Two Scenarios for 21st Century Organizations:
Shifting Networks of Small Firms


All-Encompassing "Virtual Countries"?

Robert J. Laubacher, Thomas W. Malone, and the MIT Scenario Working Group*

Sloan School of Management

Massachusetts Institute of Technology

MIT Initiative on Inventing the Organizations of the 21st Century

Working Paper

21C WP #001

Robert J. Laubacher

Research Associate

Massachusetts Institute of Technology

77 Massachusetts Avenue, E40-171

Cambridge, MA 02142, USA

Tel: 617-253-0526; Fax: 617-253-4424

Thomas W. Malone

Patrick J. McGovern Professor of Information Systems

Director, Center for Coordination Science

Co-Director, Initiative on Inventing the Organizations of the 21st Century

Massachusetts Institute of Technology

77 Massachusetts Avenue, E53-333

Cambridge, MA 02142, USA

Tel: 617-253-6843; Fax: 617-258-7579

MIT Scenario Working Group*

January 1997

*The MIT Scenario Working Group was comprised of a Scenario Creation and Scenario Review Group. Members of the Scenario Creation Group were Erik Brynjolfsson, John Carroll, Bob Halperin, Don Lessard, Stuart Madnick, Thomas Malone, Wanda Orlikowski, Sandy Pentland (Media Laboratory), Paul Resnick, Jack Rockart, Michael Scott Morton, Maureen Scully and David Tennenhouse (Laboratory for Computer Science). Members of the Scenario Review Group were Deborah Ancona, Lotte Bailyn, Charley Fine, Mauro Guillen, Rebecca Henderson, Richard Locke, Tom Magnanti, Dan Nyhart, William Ocasio and JoAnne Yates. Peter Schwartz of Global Business Network served as facilitator. (All group members are affiliated with the Sloan School of Management unless otherwise noted.)



The authors acknowledge the financial support of the 21st Century Initiative's sponsors. We also express gratitude to the many executives from sponsor firms and other companies, as well as scholars and experts from a variety of institutions, who have commented on earlier versions of the MIT scenarios:

21st Century Initiative Founding Major Sponsors

  • British Telecom
  • EDS/A.T. Kearney
  • National Westminster Bank

    21st Century Initiative Major Sponsor

  • Union Bank of Switzerland

    21st Century Initiative Regular Sponsors

  • AMP
  • Eli Lilly
  • LG Electronics
  • McKinsey & Company
  • Siemens Nixdorf
  • Siemens PCN


  • Global Business Network
  • GBN WorldView Meeting attendees (November 1995)
  • MIT Industrial Liaison Program Symposium attendees (May 1994)
  • Sloan-Price Waterhouse Thought Summit attendees (October 1994)
  • Sloan "Interorganizational Relationships" faculty seminar participants (Spring 1996)

    We are also grateful to Charlie Fine, Bill Hanson, Bengt Holmstrom, Tom Kochan, Wanda Orlikowski and Jack Rockart of the Sloan faculty, David Tennenhouse of the MIT Laboratory for Computer Science, and Sloan doctoral students Andreas Gast and Albert Wenger, who generously commented on early drafts of this paper.

    Special thanks go to Bob Halperin, now head of the Sloan School's Executive Education program, who helped launch the scenario project and see it through its first two years.

    Two Scenarios for 21st Century Organizations:

    Shifting Networks of Small Firms or All-Encompassing "Virtual Countries"?


    In 1994, the Sloan School of Management at MIT inaugurated a multi-year research and education initiative called "Inventing the Organizations of the 21st Century." One of the key activities for this initiative has been developing a series of coherent scenarios of possible future organizations. The scenarios are not intended as predictions, but rather, as visions of potential alternative ways of organizing work and structuring business enterprises in the next century. This paper describes the results of the scenario development activity to date and suggests directions for future work.

    Background and Approach

    Scenario planning begins with the assumption that the future ultimately cannot be knowable with any certainty. Starting from this point, scenario planners set out to think deeply about the various potential futures which might emerge. The scenario process employs a range of techniques-research, brainstorming, story telling-and attempts to sketch a series of narrative accounts which delineate the boundaries of what could conceivably occur going forward. [1] Scenario planning was chosen as one of the key approaches for the 21st Century Initiative, since it provides a structured methodology for thinking about the environment in which future organizations will operate and the likely form those organizations might take.

    Scenario creation group

    The Scenario Creation Group was comprised of thirteen members of the MIT faculty and research staff (see list of members and their affiliations in appendix), with Peter Schwartz of Global Business Network, a consulting firm which specializes in scenario planning, serving as facilitator. The Group held a series of discussions between March and May of 1994 and framed an initial set of scenarios. The focus was:

    Review by faculty, corporate sponsors, and others

    In early May 1994, these initial scenarios were the subject of a half-day discussion held by a Scenario Review Group comprised of ten additional Sloan faculty. Later that month, the scenarios were presented to over 300 executives at an MIT Industrial Liaison Program (ILP) symposium. Incorporating comments from the Review Group and ILP symposium, a brief paper was drafted describing the MIT scenarios and outlining the key issues they raised. [2]

    The initial scenarios were discussed during the remainder of 1994 and 1995 in Sloan School classes and meetings with 21st Century Initiative corporate sponsors [3]and others. For instance, they constituted a substantial portion of the agenda for a CEO Roundtable jointly sponsored by Sloan and Price Waterhouse in November 1994. [4]

    In November 1995, Sloan and Global Business Network held a two-day meeting of approximately 150 executives, academics and consultants. The original MIT scenarios were used as the starting-off point for wide-ranging discussions on "Organizations of the 21st Century." GBN prepared a summary of the thinking which emerged in this meeting and published it as Twenty-First Century Organizations: Four Plausible Prospects. [5]

    Most recently, a spring 1996 Sloan faculty seminar series addressed a number of issues of relevance to the initial MIT scenarios [6]; the MIT scenarios were discussed at a joint working session on 21st century organizations sponsored by Siemens Nixdorf, BMW, and Deutsche Bank in May 1996; and several scenario workshop sessions were conducted during the June and October 1996 meetings of 21st Century Initiative sponsors.

    Number of participants
    March-May 1994MIT Scenario Creation Group
    Developed initial scenarios
    May 1994MIT Scenario Review Group
    Reviewed scenarios
    May 1994MIT Industrial Liaison Program Symposium attendees
    Commented on initial scenarios
    November 1994Senior executives from 8 firms, 3 Sloan faculty members, 2 Price Waterhouse partners, moderator
    Roundtable discussion of scenarios
    May 1995Executive sponsors of MIT 21st Century Initiative
    Reviewed initial scenarios and participated in scenario development workshop
    November 1995Attendees at Global Business Network WorldView Meeting
    Reviewed MIT scenarios and participated in scenario development workshops
    Feb-May 1996MIT faculty working group on "Interorganizational Relationships"
    Held seminar series on topics relevant to MIT scenarios (transfer pricing, valuation of intellectual property, firm boundaries)
    May 1996Siemens Nixdorf, BMW, Deutsche Bank joint working session on 21st Century organizations
    Reviewed and reacted to MIT scenarios
    June 1996"High potential" young managers from MIT 21st Century Initiative Founding Sponsors
    Reviewed, reacted to, and elaborated MIT scenarios
    October 1996Executives from MIT 21st Century Initiative sponsors
    Reacted to and elaborated MIT scenarios
    November 1996-January 1997Selected Sloan and MIT faculty members and doctoral students
    Commented on drafts of scenario working paper

    Table 1. Major activities in creating and reviewing scenarios

    Scenario Contents

    Throughout its scenario development activities, the Scenario Working Group considered a wide variety of possible driving forces, major uncertainties, and logics that might shape 21st century organizations. In the course of its discussions, the group judged five variables as likely to be the most important in the future:

  • technology,

  • human aspirations (What will people in the future want? more material goods? or will they devote a greater proportion of their energies to the pursuit of non-material ends? ),

  • global economic, political, and physical environment,

  • complexity (Will the world continue to become ever more complex? or will limits on the human capacities to absorb change lead to a reaction against complexity?),

  • demographics (in particular, center of gravity of world population and wealth shifting away from North America and Europe).

    While many of these elements could be the basis for intriguing scenarios, the Working Group chose to focus initially on one major uncertainty which emerged repeatedly in the discussions: the size of individual companies. Will organizations in the future be much larger, much smaller, or not very different in size from the organizations we know today? In order to stimulate "out of the box" thinking, the group imagined two extremes on this dimension: very small companies and very large companies.

    Thus, the first scenario focuses on how work might be organized in ever-shifting networks of small firms and individual contractors; the second focuses on how work might be organized in huge, long-lasting and all-encompassing holding companies. These two scenarios are called "Small Companies, Large Networks" and "Virtual Countries," respectively.

