I’ve been interested in how businesses organise themselves for a while, but working outside of a corporate structure has been allowing me to think more about what works.

As I previously posted, I’ve been reading PW Singer’s Wired for War recently, and nature is a huge influence on the world of robotics and AI – after all much of the work is finding automated equivalents to the brains and mechanisms of humans and other animals. But is was catching some of Professor Brian Cox last night in a programme about Destiny and time that sparked this particular idea (The show is currently on BBC iPlayer here)

Big piles of sand by cobalt123 on Flickr (CC Licence)

Basically in a section on entropy, the example used was a pile of sand, which could be re-arranged in a huge number of ways without really altering the structure of the pile, and therefore it demonstrated ‘high entropy’. By comparison, a sandcastle containing the same amount of grains would be changed significantly by even just a small re-arrangement, and therefore demonstrated ‘low entropy’.

So with an extremely limited knowledge of the Second Law of Thermodynamics, what on earth does this have to do with business?

Entropy, time, nature and businesses:

Well, entropy affects all things, and is really a measure of energy changes as things disperse – think of a block of ice melting. And these changes which can increase entropy can happen spontaneously.

So busineses which arrange themselves like a pile of sand should retain their broad shape through a far bigger number of changes. The prime example could be the branded venture capitalism of Virgin. By using a branded VC model, they’re able to get in and out of various industries and fields relatively quickly and painlessly, whilst the overall company values remain. And they can experiment with space flight, for example, without fear.

Technology companies seem to be more adept at this – the 20% Google time for engineers to work on pet projects in one example of expanding and changing whilst apparently staying somewhere within the Google values (e.g. ‘Do No Evil) – hence the search and advertising business also includes a range of other projects which tie-in to a greater or lesser extent.

And smaller businesses which follow these ideas seem to be growing – for instance, the virtual agency model which tends to be occurring more often in the creative and marketing disciplines (as opposed to the crowdsourcing model which can often be more akin to ‘spec work’ – i.e. you just post your demand and someone meets it for the lowest cost). The virtual agency should be a collaborative co-creation environment, and certainly the better ones seem to fit that build (Disclosure – I’m a member of both Blur Group and Guided Collective)

The natural end of the formal structure:

The entropy idea seems to suggest that initially you had small, local groups, which turned into large formal ones due to advances such as the Industrial Revolution etc. In terms of the impact, the change was massive, but in terms of the duration of the change, 200 years isn’t such a long time.

Which makes me think that the move towards collaborative groups coallescing, splitting and reforming may well be the most natural state, and the time for the large formal institutions really is at an end.

Ronald Coase is attributed with the idea that economic tasks are performed by firms when the transactional costs suggest it. (Cheers to @jobucks for succeeding where Google and my memory failed).The earliest reference to it via Wikipedia comes from John R. Commons:

It is this shift from commodities and individuals to transactions and working rules of collective action that marks the transition from the classical and hedonic schools to the institutional schools of economic thinking. The shift is a change in the ultimate unit of economic investigation. The classic and hedonic economists, with their communistic and anarchistic offshoots, founded their theories on the relation of man to nature, but institutionalism is a relation of man to man.

But the digital age seems to enable a shift back to commodities and individuals with a basis in natural and social relationships. If each grain of sand is an individual loosely linked to the others in the group on the basis of selling a commodity, then it can exist with high entropy and continue to retain its shape in the face of the majority of external forces. Whereas tight formal rules of an institution bind ‘man to man’, but mean spontaneous external forces are far more likely to blow it apart.