Thursday, October 4, 2012

Tasks, networks, and transaction costs




The following tweet by the always excellent thinker Esko Kilpi got me thinking (and writing) this morning:


Here is the train of thought it set in motion.

We are all, as employees of organizations, hired to perform certain tasks. We perform these tasks to create value for someone. The work we are to do is not a role, or a function. Those are just conceptual containers, making it easier to define tasks that we are responsible for, and what tasks other people are responsible for.

To our help, as we perform our tasks, we have our own knowledge and experiences, information, various resources such as IT tools and systems, and – we have our own networks. Those networks connect us to even more knowledge and experiences, information, and resources that might be needed if we are to be able to perform our tasks. This is especially true when we encounter situations we have no previous experience from, when we lack information to make decisions, when we are faced with exceptions and problems that we cannot handle on our own – or where we would perform much better if we made use of the intellectual capital and resources we are connected to though our networks.

In reality, we never work in isolation. Any enterprise involves at least two persons; the provider of a service or product and the customer, and most of us work in much larger and more complex enterprises than that, involving hundreds or even hundreds of thousands of people - if we don't count the customers. The things we do as individuals are inter-connected with the things other people do. At the very least, our work is connected by a shared purpose, commonly expressed as vision and mission statements. To achieve that purpose, each and one of us don’t just need to do the right things (tasks) in the right way, but we must also coordinate our work. The work we do is connected on different levels, and these networks must be coordinated.

As organizations are becoming more knowledge-intense, and need to adapt the enterprise to an ever-changing business environment, work (tasks) is also becoming more and more inter-dependent. It needs to be even more connected. We are now starting to realize that the formal structures and systems that we have created to make our work easier to control, measure, and improve inhibit rapid coordination and change instead enabling it. The paradox is that the network, the basic architecture of work upon which we have put the formal structures, is much faster at adapting to a changing environment. What it excels at is access and dissemination of new information. Many of the existing formal structures and systems are associated with transaction costs that simply makes it impossible to create, manage and distribute the amount of information with speed and precision they way we need to.

So, suddenly we need to adapt our formal structures and systems to support the network instead of constraining and suppressing it. We need to create a better balance between our capability to optimize our enterprise and our capability to adapt it to new situations. This is the challenge that more or less all organizations are facing today. To find the solutions for this problem, we cannot simply look in the rear-view mirror. We must try to envision the future we are heading into, and innovate how organizations and enterprises are designed, making smart use of new technologies that make the transaction costs for communication and coordination drop dramatically.