Subject: Re: FW: Why would I pay for Ximian software?
From: "Karsten M. Self" <>
Date: Fri, 21 Dec 2001 23:20:32 -0800
Fri, 21 Dec 2001 23:20:32 -0800
on Fri, Dec 21, 2001 at 10:23:03PM -0800, Kevin A. Burton ( wrote:
> Hash: SHA1
> "Stephen J. Turnbull" <> writes:
> <snip/>
> > Find one, and you will get very very rich on the
> > nanocommissions---you could live comfortably on picocommissions.
> > :-) I think it's highly unlikely that a practical one exists,
> > though.  The collapse of the distribution-oriented dot-coms was not
> > an accident.  Rather, it reflects just how well-tuned the existing
> > market system is to delivering goods to the paying customers, in the
> > face of the inherent defects in the valuation system.
> One exists.  It is calling us... can't you hear it?
> It is becoming more and more obvious that we need a payment system
> which is based on merit and not the ability for a large company to
> drag people kicking and screaming through the flames of hell ( *cough*
> Microsoft *cough* )

"What we need", and "what the current incentives system will produce"
are two different things entirely.

However, there's a spot of hope.  The current Economist includes a
longish item on the future of the company: ID=884121
    The future of the company
    A matter of choice
    Dec 20th 2001

    That hardy workhorse of capitalism--the joint-stock company--looks
    surprisingly durable. But pressure on it is increasing 

    BROWSE in the business section of any decent bookshop and you are
    confronted with an extraordinary array of possible futures for the
    company.  Will it be digital or doughnut shaped?  Virtual or
    elephantine?  Networked or focused? Lean or fat? Mean or soulful?
    The future seems to hold almost every possible fate for the
    corporation except one: being bland and boring.

    Much of this is hype, of course: bland and boring does not sell
    books.  But it does point to an important fact: that the
    organisation which so many of us take for granted is in a state of
    rapid evolution. To understand just how rapid take a look at John
    Kenneth Galbraith's "The New Industrial State", an intriguing
    portrait of the state of corporate America back in 1967. Mr
    Galbraith argued that America was run by a quasi-benevolent
    oligopoly. A handful of big companies--the big three car companies,
    the big five steel companies, etc--planned the economy in the name
    of stability.

    They were hierarchical and bureaucratic organisations that were in
    the business of making long runs of standardised products. They
    introduced "new and improved" varieties with predictable regularity;
    they provided their workers with life-time employment; and they
    enjoyed fairly good relations with the giant trade unions. (About
    40% of the manufacturing workforce was then unionised.) What's more,
    they were all American.

    That world is now dead. America's giant companies have been either
    eviscerated or transformed by global competition. Most have shifted
    their production systems from high-volume to high-value, from
    standardised to customised. And they have flattened their management
    hierarchies to make themselves nimbler and fitter. Few people these
    days expect to spend their lives moving up the ladder of a single

    It is reasonable to expect that further dramatic changes lie ahead.
    But where exactly will they take us? Where is the modern company

    Bigger and bolder

    There are three standard answers to this question, the first two of
    which are almost diametrically opposed to each other.  The first --
    particularly popular in anti-globalisation circles -- holds that a
    handful of giant companies are engaged in a "silent takeover" of the
    world, in the words of Noreena Hertz, a Cambridge University
    academic.  The past couple of decades have seen an unprecedented
    spurt of mergers.  The survivors, it is maintained, are the real
    lords of the universe today: far more powerful than mere nation

    Like Mr Galbraith's oligarchs, these corporate barons plan the world
    economy for their own sinister purposes. But they have none of the
    offsetting advantages of providing life-time security and a stable
    environment.  The trouble with this view is, er, the facts. As
    Martin Wolf of the Financial Times has pointed out, Ms Hertz's claim
    that "51 of the 100 biggest economies of the world are now
    corporations" abuses statistics. She measures companies by sales,
    but national economies by GDP (which is a measure of value added,
    more akin to corporate profits).

    Rather than increasing their hold over the universe, big companies
    have been losing ground. In 1970, both the television and car
    markets in America were controlled by triumvirates, each with a
    combined share of around 90%. Today, the big three are hanging on to
    around half of each market.

