The Transformation of Management


The Transformation of Management

In the mid-1990s, when the Internet was just entering the consciousness of most business executives, the press was filled with disaster stories. The Internet, the pundits proclaimed, was about to fall into disarray. Traffic on the World Wide Web was growing too fast. There were too many Web sites, too many people on-line. Demand was outstripping capacity, and it was only a matter of months before the entire network crashed or froze. It never happened. The Internet has continued to expand at an astonishing rate. Its capacity has doubled every year since 1988, and today more than 90 million people are connected to it. They use it to order books and flowers, to check on weather conditions in distant cities, to trade stocks and commodities, to send messages and spread propaganda, and to join discussion groups on everything from soap operas to particle physics.

So who's responsible for this great and unprecedented achievement? Who oversaw what is arguably the most important business development of the last 50 years? No one. No one controls the Internet. No one's in charge. No one's the leader. The Internet grew out of the combined efforts of all its users, with no central management. In fact, when we ask people whether they think the Internet could have grown this fast for this long if it had been managed by a single company—AT&T, for example—most say no. Managing such a massive and unpredictable explosion of capacity and creativity would have been beyond the skills of even the most astute and capable executives. The Internet had to be self-managed.

The Internet is the greatest model of a network organization that has yet emerged, and it reveals a startling truth: In an e-lance economy, the role of the traditional business manager changes dramatically and sometimes disappears completely. The work of the temporary company is coordinated by the individuals who compose it, with little or no centralized direction or control. Brokers, venture capitalists, and general contractors all play key roles—initiating projects, allocating resources, and coordinating work—but there need not be any single point of oversight. Instead, the overall results emerge from the individual actions and interactions of all the different players in the system.

Of course, this kind of coordination occurs all the time in a free market, where products ranging from cars to copying machines to soft drinks all get produced and consumed without any centralized authority deciding how many or what kinds of these products to make. More than two hundred years ago, Adam Smith called this kind of decentralized coordination the invisible hand of the market, and we usually take for granted that it is the most effective way for companies to interact with one another.

But what if this kind of decentralized coordination were used to organize all the different kinds of activities that today go on inside companies? One of the things that allows a free market to work is the establishment and acceptance of a set of standards—the "rules of the game"—that govern all the transactions. The rules of the game can take many forms, including contracts, systems of ownership, and procedures for dispute resolution. Similarly, for an e-lance economy to work, whole new classes of agreements, specifications, and common architectures will need to evolve.

We see this already in the Internet, which works because everyone involved with it conforms to certain technical specifications. You don't have to ask anyone for permission to become a network provider or a service provider or a user; you just have to obey the communication protocols that govern the Internet. Standards are the glue that holds the Internet together, and they will be the glue that binds temporary companies together and helps them operate efficiently.

To return to our auto industry scenario, car designers would be able to work independently because they would have on-line access to highly detailed engineering protocols. These standards would ensure that individual component designs are compatible with the overall design of the vehicle. Headlight designers, for example, would know the exact space allocated for the light assembly as well as the nature of any connections that need to be made with the electrical and control systems.

Standards don't have to take the form of technical specifications. They may take the form of routinized processes, such as we see today in the medical community. When doctors, nurses, and technicians gather to perform emergency surgery, they usually all know what process to follow, what role each will play, and how they'll interact with one another. Even if they've never worked together before, they can collaborate effectively without delay. In other cases, the standards may simply be patterns of behavior that come to be accepted as norms—what might today be referred to as the culture of a company or "the way things are done" in an industry.

One of the primary roles for the large organizations that remain in the future may be to establish rules, standards, and cultures for network operating partly within and partly outside their own boundaries. Some global consulting firms already operate in more or less this way. For example, McKinsey & Company has well-established norms about how people are selected and promoted and how they are expected to work together. Linked by the firm's culture, McKinsey partners operate quite autonomously, making independent decisions about what they will do and how they will do it. In this example, the value the firm provides comes mainly from the standards—the rules of the game—it has established, not from the strategic or operational skills of its top managers.

As more large companies establish decentralized, market-based organizational structures, the boundaries between companies will become much less important. Transactions within organizations will become indistinguishable from transactions between organizations, and business processes, once proprietary, will freely cross organizational boundaries. The key role for individuals—whether they call themselves managers or not—will be to play their parts in shaping a network that neither they nor anyone else controls.