Ross Mayfield's Weblog

Decoupling Decision Rights and Decentralization

Andrew McAfee has an interesting post that challenges the trend of decentralization in organizations.  Noting Tom Malone's work on how decreased communication costs enable more decentralized decision rights, he makes a distinction between information and knowledge.  You can now provide information to any potential decision maker at a low cost, but the best tacit knowledge for a given decision may reside in someone the core of an organization instead of the assumed edge.

Let’s say that a mortgage company realized that a few of its loan officers were just better at assessing credit risk than all the others. For whatever reasons (intelligence, experience, intuition, etc. ), they just had superior specific knowledge. In that situation, it would make good sense not to decentralize, but instead to centralize that decision right within the company, taking it away from the other loan officers. All the general knowledge (income statements, credit histories, etc.) would be sent to these few people, who would apply their specific knowledge to it and made decisions. In this example low information costs are still important; they allow all the general knowledge to be zipped to the few good officers. But the effect of low information costs isn’t decentralization and greater empowerment. Instead, it’s centralization of an important decision right and reduced autonomy for most loan officers.

Thought experiments like this one indicate to me that the net result of disappearing information costs won’t necessarily be decentralization. It will instead be the decoupling of information flows and decision rights. Organization designers will be able to allocate decision rights without worrying about how costly it will be to get required information to deciders. Leaders will be able to ask "Who should make this decision?" without adding "Keeping in mind that it’s going to be slow, difficult, and expensive to get them the general knowledge they’ll need."

Will this work always, or even usually, lead to more decentralized organizations? I find myself less confident than Malone that this will be the case. I agree with him that we’re at a very interesting point in the history of technology and the economics of information, but I’d label it a great decoupling (of information flow and decision rights) rather than a broad decentralization (as decision rights lateralize along with information flows).

Information has no value until it informs a decision that results in an outcome.  This is part of why it wants to be free and increasingly is.  The decider certainly plays a role in this equation.  But something concerns me about this Carr-esque classification of decision making capabilities based on tacit knowlege (what is it about theories from Harvard on expertise ;-P).  And I don't think it is enough to buck the trend of decentralization.

Decreasing communication costs and ubiquitous information begets transparency.  While the future impact of IT provides both the directions of strong crypto and transparent society, with uncharted privacy implications and policy -- I believe transparency is a greater force.  Especially when it comes to revealing bad decisions.

Lets take Andrew's mortgage company example.  First, celebrate that the organization can change structure from the decoupling of information and decision rights.  Then, note it can shift back.  If a group gains centralized decision making capabilities because of their, augmented by "general" information, it is in a good position to execute the decision making process. 

But my read of Malone's book is it is not just about decreasing communications costs that enable decentralization, but how decentralized organizations can scale.  I believe Andrew is suggesting that information systems that automate information processing enables this group to scale its capabilities.  At first glance, this is similar to how trading desks work.  But approving a mortgage for an individual is very different from institutional trading.  Markets are social and the actors in institutional trading actually rely on relationships, and by doing so improve their tacit knowledge and handle exceptions better.  By taking the social interaction out of the hands of the mortgage officer who is closer to the actual customer and in a position to assess different kinds of risks beyond the FICO score.  And perhaps worse in the long term, it dehumanizes the organization's capability to develop a relationship with the customer.

Perhaps I am being too prescriptive with the business model, and maybe sidestepped the issue by hypothesizing there is a different kind of tacit knowledge at the periphery of the organization.   But the point is some kinds of tacit knowledge and decision making capability, those best at detecting and handling exceptions to business processes, may not be scalable through automation and centralization.

What I really like about Andrew's idea is the ability to reassign decision rights because they are decoupled from information.  Good thing too, because corporations don't have deciding who is best to decide down to a science.  Given the potential transparency in an organization, we may get better at more broadly handling exceptions and learning from decisions made.  We may actually discover who influences makes decisions. But my long term belief in decentralized organization recognizes that it is the environment the organization exists within, not that inside the organization, that creates the greatest amount of exceptions.  And the organizations that put decision rights closer to exceptions are more likely to adapt and survive.

Perhaps a better structure is to encourage decoupling of decision rights

What's your morning routine?