    Even though these two scenarios were originally conceived of as extremes on the dimension of company size, it is also possible to think of them as extremes on the dimension of organizational longevity. The small companies in the first scenario can participate in very large, temporary networks of thousands of people. But these temporary organizations (or "virtual companies") may only exist for a few weeks, days, or hours until the project that brings the network together is completed. The large "virtual countries," on the other hand, expect to last for decades or even centuries while projects, people, and whole industries come and go within their boundaries.

    Scenario One: Small Companies, Large Networks

    Imagine that it is now the year 2015....

    The corporation of the late twentieth century was just a transitional form. [7] It lasted more than one hundred years, but few corporations of that kind remain today. Now, looking back at the "dinosaur" era in which General Motors, Microsoft, and Sony stalked the earth, we are most aware of the tiny "mammals"-entertainment production companies, construction project teams, and consultant work-groups-which operated without much public notice back in the 1990s, only to become the prototypes of today's modern organization.

    Today, nearly every task is performed by autonomous teams of one to ten people, set up as independent contractors or small firms, linked by networks, coming together in temporary combinations for various projects, and dissolving once the work is done. When a project needs to be undertaken, requests for proposal are issued or jobs to be done are advertised, candidate firms respond, sub-contractors are selected, and workers are hired largely on an ad-hoc basis

    Consider the design of automobiles [8]: In a typical project, a variety of independent firms form competing coalitions, to explore alternative designs for the electric system, the chassis, or the task of putting the car's subsystems together. Some of these firms are joint ventures; some share equity; some are built around electronic markets that set prices and wages. All are autonomous and self-organizing. All depend on the ubiquitous, high-bandwidth, transaction-heavy electronic network that connects them to each other. A highly-developed venture capital infrastructure identifies promising teams and provides financing.

    Authority is still evident, but not through commands. A small "Chevrolet/Saturn" central company still has senior people who exercise their judgment by choosing where to invest their R&D, marketing, and production capital. But groups also try wild-eyed ideas that turn out to be very successful-and financially rewarding for their participants. For instance, one team of four people created a factory for nano-engineering individualized lighting systems for each car's grille. They bucked conventional wisdom when they built it, and all became millionaires in the process.

    Even though this way of organizing work is extremely well-suited to rapid innovation and dynamically changing markets, the world would be a lonely and unsatisfying place if all our interactions were contractual. Therefore, we are all fortunate to have independent organizations for social networking, learning, reputation-building, and income smoothing. These communities evolved from professional societies, college alumni associations, unions, fraternities, clubs, neighborhoods, families, and churches. Many are similar to the writers' and actors' guilds of Hollywood. They help us save for retirement, and most of us pay a percentage of our income to our "guilds" as a voluntary form of unemployment insurance. It is here that we learn and update the skills of our professions, and share war stories and reputations. Perhaps most importantly, we derive much of our sense of identity and belonging from these stable communities that we call "home" as temporary projects come and go.

    There are two key elements of this scenario: the fluid networks for organizing tasks and the more stable communities to which people belong as they move from project to project. Part of the analysis and development of the scenarios has involved collecting examples of current or historical organizations that embody aspects of the scenarios. [9] These examples can help provide a concrete sense what the future organizations might be like and some of the issues they may face. Consider, for instance, the following examples of organizations today that embody aspects of the first scenario.

    Shifting task networks

    The film industry. The film industry may stand as an early adopter of new organizational forms. During the studio era of the 1920s through 1940s, for example, the industry was organized much like the vertically-integrated, mass production enterprises established in the manufacturing sector during the late nineteenth and early twentieth century. With the decline of the studios in the 1950s, however, came the arrival of a new system, in which the large entertainment conglomerates' role was reduced to finance and distribution, and responsibility for production shifted to a number of small firms organized on an ad hoc basis. On large projects in the film industry today, hundreds or even thousands of individuals and small entities each contribute their part to the completion of a multi-million dollar production. During the post-studio period, the power of the talent agencies, which played an important role as deal brokers, increased significantly. With the recent growth in the number and importance of films produced independently with private capital, and the fragmentation of the distribution system to accommodate this new type of picture, the industry may be entering yet another new stage. [10]

    Textile production in the Prato region of Italy. Another example is the Menichetti textile enterprise, in the Prato region of Italy. In the early 1970s, Massimo Menichetti inherited his family's business, a failing textile mill. Menichetti quickly broke up the firm into eight separate companies. He sold a significant portion of equity-between one-third and one-half-to key employees and required that at least 50 percent of the new companies' sales come from customers outside the old firm. Within three years, the eight new businesses had accomplished a complete turnaround, achieving significant increases in machine utilization and productivity.

    The Menichetti pattern was replicated at numerous other integrated mills in Prato, and by 1990, over 15,000 small textile firms, each with an average of fewer than 5 employees, were active in the region. This constituted a threefold increase in activity from the previous decade, during a time when the textile industry was in decline throughout the rest of Europe. The Prato firms have built state-of-the-art factories and warehouses, and developed cooperative ventures in realms such as purchasing, logistics, and R&D, where scale economies could be exploited. Textiles from the region have become the preferred material for remowned fashion designers around the world.

    Key actors in the Prato scheme are brokers, known as impannatori, who act as conduit between customers and the small manufacturing concerns. They effectively direct the design and manufacturing process by bringing together the appropriate groups of firms to meet customers' specific needs. By the late 1980s, the impannatori had even created an electronic market, which gathered data on projected factory utilization and upcoming requirements, and allowed textile production capacity to be traded like a commodity. [11]

    Semco. Another firm which has followed a course of radical decentralization is Semco, a Brazilian manufacturer of marine and food-service equipment. By the late 1980s, Semco was already an innovative firm, run on the principles of employee participation, profit sharing, and open information systems. But Semco was forced to try even more radical innovations in 1990, when the Brazilian finance ministry instituted severe austerity measures and effectively reduced the nation's money supply by 80 percent overnight. To survive the resulting crisis, management developed the idea of encouraging employees to form satellite enterprises which used company facilities, with Semco providing an initial contract to get the new ventures going and offering severance packages and training to assist employees in making the transition. The scheme allowed the parent company to cut payroll and inventory costs, and at the same time work with suppliers who knew Semco's business intimately.

    The entrepreneurial energy unleashed in the satellite firms has been a major additional advantage for Semco. In 1990, the parent firm had 500 employees; four years later it had 200, with the satellites employing the same number and 50-60 more working part-time for both Semco and one of the satellites. But by 1994, the satellites were accounting for two-thirds of the new products Semco launched. The experiment created a more free-wheeling, experimental culture within the entire organization, the result being that the majority owner of the firm, Ricardo Semler writes-with pride-that "no one in the company really knows how many people we employ." The lack of direction from management and the ad hoc, seemingly chaotic environment has only enhanced morale and performance in both the core company and the satellites. [12]

    Radical outsourcing in producing athletic shoes, computer displays, and software. Another current phenomenon which bears a striking resemblance to the Small Companies/Large Networks scenario is the radical outsourcing being undertaken by some manufacturing firms. The outsourcing practices of the athletic shoe company Nike, which subcontracts manufacturing, shipping, and distribution, keeping only the design and marketing functions in-house, is widely known and has been emulated by competitors such as Puma.

    Another striking example of radical outsourcing is the U.S. personal computer display division of the Finish firm, Nokia. The division accounted for sales of over $150 million in 1995 and has only five employees. A series of small, local entities serve as Nokia's sales representatives and interact directly with customers; technical support is subcontracted to a firm in North Carolina; logistics are the responsibility of two companies, one on the East and one on the West coast; and advertising and corporate communications are handled by specialists located in Silicon Valley.

    First Virtual Corporation is a recent technology start-up which touts its radical outsourcing practices in its name. FVC assumes responsibility for only two functions itself: developing technology and negotiating agreements with marketing partners to sell its products. Manufacturing and accounting are outsourced, and the marketing partners offer product support. The company is on pace to register revenues of $50 million in 1996. Its 35 employees work in a one-room office where no one has a title, not even FVC's founder. [13]

    Stable communities

    The second major element of the Small Companies/Large Networks scenario is that existing or new organizations will step in to meet the "life maintenance" requirements-the need for health insurance, protection against unemployment and income fluctuation, professional development, and a sense of belonging and community-of those who work in networked organizations. In the developed world these needs are now largely met by some combination of corporations and the state-with the more of the burden carried by employers in the United States and Japan, more by governments in Western Europe.

    The Small Companies/Large Networks scenario posits that these life maintenance needs will be met by a variety of other organizations, some of which are currently playing a part in one or another of these areas. The leading candidates for assuming these roles include: professional societies, unions, universities, alumni associations, churches [14], political parties, service clubs, fraternal orders, neighborhoods, and families/clans. There may also be opportunities for entrepreneurs to create new kinds of organizations to fill some or all of these life maintenance needs. Another possibility envisioned by the Scenario Working Group was that collections of families and individuals might pool their resources and form semi-communal living arrangements to fulfill non-economic needs and mitigate the potential harshness of a solely market-driven work environment. [15]

    The "life maintenance" organizations of this scenario might look very much like the guilds of pre-industrial times or labor unions of the early years of the industrial revolution. [16] Instead of fulfilling an almost exclusively economic function, like present-day unions, organizations of this sort could, in addition to providing for material needs, also become a locus for social, educational, and recreational activities.

