Ronald Harry Coase  the winner of the 1991 Nobel Prize in Economics is remembered for his paper "The Nature of the Firm" (1937). In my simple words, the reason why people come together and form  an organisation to produce something that is far more efficient to do than individually do all activities and incur "transaction costs". These transactions costs are broadly 1) Search and Information Costs 2)Bargaining Costs 3)Policing and Enforcement costs.  The firm brings together people for a long term and organizes them to get things done in a way that is much better than if each of these individuals had to do it independently.

When one needs to use paper, phone and one to one conversation to make information flow the pyramid is an excellent way to get organized. The information flow is essentially linear. Getting the right Talent to Match the work at hand also followed a similar pyramid structure since information about the talent also flowed in this fashion. The Pyramid got replicated across the organizations in departments and across companies. No doubt this is an excellent way of disseminating information.

The Internet has brought in another way of disseminating information and organizing work which is changing the nature of the "Transaction Costs" and thus is seeing the emergence of a new way of organizing resources.

Today because of web based platforms, information can flow many to many. For instance I could put a piece of information in Wikipedia on the origins of the Ham Burger and go to sleep. Some one else across the globe who happens to be an expert on this very topic sees it (since he has set an alert for this topic) goes to the article and corrects it.

The Internet transcends a lot of boundaries including that of geography and time. Searching for information and organising it has also changed. Thus two important transaction costs that of Searching and Information costs have reduced and the way it can be done has also changed.

The Open Source Software movement leverages these advantages. Linux of course is a favourite example of what is possible beyond a pyramid structure.  Linux also illustrates some other dynamics that the Internet brings. That of "Thousands of Eyes watching" and therefore group censure, if you make a poor piece of code it cannot be hidden behind a closed cabinet. It will be seen, commented on and replaced. The other is moderation and coordination where good pieces of software code is selected by moderators and incorporated into the main code. The fascinating part is that these moderator roles can also be easily changed without loss of knowledge since it is all out there. This aspect also changes the nature of  another "Transaction cost" Policing and Enforcement costs. Instead of key people doing the policing, the group as a whole does it for its own interest. If you are unhappy with someone's work, say an article on the webstie, you could give it a poor rating. If you got a freelancer to do some work and were not happy with it you could go to his profile page and give him a bad "Karma". And this gets recorded for posterity; getting rid of information on the net is very tough so people need to be extra careful with their image online.

Even the nature of "Bargaining costs" are changing due to the Internet. Auctions and bidding the way Google ad words operates and how projects get bid for sites like www.elance.com are some examples.

Because of all this the way of organizing work is reflecting some thing like this:-

The tasks can therefore be broken into pieces and given to whoever is the best suited to do it or the most interested.

Wikipedia for an Encyclopedia, Yahoo Answers for questions, Linux for an Operating System, Ebay for a Market place,  are just the start of what is possible in the changed structure of the way people can come together and create something.

With tools like Google Docs, Community Forums, Social Networks, Wiki's and what not,  people can connect and collaborate transcending time, geography and other boundaries. Can the pyramid be totally done away with? Well time will tell but welcome to a whole new world of making things happen. 

The author is Chief Catalyst of Businessgyan. He is an alumni of IIT-M, IIM-B. His areas of interest include business strategy and innovation. E-mail: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
 

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