Scalable Efficiency

Discussion

John Hagel:

"Ronald Coase won the Nobel Prize in economics for an essay on The Nature of the Firm he wrote in 1937 that provided a simple and compelling answer to the question of why we have corporations. He argued that we need corporations because they reduce transaction costs – the costs of coordinating and executing economic activity. Put in slightly different terms – the rationale for corporations resided in the quest for scalable efficiency.

This was an amazingly accurate analysis of the rise of the modern corporation in the 20th century. Huge companies were built and enormous wealth generated by pursuing this quest. But here’s the catch. How was scalable efficiency attained? It was achieved by adopting large-scale push programs. Driven by forecasts of demand, push programs required highly standardized and rigorously specified work activities that were closely monitored to ensure predictability. The modern, thick process manual was the end-product. The job of the individual was to fit into this tightly regimented work environment and perform predictably and efficiently.

Now, think about this. If we reduce work to highly specified and standardized instructions that can be performed efficiently and predictably, what have we done? We have reconceived work so that it can be performed by computers and robots. In fact, computers and robots are far more preferable than humans because we humans are ultimately unpredictable and have a really hard time following instructions to the letter, day in and day out.

In this environment, it’s quite natural to view workers as fungible, cost items. When pressure mounts, the natural reaction is to cut costs by cutting workers, replacing them with machines where possible and, where not, simply making the remaining workers work harder.

Given this perspective, it’s no longer surprising that we see the hollowing out of the middle class. Where did the middle class come from? They are the workers who so faithfully carried out the tightly programmed tasks defined by our push driven institutions.

Sure, as the authors point out, some of the routine work we do cannot yet be performed by computers, but it's just a matter of time before the delivery truck driver and the customer service rep can be fully automated. And what about all those wonderful things that the authors indicate will never likely be automated – imagination, creativity, genuine insight and emotional and moral intelligence? These attributes have no place in the push driven institutions we have built. They are ruthlessly rooted out wherever they rear their ugly heads.

Smaller, entrepreneurial organizations of course buck this trend, but what happens as soon as they start to scale? They embrace push programs and rapidly join the ranks of the regimented. Why shouldn’t they? That’s the tried and true way to succeed.

Why should we be surprised that computers and robots are taking over more and more of the work in push driven companies? And it’s not just companies. The doctrine of scalable efficiency pervades all of our institutions – schools, NGOs and government agencies. We have all embraced push programs as the way to achieve success." (http://edgeperspectives.typepad.com/edge_perspectives/2012/08/from-race-against-the-machine-to-race-with-the-machine.html)