In an enlightening post dated 2013 Aaron Dignan (co-founder of recently blown up Undercurrent as a collateral effect of the Quirky demise) explains how continuous technological change transformed markets into an undisputed territory of disruption.
Sudden, mostly technologically driven, changes of perspective are frightening up all incumbents of our society:
“Technology – software in particular – has had a destabilizing effect on traditional business models. The proliferation of personal computing power has leveled the playing field in almost every industry. As products and the means to create them have become digitized […] production capability has grown more accessible and portable […] every single day it gets easier for someone else to compete with your product or service, and to do it better, faster, and cheaper. It used to be that the best day to start your business was yesterday. Now[..]tomorrow is almost always a more advantageous starting point”
To thrive in this new societal landscape, according to Dignan, companies must therefore adapt to this new “operating model”: firms must become perfectly collaborative machines, must develop adaptability capabilities and be dedicated to continuous experimentation. Reponsive Oraganizations must be able to understand technological change, mold it and use it to their advantage in facilitating value production at every level. According to an efficient resume offered by Dignan’s old but still good post thriving organizations of today:
“hack together products and services, test them, and improve them […] are obsessed with company culture and top tier talent, with an emphasis on employees that can imagine, build, and test their own ideas. They are maniacally focused on customers. They are hypersensitive to friction – in their daily operations and their user experience. They are open, connected, and build with and for their community of users and co-conspirators. They are comfortable with the unknown – business models and customer value are revealed over time. “
Dignan’s word strongly resonate with those of another privileged interpreter of digital transformation such as John Hagel III. Recently introducing the next Peter Drucker Forum in Vienna, Hagel talked about how the (techno driven) “performance pressure” of today poses a fundamental challenge to all of our society’s institutions: to choose between chasing the next strategy to achieve production efficiency or – on the other hand – look for increasing the possibilities available to us as human beings, being us employees, customers, peers or partners.
Technology is indistinguishable from humans
No coincidence that when Hagel speaks about digital platforms he see the evolution culminating in what he calls the “learning platform“: the boldest incarnation of the platform is that of a context where participants can learn and grow new opportunities: platforms that accelerate user performances and, at the same time, hone their capabilities and skills.
Despite all the recent fuss on the impact of digital platforms – and the need for transforming their existing model – we should eventually understand that these just one of the deepest and latest expression of our humanity. In a beautiful short essay entitled “Can we learn to be intelligent?” Esko Kilpi explains how – if you look to technology itself is a tool produced by mankind a bit like Marshall McLuhan said decades ago – you can understand that technology shapes humanity no less than humanity shapes technology itself: “We Shape Our Tools and Our Tools Shape Us” McLuhan used to say, according to a quote of doubtful attribution. According to Kilpi:
“We should welcome the fact that people today are smarter in large measure because they have invented and use smarter tools. Making tools is what human-beings have always done. The interactions between tools and human minds are so complex that it is very hard to try to draw a line between humans and technology. Neither is it a zero-sum game where the human brain is losing to technological intelligence”
But if technology is to be considered indistinguishable from humans why shouldn’t we also apply this consideration to the organizational “technologies” that we adopted in the last seventy years? Corporations, bureaucracies and institutions that we use represent ourselves, ultimately… ARE ourselves.
Once upon a time, the Sharing Economy
I often reflect on these considerations when I happen to witness the age-old debate on sharing-economy-in-and-out AKA something “is not enough sharing” but only “platform capitalism”: with infinite attempts to define taxonomies to define what is different and what is equal.
But what, if we look further, are these digital platforms becoming? Few people are realizing that, in a key and recognizable trend, these platforms are just becoming new forms of organizations, increasingly competitive with the more traditional “industrial” mode of production going into frontal conflict with troops of old age incumbents.
Essentially due to the collision of ubiquitous connectivity tools such as smartphones or GPS trackers and the emergence of new languages and interaction modes – such as those coming with widespread adoption of social web and apps – today, platform companies can increasingly mobilize “networks” made of thousands, if not millions, of independent producers and collaborators – not just employees. Thanks to these enablers, the actions of (more or less) professionalized users and partners can be are coordinated on a shared technological platform: these actors share contexts, tools and storefronts and can easily provide users with a consistent experience increasingly comparable with that provided by a more traditionally “industrialized” company.
