One can imagine the future shape of companies by stretching them
until they are pure network. A company that was pure network would have
the following traits: distributed, decentralized, collaborative, and
Distributed -- There is no single location for the business. It dwells
among many places concurrently. The company might not even be
headquartered in one place. Apple Computer, Inc., has numerous buildings
spread thickly over two towns. Each one is a "headquarter" for a
different function of the company. Even small businesses may be
distributed within the same locality. Once networked, it hardly matters
whether you are on the floor below, or across town.
Open Vision, based in Pleasanton, California, is an example of a rather
ordinary, small software company, molded in the new pattern. "We are
operating as a true distributed company," said CEO Michael Fields. Open
Vision has clients and employees in most US cities, all served on
computer networks, but "most of them don't even know where Pleasanton
is," Fields told the San Francisco Chronicle.
Yet in this stretch toward ultimate networks, companies will not break
down into a network of individuals working alone. The data collected so
far, as well as my own experience, says that the natural resolution of a
purely distributed company coalesces into teams of 8 to 12 people
working in a space together. A very large global company in the pure
network form could be viewed as a system of cells of a dozen people
each, including minifactories manned by a dozen people, a "headquarters"
staffed with a dozen, profit centers managed by eight and suppliers run
by ten people.
Decentralized-How can any large -- scale project ever get anything done
with only ten people? For most of the industrial revolution, serious
wealth was made by bringing processes under central control. Bigger was
more efficient. The "robber barons" of yesteryear figured out that by
controlling every vital and auxiliary aspect of their industry, they
could make millions. Steel companies proceeded to control the ore
deposits, mine their own coal, set up their own railways, make their own
equipment, house their own workers, and strive for self-containment
within the borders of a gigantic company. That worked magnificently when
things moved slowly.
Now, when the economy shifts daily, owning the whole chain of production
is a liability. It is efficient only while the last hours of its
relevancy lasts. Once that moment of power recedes, control has to be
traded in for speed and nimbleness. Peripheral functions, like supplying
your own energy, are quickly passed on to another company.
Even supposedly essential functions are subcontracted out. For instance,
Gallo Winery no longer grows the specialized grapes required for its
wines; it farms that chore out to others and focuses on brewing and
marketing. A car rental company subcontracts out the repair and
maintenance of its fleet, and focuses on renting. One passenger airline
subcontracted its cargo space on transcontinental flights (a vitally
important profit center) to an independent freight company, figuring
they would manage it better and earn the airline more than it could
Detroit automobile manufacturers were once famous for doing everything
themselves. Now they subcontract out about half of their functions,
including the rather important job of building engines. General Motors
even hired PPG Industries to handle the painting of auto bodies -- a
critical job in terms of sales -- within GM's factories. In the business
magazines this pervasive decentralization by means of subcontracting is
The coordination costs for large-scale outsourcing have been reduced to
bearable amounts by electronic trading of massive amounts of technical
and accounting information. In short, networks make outsourcing
feasible, profitable, and competitive. The jobs one company passes off
to another can
be passed back several times until they rest upon the shoulders of a
small, tightly knit group, who will complete the job with care and
efficiency. That group will most likely be a separate company, or they
may be an autonomous subsidiary.
Research shows that the transactional costs needed to maintain the
quality of a task as it stretches across several companies are higher
than if the job stayed within one company. However: (1) those costs are
being lowered every day with network technology such as electronic data
transfers (EDI) and video-conferencing, and (2) those costs are already
lower in terms of
the immense gains in adaptability -- not having to manage jobs you no
longer need, and being able to start jobs you will need -- that centralized
Extending outsourcing to its logical conclusion, a 100 percent networked
company would consist solely of one office of professionals linked by
network technology to other independent groups. Many invisible
million-dollar businesses are being run from one office with two
assistants. And some don't have an office at all. The large advertising
firm of Chiat/Day is working on dismantling its physical headquarters.
Project team members will rent hotel conference rooms for the duration
of the project, working on portable computers and call-forwarding.
They'll disband and regroup when the project is done. Some of those
groups might be "owned" by the office; others would be separately
controlled and financed.
Let's imagine the office of the future in a hypothetical Silicon Valley
automobile manufacturer that I'll call Upstart Car, Inc. Upstart Car
intends to compete with the big three Japanese automobile giants.
Here's Upstart's blueprint: A dozen people share a room in a sleek
office building in Palo Alto, California. Some finance people, four
engineers, a CEO, a coordinator, a lawyer, and a marketing guy. Across
town in a former warehouse, crews assemble 120-mpg, nonpolluting cars
made from polychain composite materials, ceramic engines, and electronic
everything else. The hi-tech plastics come from a young company with
whom Upstart has formed a joint venture. The engines are purchased in
Singapore; other automobile parts arrive each day in bar-coded profusion
from Mexico, Utah, and Detroit. The shipping companies deal with
temporary storage of parts; only what is needed that day appears at the
plant. Cars, each one customer-tailored, are ordered by a network of
customers and shipped the minute they are done. Molds for the car's body
are rapidly shaped by computer-guided lasers, and fed designs generated
by customer response and targeted marketing. A flexible line of robots
assemble the cars.
