Technology and social organization are closely related. Technology provides the wealth, the excess of resources over those needed more mere sustenance, that can be spent on maintaining elaborate social organizations. Elaborate social organizations such as ours in this century, where each person in the society has a "right" to food and shelter, or life, liberty, and the pursuit of happiness, or an equal ownership in the means of production or whatever, are only possible where there are enough excess resources to make such a "right" feasible. Because technology is one of the original sources of wealth, it exerts profound influences on social organizations.
Man adapts his social organizations to available technology. Where technology changes slowly or not at all, the social institutions do the same. For instance, hunter-gatherers have maintained loose tribes as a social organization since pre-historic times. Egypt is another bastion of stable technology and society--once the early Egyptians learned how to successfuly harness the Nile for agriculture and transportation, for instance, the civilization didn't change for two thousand years.
When Western Europeans learned to harness coal and steel, they set the stage for business, capitalist and socialist social organizations. The Industrial Revolution changed society's technology mix, and in so doing it changed the appropriate social organization mix.
Today, since we have added many new technologies to our repertoire over the last fifty years, we should expect extensive social changes to reflect society's adapting to them. The concepts of the Automated Office and Telecommuting are two examples of building new social structures deigned to take advantage of the new capabilities computers bring to our society.
Technology determines how much energy society will have to devote to things beyond mere sustenance--the cultural things-but also determines what techniques are best suited to maintaining sustenance as well. For instance, having automatic washers and dryers in our society changes how we perform the basic function of cleaning clothes. Having them means we no longer spend hours beating clothes on river rocks, but having them makes little direct difference in how we treat people sick with the flu. We still tell them to go to bed and drink plenty of liquids.
Technology determines what kinds of tasks will be easy to accomplish. Those things that produce easily become distinctive to the culture because they are comparatively cheap to produce. Priceless ancient Greek pottery, for instance, wasn't priceless to the ancient Greeks, it was a commodity they used for trading because they could make it cheaper and better than their neighbors.
Let's look at a modern-day example of this: aluminum. Aluminum cannot be produced by smelting and carbon reduction the way copper, iron, or other metals of antiquity can. Aluminum was first produced in moderate quantities in the early 1800's. Napoleon considered using it to make body armor for his soldiers, but rejected the idea after he learned what it would cost. The ancients didn't use aluminum because they couldn't make it; Napoleon didn't use aluminum because it was too expensive; we use gobs and gobs of it today because it is cheap. A few decades after the Napoleonic Wars the technology to electrically refine aluminum--a comparatively inexpensive process was developed. We use lots of it in our society because aluminum is a light-weight, easily worked, inexpensive metal. Because it is cheap, it has become distinctive to our culture, just as Greek pottery was distinctive to the Greeks and Imperial Purple was distinctive to the Phoenicians (who sold it for a hefty profit to the Romans). Think of this: it is likely that archaeologists of the future will trace the rise and spread of Western civilization by studying priceless Coke bottles -- because they are durable, distinctive and ubiquitous. Do we consider them rare, expensive, or even significant today?
Technology forms the material matrix within which social organizations develop. It sets the hard limits to the possibilities available to a culture--the other cultural forces determine which of those myriad of possibilities will be exercised.
With each change in technology there is a change in the "common sense" that makes up social organizations. It doesn't make sense, for instance, for women to do their laundry by congregating every day around an automatic washer sitting beside a river bank. But, in addition to doing laundry, the river washing sessions were a way to socialize. Now, instead of working by the river, home-making women socialize in ways they find much more enjoyable such as shopping together, attending Tupperware parties, or "socializing" alone by watching TV or making phone calls. The common sense way to socialize is changed by changing technology--a spillover of the change in the common sense way to wash clothes.
This same phenomena of social structures adapting to technologies applies to business organizations. Business "common sense" of the 1800's, for instance, held that horizontal combinations were the proper ways for business organizations to expand. An oil company, for instance, was supposed to expand by buying oil refineries. A steel company was supposed to expand by buying steel factories. This thinking resulted in the great robber barons and trusts of that era. Around the turn of the century society decided that good business common sense wasn't good social common sense, and anti-trust laws were enacted. Business reacted by coming up with a new common sense: vertical combinations. Now expanding oil companies purchased oil fields and pipelines, expanding steel companies purchased coal and iron mines, etc.
