John Hagel and John Seely Brown: Friction can be good
the two Johns (who will be performing a duet at PC Forum) embody their own message: They are more productive as a team. Brown, former chief scientist of Xerox and long-time leader of Xerox PARC, has more of a philosophical, scientific bent, while Hagel, a long-time McKinsey consultant now working on his own, has a closer-to-the-metal appreciation of business realities and strategies. Both have written several books and, more significantly, each has written for Release 1.0. Now they have just published an "emergent" book, which emerged from articles they have worked on together.
I would have liked to call it "Rethinking Adam Smith and Ronald Coase for the 21st Century", says Brown, "but the publisher [Harvard Business School Press] would have none of it." Instead, it's called The Only Sustainable Edge.
The book covers a confluence of ideas, just a few in a steady stream arising from both Hagel and Brown. Every few years they coalesce into a phrase or two that captures a moment. Currently, it's that friction can be good and that we're about to enter a new era in corporate structure. It sounds grandiose, but of course it is already happening. We just don't quite see it yet.
Brown does see it: "For more than a hundred years we've been driving towards efficiency, creating larger and larger organizations with replicated processes and automation, but we're approaching the end of the efficiencies that can give us for most firms. The pursuit of friction-free commerce may turn out to be a dead-end. It gives us efficiency, but it doesn't add any value."
Hagel picks up: "Most companies are an unnatural bundle of three different kinds of businesses - customer relationship, product or service innovation and commer- cialization, and infrastructure management," says Hagel. "The economics, culture and the competences for each of them are entirely different, and it no longer makes sense for them to stay together. The kinds of dislocations and shifts we're seeing now - outsourcing and offshoring, partnerships that don't work, diminishing returns on efficiency - are all signs of these shifts."
You're already seeing this happening, says Hagel. Call centers, the rapid rise of contract manufacturing, the outsourcing of logistics and SCM to UPS and FedEx, back office financial service processing operations to companies such as State Street Bank or of retail presence to Amazon...all these are signs of the impending reorganization of the business world."
It's not that the world is going to fragment into nothing, says Brown. "The digerati all talk about e-lance and the lone operator. But it may be that the most productive unit - in itself and as a structure - is the transient project team or the more stable community of practice. And the rationale for the firm may not be as a way to reduce transaction costs, but as a learning environment that accelerates capability building."
Brown and Hagel are turning a lot of traditional management theory inside out. The same interpersonal dynamics apply in a fluid world as in a corporate hierarchy, but the constraints are different. Within a corporation, prices aren't considered and reporting relationships are (temporarily) fixed, but business happens because people work together. In the friction-free world, prices are everything and contracts determine relationships, yet business happens because people work together through and around routine or automated processes. We have spent a century getting good at those routine and automated processes. Now we need loosely coupled systems to get better at handling the exceptions, since the routine things are becoming vanishingly efficient (and any competitive advantages quickly competed away).
Hagel and Brown suggest that the real opportunity is to integrate service-oriented architectures with social software so that relevant technology resources and people can be flexibly and quickly mobilized to handle exceptions. "Exception handling is a fertile ground for rapid business innovation - but you need to bring people back into the equation," says Brown. In short, the players need to be loosely coupled, but they need to be embedded in a fabric of shared meaning and trust, where transactions create reputations and people work together to come up with innovations in products and processes.