Unlike what happened until recently, nowadays the same organization, the “platform”,can achieve a relevant level of two key factors in economic activity: motivation and coordination. I would refer to Albert Wenger’s gorgeous Networks, Firms and Markets for a more complete understanding but I can try to explain as much as possible.
In markets motivation favors the emergence of the best ones and is essentially the engine of competition: successful digital platforms build powerful reputation engines that make the best ones stand out in a context that – as previously said – is common and shared by all the producers. Not surprisingly, in the much talked “What’s the Future of Work” series opening post, Tim O’Reilly – last among internet gurus to address this issue – precisely identifies the capability to “allow the best to emerge” as one of the key features of successful platforms.
On the other hand coordination – the core activity for which the modern industrial firm was born – that we could define as the essential capability to marketize a repeatable and ubiquitous outcome such as a service – is replaced in digital platforms by the ability of the platform designer to channel existing ecosystem’s motivations to eventually participate in creating a consistent experience, fully recognizable in the brand and in the role of platform itself (eg: the Airbnb travel experience). Essentially to help platforms designers in creating systems that can leverage existing motivations in ecosystems and facilitate value creation on platform, I first created the Platform Design Toolkit in 2013: as a new version is being released these days you may want to register here to stay tuned on the new draft release.
This shift from the industrial to the post-industial model of production first occurred in markets where the need for coordination is limited and the basic transaction model is quite simple – such as the accommodation or urban transport industry – but this same model is now landing on basically any market, be it big or small, niche or generalist.
From Airbnb and Uber to everything else
As explained well in awesome Rawn Shah “Moving From Mass Production Supply Chains To Market Networks“, the last frontier of platformization is the landing of this trend on more specific and professional markets – from home renovation to events organizing. These are markets traditionally made of established professionals (or wannabes) working closely on complex projects with “partners” and interacting with end users. According to Shah:
“The real gem is the ability to construct complex and context-specific business arrangements across multiple partners, not just scaling individual transactions repeatedly. […]
[…] collaboration happens around the multiple or complex services needed for a project, where you select partners based on visible reputation and trust, which can result in longer term relationships, referrals and increased satisfaction. Orchestration becomes the key challenge, and this is where the workflow comes into play.”
As J.Currier excellently defines them, “market networks” are birthing from the convergence between social networks (excellent tools for managing relationships) and marketplaces (famous for managing transactions optimally). In this sweet spot, thanks to the support of the digital platform, more complex business processes can take place in an optimized manner generating a huge amount of value due to the high value add context in which they happen: from organizing of an event to fund raising for a new startup, from designing and bringing to the market a new product to renovating your home. According to Currier:
“Over time, almost all independent professionals and their customers will be able to conduct their business through the market network of their industry. The market network will have a tremendous positive impact on how millions of people work and live and how hundreds of millions of people buy better services. Over time, nearly all independent professionals and their clients will conduct business through the market network of their industry. We’re just seeing the beginning of it now.
Market networks will have a massive positive impact on how millions of people work and live, and how hundreds of millions of people buy better services.”
But what could be the long term impact of such a deep inversion between the bureaucratic world of the industrial age and the new world of “responsive”, platformed organizations? To quote Rawn Shah again, rethink how companies produce their services means also rethinking how “businesses can be structured, how people are employed, how relationships matter, and how to delight customer and deliver to their increasingly complex needs.”
In this experimentation frontier platforms threat their users as learners, as someone who needs help to improve her capabilities to meet the growing pressures of modernity (technology), someone who needs new tools to interface with the changing nature of work and help in finding harmony of such a work context with the increasingly important ecosystem of human relationships and lifestyle expectations.
The evolution of the firm and work in the era of digital platforms
So what happens to the firm – and ourselves – in this process? Despite the final result is not yet clear (and may never be), visionaries like Esko Kilpi can sometimes conjure up convincing images In a recent piece titled “The new kernel of on–demand work” Kilpi explains that this new kernel of on-demand work is in “allowing us to create a new understanding of work [itself]: contextual interaction based on collaborative creativity and human capital”. In this this new discovery process of the transforming nature of work “a firm, then, is not a bundle of assets belonging to owners, but a bundle of dynamic commitments between people: the organization becomes a process of ongoing organizing” – work becomes then what Kilpi calls…“value-adding relationships” brilliantly explaining the core importance of social and reputation capital in such a new context. The inadequacy of existing institutional forms – the firm, the cooperative, the non-profit organization – in this new context can be clearly spotted.
