

now more diversity among European public management regimes. Peterson and

Bomberg (1999) have illustrated the growing variety of EU policy networks.

Mapping networks and classifying them is in itself an important task. Helen

Wallace (2000) identified five modes of EU policy management that are regarded

as being valid and useful in different contexts:

the Community method,

an EU regulatory model,

a model of multilevel governance,

a policy coordination and benchmarking OECD model and

a model of intensive transgovernmentalism.

Instead of being staging posts converging towards the completion of the inte-

gration process in a Community method framework, the other models regula-

tory, multilevel governance, OECD and intensive transgovernmentalism are

alternative ways of managing common policies. Space does not permit detailed

discussion of these models but it is worth noting that despite their differences

they are all based on interorganizational networks and share some generic

characteristics and common problems of network management. The key question

is what organizational capacities and network configurations are appropriate

under different circumstances. Choices among them can be regarded as strategic

decisions about which forms of governance work effectively. In this sense they

provide the beginnings of what organization theorists would term a contingency

theory of European governance. Rather than convergence on a one-best-way

solution there is now a presumption of continuing institutional diversity.

Different institutional arrangements are effective under different circumstances

and for different purposes. Hence the diagnosis of the management deficit in any

field will depend on which policy management model is deemed appropriate and

what capacities are actually available.

Capacities and complexity

A major obstacle to developing detailed diagnoses is that European integration

lacks a coherent theory of effectiveness. The subject has often been avoided byequating better integration with more integration. But the growing complexity

of the integration project and some dramatic failures have forced the issue of

effectiveness onto the political agenda and cast doubt on the assumption that

more means better. Since so little theoretical attention has been paid to the subject




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of effective European governance until now, the first task in establishing new

principles applicable to EU governance is to set out an analytical framework

that puts the key issues in a coherent perspective. Conceptually, as well as

etymologically, it is useful to begin with the cybernetic law of requisite variety

originally formulated by Ross Ashby (1956) and applied in many contexts inmanagement, political science and organization theory (for example Deutsch,

1966; Beer, 1981; Weick, 1987; Thompson et al., 1990). The term, if not the con-

cept, has also put in an appearance at the EU level in Toonens (1992) discussion

of a Europe of the Administrations. Ashbys well-known verbal statement of

the law of requisite variety Only variety can destroy variety is a topsy-turvy

way of expressing a very important constructive principle of management and

governance. Ashby was concerned about the ability of regulators (read man-

agers) to keep the performance of a system within an acceptable range and up to a

desired standard. For our purposes, as a criterion for evaluating managementprinciples, the law of requisite variety is better stated as follows: effectiveness

requires a repertoire of management strategies and capacities that match the

complexity of the tasks being undertaken.

An effective EU needs management and governance capacities that match the

variety of tasks and challenges it faces. If environmental problems extend beyond

national jurisdictions, policy responses need to be organized accordingly. If

criminals are organized on an international basis, policing needs to be equally

well organized to combat cross-border crime. If economic globalization is pro-

ceeding rapidly, management capacities are needed to coordinate and represent

EU trade interests in the WTO or other forums. Similar questions about the

adequacy of management capacities can be raised in policy fields as diverse as

the internal market, agriculture, fisheries or development aid. Effective perform-

ance depends on having a managerial tool kit and organizational resources at

least sufficient to match the variety of tasks and problems whether regulatory,

promotional or distributional. This is not just a technical matter of operational

efficiency. In a changing environment increased flexibility is also needed. Per-

formance will suffer if management capacities are too limited for solving todays

problems efficiently and also if they do not include the capacity to adapt and

extend the repertoire of management responses to meet tomorrows challenges.

The schema outlined here begins by abstracting from the institutional detail of

the EU. It uses the law of requisite variety as a guiding principle by drawing a

general distinction between management capacities and task complexity. The

basic postulate is that effective performance requires a match between com-

plexity and capacities. The more complex the tasks confronting an organization

or other system the more sophisticated the management capacities required to

perform them effectively. Figure 1 provides a way of visualizing possible rela-tionships between capacities and complexity. It should be noted that qualitative

distinctions will be introduced later but for the moment both capacities and com-

plexity will be treated as if they were continuous variables. The 45 line, E, repre-

sents a series of points of effective performance. Any point on E defines a balance




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or equilibrium between capacities and task complexity. In order to ensure

effectiveness an increase in complexity requires a matching increase in capaci-

ties. However, neither equilibrium nor an inbuilt tendency towards equilibrium

can be taken for granted. On the contrary, effectiveness is always problematic.

