January 27, 2013
Industrial-era thinking consists of cultural metaphors that have guided the development of firms and societies for the past 100 years. These habitual mindsets act as intellectual and emotional standards for determining what is the right way to think and what are the right things to do.
Lately I have had a series of conversations with a group of leaders of global high-tech companies. It became very clear during my conversations that their vocabulary reflected a new way of thinking about work. The executives emphasized that the key to success in the new digital economy is likely to be a new position for knowledge professionals and a wide social acceptance of more sustainable values.
These people represented a very different set of standards from those the mainstream thinking portrays.
We still think according to a mindset, in which capital is the key resource and the investor is the ultimate boss. Accordingly, the modeling approach we still use in corporate governance is the principal-agent model, in which managers are viewed as agents of the shareholders, the principals. It is a chain of authority that leads to the knowledge worker only at the end of the chain.
But once acquired, knowledge and skills that are specialized to a given enterprise are assets that are at risk in the very same way that financial assets are at risk. If one can’t continue for some reason, the value of context-specific knowledge and competencies may be much lower somewhere else. Human capital then follows very much the same logic as financial capital and should be treated accordingly.
There is, however, one major difference. Human capital is by definition always linked, social and contextual.
The capabilities of the members of a team are worth more together than when applied alone. With context-specific human capital, the productivity of a particular individual depends not just on being part of a community, but on being part of a particular group engaged in a particular task.
The contextual and social aspects of business matter much more than we have understood.
The ten principles of digital work, the new standards, that the leaders acknowledged:
- informed free choice, rather than compliance, is the basis for decisions
- active participation, rather than passively accepting instructions, is the basis of growth and development
- work activities are carried out within a framework of personal responsibility and goals for self-direction rather than direction from outside
- activities are carried out in a transparent way with the goal of distributing the cognitive load of work rather than work being based on reductionist principles and social isolation
- one is responsible for one’s own actions rather than being responsible to someone else
- a worker is engaging in complex, responsive activities with others in contrast with engaging in closed repetitions of the same activity
- the network, rather than offices or organizational hierarchies, is the main architecture of work
- productivity is a result of creative learning rather than doing more of the same. Increasing the quality and speed of learning matter more than increasing the quantitative output of work
- knowledge work can be understood as investments of human capital following the same logic we have used to understand financial investments. Workers should share the responsibilities and possible upsides that used to belong only to the investors of financial capital.
- knowledge work is about interdependent people in interaction. Intelligence, competence and learning are not any more about the attributes and qualities of individuals but about the attributes and quality of interaction
The impact of technology on industrial jobs.
Filed in Digital work, New work
Tags: Architecture of work, business, Communication patterns, Digital work, Human capital, Interactive value creation, Internet, Knowledge work, Network, Peter Drucker, Ronald Coase, science, Self-organizing, Social business, technology, Transaction costs
January 8, 2013
Corporations as we know them arose around 150 years ago. They were modelled on the most successful organization of the time – the army. The army was then, out of necessity, based on a familiar management model: a few well-trained people at the top commanded a very large number of unskilled people, the “employees”, who were drilled in a few repetitive motions.
This organizational model reached its peak around the time of the Second World War. By that time it had become clear that the command and control organization was rapidly becoming outdated, even for the needs of the army. It was actually in the military that the transformation towards the knowledge worker paradigm first began. Contrary to mainstream thinking, there are examples of armed forces developing furthest from being based on command and control to being based on knowledge and responsibility.
Just as industrial society became a society of corporations, it developed into a society of employers and employees. These were two different ways to explain the same phenomenon. An employee is by definition somebody who is dependent on access to an organization, access to an employer.
Many people still think that one can only work if there is an organization – a “machine” to operate.
Corporate ICT systems are the machines of today. They are too often used in essentially the same way as machines were used in factories. Machine operators in the factory did as they were told. The machine dictated not only what to do but how to do things. The worker was dependent on the machine and served the machine.
