Written by Song Fei of Ali Research
In the 19th century, companies limited by shares gradually prevailed and “company" became the basic economic subject. Today, in the 21st century, the space of the basic structure of "company+ employees" is gradually being squeezed by the structure of "platform + individuals". In other words, the "Internet platform + mass individuals" is becoming a brand new and significant organizational landscape of our time. Along with continued growth and expansion of “platform + individuals" this social and economic structure, the new economic, legal and social implications will thus deepen and extend.
Just think the position and influence of “company" in the world today, we should keep curious, open and reverent to the new major changes in the organizational field.
History of Company: From Privilege to Right
The appearance of company limited by shares is the largest institutional innovation in the field of organization of human society after the industrial revolution.
The birth and evolution of the company first is based on the needs of the new industrial production of the time. Industrial mass production requires large capital and risk sharing. "The three largest features of company are limited liability, free transfer of investment interests and status of a legal person of the company, which are the most important features in the definition of company" (Qian Yingyi). These features of the company go hand in hand with the needs of new inventions, new technology, and new industrial development in the industrial revolution period. Because an individual or a small group of partnerships apparently cannot provide large funds for mass production. People are not encouraged to invest in the unlimited liability and thus cannot concentrate funds to open the gate of investment. If the lifespan a company is limited to the life cycle of a natural person, it will not be conductive to the far-reaching, long term, and ambitious development plans.
The emergence and development of the company is by no means easy. It is the process and result of political wresting. "Company" in its initial stage was granted franchise by the government. Later, due to the factors such as large investment in the development of new industries like railways, the competitions among regions or countries, the government gradually relaxed restrictions to the company limited by shares. In 1837, for example, in order to compete for business opportunities, the company limited by shares could be established in most of the industries in Connecticut, US, without the consent of special ordinance. This process of political wrestling, as said by English Robert Law: "Before 1825, the law prohibited the establishment of company limited by shares. From then until now, setting up a joint-stock company is a privilege. We hope to turn it into a right. ” By 1901, the first company with USD 1 billion in the world, U.S. Steel Corporation finally came into being.
In any case, company limited by shares has since become the basic building blocks of modern society. As Alvin Toffler puts it, "Small families, factory-based schools as well as large companies, the combination of the three became the social structure defined by the second-wave society... Many people grew up in small families, and received collective education in factory-based schools, then went to serve in public or private companies.”
The process of which can generally be summarized as follows:
• Government and businesses--the turning of "franchise" granted by the government to "setting up a company is a right". This change was basically completed in and around the mid-19th century.
•Enterprise and enterprise--the turning from free competition to the standardization through antitrust laws. It was basically completed in the early 20th century.
• Enterprise and employees--for example, in 1935, the United States introduced Labour Management Relations Act to adjust the labour-capital relationship. And Taylor System and other numerous management reforms have also been dynamically regulating the labour-capital relationship. This process is still ongoing.
•Enterprise and society--for example, when the United States developed from the Gilded Age to the Progressive Era, conduct of the corporation was restricted. Along with the later emergence of the ideas and practice of the corporate social responsibility and social enterprise, all meant that enterprise had more and more social property and was no longer regarded as a profit machine. This process is still ongoing.
Reality: “company+ employees" is fading away?
The things appear to be logical are not a matter of fact in their origin. The company we are familiar with is but only about 200 years. The pyramid, bureaucracy management we are used to is only more than 100 years. Looking back the history, slowly but firmly, “corporatization" used to be a commercial movement of the late 19th century and early 20th century. Company had thus become the main components of the social structure. The bureaucratic management system of "company" also gradually spread to all economic and social areas. Up to date, most of the members of the community are either working in this company o that.
But the company dominant pattern is facing increasing impact today.
If globalization has changed the national state, then the Internet is changing the "company". A new business movement of “de-corporatization, company subsiding" has actually started bit by bit.
The organization form of economic organizations in the past generally was considered to have three forms. The organization form of "company" depends on the visible bureaucracy, which needs to pay the internal management costs. The organization form of "market" relies on the invisible price mechanisms, which needs to pay external transaction costs. Although many scholars believe that there are a large number of networked industrial organizations, long-term contracting, franchising and other "intermediate organizations", the enterprise and market dichotomy remains entrenched in the business field.
