1. 4

  2. 1

    “In the beginning there were markets”

    We live in a technologically advanced society. Unfortunately, the study of organizational innovation has never been more than a poor and distant cousin to the study of technological innovation. This has created the frustrating combination of new technologies and old ways of doing things. Platform firms and Internet-based peer-to-peer markets have created a growing interest in understanding and innovating the architectures of work. Attempts have been made to answer the old questions of why some activities are organized within firms and others are not. What is the difference between a within-firm relationship and one that is governed by different contracts, or across markets? What determines who is in and who is out? What types of relations should be long-term and what should not?

    Some scholars claim that there are no particular reasons why the membership of the firm couldn’t change from month to month, or week to week, or even task to task. In fact, they claim that long-term contracts are not the essence of the organization we call a firm. Friedrich Hayek (1899-1992) was among the first economists to voice the huge importance of rapid adaptation to changes “in particular circumstances of time and place”.

    The focus has now changed from seeing a firm as a production function managing its own assets to seeing it primarily as a contracting structure managing network assets. The value chain has been transformed into a multi-sided market. As on-demand work becomes more common, we can be sure that more people are going to be involved more often in the renegotiation of work contracts.

    The challenge is that the contract terms in the new world of work must be acceptable to all parties. The future system has to be symmetrical, which the industrial system wasn’t.

    The original argument by Ronald Coase was that the asymmetrical relationship inside a firm is a substitute for market transactions. A central authority can coordinate activities more efficiently than individual input providers could when contracting with each other directly. It was a profoundly important insight explaining why firms existed, and very true at the time, but not any more.


    Good find, Ivo!