To become a social business and to improve the productivity of work will require very different thinking and big changes to ICT-systems, management, and even, the structure of society. In knowledge work the “machines” necessarily have to serve the workers. It is the knowledge workers who decide what to do next and how to do it.
Economic theory and industrial management practice see workers as a cost. A social business, wanting to increase productivity, has to consider knowledge workers as a capital asset. There is a huge difference. Costs need to be reduced, but assets need to be made to grow.
Our present system of industrial management creates systemic inefficiency in knowledge-based work. It can only be removed if the knowledge worker’s role includes a more active responsibility leading to responsive, agile practices. This cannot be achieved unless our mental constructs and the societal structure of work changes radically.
We should ask whether the current social construct of employers and employees is inevitable for some reason, or whether it is a social artefact that is over 100 years old, and should be redesigned.
The change would mean that employees/knowledge workers would explicitly bear the entrepreneurial responsibility for the success or failure of the company, as they do anyway in the end, 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 workers, as much as in the interests of their owners. That’s what the change from command and control to knowledge and responsibility really means.
And that’s what is needed to become a social business.
September 20, 2012
All of us have at some point in our lives experienced performance appraisals where we as individuals were evaluated. This approach to judgment was the same in school and at work: individuals separated from other individuals.
As a result of recent developments in psychology and sociology, we are now leaving behind the preoccupation with the autonomous individual and beginning to appreciate the importance of relational processes and interdependence. The way we perceive organizations is changing accordingly. Rather than an organization being though of as an imposed structure of separate, autonomous functions, today’s organization arises from the interactions of individuals who need to come together. An organization is a continuous process of organizing.
This shift in the way we see organizations changes the way we perceive competitive advantages. The new competitive edge comes from openness and interactive capacity: the ability to participate and connect, as and when needed.
Live organizations and open, live information
Similarly produced products with the same product features are used by different customers in different ways. Just because a product is a commodity doesn’t mean that customers can’t be diverse in their needs and the way they use the product.
Companies used to have no mechanisms for connecting with the end users in order to understand and influence this. Social media and mobile technologies are now changing this.
Organizations are creative, responsive processes of communication. All creative, responsive processes have the capacity to constantly self-organize and re-organize. Change is not a problem or anomaly. Solutions are always temporary and contextual.
In this view, it is information that is the energy of organizing. Or, as Gregory Bateson wrote, “information is a difference, which makes a difference”. When we see information as a power plant that has the ability to organize and change the organization, we realize the power of openness. When information is transparent to everybody, people can organize effectively around changes and differences, around customers, products and new technologies.
When information is transparent, different people see different things and new interdependencies are created, thus changing the organization. The easier the access that people have to one another and to (different) information is, the more possibilities there are. What we have still not understood is that people need to have access to information streams that no one could predict they would want to know about. Even they themselves did not know they needed it – before they needed it. Thus information architectures can never be fully planned in advance.
Engagement and participation
No one person or function can meet today’s challenges alone. We need a community of people who willingly participate and provide their insights to address increasingly interdependent issues. Collaboration is necessary because one person no longer has the answer. Answers reside in the interaction, between all of us.
Therefore the challenges of today are engagement and reducing the transaction costs of participation. Widening the circle of involvement means expanding who gets to participate, comment and contribute. It is about inviting and including relevant, new and different voices.
The unfortunate misunderstanding is that engaging people requires managers to let go. As managers contemplate widening the circle of involvement they sometimes believe that it means to have less ability to provide input based on their knowledge and experience. Paradoxically, engaging more people requires more from managers than the current management paradigm.
Instead of being responsible for identifying both the problem and the solution, they are now responsible for identifying the problem and identifying the other people whose voices need to be heard. Who else needs to be here? How do I invite people who do not report to me? How do I invite customers and other people from outside our organization?
Success today is increasingly the result of skilful management of participation: who is included and who is not. Who is needlessly excluded from the information streams and the subsequent interaction?