This process of adaptation goes on continuously. For instance, in the 1960's a new idea came to the fore: conglomerates. The technology that laid the foundation for that wave was a combination of computers applied to accounting, and developing asset management management theory. This combination allowed a school of management style to develop and grow that held that management was a universal art--equally applicable to wide ranges of business and not dependant upon the top managers having intensive knowledge of a business's specifics beyond their financials. Evidence of the rise of this thinking where the conglomerate creations of the late 60's--LTV, ITT, Singer, etc. Evidence that this was just a passing opportunity which further changes in technology and society closed the window on is shown in the subsiquent divestatures of the 70's and 80's.
Looking back on these earlier eras and comparing them to the electronics industry of today, makes it clear that the common sense business trends of an era are highly dependent on the technology. Electronics is different from it's predecessor pioneer technologies--electricity and telephony--in the mix of capital, knowledge, and labor required to participate in the industry. In the older "heavy industries" capital was the most important part of the investment. Electronics businesses, and data processing electronics in the 80's in particular, have different dynamics controlling their growth and profitability. In the new electronics business, knowledge and rapid change, not capital availability, are the most critical factors in the overall investment.
Knowledge and change are important new dynamics. They threaten factories, the concept of mass production, and make horizontal and vertical integration both look like obsolete ideas. They change business common sense.
The change dynamic in particular has the effect of ripping up established organizations and making big parts of them obsolete. Large organizations with heavy capital investments take a long time to put together, and once they are built-up, they don't reform easily. When and where the winds of technological change blow fiercely, the appropriate size of an organization to match the challenges and opportunities shrinks. This is something AT&T is discovering as it moves into the fiercely competative, rapidly changing, and low capital requirement personal computer industry. The RBOCS (Regional Bell Operating CompanieS), which are smaller organizations, seem to be outperforming AT&T in this area.
Our American society in the 70's and 80's is being subjected to a higher rate of social and technological change than any seen since the 1800's -- or perhaps ever in history. As these new waves of technology work their way through our society, we see a different mix of social organizations and priorities created to adapt to them. There are new mores; new kinds of work; new tools to work with. An example of a new organization is the "mega-charity drive" phenomenon as demonstrated by the various "Aids"--Band Aid, Live Aid, Hands Across America, etc. Compare one of these to the United Fund or March of Dimes.
All of these technology changes are putting stresses on existing organizations, and those people that are closest to the sources of change--like those working in electronics--feel the effects most strongly.
The "classic" big businesses we've learned about in school -- steel, oil, autos -- all developed and grew into big businesses over 80 years ago. It is in response to their needs and their excesses that our social legislations and customs of the first half of this century have developed. These industries all have certain characteristics in common with each other that are not common with earlier technologies or later ones:
The new technologies of the second half of the 20th century--electronics, software, bio-medics, genetics--are based on different technologies, so their dynamics of development are different. Some of the major differences are:
[[[ #1-New Growth Technologies]]]
All of these differences call for changes in the appropriate way to organize people to develop and advance the benefits these technologies offer. The knowledge dependence is a particularly puzzling thing to industry outsiders: it means that there are an almost infinite number of ways to make a new technology product (unlike, say, steel, where the number of processes can be counted on one hand--open hearth, bessemer, electric furnace, basic oxygen). This means that attractive processes developed are de facto not protectable from copying. They can be easily reverse engineered, and legal protections like patents are ineffective because they can be easily designed around.
Take, for instance, the IBM PC. After only two years of existence there were machines on the market that could duplicate all the features available in the original--these machines were called PC-clones because they were so close in capability, and cloning had just become a popular term in the emerging bio-medical industry. IBM did not license these machines; it collected no money from their makers. They didn't contribute to IBM's profit. (In a direct sense, but their existence was vital to confirming the IBM PC as a "standard" machine--which has helped IBM's sales in the long run.) And IBM couldn't stop them by legal means. They couldn't in large part because one of the major selling points for their IBM PC was its "open architecture." In addition to making clones possible, the open architecture made lots of accessories and software available. These latter benefits were the key for making the IBM architecture a de facto standard. The public and software developers considered this open architecture a major desirable feature of the machine.