I'll roll out of bed around 6:30 and sit in the lawnchair in the backyard with coffee and laptop.  I try to go with any waking thought I have, maybe note it in a wiki.  Take a quick glance at the calendar.  Then a shot of Techmeme and ego feeds in Newsgator.  Skim unread Gmail and then I'm done scanning.  More coffee.  Turn on IRC, so I'm effectively in the office.  I'll try to dive deep into something before the kids wake up, maybe a blog post like this, start my daily internal blog post or plow through email.  Sometimes it is a call with Europe.  What I write may go unfinished before I take my daughter to school.  Then I have a good half hour at the office before it starts buzzing.

Not that it is terribly effective, but I've never been much of a morning person and that's my routine.  Jim Citrin surveyed 20 CEOs and executives from F500 companies with the same question, and got how they tap the power of their morning routine.  Go read the details, but the tips are:

• Start early
• Get a jump on email
• Exercise every morning
• Be thoughtful about the source, form and timing of your news
• Problem solve
• Make family time
• Be creative with your morning routine

Now the cult of the CEO isn't the best source for tips, but they are good stories about habits of effective and busy people.

What's your morning routine?

The Wikinomics Playbook

UPDATE: An interesting related project by Penguin Books is A Million Penguins, letting anyone edit a book to be published.  The wiki is down at the moment, but PaidContent notes it began with “It had snowed, and was now raining. Gritty slush covered the pavement. Sharp crystals of snow decorated grass.”  Reuters notes the challenge is finding “believable fictional voice” within the mass collaboration.  This was a big challenge for group editing of the Wired Wiki story.

The last chapter of Don Tapscott's new book, Wikinomics, invites readers to write it: “Join us in peer producing the definitive guide to the twenty-first-century corporation on www.wikinomics.com.”  Today we launched a Socialtext wiki for the Wikinomics Playbook, where people can not only learn about the power of mass collaboration, but participate in it.  The book is already one of the fastest selling business titles and is an excellent primer on how models of collaboration are unfolding from open source to blogging to wikis in the enterprise to enable people to participate in the economy like never before.

The second to last chapter is about enterprise wikis.  Half of it discusses how Best Buy is using a wiki knowledge-base for the Geek Squad.  The other half is an interview with yours truly and shares some of Socialtext's success stories. The first chapter is available online as a pdf.

 

This is a great example of how a book can be augmented with a wiki, as most books are out of date by the time they are published, never quite finished and have the potential for participation. Last month we helped Larry Lessig share the entire Code 2.0 book in a wiki.  I expect that soon such commons-peer production, a wiki for every book, will be common.

Jeff Nolan Leaves SAP

Jeff Nolan has moved on from SAP.  He has really served as a model to follow for others working in a large company that hope to move it forward.  I'm sure he rustled some feathers along the way, but it was Jeff that brough SAP into the blogosophere and woke the giant from within.  As a friend and colleague I know he will be great in his new gig.

Strong Opinions, Weakly Held

Bob Sutton, who was an inspiration around the time we started Socialtext, is becoming one of my favorite bloggers.  I've been sharing his posts like The Snowstorm Study in my internal blog and talking too much about the No Asshole Rule.  But Strong Opinions, Weakly Held is an absolute gem:

...Perhaps the best description I’ve ever seen of how wise people act comes from the amazing folks at Palo Alto’s Institute for the Future. A couple years ago, I was talking the Institute’s Bob Johansen about wisdom, and he explained that – to deal with an uncertain future and still move forward – they advise people to have “strong opinions, which are weakly held.”  Bob explained that weak opinions are problematic because people aren’t inspired to develop the best arguments possible for them, or to put forth the energy required to test them. Bob explained that it was just as important, however, to not be too attached to what you believe because, otherwise, it undermines your ability to “see” and “hear” evidence that clashes with your opinions. This is what psychologists sometimes call the problem of “confirmation bias.”

Not only is this great advice for interpersonal communications in an organization, it might be a guiding principle for blogging.

I wonder if the title is a hat tip to Small Pieces, Loosely Joined, where the pieces are people and the conversations ebb and flow their ties.

Trademark and Fair-play

Tim O'Reilly has said his piece about the Web 2.0 trademark affair, in a way that every entrepreneur should read to understand the working practice of trademark law.

A few years ago I had a consulting company called Mayfield Enterprises.  Makes sense for a sole-proprietorship, my last name and what I do.  Then I got a cease and desist letter from Wilson Sonsini on behalf of the Mayfield Fund, which had recently changed it's trademark to Mayfield (I'm not linking to them in hopes of becoming the one true Mayfield by web standards, but I hope I never beat out dear old Betsy).  At first it was a bit terrifying, big money, big firm with firm verbage.  So I called up the lawyer, let him know my name and what I thought was fair, as in use.  The poor guy was subjected to a history lesson, as the Township of Mayfield used to be South Palo Alto. It's where I was raised and long before that Leland Stanford successfully triumphed over the rowdy bar town outside campus limits.