Positive and negative feedback relationships between capacities and complexity

may reinforce or undermine efforts to maintain or improve performance stan-

dards. Figure 1 helps pinpoint the implications for performance of disparities

between capacities and complexity. To explore the causes of improving or

deteriorating performance we consider the interaction between capacities and

complexity in situations of disequilibrium by delineating four zones, two on each

side of E. The dynamics of behaviour in each zone have strikingly different

consequences for effectiveness. The zones immediately to the left and right of E,

indicating moderate mismatches between capacities and complexity, are termed

the comfort zone and the challenge zone. Those further away, where the mis-

matches between capacities and complexity are greater, are zones of underload

and overload. Each will be briefly explained.

In the comfort zone, capacities are in excess of those needed for normal

standards of effectiveness. There is the requisite variety to cope comfortably with

the tasks that have to be performed. Stable conditions with no surprises and no

incentives to aim higher permit management to play a relaxed maintenance role.

Effectiveness can be taken for granted in the comfort zone and performance


FIGURE 1Management capacities, task complexity and effectiveness

COMPLEXITY

OVERLOAD

CHALLENGE

COMFORT

E

UNDERLOAD

CAPACITIES

Neofunctionalist trajectory



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easily reaches or exceeds levels of aspiration. In this benign environment there is

neither the objective need nor the subjective desire to improve performance.

The challenge zone is different from the comfort zone objectively and sub-

jectively. Objectively, the higher complexity of the task relative to existing

capacities means that exceptional efforts are needed to maintain or achieve aparticular level of performance. The demands created by a more challenging

task environment are greater than can be managed routinely by employing an

established repertoire of standard operating procedures. Expected standards of

performance can only be achieved by adaptive efforts. This is a subjective matter

of attitudes and perceptions of opportunities as well as a response to objective

circumstances. In the challenge zone, which might also be labelled the organiza-

tional learning zone, the disparity between management capacities and task com-

plexity evokes different responses in the short term and long term. In the short

term, management capacities are fixed and the only way to maintain standards ofperformance is to work harder. In the long term, challenge provides a develop-

mental stimulus to improvement and innovation; doing things better rather than

just working harder. This developmental process is as much a matter of subjective

attitudes and perceptions as objective conditions. Rising to new challenges only

prompts efforts to build and strengthen management capacities if there are

positive attitudes to change and the skills and willingness to seek out new oppor-

tunities, to innovate and to experiment with new methods. Increasingly, where

innovation is an integral part of the responsibilities of management there is a

process of seeking opportunities rather than just reacting to problems (Drucker,

1985). Like an individual taking on a new job or a business entering a new

market, public organizations can learn from experience and add new methods,

skills and techniques to their pre-existing repertoires. An organization like the

Commission, facing unfamiliar and increasingly demanding integrative tasks also

needs to develop an imaginative approach to building capacities and widening its

repertoire of responses.

Outside the comfort and challenge zones the interaction effects of wide dis-

parities between capacities and complexity adversely affect performance for con-

trasting reasons. In the overloadzone capacities fall far short of those required

for effectiveness. Under conditions of acute adversity performance deteriorates

inexorably. Even strenuous efforts to cope are liable to end in failure while

imposing excessive stress on those involved. Crises due to overload engender

internal conflict and rigidity, along with other forms of maladaptive behaviour

and, hence, poor use of even the inadequate capacities that are available (Dror,

1986). Conversely, underload leads to deteriorating performance because the

demands it makes on individuals and organizations are inadequate even to sustain

their existing skills and capacities. In human systems, capacities are maintainedand renewed through use. Disuse leads to deterioration. Low levels of task com-

plexity, in what might be termed the Parkinsons Law zone, provide too little

stimulus to exercise and maintain the capacities available. Behaviour becomes

institutionalized and dependent rather than goal-oriented and innovative.




14/30

Underload initiates a vicious circle in which capacities atrophy through disuse

and performance declines.

Viewed through this lens, how does the EU appear? After the resignation of the

Santer Commission the general tone of public criticism suggested an overgrown

bureaucracy located in the comfort or even perhaps the underload zone. Thiswould be a serious error of diagnosis on two counts. First, the Commission is

only a small, and inadequately resourced, part of a very large system. Second,

viewing the EUs existing capacities in relation to its present and future responsi-

bilities a rough but realistic assessment would place it in the challenge zone with

a serious risk of overload. One only has to call to mind the BSE (mad cow

disease) crisis and the disarray of the development aid regime to see that manage-

ment capacities can be woefully inadequate. The recent rapid growth in EU

responsibilities plus the imminent prospect of the biggest ever enlargement are

bringing a huge increase in task complexity with little in the way of a matchingincrease in capacities. This diagnosis of a dangerously widening management

deficit is at variance with the conventional view of more-means-better integra-

tion. Part of the problem is that theories-cum-doctrines of integration have had

little to say in explicit terms about how capacities to manage integration come

into existence and have often insinuated an implicit assumption that inadequate

capacities would never be a serious problem. Insofar as the issue of the manage-

ment deficit has been addressed by neo-functionalist theories, for example, it has

been in rather optimistic terms of an in-built tendency to generate whatever

capacities are needed. Neo-functionalist theories portray integration as a self-

reinforcing process following a trajectory in the challenge zone. It could be

characterized by a succession of challengeresponse, challengeresponse, cycles

like that depicted in Figure 1. Each phase of integration spontaneously generates

the capacities needed to ensure acceptable standards of effectiveness. The

achievement of one integration objective would lead to the recognition of related

areas of interdependence, the establishment of new objectives and, subsequently,

the development of additional capacities to underpin effectiveness. There might

be lags in the developing capacities but no really adverse effect on performance.

The virtuous circle of neo-functionalist integration would ensure that the spill-

over from meeting one set of challenges would call into being additional capaci-

ties for ensuring effective performance and also build the confidence needed

to launch the next phase and ratchet the system forward to a higher level of

integration. But, as the history of integration shows, there is no guarantee that

the system keeps within the challenge zone. At different times the process has

stagnated or even regressed as initiatives have been blocked. At other times crises

have occurred when too rapid an increase in demands has overloaded limited

capacities.Postulating a management deficit implies that the development of capacities

not only lags behind the acquisition of additional tasks and responsibilities but

may also undermine the effectiveness of the integration process as a whole.

Whereas neo-functionalist theory optimistically assumed a self-equilibrating




15/30

process in which the momentum of integration stimulates the development of the

additional capacities needed to ensure effectiveness, the argument here is that

there are structural obstacles to the development of the requisite variety of man-

agement capacities to match the pace of change and the growing complexity of

the tasks. If the effectiveness of the system is to be assured there will have to be adeliberate strategy of capacity-building unlike anything that has been seen before.

If there is no such strategy the chronic imbalance between capacities and com-

plexity is liable to become an acute problem. Enlargement will cause a sharp

quantitative increase of demands on the system and simultaneously a qualitative

change in the character of demands because of the need to manage major reforms

and other structural changes.

Institutional reform and the management deficit

It is widely accepted that institutional reform in the EU is overdue. The EU hasoutgrown its institutional structures and governance processes. Despite this it has

made little headway with institutional reform. The institutions in their current

form are much as they were originally created for a Community of six member

states exercising limited responsibilities in the 1950s and 1960s. Less obviously,

the existing institutions and policy processes have a structural bias towards pro-

ducing a management deficit. Political stalemate in the three intergovernmental

conferences leading to the Maastricht, Amsterdam and Nice Treaties prevented

all but marginal changes in established institutions. The debate about institutional

reform has polarized time after time towards irreconcilable supranational and

intergovernmental conceptions of the future architecture of the EU, neither of

which corresponds with current realities. But the tensions between the supporters

of opposing positions have frustrated moves towards institutional reform. By

entrenching adversarial and mistrustful relationships they have precluded serious

consideration of useful options and obscured some important issues about the

performance of the system.

If there is a point of agreement between contending views it is, paradoxically,

that reform should make the EU decision-making process more efficient by

removing obstacles to the acquisition of new responsibilities. The lack of pro-

gress in institutional reform along these lines may actually be a blessing in dis-

guise, because changes based on that particular reform agenda would be more

likely to cause overload than improve performance. First, they would widen the

capacitycomplexity gap rather than narrow it. Standard proposals for stream-

lining decision-making in the Council of Ministers by shifting from unanimity as

the basis for decisions to qualified majority voting and increasing the scope for

enhanced cooperation by a core group of countries would add to the range of EU

competences and tasks without any corresponding growth in the capacities fordealing with them. Second, although it is rarely recognized, much of the dis-

cussion about flexible integration over recent years has been prompted by

demands from member states for more freedom to choose how far, how fast

and in what directions they will participate in new integrative ventures. Little




16/30

consideration has been given to supplying the additional capacities for meeting

these demands and coping with more diverse patterns of integration. Third, in-

sofar as supranationalism is associated with transferring legal competences to the

EU institutions without augmenting their management capacities it would pro-

mote inefficient centralization and could cause overload. The net result of institu-tional reforms conceived in these terms would be to increase the management

deficit.

