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I spent about an hour at last week's Open Source conference here in Portland with Rod Beckstrom, co-author of The Starfish and the Spider. I won't give a book review here (see the Amazon.com link for some excellent user book reviews), but will focus on a few observations. In a nutshell, the starfish is a biological example of a completely decentralized organism -- cut it in half and you'll eventually get two starfish because it has no central nervous system. On the other hand, the spider, although it may look superficially like a starfish, is extremely centralized -- cut off its head and it is dead! The book gives several examples of decentralized organizations which exhibit resilience similar to that of the starfish: the Apache Nation, Alcoholics Anonymous, and even al Qaeda. There are many reasons why such organizations prevail and thrive while their centralized counterparts fail. I'll focus on two: circles, and ideology:

1) circles: these are independent, autonomous units that form without hierarchy or structure. Self-enforcement of norms, rather than top-down enforcement of rules, lends power and resilience to these units. Decentralized organizations are difficult to combat because of the existence of many circles - you can squash a circle, but in all likelihood one or two will pop up to replace it. Web 2.0 technologies make the formation and maintenance of many "virtual" circles feasible, transcending spatial boundaries. Collaboration is essential between members of a circle because there is little to no hierarchy and certainly no centralized communication channels.

2) ideology: decentralized organizations need a compelling ideology as "glue". Often, such ideologies provide a more powerful and effective bonding mechanism than what is found in many centralized organizations, which normally have stakeholder monetary value at the top of organizational values. This is in line with studies on employee motivation which find that monetary rewards are seldom the most important factors for employee satisfaction and retention. Although the book doesn't get into it much, I believe Web 2.0 tools can be instrumental in spreading ideology between members: educating new members, reinforcing it amongst existing members, evolving and maturing it through dialog, debate, shared stories, and capturing it for posterity sake.

The book makes several statements to the effect that decentralized organizations (or decentralized industries) do not make much money. I want to fight this statement, but have to concede that if you look at most examples, it is true. But is it necessarily true? For example, al Qaeda does not make money, but it certainly is an organization that raises a lot of money. The fact that the money is raised and spent in a decentralized fashion doesn't change the fact that money is being made. In a different type of example, IBM's involvement in the Open Source community does not generate any direct software revenues for Big Blue, but it estimates a savings of over $1B per year in development costs in addition to sizeable service revenue (Source: Wikinomics). I believe the real innovation that needs to occur is to take the concepts of decentralization as outlined in Beckstrom's book, and develop sustainable businesses that generate value for investors, participants, and all other stakeholders.

Starfish points in this direction with the interesting concept of a hybrid organization: one which combines centralized components with decentralized components. Two types are presented:

1) A centralized organization with a decentralized customer experience (for example, eBay)

2) A centralized organization that decentralizes internal parts of the business (for example, Sun and IBM with Open Source).

So what is new here? Certainly the concepts of empowerment, decentralization, moving decisions "to the edge" have been around for a while. What is new is that "2.0" technologies are now available that can make decentralization feasible on a very large scale (and ironically on a very small scale as well). What else is new is a growing demographic that prefers working in non-hierarchical, decentralized environments (see my post on changing demographics of the Web 2.0 Net Generation).

A new competence that will be required of organizations (and their leaders) in the future is to identify specific elements in a business that need centralization, and which elements need to be cut loose with decentralization. This will certainly involve some risk taking, and the ability to reconfigure business operations and even business models in sometimes radical ways. Beckstrom calls this "finding the sweet spot", and the exciting thing is that it is not really a "spot", but a moving target that changes as industries and customers evolve. Companies which develop a strategic competence in being able to find (and keep tracking) the sweet spot of their businesses will produce market leading profits.