Category: General Management

The IT Department of the Future… doesn’t exist 

Good article, including the simple fact:

In the industrial company of the future, there won’t be a separate IT department.

From: http://www.strategy-business.com/article/The-Thought-Leader-Interview-Bill-Ruh?gko=9ae51

Data quality analogy – Prove you own your house

I’m well known for not liking analogies. I find they generally give people comfort that they understand something without actually changing how much something is understood.  

So if I’m forced to use an analogy I’ll at least try to use one that hasn’t been used before, and to use it until it breaks by folding backwards on the analyogy so it no longer makes sense.  My data quality assurance analology at the moment is:

Imagine you’re asked to prove that you own your house.  

This is an analogous to the regulatory trajectory in financial services – where increasingly data provided to regulators must be assested to met certain data quality criteria.  

So again, imagine somebody has asked you to prove that you own your house. You can do this by presenting a deed of title. You might also make a homourous distinction between you owning your house versus you owning a mortgage. Because really the bank owns the house, am I right? 

But within this distinction you can make a fairly precise statement about how much of your home you own. You might need to rely on estimates regarding what it’s worth, but you can get the percentages of ownership pretty accurate.

But imagine if deeds of title didn’t exist. Imagine mortgages didn’t exist. Imagine plans that show houses appearing on lots with specific boundaries and reference points for context didn’t exist.

Imagine again being asked to prove that you own your house without the benefit of deeds, mortgages, plans, addresses, and other context. It’s still possible to prove ownership. Now you have to lean on concepts like homesteading; and create a narrative chain of ownership based on the initial claiming and working of the land, through secsessive transfers of ownership to your own claim. You also have to devise your own way of identifying your house – perhaps using a flag with your family crest. 

The problem with this approach to proving ownership is that it’s different for each home. Everybody would need to tell the entire story of how this particular home has came to be on this particular block of land, and who participated at every step of construction and transfer of ownership.

The depth and level of corroboration for this story of ownership would mean we’d need to bring in many of the people who are characters in the narrative and confirm their roles and recollections. Some of these people would disagree with particular points in the story enough to open up doubt or all least require further alternative corroboration.

Once some of the people in the narrative die, or even if they just refuse to turn up for each successive re-telling of the ownership narrative, you lose the ability to prove ownership. This type of approach is therefore clumbersum – requiring a complex narrative that is different for each house – and ultimately inconsistent in the level of assurance it can provide.

The level of assurance is itself dependent on the unique and total narrative around ownership. If, for a particular home, part of the ownership story contains the unsolved murder of the owner and subsequent homesteading by a mysterious stranger, then the certainty of ownership is different than for an ownership story that doesn’t contain that feature. So the idea of a proof with 95% certainty cannot be committed to in general.

The alternative – when you don’t need a completely different narrative ownership story per individual home – can’t be designed by any individual home owner. Instead it has to be built up, shared, agreed, and sustained by the community.  

The system for proving home ownership that we have now, that allows for proof of ownership, and even allows as to manage precise percentages of ownership, is the analogy I use for data quality. Because information passes through the community like the ownership of a house, there needs to be a framework agreed by the community so data quality can be consistently understood.

When somebody visits your house for dinner, it is enough that you answer the door to prove sufficient ownership of this house to not expect dinner to be interrupted. Sufficient ownership for this purpose isn’t even real ownership – it could just be a rental agreement. Whereas other assertions of ownership require further proof.  

If your organisation doesn’t have artefacts that describe the structure and flow of information it’s like not having house plans that show which property we are talking about. Likewise, if the community doesn’t agree to a specific, potentially costly, process of verification of data as it is transported across the organisation, this is like not having title deeds that you can depend on.

Still with me on this analogy? No, me neither – which is why I don’t like analogies.  

Getting closer to the future of the IT function

My views on business capability-based governance extend to the idea that an “IT function” doesn’t really make any sense at the highest governance levels.  However, the implications of this are significant.  So, in the meantime….

10 linchpin business performance improvement initiatives you should be running right now

It’s often difficult to understand how your portfolio of projects is actually helping your organisation deliver to its strategic goals. The problem is that the projects in the portfolio often don’t play a part in ensuring the overall portfolio is easy to navigate and cohesive. You need linchpin projects in your portfolio to hold the others together.

Linchpin

 

Linchpin projects are different to other projects in the portfolio. Linchpin projects don’t have a business case in the traditional sense – because they are strategically placed into the portfolio to hold it together, identify risks across the portfolio, and steer cross-project decision-making.
Linchpin projects are value-seeking initiatives that raise the value of the entire portfolio. In fact, linchpin projects represent the new normal for combining operations and program management in the digital economy.