Management capacities and institutional reform need to be considered together

and not separately as seems to be happening at present. An entirely different

approach to institutional reform is needed to construct new forms of European

governance that strengthen capacities and reduce the management deficit. It is not

just more resources that are needed but new organizing principles that can guide

the design and development of governance networks spanning levels of govern-

ment and national boundaries. Basing reforms of EU governance on commandand control principles cannot develop the requisite variety needed to correct the

management deficit. The EU will have to break with the assumption of direct

control that Peters and Wright (1996), following Stewart and Walsh (1992),

identified as one of the six great truths of traditional public administration.

Direct control rests on a hierarchical machine bureaucracy model of organization

that is better suited to the comfort zone than the challenge zone. It still has its uses

in stable, predictable environments where organizations, working independently

of each other, perform more or less routine self-contained tasks (Mintzberg,

1983). But in public administration generally, and European public administra-

tion in particular, this model is of declining relevance. As the complexity of the

tasks increases, organizations are more and more interdependent. The achieve-

ment of objectives at the organizational level depends, not solely on what individ-

ual organizations do but increasingly on building good working relationships

with other organizations and managing interdependence at the interorganizational

level. This is especially so in European integration. The Commission can only

achieve results by working indirectly through the administrations of the member

states. It can rarely exercise direct control over them or take on the tasks and

functions that they are responsible for. Most of the EUs policy management

depends on indirect control through organizational networks rather than direct

control through hierarchies, and new principles of EU governance should reflect

this.

Partnerships and the principle of leverage

Indirect control in multilevel organizational networks often seems an inferior

form of management; less reliable, less effective and, in conventional terms,

more messy and less clearly accountable than direct hierarchical control. Even ifthe empirical reality of pluralistic organizational networks is acknowledged, pre-

scriptions are still often cast in hierarchical terms. Attempting to impose direct

control would only provoke adversarial conflicts and competitive bureaucratic

politics. Working against the dynamics of the system leads to fragmentation




17/30

rather than an integrated approach to management. Following a different line of

thought, Senge (1990) proposed a principle of leverage applicable to managing

complex systems that shows how indirect control can be a more powerful means

of increasing capacities and enhancing performance than direct control. Leverage

is achieved by strategic interventions based on working with the dynamics of asystem rather than against them. Applying the principle of leverage involves find-

ing ways in which small well-focused actions produce big improvements in per-

formance by coupling the activities of subsystems. One particularly powerful

source of leverage in a pluralistic system like the EU is the design of partnerships

among organizations. Partnerships increase leverage by linking and coordinating

the efforts of different organizations together without subjecting them to direct

central control. The Commission can never manage Europe but it can reduce

the management deficit by deliberately developing reliable and effective partner-

ships with other organizations. Partnerships amplify management capacitiesby strengthening the basis for sustained cooperation. The Commission, in the

familiar phrase, can only gain control by losing control. Less cryptically perhaps,

it has to share power in order to create the leverage that will amplify management

capacities. In fact, it has to share power anyway because most of the implementa-

tion of EU policies and a substantial amount of policy formulation requires the

involvement of the member states and other organizations. The important ques-

tion is whether partnerships integrate their efforts productively.

Partnership is not a new concept in European public management. In fact it

was intended to be one of the guiding principles in the management of the EUs

internal market (Sutherland, 1992). It also underlies the management of the

structural funds (Bollen et al., 2000). Despite their pervasive importance, insuffi-

cient attention has been paid to designing partnerships and creating the conditions

in which different types of partnerships work effectively. What makes partner-

ships productive is that they set the terms of interorganizational cooperation and

make it clear what organizations should expect of each other. They establish an

organizational division of labour and a framework for joint action while allowing

individual organizations discretion in their own domains. Trust is the foundation

of effective partnerships. As Verheijen (2000) observed in discussing the large-

scale capacity development needed in the candidate countries to underpin EU

enlargement, the effective functioning of organizational networks depends on

mutual trust among the participant organizations. The power of trust is that it

increases the reliability of interorganizational cooperation (Kumar, 1996). But in

the EU, where national rivalries and bureaucratic politics have often been promi-

nent, trust is a commodity in short supply. Often, a history of suspicion or even

conflict among the organizations in a policy network has to be overcome.

