Transaction-Cost Economics and ESA

Colabria Coase

Ronald Coase

The firms of the past were transactional by nature. Ronald Coase’s Transaction-Cost Economics (TCE) was the theory of the firm. Today, the firm is fast evolving to an interaction versus transaction model. This is called the knowledge-based view (KBV).

The most valuable enterprise network structures are social. Enterprise network patterns have complex properties. The logic of the new firm is social. It alone harbors unique networks and patterns. These make it competitive in its markets.

When a recent presidential candidate famously said, ‘Corporations are people, my friend…’ at the Iowa State Fair he may been unwittingly forecasting enterprise social business. It is really nothing new. Courts, including the US Supreme Court, have upheld Corporate Personhood for centuries, to wit,

“…the words “person” and “whoever” include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals.”

– US Supreme Court

What is new is corporations, the enterprise, actually behaving like a human individual, a human actor in its business ecology. In advanced enterprise network analytics the actor-person abstraction is important. Overall, organizational personhood is a key concept that must be mastered to propel sustained prosperity.

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Contemporary organizational structures are overly introspective, mechanical and process-centric. The new focus on external ecosystems and transorganizational knowledge networks is unmet my conventional organizational models. For example, the IT infrastructure, development, and operations principles of the past and in the ‘Information Technology Infrastructure Library’ (ITIL) is oriented to stable, transaction-based, order-system equilibrium. They aren’t meeting the complex properties or requirements of transorganizational and social information management.

In working with the largest ERP vendors at the most senior levels, it’s obvious this fundamental shift to social business gives them heartburn. The response, of course, is service oriented architectures (SOA). SOA has been around for quite a long while. SOA does little for enterprise personhood.

The transformation to social network-based benefits, advantages, competition and economics is new. It is what propels SOA adoption, diffusion and adoption. Innovative network structures will also see sharp growth. Leadership requires social network comprehension. People and personhood are fast becoming the central underlying principle and platform. I.e., It’s The Human Network, “…where people decide what’s possible…” (Cisco) One day in the not-to-distant-future traditional service-oriented architectures will be socially-oriented architectures. They will be the central focus of the enterprise.

It is impossible to model, engineer, deliver and optimize complex social networks with conventional, linear BPR-style process tools or the ITIL transaction models. The linear ‘chain’ mentality is out. Traditional process-oriented ERP systems, behind the firewall, are indeed very complicated, and well suited to very lengthy analysis, reductionism and linear modeling. However, the new Enterprise Social Architectures (ESA) are complex network ecologies. They inhabit the white space within and across organizations. They Create the Future.

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