Enterprise 2.0
February 8, 2010
Corporations are the dominant mechanism by which economic activity is organized in our economies. How companies perform and what helps them to perform better are hence questions of huge importance. Corporations have such an enormous influence on our lives that corporate decision-making and actions might well deserve more attention right now than does discussing the new Enterprise 2.0 tools. Or, to put it in another way: what kind of changes in our corporate thinking would enable maximum benefits to be gained from social media?
One key question in corporate governance is, who should have the right to make what decisions, and why.
Instead of thinking that we already know the answer, let’s look at what is going on. Companies that focus on their share price, which is the business press doctrine, have the incentive to shut down, or move operations that are not generating the best possible profits for their shareholders, even though those operations are still generating substantial economic value in the area they are located in.
From the point of view of the people who are employed, and the society where those corporations are located, this is obviously not very efficient. I am not against globalization, quite the contrary, but it is doubtful whether maximizing the value of shares, maximizes social wealth. Can it be that the idea of companies’ “raison d étre” being the maximizing of shareholder value is a dangerously incomplete performance standard in post-industrial economies?
I am not suggesting at all that firms should serve all their stakeholders, or even society at large. I am certainly not talking about social responsibility here. What I am claiming is that there are other parties, other than shareholders, who have made an investment in the enterprise. In order to understand this, we should start by asking who is contributing to the enterprise, and what, and who is bearing what risk.
The question I am raising here is whether we can think of employees as labour any more. It matters in a very specific way who does what. The contributions of knowledge workers cannot be understood as fixed-wage generic inputs, but they can easily be understood as risk investments, in the very same way as we today understand shareholders’ financial contributions. We should ask whether the current social construct of allocating risks and rewards is inevitable for some reason, or whether it is an outdated industrial artefact that should be redesigned?
A large part of the economic surplus that a company creates is paid to the employees as wages. This is treated as an operating cost. Naturally, costs should be lowered. The picture would look somewhat different if we understood employees as being investors of human capital, and treated them accordingly. Our system of industrial management creates a systemic inefficiency in knowledge-based work. It can only be removed if the worker’s role included a more active (managerial) responsibility leading to responsive, agile practices. This cannot be achieved unless our mental construct of the employer employee relationship changes radically.
The change would mean that employees would explicitly bear the entrepreneurial accountability for the success or failure of the company, as they do any way and additionally benefit from any possible upside, just as shareholders do. From the point of view of corporate governance, it would mean that companies should be run in the interests of their employees, as much as in the interests of their owners.
To be honest, I don’t think that Enterprise 2.0 has that many employees, more contributors of different resources – mainly financial capital and human capital. Some investors invest for a long term, some for a very short term.
Thank you Gary Becker, Margaret Blair and Yochai Benkler
From who I am to what I do, and back
February 7, 2010
It is astonishing to realize that until quite recently, most human beings lacked a concept that is so obvious to all of us: earning money. The vast majority of people lived on the land. A peasant worked all day. He probably had a little money, but that was not what he worked for. He worked because life was work and work was life. It was as simple as that. A peasant did not have a job for which he was paid. Nor could he quit his work and take another position that was more highly paid, if one were offered. People were tied to the land they were born on. As they worked for the land, they worked for themselves and for the landowner, if they did not own the land.
The situation was fairly similar from the landowner’s point of view. The first expectation was not to lose any of the land he owned. The landowners also worked for the land, not for the money. The means they had in their possession to increase their resources were limited: cultivate the land, have children marry in return for increases in the amount of land they owned, or fight other land owners whose land they wanted.
Aristotle had interesting ideas to explain what was going on. According to him, the basic economic activities are domestic. This involved the production and consumption of all the things human beings needed in order to live. This is what Aristotle called “Oikos”, meaning a house. It was about house-holding, a kind of an entrepreneurial calling for the wellbeing of the family. “Oikos” together with another word “Nomos”, roughly meaning laws, are the ancient Greek backgrounds to our concept of “Economy”.
Aristotle makes a distinction between two kinds of value added – one that we get from nature’s resources to sustain our lives, and another, which we create to facilitate our interpersonal relationships and trade. The value added in the latter does not begin from nature, but from the promises we make to one another.
The first, for Aristotle, includes things like wood, animals, tools, stones for houses, yarn for weaving etc., and the second is – money. The interesting thing was that the essence of money was to him a promise!
There are limits to what we can get from nature, but, according to Aristotle, since money is promises, there is no end to the amount of money we can aspire to collect. What is special about money, Aristotle says, is, that its value is set by agreement. It has no intrinsic use value, only an exchange value, and it keeps that value only as long as people agree to accept it in payment. It is a convention of trust.
Therefore it is understandable that the system of trust always seeks a limit until it reaches a point where promises are not believed any more. This is the point at which fear replaces trust. After that limit is reached, the result is a rapid, sudden and deep drop, a credit crunch. The whole house of cards crashes, because it is made of promises that don’t have any value any more. The hot air turns into – just air.
The change that has taken place in a fairly short period of time in history has been remarkable. Money was invisible then, today it is omnipresent. Work existed then as it exists now, but the idea of work being life and life being work has disappeared. We mostly work to earn a living. We even dream of the day when we don’t need to work any more, in order to have time to really live. Work and life, instead of being inseparable parts of our lives, have become conflicting, almost contradictory ideas.
Adam Smith, in the Wealth of Nations, which was published in 1776, was one of the first to write about what we are experiencing now. He gave form to a new phenomenon: the labour market. In a sense, before he named it and before he explained how it worked, it did not exist. In a situation where life is work and work is life, a man cannot separate his work from himself. Adam Smith claimed that labour is something separate from the worker. This was the point at which work and life separated. It was no longer about who I am, but what I do. Labour was the new resource of the industrial age. As a resource, labour could now be bought and sold like any other resource. In fact, everything has been for sale since then. The emphasis of the economy shifted to trade, buying and selling, and away from (domestic) work. The sign of efficiency was now profit, which was measured in money. Thus the modern world came about.
This led to the situation we are in at present: buying and selling are no longer confined to resources, to trade. The world economy mostly consists of buying and selling money, buying and selling promises according to Aristotle. We believe that this is the natural order of things. Perhaps it is. But we should not forget that only about two centuries ago, it was not thought to be the natural order. It would be interesting to know what the situation we are in at the moment will look like two centuries from now.
Adam Smith is not helpful any more. We know now that the inputs of knowledge workers cannot be understood as generic labour. It matters more and more who does what, when, and with whom. The concept of a job role is giving way to tasks as the unit of value creation. Labour markets are turning into task markets. We also know that in the era of creativity and knowledge intensive work, the peasants are also the landowners. What is missing is a new theory explaining what is going on. Perhaps the future is going to look a bit like the past, not our industrial past, but the time before that. Perhaps the theory of social media and the Internet comes from ancient Greece. Perhaps Yochai Benkler is the new Adam Smith. Anyway, in social media, it is not what we do, but who we are. Life and work have come together again.
Thank you Charles van Doren, Stephen B Young and Douglas @rushkoff
