Why open governance and scalable leadership matter
What happens when the productive infrastructure, being digital or not, becomes affordable? When, in the meantime, new cooperative models for capitalization and venture financing emerge, like all those making up the crowdfunding universe? What new perspectives from this convergence?
I’m pretty convinced that, in order to take advantage of the huge opportunities that come from this convergence, we definitely have to create new alternative economic actors, really resilient enterprises (with long term visions). We must look into the creation of new management and governance models that are more horizontal, informal and cooperative. These are the only strategies that can make this long awaited disruption happen in the world of organizations, these are the new tools to create a radical new way to business.
Limits of the traditional players of the economy
The most frequent forms of productive actors in today’s economic environment are two: companies (firm) and cooperatives (co-op).
The company (the Firm), is composed of two separate body: ownership and production. The management (apex of the operational structure) operates through mechanisms that are more or less hierarchical in order to create value for the owners of the shares.
Over time we followed dozens of management practices, but the mission of the firm has always been to produce capital to remunerate risk: this is when ownership is widespread (small portfolio shareholders or investment funds) whether it is centralized (as in the case of private capital, often in small businesses).
The remuneration of the shareholder value is typically defined and measured on a time of three to six months. All the practices of corporate strategy have been developed over time to ensure that the directives of the shareholders – who elect for that purpose a board of directors – can be met.
In this process of stakeholder value maximization, values and mission rarely comes into play: often, to strive, the value and mission are modeled on a single requirement, the maximization of revenues.
Cooperatives are instead composed of a unique, members: executive staff and ownership (diffused) are bonded in the same entity. The strategy and execution of the mission are discussed in a collective manner and decisions are taken in a democratic and participatory and inclusive (all members) way. This makes the co-op a proper and functional solution especially for small and localized businesses ventures (that, I believe, will be the primary protagonists of our decentralized economic future).
With the increase of the scale and the diversification of the mission – and potential targets – there are inevitable forms of organizational hierarchization and functional specialization even in the coop. Typically, government structures borrowed from the firm (C-level figures) are adopted when the size increases (think of the credit unions).
Today, thanks to some clear economic and social transformations due to the emergence of new technological tools (and a widespread technological singularity) there is a new and important opportunity: to create organizations not only characterized by widespread ownership but also shared leadership.
Reduced cost of infrastructure
The strong reduction of the thresholds of investment required to create business or organization is evident. On the one hand the infrastructures of digital production (free mass collaboration like Google Drive, Infrastructure as a Service such as those provided by Amazon or Microsoft Azure) are now componentized commodities (imagine cheap, Lego like, modules).
On the industrial side, the possibilities to access to alternative manufacturing infrastructures is ramping up: I’m not just talking about ubiquitous 3D printing, think rather to service providers such as Alibaba or Shapeways. These virtual factories can produce on demand, in a ultrascalabile manner with virtually no investment costs. Even if these facilities are today still tied to a classical paradigm of centralized production (eg: Shenzhen and China with regards to Alibaba), distributed and collaborative new alternatives are being consolidated. Particularly interesting is the case of projects such as Slowd.it or Row Makers who are trying to federate and abstract production networks that consist of small nodes.This can legitimate thinking that access to manufacturing capacity will tend to increase as it was in the case of the digital industry. Thinking on the edge: the manufacture will be “as a Service” in a few years.
In parallel with an increasing access to means of production, more tools emerge for collective funding as the crowdfunding and equity-based crowdfunding (the Italian legislation is at the top worldwide regarding this, see): through these tools it is subtantially possible to distribute the firm ownership.
So: on the one hand we have the ability to raise capital in a collective manner, the other, we have huge opportunites to take advantage of distributed intelligence through tools and collaborative infrastructures born out of the web. Through these means, coalize interests and people around a mission is every day easier.
It is reasonable to think that today the real bottleneck is starting to be the lack of a number of actionable alternatives, experiences, and a body of knowledge about how to adopt new organizational models. How to create Open Governance ventures with different options from that we have inherited, virtually unchanged, for centuries, if not millennia?
After all, most of the corporate hierarchies that we still use today is still applying abstractions from the time of the Roman legions. On the other hand, cooperative models show limits in terms of poor scalability and precisely because of these methodological limitations, the forms and mechanisms of the Firm are adopted to ensure the enterprise governance. In the absence of a co-operative model you prefer to return to divide et impera (in the illusion centralized control).
Open Governance Enterprises & Ventures: new perspectives and possibilities for cooperative and inclusive organizations.
That’s why I believe that studying the applicability, functionality of these open governance models (starting from the most interesting experiences already tested in the market) represents a great opportunity for today.
