Wednesday, October 31, 2007

Something about Social Computing

You cn blame this post on the M&A class in the management program. According to management theory, whenever there are transactions that are happening in the value chain of an organizations, these transactions have a cost associated with them. In some scenarios, the cost of internalizing these transactions (which includes acquisition activity), is less than the cost associated with externalizing these transactions (outsourcing them). Which route the organization follows depends on the relative costs of these.

Lets take an example ... Say you have a production line. On a production line, each worker is an employee of the organization. Could we turn this around, and look at a scenario where they are not? Lets take a scenario where each worker on the production line is a separate company, an external entity. While the production line might function as effectively as it would if all of them were employees, the cost of transactions, including contracting costs, and the like, would be quite high, which is why this scenario doesnt really happen in real life. In other words, there is a scenario possible where each step of the work done in the organization is performed by an external entity, but this model is not very viable, and hence, is not to be found in the world of business. Or so management theory tells us.

Let us now extend this example to the realm of "knowledge work". Let us take a scenario where each aspect of the knowledge work in the organization is taken care of by en external entity. Again, the costs associated with externalizing these transactions is very high (and, in certain industries, these could include the costs of contracting, the costs of synchronization, etc.). So, in a marketing process, the market segmentation is done by one entity, the targetting is done by another entity, and the positioning is done by another entity. The copy is produced by a separate entity, approved by another one, and executed by another one.

Let us now bring in social computing into this scenario. With the collaborative mechanisms which are available to us, this scenario can be theoretically operationalized. Each such transactional process, for example, could have a wiki page, which brings together all the participants in the process to a single place, where they can work on a single set of assumptions, a single set of documents, and a single set of deliverables for their downstream customers.

While we are quite a bit away from working in a scenario, we are moving in this direction. Oranizations are already using wikis for managing complex projects, which are being delivered across multiple locations. What this means is, that to some extent, the costs of externalizing transactions (and bringing in the best of capabilities that are available globally in that particular transaction), are being reduced by social computing. And this has the potential of changing the way companies do business. This is already happening, and more of this is to follow, but I wanted to put this entire thing in perspective.

This is not to say that this is going to be a smooth transition. As we have seen with the music industry, the entrenched players would not necessarily like this idea (neither does Mr Bill Gates like Linux), but the fact remains that successful business models of the future would be created using this model, where successful companies would make money by deploying this model, to varying degrees, and by building on top of this model.

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