But are we talking about a silent revolution that – as per Paul Mason – is decreeing the “end of capitalism” or are we witnessing rather an evolution of the same? As excellently explained by a very comprehensive post on Agile Elephant blog – transaction costs are falling not only outside of the firms but also inside the same and indeed the unicorns, hyper winning platforms of the recent era, are in most cases firms themselves, just a new breed.
As E. Morozov recently said “any narrative about capitalism cannot not also be about “the Internet”; any narrative about “the Internet” cannot not be about capitalism.
Re-reading Friedrich Hayek’s work in the information age
In his June oped on the Guardian on the ”age of platforms” Morozov referred to Austrian economist Friedrich Hayek and his self-adjusting, free market utopia where mechanisms of self-regulation – quite similar to those we see today on digital platforms – can beat centralized regulation in efficiency. As Morozov explains in the Hayekian utopia:
“your reputation would reflect what other market participants know about you. Thus, if you are a nasty customer or an ill-mannered driver, everybody else will soon discover this, and specific laws to police your behaviour are rendered unnecessary. The good news, according to Hayek, is that once our norms change – what was considered nasty 50 years ago might be perfectly acceptable today – our reputations would reflect these changes immediately. Laws, on the other hand, would take quite some time to be altered”
For as much libertarian and Thatcherite this may seem – Margaret Thatcher was indeed among the most ardent followers of Hayek thinking if it’s true that Thatcherism sprung from a renewed interest in the theories of the Austrian economist that got the Nobel in 1974 – Hayek’s theory goes more deeper. Hayek was perhaps the first to understand the complexity of the modern world and his frequent confrontation with Keynes, father of the simplified understanding of macro economy, are indeed clearly justified.
According to Morozov, the terrain of digital platforms’ regulation is really the last and most important stage of the clash between cognitive capitalism (represented by the giants of Silicon Valley) and social democracy:
“Silicon Valley is mounting an attack on the very philosophy behind social democracy – that market-bending rules and regulations can be set by governments and city councils. Silicon Valley believes otherwise: the only proper constraint on the excesses of the market is the market itself. Thus, it’s up to consumers to punish – through bad ratings, for example – bad drivers or unreliable hosts; governments should stay out. Does any of this add up to “post-capitalism”? Well, maybe – but only if we are prepared to acknowledge that capitalism, for the past century at least, has been made stable by the social democratic compromise, which is now being made obsolete. Inasmuch as “post-capitalism” emerges out of weakened social protections and industry regulations, we might as well be precise in our definitions: if Silicon Valley represents a shift to anything, it’s probably to “pre-capitalism”.
Hayek himself predicted that liquid market opportunities and peer exchanges could raise challenges for some, pushing them towards the dangerous possibility of succumbing to ubiquitous competition: in fact, he was among the first to support the idea of an unconditional basic income that would partially solve such a problem.
However, a fascinating reflection that we must do while re-reading Hayek today is related to the key distinction that he makes when speaking of the fundamental economic problem of society:
“The economic problem of society is not merely a problem of how to allocate “given” resources — if “given” is taken to mean given to a single mind which deliberately solves the problem set by these “data.” It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality”
The emergence of tools such as the Blockchain – bringing algorithmic trust and transparency to the masses – or that of the pervasive Internet of things -interconnecting and making the world more interdependent – can perhaps enable this last revolutionary shift: the total pervasiveness of knowledge about what – at a given time – is needed to a particular actor in society.
Of course, in this perspective, our economic model – and so capitalism and organizations – would undergo a radical change and the Hayek’s visions perhaps would sound less like an ultra liberal utopia and more like a lens to understand the increasing complexity of our modern world.
Addendum: transformation and digital platforms will be central topics in the Rethink Remix events coming up in Milan and in Barcelona later in November. Book your tickets if you’re interested to join and meet.