The Company of the Future
Six Trends that Indicate How We’ll Do Business in the Future
Today, we have a clear idea of what we are referring to when we talk about a company. It’s a legal entity with a clearly defined ownership structure (either private or public). It exists to make a profit, usually by selling products or services. Once it has grown beyond its infant stage, the company employs people. A management structure is put in place to coordinate employees and make sure everybody follows the overall strategy (which works better in theory than in practice). Most of the time, the company has a physical manifestation — the workplace — usually an office and/or a factory.
However, there are a couple of recent trends which give me a reason to believe that companies might look very different in the future. I’m not even sure we’ll refer to it as companies. But let’s not get ahead of myself.
Above I listed a bunch of characteristics we usually associate with a company today. But let’s try to get further down to the essence. If we look at it from a broad perspective — say from the often summoned Martian’s viewpoint, who visits earth and inspects human behavior — he might describe it like this:
‘Company’ refers to a group of people coming together in order to collaboratively create something they then sell.
That, at least to me, is the essence of a company.
We are well aware how companies operate and look like today. But let’s dissect some recent developments which hint at a future where they might look quite different.
I’ll cover six trends which I clustered in three categories:
- the individual level, where we’ll look at two trends that influence how people work: the gig economy and the ease of entrepreneurship
- the structural level, where we’ll look at three trends at the overlap between IT and business that have the potential to vastly influence company structures: microservices, the blockchain and DAOs and industry 4.0 and smart factories
- the management & governance level, where we’ll look at one (broad) trend in the realm of management: the #neworg movement.
I. The Individual Level
Freelancing and the Gig Economy
The structure of labor markets differs from country to country. The markets are influenced by the respective regulations, welfare systems and the health of the overall economy. It is therefore very interesting to see that there appears to be an overarching trend in several major western economies: a growing number of people who are self-employment/freelance. According to various studies it’s the case in at least the USA, the UK and Germany alike. Various estimates predict that this increase will continue for years to come.
There is a lot of debate around the so-called gig economy. It’s mostly rendered in a negative fashion for understandable reasons: In comparison to traditional forms of employment, working self-employed offers less certainty and stability. Most states don’t have benefits and pensions in place for this type of work. Businesses who rely heavily on contractors or freelancers avoid hiring full-time employees in doing so. All these are valid issues and deserve to be solved.
However, the fact that the increase appears to be a global phenomenon might indicate that there are structural changes happening below the surface. And not all of them are negative. The Semi-Annual Report on Self-Employment by peopleperhour presents some interesting findings:
We are beginning to observe a fundamental shift in the composition of those in self-employment. In the years following the downturn we saw a large shift into self-employment by silver-haired workers who suffered from redundancy or needed to top up losses in retirement, however in our most recent findings, we observe inflows from Millennials and Generation X between the ages of 23–35 accounting for 63.1% of respondents. Of this new generation of self-employed workers we have begun to observe some key behavioral insights behind the choice to become self-employed: flexible hours accounted for the single biggest driver into self-employment, followed closely by independence and freedom to be one’s own boss, in third place we found that the challenge, creativity, potential for success and satisfaction of work to be tremendously important drivers into self-employment. Therefore, it is not surprising that over 87% of respondents reported that taking everything else into account, that they would choose to be self-employed.
This is in line with most research about Millennials and their priorities. On the other hand, the freely chosen path of self-employment might not even present a generational change of attitude. Instead, and I think any analysis needs to account for this, it might be driven by changes in the environment that make choosing that path a more viable option in the first place.
Being an entrepreneur is easier than ever before
Sure enough, this environmental change is synonymous with the internet and a world that’s increasingly built and structured around its existence: a highly networked, (almost) global world where information distribution is basically free. Ben Thompson recently summarized it perfectly:
…it’s not that the Internet is inherently “good” or “bad”, rather it is a new reality, and just because industries predicated on old assumptions must now fail should not obscure the fact that entirely new industries built with new assumptions — including huge new opportunities for small-scale entrepreneurship by individuals or small teams — are now possible.
And people are taking advantage of those opportunities. The 2014 Freelancing in America report stated:
The internet and social networking have revolutionized how to find and access work. The Great Recession exploded the notion that a “traditional job” was truly secure, forcing many people to go freelance and making freelancing’s eggs-in-many-baskets risk management strategy much more attractive.
This development continued. If you want to open a new business today, the most complicated bit is the bureaucracy involved in the legal setup (and even that can be kept to a minimum thanks to Estonia’s e-Residency program or Stripe Atlas). Thanks to services like Squarespace (website), Stripe (payment), hiveage (billing), Holvi (bank account), Google Apps for Business (office software), Trello (project/task management) and so forth you’re up and running with a few clicks and for less than $150/month.