Robot repair and improvement is outsourced to a robot company. Acme
Plant Maintenance Service keeps the factory sheds going. Phone reception
is hired out to small outfit physically located in San Mateo. The
clerical work is handled by a national agency who services all the other
groups in the company. Same with computer hardware. The marketing and
legal guys each oversee (of course) the marketing and legal services
which Upstart also hires out. Bookkeeping is pretty much entirely
computerized, but an outside accounting firm, operating from remote
terminals, tends to any accounting requests. In total about 100 workers
are paid directly by Upstart, and they are organized into small groups
with varying benefit plans and pay schedules. As Upstart's cars soar in
popularity, it grows by helping its suppliers grow, negotiating
alliances, and sometimes investing in their growth.
Pretty far out, huh? It's not so farfetched. Here's how a real
pioneering Silicon Valley company was launched a decade ago. James Brian
Quinn writes in the March-April 1990 Harvard Business Review :
Apple bought microprocessors from Synertek, other chips from Hitachi,
Texas Instruments, and Motorola, video monitors from Hitachi, power
supplies from Astec, and printers from Tokyo Electric and Qume.
Similarly, Apple kept its internal service activities and investments to
a minimum by outsourcing application software development to Microsoft,
promotion to Regis McKenna, product styling to Frogdesign, and
distribution to ITT and ComputerLand.
Businesses aren't the only ones to tap the networked benefits of
outsourcing. Municipalities and government agencies are rapidly
following suit. As one example out of many, the city of Chicago hired
EDS, the computer outsourcing company Ross Perot founded, to handle its
public parking enforcement. EDS devised a system based on hand-held
computers that print out tickets and link into a database of Chicago's
25,000 parking meters to increase fine collection. After EDS outsourced
this service for the city, parking tickets that were paid off jumped
from 10 percent to 47 percent, raising $60 million in badly needed
Collaborative -- Networking internal jobs can make so much economic sense
that sometimes vital functions are outsourced to competitors, to mutual
benefit. Enterprises may be collaborators on one undertaking and
competitors on another, at the same time.
Many major domestic airlines in the U.S. outsource their complex
reservation and ticketing procedures to their competitor American
Airlines. Both MasterCard and Visa credit card companies sometimes
delegate their vital work of processing customer charges and
transactions to arch-competitor American Express. "Strategic Alliances"
is the buzz word for corporations in the 1990s. Everyone is looking for
symbiotic partners, or even symbiotic competitors.
The borders between industries, between transportation, wholesaling,
retailing, communications, marketing, public relations, manufacturing,
warehousing all disappear into an indefinite web. Airlines run tours,
sell junk by direct mail, arrange hotel reservations, while computer
companies hardly even handle computer hardware.
It may get to the point that wholly autonomous companies become rare.
The metaphor for corporations is shifting from the tightly coupled,
tightly bounded organism to the loosely coupled, loosely bounded
ecosystem. The metaphor of IBM as an organism needs overhauling. IBM is
Adaptive -- The shift from products to service is inevitable because
automation keeps lowering the price of physical reproduction. The cost
of copying a disk of software or a tape of music is a fraction of the
cost of the product. And as things continue to get smaller, their cost
of reproduction continues to shrink because less material is involved.
The cost of manufacturing a capsule of drug is a fraction of the cost it
But in pharmaceutical, computer, and gradually all hi-tech industries,
the cost of research, development, stylizing, licenses, patents,
copyrights, marketing and customer support -- the service component -- are
increasingly substantial. All are information and knowledge intensive.
Even a superior product is not enough to carry a company very long these
days. Things churn so fast that innovative substitutions (wires built on
light instead of electrons), reverse engineering, clones, third party
add-ons that make a weak product boom, and quickly shifting standards
(Sony lost badly on Beta VCRs but may yet prevail with 8-mm tapes) all
conspire to bypass the usual routes to dominance. To make money in the
new era, follow the flow of information.
A network is a factory for information. As the value of a product is
increased by the amount of knowledge invested in it, the networks that
engender the knowledge increase in value. A factory-made widget once
followed a linear path from design to manufacturing and delivery. Now
the biography of a flexibly processed widget becomes a net, distributed
over many departments in many places simultaneously, and spilling out
beyond the factory, so that it is difficult to say what happens first or
where it happens.
The whole net happens at once. Marketing, design, manufacturing,
suppliers, buyers are all involved in the creation of the successful
product. Designing a product concurrently entails having marketing,
legal, and engineering teams all design the product at once, instead of
sequentially as in the past.
Retail products (cans of soda, socks) have communicated their movement
at the cash register to the back office since the 1970s when the UPC bar
code became popular in stores. However in a full-bore network economy,
the idea is to have these items communicate to the front office and
customer as well by adding weak communication abilities. Manufacturing
small items with active microchips instead of passive bar codes embedded
into them means you now have hundreds of items with snail-minds sitting
on a shelf in a discount store by the thousands. Why not turn them on?
They are now smart packages. They can display their own prices, thank
you, easily adjusting to sales. They can recalculate their prices if the
store owner wants to sell them at a premium or if you the shopper are
carrying a coupon or discount card of some sort. And a product would
remember if you passed it over even after seeing the sale price, much to
the interest of the store owner and manufacturer. At least you looked,
boasts the product's ad agency. When shelf items acquire awareness of
each other and themselves and interact with their consumers, they
rapidly erupt into a different economy.