Web Extra: Tom Malone

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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