Your current portfolio 

Your current project portfolio is probably made up of three types of projects:

  • That subset of projects that had a strong enough business case to make the cut at the expense of other projects
  • Projects that your organisation almost left too late, so are now critical – or projects that unanticipated changes in your operating environment have recently made critical, urgent, or “must haves”
  • Big, chunky, game-changing programs that have been initiated following a strategic analysis & planning process. These are often more of a top-down prioritisation of investment rather than a fully formed project, until a more comprehensive analysis of the full impacts is performed

The decisions that initiated each of these projects aren’t always perfect. But you have no choice but to plunge ahead with the projects. However, each of these types of projects presents challenges to the management of your portfolio as a whole:

  • You selected some projects at the expensive of others – but when and which of those forgone projects will become your next critical projects?
  • Critical projects that have now become urgent will need to take shortcuts – but what ensures these projects understand the shortcuts that are available, or to plan the follow-on work required when the projects are complete?
  • Strategic projects represent investment priorities which will have the greatest impact on your customers, asset utilisation, and business performance – but how do you incorporate the best knowledge you have of what influences these into the strategic project’s planning and execution? (Without putting all other projects on hold!)

Major projects versus linchpin projects

It’s a mistake to think of your major projects, or your strategic projects, as your linchpin projects. Major projects are often run as exceptions, so the transformational impact of these projects is often limited or followed by organisational fatigue or regression. Linchpin projects on the other hand inject specialised disciplines into the portfolio and in many cases don’t need to be large investments.
However, there is an opportunity for your major strategic programs to host a number of linchpin projects to get them started. The trick is knowing which linchpin projects you need…

Which linchpin projects do you need?

Regardless of your organisation, the following linchpin projects should be in your portfolio. The characteristics of your organisation and current strategic direction will only impact the size and approach for each of these initiatives.

Project 1. Business capability based governance
Our organisations shouldn’t have a primary governance model that divides the organisation into functions and then constantly proliferates the need for cross-functional teams. Social enterprises don’t require this approach – so your organisation’s primary governance should be mapped to business capabilities, not functions. This is also the first step in ensuring “business/IT alignment” – by stripping back the historic and arbitrary separation that is the root cause of misalignment.

Project 2. Customer journey design & customer experience campaigns
If you can’t point to artefacts which describe an idealised view of how your customers experience your organisation, then you haven’t done enough thinking about your customers – and you have nothing to orient your organisation towards customer outcomes. Equally, if you can’t point to specific customer-facing processes, technologies, and metrics that continuously direct the resources of your organisation towards reenforcing positive customer experience and recovering bad customer experience – then your customer journey design is just sitting on a shelf!

Project 3. Asset life-cycle, utilisation, yield, and pricing
Airlines, hotel chains, mining companies, and farmers understand yield. They understand that large expensive assets must be effectively carved up to service the right customers, at the right time, and for the right price. In the digital economy this same process must be applied to every organisation’s assets. If you don’t understand the utilisation on your major assets, and how projects can impact this, then you are running a business that provides a higher cost product – or your are running a unsustainable business.

Project 4. Core shared data strategy, information asset governance, and decommissioning
Unmanaged, the information in your organisation can get out of control. We have access to so much technology – information technology – that is supposed to help us manage information. So why are there so many copies of the same documents? Why can’t we rely on information we receive from other departments? And what is cut-and-paste if not investment in the problem instead of the solution? The solution is to systematically discover and invest in information assets across their end-to-end lifecycle – focusing in particular on the “core shared data” that is key to coordination across business units. Oh, and don’t forget you can’t ever throw data away unless you know what it’s worth (i.e. Business value) – but some data you can’t afford to keep (i.e. Privacy Act).

Project 5. Combined process, information, and user forums – fit-for-purpose scorecards
Your employees know what is wrong. But there are few mechanisms for feeding that learning into operational improvement initiatives. Lean and Six Sigma ™ come to mind – but that’s just details. Whenever your process team talks to people who should be following processes – capture the reasons why they’re not! Whenever you find yourself questioning a decision an employee has made – capture the missing information that caused the wrong decision to be made! Whenever somebody throws their keyboard across the room – ask them why! Better still – combine all of this into a single session which uncovers what is wrong around this place.

