How social media and digital working environments are really changing management, collaboration, and organizations?

This is the question that is most interesting to me and I believe, very transformational in the long-term on how we relate to each other and how things get done.

Last year I was happy to [...]]]>

How social media and digital working environments are really changing management, collaboration, and organizations?

This is the question that is most interesting to me and I believe, very transformational in the long-term on how we relate to each other and how things get done.

Last year I was happy to work on this question for a Finnish telecom operator, Elisa together with their VP of Corporate Customers, Pasi Mäenpää. As we know, the traditional operator business of selling subscriptions and connectivity is commoditizing and many plans are going flat rate. The value has moved upwards to the actual applications of communication technologies in the enterprise. Understanding corporate customers and their true business requirements and opportunities is increasingly important. This leads us to ask the question, how is the business environment and practices of organizations truly changing?

To grasp this question, together with my team we produced a video and a presentation on the future of organizations and management:

On Youtube: Cloud Company – Change Happens (2010)

The related slides “A New Era of Leadership – From Hierarchy to Network” are here.

This work eventually led to the term “Cloud Company”, now the title of a book we are writing.

Here are some of the key takeaways from the work in collaboration with Pasi Mäenpää and Esko Kilpi:

Management = Communication x Coordination x Responsibility = Collaboration

Management traditionally can be defined as effective communication, efficient coordination, and someone taking responsibility of the actions. Manager communicates to subordinates, coordinates resources, supervises operations, and takes (and gives) responsibility. This is mirroring the typical hierarchical thinking of organizations.

What happens today in digitally distributed collaborative networks is that communication becomes the means between people, coordination is the distributed peer-production activities among the people, and responsibility is something that people will take in their own hands because of transparency of activities and open information. Thus the idea is that in organizations today all effective communication, coordination, and taking of responsibility needs to be digitally distributed in order to remain viable.

There are two ideas on how effective organizations work. One that is based on complete centralization and the other based on complete decentralization. Most organizations are more or less different variations of the two.

Centralizated Organizations

A completely centralized organization is centrally planned and hierarchical in nature. The idea is that efficiency requires conscious coordination of resources and division of labor. Communication relationships and channels are pre-defined and planned – who reports to whom and what paper goes where. This is the world dominated by bureaucracies, hierarchies, command & control, and people as cogs in a machine.

Lenin tried to run Soviet Union like a big factory, as a centrally planned economy (or command economy). It was the most Fordist and Taylorist system ever envisioned. Everything would be centrally coordinated. The problem of such big hierarchies is that internal coordination costs increase as the size of the organization increases.

Over time it gets increasingly hard to predict the future and efficiently adapt to changing conditions. If internal coordination costs are higher than the value created and generated, the whole system collapses to its own absurdity. This economic calculation problem led to major problems in Soviet Union. Economic planners were not able to detect consumer preferences, shortages, and surpluses with sufficient accuracy. Resources were wasted and misallocated, eventually leading to the collapse of the whole house of cards.

Just like Soviet Union, most companies today are miniature centrally planned economies facing the same problems of internal coordination problems as the size of the hierarchy increases.

Decentralized Organizations

The father of modern economics, Adam Smith wrote in 1776 a revolutionary book, The Wealth of Nations. During the time his work was concentrated on supporting the political agenda of Great Britain to dissipate mercantilism, the economic reality that dominated Western European economic policies at the time. Mercantilism was based on a protectionist ideology of controlling import and export of goods for the nation’s good.

Adam Smith’s idea was that free market economy based on self-regulation would be more effective from the resource allocation point of view. Rational self-interest of individuals and companies in the short term would lead to common good in the long term. Competition and supply & demand in the context of rational self-interest would create economic balance.

The question then becomes, when does economic activity take place on decentralized markets and when do centralized organizations form as a necessity?

Lowering Transaction Costs

In 1991 economist Ronald Coase received the Nobel’s price on his theory of transaction costs. For a reference, take a look at The Nature of The Firm (1937). . When transaction costs increase, centralized organizations form to take care of the necessary side activities to achieve the goal. As transaction costs drop, certain economic activities are increasingly done on the open markets.

As an example, in the newspaper industry a photographer needs to take the pictures, journalist needs to write the story, an editor lays out the text, the printing press produces the publication and then someone takes care of the logistics of delivery. In the context of these activities there are other costs such as legal, marketing and administrative costs. All of these activities include high transaction costs that make it increasingly difficult to deliver such a product reliably without centralized coordination and organization.