    Futuristic industries offer no more comfort.  Two American
    business-school professors, Fariborz Ghadar and Pankaj Ghemawat,
    point out that in computer hardware, computer software and
    long-distance telephony, the top five companies' shares of worldwide
    sales declined by 15 to 30 percentage points each between 1988 and
    1998. It is hard to think of an industry that has become more
    competitive in recent years--let alone one that is likely to do so
    in future.

    The second school of thought argues almost the opposite of the
    first: it says that big companies are a thing of the past. For a
    glimpse of the future, its proponents recommend the Monorail
    Corporation, which sells computers.  Monorail owns no factories,
    warehouses or any other tangible asset.  It operates from a single
    floor that it leases in an office building in Atlanta. Its computers
    are designed by freelance workers. To place orders, customers call a
    free-phone number connected to Federal Express's logistics service,
    which passes the orders on to a contract manufacturer that assembles
    them from various parts. FedEx then ships the computer to the
    customer and sends the invoice to the SunTrust Bank, Monorail's
    agent. The company is not much of anything except a good idea, a
    handful of people in Atlanta, and a bunch of contracts.

    This school has the benefit of having economic theory on its side.
    In 1937, Ronald Coase, a Nobel-prize-winning economist, asked a
    fundamental question: "Why do firms exist?" His answer: companies
    make sense when the "transaction costs" associated with buying
    things on the market exceed the fixed costs of establishing and
    maintaining a bureaucracy.  Modern technology is shifting the
    balance of advantage away from firms and towards markets. Their
    current goal is to focus on the few things at which they undoubtedly
    excel and to hand over everything else to equally focused

    Yet the idea that the firm will retreat to the periphery of the
    economy still looks far fetched. As Gary Hamel and C.K. Prahalad,
    two management academics, have pointed out, firms possess certain
    "core competences", usually cultural ones, that cannot easily be
    purchased on the market.  Even leaving culture aside, there are
    still market failures that persuade firms to try to do things
    internally rather than externally.  If a firm thinks a contractor
    possesses knowledge that is vital to its own survival, it has every
    incentive to take over that supplier.

    The network is everything

    The third forecast is an offshoot of the second: that the discrete
    company is no longer the basic building block of the modern economy.
    This school argues that it is being replaced by the "network".

    In some parts of the world, such webs have long been the norm. The
    economies of Japan and South Korea are dominated by keiretsu and
    chaebol--large groupings of inter-related companies. In other parts
    of Asia, the overseas Chinese operate through a maze of interlinked
    family companies.  Nor is it just an eastern fashion. Italy's most
    important commercial empires knit together strings of companies
    through cross-shareholdings.

    Now companies everywhere are dissolving the boundaries with their
    suppliers, customers and even rivals. A study in the late 1990s by
    Booz-Allen & Hamilton, a consultancy, reckoned that alliances in the
    United States had grown by 25% a year over the preceding decade, and
    by more in Europe and Asia. In his new book, "The Agenda", Michael
    Hammer, the co-inventor of the re-engineering fad, stresses the
    importance of firms "losing their identity" in an extended
    enterprise, and "getting past the idea" of being a self-contained

    Networks are seen not just as an answer to external competition, but
    also as a way of giving more freedom to today's prized "knowledge
    workers".  The inventor of that term, Peter Drucker, who laid out
    his own forecast for the firm's future in this newspaper (November
    3rd), argues that the way forward lies in networks, such as the
    purchasing co-operative that has been set up by Detroit's big three
    car makers.

    In Silicon Valley, hierarchical organisations are dissolving into
    fluid "networks of treaties". Free-floating groups of entrepreneurs
    form such a network to market an idea. They then sell it to the
    highest bidder and move on to produce another idea and to create
    another firm, with the money being supplied all the while by the
    valley's venture capitalists.  Hence the talk of a Kleiner Perkins
    keiretsu, based around the eponymous venture-capital firm.

