[Returning to the New Enterprise theme]

There has been plenty of recent discussion comparing businesses with cities, contrasting the amount of control that each exercises on new entrants, and their relative productivity performance as they get larger. XPLANE’s Dave Gray has an interesting post discussing the failure of a company’s productivity to improve as it grows – in fact he quotes a study that shows profit-per-employee reduces by half when you triple their number … classic diminishing returns. In contrast, it appears that as cities grow, productivity improves.

So why the difference between cities and companies? What prevents a company from continuing to grow productively? Shell Oil, when contemplating life beyond oil, tried to figure out what allowed some companies to be large, long-lasting and consistently profitable – and ended up with a book called The Living Company. What they found out about long-lived companies was that they were a lot like flourishing cities – messy at the edges, plenty of local autonomy, strong identities/cultures, always looking for opportunities.

Historically we’ve created companies like machines – central control, designed and built to serve a particular function, to be stable and unchanging. And there are still plenty of reasons to have this kind of company around, where activities require large investments in time, physical infrastructure and equipment. Increasingly though, we are moving away from benefits of scale – perhaps because we have already “solved” the COMPLICATED problems that automation, mechanisation and size could fix (those problems still, and may always, exist, but we already have the structures in place to deal with them). Having sorted the easy stuff, we are now left with COMPLEX problems where brains work better than cranes, and people don’t scale as well. So we need different structures for working, and we need ways of getting more brains working for us without the administrative overheads that constrain employee productivity in large organisations currently.

We need to stop thinking of companies as machines with a relatively fixed function and form, and see them more as organisms, or ecosystems – complex adaptive systems, where each action and reaction changes both the system itself and its constituents – a lot like a vibrant city. Paradoxically, if we can set up companies that act like cities, we can potentially make them more sustainable, as Shell found – and thereby overcome the limits of current structures to productivity at scale.  

What is the optimum structure for such a messy and vibrant organisation? We may not know that for sure for some time (if ever), but the indications are that network is better than hierarchy when considering adaptability, resilience and ability to scale. Dave’s post mentioned above speaks of hierarchical structures as “design for division”, and the need to replace that with “design for connection”, and “design for emergence” – more like town planning than machine bureaucracy.

The more social network structure is made of, and for, people – and we may find that many New Enterprises remain relatively small “naturally” for much of their life, at human scale. But there is nothing that intrinsically limits the size of a network where connections are amplified by technology – this, I guess, is the premise of social business – a concept popular with people selling the amplifying technology 🙂 . That caveat aside, we are beginning to see emerging “social” businesses, where network is the defining structure. We are actually in the early stages of an experiment to gauge the potential performance benefit in companies taking on a more organic “city” form … and we’re watching with interest!

Can an “Old Enterprise” morph themselves into “New Enterprise”? Can an existing business that is suffering from diminishing productivity re-structure? I think we’ll see both successes and failures in this attempt – it is a significant culture change, and may be too drastic for some, who will find themselves destroying their existing business in the attempt, but not getting to a successful re-birth. Whether or not this is just bringing forward an inevitable death is moot – it’s still a big decision to make. I see newly-formed businesses as those most likely to participate in this experiment – no “old” model to destroy makes the adoption of a network structure much easier.

[UPDATE] It seems Cisco is making something of an attempt to remodel around the network – here’s a write-up from Oliver Marks at Constellation Research.

For further reading on this (and you should be aware that a couple of these have skin in the game, so can be expected to be net positive about “social business”):

Headshift’s Lee Bryant addressing the idea of scale
JP Rangaswami (currently at Salesforce, but has been pushing this barrow for a long time) – reconciling systems of record with systems of convenience
Thoughtfarmer’s Gordon Ross on company as complex adaptive system
Stowe Boyd on companies being more like cities to survive and thrive