Wednesday, December 05, 2007

Principles of Organisation

As most of my friends know, I'm currently hidden away in the British Library writing about:-

  • Commoditisation, commodification and creative destruction.
  • How organisations are a mass of S-Curves.
  • Managing from invention to innovation.
  • Managing from innovation to ubiquity.
  • Organising around stage of activity rather than function.
  • What sort of firm are you - physical or human capital intensive?.
  • What 2.0 means.

It's an enormous amount of work and extends upon the framework I use in my presentations. So yes, I'm writing a book and yes, I'll be releasing it Creative Commons 3.0 attribution when I'm finished.

However, two things happened today which I must respond to. The first thing was that I read Suw's post and the second was that someone asked me about the "ideal of ubiquitous knowledge in large organisations."

This is an interesting idea. To explore this, I first need to discuss two main emerging types of firm - physical capital intensive and the other is human capital intensive.

As an example of a physical capital intensive firm - I'll use wikipedia. The key controlling element for any members (whether its paid employee or its voluntary members who gain value through reputation or some other social or actualising need) of this "firm" is access to the physical infrastructure which creates wikipedia.

If a member of wikipedia leaves - the impact on wikipedia is minimal. Conversely if wikipedia denies access to the system to an individual - the impact to that individual is significant as setting up a new wikipedia requires huge physical capital.

Wikipedia is an example of a physical capital intensive firm and can exert influence on its members by controlling access to the physical assets or infrastructure. It is the infrastructure that binds this group together.

Human capital intensive firms are controlled or bound together through access to high value human capital. For example Barristers Chambers, where pupils often work for very little (if at all) and are mentored by the chamber in a sort of master / apprenticeship relationship. As the apprentice acquires more human capital then rewards are increased and eventually they become masters themselves. The advantage for the masters is they offload menial work to the apprentices whilst concentrating on the high value and more rewarding work. It's an exchange.

This sort of structure exists in many fields, and the firms depend upon creating an umbrella group to not only support this, but also to create a brand and provide suitable compensation to keep the group together.

So let's look at the "ideal of ubiquitous knowledge in large organisations".

Ubiquitous knowledge requires its codification, however codification almost always leads to commoditisation as knowledge rarely remains within the boundaries of one firm. Now commoditisation and ubiquity of knowledge is fine if you are a physical capital intensive firm - such as wikipedia. However what if you're a human capital intensive firm? What if "how to win every legal case" could be codified? The firm's reason for existence has gone as setting up a new firm requires very little physical capital and there is no human capital to be acquired by joining another.

Fortunately, tacit knowledge comes to the rescue. Not all knowledge can be codified, for example creative writing and debate.

So in general:-

  • human capital intensive firms are fine, as long as knowledge cannot be commoditised
  • physical capital intensive firms are fine, as long as the physical infrastructure cannot be commoditised

So if we look at the Web 2.0 and Enterprise 2.0 worlds, hopefully you'll understand why I have been going on about commoditisation so much.

So referring to Suw's post - if you are a content broadcaster, then you used to be physical capital intensive as the infrastructure needed for production and distribution was far from cheap. Such physical assets meant that a content broadcaster, say a record producer, controlled what was produced and controlled the artists by access to these assets. These days anyone can produce and distribute music. Firms that are based upon physical capital cannot exist in this market - the best you can hope to be is some form of syndicated provider giving some value add.

However, music and song writing still contain tacit knowledge even if the result of this can be easily reproduced. So there is the opportunity for new types of organisations based principally upon human capital. Master songwriters or Master Musician type chambers (otherwise known as Bands). Obviously you need reputation, revenue being generated by providing access to services (for example gigs) and secondary revenue streams (for example physical merchandise)

The music is just a way of building recognition and a following. It's an unfortunate tune if you're a record producer or a mediocre journalist / artist / musician.

However, this brings up another point. The "ideal of ubiquitous knowledge in large organisations" is only ideal if you happen to be a physical capital intensive firm. If you're a human capital intensive firm or a "we don't know what we are" type firm, then a rush towards Enterprise 2.0, Web 2.0 and codification of knowledge could in fact be reducing the lifespan of your firm.

A little knowledge is a very dangerous thing.

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