The economics, structure, and behavior of platform ecosystems and organizations

The way that people organize social structures is a function of many factors, and over time these structures have shifted their form and operating principles based on economics, technology, and other cultural forces. This can be considered as a social evolution, and it is reflected in the ways we talk about human organizations, and specifically about business and management.

We can consider the terms we use as something like maps, and like maps they can be incomplete, or flawed, while still being useful. And, just as city streets and other points of reference can change over time, and therefore decrease the utility of older maps, we have to consider the fact that they may have been quite useful in their day, and some are useful even hundreds of years later.

Let's take a look at how we have been mapping out the changes going on in our discourse around the changing nature of work.


Looking Back To See The Future

We look at the present through a rear-view mirror. | Marshall McLuhan

The first set of terms to consider are 'the future of work', 'social business', 'enterprise 2.0', and 'digital transformation', which have been used over the past decade for different but overlapping purposes.

'The future of work' was originally an academically-oriented area of discourse, with a strong lean into new theories of humanist business management, and with closely related ideas of economics and organizational development.  However, the term has enlarged in use in the past decade, and has become a central area of discussion about organization, management, and adaptation to new technologies, especially those which are based on the form and function of social networks and social media. But the origins of the term still are reflected in the orientation of the way the term is applied.

As a result, the interest in 'the future of work' has expanded and absorbed the discourse around ‘social business’, that started in the early ‘00s and had been drained of emotive force by 2010, principally due to the blur caused by marketing of work management software that played upon the themes of a more people-centric workplace and the aspiration for people to find meaning and purpose in work.

The first wave of 'social business' was principally an adoption of practices and technologies like blogging, wikis, forums, intranets, community software, and various sorts of messaging (such as instant messaging and Internet Relay Chat (IRC)). This was an early phase, much of which predated social networks like Twitter and Facebook. The second phase of social business tools (or work management) was more of an outgrowth of Web 2.0 era technologies, adopting the software-as-a-service model and other Web 2.0 advances.

'Enterprise 2.0' was an intentional departure from the social business school of thought, one that was strongly technology centered, based on the parallelism with the term Web 2.0.  It was a school of thought that took the ‘tech’ side in the perennial debate about ‘which is more important, the technology or the people side of social business?’ James McAfee of MIT was perhaps the leading advocate for the term, but it was overshadowed first by ‘social business’ and now by 'the future of work’ and ‘digital transformation’.

And just as quickly as ‘social business’ eclipsed 'enterprise 2.0', so 'social business' is being absorbed by ‘the future of work’. And, in parallel, we are witnessing the rise of the term 'digital transformation'. 'Digital transformation' can be thought of as an industrialization of the thinking behind the research and practice of 'the future of work', building around the principles of modern customer experience and the enabling technologies of the Internet of Things (IoT).

Here's a definition I used in a presentation a year ago:

Digital Transformation: A new operating model of business – based on continuous innovation – by the application of digital technologies and the restructuring of operations around customer experience to better engage with increasingly digital customers, other partners in the company ecosystem, and the greater marketplace.

Note that the 'the future of work' content is buried mostly in the 'restructuring of operations' phrase, and the shape and tenor of those changes is in service to the need to get onto a digital footing in relation to customers. The stress in 'the future of work' discourse is on humanization and democratization of work -- putting people first -- is shifted to a customer-centric dynamic in 'digital transformation' discourse.

The discussion in management and business circles about the future of work and digital transformation has grown enormously over the past decade, while the earlier terms -- social business and enterprise 2.0 -- have fallen by the wayside.

Google Trend searches

The result of this analysis is clear:

  • Earlier approaches to characterize changes to improve business operations and organizational culture -- specifically 'social business' and 'enterprise 2.0' -- have declined in general use. Indeed, 'enterprise 2.0' is completely obsolete.
  • Today, and going forward, 'the future of work' and 'digital transformation' are growing sharply, and dominate most discussions about business operations and organization culture.