National loyalties are strong and there is a tendency to treat any reform proposalemanating from the Commission with suspicion, as a tactic to increase direct

control rather than an attempt to upgrade the common interest. One frustrated

national official cynically described any discussion of partnerships in EU policy

management as Just Euro-blah-blah. In reducing the management deficit, the




18/30

problem is to move decisively away from the bad experiences on which such

mistrustful perceptions are based and establish a more productive process for

developing partnerships.

The deliberate design of partnerships is a powerful means of building trust and

effective working relationships. In order to do it consistently and successfully theCommission would need to be reinvented as a network organization that can play

a capacity-building role in multilevel governance rather than aspire to be a con-

ventional executive authority seeking to centralize control (Metcalfe, 1996b). As

a network organization the Commission would have to ensure that the organiza-

tions in policy networks have the requisite capacities for performing their own

roles and an agreed understanding of their mutual relationships with their coun-

terparts. Partnerships are not all of a kind and new principles are required to guide

the choice and design of partnerships. Four generic types of partnership provide

different ways of amplifying the capacities of governance networks (Metcalfe,1981). Partnerships are formed around four pairs of complementary role relation-

ships that define the reciprocal responsibilities of the organizations involved and

the power relations between them. The first, based on exchange, is customer

supplier partnerships. The second is professionalclient partnerships based on

expert authority. The third is partnerships between representatives of a group or

organization and its members. The fourth, unfashionable, but not to be ignored,

is hierarchical centreperiphery partnerships between administrators and sub-

ordinates.

Customersupplier or purchaserprovider partnerships have been prominent

features of public management reforms in national governments, often reflecting

ideologically motivated efforts to roll back the frontiers of the state by contract-

ing out service provision or simulating market environments in government.

Customersupplier partnerships are not simply market transactions that require

no management input from the customer other than signing a contract and waiting

for delivery. Even if more market means less government it does not eliminate the

need for management. Reliance on contracting out, as the Santer Commission

found to its cost, has definite management implications. Contract management in

any public purchasing or procurement process always imposes specific manage-

ment tasks on the purchasing organization because contracts are rarely com-

pletely defined. There is a range of options and unless customers have the appro-

priate capacities for contract management the results are liable to be poorer and

the costs greater than expected.

Professionalclient partnerships are often confused with customersupplier

partnerships, but they function differently and serve a different purpose. Whereas

suppliers are supposed to satisfy customer wants, professionals are obliged to

diagnose client needs. Professionals are obliged to develop solutions that solveclients underlying problems rather than just responding to their expressed prefer-

ences. The European Agency for the Evaluation of Medicinal Products (EMEA)

is a good example of well-designed and managed professionalclient partnerships

in the EU context (Gardner, 1996). EMEA was established in 1995 as the hub of




19/30

the regulatory network for evaluating new drugs produced for human and veteri-

nary use. It is a small organization, which works by drawing in relevant expertise

from counterpart organizations in the member states to evaluate drugs produced

by pharmaceutical companies according to criteria of safety and effectiveness. Its

operational task is to manage the process of evaluation according to strict stan-dards and time scales. In addition it performs an important strategic role in

strengthening and extending the regulatory network within the existing bound-

aries of the EU, into the candidate countries and, more generally, with counter-

parts in the global governance of pharmaceutical regulation. In parentheses it

must be noted that using the term agency in this context may cause misunder-

standing. The label is applied to diverse forms of organization at the national

level that are not the same as European agencies. This needs to be clearly under-

stood because the design of the new European food safety agency has drawn on

the short but positive experience of EMEA. In view of the recent spate of foodscandals in the EU it is likely to attract ill-founded criticism if expectations are

created that to be effective a food agency must have teeth as an independent

decision-making authority.

EMEA is not a separate independent organization. It works through

professionalclient relationships with both the Commission and commercial

pharmaceutical companies and draws on a professional peer group network in

the member states. It has professional autonomy and uses it to achieve results by

linking levels of government (Metcalfe, 2000). In relation to pharmaceutical

companies it sets standards and evaluates products in order to give an opinion as

to their marketability. This is an arms-length professionalclient relationship and

not a customersupplier relationship. The former assumes that the Agency will

make an independent judgement whereas the latter would imply that it provided a

service on demand to the industry and lay it open to accusations of regulatory

capture. In relation to the Commission the Agency acts as a professional organi-

zation in giving independent judgements and final decisions remains with the

Commission. The Commission may reject EMEAs judgement, but if it does so it

must go through an elaborate process of justifying a contrary decision. EMEAs

independence is safeguarded by the strong support of a professional peer group

in the regulatory authorities of the member states. The final decision remains

with the Commission as client. The strength of EMEAs position lies in general

acceptance of its professional credibility within the regulatory system. It is an

important point of principle that EMEA is a professional advice-giving organiza-

tion and not a decision-making body. If it had the final word it would also be

under an obligation to take into account political considerations other than the

professional criteria of safety and effectiveness.