Then, of course, there are the gig economy platforms that connect the people to the work and vice versa; the Ubers, AirBnBs, Upworks and Taskrabbits of this world. Again, in the public discourse they are mostly framed in a negative way, something I addressed in here:
So while there are real issues, none of them are due to the existence of the aggregated, decentralized systems I described in the original piece per se. Rather, the issues are a result of the platforms’ economic setup (for-profit businesses, most of them privately held), the regulatory environment and simply of them being new — which results in friction with whatever was before and is now being disrupted.
Thus, I argue, it’s necessary to take a differentiated position and not blame the entire system unanimously.
Short-term, the social and economic challenges that result from the paradigm shift we are living through are real — yet, I argue, solvable. The more people tend to work in a self-employed way and the more the economy relies on them, the better and fairer will the systems get (I’ll address this in the final section in more detail). What’s often overlooked, however, are the positive effects of those platforms: They provide people with an easy access to markets and, thus, income in a comparably flexible way. Also, they further reduce the barrier that previously stood between a person and self-employment.
So, let’s recap the first part: Freelancing is on the rise. The post-crisis economy and the resulting hesitance among businesses to hire certainly contributed to this development. But there is another driver: Structural changes, emerging as an effect of the internet’s existence, which opened up the possibility to select self-employment over traditional employment for many more people. An increasing number of them appears to exercise that option. This will certainly influence how our company of the future looks like.
II. The Structural Level
IT Drives Business Innovation
Just as every company today is a tech company (or none is), every department and team has a digital layer. They use software to get their work done, most work produces some digital output and a lot of the information flow between different parts of the organization is digitized. One or two decades ago there was almost no overlap between the ways how IT departments and the rest of a company worked. This has changed.
In the process of eating the world, software had traditional organizational structures for lunch. Analogies, methods and tactics that originated in the IT world have a major influence on general business thinking (as they should; the two are increasingly the same thing). Today, we talk about ‘new operating systems for organizations’, organisations are understood as networks, agile management is all the buzz and every new company wants to be a lean startup, create an MVP and iterate from there.
Conversely, looking at new developments in technology can often give a hint at the future of business at large. I see three developments that have the potential to influence our company of the future in a major way.
- Industry 4.0
While this might read like a list of keynote topics at any major tech conference in 2016, let’s look further than the average trend report.
In case you’re not familiar with microservices, let me explain the concept in as simple and non-techy terms as possible. Most applications you use are built as one large piece of compiled code. That is called the monolithic style. All functionality of your application is at a central place. In a world of applications delivered on CDs and run locally this was basically your only option.
However, as more and more computing happens in the cloud, the monolithic style of application design has certain disadvantages. For instance, changing only a small part of the system (say the log-in process) requires an update of the entire application — which complicates a fast and iterative development approach. Another issue is overall system fragility: In monoliths, failure of a single component can break the entire application.
As a result — and because the cloud allows for different approaches in the first place — some developers came up with a concept they dubbed microservices. The idea here is to create a modular, distributed architecture where the entire application consists of several services. These can be run and operated independently but are connected to other services as necessary. The goal is to create an overall infrastructure whose parts can be (ex)changed easily, and that can survive the failure of a single service. Plus, from an organizational point of view, a microservice architecture gives more authority to developers as they are now in charge of an entire product from development to deployment.
What’s the big deal for our company of the future? In a very interesting a16z podcast on the topic, Andreessen Horowitz General Partner Martin Casado states:
“It’s also worth teasing apart two trends. One of these trends is a single company, (which) instead of building a monolithic product, wants to build a microservices product that gets all the efficiencies of doing that… But there is kind of a broader industry trend where companies (or) products are basically microservices. There are companies out there where basically the only way to access their product is through a fairly narrow API. There are so many of these now that there are other startups that will just, basically, stitch them together and you could build full applications without writing much code.”
Coming back to my earlier point that IT developments influence business in general (and the two merging progressively), I think this development will not be limited to IT departments and software companies. Even today there is a trend towards smaller units and interdisciplinary, autonomous teams. Adapting a microservices approach to organizational structure in general is basically the introduction of the small/big dualism to org-design. The further the merger of IT and business units progresses — and, thus, actual APIs become commonplace — the more feasible such approaches become.
(Avid readers of mine will notice that this might present a solution to the problem of finding the right principle to organize around I wrote about here.)
