There’s a great article in the February 2010 issue (18.02 for you fans) of Wired magazine. The Editor in Chief of Wired, Chris Anderson, tells us that Atoms Are the New Bits.
Chris’s premise, which I fully believe, is that manufacturing is about to undergo the same sort of fundamental shift we’ve seen in information technology. No longer will you need to build massive plants to manufacture your goods, along with all of the attendant costs and risks. The "small batch" economy (a term coined by Jason Kottke) is well underway, where someone with a computer and some slick software can design something, send the design data to China (or anywhere else for that matter), and receive fully manufactured goods in weeks, fully compliant with the specs. Depending on what you are trying to manufacture, you may even be able to set up your own desktop CNC router to churn out your own products or molds for your products.
There are some great examples of this in the article, not the least of which is Chris’s own experience starting DIY Drones, a small company that turns out autopilot circuitry for model aircraft. Niche, for sure, but that’s one of Chris’s points: with the relatively low cost of entry, he was able to start a company whose products "compete at the low end with defense contractors like Lockheed Martin and Boeing", AND he can be profitable.
The whole article fascinated me, but one section really grabbed me and caused me to want to write this post.
In the mid-1930s, Ronald Coase, then a recent London School of Economics graduate, was musing over what to many people might have seemed a silly question: Why do companies exist? Why do we pledge our allegiance to an institution and gather in the same building to get things done? His answer: to minimize “transaction costs.” When people share a purpose and have established roles, responsibilities, and modes of communication, it’s easy to make things happen. You simply turn to the person in the next cubicle and ask them to do their job.
But several years ago, Bill Joy, one of the cofounders of Sun Microsystems, revealed the flaw in Coase’s model. “No matter who you are, most of the smartest people work for someone else,” he rightly observed. Of course, that had always been true, but before, it hardly mattered if you were in Detroit and someone better was in Dakar; you were here and they were there, and that was the end of it. But Joy’s point was that this was changing. With the Internet, you didn’t have to settle for the next cubicle. You could tap the best person out there, even if they were in Dakar.
Joy’s law turned Coase’s law upside down. Now, working within a company often imposes higher transaction costs than running a project online. Why turn to the person who happens to be in the next cubicle when it’s just as easy to turn to an online community member from a global marketplace of talent? Companies are full of bureaucracy, procedures, and approval processes, a structure designed to defend the integrity of the organization. Communities form around shared interests and needs and have no more process than they require. The community exists for the project, not to support the company in which the project resides.
There’s the real nut in this to me. Is this new "microbrew" approach going to put all the big guys out of business? Realistically, I say no, at least not yet. But all of the big guys should be taking a long, hard look at how things are changing, even if it’s just because of the bloodbath we have going on in the financial markets today, demonstrating that the command and control model can’t even effectively, well, command and control.
In an earlier post, I wrote about the concept of Applying "Product Service Systems" to Corporate Environments. In it, I talked about some ideas around utilizing available capacity within large organizations using a sort of "mart" concept. Most enterprises have the software platforms in place which could facilitate these ideas, but they don’t have the vision (or maybe it’s stamina?) to put the concepts into effect.
What Chris’s article points out is that the "idea mart" is already out there, succeeding handsomely on a small scale. My prediction is that large organizations that can’t learn to function this way, and fast, are going to be made obsolete by those organizations that *can* operate this way. And when was the last time that you saw a large organization effect a significant change fast?
Whether it’s the "do more with less" mantra; or blisteringly rapid innovation; or simple, effective modern-day competition; very few traditional large organizations are configured to, nor do they provide the incentives to cope with, these fundamental marketplace shifts.
It’s the same old story: too many structural barriers to innovation, lower productivity than any government statistic will tell you, and employees with little to no motivation to do anything better or differently. These are the companies that I’ve worked for as a consultant over the years, and I’m not making it up when I say that they should be afraid. If they are instead complacent, then I say their days are numbered.
As Bill Joy pointed out, "most of the smartest people work for someone else", and those smart people are increasingly going to be working for themselves or smaller, more nimble organizations that can react to the marketplace faster than you can say "focus group". So not only are the big guys going to have smaller outfits running rings around them, they won’t be attracting and retaining the best talent. There’s another form of erosion right there.
Increasingly, the old-fashioned idea of competition is changing. Look at what happens today in the life sciences industry, where your competitor is your research partner is your marketing partner is your distribution arm. As these smaller, more limber organizations spring up, they will do business together on an as-needed basis, without the months and months larger organizations require to get the ink to dry on the legal papers. Older, larger organizations struggle to even think about how to do this internally, much less externally. We’re heading into a world of much more fluid and effective companies, and most of them will be smaller and smarter than the ones that existed before them.
So what’s the answer to all of this for the big guys? Rethink, retool, re-become. Get serious about changing how you do things now and do it fast. No five year plans, this. Think in terms of weeks and months. Figure out who your real leaders are on these unfamiliar dimensions and start to not only reward them but nurture them and support them. Invest in the technology infrastructure to change the way people work on a day-to-day basis. Give everyone license to "think different". Then, to a large degree, get out of the way, but not so much that everyone can’t see that everyone is committed to the new way of working. That means EVERYONE, from the board room to the mail room.