Networks and the Organization: An Historical Context
August 19, 2010 by Mary Adams
The ability of people and organizations to connect with each other and to form networks moved into hyper-drive with the rise of the über network of our time, the Internet. Peter Drucker, one of the leading management thinkers of the last fifty years, highlighted the importance of the Internet by putting it into historical context.
He explained that during the first sixty years after the invention of the printing press in 1455, the technology was used to print titles that had been reproduced by hand for centuries, mostly religious tracts and writings from ancient Rome and Greece. The new technology didn’t change what was done, just how it was done. Then Luther translated the bible into German. Machiavelli wrote The Prince. All of a sudden, books were available in local languages. They made knowledge accessible to a much greater audience. The secular book (and later secular theater too) was born and changed society in so many ways, leading to new institutions such as the Jesuits, the first modern navy, and the nation state.
The industrial revolution followed a similar pattern. For the first forty or so years after the commercialization of the steam engine, it was used to perform tasks that had been done before by hand: spinning cotton, metalworking, papermaking and leather tanning, to name a few. The technology provided huge efficiencies and led to incredible growth. But, Drucker asserts, these changes were nothing when compared with the invention of the railroad locomotive. All of a sudden, the technology of the steam engine created a new world. It tied together nations. It facilitated an unprecedented level of commerce. The world grew instantly smaller and more connected. This was the breakthrough that opened the floodgates to a wave of innovations as diverse as telegraphs, photography, vaccinations, and sewers. New institutions arose such as postal services, daily newspapers, and commercial banking.
Drucker made the case that the information revolution is following this historical pattern. The first computers were invented in the middle of the 20th century and caused unprecedented developments. Work and information of all kinds were automated. But it was mainly work that had previously been done by hand like the creation of documents, financial accounting, the design of buildings. But the Internet was a revolutionary application of the computer. As with the railroad engine, the Internet instantly made the world smaller. It made connections and communication instant. And it will change our world as dramatically as the printing press and the railroad did in prior eras.
The floodgates are open. In the last few years, the Internet has disrupted the very publishing media launched in the 15th century. We have seen the rise of social media that is changing how people communicate on a personal and professional level. This new form of two-way communication is changing how organizations design products, market, sell, and manage their businesses. The innovation has just begun. And the driver is the rise of the networked world.
The Internet is essentially an open network accessible by anyone and everyone. In the space of a few years, it has connected the globe in a way that the railroads and cars and planes invented in the industrial era never could. Today, it is possible to fly anywhere in the world. But it still takes time and money. Moving things is still subject to physical limitations.
But moving information is essentially free for an individual with an Internet connection and still relatively cheap for organizations with larger amounts of data. There are still physical limitations: much of the Internet is still a physical thing—it is made up of millions of computers connected through physical cables to millions of routers. But it is a distributed model that is deliberately flexible.
The Internet was originally designed this way as a protection against attack of U.S. defenses. The idea was that if one section of the Internet were destroyed or disabled, the system could still function. It is the genius of it that despite the influence of corporations, governments and interest groups of all kinds, the Internet remains essentially an open system. There are obviously exceptions and threats to this but, up to now, the design has kept any one group from controlling the Internet. And it has created a whole new set of opportunities that are still being discovered and invented.
Understanding this context is important to understanding what is happening at an organizational level. More on networks and the organization tomorrow…
Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization by Mary Adams and Michael Oleksak.
Like your thoughts as ever. One minor suggestion.
Internet is NOT moving information. The internet gives ways to and moves data. The information is made by the reader and depends on his own possibilities to give this words a meaning – an information.
In other words, the information that people give to data is so much diverse as people and their valuation principles are.
That means that the core of any understanding, reasoning, interpreting data lies in the value that people attach to that “object” as cars, houses, health… even money.
In other words. Value is a subjective indicator that people attach to an object.
The cassic economic theory has a systematic failure at its very base because it has no possibility to show that values are subjective.
There is no value in the universe without men that attaches his subjective value to an object.
The solution to a lot of the problems today lies – in my opinion – in an enhanced economic valuation paradigm that integrates “objective” monetary with “subjective” nonmonetary metrics. This is not very new. Physicists and engineers use the mathematic tools for that kind of solution since about 200 years with excellence results.
It is the classic economic mind set that is in a dead end.
It’s time for the designers of the economic theory to step back to the cross roads and chose the way that enables that value lies in the valuation of the individual.
Even they have to invent an enhanced economic valuation metric system.
I like what you are saying and agree–the value of anything is in the eye of the beholder.
Valuation professionals are always the first to say this (value is different depending on the circumstances and the buyer). Yet they and the mainstream financial and accounting communities continue to kid themselves that their methods for valuing are more science than art. There is a lot of subjectivity (as there should be) in valuations.
The areas of subjectivity come in the countless assumptions in financial projections, the determination of a risk factor for cost of capital, and in the understanding of the outlook of a company or asset. Without a balance sheet for the 80+% of the value of a company that’s intangible, how can any analyst develop an accurate understanding of a company? They can’t. That’s why we are caught in this bad information loop.