The situation today is that the Internet makes mass collaboration across company boundaries possible. On the one hand, many business processes in the company are moving into the market in huge quantities, namely, the increasingly wide spreading of the so-called "outsourcing" activity. For instance, e-commerce has just wiped out some of the medium service providers who survived by using information asymmetry, but it also has spawned many emerging medium service providers with core competence. On the other hand, with the teeming of spontaneous, independent, fast and flexible communities, many people have thus conceived a universal "unorganized organizational power": quickly scatter and gather, share, cooperate and even act collectively by hobbies and interests.
True, organizations will always be there, but the organization form dominant by bureaucracy represented by "company" is gradually declining. At the meantime, various social collaborations in self-organized manner and flexible mode will continue to emerge, and may grow to another mainstream organization form:
In Gore Company, if it can still be called a "company", its low-level leadership is not appointed by the senior leaders, but by the recognition from colleagues: are you capable of handling things? Are you a good team-builder? Or: when you hold a meeting, will other colleagues take the initiative to participate in?
In Wikipedia, the number of voluntary, active amateur editors reached about 90,000 people in early 2011. Such collective wisdom has brought very high edit quality comparable to professional editing. "Here is a popular event. On December 14, 2005, after comparing 41 scientific articles of two encyclopaedias, Encyclopaedia Britannica and Wikipedia, Nature magazine found that the latter contains 162 errors, and the former 123.”
Whether it is Linux and Wikipedia, the quickly scatter and gather Flash, the subtitle translation groups centred on foreign TV series...the costs of cross-border organizations are dramatically declining.
Sociality is still the basic attribute of us as human beings. But the direction of our sense of belonging and sense of identity, the way we develop self-ability and achieve self-worth are remotely different from before. Hedges are being dismantled everywhere.
In light of future relationship between organizations and individuals, Mr. Zeng Ming, Chief Strategy Officer of Alibaba Group, has also conducted excellent analysis: "It is still difficult to predict what future organizations will evolve into, but the most important function of future organizations is becoming increasingly clear, which is enabling, rather than management or incentives. Companies characterized by bureaucracy and with management as the core functions are faced with unprecedented challenges. The functions of organizations are no longer assigning tasks and supervising, but rather better matching the expertise, interests of employees with the customers' problems, which demand more autonomy of employees, higher mobility and more flexible organizations. We can even say, employees utilized the public service of organization, rather than the company employed staff.”
The future has come: the vigorous growth of "platform + individuals"
"The world's largest taxi company Uber has not a single taxi; the world's hottest media owner Facebook has not a single content producer; the retailer Alibaba with the world's highest market value has not a single product inventory; the world's largest accommodation service provider Airbnb has no real estate at all; the country's top three hotels OTA has not a single room". What is this popular statement trying to say?
Internet platform is widely different from traditional platform
Internet platform has brought great impact on the business world. As the former Chairman of Sony Nobuyuki Idei says, "The core competence of new generation enterprise based on Internet DNA is to use new models and new technologies to get closer to consumers, to profoundly understand the needs, to make efficient analysis and anticipation. All traditional product companies are reduced to vassal of this new user platform companies. And this decline is not reversible by management.”
In fact, platform pattern has been there for a long time, but it was not until the advent of the Internet, did it begin to have a new scale, content and influence.
• As an economic phenomenon, the top 15 Internet companies of market capitalisation as shown by the KPCB on May 2015, the aggregate market values is up to USD 2.4 trillion, being an important economic force in the global economy. Thomas Eisenmann from Harvard University also found in his study that 60 of the largest 100 companies of the world have revenues from platform business model.
• As an organization phenomenon: the 15 largest Internet companies mentioned above are all platform mode almost without an exception. Not only Internet companies, many businesses and industries have also moved towards platform structure.
• As a social phenomenon: the number of Facebook users exceeded 2.2 billion in 2014 , accounting 1/3 of the total global population.
Further analysis shows that every company is faced with longitudinal control and horizontal collaboration, or innovation challenges of centralized control and decentralization. In addition, today's enterprises also face the problems of connecting the networks of external demand. The new solution offered by today's Internet to the old problems is to support the front-end flexibility and innovation with the solid back-end cloud platform (management or service platform + business platform), and to achieve the effective combination of "multiple small front- ends" with "a variety of individual needs". This kind of "big platform + small front-end" structure has become the prototype of organizational reform for many companies. Such as the sheep herding style management of 7Days Inn, Handu's buyer groups and Haier’s self-supported ventures and so on.
