Saturday, June 04, 2005


Two things you should know before I get into the meat of this Blog.

First, I have a lot of time for the writings of John Seely Brown. If you’ve not heard of him before get yourself a copy of “The Social Life of Information”.

Second, Wharton Business School at the University of Pennsylvania run an interesting e-magazine called “Knowledge @ Wharton”. Of the newsletters I’m signed up for it is one of the few I actually look forward to receiving.

In this month’s Knowledge@Wharton there is an interview with John Seely Brown, together with John Hagel he has a new book out “The Only Sustainable Edge: Why Business Strategy Depends on Productive Friction and Dynamic Specialization.”

You can get a feel for what the book is about from the interview and it sounds like it might be quite interesting. I’ll add it to my “I should read” list.

Anyway, the reason for mentioning all this comes towards the end of the interview and John Hagel says:

“Ultimately what we see is the re-conceiving of the role of the firm. Traditionally the role of the firm has been to increase the efficiency of transaction costs, whereas we see more and more that the firm has to provide opportunities for capability building of the people within the
firm. If the firm cannot do that, people will leave and seek out environments that can help them accelerate capability building better. It's a very different way of thinking about what the firm needs to provide to its employees, and the role of the employees within the firm.”

Wow! Your not kidding, this is re-conceiving the firm. I’ve been giving some thought to this since I read it a day or so ago and I think he’s right. Lets take it a bit at a time.

Yes, firms have traditionally existed to produce efficiency in transaction costs. A car manufacture has all the designers, engineers, production staff, distribution, etc. etc. in one entity because they is how they can use them efficiently, no need to ask yourself “Can I trust this supplier?” when the supplier is yourself, no need to go hunting for trucks to deliver your cars when you own a fleet of trucks yourself - you get the idea.

Only building companies is hard. And we know from experience that competition drives down costs - this one of the reasons why US capitalism beat Soviet communism. But if competition results in the lowest costs and prices why don’t we compete for everything? Why shouldthat car manufacture have a fleet of trucks when if he adds competition his costs will be reduced?

Answer: transactions costs, because the savings from setting one trucking firm against another are less than the costs of finding the firm, negotiating a contract, monitoring the contract and paying the bills.

But this is changing, trends in outsourcing - often enabled by IT - mean that transactions costs are falling and it becomes worthwhile to use competition to reduce costs. We are already starting to see the emergence of virtual companies where almost all the activities are

You could argue that in future we won’t need firms because they can outsource everything. But hang on, some firms must exist because they will be the outsourcers!

So, if you are a firm that exists, say you are an outsourcer so you have to do what-ever-it-is you are going to need people. Why would these people work for you?

Well, one answer is they need to pay the rent or the mortgage. But if this is the only reason people work for you the chances are they aren’t going to be very motivated, if you are using the stick rather than the carrot people may go through the motions, they may do something, it mayeven be the thing you want them to do but it isn’t going to be very efficient.

Contrast that firm with the one that does uses the carrot. They create a place where people want to work, where people are enthusiastic, where they are motivated. Suppose they are doing the same - or similar task. Who is going to be the most profitable?

The answer to that question kind of depends on how you see the world and what evidence you decide to look at. For me the answer is the second firm. Trouble is, the second type of firm is much more difficult to organize, operate and manage. It also is also he opposite of the macho images we get from TV and Hollywood: “Do it or I shoot you”, “Make it so”, “I could tell you but I would have to kill you.”

But back to the plot...

Now remember, these firms are outsourcers, other people are giving them business to transact. So, which firm is going to win the bulk of the contracts? Right, the second firm.

So the question boils down to: how do I get these enthusiastic people to work for me? (So I can have a productive workplace and win those outsourcing contracts.)

This is where the Brown-Hagel argument really makes sense to me. It is the firms who give their people the opportunity to grow. Notice the word is grow, not challenge, not highest paid, but growth.

When I think about my own career is a search to improve myself, to learn more and, yes, grow. Sometimes I’ve done this by earning lots of money and using this to travel, buy a house so I can have my own space, buy car so I can experience things; and sometimes I’ve grown by working abroad, and sometimes I’ve just grown by working on an interesting project.
Once I’m not growing I’m not interested in work and my productivity goes down, I start asking: what next?

And then I come home at night. First I might cook - I find growth in cooking, new recipes, new variations on recipes I know, practicing a familiar one or inventing something from what I have in. And then often enough (too often?) I lock myself in my study to work on some pattern paper, or a magazine article, or (re)organising some body I’m involved in, why I might even write a blog!

Or maybe I settle down with a book.

If bed-time comes and I’ve not grown a little, learned a little something, thought about things I kind of feel I’ve wasted my time.

Maybe not everybody will buy into the Brown-Hagel argument, growing isn’t for everyone. But, where you do need them, and where you can take this advantage then I think your onto a winner.