BPM, E2.0 @Oracle

This week’s post brings us a republication of a post from GeraldK.

In a recent article, economist Tim Harford summarized some of the key ideas in a paper by Paul A. David, "The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox". While I'll further distill it, I really encourage you to read one or both of the pieces.

I want to start with the idea that new technologies, though they may have the potential to massively and positively transform institutions, and although it may even be envisaged how they may do so, nevertheless take far longer to do so than their proponents expect, even in the face of years of high levels of investment in the new technologies. Professor David's paper was written in 1990 as an investigation into the question of why, as the Nobel Laureate economist Robert Solow remarked, "we see computers everywhere but in the productivity statistics". (This problem, the "productivity paradox", persists today; in the last handful of years we have seen some increases in productivity that are thought by some to be attributable to technology investments of the preceding decades.)

David gives us a history of the electric dynamo and the electrification of factories (you really should read the paper; at least read section II) as an analogy to help us think about the possible future of computers. While he talks about some of the specific changes that electrification wrought on factories, he doesn't go into specifics of what computer technology may do and how it might do it. Well, he's an economist writing 17 years ago, and I'm a (hmm...let's go with...) technologist and visionary with a blog today, so I'll be your huckleberry.

Electrification did little to change factories and work practices for decades, and there were many reasons why. The one that that is most analogously relevant is this: The major benefits of electricity didn't come from replacing steam with electricity per se; they came because electricity allowed "unit drive", which could let you run a factory in a cheaper, more efficient, higher-quality way than was possible with "group drive", which was steam engines limited you to. Electricity allowed you to go from a steam Factory 1.0 to an electric Factory 2.0. (Two examples of the differences: 2.0 buildings could be smaller, lighter, single-story structures because shafts and belts could be replaced with wiring, which was both lighter and allowed more flexible placement of powered machinery; and 2.0 factories could be more efficient because machines could be laid out according to flow of materials and tasks, and furthermore easily rearranged according to process changes.)

But even though the first central electric plant in the country had been operating since 1881, it wasn't until the 1920s, four decades later, that factory productivity growth started to improve. What happened? Well, there were all these existing buildings and machines and training and instructions and processes and institutions and relationships and habits that were all based on the steam-powered Factory 1.0. Even when they electrified an old steam factory, and even when they built new electric factories, they would simply replace the steam engine with an electric dynamo, and would end up with an electric Factory 1.0, not a Factory 2.0.

We've done similar with computer technology. Yes, we have email, and email has substituted as a better and cheaper memo and mail and bulletin board and meeting and runner and pneumatic tube. And yes, we have web sites, and they are a lot better than bulletin boards and forms and catalogs and brochures and manuals and calling up a rep to ask a question. But they do the same thing. Yes, better and faster and cheaper and with much greater reach, but it's the same thing. Going further back, pre-networking, computer reporting and printing was more efficient than accountants with (paper) spreadsheets and ledgers and typing and stenography and typesetting, but it was again the same thing. (Now I'm not discounting that at some point, speed and efficiency are quantitatively so much greater that in itself induces qualitative change--email has arguably reached that point--but that's an emergent rather than a contemplated change.)

I say then that Web 2.0 consists of those applications that not only use the underlying technologies of computers and networks and HTTP and HTTP-stuff; but furthermore and more saliently do so in ways that are particularly well-matched to the routines and practice of Org 2.0 organizations. (I know people sometime use "Enterprise 2.0", but I actually want to include organizations that may not be enterprises.) What's Org 2.0? Well, let's talk first about Org 1.0. Org 1.0 has a "traditional" corporate form: driven by standardized operating processes and organized around departments dedicated to performing those processes. Many organizations (or parts of organizations) at least aspire to this form, analyzing and optimizing business processes, doing TQM and ISO9001 and Six Sigma, installing whatever software brings them closer to the ideal. The 1.0 organization has persistent, determined outcomes, expected inputs, and reasonably well-known tools and practices; the main challenge in Org 1.0 is coordinating the inputs and tools and practices to achieve those goals effectively and efficiently. Configuring and ordering a PC on Dell's website, assembling a car, getting the right amount of beer and iPhones to the retail stores, checking out at the supermarket; those are the kinds of things that Org 1.0 is good at doing.

The key is that Org 1.0 is dedicated to repeating its outcomes, perhaps better each time, and with parameterized variations, but repeating. In contrast, Org 2.0 might be doing something new all the time; that something may be similar to what it may have done before, but not in any easily-formalizable way. I made a chart.

Table 1: I need to fancy this post up for you people with short attention spans.

Now, it's often assumed that what I've called Org 1.0 is actually just how you have to run a large organization, to be able to scale up without screwing up (after all, "repeating" is pretty much how a company scales up); and what I'm calling Org 2.0 is characteristic of small organizations, who just don't have the scale or the institutional knowledge to implement structured repeatable processes. Small firms that grow become more structured and more process-oriented: because they can, as they learn from what they do and standardize that into repeatable processes; and because they must, as informal mechanisms of communications break down when there are lots of people, and formal processes can ensure that individuals get the information they need to do their jobs.

That's true, and Org 1.0 represents the pinnacle of industrial achievement. The only way the world economy can work is with organizations dedicated to scaling up, in predictable and efficient and repeatable ways. Much of what Org 2.0 does is as part of or in direct service to a bigger Org 1.0.

But the thing is, in gaining all the scale advantages of Org 1.0, an organization loses the great advantages of Org 2.0: flexibility and adaptability, resulting from the high level of communication and overall situational awareness of each member of the organization. Yes, Org 1.0 realizes economies of scale, but at the finer grain, Org 1.0 is in fact much less efficient than Org 2.0, and the economies of scale have to offset the diseconomies. (That's something a lot of small and mid-sized companies often forget, btw. In the drive to formalize to be able to grow, they smother their own advantages.) That's why a lot of companies that work in Org 2.0 ways (architecture firms, law firms, creative agencies, research labs, medical specialists) are either small, or decentralized collections of small groups. That's why large organizations often break off smaller, less formal groups for innovation.

Ah, and here's where Web 2.0 comes in. Web 2.0 applications are those applications that are meant to help Org 2.0 to scale up, take advantage of specialization, and stop being so small. (Here I'll add something to Gerald's post and say that Web 2.0 applications can also help the already large ones i.e. Org 1.0 reap the benefits of Org 2.0). They help with Org 2.0-specific activities and share those characteristics: informal communications and collaboration, ad hoc inclusion of people and information, structured in ways that are easy for humans to understand (say, by faces, or by event, or by conversation, or by relationship) and synthesize. They do this so that the efficient working habits of a small group can be used by larger groups of people who are farther apart, so that we can get economies of scale, without the heavy diseconomies. They try to do this by improving communications and the sharing of information that works in small localized teams, so that it can work across larger dispersed groups of individuals. The point is to take advantage of what computer and networking technologies do to remake how and organization can operate, rather than to continue to operate it the same way, just with more speed or more cheaply, just as electrification and unit drive remade how a factory worked.

And so that's what we're trying to do. Just as animals and steam and electricity augmented human muscle, and earlier computer software and processes augmented human logical thinking and computation, Web 2.0 applications are meant to augment those unique human abilities that can't be automated. We're trying to produce applications that increase the power of human judgement, cognition, social understanding, inspiration, and adaptability.