Why the Network will take over from the Industrial Model

The Network – The Home for Freelancers

We can feel it. As more of us are denied access to jobs or cast out from Jobs, we have to find our way into networks. In a network we will find a new power and opportunity. This short paper is a white paper on why this is true.

We are living in a time when the main paradigm for how we organize to do things is in transition. From here:

To here:

(HT Valdis Krebs)

This is the “Journey” that we all face today. The interconnected system on the right is the system that is winning today.

Why is this so?

Problem/Opportunity

As the machine model scales, it hits the system limits of the design. Most of the institutions, business and government, are here now. They cost more and deliver less.

The inherent problem is how the Machine Model scales. It is based on making a product/service.

Because every part of its structure that produces the revenue has to be made efficient, all has to be controlled directly and so has to be owned. So the only way to scale is by vertical integration.

So the trend will be toward over capitalization.

For the costs track the revenues. These costs are deeply structural for they all line up behind the core production process. So at the vulnerable point, when revenues are threatened, the costs cannot be reduced enough. A newspaper can trash its new room but it cannot get rid of the press. Most of our key institutions have reached this mature state. And this then is why they can only focus on their financial ratios and not their mission. This is why they are so vulnerable to a competitor and any shock. This is why we the public are so exposed to services and products that now cost too much and deliver too little.

The good news is that there is a new model for organizing that is emerging that can scale for very long times and that dramatically reduces the costs for all. It also increases the value and improves the resiliency. It is, of course, the Natural Network model. The Web itself is the embodiment of this model.

The new model is that of the “Real” or Natural Network. Where the work of the system is to create an ecosystem not a product. Where the purpose of the ecosystem attracts free resources. Where the resources and the system revenues grow exponentially and where the costs grow at a modest linear fashion.

Here resources are ATTRACTED to the network along an exponential slope. Here revenues track the Resource slope also exponentially. While the direct cash and capital costs rise only in a modest fashion. No one funds the internet alone. No one organization funds, Visa or Linux. All who have a part rely on the vast investment by others. All benefit.

This model will replace the machine as the machine replaced the workshop. It creates new and massive opportunities that the machine cannot compete with

How does it work?

How does such a system deliver exponential true growth for all its members at such a low cost and at such a high resiliency? The paradox is that only tiny part of the work to deliver this is based on control.

Visa International holds together its vast ecology with a handful of very tightly held rules that define how all the banks connect with each other. The same is true for the Internet itself. A handful of protocols enable vast numbers of unique entities to fit into the collective. the same is true for Linux and for WordPress. The same is true for Apple’s ecology.

This then is the heart of the management of a natural system – a small number of protocols that enable the full diversity of the system to connect securely. But in a machine all the parts have to fit into each other demanding uniformity in the parts. This is why most of the effort is in control and process engineering. This is why the scale limit of the machine is so small.

In a real network each member can put its own self interest first. All a member has to do is to abide by the connection protocols. So in Visa, every bank keeps its own IT world. On the web, the content is unique.

Such a structure is inherently flexible and learns because massive diversity is the outcome.

That is the paradox. Tight enforcement of the connecting protocol offers an open system for everything else.

So there is a hierarchy is these systems.  At the centre is the tiny paid group whose job is to set and protect the protocols and to speak for the purpose of the system. Immediately around this core, are the founders who have defined the Purpose and set the Protocols. Then around that are the most active users. On the outside rings are the public beneficiaries. All share in value but the founders get the most.

Unlike the machine model where true value and wealth is extracted at the top for a few, in the natural model, all obtain value. Unlike the machine model, where friction and entropy scale with size, the natural model offer exponential growth in value as it scales as well. The higher the purpose, the more a system can attract.

In the machine system, the ideal is to maximize the profit per transaction. In the natural system it is to maximise the value of the whole system.

So here the best strategy is to price low and get scale and so more value – for value grows exponentially as healthy scale increases.  For instance, in the WordPress ecosystem, 6,800 self-employed respondents were responsible for over 170,000 sites personally, and charged a median hourly rate of $50. If each site took only 3 hours to make, that’s $29.5M of work at the average hourly rate.

The costs for each member are very low as well. Most of the resources are attracted in by the Purpose for free for each of the members.

A bank that is part of Visa has access to all the terminals, all the processing and all the customers of the entire system. Its own costs compared to this are close to free. Visa itself charges a fraction os a cent per transaction – a sum so small as to be unnoticed but on billions of transactions, a large sum for a tiny central group. Such a system has massive resiliency and can therefore change when confronted by a threat. For there is massive margin and massive distributed feedback.

Evolution can take place with experiments all over the place. New services can be cannibalized or just stopped without harming the larger whole. For the key to manage are not any product or service but the ecosystem as a whole.

That is why the Network will supplant the Industrial Machine. This is why your best avenue to making a living is to find yourself a place in a network.

Advertisements