    One potential current model might be the guilds and unions which serve workers in the film industry. Because screen actors and writers, as well as the technicians who staff film crews, can frequently obtain work only on a sporadic basis, the labor organizations which serve these groups are set up to accommodate the periodic nature of employment in the industry. For example, members of the Screen Actor's Guild need only earn $6000 in a calendar year to qualify for full health benefits for the entire subsequent year. In recognition of the short shelf-life of many actor's careers, the Guild also provides very generous pension benefits. SAG offers a large number of educational and professional development seminars to its members as well. In order to pay for these services, Guild contracts stipulate that producers employing SAG actors must pay a large surcharge, which amounts to as much as 30 percent of base pay, into the Guild's benefits fund.

    The creation of economically viable "life maintenance" organizations in a future networked economy will likely require workers to place a significant percentage of their earnings into funds to cover health and unemployment insurance, as well as training and professional development services. The widespread popularity of 401K and IRA accounts indicate that fewer and fewer American workers are counting on the company pension or government social security payments to finance for their retirements and instead are relying on their own, self-managed plans. The "life maintenance" organization concept assumes that the employer's role as primary provider of health coverage, unemployment insurance, and professional training and development will similarly shrink. In order to attain the same real standard of living, however, workers will need to be able to charge a premium when they contract their services in the open market, similar to the surcharge on actor's salaries that the SAG is able to extract in its collective bargaining agreements with producers.

    Scenario Two: Virtual Countries[17]

    Imagine that it is now the year 2015....

    The huge global conglomerate has emerged as the dominant way of organizing work. [18] These keiretsu-style alliances, each with operating companies in almost every industry, have minimal national allegiance. Members of the same family work for Sony/Microsoft or General Electric/Toyota, and feel little loyalty to the United States or Japan. It would be considered disloyal and unusual for members of the same family to work at competing keiretsu. The alliances meet all our needs on a cradle-to-grave basis by providing income and job security, health care, education, social networking, and a sense of self-identity. Our organizations are as powerful and influential as nations, and we owe allegiance to them. They have no dominion over our land, but they control our much more significant assets-access to knowledge, the networks, and our livelihood. They even wage war on each other-using lawyers instead of armies, valiantly protecting the trademarks of our company.

    These days, if you want to define me, you can ignore my geographic location; I can be stereotyped according to the company I work for, in whose service I expect to retire. My friends and family members from around the world all work for the same organization. Occasionally, although I work for Shell/Daewoo, I must ride a nonaligned airline, and I run across someone from Exxushita. We always converse, full of curiosity, but guarded-taking advantage of a rare opportunity to see ourselves as others see us.

    Employees own the firms in which they work, through pension plans, stock options, employee participation contracts, and other vehicles. And just as the modern nation states ultimately turned to democracy, many of the corporations of the twenty-first century have moved to representative governance. Our firm is one-employee-shareholders have the right to elect the management of the company, not just the board of directors, but managers at almost every level throughout the organization. Decisions are made hierarchically, but every year, on election day, we choose from slates of managers who vow to do the best job for the company as a whole. Since our livelihoods depend on the choice, nearly all of us take advantage of the keiretsu's "open-books" financial reports, which provide a constantly-updated overview of the business's priorities and assets.

    Some people think of this system as paternalistic and bureaucratic. But actually, there is very little "fat" in the system. Nepotism, ossified command structures, and sinecures don't last long, since everyone benefits from improved performance. Specialist "organization designers" travel through the massive alliances, brokering partnerships and helping make sure that people communicate effectively across boundaries. All of us tend to get along, because our companies attract people who agree with the prevailing attitudes. We all know the "Shell/Daewoo way," and we live and die according to it.

    The Virtual Countries scenario has four major elements:

  • large vertically- and horizontally-integrated firms;

  • pervasive role of firms in employees' lives;

  • employee ownership of firms;

  • employee selection of firm management.

    Large vertically- and horizontally-integrated firms

    The second MIT scenario posits a world economy dominated by large conglomerates which operate globally across a number of industries. As with the present-day Asian keiretsu arrangement, there will be a small number of core firms-large holding companies which sell products with widely recognized brand names-occupying a position at the center of the economy. These companies in turn will have a series of permanent or semi-permanent relationships with various smaller supplier firms, which will stand at the periphery of the system. The industry structure in most sectors will be oligopolistic, with a small number of major competitors holding dominant positions, and high entry barriers preventing upstarts from challenging the hegemony of market leaders.

    The huge conglomerates envisioned in the Virtual Countries scenario could grow out of a continuation of the merger wave which has swept through the global business environment in the mid-1990s. The value of announced mergers involving U.S. firms totaled $519 billion in 1995 and $659 billion in 1996, by far surpassing the $353 billion registered in 1988, the previous peak year. [19]Recent mergers have been concentrated in industries affected by government deregulation-telecommunications, broadcasting, financial services, aviation, natural gas and electric utilities-or where public policy has directly or indirectly encouraged consolidation, as in the case of the aerospace and health care sectors. But the globalization of markets has also driven some mergers-British Telecom's acquisition of MCI is one example-and led to the creation of numerous international joint ventures, such as American Airlines' proposed agreement with British Airways.

    Management theory of the last decade has emphasized the importance of firms staying tightly focused and relying on their "core competencies." This trend was largely a response to the conglomerate craze of the 1960s and 1970s, when many large firms diversified into areas entirely unrelated to their original businesses. In the sectors with the greatest volume of recent mergers, the activity has primarily involved the buying of competitors or diversification into closely related areas. The result has been rapid consolidation in a number of industries, often on a global scale. When a firm sells off a business unit unconnected to its central activities and buys an entity with a position in its core industry, the company is effectively substituting scope for scale.

    One interpretation of the widespread substitution of scope for scale is that firms are responding to the increased competitive pressures created by the arrival of truly global markets-by this argument companies are refocusing because their competitors will hurt them if they don't. Some observers believe that once the consolidation of major industries on a world-wide basis has run its course, and an oligopolistic industry structure returns, unrelated diversification may once again appear attractive, and a series of mergers could ensue to create a second generation of conglomerates, this time on a global scale. Such a sequence of events could serve as the means of forming the world-spanning conglomerates of the Virtual Countries scenario.

    Another critical factor which could drive the world toward a Virtual Countries future would be the legal system's inability or unwillingness to protect intellectual property. Should intellectual property laws be weak or confusing, or enforcement of them lax or ineffective, a greater degree of vertical integration may become a strategic imperative for firms whose products have significant knowledge content. Such an approach could become necessary because, in the absence of legal safeguards, capturing the value inherent in a piece of knowledge would require producing and selling a tangible product which physically embodied that knowledge. Under such circumstances, larger companies would be at an advantage, and there would be strong incentives to prevent important knowledge from passing outside the boundaries of the firm.

    The management structure employed at the large conglomerates in the Virtual Countries scenario could vary. In some cases, a traditional hierarchy might be maintained, with tight top-to-bottom controls in place to ensure that consistent performance was achieved at operations located around the globe. Alternatively, the conglomerates might be structured in a more decentralized manner, with arms-length agreements and transfer pricing arrangements characterizing transactions between operating divisions, and employees heavily incentivized by performance-based compensation and promotion schemes. In this scheme, the corporate headquarters would still play an important role in establishing the organization's overall mission and shaping its culture, and in facilitating collaboration between business units where appropriate.

    A current example of such an approach is the decentralized organizational structure adopted in the last decade by such firms as Asea Brown Boveri, General Electric, and Johnson and Johnson. In all three instances, the traditional M-form structure was set aside, and "focal units," consisting of between 200 and 500 employees, were created to operate more or less as autonomous businesses. A thin layer of corporate staff was retained, and the traditional ownership structure, with a single publicly-traded corporation serving as a sort of vast holding company for the entire agglomeration, remained unchanged. [20]

    Pervasive role of firm in employees' lives

    In the Virtual Countries scenario, the conglomerates will assume full responsibility for meeting the "life maintenance" requirements of their employees. This will include first providing for tangible economic needs, through such means as a guarantee of lifetime employment, generous benefits packages, and retraining in the event that economic or technological changes make employees' skills obsolete. Affiliation with a large, respected company will also help employees meet more intangible needs: it will confer status and a sense of identity, and associating with colleagues at company-sponsored activities and events will become the primary social and recreational outlet of workers.

    Employees will be expected to purchase goods and services only from company-affiliated firms: they will fly the company airline, purchase cars and appliances from company subsidiaries, subscribe only to the company-affiliated Internet-telecommunications-entertainment service. The keiretsu of Asia already exhibit some of the these characteristics: one member of a 21st Century Initiative sponsor discussion group told of an evening spent in Tokyo, where a Japanese salaryman entertaining foreign business associates showed them the list of company-approved products issued to all employees-he then ordered the brand of beer produced by his firm's subsidiary.