Just as Tim described, the left hand often doesn't know what the right hand is doing when it comes to trademark.  Later I got to know the partners at the Mayfield Fund.  Whether they have good judgment or not, it wasn't exercised in the fore-mentioned case.  The lawyers were on autopilot in an area where current practice is to fire across the bow.

I believe trademark has valid utility in this world and had significantly greater incentives for cultural production than copyright and patents.  There is more than merit for how it deters consumer confusion.  I wish for a model that was not defensive (file, search, cease and desist), but instead at least a partial preventative model (regular people could easily run a search before first use) or one where the escalation chain was encouraged to use mediation and arbitration for disputes for parties that first meet through conflict.

Lately I've written personal emails to wiki providers that infringe on the Socialtext(TM).  A while ago, someone agreed alter their mark amicably to prevent conflict -- the kind of thing that can happen through conversation to the benefit of both parties with significantly lesser cost.  More recently, the personal approach didn't work with a company in South America and I'm trying to avoid action.  Worse yet, there is a company in Estonia that not only uses a infringing mark, but has copied our product and collateral at every turn.  This saddens me because I know how innovative companies in the little country can be, and I wonder how any self-respecting businessperson could have so little faith in their ability to do something different.  The company obviously knows me, but has never attempted contact.  I'm challenging the infringement, as is my fiduciary duty, but it pains me to do so. 

The practical reality of my growing business is I don't scale, and such activity will be increasingly impersonal.  The primary question to me is if you consider the personal productivity, legal and social costs -- if management can be involved in mediating the cease and desist function.  Perhaps this can be justified if it decreases costly litigation.  But there is a question for if the activity is core or context.

I'm wondering if people can see the side of running a business in the current environment, and if this is fair play.  Particularly if you have been on both sides of the argument.

Love in the Enterprise

Euan Semple is blogging about love in business:

Maybe love does have a place in business after all. Maybe more and more of us will start to have the courage to begin to talk about what really matters to us about work and our relationships with each other and to push back the sterile language of business that we have been trained to accept. Maybe we will realise that accepting love into the workplace reminds us of the original purpose of work - not to maximise shareholder value but to come together to do good things, to help each other and hopefully to make the world a better place.

Maybe ....

Oh and by the way if the above is too new age and namby pamby for you I reckon social computing is capable of talking 25% out of the running costs of most businesses - so there!

Great honest words.  For those uncomfortable with them, try replacing love with trust.

Community Lessons Learned

It's time to commend previous the whipping boys of the blogosphere.  Two companies that grew a bit too fast, made mistakes and seem to have learned from them.

Six Apart is working with their community.  You might remember the MT Pricing fiasco as a lesson for how not to work with a community that contributes so much to your value.  They suddenly changed the game on their community and they fought back.  This time, when managing performance problems, they shared the process.  Their lessons learned are good for everyone:

• Read what your customers have to say
• Ignore the tone of nasty complaints, but pay attention to the underlying messages
• Understand that the people giving feedback represent many who remain silent
• Don’t spend too much energy on distractions
• Don't be afraid to communicate
• Trust your customers

Technorati is fast again.  They shared the process throughout, kept at it and I think are winning people back.

The common theme is that good communication and sharing the process provides a way for your community to be included in the outcome.

The End of Process

If a knowledge worker has the organization's information in a social context at their finger tips, and the organization is sufficiently connected to tap experts and form groups instantly to resolve exceptions -- is there a role for business process as we know it?

My favorite Clay Shirky quote is "process is an embedded reaction to prior stupidity." That is, there was an exception to process and an expert designed a way for people to work together in one context that should fit all prior contexts. The problem is, the process becomes calcified and accepted as the rule. After all, it's a rule, and in corporations we follow them, even if it fails us or simply doesn't make sense. Because of constant change in our environment, processes are outdated the immediately after they are designed. The 90s business process re-engineering model intended to introduce change, but was driven by experts which simply delivered another set of frozen processes. Because participants in process are not considered experts in theory, they are empowered to make decisions on their own when something fails.

Organizations are trapped in a spiral of declining innovation led by the false promise of efficiency. Workers are given firm guidelines and are trained to only draw within them. Managers have the false belief engineered process and hoarding information is a substitute for good leadership. Processes fail and silos persist despite dysfunctional matrices. Executives are so far removed from exceptions and objections that all they get are carefully packaged reports of good news and numbers that reveal the bad when it's too late.

