• The new economy is a molecular economy. The old corporation is being disaggregated, replaced by dynamic molecules and clusters of individuals and entities that form the basis of economic activity. The organization does not necessarily disappear, but it is transformed “Mass” becomes “molecular” in all aspects of economic and social life.
The principal economic unit of the industrial economy was the corporation. The roots of the command-and control hierarchy were in the uth and military bureaucracies of the agricultural age but were extend- to become the firm. The objective of every CEO and board was to increase the corporation’s size, revenue, and profit. The traditional hierarchy has been in deep trouble for years now because it was poorly equipped to respond to the new business realities. Conventional wisdom of the past decade has called for more responsive, flatter, team-based structures. The most significant movement to create such horizontal, process-oriented structures is business process reengineering (BPR). However, as Riel Miller, an economist working with the Alliance for Converging Technologies, put it: “The necessity of adding knowledge at eveiy step in the value chain is beginning to call into question the familiar notion of the firm as an organizational unit. The Net may be, at one and the same time, the source of both the demise and salvation of the firm as we have known it.”7
More than fifty years ago 1991 Nobel Prize winning economist Ronald Coase asked why firms exist. Why are there groups of people working together under one organizational framework? He wondered why there is no market within the firm, Why is it unprofitable to have each worker, each step in the production process, become an independent buyer and seller? Why don’t the draftspeople auction their services to the engineer? Why is it that the engineer does not sell designs to the highest bidder?
One of the main answers to these questions has to do with the cost of information. Producing a loaf of bread, assembling a car, or running a hospital emergency ward involves a number of steps in which cooperation and common purpose are essential to making a useful product. An emergency room, where each doctor bids for nursing services in an attempt to get the lowest price, while at the same time determining if the nurse is actually capable of assisting with the operation, might provide fully functioning market but not a particularly useful product for a dead patient. Similarly, holding an auction before the axle assembler would pass along product to the chassis assembler might slow down the line. It would be even less efficient if the information on engineering viabili
and compatibility needed to be purchased on the shopfloor marketpl at eve!)’ step.
What makes a pure market impractical is the time and cost of acq ing the information needed to undertake complex production proces What is being sold? What is the quality of the labor? What is the qualit the raw material or intermediate input? What is the price for the
product? How will it be sold? By whom? With what kind of information marketing? Who will finance the production process, and how much financing cost? The ensemble of functions within a firm consist not only a series of discrete products but also the infrastructure of collaboration, A clear framework and strict regimentation worked on many battlefields and in many marketplaces of the past. The role of the overarching infrastructure of the firm or army was clear and indivisible. But today, as Miller puts it: “The Net does not change the rules, but it changes what is possible. It opens up new horizons for what is economically and practically feasible. The costs of information and coordination are dropping. More than ever we are in a position to create wealth by adding knowledge to each product at each step.”