Thomas W. Malone MIT Inventing the Organizations of the New Economy

What’s happening?

Some possibilities Speed Speed Structure Structure Process Process

S P E E D

How long does it take to build a house? Question

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. Highly decentralized systems will be much more important in the future.

Linux Computer operating system Computer operating system – Unix for PCs Developed and tested by thousands of volunteer programmers around the world Developed and tested by thousands of volunteer programmers around the world > 3M users today > 3M users today No one “in control” No one “in control”

Organizations in the 20th century o o o o o o o o o o o o o o o o x o o o o o o o o Small, local businesses Large, centralized corporations “Delayering”, “Empowerment”, “Outsourcing”, “Networked organizations”

What will these networked organizations look like?

Scenario: The E-Lance Economy people per firm people per firm Temporary combinations for various projects Temporary combinations for various projects Examples Examples – Making films – Construction

TopsyTail Hair care products Hair care products $80 M revenues $80 M revenues 3 employees (CEO, CFO, Marketing Director) 3 employees (CEO, CFO, Marketing Director) 20 outsourced vendors include: 20 outsourced vendors include: – tool makers, injection molders, package designer, logo designer, fulfillment houses, mailing list firm, PR, distributors, sales reps Keeps inside: Keeps inside: – new product development and marketing strategy

Example: eLance.com On-line auctions for professional services On-line auctions for professional services – Software development, graphic design, research, translation, etc. Buyer posts project, selects winning bidder, evaluates completed work Buyer posts project, selects winning bidder, evaluates completed work Over 200,000 businesses from over 140 countries registered Over 200,000 businesses from over 140 countries registered Over 40% of transactions cross national borders Over 40% of transactions cross national borders

Example: Asynchrony.com Provides infrastructure for e-lance software development projects. Provides infrastructure for e-lance software development projects. Project manager posts idea, recruits team members, negotiates shares, manages development and beta testing 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 Results marketed by Asynchrony.com with 75-90% of revenues going to developers Over 25,000 active members so far Over 25,000 active members so far

Textile industry near Prato, Italy Over 15,000 small firms 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 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 Result: Preferred material for fashion designers around the world

Questions What if the managers of an organization are not in control? What if the managers of an organization are not in control? What if power, ownership, and action initiatives come from throughout an organization? What if power, ownership, and action initiatives come from throughout an organization?

Internet Internet hosts (thousands) Source: Internet Software Consortium ( )

Internet (cont.) Decentralized design principles 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 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? How much of the intelligence of people throughout an organization can we use in a decentralized organization?

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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. 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 Consistent, easy-to-use collections of knowledge about activities, their variations, and interrelationships Used for multiple purposes Used for multiple purposes Including many kinds of knowledge... 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 Software – Repository engine, web server, editing tools Contents 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 $2.5B chemical manufacturing firm Installed SAP and standardized key business processes at same time 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 Created detailed process models cross-linked to other business processes and other knowledge

Example: MIT eBusiness Process Handbook Includes:Includes: –Case examples –Descriptions of innovative technologies –Descriptions of innovative business models –Etc… Organized by: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. “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. Explicitly and systematically managing business processes will be critical for most successful businesses in the 21st century. What do we really want? What do we really want?