The Future of Work: Digital Autonomy

The State of Business in 2015

It’s the year when the world’s biggest retailer, Amazon, has no inventory, the world’s biggest media publisher, Facebook, creates no content, and the world’s biggest accommodation provider, Airbnb, owns no properties.

The concept of a business itself is changing. Why hire into a business? Why not contract? Why create everything internally when you can outsource?

In a perfectly efficient market, contracting is exactly what would happen. Adam Smith’s “invisible hand” balances. There’s a equilibrium between labour supply and demand. The company is superfluous, a burden, restricting.

So why create a company? The answer is in Coase’s Theory of the Firm- Its market inefficiencies which make companies necessary. These additional overheads range from information and search costs to the cost of policing. By producing internally to a company, these costs can be minimised or negated.

Of course- there’s a limit to the size of a business before running it isn’t efficient anymore: there’s only so much that can be managed by a single leadership team, with constrained resources. See my article Google Rewrites the Alphabet for one solution to that.

Coase noted that modern technology, the advent of telephones and cheap air travel, in his age, would reduce the transaction costs outside the firm and increase its potential size. Clearly, the advent of the internet and near-ubiquitous connectivity has multiplied the potential network of a company further.

The Internet and Frictionless Transactions

Uber, Airbnb, Amazon. All of these companies have redefined the way we think about business. Enabled by the seamless communication and collaboration that the rise of smartphones and widespread internet has brought, companies can connect to and manage a workforce many times the size of any before them. They’ve created platforms and apps that can fulfil the role of multiple management tiers before them.

In decades past, the best way to sell your labour was to a join an enterprise, hone your skills, work your way up. Now? You can rent your skills and resources in different combinations to different entities. “On-demand” economy contractors trade off traditional benefits like job security and benefits schemes for unlimited flexibility and rewards linked directly to contribution.

Bitcoin: A New Business Model

At the same time that the App-based network firm emerged, a major breakthrough was announced in another technical solution to the challenges of business and organisation.

Bitcoin, the first cryptocurrency, is a business not unlike Airbnb and Uber, but employs a radically different solution. Bitcoin’s workers are computers, owned by diverse users around the world. Its reach is limited only by connectivity. Bitcoin nodes are reimbursed for the commitment of their processing power in Bitcoin. The computational energy is used to secure and verify transactions in Bitcoin’s accounting ledger, or blockchain.

Bitcoin’s radical difference is the total absence of a central entity or rent-seeker, siphoning off profits from operation. Bitcoin is completely decentralized; individual nodes have equal power, and decisions on the network are made based on consensus and rational self-interest, resulting in the greater good of the entity.

This revolutionary business model is called a “Digital Autonomous Organisation”, or DAO. Owned by its workforce, and usually publically accessible, ownership and equity is distributed constantly according to the economic value of each node’s contribution.

The Digital Autonomous Organisation

Since Bitcoin’s launch in 2008, other DAOs have already emerged: amongst the most promising is Ethereum, a network designed to host decentralized software, and a foundation for myriad other forms of DAO. Ethereum’s multi-purpose ledger is built with a fully-fledged scripting language, giving other developers the ability to create decentralized applications without managing the fundamentals of creating a blockchain ledger or attracting nodes.

Colony takes the abstraction a level further, encouraging the development of DAO businesses itself to run as a DAO. It describes an entity with a flat hierarchy where contribution is rewarded with equity and decisions are made by the collective.

These examples begin to coalesce into a general form for this new business model. The three fundamental components of a DAO are: a consensus mechanism, for collective decision-making; cryptocurrency, for use as capital or equity; and a reputation service, for cementing trust and incentives, and allowing the rejection of defective or corrupted nodes.

Components of a Digital Autonomous Organisation: Consensus, Cryptocurrency and Reputation

The Future of Work

High transaction costs in the inefficient markets of the past led to the creation of the business as we know it. A huge proportion of today’s business sector is designed to meet these needs. However, the world is rapidly changing, and making these old enterprises obsolete.

Software is eating management. With a huge proportion of the population now walking around with access to these new distributed services directly in their pockets, it has never been easier to swap the traditional corporate makeup for a contractor business model. In these instances, management by algorithms is proving even more successful than incumbents, a perfect example of disruptive innovation.

It is clear that the future holds continued movement away from dependence and towards self-determination. Distributed organisations will only continue to become more common, and the barriers to DAO creation are falling rapidly thanks to Colony and Ethereum.

Eventually, these algorithmic businesses will emerge, scale and adapt as quickly as Slack communities or WhatsApp groups. Freeing the workforce to act directly towards the fulfilment of their promised incentives; the application of their skills to the good of the business, organisations can exist and grow without the need for traditional management strata. These organisations will be capable of instantaneous adaptation without corporate bureaucracy, an unmatched competitive advantage over today’s businesses. Ownership of these future businesses will be equal to the economic value of contribution, so influence will be equal to skill alone.

Re-published from digitaltransformation.frost.com

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