    Despite all this, however, the idea that the basic agent in the
    modern economy is ceasing to be the firm and becoming the network is
    unconvincing.  One reason is that the networking concept has bundled
    together too many contradictory ideas. For instance, some networks
    take a step back from the market (a keiretsu protects its member
    companies behind the walls of a group), while others break down
    corporate barriers precisely in order to become more market-driven
    (the funkier Silicon Valley lot).

    The older sort of network hardly looks futuristic.  America has
    dismantled most of its conglomerates, and now the same process is
    beginning to happen in Japan and South Korea as managers there
    desperately try to focus their unwieldy organisations. Even in the
    more recent alliances, it looks as if the firms are governing the
    networks rather than the other way round. In Silicon Valley, the
    firm remains the basis of economic activity.

    Firms possess both a legal personality and a system of internal
    accountability; networks have no clear way of deciding either
    ownership or accountability. This makes it difficult for them to
    make joint decisions or to divide up profits (witness the desperate
    attempts of Airbus to become a stand-alone company). Where a network
    works, it is usually because a firm is driving it. Without that, a
    tendency to agonise over the most mundane decisions takes over.

    Choice, glorious choice

    None of the three main proposals for the future of the company looks
    definitive.  Together, they leave behind a set of contradictory
    impressions: the fashion for "networking" has coincided with a
    greater emphasis on focus; a period of mergers and acquisitions has
    coincided with an efflorescence of small companies; and the fashion
    for shareholder capitalism has coincided with a flattening of
    hierarchies.  So does any pattern emerge?

    Another way to look at the future of the company is to focus less on
    structure than on the environment that will determine it. That
    environment is dominated by one thing:  choice.  Technology and
    globalisation open up ever more opportunities for individuals and
    firms to collect information and conduct economic activity outside
    traditional structures.

    As Robert Reich, a secretary of labour under Bill Clinton, points
    out, "we are entering the Age of the Terrific Deal, where choices
    are almost limitless and it is easy to switch to something better."
    While the age of mass production lowered the costs of products at
    the expense of limiting choices--Henry Ford famously said that you
    could have a car in any colour, as long as it was black--modern
    "flexible" production systems usually both lower costs and increase
    choice.  Consumers have more choice over where they spend their
    money.  Producers have more choice over which suppliers to use.
    Potential shareholders have more choice over where to put their

    It is hard to argue that this environment invariably favours one
    sort of structure over all others. The world's most successful
    company over the past five years, according to a recent Stern
    Stewart study of "wealth added", has been an unwieldy conglomerate
    spread across umpteen unconnected businesses, many of them (for
    example, light bulbs) distinctly unfashionable.  General Electric
    (GE) has thrived because it has been well run.

    But even if the ever more competitive environment does not
    predetermine the firm's future structure, it will, surely, make some
    characteristics more valuable. Four, in particular, stand out:

      - Leanness.  This is not the same as size. GE is huge, but it is
	also lean. Layers within firms will continue to flatten out as
	improvements in communication technologies increase the number
	of employees that supervisors can manage effectively. The
	chances are that more tasks will be assigned to ad hoc teams
	with substantial discretion over what they do and how. Rather
	than sending orders down a hierarchy, managing in new
	organisations will be about weaving such networks together.

      - Flexibility.  Mr Drucker's classic 1946 portrait of General
	Motors, "Concept of the Corporation", barely mentions
	shareholders at all: the managers ran the company as if it were
	their own. Now no chairman of a big American company can
	guarantee life-time employment even to himself.  Managers need
	to have the freedom to expand and contract their workforce to
	deal with uncertain times.

      - Reputation.  With "hard" competitive advantages becoming ever
	scarcer, companies will look more to brands and images that can
	cut through the clutter of all those choices. The real economic
	value of a corporation increasingly comes not from the assets
	that it owns, or the employees that it supervises, but from the
	domain of trust that it has established with its customers. One
	of the central challenges for future firms will be to ensure
	that they maintain the quality of their name while at the same
	time sub-contracting much of their production to companies

      - Talent. The human side of management is set to become more
	important rather than less. In the first half of this century,
	managers tried to take the human element out of business by
	turning people into interchangeable machines. Nowadays, what
	sets companies apart is their ability to create and innovate.
	McKinsey, a consultancy, argues that the key battle of this
	century is the war for talent: the war to hire and retain the
	best people.  Mr Drucker's knowledge workers are a demanding
	lot. They are less and less likely to want to work full-time for
	one company, seeing no reason to pledge their loyalty to an
	organisation that can no longer reciprocate the favour.