The Blockchain and DAOs
If you read up to this point I assume you are familiar with the basic concept of the blockchain. In case you’re not, I recommend you read this general introduction to blockchain technology and/or — if you like it even more technical — this explanation of the bitcoin protocol. Alternatively, the video below gives you a general idea in about 2 minutes:
For all the others, here is a very simplified explanation:
The blockchain is a set of technologies that enable secure transactions between users in a distributed peer-to-peer network. A lot goes on under the hood, from encryption to incentive systems, mining clients and code (which, basically, functions as law [really, if you want to understand the details read the articles I linked to above]).
Most famously, the cryptocurrency bitcoin runs on a blockchain. But there are many more use cases. The abstracted idea behind it is called smart contracts. That is, the details of a contract between two (or more) parties are written into code which is verified by the network and executed automatically. Said contract is not limited to financial transactions. There are many experiments ranging from insurance to ride-hailing and even a blockchain-based nation.
What’s common among all of them is that the blockchain eliminates the need for trusted third parties. Regular currency is issued by central banks, important contracts are authenticated by notaries. On the blockchain, however, that task is delegated to the network (again: to understand the mechanic read the articles I recommended). The legitimacy of any transaction is ensured by the network and its fulfillment enforced by the code.
While all kinds of fascinating implications follow from that, let’s focus on the ones that concern our company of the future.
On an abstract level, the blockchain presents a way to coordinate actors in a system without a central authority. Today, that coordination is the job of companies and their management in particular. Smart contracts and distributed ledger technology present a path towards a scenario where this function can be performed by the network itself.
Sure enough, there are some early experiments trying to achieve just that. In blockchain lingo those organizations are called decentralized autonomous organizations or simply DAOs. The most popular case is certainly The DAO, an attempt to build a decentralized venture capital fund. Though The DAO was famously hacked and likely lost most trust in the process, it’s not be confused with the general idea of decentralized autonomous organizations. While blockchains in general and DAOs in particular still face unanswered questions, particularly concerning their governance, the general idea shouldn’t be dismissed prematurely.
There is a very active and engaged community, constantly developing new solutions, use cases and applications (so called dapps); therefore I’m certain we’ll see several other attempts at DAOs. Platforms like Ethereum and companies like Slock.it provide tools and infrastructure to do so (the latter also has a readworthy paper on DAOs on their website). More tangibly, Rein Project attempts to build a blockchain-based freelance market.
If you are not convinced by any of it, mind you: The technology is still in its infancy and will take time to mature. The mid-90’s internet is the equivalent to the current state of the blockchain. Despite — or because of — this, our company of the future will certainly be influenced by it.
Industry 4.0, Smart factories and Networked companies
The third and final technology trend which I think is likely to shape the company of the future is subsumed under the label industry 4.0. In a recent podcast, I talked to Reinhard Karger currently a spokesperson of the DFKI, the German Research Center for Artificial Intelligence, and a veteran in the AI industry.
He made a great point, illustrating a potential future where not only production processes are largely automated but where individual smart factories are interconnected via APIs. Hence, they can act like large, integrated organizations while staying small and avoiding diseconomies of scale (again: the small/big dualism in action).
Since our interview was conducted in German, here’s the translated passage which starts around the 44 minutes mark (edited for clarity):
“Industry 4.0, at its essence, is about marrying internet technology to ERP (enterprise resource planing) and then those two — in a three-way deal — to MES (manufacturing execution systems). That is, internet, enterprise software and factory management all combined. Now, think about those three hugely important systems being fully capable of speaking to one another. That is, they can exchange information so the right information is available to the right system at the right time. This changes the information flow within factories, with machines, sales, support and customers. Also, it changes the information flow between factories that produce something collectively.
So, what happens once different producers or factories can talk to each other? If done successfully, what happens is that highly specialized SMEs can collaborate without friction as if they were a fully certified global corporation.”
Such a future is still some time away for several reasons — most notably the necessary investments in technology and the reconfiguration of business models and value chains. As is the case with any large paradigm shift in the environment (e.g. the internet), I assume that startups built with this new reality in mind are more likely to succeed than incumbents.
However, long-term, I fully believe we are going to see an increasing number of companies operate in such a way. It makes sense for several reasons, some of which I outlined here. Note that this is fully in-line with the microservices approach. Yet, it illustrates nicely that the scope may go well beyond IT.
III. The Management & Governance Level
The #neworg Movement
So far we covered changing individual preferences and trends in IT which are indicative for the shape of our company of the future. There is a final trend we need to cover: the #neworg movement. I introduced this term in here in order to describe a growing community which concerns itself with finding new management models and organisational systems which are in line with the VUCA world (=volatility, uncertainty, complexity, ambiguity) we are living in.
