More on Laws

Why do companies exists? Why do they have the size they have? Howdoes the company conclude what should be done internally and what should be left to the market? Nobelprice winner, Ronald Coase has studied these basic questions. Coase has found that the answer to these questions is the fact that companies do some tasks more effectively than the market. According to Coase, do companies exist because the cost to organize and sustain them are lower than the costs of transactionsbetween individuals on the open market And companies grows until the cost of performing a single additional transaction internally is just as high as buying it externally.

Up until now the development of the digital technology has stimulated the growth of companies. Computers and networks has made it possible to grow not just locally but also globally. But the development of technology not only makes the companies more effective. It also makes the market more effective. The cost of transactions decreases for almost every product, in some cases dramatically. And it decreases much faster on the open market. According to Larry Downes and Chunka Mui this leads to:

“The Law of Diminishing Firms,” which states that “as transaction costs in the open market approach zero, so does the size of the firm.” From Unleashing the Killer App: Digital Strategies for Market Dominance, by Larry Downes and Chunka Mui.

So, does this mean that we are moving towards single person companies? No way Jose. We humans are flock animals and we like to hang out together. The transaction cost is only one parameter in defining the size of a company. But there’s a balance. Some claim, that the ideal company doesn’t have more than 150 employees.

Even if the new connectivity that we are experiencing today, levels the playing ground. I still believe the tribal society will exist and continue to prosper. We will see new tribal configurations and on new levels. What will change though, and in some ways has started to change already. Is why we want to work for a specific company or organization.

In the not-so-distant old-days, we worked for a living, for food on the table. Today, particular in the connected part of the world, these reasons are not the primary ones anymore. There are other reasons why we want to belong to this or that tribe. Values. Values are also one of the most influential forces today.

The fundamental values expressed in three words: