Tag Archives: Corporation

On the relationship between orgs and crowdsourcing

The model shows institutions and market as a p...

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Good post at Warren Ng’s blog:

Corporations exist for a reason. That reason most likely is attributed to the power of many, yet corporations break down when executives make bad decisions and the remainder of the company suffers. Promotions and bonuses are put on hold or worse jobs are lost. Seems that corporations haven’t figured out how to utilize the man power effectively.

My reply:

You’re making some important points here (and adding some much-needed balance to the breathless claims that crowdsourcing will replace the corporation). The reason for traditional organizations to exist is largely based in Coase’s theory of the firm: the transaction costs of using a market are minimized or eliminated when performed internally by a firm. Crowdsourcing shifts some of those activities out of the firm by providing lower transaction costs than the firm, something difficult or impossible prior to social media technology.

Savvy entrepreneurs in the crowdsourcing space are beginning at the point of determining which organizational processes lend themselves to being performed outside of the firm, whether they are viewing their value proposition that broadly or not (incidentally, outsourcing and offshoring were both precursors in the attempt to seek lower transaction costs). There are some processes that will probably always stay within the firm–primarily those administrative activities that cause a firm to cohere. This is currently exemplified by the tendency of most new commercially-focused crowdsourcing ventures to form a company first, then sell the results to another company. At present it is more efficient for a company to seek funding, hire staff, and build platforms within a traditional company structure. That may not always be the case.

It’s interesting to contemplate the evolution of organizational forms as technology enables new arrangements. It challenges a great many of our assumptions. That said, I should probably leave it there lest this comment become a post of its own.

Too late.

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