    In the Virtual Countries scenario, ties to the company will extend far into employees personal lives. Family members will tend to work for the same company and attempts by young couples to marry across company lines will meet with disapproval from parents and co-workers, in the same way that marriages across racial, ethnic, or religious lines are now discouraged in many parts of the world. [21]

    By providing completely for employees' life maintenance needs, the large firms will be assuming responsibility for many of the "safety net" functions performed by government in the Western European social democracies during the second half of the 20th century. With private firms taking on this larger role and also operating freely on a transnational basis, it is anticipated that the authority of government and the scope of its activities could be significantly reduced. In parts of world where one or a handful of industries are dominant, private firms may literally take on many of the former roles of the state, including the provision of defense and police protection. Such circumstances would entail the creation of a vastly expanded version of the company town, with the emergence of the "company region" or even "company country" as distinct possibilities.

    Nationalism could well decline, as the allegiance citizens formerly felt for their countries gets translated into employees' expanded sense of loyalty to their companies. The notion of citizenship itself would likely become substantially less important-companies might begin issuing the equivalent of passports, allowing only their employees, or approved guests, to travel to regions where their facilities were located, much as a firms now issue badges to staff and visitors to grant access to offices and factories.

    Employee ownership /Employee selection of firm management

    The Virtual Countries scenario assumes that employees would hold a controlling interest in the shares of most firms, either directly, through straightforward equity holdings, or indirectly, through employee pension funds. Another possibility envisioned in this scenario is that employees would select their firm's management themselves-either indirectly, through appointment of top management by the pension fund's managers, or directly, through employee elections of managers at all levels of the firm. [22]

    The concept of employees holding significant stakes in their companies and exerting control over selection of management is an extrapolation from two recent mainstream trends. The first is the rising power of institutional investors and their increasing willingness to assert their will in matters of corporate governance. [23] The second is the somewhat less prominent movement toward employee ownership of companies. By year-end 1995, nearly 10,000 ESOPs were in existence in the U.S., involving over 10 million employees. In most employee-owned firms, however, management operates relatively autonomously, with employees exerting limited control. The aggressive role taken in 1996 by United Airlines employees in pushing for a new CEO and blocking a proposed merger with USAir stands as a counterexample in which employees were quite engaged and exerted significant authority. [24]

    A striking instance of employee ownership and selection of management is found in the group of worker cooperatives operating in and around the city of Mondrag-n in the Basque region of Spain. The first cooperative in Mondrag-n was started in 1956 by a group of five foundry workers inspired by the ideas of Jose Mar'a Arizmendiarrieta, a Basque priest. By the late 1980s there were nearly 100 worker cooperatives in and around Mondrag-n, employing over 20,000. The cooperatives jointly support a bank and technical institute. Employees elect members of a governing council, which in turn selects the management of each enterprise. A large percentage of profits from operations are split among workers in proportion to their salaries, with employees able to take the full amount from their profit-sharing accounts when they leave their firms. [25]

    Another model which combines employee ownership and election of management is the partnership structure, common in professional service firms. Most large law, consulting, investment banking and accounting practices are organized in this way, with the partners jointly owning the firm and also selecting the management team which runs it. While employees below the partner level are excluded from full participation, most are on a career track in which they are eligible to be considered for partnership. Though it does not involve all members of a company, the partnership nonetheless stands as a successful model of broad ownership and self-management within a firm. Selected features of the partnership approach could be incorporated in the more inclusive, firm-wide employee ownership and governance structures envisioned in the Virtual Countries scenario.

    Some members of the Working Group expressed skepticism about the workability of employee election of management, voicing concerns that electioneering and cronyism would flourish. Those who saw such a practice as viable envisioned it as the extension of recent efforts at some large firms to distribute responsibility and accountability more widely throughout the organization. This line of thinking was based on the assumption that greater involvement by employees in decisions affecting their own work would grow into an interest in selecting first the managers responsible for overseeing their part of the organization, and eventually, top management of the firm as a whole.


    To assess the robustness of its thinking, one major question the Working Group posed about the scenarios was: Are they feasible? A primary determinant of feasibility is the likely economic viability of the organizational forms the scenarios describe.

    Questions about the underlying economics of business enterprises touch on a series of profound and complex issues: Why do certain firms grow large or stay small? What are the critical advantages of size? Are these advantages inherent, or are they tied to conditions unique to certain industries or certain stages of economic development? Economists and business historians have long wrestled with these questions. The fundamental insight behind much of their work has been that while the same transaction can either be internalized within a firm or take place through separate entities exchanging in the marketplace, the arrangement which typically emerges under a given set of circumstances is the one which results in the lowest overall costs. [26]

    Prior to 1850, even the largest business firms were comprised of a few principal owners and their employees, with activities for the most part confined to a circumscribed geographic region. Products produced by these firms reached their eventual consumers via a long series of market transactions among the various wholesalers, jobbers, storekeepers and itinerant peddlers which comprised the distribution channels.

    In the last century, however, the large hierarchical corporation emerged as the dominant organizational form in the most dynamic sectors of the global economy, supplanting the predominantly market-based exchange which characterized earlier periods. The large corporation arose in the last half of the nineteenth century when the newly completed railroad and telegraph systems allowed individual firms to reach national and international markets and also effectively manage the organizations required to operate on that basis. One result was the development of new manufacturing processes which took advantage of the greater scale of production and were significantly more cost efficient than the prior, smaller scale methods of production. [27]

    The first large corporations were organized into functional units, and this structure was dubbed the unitary or U-form by students of organizations. As large firms developed additional product lines to take advantage of existing marketing networks and ensure full utilization of their large investments in manufacturing facilities, the U-form during the 1920s began to evolve into the multi-divisional, or M-form structure. In the M-form structure, the corporation was organized into discrete divisions, each responsible for a separate set of product lines and each with its own functional departments. The divisions were given considerable operating autonomy, and top management's role consisted primarily of setting overall strategy and allocating resources among the operating units. [28]

    The M-form has been the primary structure employed by large firms since the 1920s, but in recent years it has come to be seen by many practicing managers and students of organizations as ill-adapted to the environment of the 1980s and 1990s. Some believe this is due to changes in business conditions-increasingly vigorous global competition, rapid technological change, more demanding expectations for short-term performance imposed by financial markets. Other observers see the growing rigidities of the traditional corporation as an outgrowth of tendencies inherent in the organizational form from the outset; in this view, the movement toward a "corrupted multidivisional structure" is an inevitable stage in the development of the modern corporation. [29]

    At the same time, the success of start-up firms and large companies which have experimented with decentralization has resulted in widespread recognition that a structure based on smaller entities interacting in the marketplace exhibits certain key advantages-greater flexibility and responsiveness to customers' requirements, closer alignment between the incentives of firms and the individuals working in them. Some students of organizations postulate that advances in information technology will make external transactions increasingly cost effective, as against internal transactions. One possible result is that market-based trading between separate firms will more and more be favored over processes which take place exclusively within a firm's boundaries. [30]

    The MIT scenarios consider the question of which will be more competitive going forward-the scale and solidity of large organizations heavily reliant on transactions carried out inside the firm, or the flexibility and better alignment of individual and organizational incentives possible when external transactions are favored. The relative attractiveness of these alternatives will be dependent on whether the myriad of factors which might shape the future-information technology, intellectual property laws, financial markets, the trade environment, and numerous others-in sum favor internal or external transactions. The scenarios imagine how the future might look if the extreme versions of these outcomes would emerge.

    The Small Companies/Large Networks scenario envisions a world in which external transactions will be much cheaper and more efficient than they are today; the result is expected to be an organizational environment rich in external transactions, where the advantages of speed and flexibility so overshadow those of scale that almost no large, permanent organizations exist. The Virtual Countries world, by contrast, is one in which the advantages of scale which have driven the growth of large organizations in the past are assumed to continue, and indeed, to be amplified significantly-so much so that the number of external transactions will be quite limited, with most of the value chain for the production of goods and services retained inside the core firm and the family of suppliers which will together make up the "extended enterprise" of the large conglomerates.

    MIT Scenarios and Business Processes

    The contrast between a future economic environment rich in external transactions and one in which internal transactions are favored can be seen in the accompanying table, which describes the likely character of major business processes under both MIT scenarios.

