The Future of Organizations

Posted: December 11, 2008 at 10:00 pm in cognition, management

Paul Graham’s latest essay claims that small organizations are the future:

“But in the late twentieth century something changed. It turned out that economies of scale were not the only force at work. Particularly in technology, the increase in speed one could get from smaller groups started to trump the advantages of size. …For the future, the trend to bet on seems to be networks of small, autonomous groups whose performance is measured individually. And the societies that win will be the ones with the least impedance.”

This is interesting to me because I’ve been thinking about organizational cognition recently, which is the question of how an organization creates a group mind that knows more than its individual constituents. If the trend is towards smaller organizations, then perhaps the problem isn’t how to get large organizations to operate more effectively, but instead how to facilitate cooperation between organizations. These are similar problems, but existing organizational solutions like hierarchies don’t work for inter-organization collaboration, which creates urgency to find more flexible solutions.

This move towards less formal organizations to accomplish tasks is also covered well in Clay Shirky’s Here Comes Everybody. Shirky cites Ronald Coase’s theory that companies exist because the transaction costs associated with organizing people were more expensive than the associated inefficiencies of not necessarily finding the best person for each individual task. According to Shirky, new technologies lower the Coasean floor and create the possibility of impromptu evanescent gatherings of people accomplishing things together that could simply not have been organized previously.

So how small can organizations get? Are we approaching a full free market world where we recruit different people for each individual project (the analogy I use in that post is movie making)? I don’t think so. And here’s why.

My theory is that the new Coasean floor is going to be set by social trust. While we are in a world where I could hire a programmer to do a task from Elance or oDesk, I have to admit that I would be very nervous about doing so for any critical task. Why? Because I wouldn’t know the person and wouldn’t trust them.

It takes time and experience together to build the trust necessary for a team to function effectively and efficiently. Teams do not begin jelling as high performance units until each member of the team trusts the others to the point where he or she feels comfortable outsourcing parts of their intelligence to them. In other words, even though we have the physical technology now to collaborate informally and spontaneously, we do not have the social technology yet to fully exploit those capabilities (which, now that I re-read that post, reminds me that I need to get back to that topic at some point).

So where does the social trust Coasean floor lie? Katzenbach and Smith suggest that the highest performing teams have between 6 and 15 people – the lower bound is set by not having enough variety of skills within the group to really create a group mind, the upper bound by communication inefficiencies. That range sounds right to me as well, based on my own experience with various teams at various companies. To really get an answer, we’d have to map out the performance curve of groups as they grow; in other words, 2 people working on a project together might get less done than those 2 people working independently because of the communication overhead, but they might be more effective because they can bounce ideas off of each other. How that scales up to 3, 4, 5, or 10 people depends on the people, and the organization, and the communication technologies in place. But I would guess that the sweet spot is in the 6-10 person range.

If that is the team size which is most efficient from a social trust perspective, we return to the original question I posed above: how do we facilitate communication and collaboration between such small teams? What are the social and physical technologies we can use to transfer knowledge and expertise so that teams can build off of each others’ work? I don’t know what the answers to these questions are yet. Some people would suggest semantic knowledge management technologies to parse knowledge and distribute it automatically to the right people. Others would suggest quantitative approaches where measuring for the desired results will spur appropriate action. I tend towards humanistic approaches where trained generalists build the bridges between such teams, but I’m slightly biased as that’s one of the roles towards which I strive.

I think these social technology design questions have the potential to created fantastic productivity benefits over the coming decades. We’re hitting the limits of what physical technology can do for us. We have more and more powerful computers that sit idle most of the time, as users stare at them trying to figure out the interface. No amount of technology seems to remove the need for meetings to synchronize the organization. And we’re at a fascinating time when the physical technology Coasean floor has been removed, opening up new experimental possibilities for social technologies to help solve these organizational questions. I plan to continue exploring this topic, and hope that you will join me.

P.S. To be specific, a few of us from Convergence08 are starting a regular get-together where we exchange ideas on the topic of how organizations think and work, and share articles and resources via email; in fact, this post was inspired by discussion from that list. Let me know if you’d be interested in joining us.

6 Responses to “The Future of Organizations”

  1. Jo Says:

    Glad to have discovered you Eric. Will subscribe immediately! And read more.

    For now,can I contribute these thoughts:

    The sweet spot for any organization will depend in part on the task, available technology, competition, and so on.

    Groups who have to form quickly need to pay more attention to that competence.

    The support systems will be many. At the high end we have common education and loose systems like Linkedin. Through the systems you are probably interested in. To the daily work of maintaining a team.

    Good to have found you.

  2. Aleks Says:

    Yes, agree absolutely that technology has managed to perform leaps, and that the understanding of psychology is going to be the bottleneck.

    Social trust is a joint investment which is lost in case of a breach. Social networks amplify the trust, because having invested a considerable amount of time into a network, you lose it all if you betray just one member of the network. So, if you have an environment where one would lose a lot through betrayal, you can facilitate collaboration.

    I have thought a lot about how to move the sometimes unconscious collaboration patterns from physical environments into virtual ones. It’s expensive to bring the right people to one place.

    Odesk, elance and the Mechanical Turk will all need organization layers around them – to be able to handle larger and more complex projects. This is an area of huge opportunity and of many unknowns.

    Most definitely interested in joining in.

  3. Turil Says:

    From what I can see of the patterns of both biological and intellectual growth (and thus the patterns of physical and social progress), for a team project to be a success, the team has to have at least one person focusing on each of the four areas:

    1. The energy (resources) flowing into and out of the project compared to the energy needed to complete the project successfully.

    2. The ability of the project to fit into the rules and expectations of the environment (laws, social norms, personal tastes, etc.).

    3. Creating an atmosphere in which the team members feel appreciated and supported in their work.

    4. Appointing leaders who create a vision of an outcome that everyone agrees is worth the effort they are putting into the project.

    Of course the team members will also have to focus on the specific details of making the project a reality, but those four overall organizing elements seem to be crucial to the success of any project, of any kind.

  4. the four elements of naturally productive teams at The Wise Turtle Speaks Says:

    [...] response to an interesting post over on Google Genius Eric Nehrlich’s blog about the future of organizations in the age of information and in an environment of cheap and easy [...]

  5. Dave Says:

    Eric -

    Shirky and Graham are on to something with this idea that we are going to see more and more small, ad-hoc groups pop up that are working on collaborative projects or companies.

    Having to establish trust and cohesion with each new group I participate in is definitely going to be a barrier that we’re going to have to work to overcome. There’s an opportunity in here somewhere to provide a work-based reputation that travels with me – an Ebay for projects. I don’t know if it’s going to be a social network like LinkedIn that provides the solution for this or a platform for finding collaborators like oDesk or elance, but I’m excited to see what happens.

    Another type of friction we’re going to encounter is losing the knowledge that’s looked up in large organizations regarding the best practices for completing projects. To take the example of startups, it’s not efficient to have each new startup figure out for themselves how to incorporate, how to price a service, how to hold efficient board meetings, etc. This problem of sharing best practices with small groups is something I’m working on solving with a new project called Ativiti – check out our blog if you’d like to read more of our thoughts.

  6. Eric Nehrlich, Unrepentant Generalist || Mapping out Organizational Space || December || 2008 Says:

    [...] The Future of Organizations [...]

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