If we follow the development of economies, especially of the economies of western countries, one thing becomes clear — we are in the Age of Ideas. What matters more and more is original and creative thinking. Some of big discoveries came form Silicon Valley. Most were made by information companies. If it will stay this way is another argument, but from limited information I have so far it looks like this trend will only accelerate. Most of the industries are getting digitalized and the competitive advantage gain is based on the ability of a company to innovate — on the ability of that company to come up with new ideas and verification of business value of those ideas.
What is clear that more and more companies will need to innovate in order to survive. Just coming up with the new ways to sell the same thing is not going to cut it. The rate of change only accelerates.
In his research Elliott Jaques, and very persuasively in his essay “In Praise of Hierarchy”, established some good things about hierarchy. He points out that the role of employment is to establish accountability and hierarchy is good at that. For another that there are natural borders where we accept hierarchical structures as fair and acceptable. It all works very well when the responsibilities of managers differ in their time horizons. He sets borders at time horizons of longest running task at: months, 1 year, 2 years, 5 years, 10 years, and 20 years. I find those time slices to be way to long. Maybe it was possible 30 years ago to see company working in those time frames. This has changed. And it keeps changing faster and faster. Most companies, and I do come from software perspective, operate on time slices of weeks, months and maybe a year or two. His point is that hierarchies existed for 3000 years and that is the only way to organize large numbers of people to be aligned and accountable to some set goal.
Starting with invention of computers most of areas of our lives are being digitalized. The professions that existed 30, 20 or even 10 years ago are dying out. They just despair under pressure of digitalization of our world. According to Moor’s law the computational abilities are doubling every year and the law is still working. We can put more and more elements of a chip every year. What that means is that computational power and storage are increasing. Software products that seemed to be impossible 10 years ago become possible. Software is eating the world. Just look at your grocery store and the rate that cashier clerks are getting replaced with self-checkout stations. The same thing is about to happen to drivers. It has been happening for years in manufacturing. Those jobs are not coming back, no matter how much presidential candidates are trying to convince you. More jobs are going away. Not to China — they are just getting eliminated by cheep automation.
So the brings me to my main point — in order to create value in this digitalized world a company has to be innovated. Innovation is creativity plus the method, as cheaply as possible, to prove that idea either has market value or not. That can’t be accomplish only by theoretical breakthroughs. That means testing those ideas with real people. Gathering the real data and acting on that data. And doing it over and over and really really fast.
Why speed matters? Because the tools are becoming cheeper and cheaper as fast as they are becoming better and better. The software, hardware and new manufacturing technologies are becoming very acceptable. That is why teenagers in their bedrooms are creating things that make them milliners and billionaires in some cases.
Hierarchies existed for that long because information was the most scares resource. It was so scares that gossip is ingrained in our brains. The whole institutions appeared in order to supply that resource — journalism, free speech. But now we are drowning in the information. Millions are going to be made in information processing and knowledge creation technology. We produce in a year as much information as was produced in 1000 years before.
Since information is highly available then what is valuable is what you do with that information. Mainly ideas. New, creative and never existed ideas are what is valuable. And you can’t plan creativity. You, possibly, can create environment to encourage it, but you can’t plan it. Peter Medawar said, “To predict an idea is to have the idea.” That is the gist of it. You can only be creative, you can’t manager creative thought.
All the hierarchical structures that we inherited are the product of may thousands years of cognitive evolution. The reason we have managers and managers on top of managers comes out of military tradition. The tradition where speed of reaction and accountability was much more valuable then deliberation and thought. The actions on a battle field require swift reactions. If lieutenant stops to think or argues with the commanding officer people will die. Ground is going to be lost. The value of that structure comes from the speed of execution of ideas that come from the top. That is what that structure is optimized for — reaction time. That is why corporations that existed for decades and some for hundred years adapted it. Because what mattered in those places was execution and accountability.
As you can see this is not what we value the most anymore. What matters more is the creative idea production. Hierarchical structure is meant to eradicate that. Feedback loop that it has is measured in reaching set goals. Management plans and people on the bottom execute. Precisely, fast and without questioning.
I do agree with Elliott Jaques that we do need accountability because of the nature of employment — we get hired to bring value to the company that employs us. What I disagree with is the definition of value. I don’t think value means the precise execution of tasks of different time horizons. Value still needs to be added to the modern work but synthesizing new ideas, testing those ideas for survivability in the real market and getting those ideas prototyped and ready to be scaled is the most value to be created. Scale is still when the hierarchical structures are valuable.
The solution to the innovation dilemma is going to be of a hybrid type. Hierarchical departments that exist for accountability purposes with flat departments that are optimized for creativity. Creativity in this sense is variability of output. You can’t have only good ideas, since good ideas are always balanced with bad once and the majority of ideas are going to be mediocre. You just have ideas. Flat departments have to have the freedom to make mistakes, extract valuable information from those mistakes and keep generating new better ideas. A lot of them. And the good ones are the ones that manage to survive the test of real market.