I guess what I am saying is that we don’t have to abandon existing models. We just need to educate people how to apply them in the knowledge economy. What do you think?
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A perhaps useful way to gain perspective in this regard is to demote money to the rank of any other fungible commodity (oil, corn, iron ore, etc.), and to recognize that we buy money with other things, just as we would buy other things with money.
It is also useful to look at labor as a proper subset of attention. Until very recently in human civilization, the only valuable way most of the population could apply its attention was toward labor, that is, the exertion of biomechanical force on the physical environment to achieve direct, tangible results. It is important to recognize, however, that this is incidental. Indeed we still impinge on our physical environment every second of the day, but for much of what is valued, the physical result is almost completely subordinate to the symbolic one.
Smith, of course, demonstrated that contained within the price of any good is the composite of all the labor involved in obtaining, assembling and transporting its precursors, all the way back to the fields, forests, mines or ocean. Price reduced to what it took to maintain an individual to perform these tasks. Profit, likewise, was closely tied to the cost of production. This was excepting monopolies, including the kind which arise as a byproduct of a novel result.
I submit that what kept profit margins stable enough to be considered “ordinary” by Smith was none other than the fact that volume-wise, very little offered for sale was too far removed from the common experience. Simply put, you couldn’t gouge your customers because enough of them had some idea of what it took to bring your produce to market.
Competition between established entities may keep prices of comparable items close to one another, but it is an unbroken line of understanding that sets their absolute value. (We tend to ascribe the title “innovator” to those who understand and concentrate the means to disrupt the incumbents.)
When the line is broken, businesses become free to just make prices up. In either direction, no less. I wonder sometimes if King Gillette or Thomas Edison would have been treated with an eye of suspicion if everybody knew at the outset that they were selling (razor handles and light bulbs, respectively) at a loss. Now we have MSRPs to tell us what products are worth.
There are now entire categories of products and services for which prices are arbitrary, some many generations along. The marginal cost of producing a drug, for instance, is so low as to be imperceptible. The cost of developing the drug, however, is arbitrary, and likewise is the wholesale price. (The pharmaceutical industry is particularly interesting because of its fundamental role in everyday life and its heavy dependency on the patent system, but that topic deserves its own treatment.) There exists also a growing range of products, services and surrounding business models which are made exclusively of information (and for which the capital investment, if it is significant at all, is falling well within reach of a great part of the population). For these there is virtually no discernible relationship between the cost of production and the price of the offering.
The sheer range of offerings contributes as well. But only can offerings of the same type really be compared to one another on the sole basis of price. An iPod bears only a superficial resemblance to its competitors. The value that commands the premium is in its ecosystem. It was Joseph Pine I believe that argued we have transited our basic unit of commerce from commodities to goods to services to experiences. It appears as if the impersonal activity of the price system that made Leonard Read’s pencil possible is beginning to give way to ends which are ultimately social, if not, dare I say, political.
The question of value seems now to be what is worth my attention? What kind of relationships do I want to foster? Who do I want to associate with? Who do I want to benefit from my patronage? Who do I want to succeed? What changes do I want to see effected? It also seems that we can only afford to ask these questions in the general state of superabundance (in spite of recent downturns) that we have built over the last few centuries.
@ Mary
You…. ….I guess what I am saying is that we don’t have to abandon existing models. We just need to educate people how to apply them in the knowledge economy. What do you think?
I think we have to enhance existing value-metrics models. A model that enables to quantify and visualize the nonfinancial values – and to show it together with the financial values.
I do not think that educating people in “ethics” and other nonfinancials will be sufficient – in our numbercrushing world we have to find a solution that makes it possible to attach a (subjective) number.
As an engineer I think introducing the vector for valuation purposes (combining nonfinancial and financial values) opens the space for mind to find an optimum between the nonfinancial and the financial value axes. I’d suspect some more sustainable solution if this two dimensions (nonfinancial and financial) would be showed together.
Some years ago I tried to show this kind of “value-mapping” and its benefits to a larger audiance at Edinbourgh. Links to the ppt and papers: http://www.bengin.net/pmappt_e2.htm
A lot more (and newer) papers are mainly in German language. Would provide additional “deep-links” if someone is interested.
Sorry
wrong: …I’d suspect some more sustainable solution if this two dim….
Right: … I expect more sustainable solutions/decisions if this two dimensions (nonfinancial and financial) would be showed together.
Thanks Peter- I just read your paper. I like the concept and agree wholeheartedly that it is critical to help companies make the connection between financial and non-financial metrics. I like the Vector graphing approach.
In Intangible Capital, we split it three ways: financial, quantitative and qualitative metrics and suggest “triangulation” which is to put all three sets of data into an integrated report.
I think we have the solutions. But our field is still not always capturing attention of mainstream business folks because there is not a broad understanding of the existence of a problem related to the intangibles information gap.