EMPOWERMENT NETWORKS – CORPORATIONS, MOVE OVER
Copyright 1988 by Vincent E. Giuliano - all rights reserved
An Empowerment Network offers a different form of human organization than does a traditional company or corporation. Empowerment Networks have been around for a long time, but movement towards them is now rapidly accelerating. I believe they will assume immense importance in the emerging new economy of the early 21st century, specifically in business and professional areas where human capital is more important than traditional financial capital. I will briefly trace the roots of Empowerment Networks, describe how they are a fundamentally different than the companies we are familiar with, and cite examples both familiar and emerging. I will trace the advantages and weaknesses of Empowerment Networks, examine their human and technological underpinnings, and speculate on their growing importance in the coming decades.
I. What is an Empowerment Network?
An Empowerment Network is a mutually supportive affiliation of individuals or very small businesses for purposes of facilitating those individuals or businesses conducting a particular kind of business or practicing a certain profession. The members of Empowerment Networks are individual entrepreneurs who typically help each other in marketing and actually doing businesses. They are not salaried or temporary employees of a corporate entity. Traditional Empowerment Networks have included professional societies, trade associations, franchise groups, co-operatives of various kinds, and trade unions whose members are independent contractors. There are thousands of them.
The history of Empowerment Networks goes back centuries. The trade Guilds in 15th century Holland and Belgium were Empowerment Networks. Recently, new forms of Empowerment Networks are arising in fields such as consulting, law, and medicine – and in some cases are challenging the more traditional organizations. This is due to both shifts in the business culture and the availability of enabling technology.
An Empowerment Network must provide mutual support and communication among its members to qualify in this definition. A temporary help agency finds work for people, but is not an Empowerment Network because there is no mutual supportiveness among the people employed through such agencies
II. Historical shifts
Though the modern company or corporation has deep roots in history, its current form and identity was largely formed during the industrial revolution. The company or corporation massed economic capital and hired labor to mine, manufacture, or ship materials or products. Being able to gather together and focus the use of immense investment capital was one key to success, whether the goal was to build and operate a railroad, a factory, a mine, or to buy a fleet of trucks or ships. Transition from family-owned businesses to corporate organization was an important step in broadening the opportunities for gathering the required capital. Labor was a second factor of production, more or less a commodity to be hired and fired as convenient. So, the company as we know it emerged, an entity managed and operated by paid employees, mainly owned by other than employees, and operated through centralized top-down management and control.
As time evolved and the business and general culture have evolved, there have of course been many efforts at introducing more employee participation in decision making and making large companies more shallow in hierarchy, more effective in using its human talent, more democratic, and more efficient. While important, these initiatives have left the basic form of the large company intact. The Board of Directors takes its clues from what the shareholders want, top-management looks to the Board for guidance, middle management takes its order from top management, etc. There are layers and layers of bosses and if you are near the bottom, well, you are near the bottom.
Nowadays, in our new information and services society, what is important in business depends on another kind of capital, human capital – human knowledge and capabilities to get jobs done. There is still much dependency on immense accumulation of financial capital, but there are more and more areas of business and professions where it has secondary importance. Areas where human capital is crucial include law, marketing, consulting, politics, medicine, science, publishing, sports, and entertainment (Why else except for human capital would a player or actor be paid $20 million a year?), performing arts, and education. Human capital walks around inside people who can come and go as they please. In increasing number of cases, skilled and knowledgeable people prefer to join an Empowerment Network over working as part of the hierarchy of a traditional company.
Large-scale financial capital is still needed to build factories, hospitals and sports stadiums and finance movies, but changes are making human capital relatively more important. An example is in newspaper publishing.
So, the large company’s ability to gather and focus industrial capital can approach irrelevancy for more and more knowledge-focused activities. But there are other important functions of large companies that remain important, such as offering powerful brand images, investing heavily in marketing, providing quality assurance, and being capable of operating on a large scale. And here is where Empowerment Networks come in. They can fill the gap of capabilities between what a large company can do, and what an individual or tiny company can do working alone.