A common misunderstanding is that productivity will suffer if larger numbers of people are involved. The new social platforms and interaction technologies have dramatically reduced the cost of communication and participation. Temporary, flash communities can be formed to solve a problem or to tackle an opportunity more easily, more cheaply and faster than ever before – if there is openness and people are invited and if people want to engage. It is about distributing the intellectual tasks at hand and integrating the contributions of many resulting in creative learning.
Creative learning is the new productivity. In creative, interactive work, productivity cannot be measured in quantitative terms or as a difference between input and output, but as the speed and quality of learning.
The management task is not to understand people better, but to understand better what happens, and can happen between people. Our world is co-created in relations.
Filed in Interactive, iterative value creation, New work, Social Web / Social Media
Tags: Architecture of work, Communication patterns, Complexity, flash communities, Interactive value creation, Kenneth Gergen, Ralph Stacey, Ronald Coase, Self-organizing, Social business, Transaction costs, Yochai Benkler
May 6, 2012
The way in which companies organize themselves and define their internal boundaries has essentially been determined by the way in which communication between people is planned and transfer of information is designed. The classic hierarchical structure was based on the assumption that a manager or worker could have rich interaction and exchange of information only with a limited number of predetermined people. A narrowing of interaction always marked operational boundaries. Thus you did not want people to cross functional silos. This was the infamous trade-off between richness and reach.
An increasing number of companies trying to become social businesses are now becoming aware of the technical barriers and structural bottlenecks that hinder or totally prevent cooperation that is not planned in advance.
It is time to rethink. Rather than thinking of organization as an imposed structure, plan or design, organization arises from the interactions of interdependent individuals who need to come together.
The accumulating failures of attempts at organizational agility can be traced to the fundamental but mistaken assumption that organizations are structures that guide and, as a consequence, limit interaction. An organization as a structure is a seventeenth century notion from a time when philosophers began to describe the universe as a giant piece of clockwork. Our beliefs in prediction and organizational design originate from these same ideas.
A different ideal is emerging today. We want to be agile and resilient and we want to learn effectively and fast. The tension of our time is that we want our firms to be flexible and creative but we only know how to treat them as systems of boxes (or network nodes, where the shapes are round instead of square), with a fixed number of lines between them.
It is time to change the way we think about organizations. It is not about hierarchies vs. networks, but about a much deeper change. Organizations are creative, responsive processes and emergent patterns in time. All creative, responsive processes have the capacity to constantly self-organize and re-organize all the time. Change is not a problem or anomaly. Change is the organizing input rather than the typical managerial re-design process. All solutions are always temporary.
Gregory Bateson wrote: “information is a difference which makes a difference”. Information is the energy of organizing. When information is transparent to everybody, people can organize effectively around changes and differences, around customers, new technologies and competitors.
What we have still not understood is that people need to have access to information that no one could predict they would want to know. Even they themselves did not know they needed it – before they needed it. Thus an organization can never be fully planned in advance. When information is transparent, different people see different things and new interdependencies are created, thus changing the organization. The context matters more than ever. The easier the access that people have to one another and to (different) information is, the more possibilities there are.
We seek organization, but organization is a continuous process, not a structure.
Thank you Ken Gergen for a great evening and great conversations
Filed in Digital work, Interactive, iterative value creation, New work
Tags: Agile, Architecture of work, Communication patterns, Complexity, Emergence, gregory bateson, Interactive value creation, Kenneth Gergen, Organizing, Resilient, Ronald Coase, Self-organizing, Social business
November 20, 2011
“In the future, when the history of our time is written from a long-term perspective, it may be that the most important things historians will see are not technological advancements or the Internet, but the fact that for the first time a substantial and rapidly growing number of people had choices.” (Peter Drucker)
The industrial age was about limiting the scope of choices. This was accepted since the need to gather costly information and to communicate with low quality tools was minimized. Furthermore, as the scope of decision-making and action was narrowed, the learning requirements for workers and customers were limited, reducing the transaction costs of work. The efficiency contribution of mass production was in fact derived from these lower information- and communication-related costs.
Today, in contrast to people being content with limited choices, offerings need to be created to meet diverse, unique requirements.