Knowledge dependence means that to compete in the new markets what is required is not legal protection, regulation, or lots of capital. It is a continuous stream of intellectual activity--new products, new features on old products, or better service and support of existing products. It also means that the payoffs for products have to be incredibly short (by other industrial standards)--six months to three years.
This combination of business parameters--low capital, fast payoff, short product cycle--is an impossible combination for a heavy industry company. A steel or railroad business cannot deal effectively with investments of such short payoff. The people who previously dealt in such things were the fad and fashion people like Whammo, Pet Rocks, and Pierre Cardin.
So even though electronics now has a market size comparable to other big industries, companies from other big industries have never competed well in it. However, individuals from other big industries have. They do so by leaving the old organizations and moving to new ones. In the new organizations they learn to understand new concepts, such as the importance of knowledge, and how it's now possible for industry to be profitable even in these different circumstances.
The new technologies are tipping the scales of profitability away from large capital-intensive organizations. The critical resource for 1800's technology-pioneering businesses (electricity, steel, railroads, telephones) was capital. For the new businesses of the 80's it is information and marketing skill--witness the successes of Apple and Compac Computer.
These changes mean the "old rules" of how to run an effective business no longer apply, and all the social injustices that turn-of-the-century anti-trust legislation and its successive modifications have tried to protect us from are irrelevant to the new technology. An efficient company in electronics rarely bumps into those constraints. Some of the new constraints are indicated by the new bills being introduced in legislatures concerning: how copyrights apply to software, software warranties, computer hackers, and protectionist acts that would cut off profitable access to low-cost East Asian manufacturing facilities.
[[[ 2- Growth Constraints ]]]
The change in the importance of capital also means that those companies that have tried to grow through traditional means, like vertical integration, are taking bigger risks than they have in the past, and may be wasting their resources doing so. It's more important to keep the organization flexible and ready to meet the next wave of technology than to tie together diverse operations that work well together today, but may become useless to each other when the next technology wave hits.
For example, one company I know of that made terminals diversified into the business of making the terminal's vacuum-formed plastic cases as well. This was a nice profitable business for many years. But the technology being used was best suited to making case runs of a few hundred cases. When terminals began to be sold in the thousands, injection molded cases became economic. They were not only cheaper, but they looked better. Once injection molded cases were introduced, it became clear that upcoming terminal models couldn't use the old-style case; the company had to buy cases from outside vendors like everyone else. The company's case-making technology had been sheared away from it's terminal-making business by the change in the size of the terminal markets. The case-making division had to survive on residual business in the old products or find other markets that still wanted plastic parts made with its vacuum-formed, medium volume technology.
[[[ 3 - Techno Shear ]]]
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If you're still a traditional business that relies heavily on traditional technologies, such as steel, the new rules set forth above don't apply. Go ahead and buy other steel companies if you can--it may still be your best investment policy. The new rules apply to companies working with new technologies. However, as new technologies become more pervasive in the steel-making process, they will have their effect--witness the rise of profitable specialty "mini-mills." But these changes will only modify the basic rules of the steel game, not throw them away.
The new technologies favor small businesses because they rely heavily on new knowledge, and that knowledge tends to be in the heads of individuals. The new businesses are small and changing rapidly because they are strongly buffeted by the shearing action of the very technology they produce.
Steel, on the other hand, can still be only made by a handful of capital-intensive processes. The changes occuring in the steel industry are changes in markets and in labor constraints. US steel companies are in trouble because of changes in the labor equation and the availability of more capital in the Third World to make steel factories, not because of new processes or new products. It still takes lots of labor, energy, and money to make steel.
The new pioneer companies will stay small and numerous until the winds of change affect the development and marketing requirements for pioneering technology again. For example, launching things into space is capital-intensive--that's why there's just one NASA. If all of a sudden we needed to get established on Mars, and that became more important to our society than new personal computers and beeping telephones, then society would change again. A Mars project would require lots of capital in addition to knowledge, and some of the constraints found in older industries would suddenly become more important again. All of the old NASA studies about Project Management and Matrix Organization would suddenly become relevant again (they're currently not in most electronics organizations because it's easier to organize another small company than pay for NASA-style project management in a bigger one).
