February 22, 2021
While millions of words have been dedicated to the expected changes in post-Covid workstyles – how will people work, where will they work, how will they be supported – very little has been said about their employers: companies and corporations. Yet the anticipated changes to work and the workplace raise questions about the role of the company. Is it one just half of a transaction between employer and employee? Or is it something more? Indeed, what is the role of the company in the modern economy? Is the nature of the company likely to change? The answers could have a greater impact on workstyles than the pandemic.
The earliest modern companies were the joint stock companies which comprised groups of shareholders, each of whom invested money (joint stock) in return for a share of profits. JSCs came into fashion in the 1600s as the costs and risks associated with overseas trading voyages grew. In terms of the office workplace, banks were permitted to become JSCs in the 1830s; the first being the London and Westminster Bank, in 1834. The Joint Stock Companies Act 1856 conferred limited liability, which protected shareholders from personal liability for the company’s debts or liabilities.
So, companies existed to share risk and reward and to legally protect shareholders. A more academic explanation of companies was provided by a little-known UK Nobel prize-winning economist, Ronald Coase (1910-2013). In his seminal 1937 paper, The Nature of the Firm, Coase suggested that transaction costs attached to doing business are more effectively and efficiently dealt with by a single decision-making structure. He postulated that firms existed because of the cost of using the price mechanism, or transactional costs:
We may sum up … by saying that the operation of a market costs something and by forming an organisation and allowing some authority (an ‘entrepreneur’) to direct resources, certain marketing costs are saved.
In other words, companies exist to create efficiencies by reducing marketing, or transactional costs. Coase’s central insight was to see the firm as a “system of relationships which comes into existence when the direction of resources is dependent on the entrepreneur.” We can therefore think of a firm as getting larger or smaller based on whether the entrepreneur organises more or fewer transactions.
The ‘firm’ reached its apotheosis in the early-twentieth century with the US ‘corporation’ The American economy vertically integrated, creating vast, complex companies that controlled supply chains from production to sales. It evolved from a “society of island communities into a homogenous national community”.
The most extreme example of a networked organisation is one composed entirely of freelancers
The resultant large, inflexible, departmentalised, hierarchical and slowly moving businesses dominated by clerical, process-based work, with wafer-thin demarcations between grades and functions of work, grew to dominate the economy, using ever-larger lumps of real estate and a clearly defined idea of workplace. This was the age of corporatism, a ‘job for life’ and ‘Company Man’, so named by William Hollingsworth Whyte (1917–1999), whose best-known work was The Organization Man, a polemic highlighting conformity by a generation of risk averse middle managers to their employing organisations.
But now we have the knowledge economy, the digital economy, the weightless economy. Many of Coase’s transactional costs have been replaced by frictionless Bytes and Brains. Networks are replacing production processes.
Tom Cheesewright recently wrote: “organisations are increasingly structured as networks of smaller components” and that the “most extreme example of a networked organisation is one composed entirely of freelancers. Each person in that network is not only responsible for fulfilling their own duties as part of the network, they also have to sell their value, report their successes, and communicate constantly … with the parts of the network with which they interact”.
The network economy allows individuals and micro-businesses to trade their intellectual capital using cheap and ubiquitous technology. In the past new businesses had to invest in fixed assets such as the physical workplace and equipment; today they can attain global reach with no assets.
They can incorporate online for a few hundred dollars, raise money from crowdsourcing … hire programmers from Upwork, rent computer processing power from Amazon, find manufacturers on Alibaba, arrange payments at Square, and immediately set about conquering the world.
Once held together by risk and liability management, what binds firms together now? The notion of a ‘corporate island’ looks somewhat redundant when Coase’s ‘transaction costs’ are replaced by knowledge, relationships and networks. Lower capital costs, growing connectivity, artificial intelligence and social changes (such as the aspirations of the digital generation), all negate rigid corporate structures.
In short the previous dominance of large corporate organisations is ceding in the knowledge economy to a more variegated company landscape of large and small businesses – undertaking pretty much the same work – operating in a networked economy.
The raison d’etre of the firm is shifting to something more ephemeral – the desire for community, or at least, identity
For the property and workplace industry the implications are profound: our customers are moving on. The company continues to need its legal protection, but for growing numbers, there is no risk and reward issue, and few transaction costs. The raison d’etre of the firm is shifting to something more ephemeral – the desire for community, or at least, identity. Whether working in a micro-business or as part of a larger one, more and more people want to share purpose, values and experience rather than a bonus pot. Companies will become more humanistic.
Whereas once community and identity were givens – a single place, culture, workstyle – now it must be nurtured. The new business landscape is more ecosystem than industrial agriculture. Collaboration, partnering, sharing data and skills exchange will all feature. Firms will be permeable and fluid.
Networked companies require innovative solutions for their accommodation needs; not rent slabs. Buildings and workplaces must be multi-use, more adaptive and responsive, with a richer ecology of settings. They must provide quality and experience; be available on demand, and accommodate communities of large and small firms. Business communities will innovate and add value.
Rob Harris is principal of Ramidus Consulting. He has over 30 years experience within the property sector, specialising in research and workplace strategy. Prior to setting up Ramidus, Rob worked for Interior Services Group, Stanhope Properties, Hillier Parker (now CBRE), Debenham Tewson & Chinnocks (now DTZ) and DEGW.