John Seely Brown and John Hagel point out that while 95% of IT investment goes to support business process (to drive down costs), most employee time isn't spent on process -- but exceptions to process. Further, competitive advantage comes from how we innovate in handling exceptions. When something fails, informed and empowered employees turn to their social network. The informal network, or heterarchy, where most business gets done.

Today, some staid corporations are abandoning process all together (I wish I could quote the source for this). Google is a more public example, albeit an exceptionally new large enterprise, where wikis and weblogs enable a culture of working openly in a flatter and decentralized organization. This is data point helps plot the trend of decentralized organizations that realize economies of scale, as described by Thomas Malone in his book, Decentralization.

Assume for a moment that the 25% of GDP that is search costs falls. Or the 50% of GDP that is transaction costs similarly declines. Coordination costs fall with rising connectivity. The cost of personal publishing and easy group forming are rapidly falling to zero. If a knowledge worker has relevant information at their finger tips, can form the right group to handle an exception, leverage the social context of information and contribute to memory as a natural by-product of getting work done -- what is the role of process?

A process is like a standard. It provides a common definition for others to build upon. This is generally a good thing. In technical systems it helps resolve complexity so higher order abstractions can keep things simple. But even in technical systems, efficiency comes at a cost of adaptation. In social systems, especially where not everyone helps design what they participate in, the constraints against adaptation are compounded.

At best, a process should serve as a reference model. Something that others can reference when completing a task. Something that can be leveraged for innovation, a boundary condition for experimentation at the margin.

As with many things, gaining greater participation and innovation requires sharing control. I do not believe we are near the End of Process, yet. I do believe the arguments for engineering organizations are being trumped by new practices and simple tools.  The first organizations bringing it to an end will have a decided competitive advantage.

UPDATE: Comments are starting to get interesting.  Euan Semple nails it: Process is the sort of word that grown ups in suits use to throw their weight around and to convince others that they know what is going on and that it makes sense.

Wikimaniacs or Wikirealists?

Wiki maniacs were in full attendance at Wikimania last week.  Not just the participants in the Wikipedia community, but users and developers of open source wiki.  Seventy of 400 attendees were members of the press, which served to amplify the impact of the event, but also highlight the changing of the guard. 

Jimmy Wales was busy doing more than putting a face on a community with back to back interviews throughout the conference.  One interview with a German daily, Sueddeutsche Zeitung, was poorly translated into a Reuters story that ran with the false lead that Wikipedia was going to tighten editorial controls and consequently Slashdotted.  Really, Jimmy was talking about Wikipedia 1.0, an effort to develop a print version.  Refutations here and here.  When we were laughing about the episode, Jimmy said, "why would we *ever* do that, it's not like a document is ever finished!"  If only the story broke on Wikinews.

Back in the trenches, real progress was made.  This was the first time much of the virtual community came together face-to-face.  The experience was more than meeting someone whose' blog you have read -- but someone you have worked with.  Eugene Kim's blog will give you a sense of all the micro-meetings that took place. When you gather enough wiki developers around a table, something good is bound to happen, such as a anti-spam initiative.  The event was extremely diverse and full of surprises like none other than Mitch Kapor:

"I've seen things like this happen once or twice before," observed Mitch Kapor, software pioneer and head of the Open Source Foundation. "We're at the Big Bang of the next information revolution."

Mitch isn't overstating it.  Wikipedia founder Jimmy Wales gave his keynote on 10 Things that Will be Free, perhaps because once you have realized freedom, it extends itself:

1. Free the Encyclopedia!
2. Free the Dictionary!
3. Free the Curriculum!
4. Free the Music!
5. Free the Art!
6. Free the File Formats!
7. Free the Maps!
8. Free the Product Identifiers!
9. Free the TV Listings!
10. Free the Communities!

I focused my keynote on enterprise wiki case studies, but noted what should be an obvious extension -- the freedom to share will be free, as in beer.  Stay with me on this... 

Recall that commons-based peer production provides a framework for understanding the difference between production models driven by price (market), contract (firm) or sharing (commons). Philip Evans provides a hint at why production may be shifting from markets to the commons:

One of the simplest arguments I've used to get people out of a traditional mindset is to point out a statistic -- the cost of transactions in the U.S. More than 50% of the non-government GDP in the U.S. is based on transaction costs.