Specifically, we are talking about models that can be applied within any organization or enterprise, to:
- Define and evolve collaboratively its mission, strategy and objectives
- Perform activities in line with the collaboratively defined strategy
- Enhance the resources in the interest of the reference community
- Establish and maintain a structure that is inclusive and permeable to inputs and outputs
The growth, maturation and increased accessibility of these practices will make it easier and, ultimately, can enable the creation of businesses based on an alternative models such as:
- a distributed property
- a contribution model that is scalable and distributed where more people can contribute to co-create value
The objective of these companies can be (and is, since some of them are already operating) the generation of different types of goods and services, whether to be put on the market, in competition with the traditional Firms, or produced for the same members of the organization (in-house production for the community).
Though the second opportunity (in-house production) may be less attractive to many, this is no less disruptive: it deducts a niche market (the community in question) from the logic of pure revenue and shareholder value maximization. With the growth of the involved community this can become an interesting business case.
Being in such cases, a community to dictate the strategy, the new way of community centric planning and execution is inherently more sustainable and long-term and tends to generate less negative externalities.
As mentioned earlier in the post, the topic is even more interesting at this moment in history, given that this transformation (greater access to the means of production) is combined with a trend that is revolutionizing the property and widespread investments: crowdfunding.
The role that crowdfunding is already having is crucial: through the collectivization of investment it drives for a decreasing interest in keeping economic rents and protectionism. When capital is collected with a purpose (the natural perspective of the reward-based crowdfunding) there is less interest in protecting the devaluation (of the capital itself).
On these occasions, once the project has released its objectives (identified with rewards / perks), there is less interest in the protection of the competitive advantage generated through the process: from skills to designs and procedures, everything can be shared and put back into circulation, available to other communities and other campaigns.
Essential to this is of course that the means production are as accessible as possible and that there is no need for expensive production infrastructures. Indeed, if we think – at the limit – to the production process as on demand (no infrastructure cost, consisting then only of the marginal costs of production) and commoditized (subjected to cost competition) the unique competitive advantage for the creator, would be to endlessly repeat the creative cycle and adding value. Try to stabilize rents further than the venture time frame (create, prototype, build) would be difficult and less profitable.
Simply put, the only capital intensive activity capable of remunerating creative work would become the creation itself, funded directly inside the the users community.
How will the future of the production system look like?
The future of the production system will be made up of a mix of new models: contexts in which a participatory vision is fully implemented (horizontal management and widespread and inclusive ownership) will coexist with realities where widespread ownership and traditional management is applied (close to what happens now in large cooperatives such as credit unions).
Other players applying private ownership and horizontal management will be also successful. In particular these are already operating in the market, in some cases with billionaire entities – think of Valve, the gaming industry giant which is managed through a substantially distributed leadership process – in other cases with small and pioneering service companies such as Cocoon Projects that I have already had occasion to mention on this blog, or Sensorica, self dubbed as “an open, decentralized, self-organizing value network, a commons-based peer-production network, focused on designing sensing and sensemaking technology.“
“Inside the company, though, we all take on the role That suits the work in front of us. Everyone is a designer. Everyone can question each other’s work. Anyone can recruit someone onto His or her project.
Everyone has to function as a “strategist,” Which really means figuring out how to do what’s right for our customers. We all engage in analysis, measurement, predictions, evaluations
FromValve’s Handbook for New Employees
(A recent post on wired tells a little more about the hidden rules at Valve and how trust & reputation mechanisms work there, worth reading).
A growing interest in Open Governance and Horizontal Management
Is it therefore reasonable to expect a growing interest for these models. In a horizon in which the purely financial investment alternatives lose interest because of a latent instability, investing resources in open governance, transparent and shared projects, that have a chance to really build an established business for a living community, becomes more palatable.
There are already some early disruptive examples in some markets. In Italy for example a venture called NoiNet, is taking it’s first steps: they aim to produce the services a Wireless ISP through a mesh infrastructure and a distributed governance model. No coincidence that the initiative comes from the same basin of the established SCEC community (the most important and one of the oldest circuits for complementary currency in Italy). Few hours ago an interesting article on Gigaom added an interesting perspective on this exact topic by highlighting that the next mobile network could be built using Kickstarter and Indiegogo.
Fields in which I expect this kind of disruption are certainly those related to basic needs (such as food, information, communication – and in a sense even money) where the shareholder value maximization is not only conceptually inappropriate but also counterintuitive. Why should the food supply should go through the maximization of profit instead of being transparently managed by a community of producers and consumers?
Experiments in these fields are already known (eg: Community Supported Agriculture or Community Supported Energy), although these experiments have almost never reached a large scale or set ambitious goals as to reach the general public. The current restrictions are likely to be due to the difficulty of coordinating experiments of this kind on such a bigger scale.
Certainly we will also see further experimentations in terms of new methods of governance also and especially in the world of social innovation. Its very community nature makes it the ideal field for these experiments: ouishare itself (in its quest towards sustainability) is today in search of a new organizational model for a form of governance that is compatible with our mission and, at the same time, inclusive to the community, and scalable enough to allow more contributions.
My impression is that we are certainly not the only ones thinking about this today.
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