Tom Malone from MIT's Sloan School is speaking on Decentralization. Tom is the author of The Future of Work. Tom thinks we are in the early stages of an increase of human freedom in business that may be in the long run as an important a change for business as democracy was for government. New technologies are making it possible for organizations to have the economic benefits of large organizations while maintaining the human benefits of small organizations. Its now possible for huge numbers of people to have all the information they need about the big picture to make their own decisions about what to do instead of waiting for someone above them in the hierarchy to tell them what to do. To shape these changes, we need to think deeply about what humans really want.
Tom uses the Wikipedia as an example. Even though any one can make a change, the list of changes is available so that frequent contributers can watch changes and make sure they are good changes. Individual actions with the right kind of feedback yield an amazingly good encyclopedia. He uses eBay as another example. eBay has huge scale, but also provides significant human freedom since the marketplace is created by thousands of small shop owners, many of them making their living on eBay.
Our ancestors made their living in small bands of people who were independent and egalitarian. The second form of government, historically, was large centrally organized empires or kingdoms. The third form of government was democracy. While there are significant factors in the development of all of these, there is one factor that is definitive: the declining cost of communications. Writing made large societies possible. The printing press made democracy possible. I've also heard similar talk about postal roads being one of the factors in the rise of the American revolution.
These same three stages are playing out in business. Early on, most businesses were small independent groups. Modern communications like telephone made the modern, large corporation possible. Now networked communications is making it possible for us to enter the third major stage of how businesses are organized.
Is this change desirable? To argues that people adapting to information rather than following orders are happier and make better decisions because they're adapted to local conditions. They're context sensitive. Motivation, creativity, and innovation are the hallmarks of decentralized decision making in business.
There are three main ways that large groups of people can make decisions:
- Loose hierarchies - Universities and research organizations are examples. AES is Tom's favorite example. AES is a power producer. They made a decision to purchase a power producer in England a while back without the board of directors or even the CEO being involved. Their rule: you don't have to get approval for a decision, but you do have to get advice.
- Democracies - Boards of directors are examples of democracies in corporations, but that's just at the top. This also can play a role further down in the organization.
- Markets - two kinds: external and internal. External means outsourcing to other companies or individuals work that might have been done inside the company before. Communication technologies make it possible to do this as never before. Movies are a good example of this. Most of the people, including lighting people, sound people, etc. come together for the purpose of one project. Then they are disbanded. Internal markets happen where people inside one company buy from and sell to each other. Tom and others did a study on how Intel could use an internal futures market to determine how to resource new products. Sales buys futures on products from plant managers. Changes result in these future being resold to reallocate resources based on current context.