    One way to look at the future of the firm is as a battle between
    different groups of stakeholders.  The virtues listed above favour
    different ones.  Flexibility and leanness mostly benefit the firm's
    owners.  An obsession with talent gives more power to workers. A
    good reputation means that companies have to look after their local
    community, the environment and so on. Only customers, it seems, gain
    from all four characteristics.

    In general, the joint-stock company is skewed towards its owners.
    The whole point of a corporation is to make investors feel safe:
    they cannot be sued if it goes bankrupt; they can sell their shares
    if they want to; and they never lose more than they invest.

    The last century saw all sorts of challenges to shareholder
    capitalism: from state-owned capitalism; from mixed stakeholder
    capitalism (notably in Germany); from the managerial capitalism of
    1950s America; from the keiretsu and chaebol; even, to some extent,
    from the virtual economy of the Internet. But it has survived them
    all.  Even countries that once looked on the idea of equity
    capitalism with suspicion are turning back to it. Germany has
    introduced more IPOs in the past five years than in the previous 50.
    There are now more German shareholders than there are trade

    From this perspective, the future of the company would seem to be
    assured. Any idea of the joint-stock company disappearing looks
    wildly premature.  In many places, it is only just beginning to
    thrive. In most commercial endeavours, it is still the best and
    easiest structure for individuals to pool capital, to refine skills,
    and to pass them on.  And it has proven enormously adaptable: look
    at the gap between General Motors and Monorail.

    Yet this very adaptability points to another truth:  that the
    corporation will surely become ever less corporate. Monorail is not
    a firm that most 1950s organisation men would recognise. Technology
    is shifting the advantage gradually away from organisations towards
    individuals and markets. The erosion of Coasian transaction costs
    will make it ever easier for small companies--or just collections of
    entrepreneurs--to challenge the dominance of big companies; and ever
    more tempting for entrepreneurs to enter into loose relationships
    with other entrepreneurs rather than to form long-lasting
    corporations. In order to deal with these challenges, corporations
    will have to break themselves down into small entrepreneurial units.

    The unpredictable Leviathan

    There remains one great unknown about the future of the company: the
    role of the state. Whatever the anti-globalisation protesters might
    say, the state still has enormous influence over the corporate
    sector, although most advanced nations have become a bit
    schizophrenic about it.  On the one hand, governments are ceding
    ever more of their own territory to profit-making institutions.
    Recently, for instance, Pennsylvania decided to hand over some
    control of the worst schools in the Philadelphia school system, the
    sixth biggest in the country, to a private-sector firm, Edison

    Yet even while they yield ground to the firm, governments are
    increasingly using regulation to force companies to pursue what used
    to be their own social ends.  What began as a mixture of accident
    prevention (workplace safety rules) and administrative convenience
    (organising pensions through companies) has become much more
    aggressive.  Firms are now being regulated by governments in ways
    intended to clean up the environment and to balance social
    inequality.  Multinationals are now seen as tools, via fair-trade
    regulations, to sort out the evils of third-world poverty.

    The costs are huge.  The Office of Management and Budget calculates
    that the cost of meeting social regulations in the United States
    could be as high as $289 billion. Thomas Hopkins, of the Rochester
    Institute of Technology, reckons the cost is almost three times that
    amount. And the numbers are likely to get larger as politicians
    discover that it is far cheaper (both in financial and electoral
    terms) to get companies to do their work for them.

    From the viewpoint of society as a whole, this thicket of rules may
    be efficient.  From the company's perspective, however, it
    represents an increasing threat--just as the corporation is losing
    some of its advantages over lone-wolf entrepreneurs. If the company
    yields ground in the future, it may have as much to do with politics
    as economics.

Karsten M. Self <>
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