For knowledge workers and customers the task of gaining the input needed for these situations is creating an entirely new environment. Creative learning is becoming the fundamental activity. It is not about consuming pre-determined content, passing tests or something with beginnings and ends. Learning is continuous transformation. It is the foundation for creative action. The ability to meet the needs of a situation better can only exist partially prior to the live moment. You can never be fully prepared in advance: success depends on how you are present and how you communicate.
What gives the edge is not what is already known by the individual, as much as the ability to solve problems that require real-time learning through live interaction. In increasingly complex environments learning curricula cannot be effectively designed beforehand. Needs and also solutions emerge responsively.
This view focuses attention on the way everyday conversations between people create the future. Organizations are self-organizing patterns of participation and communication through which coherent action and innovation emerge.
The concept of the social business builds on an agile, iterative framework. Learning is not related to meeting the requirements set by someone else, but is motivated and expressed through personal situational needs and aspirations. The idea of interactive competence also reflects the radical change in thinking that is going on. We are leaving behind the Western preoccupation with the autonomous individual and beginning to appreciate the importance of social processes and interdependence.
This understanding of competence suggests that the capability to act is a social process. The primary learning asset for a knowledge worker is interactive, reflective practice. The network is also a means for signalling: making one’s own learning visible not only to oneself, but also to others, thus creating a platform for comments, conversation, and even formal accreditation.
Learning happens in interaction between interdependent people. Competence, the ability to act more purposefully is the emergent phenomena resulting from that interaction. People are simultaneously forming and being formed by each other at the same time – all the time.
Thank you Riel Miller, Doug Griffin, Stephen Downes, Kenneth Gergen and Ralph Stacey
November 13, 2011
Technology does not determine social and organizational change, but it does create new opportunity spaces for social innovations like new employment forms. Partial employment for young unemployed people is becoming much easier than before, and truly global task-based work is becoming possible, perhaps for the first time in history.
The opportunity today is in new relational forms that don’t mimic the governance models of industrial, hierarchical firms. We are already witnessing the rise of very large-scale efforts that create tremendous value in a very new way. Coordinated value in the cases of helping Haiti or building Wikipedia type of platforms is the result of uncoordinated actions by a large number of individuals. People with different goals, different values and different motivations take part and co-create together.
The characteristics of the network economy are different from what we are used to: the industrial production of physical goods was financial capital-intensive, leading to centralized management and manufacturing facilities where you needed to be at during predetermined hours. The industrial era also created the shareholder capitalism we now experience. Having a great idea, or simply wanting to do something, was not enough to get one going. You needed a lot of money. In the network economy, individuals, interacting with each other by utilizing free or low cost social platforms and relatively cheap mobile, smart devices, can now create information products.
The production of information goods requires more human capital than financial capital. It is more about connecting with brains than connecting with money. And the good news is that you are not limited to the local supply. Work on information products does not need to be co-located. The architecture of work does not resemble a factory any more.
This is why decentralized action plays a much more important role today than ever before. The architecture of work is the network and the basic unit of work is not a process or a job role but a task.
Our management and organizational thinking is derived from the era of tangible goods production and high-cost/low-quality communications. These mindsets are not helpful in a world of widely distributed ownership of means of production/smart devices and ubiquitous connectivity.
“A corporation/employer exists to make money and the employee goes to work for the employer to make money.” Almost all economic theories have made the same assumption: the employer – employee relationship is necessary to make work possible.
We have taken that relationship as given. The other taken for granted assumption is that it is the independent employer/manager who exercises freedom of choice in choosing the goals and designing the rules that the members of the organization are to follow. The employees of the organization are not seen autonomous, with a choice of their own, but are seen as rule-following, dependent entities. People are resources.
Dependence is the opposite of taking responsibility. It is getting the daily tasks that are given to you done, or at least out of the way. We are as used to the employer choosing the work objectives as we are used to the teacher choosing the learning objectives. The manager directs the way in which the employee engages with work, and manages the timing and duration of the work. This image of work is easy to grasp because it has been taught at school where the model is the same.