Project 6. Innovation funnel, lean business case, and start-up support
Innovation, or rather an entrepreneurial culture, starts with hiring entrepreneurs. But what if you can’t keep them? There are three reasons you can’t keep them: 1. You don’t recognise the good ones – because you don’t have an innovation funnel. 2. You frustrate them – because there are too many barriers to implementing business cases for change. 3. They can get better, cheaper start-up support in the market. These things are easy to fix and can be funded to the extent that you value innovation.

Project 7. Voice-of-the-customer operational alignment – Customer Return on Operations
It’s pretty easy to gather basic voice-of-the-customer data. For example, you can just asked the simple “How likely are you to recommend us to your friends? And why?” questions at the heart of Net Promotor Score (NPS). The hard part is doing something about it. You need to systematically determine what parts of your operations have the most impact on your customers. Management of “customer return on assets” will tell you most of what you need to know about how your projects are impacting your performance – from your customer’s perspective.

Project 8. Competency centres and change levers – The Machinery of Business Transformation
There are two ways to transform your organisation: you could run a heavy transformation program, and then an even heavier organisational change management initiative – and hope you get both right. Alternatively, you can manage to a transformation agenda – vision – and a portfolio of integrated competency centres – collaboration and continuous improvement towards that vision. If you know your own organisation’s portfolio of competency centres, their service catalogs, their customers, and the most effective channels and levers of change for your particular organisation, then implementing your whole project portfolio, and avoiding unintended consequences, becomes much easier.

Project 9. IT federation: shrinking corporate IT and embracing shadow IT
Even with your primary governance now focused on business capabilities (see Project 1) you still need to manage IT. But the difference is you need to manage all IT, in the only way you can in a post-Cloud, outsourced, and BYO world – federated IT. Learn to manage IT without ignoring what is out of your control and you’ll revolutionise productivity within your organisation while spending less than you did on IT services, architecture compliance, and generally inconveniencing your stakeholders by trying to be the cost and standardisation tzar.

Project 10. Who are we: purpose, culture, communications, and performance
Engage, decide, communicate. There is always another opportunity to reinforce what makes your organisation unique. There are ways of doing this that improve performance. Try them.

 

The end of IT alignment

The language of IT alignment has to end. It’s no longer serving any purpose except to isolate disciplines that no longer need to be managed in isolation.

The convergence of the commoditisation of IT and the socialisation of business means that IT in its strictest purest sense has won. Paradoxically it also makes IT completely unimportant as a competitive differentiator.

IT is available cheaply to anybody who wants it. IT can be acquired easily in packaged form, or as a service, through any number of cloud or “… as-a-service” vendors. Many would argue that this doesn’t solve all problems – but to quote the old joke about alcohol, neither does milk.

For IT systems that are not easy to acquire there are strong incentives for IT service providers and outsourcing organisations to build them. You might pay more than you’d like but that’s because it’s hard to manage these guys not because of any real scarcity.

The so-called socialisation of business is a trend that slightly trails the commoditisation of IT. In fact, the consumerisation of IT appears to drive both. While it might have once been the IT departments job to drive adoption of IT to improve efficiency this is no longer the case. IT departments are now more likely to be seen as holding back the adoption of IT.

So why does this mean the end of business and IT alignment? Because there isn’t any “business” and “IT” to align! It’s always been a misnomer. Firstly, IT’s view that there was “us” in IT with all this complexity and then there was one bug lump out there called “the business” was always a farce. “The business” was just shorthand for a generic “them” that moved and shifted like bad requirements.

On the other side there was “The business” – rich and complex and important. In “the business” there were performance incentives, real customers, governance considerations, all that important people management and cultural change, etc. But this side of the fence had some delusions too. Over the last 20-30 years much of the value that business units mentored was shifted into IT systems. But unfortunately this meant managers thought it was shifting to IT.

When I asked who is responsible for the information in the IT systems during a recent meeting everybody in the room pointed to the IT guy. When I clarified and added that I meant the real details of what the information means they still – and they always do in my experience – pointed to the IT guy.

You see somewhere along the line people started believing that if something passed through an IT system it was suddenly owned by IT. But it got even worse than that. Because these “IT alignment” problems went on for so long, and nobody ever fixed them, and because IT was the service provider and “the business” was “the customer”, the IT team compensated.

So not only did everything that pasted through an IT system become owned by IT, everything that was “detailed” became an IT problem. Let me explain. The thing with IT systems is that they persist. If you have a human system you need to teach the new humans the system so the system can continue to operate when the old humans leave. This process keeps the system alive. IT systems, except for some overworked back-end humans, don’t need this. IT systems continue to operate regardless of the passing of knowledge to new humans.