Not only the individual enterprise has evolved such structure, Apple's AppStore, Taobao's online retail platform and so on also belong to the similar structure. They are also the fragmented representation of "platform + multi-application" this structure (or large platform + small front-end) in different enterprises. It is also the combination between the varying degrees of "standardization, unification, modular in the back-end" and the varying degrees of "personalized front-end". It is featured by distributed, spontaneous, self-governed and participatory governance.
Platform plays the roles of basic service provider and resources allocator in this system, such as the "credit system, user system, commodity system, trade flow, computing power, service standards" and other services Taobao provides to platform sellers. Vertical market, vertical applications, or front-end staff and teams inside the company have created flexible products and services. This, to a large extent, is because with the integrated technology modules or encapsulated business process modules platform, the collaboration on the platform is simplified. The running of the whole system of "big platform + small front-end" therefore reflects a great deal of flexibility.
Individuals substituting companies and becoming increasingly important economic subjects
In the industrial age, economy of scale of "large quantity and small varieties" played the dominated role. And accordingly, organizations continued to be maximized. In 1929, there were 65 giant corporations in the US with the assets of more than USD 1 billion. By 1988, this number increased to 466. Now Wal-Mart's global employees have exceeded 2 million people! In DT era, although larger organizations continue to be a major landscape of the organizational field, yet because the scope economy of "more varieties and small batches" is gaining a leading position in many industries, the corresponding organization scale is gradually turning into small micro and personalized accordingly.
From a purely logical deduction, we can find that on the technology and business infrastructure of the Internet, cloud computing, with the general decline in coordination costs of the whole society, the internal organizational efficiency of "company" is largely lagging behind compared to the organizational efficiency of external market. When "company" has more or less become the pronoun of "low efficiency", the organization scale of the enterprise will inevitably become small micro. And big business "multi-person enterprise” will eventually fission into numerous "individual enterprise". Even, a single individual will still be further fragmented --when each individual involves in different temporary organizations driven by tasks and processes, they may play different roles--before this phenomenon becomes increasingly common, the actors starring different roles in different crews are already the path breakers.
It is the case for logical deduction as well as in reality. Today, in the era that any individual can face the global market, small enterprise--to be more precise, individuals are ushering the golden age in self-development history.
The current development opportunities of “small and micro businesses and individuals” are directly related to the prosperity of individual needs. The individual needs aggregated and generated by the Internet are the fertile land of the “small micro organizations". Many of the characteristics small businesses could not be established in the past due to the limited market size now have found their customers on the Internet. And vice versa, the individual needs could not be met in the past limited by information cost now have found sellers on the Internet. The business development history is the history of mutual promotion of systems and technology and the constant reduction of transaction costs, is the history of the continued extension of business long tail, and is the history of mass emergence of traders, also the history of increased abundance of business categories.
The long-term transition of organizational values is one of the backgrounds should not be neglected. Big enterprise often means super detailed of labour of division--each one only participates in a small link of the value chain. Employees find it hard to directly perceive the value created for customers through their labour; large enterprise also often means super long, super slow internal process--each one needs to pay great efforts to achieve cross-sector collaboration. The complexity of the organization itself eventually will crash down the individual's collaborative wishes little by little. What the large organizations bring to individuals is often a sense of powerlessness and the boredom after being screwed up. The organizations also find that it is becoming more and more difficult to understand and perceive individuals. Therefore, in terms of value, some companies have begun to accept the value of "non-financial objectives at least are equally important to financial goals". As described in the book Small Giants, some US companies are not keen to chase profits, nor are committed to expansion. Instead, they pursue some of the more important goals they believe, such as the pride and dignity of employees, the establishment of friendly relation and sharing common ideals between customers and suppliers, the building of harmonious relations with the community etc. These seemingly vague but real values have existed before the Internet age. Now with the Internet environment, based on the minority interests, minority values, minority dreams, minority hobbies, it is much easier to realize internal collaboration and external communication with customers than in the past. Liebo, Artka, Afu and other businesses grown up in Taobao also share this nature more or less.