In contrast to the above, digital work has brought about circumstances in which the employee in effect chooses the purpose of work, voluntarily selects the tasks, determines the modes and timing of engagement, and designs the outcomes. The worker here might be said to be largely independent of some other person’s management, but is in effect interdependent. Interdependence here means that the worker is free to choose what tasks to take up, and when to take them up, but is not independent in the sense that she would not need to make the choice.
The interdependent, task-based worker negotiates her work based on her own purposes, not the goals of somebody else, and chooses her fellow workers based on her network, not a given organization. The aim is to do meaningful things with meaningful people utilizing networks and voluntary participation.
It is not the corporation that is in the center, but the intentions and choices of individuals. This view of work focuses attention on the way ordinary, everyday work-tasks enrich life and perpetually create the future through continuous learning.
The architecture of work is not the structure of a corporation, but the structure of the IT-network. The organization is not a given hierarchy, but an ongoing process of organizing. The basis of work is not financial self-interest, but people’s different and yet, complementary expectations of the future, conditioned by their accounts of the past and developed skills.
The factory logic of mass production forced people to come to where the work is. The crowdsourcing logic of mass communication makes it possible to distribute work to where the people are, no matter where on the globe they may be.
Knowledge work is not about jobs or job roles but about tasks. Most importantly knowledge work can, if we want, be human-centric. Through mobile smart devices and ubiquitous connectivity, we can create new opportunities and a better future for millions of unemployed people.
It is possible!
Thank you Ralph Stacey, Doug Griffin and Yochai Benkler
Filed in Digital work, Interactive, iterative value creation, Social Web / Social Media
Tags: Architecture of work, Crowdsourcing, Doug Griffin, Elinor Ostrom, Interactive value creation, Internet, Ralph Stacey, Ronald Coase, Self-organizing, Social business, Task based work, Transaction costs, Yochai Benkler
The modern business enterprise is easily defined. It has two particular characteristics: it contains many separate operating units and a hierarchy of executives. As a social innovation the modern enterprise was born when the volume of economic activities reached a level that made administrative coordination more efficient and more lucrative than market coordination.
Before the rise of the modern firm, the activities of small, often personally owned enterprises were enabled and constrained by market and price mechanisms.
The important innovation of the modern firm was to “internalize” activities by bringing many discrete components under one roof and under a system of coordination. The modern multi-unit business corporation replaced the small, single-unit, enterprise because administrative coordination permitted greater productivity and lower (transaction)costs per task than was possible before.
The big idea behind industrial management was to purchase or set up units that were fit enough to operate as independent entities, but instead integrate them into one system. Bringing these activities together gave the corporation many advantages: by standardizing interaction between units, the cost of transactions were lowered and the cost of information on markets and sources of supply were dramatically reduced.
The principle of internalization permitted the flows of goods, services and information to be planned from one unit to another. Budgeting of flows allowed more efficient use of facilities and personnel than was the norm earlier. The advantages of internalizing many business units within a single enterprise could not be realized without management.
Managers essentially carried out the functions formerly handled by price and market mechanisms. Managers were now the enablers.
The practices and procedures that were invented at the dawn of industrialism have become standard operating methods and are still taught in business schools today. The existence of a managerial hierarchy as means for coordination is not questioned. It is the defining characteristic of the modern business enterprise.
Facing a world that has changed
Two aspects of work have changed dramatically. First, all financially successful offerings involve customization, or aggregation by the end-user. This means that companies must thrive in situations where very little information or communication can be made routine. Second, all successful firms are actively involved in emergent, responsive interaction with people “outside”: customers and network partners. These firms understand that value is not created inside the organization but in the larger ecosystem they are one part of.
We all have mindsets of the world that serve as maps that guide what we see and how we understand the world around us. The maps can be helpful but also outdated and incorrect. Management practices of the industrial, passive-mass-consumer era were based on standardization, management coordination and repetition. These approaches and principles are not just less useful, but critically wrong today.
