Every organization’s structure is defined by the way in which it’s members communicate. During the industrial era, when top-down mass communication systems allowed a small group of people to send messages to large groups, corporations flourished. As networked communication systems such as the internet spread, it shouldn’t surprise anyone that a new batch of organizational entities will emerge that will out compete corporations because they’re structured to thrive using networked communication systems.
Why won’t corporations be as competitive as these new organizations?
Corporations have a very simple incentive system that is best understood as ‘low costs, high prices.’ Every product a corporation makes is designed to cost them the least amount of money possible while simultaneously allowing them to charge the highest possible price. Shareholders profit off the margin between those two numbers. This business ethic, to charge the most while providing the least, is so common it’s easy to forget its perverseness. The basic assumption in this ethic is that neither the people who produce the product, nor the people who consume it are of value. Both entities should be marginalized as much as possible so that the difference between the cost and price is greatest, allowing the shareholders, the only entities truly valued by the corporation, to make as much profit as possible. Increasing shareholder value is the sole purpose of a corporation as defined by the law. In other words, it’s actually illegal for people within a corporation deliberately perform tasks that do not ultimately increase shareholder profit.
Corporations achieved what no other organizational structure had been able to do: they took us from the farm field to the electric field. Just as corporation succeeded guilds to power the industrial revolution, more flexible structures will succeed corporations to power the information revolution.
The industrial economic paradigm is that resources are scarce while labor is abundant. The information economy is the opposite. Information, unlike traditional ‘working capital’ such as a factory or a resource, is not scarce: it’s abundant. Information can only create value if it’s organized, synthesized and made consumable by intelligence. Once made consumable, information can be shared with any and all parties interested in consuming it. This difference creates a ‘high cost, low price’ incentive for information organizations. Why? Because competition is fierce and scale is instantly achievable.
This paradigm is most obvious in open source organizations like Wikipedia where the amount of time being invested in the product continues to increase while the price remains stagnant (zero.) The internet in general operates under the same laws because the open source community – a massive, decentralized collection of programmers who write code and release it online for free – continue to build an even more robust technological infrastructure for all to enjoy at zero cost.
Most of the products and services we consume, online or off, are commodity products given significant value via information. McDonalds top down information distribution system informs it’s myriad franchises how to make a valuable burger and fries, how to market and how to keep costs low, among other things. If a network of burger restaurants came together, using online collaboration tools, to create a virtual franchise that fulfilled the same role, but did it through a network instead of a hierarchy, then they could create an information product for burger joints more powerful than McDonald’s and, eventually, defeat the corporation. This is the future of our economy: networks of independents out performing hierarchical corporations. This is cooperation capitalism.