Social networks, hierarchy, and the illusion of control

My last post described a talk in which venture capitalist, Fred Wilson, presents his firm's investment thesis. Among the key points, Wilson says that "technology-driven networks of individuals" can replace bureaucratic hierarchies. Because organizational structure plays a crucial role in virtually every kind of business and social collaboration, this topic is vitally important.

Also read: CIO / CMO impact: Three disruptions that demand your attention

Wilson's perspective modernizes the advice of German sociologist, Max Weber, who argued that "bureaucracy constitutes the most efficient and rational way in which human activity can be organized, and that systematic processes and organized hierarchies were necessary to maintain order, maximize efficiency and eliminate favoritism." Weber believed that "bureaucracy constitutes the most efficient and (formally) rational way in which human activity can be organized".

Also read: Enterprise innovation: CxOTalk thought leadership

The transition from bureaucracy to networks is a compelling idea, so we raised the topic with salesforce.com's Chief Scientist, JP Rangaswami, during his appearance on CxOTalk. Here is a short excerpt:

Rangaswami argues that hierarchies exist "because of scarcity." He says that typical organization structures — divisions, lines of authority, and so on — are "symptoms of scarcity" that let managers retain control despite scarce resources. Rangasami adds that hierarchical organizations accomplish four goals:

• Setting priorities
• Allocating resources against those priorities
• Monitoring progress
• Intervening in case of conflict or failure

In contrast, he says an organization in which participants are strongly connected can drive out inefficiencies by making it easier to identify "frictions" and "latencies," adding that a highly networked group can make allocation and monitoring decisions more efficiently than a bureaucratic one. Decisions made in the field are often better than choices made by central authorities, leading to higher quality results along with greater commitment and buy-in.

Implications for the CIO and CMO. With the relaxing of decentralized control, Rangaswami believes IT shifts from "provider status" to "enabler status," taking on a strategic role oriented outwardly to customers and partners. The entire idea that IT should hold a natural monopoly of technology in the enterprise fades when internal and external constituencies adopt their own strong voices.

These same dynamics demand that CMOs rethink core aspects of their company's relationship with customers. In a world where customers connect freely and actively with each other, trying to control the message, as we did in the past, is an effort in futility. Innovative CMOs today recognize their job is more about herding influencers than being the chief communications dictator.

The shift from bureaucratic control to peer-to-peer information sharing has profound implications for corporate leaders. As technology enables networked individuals to aggregate their own power, traditional control increasingly becomes an illusion. Therefore, managers should learn to recognize when to let go of control and embrace the network's collective decision-making power. For example, when Intel's CIO, Kim Stevenson, appeared on CxOTalk, she advocated embracing, rather than fighting, BYOD:

The business units make those decisions because they are trying to accomplish their objectives in the way that they think is the most efficient. If they are not choosing you, there is a reason.

I never bash shadow IT because they are fulfilling a need that ultimately IT could not fulfill. Once you get your head around that principle, then you can start working to figure out how we can best fulfill it for the company.

Similarly, the University of New Hampshire's CIO, Joanna Young, told me:

We are in an experience economy and you want that experience to be seamless.

Both these leaders intuitively understand that locking down control is less powerful, and ultimately more difficult, than allowing networks of individuals to express their own requirements, goals, and solutions.

CxOTalk brings together prominent executives, authors, and analysts to discuss innovation in enterprise business and technology. Conducted live and unscripted on open video, CxOTalk offers a rich source of thought leadership from the top practitioners and thinkers in the world. Join co-host, Vala Afshar, and me every Friday for a new episode of CxOTalk.