Can Economic Power Be Measured by Organizational Diversification?

An addendum to yesterday’s post…If you think more about mapping all the shareholders and stakeholders of a particular organization – or mapping all the organizations for which a particular individual is (or has been) a shareholder or stakeholder – a number of interesting questions emerge. Among the most intriguing is the extent to which wealth, status and power can be measured or attributed to the number of organizations in which an individual or entity is directly involved or invested. If our hunch that the boundaries of economic organizations and related institutions are highly blurred is correct, then it would only make sense that the most powerful individuals and entities are those that have direct involvement and influence in the greatest number of organizations. Hence, wealth, status and power are most aggressively pursued by getting involved in as many (influential) organizations as possible. Given basic limitations of human resources and attention, there is probably something of an upper limit to the number of organizations for which it pays to be active and affiliated. But within those limits (which can probably be at least loosely defined without too much effort), more is likely to be better than fewer.

This concept is probably easiest to understand when applied to individuals. For the overwhelming majority of people who work for someone else for a living at the level of middle management or below, the only economic organization in which they are truly invested is the one for which they work. There are some that might develop close ties with a particular client or vendor, but most are only directly invested (via their labor) in their employer. Opportunities for affiliation with other organizations for these people are largely available through volunteer opportunities in their spare time (or via their limited disposable income). And while there are some genuine opportunities to develop strong ties, investments and influence to other organizations through volunteer efforts, there is overwhelming pressure placed on people to limit their involvement to consumption of services or proxy memberships. Hence, in many developed societies, most people rarely have meaningful investment or influence in more than one organization.

We begin to see a little more flexibility (and organizational diversification) in a number of the professional occupations, where trade associations, professional societies and training requirements compel members to maintain involvement and connections with a myriad of organizations. While the multiple organizational contacts are a requirement for those being trained into the profession, they can become very expensive to maintain once individuals have settled into careers. Some types of organizations (Universities, for instance) are better at supporting their employees in maintaining those multiple affiliations than others, and hence those same organizations are likely to be better in developing active collaborations with other organizations in their everyday work. It’s probably no mistake that these tend to be the places rated as the best places to work in the society. Others may be better served in the future by increasing their support of employees maintaining their professional affiliations with other organizations (more on that in a bit…).

The “entrepreneur” plays an interesting role in this scheme, because almost by definition, they have to establish some type of foothold in a myriad of different organizations in order to obtain the suppliers and customers to sustain a new venture. Those most comfortable with making those types of contacts (as well as those who step into a new venture with those already intact) may have a better chance of keeping their heads above water with a new firm. Here’s an overstated but intriguing hypothesis: opportunities for failure are likely to be greater for new firms that are more dependent on attracting disparate individuals to their business than those who have secured the support of existing organizations. Individual networks, though highly important and occasionally capable of generating enormous payoffs, have a higher rate of error than networks of organizations.

As one gets into the upper echelons of organizations and organizational power, meaningful links with other organizations become commonplace enough to suggest that the links alone are a useful measure of that power. As I mentioned yesterday, fortunes can accumulate to the point that investment in organizations completely independent of one’s own becomes compelling. These are the people serving on multiple boards of directors or seeking high public office. They are more apt to cross-pollinate disparate organizations via seemingly spurious individual connections. Their influence is wielded through their impact on multiple organizations, not just the one through which they are primarily affiliated.

Let’s get Marxist for a minute. If the case can be made (and I suspect it has) that the notion that power is held by controlling the means of production is dated, perhaps it can be replaced by the notion that power is held through active involvement in a myriad of economic organizations and related institutions. Conversely, control over others is exerted by restricting the number of organizations within which they are involved. Hence, labor is kept in place by limiting their meaningful involvement to the organization that employs them. It’s funny that that this is the objective that much of organized labor is fighting to maintain. Perhaps this is the cognitive dissonance that they have yet to acknowledge…

While an intriguing and compelling view of the world can be drawn from this “Neo-Marxist” perspective, I suspect it remains an open question as to how much hoarding of this type of “power” is desirable. I think a compelling case can be made for pushing organizational permeability further down in all organizations. It is certainly more in keeping with the notion of transient employment practices that characterize most of the modern world. If any job experience required more direct involvement with a multitude of other organizations, termination of employment in one firm might lead to smoother transition of employment to another. This would limit the pain of the initial termination as well as limit the need for the public sector to assume responsibility for the individual during the transition. It’s a network/relationship view of the world, but one that might lead to a more smoothly functioning society if a greater proportion of the population were integrated into these fluid-boundary networks.

People are already using the Internet to do some of this on an individual basis, but the world is not going to transform until this extends more broadly to organizations and institutions and goes beyond connections made by technology. Some of this will come as conventional organizations adopt to a new world view, and some as individuals create new organizations from their individual networking tools. Either way, the implications are fascinating…

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