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The Decentralization Imperative

MIT management guru Thomas Malone explains how technology can distribute authority, trump hierarchies, and lead to better business decision-making.

The wave of information technology that surged through the business world in the last decade or so has generated great opportunities for rethinking the way organizations work. In particular, the old mode of centralized authority has been severely undermined. With the Internet threaded into virtually every office in the world, small, loosely tied groups of “e-lancers” can take on large, hierarchical corporations. To succeed, managers must grasp these changes, according to Thomas Malone, the Patrick J. McGovern Professor of Information Systems at MIT’s Sloan School of Management. Malone is also the founder and director of the MIT Center for Coordination Science, which focuses on the nature of interactions among people, markets, organizations, and technology. Malone has been spreading the gospel of information-enabled business: He is the editor of two recently published books: Inventing the Organizations of the 21st Century and Organizing Business Knowledge.  He is also the author of The Future of Work. scheduled to be published by Harvard Business School Press in early 2004. He spoke with Technology Review intern Erico Guizzo.

TR: Many people are skeptical about the impact of technology on business today. Are there reasons for such skepticism?

Malone: I think many people are still suffering from the post-dot-com-boom hangover and not yet realizing the genuine potential of all these new technologies. Many people overestimated the speed with which these things would happen and were then disillusioned, but I believe that we are about to come out of the disillusionment period. The next few years will be very interesting for people who are thinking about how to take advantage of communications technologies such as e-mail and the Web and the new ways of organizing work that these tools are enabling.

TR: What do you think are some of the organizational changes that new technologies are making possible?

Malone: One of the most important things is decentralization. People have talked about this before, but now changes are happening much more radically. Information technology is enabling decision-making to be far more widely dispersed in both large and small firms. With cheaper communication costs, many more people can make decisions for themselves, because they have the information they need. And when more people make more of their own decisions, they are often more creative, more motivated, more dedicated. That means we’ll be able to have many of the economic benefits of large organizations without having to give up human benefits of smaller ones -things like motivation, creativity, and freedom.

TR: Have you seen these transformations already happening in companies?

Malone: Yes. One example is AES Corp., a big electric-power producer, where there is a huge amount of freedom for people at very low levels in the organization. Junior people can make multi-million-dollar decisions about technology and even business acquisitions, in part because they have the information in their hands and can easily ask advice from people throughout the company. Another example is a company in Spain called Mondragon Cooperatives that gives everyone in the organization a right to vote on who the leaders of the organization will be and other major decisions. So it seems clear to me that lots of companies today are moving away from the rigid, hierarchical ethos that was pervasive in business 20 years ago.

TR: How can companies invest smartly in technology in a time of limited budgets?

Malone: I think some of the most interesting uses of technology may not require huge and expensive technology. All they require is creativity. So just because your budgets are limited doesn’t mean your creativity should be. For example, there ‘s a huge potential for companies to create knowledge repositories about business processes that let them rapidly consider many different, new ways of doing things. Such systematically structured repositories of knowledge would be very helpful, for instance, in creating Web services and developing whole new applications from components that existed in different places with-in the company or in other companies all over the Web. This offers promising opportunities, but few companies are taking advantage of it yet.

TR: How will new technologies affect the global economy?

Malone: One of the most important constraints on how businesses are organized is the cost of communicating. As that cost plummets, there are many new possibilities. It is becoming almost free to communicate with people anywhere in the world. We’re in the early stages of the globalization of the labor market; it’s becoming possible to move more and more kinds of jobs to different places in the world and have them be performed just as effectively. My colleague Robert Laubacher and I see the emergence of an “e-lance” economy. “E-lance “stands for electronically connected free-lancers. In this world, many of the things that are today done by large corporations could be done by temporary combinations of very small companies, in many cases even individual freelance contractors. Most people don’t begin to understand yet how important and how far-reaching this and other decentralization changes will be. They will give us an opportunity to shape the world for the rest of the century.

This article originally appeared in the MIT Technology Insider, a monthly newsletter covering MIT research and commercial spinoff activity.

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