A third type of partnership underlies representational processes and manykinds of voluntary organization. Partnerships based on relationships of solidarity

and mutual influence between representatives and members of organizations and

associations are important both in policy formulation and implementation. As a

pluralistic system, the functioning of the EU depends heavily on representational




20/30

processes to articulate interests and generate consensus. National governments

and other levels of government as well as lobby groups are involved and the EU

institutions have representational functions that in one way or another presume

internal processes of debate and participation. Such partnerships are valued in

themselves from a democratic standpoint as means of promoting participation aswell as vehicles for forming and mobilizing consensus by resolving conflicts and

helping to build informed commitment among the numerous organizations

involved in policy implementation. Structuring representational processes

through partnerships is an important element in designing European governance

and the resulting configurations may take several quite different forms

(Schmitter, 1996).

Finally, hierarchical partnerships between administrative superiors and sub-

ordinates remain important in policy implementation. Although often regarded as

old fashioned and unfashionable hierarchical partnerships should not to be dis-missed. On the contrary, in a system of multilevel governance like the EU, they

play an indispensable role in the management of some programmes. The main

lines of policy are established at the EU level and national and subnational

government organizations or non-governmental bodies are involved in imple-

mentation. Since these are interorganizational partnerships it is very important

that the capacities required to make them work are adequately developed to avoid

the opposing dangers of overcentralisation and fragmentation. They are not based

simply on compliance with detailed policy prescriptions but also function as part

of a learning process for revising and adapting policies. It is more difficult to

design and manage hierarchical partnerships of this kind across organizational

boundaries but in, for example, the Structural Funds and in relation to the

countries in the accession process it is often necessary to ensure that actions

correspond with policies determined at the EU level.

Four different kinds of partnerships may seem a limited set of design options.

But in combination they provide the building blocks from which an enormous

variety of policy management regimes can be constructed. The five models

of policy management deliniated by Wallace (2000) are only a small sample of

the many ways in which networks of partnerships can be assembled. Even the

most carefully designed organizational division of labour cannot eliminate all

sources of overlap and friction. Disputes and disagreements about the respective

responsibilities of organizations are a potent source of unproductive bureaucratic

politics and destructive conflict. In order to ensure that these negative con-

sequences do not wipe out the positive benefits of interorganizational cooperation

it is important to ensure that interdependent organizations work well together. We

turn therefore to the subject of capacities for coordination.

Coordination capacities for network management

Coordination is an old problem. All governments face the problem of establish-

ing a division of labour among ministries and other organizations while providing

the means of coordination between them. But in the EU it appears in a new guise.




21/30

Effective multilevel governance calls for a balance between differentiation and

integration; an organizational division of labour and capacities for coordination.

Even if great care is taken to minimize interdependence and contain the rivalries

of bureaucratic politics coordination remains a difficult challenge. The biggest

danger in European governance is not excessive central control, as Europhobesfear, but the opposite fragmentation. The EU is undermanaged rather than

overmanaged. The integrity of any pluralistic system is threatened by centrifugal

forces and in the EU they are particularly strong. Coordination is a public good

and subject to familiar problems of supply that mean that it is an underprovided

component of requisite variety. European policy management places particularly

heavy demands on interorganizational coordination because the organizations

that are expected to cooperate are embedded in diverse national contexts and may

have a history of adversarial rather than collaborative relationships. The only

way to meet the challenges and avoid overload is to develop coordinationcapacities to manage increasingly complex networks. Surprisingly perhaps,

although coordination is one of the classic issues of public administration there is

little agreement about how to formulate the problem let alone prescribe solutions.

As Wildavsky (1979) put it: Coordination is one of the golden words of our time.

Offhand, I can think of no way in which the word is used that implies disapproval.

But what does it mean?. Coordination is variously seen as all important or un-

important. Either it requires total agreement on objectives, priorities and actions

or it is merely the token exchange of information and avoidance of conflict. The

lack of agreement on what coordination means in theory leads to confusion and

indecision about how to bring it about in practice. In October 1999 the

Commission published a document setting out proposals for strengthening the

notoriously weak coordination among its DGs. By the time the White Paper

Reforming the Commission was published in March 2000 all that remained

was a passing reference to the subject. Yet it is not a problem that can be evaded

within the Commission or in EU governance networks without high costs and

serious risks of failure.

