Over time, and despite long setbacks such as the Dark Ages and the rise of totalitarian states, society has increasingly resembled a network more than a hierarchy, and this seems to have gone hand-in-hand with innovation. Does innovation lead to network society, or network society lead to innovation? It is probably a two-way process, which would account for the exponential increase in networks and innovation. For instance, there would be much less use for a network if there were no innovation–less need to communicate, less chance to profit through trade. In just the same way, an innovation without a network becomes an isolated secret that has no chance of improving the world. Take the case of the steam engine. Industrialisation was triggered above all by its invention, with engines used for the first time in eighteenth-century England to power cotton mills and other factories, and later railways, ships and motor-cars. But historians of technology have puzzled over the fact that the Romans invented steam-driven mechanical action almost two thousand years earlier. They also had gears that could have been used in clocks, knew about leverage and stress, and built very impressive buildings, sewer systems and aqueducts. So why didn’t steam transform the world much earlier? Simply because Roman steam wasn’t supported by a free network.
As the Roman orator Seneca (54 BC–AD 39) pointed out, most inventions were the work of slaves, many of whom were Greeks or had received a Greek education.116 Now slaves, of course, could not network freely–their communications were generally constrained to dealings with their masters and their families. Slaves–and therefore inventors–could not network widely with other slaves, or with free men who might bankroll the commercial exploitation of their inventions.
Hierarchical and closed societies are probably much less prone to innovation than network societies; and innovation is likely to be greatest when, as today, there are global networks of ideas and enterprise.
The shift from hierarchies to networks in the past forty or fifty years is also apparent in the world of enterprise. To his enormous credit, possibly the first person to spot the trend was the Canadian philosopher and educator Marshall McLuhan. In 1962, he wrote:
In our electronic age the specialist and pyramidal forms of structure, which achieved vogue in the sixteenth century and later, are not any longer practical…pyramidal organizational structures, with many layers of supervision, and with functions divided by specialty, simply did not work [any more]. The communication chain between top scientific or engineering leadership and work centers was too long for either the scientific or managerial message to be communicated…[Industry needs] groups of researchers with different competences…cutting across organizational lines.
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Indeed so. Since around 1970, firms around the world have been giving up hierarchies and adopting network structures, because they work better, both inside and outside the firms.
Internally, mass production is giving way to flexible production. The nineteenth-century notion of ‘scientific management’ through a hierarchy that minutely controls what each worker does, leading to extreme worker specialisation and job demarcation, is inappropriate now that customer needs change rapidly, workers are more educated, and technology can be used to inform workers and allow them a much greater degree of autonomy. The assembly line is being complemented and often replaced by the network, where workers are organised into small teams that connect with other small teams and often directly with customers, cutting out swathes of supervisory ‘middle management’.
Businesses are increasingly setting up ‘project teams’–comprising staff from different functions or locations–to deal with new initiatives or improve performance. Each team operates as a network connected to its various members’ parts of the firm. When the team is disbanded, and the members return to their normal jobs, they retain a new network of personal contacts, which is helpful to their own careers and to the firm.
Firms are also increasingly focusing on their ‘core competencies’, a rather grand piece of jargon meaning ‘what they do best’. This typically leads firms to give up activities in which they are merely competent (or incompetent), clearing the way for specialists–often small or medium-size firms–to take charge of particular products or activities (for example, cleaning, security, catering, or the supply of raw materials and components).
Vertical integration–where, for example, an oil firm might explore for oil, produce it in a refinery, market it to customers, and have its own petrol stations–is being reduced, so that each stage of the ‘value chain’ (exploration, production, marketing, retailing) is handled by a specialist firm. The coordination between stages is no longer hierarchical, but based on a network of cooperating firms. Firms are becoming increasingly ‘virtual’. For instance, British Airways does not own all of its planes; and it is perfectly possible that the pilots and cabin crew, although wearing British Airways livery, might in fact be employed by another firm, leaving BA to focus on its brand management and customer relations. Similarly, cleaning and the provision of food might be undertaken by third parties. Through this outsourcing of everything except the ‘core competencies’, networks are substituting for hierarchies.
Licensing, subcontracting, outsourcing, the sale of ‘non-core’ divisions, and the increasing trend of breaking up conglomerates or dividing large firms into two or three new companies result in the average size of firms decreasing. Structures naturally become flatter internally; and external links are also increased. Flexible networks replace rigid hierarchies. In Silicon Valley, for example, engineers typically change firms every two years. Their employers are much less important than the personal connections they have with other individuals–head hunters, venture capitalists, suppliers, subcontractors, ex-colleagues and all kinds of acquaintances. The boundaries between firms become increasingly porous, penetrated by numerous networks. As two writers from the Boston Consulting Group comment:
Individual firms come and go–temporary alliances of people pursuing specific, narrowly defined projects. The more permanent reality is the fluid business ‘ecosystem’ within which those firms compete. In some ways, Silicon Valley performs as a large, decentralized corporation. The Valley, not its constituent firms, owns the labor pool. The Valley, through its venture capital community, starts projects, terminates them, and allocates capital among them. The Valley, not its constituent firms, is the real locus of core competencies.
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Another way of looking at Silicon Valley is to recognise that individual executives are gaining power and wealth–personal networks drive the system more than corporate hierarchies.
Though the Valley is in some ways unique–a leading indicator, perhaps, of what is going to happen throughout Anglo-Saxon business–cultural expressions of network power are evident everywhere. In Valencia, Spain, networks of independent firms cooperate to produce footwear, textiles and toys. Benetton sources knitwear from small firms and home producers in Italy, Turkey and other Mediterranean countries, then sells it through a network of five thousand franchisee stores throughout the world.
In Hong Kong, exports of manufactured goods, which mushroomed from the late 1950s, came predominantly from small family firms in China: ‘networks of production and distribution formed, disappeared, and reformed on the basis of variations in the world market’.119 Most Japanese firms are organised into networks with overlapping ownership, the most popular form being keiretsu– vertical networks–centred on a large firm such as Hitachi, Matsushita or Toyota and embracing hundreds or thousands of small suppliers. Korean networks of firms–chaebol– are typically owned and controlled by a powerful individual or family. In China, most business is conducted through a fluid kaleidoscope of family firms, a decentralised and fast-changing network usually involving substantial subcontracting, often connected to the personal networks of senior army or Communist Party officials. And, of course, many firms in developing countries are parts of a network of supply orchestrated by leading brands in America and Europe.