Crowdsourcing and the theory of the firm

by eskokilpi

A firm is normally seen as an entity that is separate from its members. After specific financial investments have been made, the firm is defined by the ownership of the physical assets and the power that the people who made these investments have. The owners choose their representatives, who choose the managers, who act as the “agents” of the “principals”/the owners. The managers then choose the workers. The most important role for the agents/managers is to serve the interest of the owners, the people who made the financial investment.

As a result of this model, the relationship between the company and the contributors of financial capital is very different from the relationship between the company and the employees. Employees are seen as a resource, although a human resource, thus differentiating human beings from other resources serving the value chain. The role of the employee/resource is derived from the value chain architecture. The management target here is a close fit between the skill set of the employee, the job role description and the value chain. Because of this close fit, when major changes are planned to the value chain, it is more often good news for the investors than for the employees.

The system of selling and buying people in large chunks as a result of management decisions about doing it inside the organization or outsourcing is today explained as cost saving. In the 17th century the very same system of selling and buying large chunks of people was called slavery.

The modern firm has developed into a perfect vehicle for financial contributions and as a toolkit serves the needs of financial investors well, at least in good times. As creativity and knowledge define success today, access to capabilities is as important for a firm as access to money. But, what if people mattered even more than money? What if it is going to get harder in the future to get knowledge workers’ contributions than to get financial investors’ contributions?

Should firms serve ideas and creativity more than they serve money?

Is the way we think about firms helping us to meet the challenge of the future or is the mainstream theory of the firm an obstacle for us? Firms are social and legal constructs. They are what we think firms are. Should we renew our old social construct of the firm being based on mass production and high capital costs to a newer version, a knowledge- and innovation-based view of the firm?

In the knowledge-based world we live in today, a knowledge worker is a knowledge worker because of a particular experience base. Being able to do knowledge work requires learning, very often a lot of learning, for a long time. Thus the capabilities of a knowledge worker can be seen as resembling accumulated capital, following the same kind of logic as we use when we speak about the accumulation of financial capital. However, I use the term “human capital” here only as a metaphor in describing the new relationship between a firm and its employees. Skills are very different from money. Knowledge work is always contextual. It matters who does what and with whom. The skills of knowledge workers thus cannot be seen as homogeneous resources or as generalized labor. Knowledge work involves specific contributions to specific tasks.

The knowledge-based view understands firms as contextual interaction, rather than seeing them as entities outside of that interaction. Neither is it helpful to prioritize financial investments above human capital investments in the future.  The knowledge-based view sees firms as continually evolving live networks of investments and interaction

Knowledge work is not job roles, but task specific contributions

A knowledge worker is thus always an investor. This means that in practice that we should not talk any more about the employer – employee relationship, when talking about knowledge work. Instead, it is an investment – investor relationship.

The challenge for the firm is to be inviting to as many contributions/investments, as possible, from as many people as possible. Another difference from the industrial model is the growing need to cross organizational and geographic borders when trying to optimally match tasks and skilled contributions. The basic logic of creative work is thus Internet-based global crowdsourcing.

The firm of the future may be 10.000.000 people working together for ten minutes.

Crowdsourcing is not about the company consuming the information outsiders produce. By communicating and creating more relationships, the networked business increases its intellectual capital as the nodes of the network do the same. The network acts as an amplifier of knowledge. The challenge for the knowledge worker is to take responsibility for the value and growth of her human capital and to plan her investment portfolio carefully. Work should always equal learning. As work requires interaction between people who need each other according to the context and the task, taking responsibility for human capital also requires taking responsibility for the value and growth of the human network.