    Scenario One: Small Companies/Large Network

    External Transactions Favored
    Scenario Two: Virtual Countries

    Internal Transactions Favored
    Product Devt
  • design undertaken by dedicated firms and individuals, with no fixed organizational link between engineering team and manufacturer

  • manufacturability issues addressed by real-time concurrent engineering over networks

  • secure intellectual property regime enables disaggregation of design and manufacturing
  • design and manufacturing controlled by same organization, to ensure manufacturability and because uncertain intellectual property regime allows full value to be extracted only via embodiment of design work in physical products
  • Supply Chain
  • ad hoc "extended virtual enterprises" created on project-by-project basis

  • economies from flexibility and responsiveness outweigh costs of continual re-assembly of supply chains
  • permanent or semi-permanent keiretsu-style partnerships between major manufacturing companies and their families of captive suppliers

  • long-term relationships minimize supplier selection costs on new products; buyer- supplier cooperation allows cost-reduction over life of production runs
  • Manu-
  • specialized manufacturing firms undertake small batch orders for wide variety of customers (brokers, design shops, consumers placing direct orders)

  • manufacturing capacity traded like commodity on electronic networks
  • manufacturing process directed by large conglomerates, which rely on close coordination with supply chain firms within their "extended enterprise"
  • MarketingThree potential alternatives:

  • brands remain important, but brand-holders contract out manufacturing/distribution and serve solely as quality certifiers

  • brokers (including intelligent software agents) replace brands as primary means of providing quality assurance to consumers
  • information so abundant that self-regulated "swarming" activity by consumers obviates need for brands or brokers
  • large conglomerates release continual stream of new products under established brand names

  • conglomerate's legal staffs zealously protect trademarks and brand names
  • Finance
  • reliance on diverse capital sources, including accumulations of small sums from many parties, invested directly or through extensive network of intermediaries

  • real-time valuation and trading via Internet of shares in ad hoc, project-based ventures
  • majority of investment capital obtained from retained earnings of large corporations

  • equity in firms closely held by ESOPs and employee pension funds, resulting in very limited public trading of shares
  • Coordination
  • networks operate without central direction or control; self-organizing mechanisms (market transactions, standards) serve as primary means by which coordination achieved between various entities

  • widely accepted standards serve as "constitutional framework"[31] enabling efficient, low-cost transactions between variety of entities working together on project basis

  • standards set by three means:
    • market leader
    • industry cooperation
    • emergence out of practice
  • Two primary alternatives:

  • traditional command-and-control hierarchy with management playing major role in setting strategic direction and allocating resources

  • decentralized "federation of companies" with many small, stand-alone business units operating with great autonomy; management establishes mission and overall policies, facilitates collaboration and organizational learning
  • Table 2: Business Processes in the MIT Scenarios

    MIT Scenarios and Marketing, Finance and Coordination

    To reflect on how the two scenarios might play out in connection with various business processes, three examples were considered in some detail:

  • Marketing: Traditional Brands vs. Quality Certification/Brokers/Swarming

  • Finance: Employee Ownership of Corporate Equity vs. Retail Capital Markets

  • Coordination: Management vs. Self-Organizing Mechanisms Enabled by Standards

    As a thought experiment, descriptions of these three business processes were developed under each of the scenarios. The objective of this exercise was to imagine how the two scenarios would look, in concrete terms, from the perspective of business processes as they might actually be carried out.

    Marketing: Traditional Brands vs. Quality Certification/Brokers/Swarming

    In the future, consumers will likely face an even more bewildering array of product choices than at present and will seek ever more effective mechanisms for determining the quality of the goods and services they purchase. The Virtual Countries scenario envisions that this function will remain the province of large conglomerates, with their well-established brands. In this world, consumers will come to rely even more on brand names to provide assurances of quality and reliability. The large conglomerates' R&D labs will bring a constant stream of new products to market and their legal staffs will protect those brands by taking aggressive action against trademark and copyright infringement. Thus brands will be an important competitive tool which will allow the conglomerates to maintain their leadership positions.

    But brands might also play a role in the Small Companies/Large Networks scenario. Quality certification could emerge as one of the critical positions that large corporations of today retain in a networked world. In some instances, this step could stand as their only contribution to the value chain, with firms simply licensing their brands and certifying quality, and all design, production, and distribution work being performed by other organizations. Such a scheme is very close to the radical outsourcing practices currently employed by Nike and its imitators in the athletic shoe industry.

    Another alternative is that brokers would play the critical role in a networked world by serving as intermediaries between buyers and sellers. The brokerage function might be performed by firms providing customized shopping services, which would search for appropriate products, check prices and ensure quality. Or the same task could be accomplished by electronic means, through software tools which would find products listed for sale on electronic networks.

    An even more advanced approach to brokering is collaborative filtering, a method currently being pioneered by the start-up Internet company, Firefly. Subscribers to this service enter a list of their likes and dislikes for music, movies, or other entertainment products. Firefly collects information from many subjects in a database, and once the bank of preferences is sufficiently populated to become robust, statistical analysis of aggregate preferences can be used to recommend products to subscribers. If a new Firefly member expresses a preference for music by Neil Young, for example, and a large percentage of Neil Young fans in the database have exhibited a liking for Sonic Youth, Firefly can recommend CD's by the latter band to the new subscriber. [32]

    The final extension of these trends would be a world in which information was so prevalent and consumers' access to it so seamless that there would be no need for brands or even for intermediary entities to link sellers and buyers. Through filtering devices and recommendations from affinity groups of which they were a part, consumers could themselves ensure that they receive a steady flow of information about products which might be of interest. The "swarming" behavior which sophisticated computer users exhibit when an interesting software application or game appears-where word about the new product is passed almost instantaneously to thousands of individuals via e-mail and bulletin board posting-could serve as a model of how buying may occur in an extremely information-rich future. [33]

    Finance: Employee Ownership of Corporate Equity vs. Retail Capital Markets

    At present, retained earnings remains the primary source of investment capital for large corporations, with decisions about the use of these funds made by company management. [34] The Virtual Country scenario envisions this practice continuing, with employees themselves or managers of employee pension funds exerting influence on management's investment decisions as well.

    The Small Companies/Large Networks scenario, by contrast, posits sources of capital that would be fluid and flexible, with funds coming from what has been referred to in some discussions as "retail" capital markets. While individual investors might maintain the bulk of their investment portfolio in a series of relatively conservative, conventional instruments, a small portion of their funds could be allocated for bets on more speculative ventures. These monies could be invested in emerging firms in the networked economy on an incremental basis, in very small sums, even a few dollars at a time. Investment decisions could be made either via intermediaries, who would take the time to discern the most attractive opportunities and notify potential investors for a commission or fee, or through the "swarming" behavior characteristic of extremely information-rich environments. If even a small fraction of middle-class investment funds were made available to emerging network ventures on a widespread, "retail" basis, it would constitute a huge pool of investment capital.

    Participants in a recent 21st Century Initiative scenario workshop have noted several critical pieces which would have to be in place prior to the emergence of retail capital markets. One is electronic cash, or e-cash, which could allow micro-transactions over networks involving small sums, even fractions of a cent. Several e-cash systems are under development for Internet transactions, and a number of large financial institutions are currently running trials of retail e-cash systems in Europe and North America. [35]

    The other critical component for the emergence of retail capital markets is the development of electronic exchanges for buying and selling of shares in ventures with overall valuations and trading volume too low to allow for economical usage of the traditional securities underwriters. One embryonic development which might eventually lead to mechanisms for such trading is the recent rise of Internet-mediated "ideas markets."

    The Iowa Electronic Markets offers subscribers the opportunity to buy and sell contracts for small sums (users must deposit between $5 and $500 to activate trading accounts) on the outcome of such events as the Presidential election. The trading price thus stands as a kind of surrogate opinion poll; for example, the price for a contract on Bill Clinton being re-elected to a second term, due to pay $1 after the election, was priced at approximately 55 cents in June 1996. At that time, the Presidential futures market had over 6000 traders and a capitalization of $165,000. IEM also offered contracts on the 1996 Russian presidential election, on vote share in the U.S. Presidential race, and on which party would control the House and Senate after the Congressional elections. In addition, IEM serves as an electronic clearinghouse for trading in more conventional contracts based on such financial benchmarks as the future price of Microsoft stock or value of the S&P 500 index. Changes in prices are posted effectively in real time, with updates every 15 seconds.

    Ideas Futures (known by the acronym IF), an electronic exchange originated by the Alberta Research Council, operates in a similar fashion, except that trading takes places with virtual money and a much more extensive and speculative list of topics is considered. IF's primary focus is scientific issues and claims. For example, one contract posted on the IF is based on the year in which a human explorer will set foot on Mars. If the first Mars landing occurs in 2010, the contract will pay $0.10; if it occurs in 2050, $0.50; and so on. In the fall of 1996 the contract was priced at $0.39. [36]

    The extension of the ideas market concept to address small, project-based ventures is quite a plausible prospect. An RFP could be posted on an electronic bulletin board and information about the approach and participants of the various teams could be included, allowing potential brokers and investors to select the ventures they favored. Prices of shares in the various teams would vary based on their perceived prospects, with fluctuations posted as they occur.

