14 December 2006

Social Evolution and the Next Corporation

The evolution of technology interplays with the evolution of social structures. The cotton gin played a big role in the demise of slavery. Dee Hock, the original CEO of VISA and the man who probably did the most to change our everyday conception of money, tells how critical an information technology development project was to the success of the credit card. (As credit cards became more popular, it became impossible for banks to keep track of the gap between credit and purchases and to track payments from and to businesses and households. The old manual system literally cost the banks hundreds of millions, probably billions, in the 1970s, triggering an audacious IT project to meet demand.)

It has become cliché to mention it, but information technology continues to rapidly drive down the time and money it costs for communication, research, and discovery. Google now fields 100,000,000 queries a day (according to an article by George Gilder, cited at http://info-innovation.blogspot.com/2006/10/george-gilder-information-factories.html).

Ronald Coase won the Noble Prize in Economics for explaining the reason for the existence of corporations where an economist might expect to see markets instead. He explained that information costs were too high to support daily and monthly markets for work and that in its place people formed organizations that made for stable, predictable, easy to communicate roles. But what if information costs plummet? What does that suggest about the future of the corporation? Suddenly, as the cost of markets approaches zero, the value of the corporation potentially becomes less.

This suggests to me a variety of possibilities, two of which I'll mention here. One is that internal markets within corporations will increasingly substitute for employee contracts and formal roles. The other is that decision-making will disperse outwards from the center along with increased capability for information-processing and analysis. Both suggest to me that the corporation will go the way of the medieval church and Enlightenment-era monarchy: its power will be dispersed outwards from the center, as power and wealth will be dispersed from elites to the "commoners."

If your organization is not reconfiguring in order to exploit new information technology, it is likely subordinating possibility to inherited corporate structures. The management generation of the last few decades has increasingly emphasized innovation - but almost invariably in the domain of technology or process. The management generation of the next few decades will also emphasize innovation - but this will be directed at social constructs, at changing the concept and expectation of organizations.

The cotton gin was exciting, ending slavery more so. The revolution in information technology during the last couple of decades has been fascinating. Transforming the corporation and our very notion of institutions will be even more so.


Norman said...

A nice blend of Drucker, Wright and your own evloutionary thoughts, Ron. Well done.

Anonymous said...

There is, of course, the incentive to retain the existing organizational model that places a few, powerful and wealthy, at the top of a pyramid scheme of the more ordinary kind.

I daresay that might work to mitigate quite a number of market forces--if such "forces" actually exist.