A recent tweet by @rossdawson alerted me to a new post by Oliver Young at his Strategic Heading blog titled “Web 2.0 Represents A Fundamental Rethinking Of Business, And The Theory Of The Firm.”
This is a self-explanatory title, and an accurate summary of Young’s beliefs about the impact of 2.0 technologies. As he states:
”So what do I see when I look at Web 2.0, social media, social software, and whatever else you want to call this thing? I see a fundamental rethinking of the definition and function of the firm; the single biggest change since the industrial revolution” (emphasis in original)
Young believes this rethinking of the firm comes about because “businesses are opening the doors to the product development, marketing, packaging, and distribution process to customers who add value every step of the way with their preferences, ideas, and reactions. The firm is no longer creating value alone, it now has help.” (again, emphasis in original). This is in contrast to the previous model of capitalism in which “firms acquire capital, labor, and resources, combine them into a valuable product or service, and sell the product or service to individuals or other businesses who consume that value. In this system is it incumbent on the firm to create value, and the role of the buyer is to consume value. End of story.”
Young believes that “Over the next 10 to 15 years, on the back of social software, we will go from a fundamentally closed value creation system to a fundamentally open one” (emphasis, yes, in original).
Most of us who study the new technologies of interaction, collaboration, and collective intelligence agree that they have great potential to enable more open systems for creating economic value. But we need to be very careful with our claims about how closed things are at present.
It’s not useful to present our current system a fundamentally closed one in which firms work only within themselves to create value. That’s not a helpful strawman; it’s a counterproductive caricature.
Outsourcing, joint ventures, industry consortia, partnerships with academia, network organizations, vertical disintegration, a focus on ‘core competencies,’ comparative advantage, transaction cost economics, the theory of the firm, lead user innovation, and countless other trends, concepts, arrangements, and bodies of theory all predate the 2.0 Era and the current crop of social software. And they are all about ways to create value than are more ‘open’ than doing all work within individual firms.
The function of the firm is to add (and capture) economic value. This was the case before 2.0 technologies came along, and will the the case after they’re widely deployed. It’s also the case that many entrepreneurs and other innovators of capitalism have realized that they could add (and capture) more value by being more open to outside influences and outsiders, and have found very clever ways to become more open. Some of these ways have involved technology, some have not.
I am sorry if this sounds like I’m picking on Young, a very smart guy who I’ve met and whose work I find valuable and insightful. I’m singling out his post because it’s an example of a harmful tendency that I’ve seen many times over the years. This is the tendency that many of us technology enthusiasts have not so much to oversell the virtues and power of new tools, but instead to talk and write as if there was no progress on important topics before they came along.
I agree with Young that we’re headed into an era of overall higher levels of openness, but I strongly disagree that what’s coming is going to be like day after night. 2.0 technologies give us revolutionary capabilities in some areas, but they’re not going to revolutionalize capitalism. Capitalism’s been doing that to itself for quite a while now anyway.