Of course, attacking the management system of organization form of "company", but acting as the role of screw spike more or less in the work has been the situation existed for more than a century. Facing the future, the so-called "free association of free men" similar to the socialized spontaneous collaboration, for individuals, the premise involvement in such a flexible way is the "expertization” of individual itself.
Drucker has predicted that knowledge workers will soon become the largest ethnic group in the developed world. It is a matter of fact. In view of employees proportion in the enterprise related to information, IT application in the 1950s and 1960s, the working mode of back-end financial personnel changed as a result in the first place. The universal of PC in the 1980s made a revolution to the work way of almost all knowledge workers. Up to now, for the IT consumption waves--the popularization of flat computers, smart phones, as well as the anticipated promotion of cloud computing on IT democratization, the employees in the enterprise whose last works yet to be IT enabled, their working style is bound to take place "information-enabled, knowledge-enabled" changes. At this point, the IT-enabled, information-enabled, knowledge-enabled working style will be basically completed in all departments and among all employees. This, in turn, means that the proportion of knowledge workers of the whole society will dramatically increase.
In the DT era, data and knowledge are becoming more and more important. Since experience and knowledge are not evenly distributed in each individual, only by combining the experience, knowledge and data of each individual can the data become fresh and vivid. The long tail businesses and occupations like this will be more and more. In a broad sense, everyone is a knowledge worker. Everyone is an expert in a certain area and this will make the work and life of the individual more flexible. On the one hand, the individual's potential will be greatly released. Each person's strengths can be "cashed" in the market more easily. They don't have to join in an organization and bear the cost of "being organized" to achieve the exchange of personal competence with market. On the other hand, the kind of split of working, living and learning, and the situation of individual that unable to flexibly arrange work and life in the industrial era will be greatly changed. The integration of working, living and learning similar to SOHO-style work, flexible work and other new forms will become more popular.
All in all, unlike in the industrial era where "enterprise" was the basic economic subject, in the DT era, it will be an economic time with "small and micro businesses and individuals" as the basic subjects. This will become a new social and organizational landscape in the new era.
Analysis: back to "production/consumption", "division of labour/ cooperation"
The problem of individual and society, micro and macro, differentiation and integration is the core problem to be dealt by all social sciences. In the perspective of economics, this subject is the division of labour and cooperation. At this point, let us return to some of the most basic perspectives, such as "production/consumption", or "division of labour /cooperation" and see what meaning the so-called "platform + individuals" implies.
Judging from division of labour/coordination, one end is the emergence of the Internet platform in various areas as well as the platform of various industries and enterprises, and the other end is the universalization of individuals as the economic subjects. Such a "platform + individuals" structure of division of labour and cooperation is a very different new division of labour/coordination structure from the "company + employees" structure. Judging from the production and consumption, platform, as a typical bilateral, multilateral market, to a large extent, has integrated the boundaries between producers and consumers. The so-called "oneness of production and marketing" is already a fact by large.
In fact, the division of labour/collaboration in the DT era will crack down the interlock between "deepening of division of labour" and "increasing of transaction costs" of industrial age at multiple levels. At the same time, it will also provide a new level of division of labour and collaboration system, which will bring the possibility of epoch-making breakthrough of the borders of the industrial economy, greatly expand the new frontiers of social economy, and improve social productivity.
At present, the upgrading and deepening of the Internet, cloud computing, and big data for division of labour/coordination system can be reflected in the following four areas:
First, the economics context of "division of labour/coordination" is totally different from the industrial era. As proposed by Mr. Duan Yongchao in his communication with us, the division of labour/coordination in industrial age was a collaboration based on the division of labour. While the division of labour/coordination in the information age is the division of labour under the premise of cooperation. Secondly, the new division of labour system will become more diverse. Thirdly, collaboration is becoming large-scaled in real-time and socialized. Fourthly, the basic meaning of economic roles is taking place significant changes. The dichotomy of the roles of producers and consumers of the past seems to be increasingly inaccurate. Consumers are transforming into an integration of production and consumption, which is a substantial change. On Taobao.com, the users are the consumers of credit system (shopping reference), also its builders (participating in rating). It is the same case with search engines.
Whether it is the featured businesses thriving on the Internet, the enabling to the SMEs and individuals, or the deconstruction to the "organization man", all allow us to see a promising future: the "alienation" state of individuals by machines and organizations is expected to be greatly improved--this is a great gift brought to us by the information age.