Over time this has meant that where systems are built on technology the detailed knowledge of the system are lost. Nobody knows the details of the system. However, when things went wrong somebody had to find out those details. The IT groups had the keys to the back-end of the system so were able to find out how the system worked.

Even though IT people could find out how the system worked it didn’t mean that they were the cause of the problem. Sometimes the world had changed and the system didn’t work in the new world. But at the end of a long investigation the only person who could fix the problem was the one person who had spent time looking at the details.

This process had an interesting effect on the users of IT systems. Not only did they think that things that passed through IT were now owned by IT, but they thought that “the details” were owned by IT. In fact, I think that in many contexts the term “technical” and “detailed” have become interchangeable.

I’ll skip over the process where all of the people with “technical” knowledge – including detailed knowledge of “the business” – were outsourced. That’s just progress – it’s done – get over it. But it’s an important step in the story. Because it’s now possible to acquire the IT components of your business easier they are no longer a competitive differentiator. Trouble is because the IT components still have value, and your competitors can acquire them, they are a business imperative.

To actually differentiate you have to do what you’ve always had to do, build hard-to-replicate capabilities that combine people, process, information, and technology. It’s the integration of all of these that creates value. So why all the talk of “IT Alignment” in the first place? Who knows! Growing pains?

So, What’s next?

Because IT is easy to acquire, and because business units can’t seem to manage the details of how their processes operate, and because it’s integrated capabilities that drive competitiveness, a complete governance change needs to occur. It is no longer effective or necessary to have a primary governance separation between business functions and IT.

But hang on! I could also track a whole history of cross-functional collaboration within organisations. Every single problem in every single organisation appears to be solved by “a cross-functional team” right? In fact, the whole structure of management education has become about educating future managers that a. All organisations are made up of common functions (IT, HR, Finance, etc) and b. that their job as managers is to coordinate across these functions.

This process, that builds organisations in which every collaboration of value is an exception and then creates managers who are rewarded for intervening is bullshit (!). Our governance models need to change.

The thing that needs to change first is to give people responsibility for capabilities. The end-to-end responsibility for something regardless of the separation between “the business” and IT is the very first step towards “alignment”. If you haven’t done this stop working on alignment issues until you do.

It’s not all about people – it’s about respecting people enough to make the systems work

How many times have you had an employee come to you with a complaint about how a process works, or how an IT system is broken, or how they aren’t getting along with another department, and you’ve basically counselled them. You’ve told them how they might get a better result if they approach the situation a different way. Maybe you’ve suggested that they escalate this to another person. Perhaps you’ve even brokered a meeting where the two groups just sit together to rebuild their relationship – just try and see it from each other’s point of view.

You take this approach because people management is important, right? You take this approach because “it’s all about people”. But don’t you think if the system wasn’t broken there would be less of these “people issues”? It’s the most respectful thing you can do for the people in your organisation to make the organisation itself work better?

That fact of the matter is that your people are not your most important asset. Your systems are your most important asset. Because when your systems work, and make it easy for your people to operate your organisation (i.e. what I call “organisational usability”) then your people will stay. Your “assets” support your customers first, and your people second. And that is all. To say your people are “assets” is actually pretty offensive.

The fast is you need good people if you want to change anything. People have ideas, people make stuff happen. But the more you are relying on people to do basic tasks, work arounds, and counselling sessions, the more you are destroying the competitiveness of your business by adding unnecessary costs to the cost structure.

The idea that you should focus on making your organisation a “great place to work” doesn’t contradict this in the slightest. Being a great place to work means the people in your organisation aren’t constantly trying to avoid being the ones who do the low value jobs. Being a “great place to work” means that management systems are in place that ensure that you don’t have to suck up to your line manager in order to be recognised for your contribution.

Constantly focusing on the people, at the exclusion of focusing on the systems, is completely counter-productive. Of course, I mean “systems” broadly, beyond IT systems. But more importantly, I mean the systems that create a set of unique capabilities controlled by your organisation and connect those capabilities to customers.

The only reason managers focus on people is that they want to manage them – read: control them. If you make everything into a people issue you don’t have to fix your partner eco-system, you don’t need to have a strategy, and you don’t need to manage risk. Or more importantly, you can focus on your own career progression rather than making the systems work for people who operate them (too cynical, perhaps?).