As we know, Internet has enabled new forms of organization such as the Wikipedia or Huffington Post to emerge in the publication industry. Internet has radically reduced transaction costs involved in producing resources like an encyclopedia or a newspaper. According to Harward Law School Professor Yochai Benkler, digitally distributed collaborative environments have enabled a new form of organization to emerge between the traditional nation state and the private company, based on the logic of commons-based peer-production. In the open markets, people and organizations improve the common resources, eventually gaining more than their individual contribution is worth.

As companies thrive for higher value creation and move up in the economic food chain, it is impossible to do so today without lowering the transaction costs involved in producing these goods and services. Therefore all effective organizations today will utilize digitally distributed collaboration and management environments and practices.

The Emergence of the Cloud Company

The next stage in running successful organizations is to understand that effective organizations today are operating closer to the logic of the open free markets. This means that companies thriving for higher value will decentralize many core layers that were traditionally centralized, including infrastructure, information storage and processing, collaboration, services, sales, and customer service.

This stage will be driven by cloud computing, crowdsourcing, digital mass-customization (such as the iTunes App Store where each person actually creates the end product through individual customization), commons-based peer-production, and other emerging decentralized models for carrying out work in the digital business ecosystem: therefore the name Cloud Company.

Now if you look at the chart we have in our e-book, it will make more sense after reading all of that:

A Cloud Company (or real Enterprise 2.0) will be much more effective than its more or less centralized competitors, because it’s capable of distributing certain organizational activities on the market, operate in a much more customer-oriented and centered way, changes dynamically the costs of running the business, is capable of lowering transaction and internal coordination costs and utilizes latest social media and collaboration environments for digitally distributed communication, coordination and wide taking of responsibility.

My colleague Esko Kilpi writes:

Today, with social media, we stand on the threshold of an economy where the fundamental processes of communication and coordination are being transformed.  Familiar economic entities are becoming increasingly irrelevant as the Internet, not the traditional organization, becomes the most efficient means to communicate, coordinate and exchange value.

That’s the future of organizations in the digital age.

Article appeared originally on Teemu Arina’s blog.

Thanks to: Esko Kilpi, Pasi Mäenpää

We are happy to let you know that Cloud Company book and media project has made available its first free e-book exploring digitally distributed practices and social technologies for strategy, management, and communications.

Areas covered in this issue:

Why [...]]]>

We are happy to let you know that Cloud Company book and media project has made available its first free e-book exploring digitally distributed practices and social technologies for strategy, management, and communications.

Areas covered in this issue:

• Background
• Cloud Services
• Cloud Company Triskelion Model
• Cloud Company A.D.E.P.T. Framework

Why should you read this e-book?

1. Make sense of the cultural and economic implications of emerging social technologies.
2. Understand and shape internal and external digital communication strategies.
3. Design models for thinking and communicating new strategy and vision.
4. Increase efficiency and effectiveness by lowering the transaction costs of doing business in a digital world.
5. Make great products that are more meaningful and valuable for customers.
6. Empower employees in ways that bring greater customer satisfaction.
7. Leverage transparency to gain greater reputation, credibility, and trust in the marketplace.
8. Avoid constant reorganization by being more sensitive and open to changing customer needs.
9. Redefine the competition in a way that expands the market opportunity for everyone.
10. Stay focused on improving the bottom line and not be continuously driven by new tools and technologies

We’d love to hear about your comments regarding the e-book below. Also, if you like to write a guest article on our blog dealing with cloud approaches to business, please contact us.

Download the e-book here.

Subscribe to our newsletter to receive more information, free e-books, and offers regarding the printed book in the future.

As appeared on Megasignals.com:

Transparency may gain companies greater reputation, credibility, and trust in the marketplace. However, changing culture and attitudes towards transparency in an organization that has traditionally been closed is a challenging task.

Openness is a key trend of the modern connected age. From transparent firms to [...]]]>

As appeared on Megasignals.com:

Transparency may gain companies greater reputation, credibility, and trust in the marketplace. However, changing culture and attitudes towards transparency in an organization that has traditionally been closed is a challenging task.

