The Cost of Information is Disrupting Traditional Enterprise Architecture

In 1937, noted economist Ronald Coase penned a short essay titled “The Nature of the Firm”.  Coase was trying to understand why companies had gotten very large as the industrial revolution first emerged and then began to displace our agrarian lifestyles.

 For 10,000 years mankind had lived in tribes.  We survived as small groups of highly connected individuals. If we lived in the farming village of the 19^th century, I’d help you build your barn, and you would help me build mine. Together, we would thrive or suffer based on our collective success without much involvement at all from external forces.

But by the beginning of the 20^th Century, that had all changed.  Industrialization was driving the birth of the corporation, and then the mega-corporation.  By the 1930’s energy, transportation, finance and consumer goods companies were pulling millions of works off the fields and into the factories.  Why did these companies become so large?

It turns out that the observations Coase made in the 1930’s can now be used to explain why Enterprise Architecture is struggling so much in it’s traditional role today.

What Coase discovered was that the size of the firm is correlated to the cost of information.   When we were all farmers, the amount of information we needed (small), and the cost of getting it (low) allowed our “enterprise” to be tiny.   In the auto industry of the 1930’s (not to mention energy of the 1970’s or finance in the 1990’s) the amount of information needed to succeed and the cost to obtain it was substantial. 

It was this high cost of information that drove the emergence of large IT organizations in the 1980’s and it specifically lead to the birth of the discipline of enterprise architecture as a more efficient process of obtaining, analyzing and sharing highly valuable enterprise information.

What few of us expected back in the 1980’s was the emergence of a force that would throw Coase’s law into reverse, and change the game in the necessary complexity and size of the firm.  Moore’s Law, Metcalfe’s Law, and the power of the internet are now driving down the cost of information to the point where almost everything you need to effectively compete in the marketplace can be obtained from your browser and procured at almost no cost.

As Enterprise Architects, many of us are stuck in systems that are tuned for expensive information.  While we are dealing with complex processes, massive data sets, and painful authoritarian structures, the modern competition can be nimble, cheap and open. 

In my next post, I’ll explore new tools and light processes that traditional EA can use to take advantage of the emergence of the web on the nature of today’s firm.