By focusing only on people you just get to wake up in the morning, see what’s failed and fire somebody, or ask everybody how they are adding value and let them take the effort to justify. This is the extreme but natural conclusion of how focusing on people plays out. By only focusing on people you’ll find yourself saying things like “Bob doesn’t get it” when there is no “it” to get. Like I’ve said before “management at it’s worst is the art of saying ‘you’re not seeing the big picture – even when there clearly isn’t one'”.

The more you focus on the people, and the less you focus on the systems, the more you’ll need to focus on the people. People in an untidy, unstructured, and ultimately political environment will undoubtably require more attention. People who need to end their day manually collating information and re-typing into systems that don’t work will require more attention. People who need to collaborate across teams where no agreed protocols exist will require more conflict management. People who need to suddenly “do more with less” will – by definition – actually do less with less until the systems change.

It’s time to respect people by managing systems.

 

Corporations – thought of the day

I think it’s time I made clear something I’ve honestly believed for a long time.

I think capitalism is a really good system. I think “freedom” is the only moral political system. I think the Austrian Economists at www.Mises.org are right.

But I think capitalism and corporatism are different.

As one of my favorite intellectuals I’ve never met (Peter Klein) would probably agree, it’s all about entrepreneurship.

I think the anti-capitalism interpretations of Naomi Klein’s work, and the anti-capitalist interpretations of the whole “occupy Wall Street” movement, are flawed.

And finally – and this is the point of this post – I believe that all corporations exist for only four reasons:

1. To provide a mechanism for fascinating and productive individuals who are too scared to start their own business to be “successful”

2. To provide a mechanism for economically, socially, or future-trendy savvy people to be successful through investment and non-participatory involvement

3. To allow people like me, who are fascinated by the way organisations work, to make them better. Just for our own personal satisfaction.

4. To either make individuals happier by the products and services they provide – or to fail

This is what I believe. It’s also why I think Alan Joyce is cool.

Management as a service, again

Nice:

If everything is a service, why should management be assigned any priority over anything else?

Short answer: no valid reason at all – from a services-perspective, anyway. It’s just another service, or set of services.

The only feasible reason why management might be assigned arbitrary priority over other services is from left-over delusions about ‘rights of control’. For the most part, these delusions arise from an unfortunate coincidence of functions within the ‘management-services’:

services for strategic-assessment – potentially giving the delusion that ‘knowing more about big-picture’ inherently means ‘responsibility to tell others what to do’
services for coordination of resource-allocation – potentially giving the delusion of authority over others via ‘right to withhold’, in turn arising from delusions about the (dys)functional role of purported ‘rights of possession’ within the broader society, and hence within an organisation’s economic model.
In short, architecturally speaking, this is not a defensible reason for priority. Every service is ‘just another service’ that is required for enterprise viability: hence no service can be said to have inherent priority over any other.

read it all here:
http://weblog.tetradian.com/2011/09/26/rethinking-architecture-of-mgmt/

Architecture Versus Management?

I’m increasingly seeing the management and architecture disciplines as being in a race to control organisations.  Both groups show behaviours that suggest they are trying to extend their own discipline to encompass more of the organisation.  Equally, both groups work hard to exclude areas they are not comfortable with from their responsibilities.  Architects want to control the organisation by controlling knowledge of the structure and value streams at all levels, while avoiding execution issues.  The management profession wants to control the organisation by controlling resources, while avoiding responsibility for technical issues.

Both the architecture and the management professions reveal their desires to control the organisation by the manner in which they grow the scope of their approach through ever increasing extensions of their disciplines.  The management discipline has grown from supervision, to general management, to strategic management, to change management, and to all of the business unit focused sub-disciplines that form the structure of a management degree (finance, HR, etc).  Conversely, architecture has grown from a technical discipline to include information architecture, solution architecture, business architecture, and information architecture.

Christopher Alexander popularised – if his ideas can be considered popular – the idea of generative sequences.  In essence, a generative sequence is the process of taking a structure and changing it through a series of structure preserving transformations. After each transformation the whole structure is then evaluated to determine if the transformation has – more or less subjectively – improved the structure.  This process is repeated.  Alexander also defines the so-called structure preserving transformations that are applicable at each step.

This is an interesting analogy to decision making in organisations.  Each time a decision is made the structure of the organisation changes.  Structure in this case may refer to anything: including the attitude of an individual team-member, the next task to focus on, or even quite literally a change in the organisation’s structure as we usually use that term.

