For the past hundred years or so, the fastest growing economies have chosen to organize themselves into corporations as the most efficient means of production. And since most of us reading this book have grown up in that context, it's easy for us to think it will always be so, just as feudal serfs, guild members and farmers did in their respective times. The technologies that have transformed value creation will likewise revolutionize economic organization, thereby shifting power from institutions to the talent they rely on.
The most important innovation of the industrial revolution was not a technology like the Bessemer steel-making process or the Newcomen steam engine - it was the legal creation of limited liability enterprises - corporations. Why? Because it mobilized the flow of capital, which was a scarce resource in the late 19th Century.
A blacksmith might have started a business based on his family's savings, or on what could be borrowed from the village he would serve. However, Andrew Carnegie needed financial capital on a different scale and it's no accident that his name is connected to that of Paul Mellon, the founder of the bank that funded U.S. Steel. The growth of the banking system and the ability to fund industrial-scale projects were enabled by the development of the corporate form of organization.
The power of this new economic species proved almost too great. The industrial technologies that corporations developed on a mass scale - like chemistry, electricity and mass production - created so much value and required so much capital that they eventually acquired enormous leverage. In fact, they accumulated power so rapidly that democratic societies had to create new institutions to curb it. First came the anti-Trust laws, then the Labor Movement and associated legal frameworks. Most recently, it has been consumerism that has again reduced the corporations' room for maneuver. Even so, the corporation seems to be gaining ground as global enterprises take on capabilities that used to belong to governments. Few central banks, for example, can compete with Citicorp in currency markets. What could change this picture of growing corporate dominance?
The traditional corporation got a bit of a frisson from the dot-com boom. Right now, of course, that fear has become a sneer as Aeron chairs, the emblematic furniture of Silicon Valley, can be picked up for next to nothing at auctions and individual "free agency" looks more scary than liberating. But this does not mean the corporation is safe.
Clayton Christensen has recently driven home a forceful point: When a technology with truly disruptive potential first emerges, it doesn't work very well. It gets used only in niches where its specific advantages are strongest. The existing technology is generally too well developed and entrenched in the better established applications to give way to the interloper in its early, crude state. Thus transistors were first popularized in tinny radios because, without the transistor's low weight and power consumption, a portable radio wasn't possible at all, never mind that the radio sounded horrible! But the new technology learns from its niche, improves and pretty soon names like DuMont, RCA, Philco and the other vacuum-tube dependent companies have disappeared. Christensen's conclusion is this: Successful corporations are generally managed according to the sort of rules that militate against investing in new and risky technology.
The foregoing argument relates to product technologies but it applies equally to new forms of organization. The dot-com economy, comprising small companies and free agents, bound together by their shared mastery of new networking technology and an equally shared set of values about knowledge, relationships, and competition, invented an economy perfect for the rapid proliferation of information-based, non-capital-intensive businesses – this was the early niche. The collapse of many of these businesses has not wiped out this way of working, only the recent approach to getting such companies funded. And ultimately the experiences of the dot-com cohort will lead to even more startling organizational innovation, as the transistor led to the microprocessor.
The connected and fluid labor markets that bred the dot-coms still exist, just as internet-based communication still exists among the Chinese intelligentsia even after Tiananmen Square. In fact this is the disruptive technology that will eventually weaken the corporation. The corporation's last remaining monopoly power is created by the inefficiency of the labor market, which prevents individuals from seeking new jobs as easily as they do new cars. The Net is changing this rapidly, to the benefit of the most talented individuals. As Charles Handy says, “the big challenge for the elephants is that they don't end up as the home for the second rate."
The corporation as we know it is now in trouble. There is nothing to prevent its demise given that what had previously been its advantages are becoming less and less important. In fact, its accumulation of power will come to be seen as a kind of historical aberration, like centrally planned economies. This is the big story for the next decade and it should already be capturing our attention. The technologies of communication and collaboration will drive economic power from the institution to the individual, and the decisions about how our resources fulfill our desires will be revolutionized.
How?
Roger Camrass and Martin Farncombe have done a courageous thing, and the right one. They have broken the corporation into its constituent elements, identified the forces that determine how these elements can and will be put back together, and predicted the combinations that will thrive over the next ten years.
Rather than picking this or that trend, declaring it universal, and extrapolating it, they have created a chemistry of enterprise, allowing atomic engineers all over the economy to start making their own new compounds, testing them, and determining those that are the most promising. They have got the crucial drivers absolutely right: connectivity replacing many of the advantages of scale; financial capital giving way to human and intellectual capital; the emergence of new types of entities. But above all, they have signaled a critical change in perspective, from an economy of monolithic and self-contained institutions looking at life from the top down, to a network of atomic entities constantly forming new relationships and creating value from the bottom up.
In this their latest book, they lay out both the periodic table of elements and rules for this chemistry, and describe some of the new things that can be fashioned with it. No doubt, many more things will be created than anyone can foresee. But the process is essential: deconstruct the ways that value is added in corporations today, examine the forces that will alter this picture, and analyze the components that will support value creation in the future.
This networked, bottom-up perspective parallels powerful currents in today's economy (like individual-based data mining and mass customization) as well as tomorrows, the focus being on value created at the molecular level through biotechnology, nanotechnology, and advances in materials. The bottom-up view will prevail, and will up-end our views of resource management.
Corporate power and its pathological cousin, the influence of financial analysts, will be eroded. As we find new ways to organize around our desires, including how we want to work and manage our own professional lives, we will create the kind of economic chemistry that Camrass and Farncombe describe. In the process, an economy of the people, by the people, and for the people will reappear.
The corporation looks to be in full cry, with corporate executives not only highly paid but also lionized - Jack Welch got an $8million book advance! But the bubble will burst as surely as it did for the dot-coms and, if corporations are to extract value from the assets they have built, they must understand the source of the power of the insurgents and the forms the alternatives may take. This book is a guide to transforming the value locked within the corporation into a new form, adapted to the connected economy and able to continue adapting on its own. It illustrates a challenge that will face every corporate leader in the decade to come.