Both of the change drivers: customization and interactive value creation, demand that firms value people more than they value budgets, processes, organizational units and hierarchies. Firms must attract and link contributions from skilled individuals – no matter where those people are and where those contributions come from. The products the firm sells to its clients are not offerings of the firm per se, but offerings created by specific individuals in specific situations of “local” interaction. This is why business-to-business (B2B) value systems are not different from business-to-customer (B2C) value systems. It is about people in interaction in both cases.
Work is always interaction between interdependent individuals.
It is now more expensive to internalize than to network
Interaction can only partially be planned in advance. People need to participate based on transparent information and high quality communication systems enabling responsiveness. Some work is also in the future located “inside” the firm, but the really important part of interaction takes place “outside“. A larger and larger number of the contributing individuals are necessarily customers and network partners who are outside the company Intranet as we know it know. The explanation for this is that it is now more expensive to internalize than to network. The fundamental principles of organizing are changing because of the Internet and the low cost and high quality of communication. This is why there are no, and never will be, successful social media implementations inside firewalls.
Work today is network-enabled, situational collaboration based on interdependency that typically links operational units and spans over traditional value systems. The approach that managers do the coordination for the workers is just too slow and too costly in the low transaction cost environments we live in today.
The enablers have turned into a constraint.
The task today is to create a valid context in which people think about and experience social media / social business. The difficulty is that this context has to make sense in the world we are going to, and not the world we are coming from.
More on the subject: what bosses do in the Economist. A post on group intelligence by Tom Malone. Work of Steve Denning. Article in the Ivey Business Journal. More on the new context: digital literacy. Greg Satell on networks. Stowe Boyd´s blog post.
April 25, 2011
Physical tasks can normally be broken up in a reductionist way. Bigger tasks can be divided by assigning people to different smaller parts of the whole. For intellectual tasks, it is much harder to find parts that make for an efficient division of labour. Intellectual tasks are by default linked and complex. Reductionism does not work.
The machine metaphor led to the belief that if we only can arrange the parts in the right way, we optimize efficiency. When the image of work was the assembly line, work could be fragmented and individual performance goals could be set for each worker. The world was all about little boxes separated from one another.
The demands of work are different now: how efficient an organization is reflects the links people have with one another and the links they have to the contexts of value. How many handshakes separates them from one another and from the things that matter? We are beginning to see the world as relations.
When we talk about relations, we often take examples from nature: murmuration and bird flocks. The V shape of a bird flock does not result from one bird being selected as the leader, and the other birds lining up behind the leader. Instead, each bird’s behaviour is based on its position relative to nearby birds. Ornithologists say that the V shape is not planned or centrally determined; it emerges out of simple, and relatively few, rules of interaction. The bird flock demonstrates a striking feature of emergent phenomena. But the birds do not need to figure out the rules of flight that guide how they organize themselves. These rules are genetically hardwired. Nature provides this for the birds.
Birds then are not “free like birds”.
When it comes to people it is a different story. Mother nature does not provide deterministic rules for collaboration. We are free to choose, or not to choose, our own ways of doing things together. Accordingly we are ourselves responsible for formulating the principles we use to organize our life. Social systems are thus fundamentally different from natural mechanisms.
New architectures of work
We have examples of social architectures that redefine some basic beliefs about social systems.
The wiki is at the moment the best departure from division of labor and workflows. Wikis let people work digitally together the very same way they would work face-to-face. In a physical meeting, there are always more or less the wrong people present and the transaction costs are very high. Unlike email, which pushes copies of the same information to people to work or edit separately, a wiki pulls non co-located people together to work collaboratively, and with very low transaction costs. Email and physical meetings are excluding ways of doing things. They leave people out. A wiki (depending on the topic, the context) is always inviting and including. The goal is to enable groups to form around shared contexts without preset organizational walls, or rules of engagement.
Ward Cunningham described his invention in 1995 as the simplest online database that could possibly work. An important principle of the wiki is the conscious emphasis on using as little structure as possible to get the job done. A wiki does not force hierarchy on the people. In this case, less structure and less hierarchy mean less transaction costs. A wiki always starts out flat, with all the pages on the same level. This allows people to dynamically create the organization and hierarchy that makes most sense in the situation at hand to get the job done.