Supposedly, price should be an efficient signal for communicating what to produce.  However, when you have price, so to follows a panoply of middlemen from accountants to lawyers.  When you take price out of the equation, particularly in small groups and with network distribution, you reduce market friction.  Wikipedia is demonstrating a model of content production based upon open licensing with collaboration at scale.  Whereas open source software development pioneered this model, they are scaling it even further, if for no other reason than content does not have the interdependency that constrains the development of code.  When you look at Jimmy's list, note that each are ripe for models of scaled open production. 

Our freedom to share is clearly under attack by prior property regimes and new ones such as DRM.  As producers, we have discovered our own power to share under new regimes such as Creative Commons licensing or production and distribution models such as open source and open content.  As consumers, most of us have yet to recognize the limitations we face or the new ones being constructed around us.  As either a consumer or producer, the shift from markets to commons is one of freedom -- and economic benefit.

If you wonder if there is a business in all this, let me make a simple argument.  The disruption of open models of production is the greatest arbitrage opportunity in modern industry.  We do not yet know what value will remain from the 50% of GDP that is transaction costs. Steven Weber noted that unlike transaction cost analysis to inform buy vs. build decisions -- we do not have a framework for when to open property, but many companies are taking the risk. Craigslist, for example, generated $10 million in revenue while cannibalizing $50-65 million from Bay Area newspapers.  This is not just because the net decreased distribution and search costs to unlock latent demand in long tail-esque fashion.  Strangers are trusting one another to build a common resource and community -- with a network enabled structure that has decreased coordination costs and greater social incentives. The chasm of the long tail is peer production, and we are just beginning to understand it.  We are driving transaction costs out of the equation so we can reinvest and create higher order value.

Hopefully that help clarify the shift from markets to commons, but what about the shift from firms to the commons?  Again, transaction costs come into play, but beyond Coase's argument that decreased transaction costs lead to vertical disintegration of the firm.  Thomas Malone has argued the trend of decentralization as an inevitability because decreasing transaction and coordination costs make it possible while providing greater social incentives for employees and better decision making at scale.  John Seely Brown and John Hagel also point to the increasingly distributed nature of business, but they make a more profound argument for the value of social networks within the enterprise to provide a sustainable edge through innovation.  Enterprises have sought to drive down costs through business process automation and outsourcing as a competitive advantage.  But only putting people back in the process to handle exceptions with the freedom to innovate provides a sustainable advancement.    The only thing is, to unleash the creative capability of employees requires sharing control.

Which brings me back to sharing will be free, as in beer.  Under the construct of a firm, employees are contracted to produce and the firm gains property.  They largely have the freedom to share ideas and they have the right to break the contract at-will in many jurisdictions.  But while under contract, they do not have the right to share, that is owned by the employer for the purpose of exclusive sharing with the firm itself. 

But what happens when an employee wishes to contribute to the commons?  Contribute to an open source project? Or blog?  Or contribute to Wikipedia?  In many companies the employee does not have the right to engage in external productive communities without pre-approval.  So they do so anonymously, or on their own time, without support from their firm.  My suggestion, is that as companies open they will learn that they are loosing value by not letting employees own the right to share. 

The right to share is different from the freedom to share, because when you own the right you can contribute property to the commons at your best discretion.  When a developer has a great idea at two in the morning for an open source project, having to seek permission from an employer before engaging hinders the creative process.  When you look at commercial open source companies, you may see new frameworks arise that grant this right to employees.   

The frontier of decentralized organization is granting employees the right to decide how to share, not just the freedom to share in condoned mechanisms, in areas they are not paid to do so.  I think we just beginning to understand how to enable self-organization so we can innovate at scale.  I'm sharing this thought in hopes we might learn where we are going.

Classical Management Style

If you ever receive a letter with an introduction ...

"When, O Catiline, do you mean to cease abusing our patience? How long is that madness of yours still to mock us? When is there to be an end of that unbridled audacity of yours, swaggering about as it does now?" 

... that ends with...

Cicero ultimately vanquished Catiline despite the latter's attempt to form a rebel force with other rich and corrupt men.

"The city should rejoice because it has been saved from a bloody rebellion. He asked for nothing for himself but the grateful remembrance of the city for what he has done. He acknowledged that this victory was more difficult than one in foreign lands, because the enemies were citizens of Rome."

You still have time to flee. Go forth, Catiline. 

...you may be in trouble of epic proportions.  Star Wars kind of stuff, by a hedge fund manager to a mismanaged company, in a .pdf.