Inventing the Organizations
of the New Economy
Thomas W. Malone
MIT
What’s happening?
Some possibilities
•Speed
•Structure
•Process
S
P
E
E
D
Question
How long does it take to build a
house?
Videotape courtesy of:
Building Industry Association of San
Diego
San Diego, California
Structure
Conclusion from MIT research
•Highly decentralized systems will
be much more important in the
future.
Linux
• Computer operating system
– Unix for PCs
• Developed and tested by thousands of
volunteer programmers around the world
• > 3M users today
• No one “in control”
Organizations in the 20th century
Small, local
businesses
Large, centralized
corporations
o
o
o
o
o
1900
o
o
o
o
o
o
o
“Delayering”,
“Empowerment”,
“Outsourcing”,
“Networked organizations”
o
o
x
o
1950
o
o
o
o
o
o
o
o
o
2000
What will these networked
organizations look like?
Scenario:
The E-Lance Economy
•1 - 10 people per firm
•Temporary combinations for various
projects
•Examples
– Making films
– Construction
TopsyTail
• Hair care products
• $80 M revenues
• 3 employees (CEO, CFO, Marketing Director)
• 20 outsourced vendors include:
– tool makers, injection molders, package designer, logo
designer, fulfillment houses, mailing list firm, PR,
distributors, sales reps
• Keeps inside:
– new product development and marketing strategy
Example: eLance.com
• On-line auctions for professional services
– Software development, graphic design, research, translation, etc.
• Buyer posts project, selects winning bidder, evaluates
completed work
• Over 200,000 businesses from over 140 countries
registered
• Over 40% of transactions cross national borders
Example: Asynchrony.com
• Provides infrastructure for e-lance software
development projects.
• Project manager posts idea, recruits team members,
negotiates shares, manages development and beta
testing
• Results marketed by Asynchrony.com with 75-90% of
revenues going to developers
• Over 25,000 active members so far
Textile industry near Prato, Italy
• Over 15,000 small firms
– Average no. of employees < 5
– State-of-the-art factories, warehouses, and other equipment
– Cooperative ventures for purchasing, logistics, R&D
• Brokers (impannatori) coordinate work
– assemble groups of firms to meet needs of specific customers
– electronic market for production capacity
• Result: Preferred material for fashion designers
around the world
Questions
•What if the managers of an organization are
not in control?
•What if power, ownership, and action
initiatives come from throughout an
organization?
Internet
Internet hosts (thousands)
120000
100000
80000
60000
40000
20000
0
1981 1985 1987 1989 1991 1993 1995 1997 1999 2001
Source: Internet Software Consortium (http://www.isc.org/)
Internet (cont.)
•Decentralized design principles
– “No one in charge”
– Agreements needed only on interaction protocols
– Anyone who follows protocols can be a
» Service provider
» Service user
» Network provider
•Result: Amazing growth and flowering of
innovation
Question
•How much of the intelligence of people
throughout an organization can we use
in a decentralized organization?
Videotape courtesy of
Cinematrix
Interactive Entertainment Systems, Inc.
voice: 415-892-8254, fax: 415-892-4469
Process
How can we understand all this?
If the boundaries between organizations are blurring. . .
If products, tasks, and organizations are all temporary. . .
If everyone makes their own decisions. . .
. . . How can we think about the organization of work?
What will replace organization charts?
Conclusion from MIT research
•Processes (not structures) are the
key building blocks for inventing
new organizations.
A slogan for process management
We need to give as much attention to
managing processes
as we have in the past to
managing products.
Needed:
Process Knowledge Repositories
• Consistent, easy-to-use collections of knowledge
about activities, their variations, and
interrelationships
• Used for multiple purposes
• Including many kinds of knowledge...
– “Best practice” libraries
– Measurement and benchmarking data
– Software configuration and change management data
– On-line discussion forums
Example:
MIT Process Handbook
• Software
– Repository engine, web server, editing tools
• Contents
– Over 5000 processes and activities
» Generic business models and activity
types, case examples, on-line discussion
forums
Example:
Dow Corning Corporation
• $2.5B chemical manufacturing firm
• Installed SAP and standardized key business processes
at same time
– Needed to design and communicate new business processes
• Created detailed process models cross-linked to other
business processes and other knowledge
Example:
MIT eBusiness Process Handbook
• Includes:
– Case examples
– Descriptions of innovative technologies
– Descriptions of innovative business models
– Etc…
• Organized by:
– Business models
– Business processes
Available on the web at: ccs.mit.edu/eph
Conclusions
• “Empowerment” is not just a fad, but a response to
fundamental changes in the economics of
communication and decision-making.
• Explicitly and systematically managing business
processes will be critical for most successful
businesses in the 21st century.
• What do we really want?