What is interesting is that from both the manager’s point of view and the architect’s point of view the details of that structural transformation are only selectively considered.  Because managers are generally outcome focused, each transformation or decision is evaluated based on its perceived contribution to outcomes.  These outcomes may be long or short-term, or they might be project-focused, or they might relate to the entire organisation – but it’s the outcome that’s important.

While management is primarily concerned with outcomes, the architect is concerned with structure as a whole.  When decisions are made they not only impact the progress towards goals but they may also potentially impact other structural elements of the organisation.  Rather than a distinction between long or short-term time horizons, or between technical and business domains, the distinction between architecting and managing is generally about outcomes versus structure.

Currently, it’s difficult for architects to evaluate the impact of a transformation in terms of the progress towards desired outcomes because a comprehensive view of the desired outcomes is rarely shared, documented, or linked to the structural elements as defined by the architect.  Similarly, it is difficult for a manager to utilise the models created by the architect to make decisions because the models which describe the structure use technical language and contain much that is irrelevant to decision making.

This battle is not yet won, of course.  To be a successful architect you must manage carefully, and to be a successful manager you most certainly need to be an architect of sorts.  The MWT Model is driven from the theory that this battle will and is ultimately changing the practice of management itself.  This may be seen as victory going to the architects but is more likely to mean that successful architects will no longer be able to choose what issues they avoid.

While this might be interesting to professionals on both sides of the battle I’m just as interested in how important this is to the organisations that we work in.  As I’ve said before, I believe good IT is structural – when you implement an HR system that enables you to re-deploy some employees in the HR branch of the org chart, you should really hang that HR capability embedded in the IT system in their place.

As these structural IT changes are increasingly differentiating organisations and brokering their relationships with customers it is ever more important that organisations can effectively operate and enhance these technology-enabled capabilities.  Both managers and architects currently struggle to achieve this and in the organisation of the future (now?) it’s really the only game.

 

Healthy information eating

I’m looking forward to a few weeks off before I begin a new role in a technology & management consulting company (which I’m also very much looking forward to).

I’m planning on going on an ‘information diet’ during my break and have already cleared inboxes, unchecked starred items, and unsubscribed from plenty of RSS feeds.

But what sort of a diet would it be if I didn’t ensure I got enough nutrition?  So I’ve also enrolled in a course at the Mises Academy.  I’ve chosen “Networks and the Digital Revolution: Economic Myths and Realities” because I’ve always liked reading snippets of Peter Klein.

One of the features of the Mises Academy (other than that the courses are cheap and on line) is that the readings are generally available for free.  While working through the readings for my course I came across:

… They hit gold with ”The Nature of the Firm,” a 1937 paper written by the Nobel laureate Ronald Coase.

The Coase paper asked a deceptively simple question: If the market is such a great tool for allocating resources, why isn’t it used inside the firm or company? Why doesn’t one worker on the assembly line negotiate with the worker next to him about the price at which he will supply the partly assembled product?

That sort of negotiation rarely happens. Instead of using markets, companies tend to be organized as hierarchies, using a chain of command and control rather than negotiation, markets and explicit contracts. Paradoxically, the primary unit of capitalism, on close inspection, looks a lot like central planning.

Mr. Coase didn’t just ask this question; he also provided a provocative answer: it all hinges on the costs of making transactions. What economists call firms, he said, are essentially groups of activities for which it is more effective and less costly to use command-and-control than markets to have things done.

New-economy advocates found this a compelling idea. One consequence of the Internet has surely been to make it cheaper to communicate. This should, in turn, lower transaction costs and change company boundaries. Their conclusion was that companies would inevitably downsize and outsource, spin off unnecessary functions, and carry out more and more transactions using the Internet instead of internal memos.

Not so fast. The Internet lowers communication costs, that’s for sure. But that means it lowers transaction costs within organizations as well as across organizations. The internal memo might disappear, but only because it is replaced by the internal e-mail message.

It just doesn’t follow that lower communication costs lead to smaller companies. In fact, Mr. Coase himself said that ”changes like the telephone and telegraphy, which tend to reduce the cost of organizing spatially, will tend to increase the size of the firm.””

– from here with my emphasis added

I’ve read some of the original Coase papers over the years and the idea of reduced transaction costs have been at the heart of the MWT Model.  I like this idea that a key capability required in a low transaction cost world is likely to be the ability to work effectively with, and generate value from, low transaction costs within organisations and also across organisations.  To me this is the whole point of how management is changing / needs to change.

I also like that this is still an interesting idea to me.  It’s a calling of sorts and something I tend to think about even when I don’t have to. It gives me energy and purpose.

 

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