I just ran across an excellent post by Clay Shirky called The Collapse of Complex Business Models. The main point he makes is that as organizations grow they inevitably become more complex. Over time they optimize their structure for a complex, interdependent set of variables. That is, as they become more complex they also become more difficult to change. Eventually, if their environment shifts or becomes unstable, they have become so tied in to a complex, interdependent world that the only change that’s possible is collapse. He gives a great example from a conversation he had with AT&T in the early days of web hosting:
In the mid-90s, I got a call from some friends at ATT, asking me to help them research the nascent web-hosting business. They thought ATT’s famous “five 9′s” reliability (services that work 99.999% of the time) would be valuable, but they couldn’t figure out how $20 a month, then the going rate, could cover the costs for good web hosting, much less leave a profit.
I started describing the web hosting I’d used, including the process of developing web sites locally, uploading them to the server, and then checking to see if anything had broken.
“But if you don’t have a staging server, you’d be changing things on the live site!” They explained this to me in the tone you’d use to explain to a small child why you don’t want to drink bleach. “Oh yeah, it was horrible”, I said. “Sometimes the servers would crash, and we’d just have to re-boot and start from scratch.” There was a long silence on the other end, the silence peculiar to conference calls when an entire group stops to think.
The ATT guys had correctly understood that the income from $20-a-month customers wouldn’t pay for good web hosting. What they hadn’t understood, were in fact professionally incapable of understanding, was that the industry solution, circa 1996, was to offer hosting that wasn’t very good.
This, for the ATT guys, wasn’t depressing so much as confusing. We finished up the call, and it was polite enough, but it was perfectly clear that there wasn’t going to be a consulting gig out of it, because it wasn’t a market they could get into, not because they didn’t want to, but because they couldn’t.
It would be easy to regard this as short-sighted on their part, but that ignores the realities of culture. For a century, ATT’s culture had prized—insisted on—quality of service; they ran their own power grid to keep the dial-tone humming during blackouts. ATT, like most organizations, could not be good at the thing it was good at and good at the opposite thing at the same time. The web hosting business, because it followed the “Simplicity first, quality later” model, didn’t just present a new market, it required new cultural imperatives.
I don’t believe that collapse is inevitable, but the environment for organizations is definitely shifting. Shirky quotes Dr. Amy Smith from MIT, who says ““If you want something to be 10 times cheaper, take out 90% of the materials.” For most organizations, taking out 90% of their costs is simply unthinkable, but that is the kind of environment we are living in. You don’t have to gut your existing business today, but why not start a new venture with the goal of killing your current business model, and seeding it with 10% of your current costs? If it can be done, it will be done, and I guarantee you there are people out there who are working on it. But if it can be done, maybe there’s a chance it could be done by you.
It’s time to start thinking the unthinkable.