The default option for reform is generally tighter central control but even if

coordination is an old problem command and control principles are inappropriate

for developing solutions. Apart from its inherent limitations in a single organiza-

tion, central control is incongruent with the pluralistic character of EU govern-

ance networks. Superimposing central control on an organizational network

would be politically unacceptable. And, from a management perspective, it is

often unnecessary and ineffective for managing diverse and complex pattern of

organizational interdependence. Network management requires a different

approach to coordination. New principles for coordination can be developed by

applying an approach based on pluralistic assumptions. Organizational networksare more likely to be effective if coordination is an integral part of the manage-

ment responsibility of each organization than a system of supervision and control

superimposed from above. A flexible approach to managing coordination should

allow for variations in the patterns of interdependence among organizations and




22/30

across policy networks. A repertoire of coordination capacities that can be

deployed as and when they are needed can be based on the policy coordination

scale described in a previous article in this journal (Metcalfe, 1994). This scale is

constructed from a set of capacities that contribute in different ways to managing

coordination in progressively more complex situations. Figure 2 summarizes

the constituent elements of the scale and shows how they are related to each

other.

Methodologically, this is a Guttman scale. It has the properties of being uni-

dimensional ordinal and cumulative. Substantively, it has a step-by-step organi-

zational logic that matches coordination capacities to increasing organizational

interdependence. In other words, it provides a systematic basis determining what

capacities for managing coordination should be called into play in organizational

networks of different degrees of interdependence. Where interdependence is low,

lower level coordination capacities suffice. As interdependence increases more

sophisticated capacities for managing coordination need to be called into play.

The successive capacities contribute something new but also depend on the

operation of lower level capacities. It is important to add that this is not just a

bottom-up process of coordination developed in opposition to the more con-

ventional top-down process of central control. Rather than a dichotomy between

top-down and bottom-up there is an interactive relationship between the different

levels. The higher levels of the scale comprise what are normally regarded as

elements of central coordination such as arbitration, setting common constraintsand establishing joint policy priorities, but in organizational networks a well-

constructed coordination system relies on the lower level coordination capacities

to bear most of the load and provide the foundations for the higher levels. Priority

setting for a policy network is superficial and lacking in credibility if it is not


FIGURE 2The structure of coordination capacities

9. ESTABLISHING JOINT PRIORITIES

8. SETTING COMMON LIMITS

7. ARBITRATION OF CONFLICTS

6. CONCILIATION (MEDIATION)

5. SEARCH FOR AGREEMENT (CONSENSUS)

4. SPEAKING WITH ONE VOICE

3. CONSULTATION (FEEDBACK)

2. EXCHANGE OF INFORMATION (COMMUNICATION)

1. INDEPENDENT POLICY-MAKING BY INDIVIDUAL ORGANIZATIONS



23/30

based on reliable information, extensive interorganizational consultation and

commitment to build consensus. The credibility and effectiveness of conciliation

and arbitration processes are enhanced by the soundness of subordinate coordina-

tion processes that deal with many routine problems and at the same time estab-

lish habits of cooperation and joint problem solving.

Governance in turbulent environments

Undoubtedly the most difficult and distinctive aspect of the management deficit

is the growing need for capacities to manage structural changes in the governance

network of a whole policy field. Whether one considers widening integration,

deepening integration or reforms in existing EU policy fields, large-scale re-

organizations require new types of capacities at the macro level. If the recent

intergovernmental conference and the negotiation of the Nice Treaty are anything

to go by the political dynamics of the integration process are more likely toundermine than to reinforce the capacity to steer structural change. There is

nothing in current proposals for institutional reform that makes a significant con-

tribution to strengthening these capacities. This area of weakness urgently

needs to be corrected because failure to deal with structural change makes the EU

vulnerable to costly and damaging turbulence. A deliberate process of capacity-

building is essential to create the requisite capacities for planning and managing

structural change. Again, new principles are needed and organization theory

offers some useful guidelines for dealing with structural change and managing

turbulence.

The term turbulence is often used in a loose way to describe any situation of

uncertainty and unpredictable change. In the context of European governance it is

useful to define it more precisely as a situation where high levels of organiza-

tional interdependence create overload that is unmanageable by organizations

acting independently yet, at the same time, competitive pressures at the micro

level drive organizations to pursue their own short-term interests in counterpro-

ductive ways that undermine interorganizational coordination. Failure to manage

organizational interdependence constructively has devastating consequences not

only for the performance of individual organizations but also for a system as

a whole. To deal with the threat of turbulence in the EU the increases

in organizational interdependence now being brought about by deepening and

widening integration require the development of new kinds of governance

capacities at the macro level. This complicates the capacity complexity schema

outlined earlier. In the earlier exposition the simplifying assumption was made

that both capacities and complexity could be treated as continuous variables.

