Tom Malone on Decentralization

David Kirkpatrick interviews Tom Malone from MIT's Sloan School of Management who runs the Center for Coordination Science, which studies how technology changes the way people work. His new book, The Future of Work, is on the effect of falling communication and coordination costs -- "This change may be as important for business as the change to democracy has been for government."

Malone sees a parallel between the evolution of human society and the evolution of business. "For millenia," he says, "all human societies were organized as small, autonomous, egalitarian groups called bands. Then we saw the rise of bigger and bigger, more centralized societies called kingdoms. Only in the last 200 years have we seen the rise on a large scale of the third way of organizing human society-democracy." Each of those stages, Malone says, can be explained by a change in a single factor--the cost of communication. In his view, writing is what enabled hierarchically organized kingdoms to arise. Printing led to democracy.

Likewise, he says, "until a couple hundred years ago businesses were still organized like bands. It was only when new communications technologies like telegraph and telephone and even the Xerox machine made communication cheap enough to coordinate larger groups of people that we saw the rise of the centralized corporation--the kingdoms of the business world." I like the way this guy thinks.

Me too, just ordered his book.

So where are we now? It's the revolution, he says. "Near the end of the 20th century, it became possible for the first time to exchange the detailed kind of information necessary to coordinate a business on a very large scale even as lots of individuals made decisions for themselves. When communications costs fall it becomes possible for vastly more people to be well-enough informed to make decisions instead of just following orders from their uniquely well-informed superiors.

Malone says the trend of decentralization can be adapted to on four ways, as also highlighted by Dave Pollard's post:

• Loose Hierarchies -- with flat organization structure and substantial autonomy granted to individual business units, subject to overarching principles, review and budget control (e.g. consultancies, universities, technology developers)
  
• Democracies -- where all employees, or all managers, get an equal vote on some or all key corporate decisions
  
• External Markets -- where most of the non-executive jobs are outsourced to independent businesses and contractors, so all 'employees' essentially become 'suppliers', with the commensurate rights and autonomy
  
• Internal Markets -- where each business unit, and even individuals within business units, contract with each other as if they were dealing at arms' length, so, every business unit and every employee acts much like an autonomous business