A future of temporary networks would seem to run counter to the wave of mergers sweeping the global economy. The headlines of the business press tell the story, "Compaq buys Digital"; "WorldCom buys MC1"; "Citibank merges with Travelers"; "Daimler-Benz acquires Chrysler" Yet when we look beneath the surface of all merger and acquisition activity, we see signs of a counter-phenomenon: the disintegration of the large corporation.
Twenty-five years ago, one in five US workers was employed by a Fortune 500 company. Today, the ratio has dropped to less than one in 10. Large companies are far less vertically integrated than they were in the past and rely more and more on outside suppliers to produce components and provide services. While big companies control ever larger flows of cash, they are exerting less and less direct control over actual business activity. They are, you might say, growing hollow.
Even within large corporations, decisions are increasingly being pushed to lower levels. Workers are rewarded not for efficiently carrying out orders but for figuring out what needs to be done and doing it. Many large industrial companies have broken themselves up into numerous independent units that transact business with one another almost as if they were separate companies.
What underlies this trend? The answers lie in the basic economics of organizations. Business organizations are, in essence, mechanisms for co-ordination. They exist to guide the flow of work, materials, ideas and money, and the form they take is strongly affected by the co-ordination technologies available. When it is cheaper to conduct transactions internally, within the bounds of a corporation, organizations grow larger, but when it is cheaper to conduct them externally, with independent entities in the open market, organizations stay small or shrink.
The co-ordination technologies of the industrial era—the train and the telegraph, the car and the telephone, the mainframe computer and the fax machine—made internal transactions not only possible but advantageous. Companies were able to manage large organizations centrally, which provided them with economies of scale in manufacturing, marketing, distribution and other activities. It made economic sense to control many different functions and businesses directly and to hire the legions of administrators and supervisors needed to manage them. Big was good.
But with the introduction of powerful personal computers and broad electronic networks— the coordination technologies of the 21st century—the economic equation changes. Because information can be shared instantly and inexpensively among many people in many locations, the value of centralized decision-making and bureaucracy decreases. Individuals can manage themselves, co-ordinating their efforts through electronic links with other independent parties. Small becomes good.
In one sense, the new co-ordination technologies enable us to return to the pre-industrial organizational model of small, autonomous businesses. But there is one crucial difference: electronic networks enable these microbusinesses to tap into the global reservoirs of information, expertise and financing that used to be available only to large companies. The small companies enjoy many of the benefits of the big without sacrificing the leanness, flexibility and creativity of the small.
In the future, as communications technologies advance and networks become more efficient, the shift to e-lancing promises to accelerate. Should this happen, the dominant business organization of the future may not be a stable, permanent corporation but rather an elastic network that might sometimes exist for no more than a day or two. We will enter the age of the temporary company.