In fact, these two ways of thinking are actually better considered as two aspects of the same underlying phenomena, with the 'future of work' conversations more focused on issues related to human interaction, organization development, creativity, innovation, and productivity, while 'digital transformation' are more likely to highlight digital technology's impact on the relationship with the customer, and the need to rethink and reorganize work patterns to better match the market requirements of the 21st century. Another way to position these differences:

  • 'the future of work' is about the sociology and anthropology of people at work seeking a more humane workplace, and the pursuit of meaning, purpose, self-determination, and dignity at work.
  • 'digital transformation' is about the economics and technologies of businesses seeking closer connection with customers, and seeking to adopt and adapt to increasingly advanced technologies to increase the company's flexibility and competitiveness.

As we shall see, these two twinned perspectives -- a humanistic and a technologic pairing -- reappear at every juncture in our reflecting on human social systems in business, media, and society, and the impact of information and communication technologies on them. Of course, communication and information technology of the time impacts society and individuals, but it is part of the society at the time: the impact is imparted by individuals, groups, and organizations adopting these tools, and then adapting to them. As the saying goes, 'we shape our tools and thereafter they shape us'.1

So, our tools and our adoption of them is an on-going cycle, since as we adapt we also modify and extend the tools that empower and connect us. This can best be thought of in evolutionary terms, and this transition in terminology and the adoption of the ideas and premises underlying 'the future of work' and 'digital transformation' is just another cycle of evolution in our thinking about the interdependence of society and technology. And, as we shall see, it's not the last cycle, either.


A Unifying Model: Social Evolution

One of the aims of the research motivating this report it to find a middle ground in the historical thinking about these ideas, and set the stage for the next wave of innovations in business practices and technologies that are already emerging.

Toward that end, I will borrow quite liberally from the Social Evolution concept as developed by David Rosenfeldt, in his groundbreaking Tribes, Institutions, Markets, Networks: A Framework About Social Evolution, published in 1996 when the author was senior social scientist at the Rand Corporation.

Candidly, one of the many reasons I have adopted Ronfeldt's work as a unifying model in this research is that his work is principally observational rather than advocating a specific course of action for individuals, companies, or institutions. And the second, and perhaps most compelling aspect of Ronfeldt's analysis is that he believes that 'collaborative networks' represent the fourth stage of social evolution, one ushered in by the rising tide of new communication technologies of our time.2

Rosenfeldt proposed that his four forms correspond with ways that people have organized societies across the ages. Note that all these forms are predicated on underlying social networks, but they have different shapes, and can be typified by different sorts of information technologies.

Tribes -- These are kinship-based (and later brotherhood-based) societies, predating more complex forms. Neolithic tribes relied on oral culture and then early informal writing systems. We still live our lives, to some extent tribally, seeking a sense of belonging through language, locality, and social identity. Much of team interaction and organizational development operates at a tribal level. However, tribal systems don't scale well, and are prone to clannishness and feuds. Many of us have worked in small companies, however, where tribalism is alive and well, even in the 21st century., and many companies pride themselves on 'being like a family', believing that is an undeniably positive attribute.

Institutions -- With institutions hierarchy supplants kinship as the central organizing principle of society. As Jürgen Habermas wrote about the displacement of tribes by institutions,

Collective identity was no longer represented in the figure of a common ancestor but in that of a common ruler.

Institutions -- such as the army, the church, and in the final apotheosis, the state -- can be characterized by their top-down decision-making and power-structures, and the arrogation of total authority with the increase in the size and height of the institutions. The scaling up of large institutions is enabled by formal writing and printing systems, and the mechanisms of storing and distributing such information, like libraries, the Roman roads, and storehouses of mud tablets. With increased size comes increased bureaucratization, the professionalization of office work, and pervasive legalism curtailing tribal egalitarian norms. Where much of small scale socialization in today's workplace is tribal, nearly all of the larger scale organization of business organizations is institutional, and its core structures date back to the bronze age.