Across the board, the basic assumptions and ramifications [of the #neworg movement] are all very similar:
* Organizations are thought of as dynamic, ever-evolving networks instead of static, hierarchical structures.
* Agility and the ability to continuously adapt to — or, even better: shape — new environmental conditions become key capabilities for organizations.
* Self-management, situational leadership or fluid roles become important tools for achieving the former and creating more dynamic environments where driven people can grow and follow their purpose.
* The worlds increasing complexity results in more uncertainty and limits our capability to predict and plan. At the same time the connected world allows for scale to a formerly unknown degree. Thus, there is a bigger emphasize on ‘creative tinkering’ as Nassim Taleb would put it. That is, experimenting with a variety of new ideas that might have a high risk to fail but only a limited downside whereas they have huge potential upside in case they succeed. This approach is also described as an evolutionary approach in contrast to the traditional top-down strategy model.
* Organizations are driven by a shared purpose. Hence, they are understood as a place for the people who constitute them. They are a place people go to (though not necessarily physically) in order to achieve great things together — in contrast to viewing employees primarily as a resource and cost factor.
Technology is majorly important when thinking about the nature of the company of the future. However, it’s not enough. One fact we certainly learned from several years of digital transformation: technology is only half of the equation. The other half is us, humans. Most successful digital projects don’t succeed (only) because of superior technology but superior teams; vice versa the same goes for failed initiatives.
For that reason I’m skeptical when people argue technology is a panacea. A notion that is, for instance, prominent within the blockchain community, expressed in the tagline ‘code is law’. Technology certainly enables new and exciting forms of collaboration and organization. Yet, the fact that it eventually comes down to people engaging with other people remains¹.
Hence, there is a need for basic, real-world coordination, communication, decision-making and so forth. The processes and concepts currently developed by the protagonists of the #neworg movement are a very solid starting point. They are pretty much aligned with the thinking I presented in Part II and enrich it with some missing ingredients.
The Outlines of Our Company of the Future
By now you should have a general idea of where we’re getting at. Now, let me draw a cohesive picture.
Our company of the future will be rather small as it has a comparably narrow scope. On the other hand, it will be a lot more interconnected with other companies. Every single entity will provide a dedicated value to the system. Together, the companies will form a close, collaborative network that creates value in conjunction. This will be enabled by inter-company APIs who ensure the necessary flow of information and data.
In large parts the company of the future will not consist of traditional employees but of like-minded people working towards a shared purpose. In that regard it will resemble an aggregator (of talent) but with more elements of an actual organization compared to today’s platform-aggregators (e.g. Upwork). Looking at it from the outside, the company might appear more like a loose, fluid group because people join in and leave as need arises. But refined systems, IT and otherwise, will ensure that all contributors are aligned and work in a coordinated manner.
As more people decide to become small-scale entrepreneurs rather than employees, there will be both the need as well as the willingness to create some solidary mechanisms. Thus, smart social contracts (or potentially new forms of shared ownership and surplus distribution) will — at least partially — compensate for the lack of security and stability that was formerly provided by employment contracts.
A. If this sounds crazy to you, hold your thought for a second. Look at how large corporations work today. In my consulting work I’ve regularly been on teams with one or two actual employees of the client’s organization and five or six folks from different contractors. The differences to the outline above: First, the central large entity is lacking — I argue: because it’s replaced by aggregation. Factually that is not all that different from today’s situation; only the financial side changes as instead of fixed fees you get a share in the profit. Second, today we face a fair amount of friction in such projects. This is due to
- poor information flow between the involved parties. This can be solved with APIs and, more broadly, better connectivity and shared communication systems.
- misaligned incentives. Different contractors fear for their future contracts, don’t want to give away their IP to competitors and so forth. This will get a lot better if profits are distributed.
B. That being said, of course this all sounds nice in theory but will certainly prove a lot more complicated in practice. That’s not the point though. I regard this as a piece that hints at a certain future, not as a precise prediction. Thus, when speaking of a general direction, I’m very confident that what I just outlined will manifest itself, to a degree, in future companies.
C. Originally I intended to tackle some of the challenges involved with actually getting there. However, since this has gotten way longer than planned, I’ll write a follow-up in the coming days over at my new blog (drum roll).
¹ For the blockchain-savvy among you: A fact nicely illustrated by the block size debate. It’s for this reason I think one of the top priorities for any DAO is to figure out a governance process in-line with it’s philosophy and decentralized nature. There is a nice piece by Arvind Narayanan on the issue with some good suggestions. There is a very simple argument for this: You can only plan and thus code for things you know. If you accept that there is randomness and change in the world, than you must accept that you can’t code for any possible scenario. Thus, governance.