Makers - The New Industrial Revolution by Chris Anderson

Author:Chris Anderson
Language: eng
Format: epub
Published: 2014-03-20T04:00:00+00:00

Chapter 9

The Open Organization

To make things a new way, you need to make companies a new way, too.

In the mid-1930s, Ronald Coase, then a recent London School of Economics graduate, was musing over what to many people might have seemed a silly question: Why do companies exist? Why do we pledge our allegiance to an institution and gather in the same building to get things done? His eventual answer, which he published in his landmark 1937 article “The Nature of the Firm,”32 was this: companies exist to minimize “transaction costs”—time, hassle, confusion, mistakes.

When people share a purpose and have established roles, responsibilities, and modes of communication, it’s easy to make things happen. You simply turn to the person in the next cubicle and ask them to do their job.

But in a passing comment in a 1990 interview, Bill Joy, one of the cofounders of Sun Microsystems, revealed a flaw in Coase’s model. “No matter who you are, most of the smartest people work for someone else,” he observed, stating what has now become to be known as “Joy’s Law.” His implication: for the sake of minimizing transaction costs, we don’t work with the best people. Instead, we work with whomever our company was able to hire. Even for the best companies, that’s a woefully inefficient process.

In a sense, Joy’s quip was simply a modern reflection of the work of a Coase contemporary, Friedrich Hayek. While Coase was explaining why centralized organizations exist, Hayek was arguing that they shouldn’t. In his own landmark paper in 1945, “The Use of Information in Society,”33 Hayek observed that knowledge is unevenly distributed among people and that centralized planned and coordinated organizations would be unable to tap distributed knowledge (his point: only free markets could).

A half century later, when Joy made his similar observation, Sun Microsystems was one of the hottest tech companies in the world. His remark was a warning not to become complacent about that. Even though Sun thought it had the best engineers and the best technologies, there were more good people outside the company than within. Regardless of what Sun did, the competition from outside the company would always have the potential to be greater; open innovation would beat even the strongest individual companies. And indeed, Sun was eventually eclipsed and is no longer an independent company (it’s now a division of Oracle, and Joy has left to become a venture capitalist.)

The same is true today. Take even the best company you can think of, say Apple, and consider how it hires. First, it’s based in the United States, and most of its employees are in Cupertino, California. So there’s a bias toward those who are already in the U.S., or can legally work in the country, as well as toward those who live in the San Francisco Bay Area or are willing to move there. (It’s lovely in Cupertino, but if your spouse doesn’t want to leave her family in Rome or Chang Mai, that may matter more.)

Like all companies,

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