People work together to reach a balance of different viewpoints through interaction as they iterate the content of work. The wiki way of working is essentially the digital and more advanced version of a meeting or a workshop. It enables multiple people to inhabit the same space, see the same thing and participate freely. Some might just listen, some make comments or a small edits, while others might make more significant contributions and conclusions.
New work is about responsive, free and voluntary participation by people who contribute as little, or as much as they like, and who are motivated by something much more elusive than only money. The society has moved away from the era of boxes to the time of networks and linked individualism. Being connected to people – from elsewhere – is a cultural necessity and links, not boxes, are the new texture of value creation.
Organizations are their communicative performance.
Thank you R. Keith Sawyer, Stewart Mader, Robert Cummings, Rod Collins, Doug Griffin, Kim Weckström, Richard Harper and Yochai Benkler
Filed in Social Web / Social Media, Interactive, iterative value creation, Digital work
Tags: Complexity, Communication patterns, Wiki, Interactive value creation, Emergence, Self-organizing, Iterative work, Doug Griffin, Yochai Benkler, Participation, Digital work, Architecture of work, Communication strategy, Transaction costs, Ronald Coase, Crowdsourcing, Kenneth Gergen
April 17, 2011
I loved Napster.
The original Internet was designed as a peer-to-peer system, like Napster was. Up until around 1993, the Internet had only one model of connectivity. Computers were assumed to be always on and always connected. The goal of the original Arpanet after 1969 was to share computing resources through integrating networks and allowing every host to be an equal player. Any two computers on the Internet could send packets to each other. Firewalls were unknown and communication patterns were by default symmetric.
Reach together with symmetry and equality were the things that made the Internet such a radical social innovation.
The explosion of the Internet in 1993 – 1994 was largely the result of the web browser and a different logic: the client-server protocol. The client initiates a connection to a known server, asks a question, downloads the answer and disconnects. The device running the client doesn’t need to have a permanent address. It does not even need to be always on. This is the reason why broadband providers gave us asymmetric bandwidth. More bandwidth is offered when getting data from the Internet than when sending data to it. The assumption was that the majority of users want to download and consume, not upload and produce.
It was not about symmetry and equality any more.
The client-server model was not the only development that changed usage patterns. The original model was transformed even more as a result of firewalls. Now the hosts of the network could not talk freely to other hosts because of firewalls creating obstacles to communication.
One of the most common and widely spread social developments is people being able to be their own authors and publishers. What Napster did was a different and likewise revolutionary social innovation. It came up with a third alternative, a new logic between producing and consuming: every computer in the network was used as a re-publisher and curator.
The assumption that there were few publishers and many consumers did not hold any more. Napster changed the flow of data.
The real genius of Napster was the way it made collaboration automatic. By default, a consumer of files was also a producer of files for the network. Once somebody downloaded a file, her machine was available to pass along the file to other users when needed. A central addressing authority connected the nodes of the network and then after that left everything else to take place by itself.
The totally transparent architecture produced value as a by-product of people getting what they wanted. No altruistic sharing motives were needed
Napster was a very decentralized system with some important centralized elements. In a decentralized system every host in the system is an equal participant. No hosts have facilitating or administrative roles. But Napster was also a search engine. It maintained a master song list adding and removing songs as individual users came online. This created redundancy and led to a high probability that a given file could be found although the probability of a given user being online is very low. As a result the contribution of one individual is very small but the collaborative interaction of the group creates tremendous value.
In a centralized, hierarchical system, coordination between peers is controlled and mediated by a central server, one host. A modern version of a hierarchical system transfers some coordination responsibility down from the centre to a tree-like architecture of coordinators. In this model, peers are organized into groups, where a local manager/host mediates communication between peers in the same group, but communication between peers in different groups is passed upwards to a higher level manager. This is essentially the way firms operate today.
Ronald Coase developed the concept of transaction costs. These are the costs of coordinating actions and the costs of interacting and contracting. When it is cheaper to do this inside a formal organization than as a network of more or less independent parties, organizations will form and prevail.