    Two U.S. firms are already providing Internet-based investment banking services which could be the first steps toward eventual trading in shares of ad-hoc, project-based ventures. Direct IPO, headquartered near Los Angeles, brokers initial public stock offerings over the World Wide Web. The company touts its service as an alternative to early venture capital financing for technology start-ups. Direct IPO claims that it can raise up to $5 million for new companies on substantially better terms than those offered in the traditional venture capital market: Direct IPO charges a $100,000 fee and takes a 5 to 10 percent stake in its clients, as opposed to the 50 percent or greater stake that most venture capital firms would demand. Wit Capital, based in New York City, was founded by an entrepreneur after he successfully completed a $1.6 million initial public offering for a micro-brewery over the Internet. Wit Capital provides an initial public offering service to start-up firms and a discount brokerage service to investors. The company eventually intends to create an alternative to traditional venture capital financing, by offering shares in early stage entities to retail investors, with those shares trading from the outset on Wit Capital's digital stock market. [37]

    Coordination: Management vs. Self-Organizing Mechanisms Enabled by Standards

    The Virtual Countries scenario envisions that management will still play the primary role in setting the direction and coordinating activities inside corporations. The Small Companies/Large Networks scenario, by contrast, anticipates that there will be little or no centralized control of the organization. Brokers might play an entrepreneurial role initiating new projects, but the network itself will operate on the basis of self-regulating principles, with market transactions serving as the primary coordination mechanism.

    An important enabler of such a networked world will be standards which allow for easier and less expensive interactions between potential collaborators. Standards in this sense would be widely agreed-upon practices which allow for routinization of interactions between potential cooperating parties. They might range from technical specifications which define linkages between electronic systems to long-ingrained patterns which come to be accepted as norms-what might at present be referred to inside a firm as its culture or within an industry as "the way things are done." In between these extremes of hard-wired technical specs and the "softer" realms of culture and convention might be standards which describe work processes. Present day examples are the numerous quality procedures which constitute ISO 9000 or the sequences of compatible practices which allow for effective collaboration by a surgical team hastily assembled from a group of doctors and nurses who have never before met.

    In a June 1996 discussion with young executives from the 21st Century Initiative's sponsor firms, the networked auto industry scenario was considered, and the group posited that a key enabler would be a standardized protocol for new car designs. Such a protocol would work by specifying that each component fit within an envelope of a certain size and shape and interface with other systems in specified ways. A headlight designer, for example, would know the exact space allocated for the light assembly, as well as the nature of any connections to be made with the electrical and control systems. [38] Another potential example raised in the same workshop was an on-line manual which would outline work processes for headset/keyboard operators at telephone banks, thereby facilitating recruitment of new operators from anywhere in the world. The 21st Century Initiative's Process Handbook project is undertaking the creation of a comprehensive catalog of business processes, and specialized portions of the Process Handbook might one day serve as the sort of work process manual envisioned in the scenario workshop. [39]

    How would the standards which might enable networked organizations emerge? Over the last decade, economists have directed considerable attention to the topic of standards, and their work describes three ways in which standards and conventions typically come to be accepted: they can be imposed by a market leader, usually the first firm to seize a dominant position; negotiated by industry associations or professional societies; or simply emerge out of practice, with possible later codification by government or industry authority. [40] Industry structure and the singular paths by which technologies are developed in particular industries have great influence on how standards emerge. The recent Intel-Microsoft vs. Apple rivalry in the personal computer industry shows that more than one standard can exist within a single industry, at least in the short to medium term; the battle between Netscape and Microsoft in the Web browser market shows that first-mover advantages, while significant, may not ultimately prove decisive. [41]

    Applying this framework to the auto industry standards hypothesized above, one could envision a series of design protocols being developed by one firm in an attempt to establish a leadership position in that segment of the automobile industry value chain. The marketplace of auto component designers would stand as the jury which would determine the success or failure of such an effort. It is quite possible to imagine Toyota, Ford, or one of the other major automobile manufacturers aspiring to a role of this sort if the world were to evolve toward the Small Companies/Large Networks scenario. The recent trend in which auto manufacturers have granted greater engineering responsibility to their subcontractors can be seen as a step toward this possible future.

    Automotive design protocols could also be developed cooperatively via organizations whose membership includes a broad range of industry participants, like the Society for Automotive Engineers. A more general process manual-the 21st Century Initiative's Process Handbook is one example-could also be a mechanism for sharing widely accepted standards.

    Finally, auto design protocols which could enable a networked organizational form might emerge out of simple practice as well. For example, as concurrent engineering and virtual supply chains become more common, global CAD/CAM networks-which must accommodate real time design work by team members anywhere in the world-might serve as the starting off point from which network-enabling design protocols could eventually develop.


    The second major question posed by the Working Group about its scenarios was: Are they desirable? Perspectives on the desirability of one scenario over another are likely to vary significantly by region and culture, and from individual to individual.

    Autonomy vs. Community

    The Small Companies/Large Networks scenario portrays a world with a myriad of choice. Work for many will be project-based, with free-lance independent contractors able to bid for new assignments based on their circumstances and preferences, and flexible schedules and telecommuting the rule.

    In the social realm, there would exist a wide range of organizations providing for a variety of needs-casual interaction, education, recreation, professional development, and health care and insurance protection. People would be free to become members of those organizations which best fit their personal requirements, and as a result, many might voluntarily join a variety of groups, none of which would be exclusively tied to their work. In the best case, these organizations might assume some of the characteristics of the voluntary associations described by Alexis de Tocqueville in his description of nineteenth-century American society. Social organizations of this sort have long formed the backbone of what political scientists term "civil society," an entity whose decline has recently been much lamented by students of American politics. [42]

    Despite these positive aspects, the Small Companies/Large Networks world would also have its costs. Life spent as independent contractor could be perilous. There would be a continual need to find work, as well as the likelihood of significant down time between assignments. Some members of the MIT Scenario Working Group expressed concern that employees at networked firms and free-lancing individuals might be required to invest so much of their effort searching for assignments that they would be able to devote only a fraction of the time a designer or engineer currently employed by a large firm spends working on creating actual products.

    There also were concerns expressed about social isolation and the potential lack of a sense of belonging to a larger community. Some members of the group feared that in the absence of mediating social institutions, a networked economy could lead to a Hobbesian future, where life could be solitary, nasty, brutish-and in the U.S., if there were no reasonable provisions for free-lance workers to obtain health coverage-short.

    In the end, the desirability of the Small Companies/Large Networks scenario will likely depend on whether existing or new organizations can take on the "life maintenance" role currently played by corporations and governments in providing economic security and fulfilling the function the large firm serves as a nexus for social interaction and professional development.

    The future set out in the Virtual Countries scenario, where people's fate is so closely tied to large organizations, is likely to be viewed with dismay where autonomy and choice are highly valued. But individual freedom is prized most highly in the U.S.; in many parts of the world, security and community are valued more highly. In Asia, for example, where Confucian ethics still have a strong hold and the extended family retains significant influence, many might view the virtual country scenario as an attractive prospect. And one could envision a Virtual Countries future gaining approval from Western Europeans as well, if, through some process of privatization, the conglomerates took over many of the major functions of the current welfare state.

    If the Tocquevillian description of voluntary associations stands as a historical analogy to the Small Companies/Large Networks scenario, post-independence Singapore may stand as a cognate for the Virtual Countries world. Whether one prefers the rough and tumble of the nineteenth century American frontier or the tightly planned and controlled prosperity of Singapore stands largely as a matter of cultural and personal preference. And the preference could well change over time-a continuation of the turmoil brought about by layoffs and downsizing in the U.S. economy could make a more paternalistic scenario begin to appear attractive to Americans.

    Haves vs. Have Nots

    Another major concern expressed by members of the Scenario Working Group was the prospect of a sharp division of society into haves and have nots. In the Small Companies scenario, the have nots would consist of members of society who lacked the skills to plug into the electronic network or those who preferred secure employment and the prospect of not having to bid continually for work. As part of the scenario, it was posited that jobs might be created, either by government or private firms, in fields like elder care, which would attract people with these preferences. But there remains the strong prospect that many workers with these inclinations would remain well outside the networked mainstream. The Small Companies/Large Networks scenario might also work to exaggerate already existing tendencies toward polarization of income and wealth in society as a whole and winner-take-all outcomes in particular industries and professions.

    The Virtual Countries scenario will have its set of have nots, but the excluded groups may have a different composition than those which will appear in the Small Companies world. In a Virtual Countries future, those unable to secure employment at one of the core global conglomerates would likely face significant difficulties. The government safety net will in all probability be smaller, or even non-existent, and employees of the big conglomerates will tend to work and socialize almost exclusively together. Life could be harsh and isolating for the unemployed.

    And even those working at firms which are part of the conglomerates' extended supply chain may not receive the generous benefits or employment security enjoyed by members of the core firms, because companies on the periphery of the system will be unlikely to have the means to provide such amenities. This distinction between the status of employees at the core firms and those at the peripheral suppliers is already a feature of the Asian keiretsu arrangement.