Now, qualitative differences in both capacities and complexity need to be brought

into the picture. It is useful to begin by distinguishing among organizationalenvironments of different levels of complexity. The differences are defined as

discontinuities in the causal texture of the organizational environment (Emery

and Trist, 1965; Metcalfe, 1974; Haas, 1976). Broadly, when organizational

interdependence is low, organizational effectiveness is largely determined by




24/30

intraorganizational efficiency within the constraints given by the external

environment. The performance of such networks is the aggregate of the perform-

ance of the parts. Four types of organizational environment can be distinguishedwith causal textures of increasing complexity: (1) stable homogeneous; (2) stable

differentiated; (3) disturbed reactive and (4) turbulent environments. The trans-

ition from disturbed reactive to turbulent conditions appears to have particular

relevance to the EU in its current stage of development.

As interdependence increases, the effectiveness of individual organizations

comes to depend increasingly on coordinating with other organizations and estab-

lishing reliable interorganizational networks, but not in a smooth continuous way.

The typology of organizational environments presumes a series of thresholds of

complexity, which must be matched by the development of distinctive new kinds

of organizational capacity if levels of performance are to be maintained and

improved. Table 1 shows the kinds of management capacities needed to ensure

effectiveness in organizational environments of increasing levels of complexity.

The capacities are cumulative rather than mutually exclusive.

The first three levels are broadly familiar. They provide the bread and butter

syllabus of business schools general management programmes and are increas-

ingly familiar to public managers. At the lowest level, Type 1, only operational

management capacities are needed to perform effectively in a stable and undiffer-

entiated environment. In Type 2 environments effectiveness requires tactical

management capacities for discovering and exploiting opportunities in the

environment which fit distinctive organizational needs and characteristics. In dis-

turbed reactive environments (Type 3) strategic management capacities become

necessary for ensuring the effectiveness of individual organizations. In this type

of environment organizational actions trigger competitive reactions and counter-

actions by other organizations which must be anticipated and taken into account

in the strategy formulation process.

Type 4 environments are described as turbulent because individual organiza-

tions, acting independently, are not only unable to ensure their own effectiveness

but, in attempting to protect their own interests in the face of unpredictable

environmental shifts, they are liable to make a bad situation worse. Their own

actions amplify and reinforce the centrifugal forces that cause structural instabili-


TABLE 1Organizational environments and management capacities

Interdependence Type of environment Management capacities

High4 Turbulent Macro-management3 Disturbed reactive Strategic management2 Stable differentiated Tactical management1 Stable homogeneous Operational managementLow



25/30

ty and breakdown. Managing turbulence depends critically on the development of

interorganizational management capacities for reorganization at the level of the

system as a whole; the macro level.Macromanagementprocesses are required to

prevent disintegration and steer structural change. The requisite capacities are

quite different from those that develop at the micro level to serve the needs of

individual organizations and there is no guarantee that they will evolve sponta-

neously. Whereas strategic management focuses on enhancing the competitiveadvantage of individual organizations at the micro level, the problem in potential-

ly turbulent environments is to strengthen integrative capacities for collaboration

in managing large-scale reorganizations and structural changes at the macro

level. The contribution of macromanagement processes is to manage change in


FIGURE 3



26/30

the governance framework; the rules of the game within which micromanage-

ment takes place.

Figure 3, based on catastrophe theory, provides a way of visualizing the

general form of the problem posed by structural instability and the type of solu-

tion needed to manage structural change. It shows how continuous incrementalcauses in this case the growth of interdependence brought about by deepening

and widening can produce sudden unexpected discontinuous effects as a criti-

cal threshold is reached. The onset of turbulence and the basic requirement for

dealing with it can be represented in a model of a cusp catastrophe. This shows

the effects of both matches and mismatches between management capacities and

environmental complexity on performance in the transition from a Type 3 to a

Type 4 environment.

The control factors are (1) capacities for collective action with the specific con-

figuration of a macromanagement system and (2) complexity levels around thethreshold where structural problems are likely to occur. As Figure 3 shows, the

effectiveness of the response to structural problems depends critically on whether

macromanagement capacities exist or can be developed to meet the challenge of

structural change. If capacities already exist, they

reforming european governance old problems or new

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