Wednesday, August 29, 2007

Free information -> lateral networks -> less authoritarianism

Anyone who owns a computer knows that storing and exchanging information has gotten much, much cheaper. I'm in the midst of a full backup, and I have 60 GB (60GB!) of stuff I don't want to lose. Take out the music, and there's still 10GB of spreadsheets, photos, documents, databases, etc., that I'm backing up over the Internet (over the Internet!).

What does that mean to business? To Andrew McAfee of Harvard Business School, it means nothing less than a reordering of power and, eventually, a revolution in the management approach of companies. In his always-excellent blog, McAfee discusses MIT Professor Tom Malone's theory (from his book "The Future of Work") that cheap storage and fast networks create more lateral information flows within companies, and that upends hierarchies. Writes McAfee:

Until recently there was also a pretty simple rule of thumb within hierarchies: information flows followed decision rights. A decision right is exactly what it sounds like: the power to make a call, settle on a course of action, arbitrate a dispute, etc. A Gap store manager has decision rights over who to hire, but not where to open a new location; that decision right resides much higher up in the company.

Information flows have historically followed decision rights for two simple reasons: effective decision-making requires information (often a lot of it), and information has historically been expensive to gather and transmit. As a result, it made sense to be stingy when amassing and sending information, and to only send it where it would be put to best use -- as an aid to decision-making....

Malone’s theory, however, goes much farther than just outlining how information flows change. It also predicts how decision right allocations will change as a result. His thesis is a simple and powerful one: decision rights will also become more lateralized as information costs plummet, leading to greater power and autonomy at lower levels within a hierarchy -- in short, greater decentralization....

The strong form of this hypothesis is that companies will become less hierarchical and authoritarian, and more democratic and autonomous. Command-and-control approaches will become archaic. Pyramids will become pancakes. The fleetest, most innovative, and most competitive companies will be those that push decisions downward and empower the people closest to the action. The information gathering and filtering bureaucracies that most large companies have built up will become superfluous, and will be pruned. They’ll be replaced by networks of interdependent yet autonomous units that are given the decision rights necessary to pursue the company’s goals.

This will be good news to Traci Fenton of WorldBlu, who's been out in front of the workplace democracy movement, leading what seems like a lonely struggle. Traci, technology is on your side.

[I'd be remiss if I didn't point out that McAfee's post is not a wholesale endorsement of Malone's theory of increased workplace democracy and decentralization. If you read the whole thing, you'll see that he isn't quite sure about it, and in fact finds some evidence in favor of increased centralization due to these same technological factors. I hope Malone is right.]


kareem said...

great post, and thanks for the pointer to the HBS article. I'm sure traci will be delighted :)