    Finally, another possibility raised by members of the Scenario Working Group was that the global conglomerates would keep a small core staff on a permanent basis and fill any other positions with temporary employees from a large pool of contingent workers. Some large U.S. firms are already showing signs of moving toward this sort of hiring strategy.

    Future Work

    In addition to elaborating the current scenarios and exploring their implications for different industries, future work could also include consideration of other driving forces. Forces which might serve as the basis for additional scenarios include:

  • political regime: major role for nation-state and international organizations vs. lesser role,

  • values: narrow vs. broad self-interest,

  • social context of work: collaborative and cooperative vs. individualized and competitive,

  • economic growth v. contraction/stagnation,

  • protectionism v. free trade,

  • strong protection of intellectual property rights vs. widespread infringement and resulting need for secrecy.

    The scenarios project represents a primary forum within the 21st Century Initiative for MIT faculty and researchers to reflect upon how the organizations of the future might work. The scenarios team hopes to provide a space in which structured, informed speculation about possibilities for the future can occur. While it is impossible to know how much influence such speculation might have on the course of events, the hope is that this work will allow the choices which shape the future to be made in a more thoughtful and considered manner.

    Appendix: MIT Scenario Working Group Members*

    Scenario Creation Group

    Erik Brynjolfsson (Information Technology)

    John Carroll (Organizational Studies)

    Bob Halperin (Center for Coordination Science)

    Don Lessard (Strategy)

    Stuart Madnick (Information Technology)

    Thomas Malone (Information Technology)

    Wanda Orlikowski (Information Technology)

    Sandy Pentland (Media Laboratory)

    Paul Resnick (Information Technology)

    Jack Rockart (Information Technology)

    Michael Scott Morton (Strategy)

    Maureen Scully (Industrial Relations)

    David Tennenhouse (Laboratory for Computer Science)

    Scenario Review Group

    Deborah Ancona (Organizational Studies)

    Lotte Bailyn (Organizational Studies)

    Charley Fine (Operations Management)

    Mauro Guillen (Organizational Studies)

    Rebecca Henderson (Strategy)

    Richard Locke (Industrial Relations)

    Tom Magnanti (Operations Research)

    Dan Nyhart (Law)

    William Ocasio (Organizational Studies)

    JoAnne Yates (Communications)


    Peter Schwartz (CEO, Global Business Network, Emeryville, Calif.)


    1On the history and methods of scenario planning, see Pierre Wack, "Scenarios: Uncharted Waters Ahead," Harvard Business Review, 63, no. 5 (September-October 1985), 72-79 and "Scenarios: Shooting the Rapids," Harvard Business Review, 63, no. 6 (November-December 1985), 139-150; Arie P. de Gues, "Planning as Learning," Harvard Business Review, 66, no. 2 (March-April 1988), 70-74; and Peter Schwartz, The Art of the Long View: Planning for the Future in an Uncertain World (New York: Doubleday Currency, 1991). Art Kleiner, "Consequential Heresies: How 'Thinking the Unthinkable' Changed Royal Dutch Shell," in Global Business Network, Scenario Thinking: Concepts and Approaches (Emeryville, Cal.: GBN, 1996) gives a brief history of the rise of scenario planning at Shell and its continuation by many of the Shell practitioners through their work at Global Business Network.

    2Robert Russman Halperin, "Scenarios for 21st Century Organizations," 21st Century Initiative Discussion Paper, October 12, 1994.

    3In attendance at a May 1995 scenario discussion were representatives of five 21st Century Initiative sponsors: British Telecom, EDS, National Westminster Bank, LG Electronics, and Siemens Nixdorf.

    4Excerpts from the Sloan-PW meetings were published as "CEO Thought Summit," Sloan Management Review, 36, no. 3 (Spring 1995), 13-21.

    5Art Kleiner, Twenty-First Century Organizations: Four Plausible Prospects (Emeryville, Cal.: Global Business Network, 1996). The scenarios which emerged from the GBN meeting took the critical variable examined in the original MIT scenarios--firm size--and also incorporated the question of values--whether future organizations would be based on what was termed "narrow" vs. "broad" self interest.

    6Sloan faculty members in attendance at the "Interorganizational Relationships" working group's seminars included Erik Brynjolfsson, John Carroll, Charlie Fine, Arnoldo Hax, Paul Healy, Rebecca Henderson, Bengt Holmstrom, Don Lessard, Tom Magnanti, Tom Malone, Wanda Orlikowski, Jack Rockart, Julio Rotemberg, Michael Scott Morton, Maureen Scully, Peter Senge, John Sterman and JoAnne Yates. Robert Laubacher and Roanne Neuwirth from the 21st Century Initiative's staff also attended.

    7The indented description of this scenario is excerpted and adapted from the report of the GBN/MIT WorldView Meeting, held in November 1995. Kleiner, Twenty-First Century Organizations, 5-6.

    8An early version of the automobile industry scenario is set out in Thomas W. Malone, "Scenario: Information Technology and the Workplace," presented at Aspen Institute Roundtable on Information Technology, August 4-8, 1993.

    9The 21st Century Initiative's "Interesting Organizations" database has information on over 200 companies now employing innovative practices which the Initiative's research staff judge could become more common in the future. For more information on the database, consult the 21st Century Initiative's Web site at or contact Andrea Meyer, the Interesting Organizations database Project Manager, at

    10On the studio era, see Thomas Schatz, The Genius of the System: Hollywood Filmmaking in the Studio Era (New York: Pantheon, 1988) and David Bordwell, Janet Staiger and Kristen Thompson, The Classical Hollywood Cinema: Film Style and Mode of Production to 1960 (New York: Columbia University Press, 1985). Jon Lewis, "Whom God Wishes to Destroy--": Francis Coppola and the New Hollywood (Durham: Duke University Press, 1985) gives a concise history of the industry's evolution in the post-studio era. John Pierson's Spike, Mike, Slackers and Dykes : A Guided Tour Across a Decade of American Independent Cinema (New York: Miramax/Hyperion, 1996) is a first-person account of the rise of independently-produced films over the last decade.

    11The Prato region's textile industry is described in Michael J. Enright, "Organization and Coordination in Geographically Concentrated Industries," in Naomi R. Lamoreaux and Daniel M. G. Raff, Coordination and Information: Historical Perspectives on the Organization of Enterprise, National Bureau of Economic Research Conference Report (Chicago: University of Chicago Press, 1995), 120-127; R. Jaikumar, "Massimo Menichetti," Harvard Business School Case Study 686-135 (April 1986); and Hanswerner Voss, "Virtual Organizations: The Future is Now," Strategy and Leadership, 24, no. 4 (July-August 1994), 12-14.

    12Ricardo Semler's two articles, "Why My Former Employees Still Work for Me," Harvard Business Review, 72, no. 1 (January-February 1995), 64-74 and "Managing Without Managers," Harvard Business Review, 67, no. 5 (September-October 1989), 76-84 recount in detail the development of Semco.

    13The Nike/Puma and Nokia outsourcing stories are recounted in Voss, "Virtual Organizations," 14. First Virtual's practices are described in Tim Jackson, "Virtual Corporation with a Twist," Financial Times, February 5, 1996, 9.

    14An interesting picture of the expanded role being assumed by "mega-churches" in contemporary suburban America is provided by Charles Truehart in "The Next Church," Atlantic Monthly, 278, no. 2 (August 1996), 37-58.

    15Sloan faculty member Maureen Scully created a series of vignettes dramatizing the possible fate of several character types--authoritarian CEO, "enlightened" senior manager, engineer, vocational trainer, unemployed inner city resident--under the two MIT scenarios, and these were presented, with the parts played by professional actors, at the MIT Industrial Liaison Program Symposium in May 1994. Maureen Scully, "Scenario Scripts, or 10 Characters in Search of a Future."

    16The literature on unions and other organizations created by the industrial working class is vast. Two classic works addressing the early years of the industrial era are E. P. Thompson, Making of the English Working Class (New York: Pantheon, 1964) and Eric Foner, Free Soil, Free Labor, Free Men: The Ideology of the Republican Party before the Civil War (New York: Oxford University Press, 1970).

    17The term "virtual countries" was brought to the attention of the MIT Scenario Working Group by executives at National Westminster Bank, one of the 21st Century Initiative's founding sponsors. The term is used inside NatWest to refer to an organization which now possesses or might in the future attain some of the important characteristics of a nation-state. The European Community, for example, is referred to as a "virtual country" within NatWest. The NatWest usage is thus somewhat broader and more general than the quite specific meaning applied to the term in the MIT scenarios.

    18The indented description of this scenario is excerpted and adapted from the report of the GBN/MIT WorldView Meeting, held in November 1995. Kleiner, Twenty-First Century Organizations, 6-7.

