Welcome to the Knowledge Economy

What do organisations do?

For a long time, we’ve thought about them as machines for building things. But there’s good evidence that this is no longer a good way to think about them. Consider this from Alex Pentland’s book Social Physics (page 105, emphasis added):

The social physics view of organizations focuses on patterns of interaction acting as a kind of “idea machine” to carry out the necessary tasks of idea discovery, integration and decision making.  Leaders can increase its performance by promoting healthy patterns of interaction within their organizations (including both direct interactions, such as conversations, and indirect interactions, such as overhearing or observing). …  Instead, when we think of our organizations as idea-processing machines that harvest and spread ideas primarily through individual interactions, then it is obvious that must establish healthy patterns of idea flow.

Part of this is driven by changes in the tools we have to create, distribute, and receive ideas – all of these activities have become considerably easier over the past twenty years.

Mike Arauz addresses this issue in his post On the Nature of Digital Transformations: 10 Observations – a must-read guide to strategy today.  He says:

The scale of the technologically driven changes we’re witnessing is more profound than we even realize. And the oxygen fueling this transformative blaze is information.

While some say that information wants to be free, I like to think that information wants to flow freely. Imagine information as water, and digitization as gravity. The force of digitization pulls information along, often enabling it to run in unpredictable directions, as the information seeks out equilibrium. It must get where it’s going, and you have to try really hard to hold it back.

Even if we’re making physical things, our products are ideas:

“We don’t give a sh*t about hardware, and we don’t do hardware investments,” said Feld, whoseFoundry Group has invested in several hardware companies, including MakerBot Industries, Spheero, and Fitbit. “What we love is software wrapped in plastic.”

Later, Feld moderated his statement, acknowledging that he does care about hardware. But what matters to Foundry, in this case, is whether the company fits into one of its major themes: In this case, human-computer interaction, or the ways in which humans feed data to machines. For that to work, hardware depends on software to help it interface with its human users.

We’re in the knowledge economy now.

Organising for Knowledge

If the primary task of our organisations is to process ideas, and speed is an important part of this, then we need to thing about how our organisations are organised.  Hierarchy doesn’t work as well here.

Pentland and Arauz both talk about the importance of designing for networks.  This is true both when we look inside our organisations, as well as when we look out.  Nilofer Merchant talks about the approach of Citizen University:

But their approach matches what I’ve seen work for innovation teams across companies. It is the “new how”, a collaborative way that shapes ideas to be better, to be stronger, and ultimately become real. To invent the future, we don’t need more ideas, or better words, or directional visions to invent the future. Instead, we need challenge common beliefs and ingrained interests. We need to stop pulling each other down by the tail and instead build up our ideas together.

The knowledge economy brings us into the social era, and we need to build new organisations for this time.

How can we do this? Let’s go back to 1854 to get an idea…

Lessons from the World’s First Org Chart

In a wonderful post, Caitlin Rosenthal discusses the experiences of Daniel McCallum in managing the New York & Erie Railroad.  Rosenthal makes several important points in this post.  The first is that managing at that time was marked by the necessity of dealing with a huge increase in the amount of available data – in this instance driven by the adoption of the telegraph.

In order to cope with these changes, McCallum had to use a flat organisation.  Here is what it looked like:

Here is part of what Rosenthal says about it:

In surprising contrast to today’s top-down organization pyramids, in McCallum’s chart the hierarchy was reversed: authority over day-to-day scheduling and operations went to the divisional superintendents down the line, who oversaw the five branch lines of the railroad. The reasoning: they possessed the best operating data, were closer to the action, and thus were best placed to manage the line’s persistent inefficiencies.

…

Critically, McCallum gained control by giving up control, delegating authority to managers who could use information in real time. He put what we would call the organization’s C-level at the ground level, supporting the railroad, not directing its operations. Following one of McCallum’s key precepts—“a proper division of responsibilities”—authority over day-to-day scheduling went to the divisional superintendents down the line.

These are critical points for making decisions in situations where real-time information is critical.  We actually see this pattern recur every time there is a sudden increase in the importance of information in day-to-day management.

Once running railroads became more routine, then the organisations became more hierarchical.

The critical question facing us today is this: when will our operations become more routine again?

There is strong evidence to suggest that the information-driven turbulence that we are experiencing now is here to stay. In the social era, we need to: flatten our organisations, build more inclusive and distributed decision-making processes, and reimagine our organisations as idea-processing machines.

None of this is easy. But doing great work never is – and if we want to thrive in the social era, then we have to figure out how to do great work.