Web Extra: Tom Malone

By Edward H. Baker  |  Posted 04-19-2004 Print Email


The New Reality for Customer Engagement

MIT Sloan Professor Tom Malone on the advent of a values-based, 21st-century organization.

The Center Cannot Hold MIT's Tom Malone discusses his new book The Future of Work: How the New Order of Business Will Shape Your Organization, Your Management Style, and Your Life.

From the development of Linux to the outsourcing of data to Bangalore, and from the Screen Actors Guild to the "loose hierarchy" at AES Corp. (the leading global producer of electrical power), MIT Sloan School Professor of Management Tom Malone has studied all sorts of distributed work organizations. His conclusion: Thanks in no small measure to IT, these decentralized networks, guilds and associations represent the business future. For the first time in history, Malone contends, we're in a position to enjoy the economic benefits of large corporations without compromising the human benefits of small ones. In a recent interview with CIO Insight Editor Edward Baker, he talked about outsourcing, the advent of a decentralized 21st-century organization and the prospects for "a marketplace for values."

CIO Insight: Are there changes going on today that support your theory of a decentralized future?

Malone: I think most things that happen in organizations and human societies happen by fits and starts. There are ups and downs, booms and busts. And I think we've just been through a boom-and-bust cycle in the year 2000, and after the year 2000, when there was a great deal of overly optimistic enthusiasm about how much-and especially how fast-information technology would change business. [But] I think many of the ideas people had about what changes would happen were basically right. They just aren't going to happen nearly as fast as some were assuming.

Does the kind of decentralization that you write about-for example, an increasingly remote, mobile, "free agent" workforce-does that tend to be held up during periods of economic contraction?

I think it's often the case that decentralization works better in times of growth rather than in times of contraction. Not always, but that's often the case.

Let's talk about outsourcing. How do you see that in the context of the trend toward decentralization?

Outsourcing is one of the important ways that decentralization will continue to occur. When you outsource work to other companies or to independent contractors-work that used to be done inside a company by its own employees-that's a major driver of decentralization, obviously. It's also clear that, through outsourcing, much of business is increasingly turning to a global market, rather than to a local or regional one. That has potential risks for the individuals whose jobs are moving around, but I think that in the long run it makes all of us better off.

All of us, or just the ones with the work?

Well, let me say a little bit more about that. First, I think that the global labor market today is still very unequal. There are still differences in wages of factors of five, or ten, or sometimes more between the highest-wage countries and the lowest-wage countries. We are in for at least a generation or so during which that global wage market will equalize out. That will never happen exactly, but for the most part the labor market will come into equilibrium. So in the short term that means people with skills or jobs that can easily be exported because of the technology are at risk of having their jobs exported to low-wage countries. People in the low-wage countries stand to benefit from that. But it doesn't mean the world is getting worse off; it just means that some individuals have hard times. I think that there are two things we need to do as a country about that. We need to provide as many opportunities as we can for people whose jobs are being moved to other places. Second, I think we need to invest in education and innovation so that we will keep creating new high value-added jobs in this country while the older, less value-added jobs are done more cheaply elsewhere.

But aren't a lot of those new jobs taken by younger people coming into the job market?

Well, yeah. But the point I was making is that in the long term new jobs are created. In the short term, there definitely are dislocations for individuals whose jobs are moved.

Obviously, in very hierarchical organizations, power resides at the top. As corporations decentralize, will decision-making power get decentralized, too?

Yes, I think it does. I think that the broad historical theme that runs throughout my book is a theme of how information technology, by reducing the costs of communication, is making it possible for many more people in organizations to have enough information to make decisions for themselves instead of just following orders from someone else.

How do you lead such an organization so that all those independent decision-makers work toward a common good-especially when the "common good," at least at this point, is shareholder value?

Well, let me take two parts of that question. The first part is: How do you organize a decentralized system so that everyone is working toward the common good? You can use loose hierarchies where a great deal of authority and decision-making power is delegated, but there still are centralized managers who, if they do nothing else, at least decide how to reward people for the results of the decisions they've made. Another way of doing this is by using various kinds of democratic decision-making where people vote on various kinds of decisions. And then, finally, you have markets with their balancing of supply and demand, and individual buyers and sellers making their own individual decisions about when to have a transaction. Markets also provide a way of aligning, in some sense, the independent decisions of lots of individuals, and pairs of buyers and sellers, with some overall common good. The second part of your question is the goal of maximizing shareholder value. In the last chapter of the book I talk quite a bit about this question of values. It is widely believed that the primary goal of business is, or at least should be, to maximize the return to the owners of the business, to the shareholders of the business. But if you think about who the shareholders are, they're people, and people care about a lot of things. They care about economic and financial things certainly, but they also care about relationships, they care about challenge and achievement for themselves. They care about finding meaning in their lives. And I think one of the best examples of how, even in investment decisions, other human values can play an important role is the rise in so-called socially responsible investing. Socially responsible investing now accounts for over 10 percent of all the funds under professional management in the United States.

And yet plenty of people would describe the last 30 years of business history as the rise of market values-not social ones.

I think you're right that much of the last 30 years or so has seen an increase in concern for purely economic values in business, but I see a lot of signs that that trend is reversing.

Ultimately, how do you reconcile the inevitable conflicts of interest that would arise when you have to focus decentralized, socially responsible managers on the bottom line?

Well, that's an excellent question. What we need is some way of reconciling or balancing among all those different ideas of what's important. In the last chapter of my book, I talk about one way of doing that, which I think is more promising than many people realize, which is what I call a marketplace for values. A marketplace for values is a market in which people make their individual decisions with other buyers and sellers on the basis of whatever is most important to them. So economic factors certainly play a role there, but if it is, for instance, more important to you to spend time with your family on weekends rather than to add 10 percent to your income, then, as an independent contractor, you have arguably more freedom to make those decisions and to make those tradeoffs in whatever way is most important to you. At the same time, if it's important to you to save the environment by reducing environmental pollution, then you can chose to buy from and work for companies that you think are doing a good job of that, and not to buy from and work for companies that you think are doing a bad job of that. And out of all that very complex, decentralized set of decisions-all the different decisions of who's going to buy from, or work for, or sell to, or invest in whom-will emerge a kind of decentralized consensus about what values are important to us as a society or as an economy.

Okay, but don't markets have the unfortunate habit of picking winners and losers?

Markets have winners and losers, but so do all other ways of making decisions. Democracies have winners and losers. Hierarchies have winners and losers. So I think the fact that some people get more of what they want than others in a market is by no means unique to markets. And I don't think, by the way, that markets should rule all. There are clearly times when markets should be, and need to be constrained by other kinds of institutions, such as democratically chosen laws and hierarchical enforcement mechanisms. The right answer in nearly every economy is some combination of centralized and decentralized. The art of the future will be to know which things to centralize and which things to decentralize.


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