For the last couple of weeks we have been reviewing an article by Alan Murray from his new bookThe Wall Street Journal Essential Guide to Management.One of the key issues he raises is that the corporate-management structure that was so successful in governing during the 20th century is now outmoded by all the new forms of instant communications that have emerged.
In 1991, Ronald Coase received the Nobel Prize for his 1937 work “The Nature of the Firm.” In it, Coase described how corporations were necessary for distributing the work effort efficiently and for protecting trade secrets. His prize was awarded at the very dawn of the Internet Age, which has changed everything. Now, people on different continents and with different skills can work together on complex tasks without a large corporate structure. He cites the work on Wikipedia as an example of building and maintaining a complex structure with no corporate management.
While the exact nature of this new corporate structure is at present undefined, according to Murray the new model will have to be “more like the marketplace and less like the corporations of the past. It will need to be flexible, agile, able to quickly adjust to market developments and ruthless in reallocating resources to new opportunities.”
However, this only reminds me of the old corporate guru Peter Drucker, whose most important advice for a manager was to “feed your opportunities and starve your successes.” In fact, over 50 years ago, Drucker had seen the corporation losing its legitimacy. Drucker held that the purpose of the corporation was “the creation of legitimate power.” The power of managers grew out of “the property rights of the individual,” making it legitimate power. As stockholders abdicated their rights to management, however, the corporation became independent, controlled by no one and responsible to no one.
Interestingly, Drucker saw “the only solution [to the modern corporation] which makes possible both a free and functioning society is the development of the plant into a self-governing community.” If only he could have seen the impact social networking made possible with the Internet. More next time.