Wednesday, January 20, 2010

The Next Big Coordination Problem

The costs of coordination are falling, rapidly. Our old models for how to organize and leverage the efforts of multiple people across disciplines are being outmoded.

The bureaucratic model has been universally adopted as the standard form for business organization because it has been highly successful. It's a model that has been under development for literally thousands of years. The bureaucratic model emphasizes command and control, and explicitly defines the rewards (payment) for participation. Within a bureaucracy each person has a specific role, and specific pay. The primary benefit of the bureaucratic model is that it manages the (traditionally high) costs of coordination involved in getting hundreds of people to work together on the same problem.

The wiki model, including the open source movement and crowdsourcing, seeks to revolutionize how people organize. The wiki model uses technology to lower the costs of coordination, making it practical to capture value from contributors who don't wish to join a bureaucracy, but do wish to contribute on their own terms. The wiki model lets contributors take on any role they wish. And, the wiki is efficient at capturing value in extremely small increments, one contribution at a time, as opposed to the bureaucratic model which requires the establishment of a formalized, contractual relationship before value can be captured.

A hallmark of the wiki model is a blurring of the distinction between professional and amateur contributors. For example, nearly all Wikipedia contributors are amateurs while Google utilizes both a large professional bureaucracy  and the efforts of users to index the web. Unlike the bureaucratic model, in the wiki world people often contribute their effort for free.

This is a problem.

It's a problem because it means that there will not be enough contribution. Technology and the development of the wiki model have lowered the costs of coordination, but those costs still are far from zero. The most important costs of coordination have always been, and still are, the costs associated with transacting for value. The genius of the wiki model is that it captures the value of amateur (unpaid) contributions. But, it's not going to replace the bureaucratic model until it can also capture professional contribution, and this means getting payment to flow from users to contributors.

The revolution is not going to arrive until professional contribution can be bought and sold at the margin. The death knell of the bureaucratic model will be the development of a system that makes it easy to purchase discrete units of professional contribution, instead of having to hire professionals.


  1. I can see your vision for coordination of professionals, the networking and collaboration of knowledgeable specialists to produce high-quality work. But do you think that, with the advent of Wikipedia, of blogging, etc., that we can regress to something exclusive? Do you think that would be an easy transition for all those who are now used to being involved even if they are not professionals?

    I am not saying it's a bad idea; on the contrary, I like the vision. I wonder, though, how easy it would be to implement, culturally.

    Perhaps it would not be as much of a challenge as it seems. Thoughts?

  2. The key is to enable collaboration at low cost. Wiki technology does that, up to a point. But it doesn't do much to lower the transaction costs. For example, how can I be sure that can I rely on some person I've found to deliver what I need when I need it? Bureaucracy handles this problem by hiring people. Those people are then dependable because they have to be in order to keep their jobs, and it's easier for them to keep their jobs than to look for new jobs. Alternatively bureaucracies can use contracts and legal force to get what they need delivered on time. However, both of these methods of controlling risk are costly, and so you can't use them to capture small increments of value, e.g. it's hard to use them efficiently to farm out little pieces of work here and there, and still be sure that you're going to get the work done to a high standard, on time, without paying too much.

    So the question isn't so much that (paid) professionals and (unpaid) amateurs couldn't work together for a common goal (they do in the case of Google), but rather that we haven't invented anything yet that resolves the problem of transaction costs, as discussed above.

    But imagine what it could be like if those problems COULD be resolved! More people could be their own bosses, working as many or as few hours as they wished, and selling their work to whoever valued it! Individuals could do whatever kind of work they were best at, and because it would be easy to transition from one kind of work to another, and because the VALUE of work would be made clear through pricing, we'd have more people in the labor force doing high value work, and people would have stronger and clearer incentives to educate themselves. Businesses could produce much more efficiently, with less work replicated between businesses, and lower costs to contract out many services that companies now provide for themselves (inefficiently) in-house. And businesses could reduce expenses during lean times easily, without so much need to conduct the painful layoffs that cause alienation with the local community.

  3. I didn't respond to all of your comments.

    I don't think culture would be a huge barrier. Companies would grow up to broker the relationships between individuals selling their work and companies who wished to buy it.

    There's no need for any of this to be seen as exclusive of free and open, or of amateur effort. Instead, the idea is to pay people for their efforts, and to thereby further incentivize those efforts. But to pay for small increments of work, rather than to hire an employee or contract out a large project.

    Here's one example: awhile back a teacher blogged about how he had developed curriculum for a class, and another teacher asked him for the material. He gave the material to the other teacher out of generosity and a desire to help. What if he could have sold that material, not just to that one other teacher, but to many teachers around the world? If he could, then he'd be incentivized to develop more curriculum and sell it. He'd have an incentive to be even more productive than he already is.

  4. I'm understanding you better now. And I like this idea a great deal.

    But, what do you mean that there would be 'less work replicated between businesses'?

    And are you concerned about the possibility of people becoming more and more self-sufficient within their homes, more alienated from society at large, and the many drawbacks of less personal interaction that would arise?

  5. Less work replicated in cases where one person can figure out a slick way of doing something, and then do that for multiple businesses - rather than all of those businesses having to figure out the slick way of doing it themselves individually.

    I'm not worried about any of those things. People will continue to make decisions about how they want to live, just like they do today. If we aren't getting enough personal interaction then we'll do something to get it.