For example, large companies can maintain a strong image, a strong sense of branding. Another thing a large company can afford is national advertising, and a large company can provide quality and service assurance to customers. As illustrated in the examples below, Empowerment Networks can also offer the same things.
III. Examples: traditional Empowerment Networks
I will discuss examples in only two categories of Empowerment Networks, professional associations and franchise chains.
A. Professional and Trade Associations
Professional and trade associations are traditional kinds of Empowerment Networks, allowing millions of individual professionals and small businesses to operate effectively. In many cases they provide powerful images and marketing approaches that make their members largely invulnerable to massive corporate approaches. Consider the National Association of REALTORSâ (NAR) for example, the nation's largest professional association, representing nearly 720,000 members involved in all aspects of the real estate industry. NAR has 54 State and Territory Chapters and 1700 local REALTORâ associations. Thanks to its local boards, its Multiple Listing Services, and its services and those of its affiliates, real estate sales has mainly remained a local activity in the US. And this is in spite of several efforts of large corporations to establish dominant marketing positions in real estate sales. NAR offers its members:
Besides helping keep the US real estate marketing industry in the hands of small local businesses, the REALTORâ Network has also been a very powerful force in promoting and protecting the rights of home ownership in the US.
B. Franchise Chains
Franchise chains are another kind of Empowerment Network, allowing a local entrepreneur to operate a business with a very large public image and with established standards of service and quality. The fast food chains like McDonald’s are familiar examples. Among the things they do is provide:
Sometimes a tiny franchising operation can be behind a very big image. Years ago I visited the headquarters of the Century 21 real estate marketing Franchise in Southern California. At the time the yellow signs of Century 21 sales offices seemed to be everywhere, the franchise was doing millions of dollars in TV advertising, and the yellow jackets of Century 21 salespeople were recognizable by anyone who watches TV. No doubt, a lot of people thought of Century 21 as another corporate giant. Though I knew Century 21 was a franchise, I expected to visit a glass tower office with hundreds if not thousands of employees busily scurrying around in their yellow jackets. What I found when I got there was a small office suite upstairs in a second-class office building with a total of about eight employees. I was astonished, although I do not know what the Century 21 central staff is like now.
IV. Newer forms of Empowerment Networks
There are many newer forms of Empowerment Networks. In health care, for example a Preferred Provider Organization (PPO) is an Empowerment Network for doctors, psychologists and other health care workers. Professionals within the PPO network receive and generate patient referrals and are partially paid by insurance benefits for the patient care provided. Of course, the participating doctors and others must play by the "managed care" rules of the PPO network. Belonging to a PPO, a doctor or dentist can keep independent but still be part of a large health care entity. The Counsel Connect service on the Internet is one of several that offer many networking, data, and information exchange services for individual lawyers and small law offices. While not themselves full Empowerment Networks, these services facilitate groups of independent lawyers forming themselves into Empowerment Networks.
V. Consulting Services
One area where Empowerment Networks are just starting to take hold is consulting services. Consulting is a very diverse field, with millions of individual practitioners. In fact, "consultant" is often a euphemism for somebody who just lost his regular job. Standing above them are consulting firms of various sizes, and at the top of the heap are some 15 giant international consulting firms with names like Arthur Andersen, McKinsey and Company, Booze Allen, Arthur D. Little, Inc., Deloitte & Touche, Touche Ross, Coopers & Lybrand, Ernst & Young, Price Waterhouse and Boston Consulting Group. McKinsey has 3,650 consultants who are citizens of 78 countries. Arthur D. Little Inc. has 3,000 staff in 52 offices worldwide. These are the smaller big firms, dwarfed by their cousins which have accounting origins. Arthur Anderson has a staff of 50,000 with 354 offices in 76 countries. It has 80,000 clients with annual revenue (1996 figures) of $4.6 billion. Price Waterhouse has a global network of 56,000 professionals, working in 420 offices in 119 countries and territories.