Openness is a key trend of the modern connected age. From transparent firms to open governments, the discussion is on the air: Can companies and governments be more effective, responsive, customer oriented, and profitable by embracing openness?

Many companies have the fear of being criticized publicly or getting bad reviews. Having customer feedback and third-party product reviews right on your site is a radical approach for many. How unpredictable and risky it might seem, the benefits of doing this are the tremendous cost savings in finding early about wrong pricing models, defective products, usability issues, and unnecessary features. If you are honest, transparent, and let people to see that you are serious about getting their feedback, they will increase their trust, engagement, and eventually you will gain greater reputation and profits.

Today customers talk to each other through the internet. Unless you open up channels for listening to them, they will find ways to talk to someone else. The transition is to move away from telling your customers what to do and start listening and embracing the ideas that come from them.

Learning from the markets: Case Nokia

In the last three years Nokia has had reorganizations at least every six months. A reorganization usually means for an employee a possible change in job description and the very real risk of being left without a job. Reorganizations are very stressful events and usually a result of the lack of foresight and ability to make gradual and tiny adjustments to your business based on changing market conditions.

Once the system is out of sync with the market, it eventually succumbs into an expensive reorganization. In the last three years Nokia has lost more than 75% of its market value. By being more sensitive and open to learning from changing customer needs in addition to having a flexible organizational structure, Nokia could have perhaps avoided all of this.

A change in culture of believing that companies create value towards one that understands that the way customers use products creates value is a challenging shift. It is no surprise that companies such as Nokia with a long history in perfecting a different logic will have hard time to understand and embrace a new mode of value creation.

Nokia has been a victim of their own success. Efficient hardware manufacturing and logistics has been in the core of Nokia’s achievements. Now that the value creation has shifted to applications created by their users, Nokia has enormous problems to make the leap to a new mode of value creation based on a developer and user ecosystem. Better hardware and a better operating system no longer counts. It is now all about the move from systems to ecosystems and user-generated functionality based on user context – And this is a process in which companies need to stop talking and start listening.

Learning from your customers and your own actions: Case Zappos

Zappos is the largest online shoestore in the U.S. sold recently to Amazon for $940 million dollars. All their employees have pre-approval of the CEO to do anything to build customer satisfaction and provide a great service. They are not counting minutes on phone support or hours spent in helping customers on social media. Their slogan, “powered by service” reflects their values. Even though they are an online business only, with 365 day return policy and free shipping both ways they have better customer service than any physical shoe store you have ever seen.

Each year they produce a 480-page Culture Book written by their employees, partners, and customers alike and published without censorship to see if their values are visible in their actions. Most of their employees remember their 10 core values by heart. Many companies state in their values and mission statements that they are customer oriented. More often than not, such statements are thin air compared to what real customer orientation is all about.

We are glad to tell you that our website has been completely redesigned and is now fully packed with information for your Cloud Company needs. Stay tuned to our upcoming e-book on the A.D.E.P.T framework among others by subscribing to our e-book mailing list.

Recently I gave my first presentation on the book topics themselves. My presentation only touches the surface of what is about to come and it’s my perspective. Sami Viitamäki will write more about the FLIRT model in a following post, that is also central to the book.

Every great revolution [...]]]>

Recently I gave my first presentation on the book topics themselves. My presentation only touches the surface of what is about to come and it’s my perspective. Sami Viitamäki will write more about the FLIRT model in a following post, that is also central to the book.

Every great revolution has a manifesto. Here is ours:

Cloud is a metaphor for the internet and Cloud Computing is the metaphor for a technological paradigm shift in the way how we utilize software and information.

Technology enthusiasts are often proposing an idea grounded on Technological Determinism, that this new technology alone would drive the development of organizational practices, culture and behavior. However the influence and importance of culture and people cannot be underestimated. Media theorist Marshall McLuhan famously said that “We shape our tools. And then our tools shape us.”

What the cloud is shaping is our forms of organization, intertwingled by technology and culture. The cloud will dramatically lower the transaction costs of doing business. As companies decentralize various layers including infrastructure, R&D, marketing and sales, they eventually empower a new form of organization to emerge: the company as a cloud.

What we don’t yet understand is how to design and shape such an organization and how to harmonize operational, technological and cultural perspectives. Our future might as well depend on it.

In the Cloud, November 2010

Teemu Arina & Sami Viitamäki