networks are the new companies

Nilofer Merchant wrote in The New How that, “Permission to innovate without asking happens when the strategy is co-owned.” This is a necessity in an economy where the average company lifespan continues to decrease. The company no longer offers the stability it once did as innovation, and resulting business disruption, comes from all corners. Economic value has been redistributed to creative workers, and then diffused through knowledge networks. In an interview with Stowe Boyd, Nilofer succinctly explains several of the pieces that must come together in structuring work in the network era.

“Independent of the term, we all agree value comes from the creative source of a connected human. And to the earlier point, networks are the new companies. Connected individuals can now do what once only large organizations could. That tosses Ronald Coase’s work out the window. And those strategic constructs from the Porter frame of mind that suggest you can have an advantage over time are largely moot because sustainable advantages aren’t so sustainable anymore.” —Socialogy: An Interview with Nilofer Merchant

1) “value comes from the creative source of a connected human”

How can any organization create value if people are not connected? This should be the main concern for any support function within the enterprise. If HR, IT, or L&D departments are not enabling better connections, then they are decreasing business value. Measuring how connected workers are should be a prime indicator of relationship capital.

2) “networks are the new companies”

The biggest impact of this new reality will be on management. Networked workers do not need bosses as work becomes transparent. Inserting managers into a network decreases connections between workers and creates bottlenecks. The relationship between contributors (workers) and coordinators (managers) is flipping. Managers in networks are called assistants.

3) “Connected individuals can now do what once only large organizations could”

The evidence is mounting that work can get done with a minimal amount of managerial friction. Network-centric organizations are smaller than their industrial counterparts. Crowd-sourced funding platforms, like Indiegogo, require less management than traditional investment firms. Network transparency and the ability to connect to anybody, decrease transactional costs.

4) “tosses Ronald Coase’s work out the window”

One of the main criticisms of Coase’s work is also being tossed out the window. “So, a key criticism is that the [Coase] theorem is almost always inapplicable in economic reality, because real-world transaction costs are rarely low enough to allow for efficient bargaining.” —Wikipedia. In the network era, real-world transaction costs diminish. Furthermore, transaction costs between networked individuals are getting to be less than transaction costs inside organizations. Workers today often have faster access to knowledge outside their enterprises. With knowledge work, this begs the question of why we need organizations for anything other than support.

5) “sustainable advantages aren’t so sustainable anymore”

The example of large consulting firms purchasing others in order to create even larger entities shows that these companies are losing their sustainable advantage and taking short-term actions to try to increase value. But as the consulting industry amalgamates and becomes a monoculture, it will be ever more open to diverse and innovative disruption from outside. As Nilofer’s point #1 states, value today comes from connected humans, not monolithic structures.

37 Responses to “networks are the new companies”

  1. Dan Pontefract

    Whilst I don’t disagree with the overarching premise — and it’s obviously a good one Harold — I might take umbrage with one line in particular, “Managers in networks are called assistants.”
    I’m not so certain about that.
    I think managers should continue to be interlocutors inside the organization, but the word I might describe them as going forward is ‘facilitators’ versus ‘assistants’.
    I think there is some negative or at least a misguided connotation to the term assistant in corp land, hence my suggestion of ‘facilitator’.
    Managers need to facilitate networks, bridges, conversations, input, etc. as opposed to merely assisting it.
    They are the opposite of my last name … if you know your Latin. 😉

  2. Jon Husband

    Self-directed work teams were all the rage for a brief moment in the sun in the late ’80’s if I recall correctly.

    Then along came ERP and training in its use became the new ‘change management’ .. and self-directed work teams and relative degrees of autonomy vanished in a poof of dust.


  3. Jon Husband

    But/and I believe they will become more relevant and necessary than ever. They are already, but …

  4. John Maloney

    Technically and sociologically there is nothing new. All human organization, including business, always was and always will-be networks.

    What is new is the old network patterns, centralize, Fordist, authoritarian, are failing. New network patterns are emerging. That’s all.

    Managers are fighting the new structures. Leaders are embracing them. Everyone serves the the network. No exceptions. If you don’t serve the network you will fail. (Hint to managers.)

    The network-composed enterprise must master five mega-shifts as follows.

    Why it matters…

    • Harold

      Another way of looking at this phenomenon, which I support, is that society is shifting its dominant organizational forms, from markets to networks (T+I+M+N framework):

      The market form, the third form of organization to take hold, enables people to excel at openly competitive, free, and fair economic exchanges. Although present in ancient times, it did not gain sway until the 19th century, at first mainly in England.
      The network form, the fourth to mature, serves to connect dispersed groups and individuals so that they may coordinate and act conjointly. Enabled by the digital information-technology revolution, this form is only now coming into its own, so far strengthening civil society more than other realms.


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