Networks and the Nature of the Firm
Tim O'Reilly
1.4K55

Yes, platforms are the most modern iteration of the firm but the impact of the Internet does not stop there. We may be entering the era of the software-defined enterprise, but not software as we have known it as the computer is abstracted to the Cloud and the workplace is abstracted to the network.

The ongoing vogue of business-design transforms asset-based firms to network-based platforms. Uber and Airbnb are examples of two-sided markets and harbingers of the emerging economies of scope. It is now possible to offer vast scope at very low cost. The industrial enterprise could handle scale, but not scope. Platforms do this by bundling software, interaction and new management insight: lack of organization can be the best approach to organization. You can organize work without an organization.

Management theory is slowly shifting towards understanding the new kernel of work: participative, self-organizing responsiveness. Thus I am not quite sure, whether the networked firm of the future is “a 21st century update of the franchising model”. Perhaps the next evolutionary step in business models is a transformation from platforms to open commons with shared protocols. Bitcoin/Blockchain is very likely going to be part of the new stack, the TCP/IP of business.

However, we need to think differently about how value is created: in the age of abundance, public is much more valuable than private. Governments have always been platform creators. Thus, the old demarcation line between public and private does not make sense any more.

To work is to solve problems and networks do that in a far superior way to firms. Managing the supply chain is less important than building networks and enabling trust in relations. You start with customer interaction and work backwards. It is the opposite of the industrial make-and-sell model. It is a contextual chain of relationships that starts from interaction with the customer and leads up to the creation of the on-demand offering and the enabling structure and technology.

This relational approach may be the third way to work. It is not about having a fixed job role as an employee or having tasks given to you as a contractor. The most inspiring and energizing future of work may be in solving problems and spotting opportunities in creative interaction with your customers. This is still largely missing from the current platforms.

The industrial make-and-sell model required expert skills. The decisive thing was your individual knowledge. Today you work more from your relations. The decisive thing is your network.