Breaking through the Coasean Floor

By Christian Buckley posted 05-28-2013 15:25


In James Q. Wilson's 1989 book Bureaucracy, Wilson repeatedly mentions Ronald Coase and his 1937 paper 'The Nature of the Firm' regarding the value of the hierarchical organization, in which Coase identified that while workers could contract with each other in a market (identify business opportunities on their own, negotiate rates and deals), a completely open market for labor would underperform a hierarchical model due to the high transactional costs of establishing each relationship. For anyone who has ever started their own company -- especially a consulting practice -- knows how difficult and expensive it can be to identify new customers. Hierarchies, according to Coase, have fewer relational transaction costs and therefore are a more economical method for building customer networks.

Coase's studies provide some interesting insights that can be applied to today's social enterprise, and the idea of "unlocking silos" through the use of social platforms and associated innovation-minded business practices. Wilson points out that professionals often becomes gatekeepers, simultaneously providing and controlling access to information, entertainment, communication, or other ephemeral goods. He talks about reaching below the "Coasean floor" using enterprise social networking platforms, where crowdsourcing can solve problems or tasks at a lower cost (sometimes free) than any business could perform.

He describes three types of social interaction through those platforms: sharing, cooperation, and collective action. Sharing is easiest, because nothing is invested.

"All group structures create dilemmas, but those dilemmas are hardest when it comes to collective action, because the cohesion of the group becomes critical to its success."

And most end users (information workers) generally see the value of these platforms, and the benefits they receive almost immediately. In his recent article, Mark Fidelman, author and CEO of Evolve!, a social business consultancy, shared the results of a recent Microsoft survey which shows that "31 percent said they are willing to spend their own money to buy social tools. That’s how convinced these employees are of the value of collaborative, social tools. This is no longer the age of command and control."

It’s interesting that the most powerful sites for social activism seem to coalesce around sharing platforms (Facebook, Twitter, MeetUp) rather than those that specifically focus on collective action, as the latter require high human capital costs (a certain number of participants to make anything happen) whereas the former sites take no human capital to get something started. On the flipside, you never know what suggestions may inspire action from a sharing platform, but a collective action has a specific – and predictable – outcome if the people are there to support it.


As summarized by Fidelman, "We still have a social disconnect in companies today and they don’t have the will or ability to fix despite their employees demand for them." Of course, as we have seen time and time again with these social collaboration platforms, from the explosion of instant messaging to SharePoint, at some point employees will find a way to use the tools and platforms that enable them to get their work done. The quicker companies can see this trend and take part in it, the sooner they will begin to recognize the innovation and intellectual property that is currently going untapped, or, worse yet, leaking out into the wild.

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