    19Farrell Kramer, "Mergers Roared Ahead in 1996, Set Records," Boston Globe, January 2, 1997, E1-E2. This article was based on information prepared by Securities Data Company. Securities Data collects information on a global basis concerning merger and acquisition activity, joint ventures and partnerships, and venture funding. For more on Securities Data, see their web site at

    20William Taylor, "The Logic of Global Business: An Interview with ABB's Percy Bavenick," Harvard Business Review, 69, no. 2 (March-April 1991), 91-105 discusses ABB's practices. The 21st Century Initiative's Interesting Organizations database has entries on GE and Johnson & Johnson; on the database, see Christopher Bartlett and Sumantra Ghoshal, "Beyond the M-Form: Toward a Managerial Theory of the Firm," Journal of Strategic Management, 14, Special Issue (Winter 1993), 23-46 suggests that the innovative organizational forms put into place in recent years at ABB and a handful of other firms--GE, 3M, Toyota, Canon--may represent a new paradigm which will replace the multidivisional M-form structure which has been the dominant model for large corporations for the last half-century.

    21This notion of a taboo against marriage between employees of different firms was featured by the science fiction writer William Gibson in his futuristic novel Neuromancer (New York: Ace, 1984).

    22The idea of employee election of managers was explored in detail by Bruce Sterling in his science fiction novel, Islands in the Net (New York: Ace, 1989).

    23A recent work on the growing influence of institutional investors is Michael Useem, Investor Capitalism: How Money Managers are Changing the Face of Corporate America (New York: Basic Books, 1996). John Keefe, "Directing the Directors," Wall Street Journal, August 7, 1996, A10 is a review of Useem. Another testament to the increasing assertiveness of employee pension fund managers is a piece by the general counsel of CALPERS, the California Public Employees Retirement System, contending that the pension funds' longer investment horizons will eventually prevail over the short termism which has resulting in the "hollowing out" of many U.S. companies in the 1990s. See Richard H. Koppes, "And in the Long Run We Should Win," New York Times, May 19, 1996, F13.

    24The web site of the National Center for Employee Ownership offers a wealth of information on ESOPs. See

    25William Foote Whyte and Kathleen King Whyte, Making Mondragón: The Growth and Dynamics of the Worker Cooperative Complex, Cornell International Industrial and Labor Relations Report Number 14, 2nd edition (Ithaca, NY: ILR Press, 1991) gives an account of the rise and development of the Mondragón cooperatives. Henk Thomas and Chris Logan, Mondragón: An Economic Analysis (London: George Allen & Unwin, 1982) examines the economic performance of the cooperatives.

    26The seminal work on this subject in the field of economics is Ronald Coase, "The Nature of the Firm," Econometrica, 4 (1937), 386-405. Oliver Williamson, Markets and Hierarchies : Analysis and Antitrust Implications (New York: Free Press, 1975) is an influential recent contribution. A good review of the economics literature is Bengt R. Holmstrom and Jean Tirole, "Theory of the Firm" in Richard Schmalensee and Robert D. Willig, Handbook of Industrial Organization, vol. 1 (Amsterdam: Elsevier, 1989), 61-133. Though he approaches the problem from a very different starting point, the business historian Alfred Chandler attributes the rise of the modern corporation largely to the "internalization"--for the purpose of achieving economies of various sorts--within large firms of functions formerly performed by small firms transacting in arms-length fashion in the marketplace; see Alfred D. Chandler, Jr., The Visible Hand: The Managerial Revolution in American Business, (Cambridge, Mass.: Belknap/Harvard University Press, 1977).

    27As an example, Chandler notes that Standard Oil, the first large-scale producer of kerosene, reduced its production costs by 80 percent after consolidating production in three massive facilities during the 1880s. Even more dramatic gains were made by the leading German chemical firms between 1870 and the mid-1880s, when they were able to exploit economies of scope and produce hundreds of chemicals and dyes in one facility, reducing production costs by as much as 95 percent. Chandler, "Organizational Capabilities and the Economic History of the Industrial Enterprise," Journal of Economic Perspectives, 6, no. 3 (Summer 1992), 79-100.

    28The terms U-form and M-form were coined by Williamson; see Markets and Hierarchies, 132-154. The rise of the U-form is recounted in Chandler, Visible Hand and the M-form in Alfred D. Chandler, Jr., Strategy and Structure: Chapters in the History of the Industrial Enterprise (Cambridge, Mass.: MIT Press, 1962).

    29"Corrupted multidivisional form" from Williamson, Markets and Hierarchies, cited in Bartlett and Ghoshal, "Beyond the M-Form," 29.

    30Thomas W. Malone, JoAnne Yates, and Richard I. Benjamin, "Electronic Markets and Electronic Hierarchies." Comm. ACM, 30, no. 6 (June 1987), 487-97.

    31The notion of "constitutional framework" is akin to Joseph Bower's ideas about the role of top management at large corporations in "constitution writing," that is, defining their firm's general structure and policies. See Joseph L. Bower, Managing the Resource Allocation Process: A Study of Corporate Planning and Investment, (Boston: Division or Research, Graduate School of Business Administration, Harvard University, 1970), 2, cited in Bartlett and Ghoshal, "Beyond the M-Form," 31.

    32Eric Brynjolfsson, "Doing Business on the Internet," Presentation at MIT Sloan 21st Century Initiative Sponsor Meeting, Heythrop Park, UK, June 1996.

    33The "swarming" example was suggested at the June 1996 21st Century Initiative sponsor meeting by Bruce Bond, then an executive at British Telecom.

    34Bronwyn H. Hall, "Corporate Restructuring and Investment Horizons in the United States, 1967-1987," Business History Review, 68, no. 1 (Spring 1994), 138-140.

    35Brynjolfsson, "Doing Business on the Internet" and James Gleick, "Dead as a Dollar," New York Times Magazine, June 16, 1996, 26-54.

    36The two exchanges are discussed in Daniel Akst, "The Futures Look Bright for Internet Market Sites," Los Angeles Times, June 3, 1996, D3. The Iowa Electronic Markets at the University of Iowa College of Business Administration can be accessed at The Alberta Research Council's Idea Futures' initial site was, but in the fall of 1996 responsibility for administering the exchange was assumed by a private firm called Ideosphere. In the process, the site was renamed the Foresight Exchange (FX). See The notion of electronically-traded prices of shares in ad hoc joint ventures is also examined in Malone, "Scenario: Information Technology and the Workplace."

    37The Direct IPO and Wit Capital Web pages provide a full description of the two companies' service offerings. For Direct IPO, see; for Wit Capital, see

    38The concept of a "design protocol" is akin to Rebecca Henderson and Kim Clark's notion of product "architecture," which they define as "the ways in which the components are integrated and linked together into a coherent whole." Henderson and Clark note that a dominant product architecture can presently serve to shape the organizational capabilities of firms competing within an industry; in the Small Companies scenario such organizational capabilities would might be embedded not within firms, but rather, within the network of small entities and independent contractors active in a particular field. See Rebecca M. Henderson and Kim B. Clark, "Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms," Administrative Science Quarterly, 35, no. 1 (March 1990), 9-30.

    39On the Process Handbook, see the MIT Center for Coordination Science home page at

    40On the economics of standards and conventions, see Paul David, "Clio and the Economics of QWERTY," American Economic Review, 75, no. 2 (May 1985), 332-3; M. Katz and C. Shapiro, "Network Externalities, Competition, and Compatibility," American Economic Review, 75, no. 3 (June 1985), 424-40; W. B. Arthur, "Competing Technologies, Increasing Returns, and Lock-in by Historical Events," Economic Journal, 99 (March 1989), 116-31; Paul David and S. Greenstein, "The Economics of Compatibility Standards: An Introduction to the New Research," Economics of Innovation and New Technology, 1 (1990), 3-41; S. M. Besen and J. Farrell, "Choosing How to Compete: Strategies and Tactics in Standardization," Journal of Economic Perspectives, 8, no. 2 (Spring 1994), 117-31; and H. Peyton Young, "The Economics of Convention," Journal of Economic Perspectives, 10, no. 2 (Spring 1996), 105-122.

    41James Wade, "Dynamics of Organizational Communities and Technological Bandwagons: An Empirical Investigation of Community Evolution in the Microprocessor Market," Strategic Management Journal, 16, Special Issue (Summer 1995), 111-133 and Kim S. Nash, "Clash of the Titans: Microsoft Gaining on Netscape in Race for 'Cyber Mind Share'," Computerworld, 30, no. 29 (July 15, 1996), 1, 121

    42The work which initiated recent discussion about the decline of civil society is Robert D. Putnam, "Bowling Alone: America's Declining Social Capital," Journal of Democracy, 6, no. 1 (January 1995), 65-78. For a broad-ranging analysis of the possible causes for the decline, see Putnam, "The Strange Disappearance of Civil Society, The American Prospect, no. 24 (Winter 1996), 34-48. A contrary view is articulated in Nicholas Lemann, "Kicking in Groups," Atlantic Monthly, vol. 277, no. 4 (April 1996), 22-26.

    *Including primary affiliations with MIT research or teaching groups.