Over time, the moderating influence of national and international laws and regulations, and the rise of labor and free markets mellowed some of the more absolutist attributes of institutions, and various approaches to balance the political powers of, for example, church and state, like the rule of law and the rise of the free press. Ronfeldt and many others have made the case that hierarchy has a major limitation. As Ronfeldt states,

[Hierarchy] cannot process complex exchanges and information flows well. This shows up most in the area of economic transactions well. This shows up most in the area of economic transactions, which become too complicated for monarchies and their bureaucracies to control in detail. They have increasing difficulty dictating terms and prices in a productive, acceptable manner. This proves particularly the case with long-distance trade within and beyond a country’s borders; as it grows, traders and merchants who had operated at the behest of a state work to break free of autocratic controls and to go independent. Thus, the institutional paradigm of governance begins to fail in the economic realm, and gives way to the rise of the next great form: the market.

Markets -- Markets have emerged as a response to institutions needing to interact and coexist while retaining individual sovereignty, and so transactional interchanges arose, through systems like banking, exchanges,  and commons. These embody complex social agreements, as realized in property laws, contracts, price setting in exchanges, standards of accounting, and market-oriented laws, and with courts, guilds, or other authorities that adjudicate disputes that arise. At the highest level these systems and their interactions lead to what we consider economies. And the orientation of markets is strongly canted toward managing competition without resort to hierarchical commands or tribal feuding. The fullest realization of markets is today's global, industrial economy, enabled by communications and information technologies. There were originally telegraph, telephone, teletype, and later morphed into mass media like print, radio, television. These have arisen in the first three industrial revolutions:

  • first (water and steam power to mechanize production),
  • second (electric power to create mass production), and
  • third (electronics and computers to automate production).

The third industrial revolution led to the foundation of today's connected world, with online media now dominating and subsuming all prior communications and information technologies. And to respond to those changes, organizations have been flattened, middle management excised, non-central functions outsourced, and companies have increasingly focused on their customer's needs, but until recently in a classical economics framework of mass industrialization.

Today's fourth industrial revolution, as Klaus Schwab, the executive chairman of the World Economic Forum characterized it, represents another tectonic shift:

There are three reasons why today’s transformations represent not merely a prolongation of the Third Industrial Revolution but rather the arrival of a Fourth and distinct one: velocity, scope, and systems impact. The speed of current breakthroughs has no historical precedent. When compared with previous industrial revolutions, the Fourth is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management, and governance.

The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.

[...]

On the supply side, many industries are seeing the introduction of new technologies that create entirely new ways of serving existing needs and significantly disrupt existing industry value chains. Disruption is also flowing from agile, innovative competitors who, thanks to access to global digital platforms for research, development, marketing, sales, and distribution, can oust well-established incumbents faster than ever by improving the quality, speed, or price at which value is delivered.

Major shifts on the demand side are also occurring, as growing transparency, consumer engagement, and new patterns of consumer behavior (increasingly built upon access to mobile networks and data) force companies to adapt the way they design, market, and deliver products and services.

These changes are increasing the pressure to adopt new organizational forms and operational principles.

Networks -- Just as markets evolved to deal with the need for hierarchic institutions to interact and coexist, and leading to institutions capable of responding to market innovations and evolution, we are also undergoing another shift, one where organizations need to adapt to the exponential pace of the fourth industrial revolution and the disruptive technologies it is ushering in. This is creating the context for an organizational shift that pulls the structure of the organization inside out. Over the past decades, during the third industrial revolution, the adoption of email and other pre-web and Web 1.0 communications technologies led to the 'reengineering' of business, and the hollowing out of middle management, driven by the goals of cost reduction and streamlined business processes. This led to 'flatter' organizations, but ones that were still structured as principally hierarchical.

However, the shift into the fourth industrial revolution is deemphasizing the verticality of institutions by weakening the command-and-control built into their managerial tiers, and spreading decision-making and self-determination out and away from the core of the organization out to the organizational groups closer to customers, and creating incentives for more open and freely shared information. In other writing I have characterized this as pushing authority, self-determination, and innovation out to the edge of the company. This is what David Ronfeldt calls the network era of social evolution:

