The Future of OrganizationsPosted: 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.