The fall of the firm

Fred Wilson just posted a response to one of Umair Haque’s microessays (aka blog posts) about the declining power — the crumbling, even — of the firm.

As Umair cogently notes:

Competitive advantage is fundamentally about making markets work less efficiently. One catastrophically effective way to do that is to hide and obscure information – to gain bargaining power relative to the guy on the other side of the table. . . .

Where orthodox strategy advises hiding information and making things less liquid, what does edge strategy advise? Exactly the opposite: release information bottlenecks and make things more liquid.

Go read their posts first. This was my response:

Fred,

Of course, corporations won’t end. But I believe they are being supplemented by a few models that are not about command-and-control at the center, as all old corporations were. They’re the obvious ones you know:

* Platforms. Take Google, of course. It is the anti-Yahoo, built on the distributed model of enabling countless companies to start atop what it provides. Yahoo, I’ve said, shouldn’t just break up into smaller pieces; it should make its entire self exportable and reusable. Ditto AOL. Ditto, for that matter, Microsoft. Amazon and Google are offering up their infrastructures as the bases for others’ companies and that’s smart. Pardon the plug for my book, but they should all be asking WWGD?

* Networks. A little less-loose than platforms; they come together to benefit from critical mass but do not join into a corporation; there is still ownership and control at the edges. I believe that Right Media is part of a larger trend toward open ad networks, for example; see OpenX and Google AdManager. Again: WWGD?

* Metaorganizations. That’s made-up but I want to encompass more than just open-source. This is the loosest affiliation: gathering around standards or standard-making efforts to gain some benefits of critical mass with all control and ownership at the edge.

As Google proves, though, this isn’t an either-or. A corporation can, as the examples above have shown, still be a corporation but scale much larger by creating a network, loose or tight, and adding as much value as possible while extracting as little value as possible while growing as big as possible. This is what I learned at your event from the likes of Yochai Benkler, Tom Evslin, Tim O’Reilly, Umair, and you. From the top view, size still has benefits so it still matters but there are now alternatives to size that also demands ownership and control. From the bottom-up view, enterprises at the edge will join whatever gives them the benefits of size — whether that’s building on a Google platform, or adhering to a Web standard, or selling on eBay, or using Amazon infrastructure, or joining an OpenX or other ad network. To quote Mark Potts from my conference on networked journalism at CUNY: To be small, you have to be part of something big.

The thing is, nobody can own big anymore. And that is what will keep big — the corporations and organizations of the future — more honest, I hope (but then, I’m an optimist). That control is what allowed them to corrupt.

How do you make money on this? I think you already are, by supporting companies that create platforms or take advantage of others’ platforms or standards. Are there more ways? Well, that’s an interesting conversation. Time for lunch. I do think that one could look at any of the industries Umair links to and complains about above and try to figure out what platforms would be needed to utterly disrupt them. Pardon the last plug, but that’s part of what I’m trying to do in the book. So I’ll buy lunch.

  • http://www.ethanbauley.com Ethan Bauley

    I’m a student of Benkler and Haque as well…have you ever checked out John Hagel? Hagel basically built much of Umair’s whole “edge strategy” framework in the amazing 2005 book “The Only Sustainable Edge”. I cannot recommend this book highly enough; it is easily on the same level as “The Wealth of Networks” in terms of rich, innovative thought. But it’s a bit more “applied”.

    Umair has written at length about how big an influence Hagel has been on his thinking.

    Hagel has also tackled the idea of “big firms” vs. small firms (e.g. your article “Small is the new big”). He wrote a seminal article in HBR called “Unbundling the Firm” in which he posits that all (most?) industrial firms are really in 3 businesses: logistics, CRM, and product innovation.

    He presents a vision of “the future” that is dominated by three kinds of firms. The first two will be enormous in terms of scale (logistics) and scope (CRM):

    Logistics=AMZ AWS/FWS, FedEx, etc
    CRM=AdWords, GetSatisfaction, etc

    The rest of firms will be smaller “product innovation” firms that plug into the platforms provided by the logistics/CRM businesses.

    It’s a compelling view:

    http://www.strategyworld.org/unbundling.pdf

    AND PUBLISHED IN 1999!!!

    Drop me a line if you’d like more resources.

    Best,

    Ethan

  • http://www.wyman.us/ Bob Wyman

    As you quoted: “One catastrophically effective way to [gain competitive advantage] is to hide and obscure information”.

    Referring to an earlier post and comment: This is why it is vitally important for those who support a democracy to constantly work to not only improve the information handling technology available to its citizens but also to ensure that those tools are broadly distributed.

    bob wyman

  • http://www.brucemacvarish.com Bruce MacVarish

    Jeff – I like your though of corporations being supplemented by new forms of value creation. In many ways, these supplements have – and will – form at the Edge of the corporation… and accelerate growth in the edge economy.

    I think this drives a different set of strategic choices for new – and incumbent players – as they look to compete – or survive – in the edge economy. Having been a reader of yours for some time. I know you agree given your earlier posts.

    I summarized some of these issues in my related post “Strategy in the Edge Economy” ( http://www.brucemacvarish.com/2008/04/strategy-in-the.html )

  • Pingback: Mediavorous » Blog Archive » Bookmarks for April 6th through April 8th

  • Pingback: Backdrifter: Strategic Imagination

  • Pingback: BuzzMachine » Blog Archive » Molecularization: The open marketplace of influence

  • Pingback: businessmodel innovation _ design » Stumbled upon … innovation

  • http://winningbysharing.typepad.com/oaxaca/2008/06/ki-work-a-platf.html Leon Benjamin

    Was a joy to find and read this post. I’m a big fan of Benkler, Hagel and others. I’ve written a lot about the impact of the internet on the future of work quoting an incorporating material from these sources under the headings of;

    The unit of work is no longer a whole job
    Fractional work – the next small thing
    HR stand for Hardly Relevant

    Although slightly tangential to this theme it’s really worth reading ‘The Authoritarians’ to understand why command & control does not have a happy ending. http://home.cc.umanitoba.ca/~altemey/

  • Pingback: BuzzMachine » Blog Archive » The rise of the third estate