Whether one is talking about economic or other actors, it is increasingly clear that the information technology revolution and related managerial innovations are easing the deficiencies and increasing the efficiencies of this form. Why does the information revolution, in both its technological and non-technological aspects, favor the rise of organizational networks? In the first place, this revolution makes life difficult for traditional institutions. It erodes hierarchies, diffuses power, ignores boundaries, and generally compels closed systems to open up. This hurts large, centralized, aging, bureaucratic institutions. (This does not mean that the institutional form is in demise; hierarchical institutions of all types — including especially the state — remain essential to the organization of society. The capable, responsive ones will adapt their structures and processes to the information age. Many will evolve internally from strictly hierarchical toward new, flexible models that mix hierarchies and networks.) | David Ronfeldt

As Ronfeldt states, hierarchical forms will still exist, just as the controls imposed by markets will continue. But increasingly, much of the communication, coordination, and cooperation around work in networked business is passed along through lateral connections across the organization, from the work done in small teams, the coalitions developed between teams of teams, and the ecosystem of increasingly horizontal ties to supply chain partners and partners, and finally to the customers. Note that the customers are increasingly digital, and can participate in the ecosystem in ways that were simply impossible in prior eras. Perhaps the culmination of this transition from the vertical to the horizontal is the fluidity and agility from cooperation-centered multi-organizational networks, and the changing role of executive leadership. With a radical decrease in top-down command-and-control -- which is simply too slow to the exponential rate of change in the fourth industrial era -- leadership shifts toward creating and maintaining economic, cultural, and technological context that reduces friction, directs investments, and shapes cultural norms.


A Transition to Social Platforms and Ecosystems

Ronfeldt was a tremendously prescient observer of social history and has established a model -- social evolution -- that we can productively apply as a backdrop setting context for the various eras leading up to the present day. However, the technological and societal changes that have arisen in the two decades since he wrote his tract on social evolution have kicked off a fourth industrial revolution, and with it an additional, fifth stage of social evolution. We will have to add Platforms to the list of organizational models, and as with earlier models, platforms take the forms of earlier models and reorganizes the operations of business through inclusion of new information and communications technologies.

Here's a quick definition and introduction to the idea of social platforms, which will be expanded in chapter 4, The Future of Networks: Platforms and Ecosystems.

The term platform defines a collection of loosely integrated and extensible software capabilities ('tools') that can provide means for automation, communication, coordination, and cooperation across large and possibly multi-organizational networks. We have witnessed the emergence of platform-based two-sided marketplaces, like ride-hailing systems (Uber, etc.) and freelancer platforms (like Upwork, Task Rabbit, and others), that enable economic exchange between buyers and sellers of goods or service. These platforms are mediated by the companies behind them, who make money by promotion of the platform, and mediating between the buyers and sellers in a way much like other, more conventional markets. These platforms fill a critical role in the economy. As an example consider Upwork enables freelance creatives to offer their skills to corporations, in a fair and transparent exchange, and blocking bad behavior and bad actors.

When a platform becomes rich enough -- providing sufficiently rich affordances and peopled with a population of critical size and density to enable the formation of complex markets -- they can be thought of as enabling an ecosystem to arise, and the operating principles encoded into the platform shape the culture that arises in the ecosystem.

We will return to this topic in chapter 4, The Future of Networks: Platforms and Ecosystems, after the next two sections:

  • In chapter 2, The Era of Networks, we will explore several contemporary approaches to rethinking organizational form and operations, specifically, Frederic Laloux's Reinventing Organizations, Holacracy, and the approach known as 'teams of teams'.
  • In chapter 3, Haier, RenDanHeYi, and Zhang Ruimin’s Vision we will look at the history of Haier from the social evolution perspective, with special attention to the vision of a multinational organization transitioning to a social platform as the basis of its operations.

[1]    This is often attributed to Marshall McLuhan, but the first use seems to have been John Culkin, a Professor of Communication at Fordham University in New York and friend of McLuhan, who used the expression in an article he wrote about McLuhan, A Schoolman's Guide to Marshall McLuhan.

[2]    I feel that Ronfeldt's model is as important in its way as Ed Roger's model of The Diffusion of Innovations, popularized by Geoffrey Moore in his Crossing the Chasm books. However, no Geoffrey Moore has arisen to promote Ronfeldt's model.