Abstraction

Interesting essay from Andrew McAfee about Tom Malone’s Future of Work. Future of Work talks about how information flow was once associated with decision maker; that is, because information was expensive to gather and transmit, it was made available only to the persons that needed it to make a decision. With the emergence of internet technology, the cost of distributing information is effectively zero. With huge amounts of information available to anyone within an organization, the organization becomes more decentralized, less hierarchical.

McAfee points out a flaw in this argument, essentially saying that a general availability of information is not necessarily correlated with decentralized decision making:

Let’s say that a mortgage company realized that a few of its loan officers were just better at assessing credit risk than all the others. For whatever reasons (intelligence, experience, intuition, etc. ), they just had superior specific knowledge. In that situation, it would make good sense not to decentralize, but instead to centralize that decision right within the company, taking it away from the other loan officers. All the general knowledge (income statements, credit histories, etc.) would be sent to these few people, who would apply their specific knowledge to it and made decisions. In this example low information costs are still important; they allow all the general knowledge to be zipped to the few good officers. But the effect of low information costs isn’t decentralization and greater empowerment. Instead, it’s centralization of an important decision right and reduced autonomy for most loan officers.

Thought experiments like this one indicate to me that the net result of disappearing information costs won’t necessarily be decentralization. It will instead be the decoupling of information flows and decision rights. Organization designers will be able to allocate decision rights without worrying about how costly it will be to get required information to deciders. Leaders will be able to ask “Who should make this decision?” without adding “Keeping in mind that it’s going to be slow, difficult, and expensive to get them the general knowledge they’ll need.”

Will this work always, or even usually, lead to more decentralized organizations? I find myself less confident than Malone that this will be the case. I agree with him that we’re at a very interesting point in the history of technology and the economics of information, but I’d label it a great decoupling (of information flow and decision rights) rather than a broad decentralization (as decision rights lateralize along with information flows).

I’m a big proponent of making information available to anyone in an organization; I have posted before about the importance I place on an online product requirements tool and a product information wiki to encourage and enable collaboration. I do this because markets are dynamic and technology is complex, and I believe that multiple inputs on product definition is larger than the sum of it’s parts. Certainly of a much greater benefit than can result from the efforts of a single centralized product “decider.”

To me, the mortgage example given above doesn’t hold the same implications for organizations as it seems to for McAfee

Will this work always, or even usually, lead to more decentralized organizations? I find myself less confident than Malone that this will be the case.

I think it is true that some decisions will always be centralized because it requires tacit knowledge that only a few possess (as in the mortgage example). But strategic decisions, such as a product evolution, will always benefit from the input of multiple perspectives.

Further, efficient dissemination of information enables the development of tacit knowledge and enables contributions from persons that would otherwise not have the opportunity. In this sense, too, the mortgage example seems to fall short: common information flow enables the development and identification of more people that happen to be very good at a particular role. McAfee’s comment that

…it would make good sense not to decentralize, but instead to centralize that decision right within the company, taking it away from the other loan officers.

It’s important to place decision making responsibility in the hands of those that will make the most effective decisions. But it’s also important to nurture superior decision making skills so that the decision workflow avoids a single point of failure. Instead of taking away the decision making rights of lesser-skilled workers, why not leverage the information flow to enable a sanity check of their decisions? The burden on the more-skilled worker will not increase, and the organization benefits from growing the (forgive me) “competence footprint” associated with a particular skill.