Reflecting on the passing of R.H. Coase a few years ago, I noted that his theorem was being undermined from all sides. For the uninitiated, “The Nature of The Firm” was published as an essay in 1937 by Coase, then a young British student of business who wanted to understand why the American companies were producing so efficiently and profitably. He concluded that it was because they were developing mass production, consolidating resources for distribution and communication – creating the firm. Of course, the Internet and Moore’s Law have dramatically lowered costs of production, distribution, and communication. As a result, the firm is no longer the most efficient mode for many – and soon most – industries. What has replaced it is a distributed, decentralized mode of communication and exchange.
In The Decoded Company, the authors refer to the recent history of military strategy as an analogy to this trend. In the 20th century, generals and admirals in command centers would determine military strategy, to the minutiae of where ground forces would move on a daily basis. It was the most efficient way to ensure that the information flows were optimally organized. Today, IEDs and insurgents are notoriously hard to beat (when was the last time a war was reliably won against them). The same trend applies in product creation and business strategy. Node-powered network models beat hub and spoke models, where each of these nodes is its own microfirm.
Thus, individual agency will become a primary driver of resource allocation, in a way that it never has before. This picture tweeted by Lisa Gansky tells a very elegant story of this reality.
We can communicate globally and are all connected, but we are decentralized, for the first time ever.
This is the main reason why political systems are more fragile than ever before, where the larger the body, often the less effective they are. But it is also why intimacy is the new aspiration; why a local AirBnB or handmade bag may be a higher form of luxury than the Ritz or Prada. And it’s why transparency, sustainability, and defensible social impact are *inexorable* characteristics of a successful 21st century business. A company can be railed across the coals because of an individual’s off-color tweet. A government’s security program exposed because of a rogue disillusioned employee. A $19 billion tech company can be created and grown to massive scale on 35 employees’ efforts. Each of us has wildly powerful agency in this moment.
As Mary Meeker’s talk earlier this week demonstrated, Millennials, the biggest generation the global workforce has ever seen, cares about meaningful work and recognition. We are nodes who want to be acknowledged as independently valuable, and want to enmesh their work and their values. (Tellingly, our managers tend to think we are motivated by money while we are motivated by meaning far more.) A decentralized, collaborative economy is ultimately one which is yours, and mine. It is one that leads with sustainability, promotes healthy living, gives the underserved access to Maslow’s needs, is mission-first. We own it, and thus we must care for it.