Our point of view is that the rationale of scalable efficiency is becoming less and less compelling, and the alternative rationale is scalable learning. The reason we have institutions is because we can learn faster as part of an institution than we could alone.
This quote is taken from a great John Hagel interview by Stowe Boyd. The co-chairman of Deloitte Center for Edge innovation shares here a profound idea.
In Here Comes Everybody, Clay Shirky suggests that the core purpose of organizations, as defined by Nobel prize Ronald Coase, (the cost of transaction) is no longer relevant in our networked economy. In order to demonstrate his statement, Shirky draws on complex distributed projects such as open source software or wikipedia. So this has left us wondering : what is the core purpose of institutions in the 21st century ?
John Hagel proposal is inspiring : it is to scale learning to the whole organization for faster individual learning and (I may add) to develop organization intelligence as the network of individual knowledge. Which brings us back to the Knowing-Doing Gap : once the company has accumulated learning and knowledge, how does it turn it back into action ?
I’m not sure that costs of transactions are not relevant anymore. Actually costs of transactions are very high inside organizations to exchange information and knowledge which are supposed to be free goods in a collaboration context while they are close to zero in the external world.
These costs are caused by too many layers of management, irrelevant workflows, silos etc. Our purpose should be to make them as low as possible to make them insignifiant.
So – but that’s only my own opinion – costs of transaction are not irrelevant but we should make them irrelevant.
HI Bertrand, thanks for your comment. From your comment I don’t think we have the same definition for “costs of transaction”.
As per Coase it means that working in an institution you don’t have to set up all the legal process (contract, NDA etc …) prior to work with any of your colleague because you work in the same company – all this legal process is the cost of transaction. Institution streamlines the work because they remove the cost of transaction (well they actually should and they don’t really succeed in doing so as you notice). But that’s not the point. And Coase said this is the very raison d’être of institutions.
Shirky says that this is not true anymore as the internet has allowed to achieve large scale distributed projects with many people involved without requiring the cost of transaction (i.e any formal / legal process prior to any work b/w people). I tend to agree with this vision. So for Shirky, the Cost of Transaction no longer is the raison d’être of institutions.
There was none left until John Hagel mentions this scalability of learning, which I think is quite relevant.