Strategies for a discontinuous future.

Thursday, March 23, 2006

Breaking the Corporation - The Rise of the Edge

Case Study: GM. After decades of stifling hierarchy, anti-strategy, and an innovation failure so total, it will be the stuff of b-school discussions for years to come...

...and the workers are the ones that pay the price?

Look. I'm as much a vulture as the next strategist (OK, maybe not).

But this is, from an economic point of view, a deeply inefficient outcome. Here, the incentives are backwards. The guys that put the hierarchies in place, and cemented anti-innovation with design by committee - C-level, consultants, etc - should be the ones that get hurt by this.

This is elementary; they must bear the risk of their decisions for them to make rational decisions. The workers, by definition, shouldn't bear this risk, except in increments tiny enough to barely affect them, since they don't affect outcomes except in marginal ways. Put another way, the marginal product of a CEO's labor is enormously greater than the marginal product of an assemblyman's labor - that's, theoretically, the reason they get paid 100x as much.

Now, we can complicate this argument in many ways (by introducing different time horizons and preferences) - but I think we can all agree that for workers to take an order-of-magnitude cut in their lifetime earning is absurd; it's absurd even if C-level takes the same percentage pay cut.

There is no economic universe in which this outcome can be justified.

It points to the deeply inefficient mode of coordination and production the corporation has become.

It points to the malaise at the heart of our thinking about "free" markets, which, as this example demonstrates, really get freer the more capital you bring to the table. Certainly, if markets implicitly regulate the corporate sphere - they failed spectacularly in this case, and they continue to fail spectacularly.

Ultimately, this is the heart of edge competencies; this is why we see value shifting to (real) markets, networks, and communities.

Many think I'm simply talking about Web/Media 2.0 when I talk about edge competencies. But the shift to the edge is, I think, a much broader phenomenon, with much bigger implications: it is a fundamental reshaping of the economic landscape, in response to the growing inefficiency and abusrdity of the corporation.

How different is GM's failure from the fact that most investment banks are making more and more of their money from arbitrage (versus relatonship based dealmaking)? In the big picture, not really different - they are effects of a cause; the shift of value to the edge.

-- umair // 6:41 AM //


Good post.

Ultimately it's because corporations are control hierarchies. Risk is created high up, but pushed downwards.

Here's an interesting comparison :


I wonder how you create edge-competencies in an industrial giant like GM? Obviously outsource a lot of work, do the global process network thing.

Build it yourself kit cars?

I notice when I go to the gm.com website there's no link to any kind of discussion forum where I can ask other owners about problems I may have with my GM car. No GM owners' meetup site. No photostories from drivers in exotic locations.

BTW : did I read that correctly? Pension and health-care costs per worker are more than 100% of the salary? Unless you think GM is about to go under, why would anyone accept the buy out? You're not gonna get a job with a substantially higher salary, and the benefits you lose are enormous.
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