What are the reasons for the comprehensive deepening of this division of labour and the general upgrading of the division of labour/coordination?
•In terms of market areas, only the big market can have the big division of labour. The typical example is the US economy in the early 20th century, which has already got rid of the excessive dependency on European export. With the development of railway, circulation network (mail-order stores, department store, etc.), modern media (magazine, newspaper, etc.), as well as the exploration of the west, the population growth and the high level of income and other factors, the US domestic market at that time became the largest single market in the world. Emerging technology in such a big market was easy to achieve scale economy and the corresponding big division of labour system. Thus, the emergence of Fordism, the leap of division of labour system of small production to mass production taken place in the US was by no means a coincidence. Today, the Internet and cloud computing are supporting a global market unprecedented in breadth and depth. This has provided premises for the upgrading of division of labour/coordination.
•In terms of transaction costs, whether transaction costs for society as a whole has changed greatly or not is difficult to estimate, but the Internet and cloud computing have greatly reduced the transaction and collaboration costs among enterprises at least locally. In addition, lowering the transaction costs is only one aspect. More importantly, by meeting the individual needs of the mass consumers, the Internet and cloud computing is creating new professional values. The booming of numerous individual entrepreneurs or developers and other small businesses and individual operators also shows that this is an era that the division of labour between enterprises (spontaneous and automatic collaboration) prevails rather than within the division of labour inside enterprises (synergy by management).
•In terms of trading technology, such as Taobao, and Alipay trading system and trading mechanism all can be considered as trading technology in broad sense. This highly developed trading system can serve hundreds of millions of consumers at the same time, can carry out remote trading among strangers at very low costs, and can provide huge possibilities for trading efficiency. Just because of all these, it can support up the highly complex division of labour/coordination system.
• In terms of asset specificity, totally different from the asset specificity in the industrial era, by way of "platform sharing", cloud platform has made a kind of social division of labour beyond the boundary of enterprise's asset specificity among the "initial fixed input" with APP, vertical applications, value-added services, and other "marginal input" in the Cloud Computing Centre.
New species: Re-examining "platform" and "individuals"
The "platform" and "individuals" in this paper is basically a business concept, without too much meaning and properties in "systems". Thus, to what extent, how far in the future, what elements are required for the two to become new species similar to "company" in the sense of the industrial age, with clear “system” properties?
A big question mark (?) is placed here. But many researchers have been trying to straight the question mark (?) into concluding exclamation marks (!). Here, this paper excerpts the wonderful views from three researchers as the description and expansion of this topic.
On "platform", Mr. Zhou Hanhua mentions in On the Internet Law: as clearly defined in Section 230 of the Communications Decency Act developed in the United States in 1996: "No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider". Effectively, this immunizes the intermediate platform from liability. The provisions of similar laws in Europe and the US has a widespread impact on Internet legislation in other countries, and has gradually become a basic principle of law widely adopted various countries. Some scholars believe that the immunity of civil legal liability of ISP (Internet Service Provider) seems to have just established a simple principle of attribution, but has far-reaching significance. It just equals to the significance of limited liability company system to the development of the market economy. Only such legal principles and supporting rules of law can free the worries of all kinds of Internet Service Providers to carry out various innovations.
On "individuals", Mr. Zhou Ziheng made a wonderful analysis in the discussion with us: "Companies will no longer be the subjects of economic activities. Individuals will become the mainstay of economy. The company rationality will ultimately be deconstructed and replaced by the individual rationality. This is the essence of economic contradictions for almost two centuries. That is, the centre of economic issues will no longer be the relationship between enterprises and government covered up by the so-called relationship between market government, but relationship between individuals.”
On "individuals", Thomas L. Friedman states a similar view in his book The World Is Flat: "If the main protagonists Globalization 1.0 were countries and governments, and the driving force of Globalization 2.0 was companies, then the unique power of Globalization 3.0 is cooperation and competition of individuals in the global context...People around the world begin to awaken and realize that they have unprecedented power and can go global as individuals; they will have to compete with other individuals on the planet, and at the same time have more opportunities to cooperate with them. The result is, everyone will ask: What is my place in today's global competition? How can I engage in global cooperation with others?”