Business Community Insights

The Corporation as Technology

If we think of companies as a technology for value creation, we can apply principles of innovation to accelerate change. (Image courtesy Shutterstock)

If we think of companies as a technology for value creation, we can apply principles of innovation to accelerate change. (Image courtesy Shutterstock)

The Techonomy community is united by the belief that technology is redefining business and society. Over the last six years, the stages and pages of Techonomy have been filled with stories of how technology can create economic value and social progress.

We normally think of technology as something from computer science, biology or chemistry. We consider companies as the institutions that put this technology to use. But what if we consider the corporation itself as a kind of technology?  The definition of technology is “a scientific method of achieving a practical purpose.”  In this sense, we can say the corporation is a technology for organizing labor, resources and capital towards the creation of economic and social value.

By applying a techonomic lens, we can see the historical evolution of the corporation as a process of invention and innovation. We can also look to the future of the corporation as an opportunity for purposeful design. What defines a techonomic company?  How does it compare to the traditional company?  And how can we best make the transition from traditional to techonomic?

To predict the future of something it is often helpful to look at where it began. The first corporations began in the 1300s. The word “corporation” came from the Latin “corpus” or body. The primary invention of the corporation was to treat a group of people as a single person under the law. For the next five hundred years, corporations were created by government charter. But by the mid- 1800s, the industrial revolution revealed their limitations. By 1900 a series of innovations had created what might be called Corporation 2.0. Anyone could now create a company, the corporation had limited liability, and the assets of the company were separate from its owners.

The corporation developed on this platform for decades, becoming increasingly sophisticated, with holding companies and multinationals.  Then in the 1970s a debate raged not over the corporation itself, but over what its aims ought to be. Milton Friedman and his followers believed that the purpose of the corporation was to maximize profits for shareholders. In contrast, Peter Drucker believed that the purpose of the corporation is “to create and keep a customer.”  Profit is a means, rather than the end.

For decades, Friedman’s view has reigned supreme on Wall Street and in corporate boardrooms. Most CEOs serve customers in order to generate profits. But techonomic CEOs seem to be more in Drucker’s camp. They use profit as a means to create shareholders, and more broadly stakeholder, value. From the beginning, Amazon CEO Jeff Bezos made it clear that his purpose was to “obsess over the customer” and thereby create long term shareholder value. Salesforce CEO Marc Benioff has written, “ultimately, the most effective way to create shareholder value is to serve the interests of all stakeholders.” According to CEO Mark Zuckerberg, investors need to understand that Facebook is driven by its mission “to make the world more open and connected.”  Apple CEO Tim Cook has said, “If you want me to do things only for ROI reasons, you should get out of this stock.” John Mackey, CEO of Whole Foods, has also advocated for a multi-stakeholder view of the firm.

The techonomic view of the corporation replaces pure profit maximization with a hybrid view that combines profit and purpose. Shareholder value is one dimension of a multi-stakeholder view that includes employees, customers, shareholders, citizens and the environment.

While the shift from shareholder to stakeholder is significant, it doesn’t really change the underlying technology of the corporation. Companies like Amazon, Apple, Facebook, and Salesforce are still organized and operate in largely the same way as companies a hundred years ago, when Alfred P. Sloan laid out the model of the modern corporation, with its decentralized operations and centralized controls. In fact, the goals of Google’s recent organizational changes are similar to those made by Sloan when he took over GM in 1920.

To be sure, there are many changes that companies need to make in order to be digital ready. A study by the MIT Sloan School of Management and Deloitte found that companies need to be more collaborative, move faster, distribute leadership, be more comfortable with risk, and base more decisions on data. But these important improvements don’t fundamentally change the design of the corporation. Consider them Corporation 2.5.

What might a Corporation 3.0 platform look like?  One of the more controversial approaches is Holocracy, which attempts to increase empowerment through self-management and interlocking teams. It has been embraced by Zappos, but tried and abandoned by companies such as Medium.

The agile software movement suggests an alternate direction for self-organization, with its focus on experimentation, rapid iteration, and deconstruction of work. Lean Startup began as an organizational model for small companies to apply agile principles, but has been extended to large enterprises. There is a move underway to bring agile techniques to the rest of the organization and functional areas like marketing.

Another opportunity for Corporation 3.0 is actually a few decades old. It was created by Dee Hock, the founder of Visa, as a way to manage a distributed alliance of banks that needed to coordinate and collaborate to build the Visa payment network. Hock called the model the Chaordic Organization, to reflect the combination of both chaos and order. Interestingly, the Chaordic organization draws more from John Adams’ writings in the Federalist Papers than Alfred Sloan’s My Years at General Motors. Chaordic organizations have constitutions based on design principles such as shared purpose, self-organization, empowerment, and equity.

Anyone in a traditionally-organized corporation may find the concepts of Holocracy, Lean Startup and Chaordic organization to be of interest, but not readily applicable. Does one need to start all over again?  Does innovation in the technology of the corporation require a complete overhaul — a “rip and replace”?  Or is there a migration path that can get you from here to there without too much disruption?

One option is the idea of decision doctrine, drawing on both biology and military practices. In biology, birds are able to flock in a distributed but coordinated way through simple principles that guide their behavior. In the military, the concept of doctrine — principles that guide decision making in support of objectives – is used to empower soldiers on the battlefield in the fog of war. By creating doctrine that is more specific than values and more flexible than policies, companies can achieve both alignment and autonomy. Leaders can let go without losing control.

We all know digital technology is reshaping the world. The last time we had a change on this order of magnitude was Gutenberg’s press, and it led to a reinvention of every kind of institution. As we go from the age of Gutenberg to Zuckerberg, we are likely witnessing the beginning of the same transformation. It would behoove all of us to be proactive designers of our future rather than reactive agents of our past.

So as we prepare for the next gathering of the Techonomy community, we should continue to reflect on important questions. What do we know about how to accelerate technological progress?  How does one propagate technological innovation?  How does one make decisions about the best use of a technology?  We are accustomed to asking these questions about digital technologies. But now let’s also apply them to the technology of the corporation itself.

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