The reverse side of the Coasean theory is even more interesting. As transaction costs outside the organization fall as a result of technological and societal advance, the reasons for formal coming together dissolve. This leads to the organization becoming outdated, unless it can simplify its processes significantly. The big challenge for many organizations is to do things in a much, much simpler and more responsive way. The sad truth is that it is easier for managers to grasp the threat of competition than the risk of simply becoming obsolete.
In theory, if transaction costs in society at large become low enough, there will be no hierarchical, formal organizations as we have known them. The transaction costs of forming and maintaining these types of organizations are higher than the transaction costs of the alternative ways of creating the same value. The traditional hierarchical and formal organization is just too complicated, slow, and far too costly as a system. Unfortunately, the mainstream business schools haven’t figured this out yet. They still keep on teaching yesterday’s pricey way of doing things.
Peer-to-peer is an architectural model that is much more interesting, but also much more demanding, than the dominant client-server models. I believe that Napster gave us a glimpse of the future. The architecture it pioneered is going to be a viable model for the agile value constellations of the very near future.
Client-server is not the only truth and Facebook is (just) a modern version of a Telco. Facebook is not the same as the Internet.
Thank you Larry Lessig, Clay Shirky and Andy Oram
More on the subject: The early history of the Internet. Blog post by Doc Searls. Blog Napsterization.org. On personal data. Personal leverage for personal data by Doc Searls. On user-centric identity. Blog post by Venessa Miemis.
January 8, 2011
Economist Brian Arthur from the Santa Fe Institute argues that the ever increasing role of knowledge in value creation makes the foundations of economics badly outdated. Likewise, Peter Drucker predicted that “knowledge may come to occupy the place in the politics of the knowledge-based society which property and income occupied over the three centuries that we have come to call the age of capitalism.”
Luckily, an important and growing body of research and writing is exploring the theoretical nature of capital-centric enterprises. Although most of these efforts are still sketchy, they may well lead to normative implications concerning the allocation of claims and control rights in firms. If this happens, the new approaches may be very different from those principal-agent models that are the norm in capital-centric firms today.
In principal-agent models, employees are viewed as agents of the firm, and the managers of firms are viewed as agents of the shareholders. The management challenge is to design the terms of the relationships in a way that will encourage the agents to behave in ways that benefit the principals.
The firm is viewed as a contracting mechanism between providers of financial capital (the principals) and managers (the agents). Principal-agent models are extremely influential in corporate governance and have in reality formed the basis of mainstream compensation structures.
As early as 1964 Gary Becker coined the term “human capital” to refer to the fact that many of the skills and knowledge required to do knowledge work could only be acquired if “some investment was made in time and resources”.
In his seminal work, Becker considered the implications of the fact that some of the knowledge and skills acquired by employees have a much higher value in some relationships than they do in others. The labor services of employees with specialized skills can thus no longer be modelled as undifferentiated, generic inputs, for which wages and quantity, the number of employees, and the number of hours of work, are determined. Once employees are understood to have specialized skills, it matters which employee does what tasks for what firm. With specific human capital, the productivity of a particular individual depends not just on being part of a firm, but on being part of a particular group of people engaged in a particular task.
More importantly, once acquired, knowledge and skills that are specialized are assets that are at risk following the very same logic as that by which financial assets are at risk.
Is human capital then conceptually the same as financial capital and should investors in firm specific human capital also be seen as principals? Should capitalism accordingly create a much larger number of capitalists?
According to the mainstream principal-agent view of the firm, a corporation is understood to be something apart from each of its participants. The nexus of investments view suggested here offers a view of corporations that stresses willing participation by both financial investors and human capital investors, and the ability of both parties to protect their interests. A firm is essentially about creating long-term contracts when short-term contracts are too bothersome. Reinventing capitalism is about renegotiating many of the things that we have too long taken for granted.
I believe that everybody will benefit, if, in the future, a larger number of workers think like owners and act like investors.