Social Enterprise and Flow


Map of Madras 1922My grandfather appears to have grown up in a village in southern India, attended university in what was then Madras, worked as “private secretary” to one of India’s richest men and biggest landowners, the Maharaja of Darbhanga, all on his way to founding a weekly magazine, called Indian Finance, in Calcutta in 1928. He died when I was sixteen months old, and he was succeeded by my father. So I grew up in a home full of books, where reading and writing and publishing put food on the table and, occasionally, even paid the bill.

It was an interesting business, with some very unusual approaches to vertical integration. The family owned the printing press. Made sense. If your livelihood depending on somebody printing, publishing and distributing what you write, then you’d want to own a printing press: the internet hadn’t been built as yet. The family also appeared to have significant stakes, perhaps ownership, in a canteen. You employ a lot of people, they need subsidised food, it made sense to own what must have been a precursor to the modern office cafeteria. But it didn’t appear to be that common in small family-owned businesses in the ’60s.

And there was an ad agency stuck in there somewhere. For the life of me I could not figure out whether we owned the agency, had shares in it, had a strategic alliance, or what, but there was a relationship. So when I was growing up, it looked like we “owned” a magazine, a printing press, a canteen and an ad agency. The set-up gave me some firsthand experience of what Ronald Coase was on about, in terms of the theory of the firm, transaction costs and vertical integration. [Amazingly, Ronald Coase is still alive. I would so love to meet him and talk to him!].

Which brings me to the point of this post.

As a child I used to have the run of the place, driving people insane with my constant questions “Why?”. I couldn’t help it, I was curious. One of the things I was curious about was the fact that every now and then, a parcel would arrive from Air India. And it contained tickets. Which was very strange, because I’d never known anyone who worked for Indian Finance travel abroad. And Air India did nothing but travel abroad, domestic travel used to be the sole domain of Indian Airlines in those days. So why were we buying the tickets? For what and for whom?

Nobody there seemed to know. Which meant that I had to ask my dad. It wasn’t the asking that was difficult, it was the remembering to ask. So many questions, so little time. Yet one day I did.

It turned out that the answer was simple. We wanted Air India to advertise in the magazine. They didn’t have the budget to do it…. as long as we wanted to be paid in cash. They were short cash. And they were long airline seats. So if we were prepared to be paid in airline seats, they would advertise. And so they did.

I have no idea whether my father pitched it to them or whether they pitched it to us, but the deal was done. And we kept getting tickets. Which somehow got used up.

Years later I went to university. Studied economics. Started writing stuff about banking and finance. Tripped and fell into computing in 1980. And here I am, 32 years later.

Fast forward to the 1990s. Lots of stuff published about the internet, increasing-returns models, “holonic” organisations, incubators and ecosystems. That’s when I first met Don Tapscott and read Paradigm Shift, a fabulous book. I think the firm he was with was called something like DMR Consulting, an interesting Canadian outfit. That’s when I fell in love with what Ken Ohmae described as the Borderless World. That’s when I really got into the works of W Brian Arthur.

More influenced by Dr Arthur’s work than anything else, overlaid on my childhood and education, I began to view economies the same way I viewed companies, a network of smaller organisations trading with each other. That view led me to observing the way companies did business with each other through different lenses, applying personal, often warped, interpretations of transaction cost theory to the whole network of companies.

It was a theme that had already been influenced by my exposure to EDI and SITPRO in the early 1980s; it was a theme that continued throughout my time in capital markets; it was a theme I continued to see elsewhere, in other industry sectors, as when Covisint was formed.

FrictionThe theme was simple. What causes friction between companies in a market? How can that friction be reduced or removed altogether? What can be done with the resources that are freed up by removal of the friction? It may sound boring to many of you, but I enjoyed thinking about it and talking to friends and colleagues about it. Most of the time, in a post-trade world, frictions are caused by “reference data” mismatches: names, addresses, that sort of thing. Low-volatility data are incredibly important in capital markets; vast sums of money are spent in seeking to keep them accurate and up-to-date; and yet errors related to such data continue to be immense sources of friction within that trading environment.

So when I moved to Salesforce.com, I was fascinated to hear about the existence of what would soon become data.com.

Since joining the company, I’ve had the opportunity to watch the Social Enterprise concept emerge and take form; how important it was to connect customers and distribution and supply chain and staff, how an ecosystem of companies would evolve as a result, how this was really a fractal representation of the market and the global economy.

In the past, much of my thinking about this was in a post-trade context. Since the middle of 2010, I’ve been working on a book on Designing For Loss Of Control, and for the last year or so, I’ve been thinking about all this from a pre-trade perspective. What makes it difficult for companies to agree to trade with each other? What would happen if this barrier, this friction, was removed? How would we go about removing the friction?

Probably influenced by my time in capital markets, and probably underpinned by the environment I grew up in, I started thinking of pre-contract frictions as “mismatches” of some sort of other, sophisticated versions of what Air India faced when dealing with the family business. Long one thing, short another, willing to trade only if a way could be found. Again, influenced by capital markets and trading terminology, I kept seeing all this as flows, and as barriers to flow. This whole mindset was reinforced by repeated exposure to the research of John Hagel, John Seely Brown and Lang Davison, in The Big Shift and, prior to that, The Only Sustainable Edge. [And even before that, I felt the same sense and imagery of flow while reading JSB and Paul Duguid on The Social Life Of Information]. How could labour productivity have doubled since 1965 while return on assets dropped precipitously? And would the stocks-to-flows shift reverse that? If so why?

Influenced by all this, I began to visualise the possibility of radical changes in how companies contracted with each other, how risk was transferred, how gains and losses were crystallised. I began to visualise API-like structures connecting firms together, with each pair of connections choosing the best “currency” to execute the trade in, something that happened to suit both sides, some sort of barter 2.0. [Yes, I know that our systems of accounting and valuing what we do are way incapable of dealing with all this; but then some would say they appear to be way incapable of dealing with "normal" business today....] If you contracted with a haulage firm, the measure of success would be in volume of goods carried over distance; with a telco, it might be new customers gained; and so on. Some way of having a shared risk and reward system, such that both parties got paid out only when successful against some commonly agreed measure or baseline.

A part of me gave up on that thought stream, thinking that it would be too complex to agree the terms….. friction in the contracting process would not be reduced unless it was simple to agree the currency and the baseline, and unless it was difficult to game or subvert.

That remained the case until I came across the work of Geoffrey West on cities. How some things experienced superlinearity in comparison to population, while others had sublinear relationships. I had the chance to talk to him at TED Global last year, and understood he was driving the research into the corporate world as well.

And that made me think. For each company-pair, if we could identify something desirable, something that had a simple superlinear relationship to something else that was easy to measure and hard to game, we could simplify the contracting process and de-risk it for both sides.

All this stems from a sense that the way firms contract with each other today is a static stocks-based view of the world. That the world of the cloud is radically different, flexible, elastic, dynamic. That as companies continue to connect with their customers and supply chain, as trust is created through transparency, as information flows faster and faster, as low-volatility data becomes more reliable, we’re going to see new forms of contracting. And new forms of currency. In a typically William-Gibsonian manner, this is happening already.

The social enterprise will accelerate all this. It’s about flow. Not just in the Hagel-Seely Brown-Davison sense. But also in the Mihaly Czikszentmihalyi sense.

Thoughts?

 

cross-posted at confusedofcalcutta