Peer-to-Peer Networks Are the Future of Organizational Work
One of the most consequential developments of the Digital Age is that centralized, hierarchical organizations that leverage the individual intelligence of an elite few are being displaced by a new breed of business leaders designing their organizations as highly sophisticated distributed networks capable of rapidly leveraging human and artificial collective intelligence. This architectural shift is far more transformative than most managers realize because the vast majority lack an understanding of the dynamics of networks. Unfortunately, our knowledge deficiencies in the ways of networks cause us to significantly underestimate the magnitude of the transformation and its related exponential rate of change.
This growing knowledge gap is problematic because hierarchies and networks are neither equal nor interchangeable structures. Networks tend to outperform hierarchies by a wide margin in terms of both intelligence and speed because, by leveraging the collective intelligence of the many rather than the individual smarts of the elite few, networks dramatically accelerate the path to knowledge. The natural propensity of networks to leverage collective intelligence is the great game changer and, arguably, the most critical consequence of digital transformation because it is a new and far more powerful form of intelligence.
One of the consequences of this game changer is that it transforms the foundation for building a sustainable competitive advantage. In the Digital Age, this capacity shifts from those companies that maintain the status quo through extraordinary cost and operational efficiencies to those who create the future by rapidly adapting their business and product models to keep pace with accelerating change. Put simply, in the Industrial Age, if you couldn’t maintain, you couldn’t survive; in the Digital Age, you won’t survive if you can’t adapt.
The inability to make this shift may explain why so many businesses are suddenly disappearing. In the 1950s, the average age of a company on the S&P 500 Index was sixty years. Today, that number has been reduced to less than twenty years, and by 2027, the average tenure is expected to shrink to just twelve years. To put this in perspective, more than half the companies in the Fortune 500 at the start of the twenty-first century no longer exist. This includes well-known names like Sears, Mattress Factory, Brookstone, Rockport, Nine West, Bon Ton, Toys “R” Us, Payless, The Limited, Sports Authority, and Radio Shack.
The sudden emergence of a highly networked digital world represents the most significant inflection point in the history of business. In a mere two decades, this phenomenon has been far more transformative far more quickly than anything we’ve experienced in the now-gone Industrial Age.
For example, in the mid-1990s, the five most valuable companies were General Electric, Royal Dutch Shell, the Coca-Cola Company, NTT (Nippon Telegraph and Telephone), and ExxonMobil. These were all traditional Industrial Age enterprises that leveraged operational and cost efficiencies to sustain their market positions. Two decades later, the top-five list was completely revamped and included Apple, Google, Microsoft, Amazon, and Facebook. Each of these companies is a Digital Age innovator that is rewriting the rules for how successful companies thrive by relying upon distributed networks rather than centralized hierarchies to master the challenges of keeping pace with a rapidly changing world.
If business leaders want to sustain their organizations in this radically different business landscape, they will need to fully appreciate the dual dimensions of what has come to be known as digital transformation. While most business leaders understand that innovations in digital technology are transforming business models and supply chains, they fail to understand that this disruptive revolution is also profoundly remodeling the social architecture for how we work together in large organizations.
When we think of architecture, what comes to mind are beautiful buildings or elaborate edifices. We rarely think of architecture as something that explains how societies, economies, or organizations work. And yet, without social architecture, much of what we experience in everyday life would not be possible.
A fundamental social architecture must answer two questions: 1) How does power work? and 2) How do things get done? In hierarchies, power belongs to those in charge, and things get done through the application of centralized control mechanisms. Thus, in organizing the work of large numbers of people, hierarchical structures leverage the individual intelligence of the bosses at the top of an organization. However, in networks, power belongs to the connected, and things get done through the application of collective intelligence dynamics, which enable self-organization of work among large numbers of people.
The shift from hierarchies to networks will not be easy for traditional leaders because the ways that power and intelligence work are radically transformed. For leaders who have climbed the corporate ladder by demonstrating their superior intelligence and are very comfortable with leading by being in charge, cultivating the organization’s collective intelligence and trusting the synergistic power of self-organization will feel completely counterintuitive.
Nevertheless, peer-to-peer networks are the future of organizational work. This is because, in the coming decade, the pace of digital transformation will exponentially accelerate as we experience two of the most far-reaching events in human history: the connection of all humans and things via the Internet of Things (IoT) and the proliferation of human collective intelligence via sophisticated artificial intelligence (AI) systems. These events will result in an exponential leap in human intelligence as we gain access to the extraordinary speed and capacity of collective intelligence. And, whether we like it or not, they will inevitably and radically change our understanding of how organizations work.
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