If the next "wave" of technology requires big capital resources again, then the average starting size of companies will go up. For instance even today it takes lots of resources to start a power plant or launch a satellite--and the companies and organizations that do these things are big. When computer technology is no longer so dependent on smart people without much capital, then its optimum company size will go up too. Until then, there's still time to become one of the great legends (or myths) of American Business. Quick, just rush out to your garage and invent something!
In the old technology, the capital provider held all the cards. The capital providers were limited in number, and they protected their property rights with patents. Inventors were much more plentiful than was the capital to set them up and distribution choices were much simpler, so there was little demand for specialized marketers.
In dealing with the new technology, capital is readily available. This has made patent and other legal protection is not as meaningful. Ideas are not patentable, and there are often many different ways to design a product to meet a particular specification. What is in short supply are people who can translate new concepts into profitable products. Capital now chases these people through venture capitalist organizations.
In the new technology, when a new product or line of products needs to be launched, it is often done with a new company. The new company is started by a core group of people who at one time worked together at one of the older companies dealing in the new technology. Quite often these people have split off from that company and gone their own ways for a while; learned more, and then gotten back together.
The advantages of the new company approach are that management lines are short; decisions can be made quickly; and compensation can be creatively arranged and tied easily to performance. It also allows for tremendous variety in operating conditions and "corporate culture".
The disadvantages are that it can be hard to muster large financial resources; each company formed must go through the tedious process of raising money and installing management; there can be coordination and communications problems with other organizations (although not as many as is commonly assumed). And, finally, there is more risk. A small organization's existence is staked to a small number of products or services, where a larger one can support losers with winners.
The key element that seems to determine appropriate size of a company is the financial resources required to launch its first product. NASA has not been small because launching rockets (and especially launching them safely with people on board) always has been an expensive, complex proposition. Should that situation change, then NASA's size may no longer be appropriate. Conversely, in committing itself heavily to the Space Shuttle and manned space flights, NASA also committed itself to remaining large and resource-intensive.
We are, by the way, seeing signs of diversity in the space program. Even before the Challenger Disaster there was competition being offered by the European Ariane project, and in the commercial selling of flights on the older American Delta rockets.
One of the major social differences between the business problems we face, and those faced by the generations before us is that of the flexibility in organizing offered by the new low-capital technology and the rapid product changes of our era.
Both of these factors mean that the proper size of a business dealing with new technologies will be smaller than was appropriate for dealing with traditional technologies of the first half of this century. This means there will be more startups than in the past, and more product diversity in new markets than there have been in the start-ups of old markets. It also means there will be more industry shake-outs as industries grow faster, mature faster, and become segmented into specialized subsections faster.
A small fraction of the small start-ups in each new industry will evolve into bigger marketing-oriented companies. The rest will fold up, or change their goals and become something else, such as a small specialty company. Because of the technology shear, there will be many successful small companies that specialize by functional areas in the new technology. There will be more small companies doing engineering and design work, for instance, and selling their work to bigger companies that will specialize in marketing and support. Marketing and support companies, on the other hand, will grow faster if they don't divert resources to engineering or manufacturing facilities and concentrate on getting their products promoted and distributed.
A company that is growing rapidly needs to watch it's goals and market position closely to be sure it hasn't become the wrong size for the business it is in. This is especially critical if the company is going to make the jump from engineering-oriented to marketing-oriented. (There is a lot of engineering "cultural baggage" that needs to be discarded, if the transition is going to be sucessful.) The odds of making the transition successfully are not improved by the fact that there can be many, many small engineering-oriented companies in an industry, but there is only room for a handful of bigger marketing-oriented ones.
The rapid rate of change means that a vertical integration strategy will be riskier than in the past because changes in technology or markets can cause radical changes in appropriate product design or manufacturing techniques.
[[[ 4 - Organization Size Check List ]]]
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