Greg Satell comments in Digital Tonto:
Small, tight clusters of people, loosely connected through more distant ties, can dramatically increase information flow and enhance innovation. in a world connected by digital technology, power no longer lies at the top of hierarchies, but at the center of networks.
In the early 20th century, the great sociologist Max Weber noted that the sweeping industrialization taking place would lead to a change in organization. As cottage industries were replaced by large enterprises, leadership would have to become less traditional and charismatic and more organized and rational.
He also foresaw that jobs would need to be broken down into small, specific tasks and be governed by a system of hierarchy, authority and responsibility. This would require a more formal mode of organization—a bureaucracy—in which roles and responsibilities were clearly defined.
Over time, the likes of Vanderbilt, Carnegie and Ford were replaced by professional managers and the nature of work became less that of sweatshops and more that of “the man in the gray flannel suit.” Today, we are undergoing a transformation every bit as dramatic, a shift from hierarchies, strategies and tactics to networks, platforms and movements.
Strategy is No Longer A Game of Chess
Let’s consider the case of John Antioco. As CEO of Blockbuster Video, he moved quickly to confront the threat posed by Netflix. He abolished late fees, recruited an effective digital team and built an impressive online platform. He then combined digital and physical assets to create Total Access, a service that allowed customers to rent by mail and return to the store.
Soon, Blockbuster was gaining ground against Netflix, but Antioco was thwarted by his own internal networks. Investors balked at the costs of the changes—about $400 million—while franchisees worried about the threat to the core business and put up fierce resistance. Antico was fired in 2005, the new CEO abandoned the strategy and soon the firm was bankrupt.
It was around the same time that General Stanley McChrystal encountered a similar problem in Iraq. Although he led some of the most elite forces in the world—and they were winning every battle—he was losing the war. The enemy he faced, made up of loosely connected small groups, was able to consistently outmaneuver him and his troops.
Still, he didn’t make major changes to his strategy or tactics. He saw that “it takes a network to defeat a network,” and transformed his forces by shaping the connections between his troops rather than trying to increase the efficiency of individual teams. By 2006, the leader of Al Qaeda in Iraq, Abu Musab al-Zarqawi was dead and the terrorists were on the run.
How Silicon Valley Became A Tech Mecca
Once you start thinking in terms of networks rather than hierarchies, it becomes clear that we must change how we do things; and not just within organizations, but also in how we approach a competitive marketplace. As it turns out, firms that seek to strengthen industrial networks have a big advantage over those that seek to preserve hierarchies.
To see what I mean, let’s look at the Route 128 corridor outside Boston. In the 1980’s, with firms like DEC and Apollo Computer, as well as world class research universities like MIT and Harvard, it seemed poised to dominate the technology industry. Yet by the 1990’s, it was clear that the baton had passed to Silicon Valley.
In her book Regional Advantage, AnnaLee Saxenian explains why. While DEC and Apollo were vertically integrated firms that bound employees through non-compete contracts, their Silicon Valley competitors such as Hewlett Packard and Sun Microsystems embraced open technologies, built alliances and allowed their people to job hop.
From the standpoint of a hierarchy, the strategies of the Route 128 companies made a lot of sense. They were protecting proprietary technology and building a stable, high-skilled workforce. However, from a network perspective, they effectively disabled valuable linkages and restricting the information flows that make innovation possible.
What Saxenian found in Silicon Valley is not specific to technology industry, but can be seen just about anywhere. Studies have found similar patterns in the German auto industry, among currency traders and even in Broadway plays. Small, tight clusters of people, loosely connected through more distant ties, can dramatically increase information flow and enhance innovation.
Why Some Movements Fail And Others Succeed
It is also small groups, when loosely connected and united by a shared purpose, that can give rise to powerful movements. Consider the case of Otpor, a ragtag bunch of Serbian student activists. Their tactics, like asking passersby to pay one dinar to hit a portrait of Slobodan Milošević, seemed like more like street pranks than anything else.
Yet these were no mere pranks, but part of a larger plan. They knew that their tactics looked ridiculous, but they were also funny and made the regime look ridiculous too. Soon, others were joining in theie fun, which led to more pranks, arrests, and street parties outside police stations. Even the police officers themselves could barely contain a chuckle.
When the regime cracked down, Otpor gained sympathy and before you knew it, it wasn’t just students, but their professional class aunts and uncles who were drawn to the cause. Massive protests soon broke out. Within two years the Milošević regime was finished. Later, the once all powerful dictator would die in his prison cell.
However, not all movements are successful. Consider the case of the Occupy Wall Street. While their powerful rhetoric about “the 99% vs. the 1%” gained them attention, they had no larger plan. What’s more, they weren’t funny or endearing, but angry and provocative. Unlike Otpor, they were back home in a few months. Wall Street still thrives.
What You See Is How You Act
Look at these cases one by one and you will see differences in strategy and tactics. While Antioco changed his business strategy, McChrystal transformed his culture. The Route 128 companies sought proprietary competitive advantage, while Silicon Valley companies fed into an open industrial ecosystem. Occupy chose angry rhetoric, while Otpor chose street pranks.
Yet when taken collectively, a different picture emerges. Antioco, the Route 128 firms and Occupy saw hierarchies and framed the challenges they faced in terms of strategy and tactics. McChrystal, the Silicon Valley firms and Otpor, on the other hand, saw networks to integrate with and that made all the difference. What you see determines how you will act.
McChrystal saw that, “to defeat a network, you must become a network.” Silicon Valley saw an ecosystem that needed to be fed. Otpor set out to identify pillars of power—not to knock them out, but to draw them in. So for them, every arrest was a chance to win converts at the police station and those converts, in the end, were what proved to be decisive.
In The End of Power, Moisés Naím pointed out that “power is easier to get but harder to use or keep.” That is undeniably true, but I also think it misses the point. The greater truth is that in a world connected by digital technology, power no longer lies at the top of hierarchies, but at the center of networks.
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