I predict that consulting Empowerment Networks will increasingly take market share away from the big international consulting firms – unless in time these big firms themselves evolve to being empowerment networks.
The big consulting organizations offer their clients:
An Empowerment Network of consultants can offer these exact same things to clients. Moreover, Empowerment Networks of consultants can also offer some significant advantages over the big firms:
Lower overhead cost. The traditional big firms carry an overhead factor on the salaries of junior and mid-level staff of up to 4.2. So the daily billing rate of a junior person 3 years out of business school in a management consulting firm may be $900 a day and that of a mid-level staff person $1,600 a day. Why so high overhead? Included are costs of fancy offices and equipment, an extensive administrative superstructure with very highly paid people who do not bill work to clients, and high costs for marketing. The big consulting firms tend to still have these things. Individual consultants working from their homes and and those in small practices have much lower overheads, no secretaries or administrators and perhaps a few thousand dollars of PCs, fax machines and the like.
With such lower overhead, an individual consultant connected into an Empowerment Network can charge a half or third as much for his services, and still make more money than if he were working for a large firm. At least, that is what I have been doing in the last few years.
Higher integrity. No hungry mouths and no need for bait-and-switch. A senior consultant in a large firm is typically expected to generate and monitor enough consulting work to keep 5-10 junior people busy. These junior people are employees on salary. They have to be kept busy on billable projects, or they will simply run overhead costs up even higher. This often leads to tension when the client hires the firm for the knowledge and skills of the senior professional , but then the senior professional largely disappears from the scene as the junior people swarm in. A member of an Empowerment Network experiences no such pressure, and can use exactly as many senior or junior people as the client needs. People are compensated for what they contribute, not for their ability to keep other people busy.
Less killing pressure. Individual consultants and those in small groups can experience less pressure because their billing rates to clients can be much less. Quote from a senior consultant in a large firm walking out of the Men’s room. "I just took a little bathroom break, and that time is going to cost one of my clients $100.00." Less pressure translates into a more balanced lifestyle and a more balanced and generous outlook towards both work and life itself.
The Electronic Publishing Group
Consider for example my small 4-year-old consulting organization, The Electronic Publishing Group. We function as part of our own highly informal but effective Empowerment Network. We are five Principals with offices in our homes in Massachusetts, New York and Provo, Utah. For my own practice, I can of course bring in any of these other Principals who are skilled in Electronic Publishing, and can be brought in by them. However, we are also closely affiliated with other small groups of consultants in the US, Spain, Brazil and Venezuela, not to mention university groups in both the US and Spain. As a member of the Arthur D. Little Inc. Alumni Network, I can draw on the services of hundreds of previous staff members who now have consulting practices, very experienced people with incredible qualifications. We draw on the services of selected professionals from these groups in our international practices as needed. Need an expert in holographic scanning techniques, in advanced JAVA scripts, or in WAN firewall security? I can find one. Need an expert on high-speed medical image communications, on the operations of conventional or electronic newsrooms, or on reusable paper? I can find one. For the kind of work we do, we can assemble as high quality team as can any international consulting firm, work at lower cost, deliver high value to our customers, experience more fun and less stress in the process, and not have to worry about keeping a bunch of employees busy.
VI. What’s missing in consulting Empowerment Networks?
Compared to the large international consulting firms, the consulting Empowerment Networks are still missing three things:
Strong brand identification. Managers in large corporations often feel it is safer to hire a big-name consulting organization with a history of decades of operation. Client representatives want to make sure that they will not be criticized for hiring "brand x" consultants in case the work does not go well, or in case the clients recommendations or actions are controversial. This is the familiar CYA factor (Cover Your Exposure) equally important for mid-level manager and to a company’s president who expects the consultants to make an important recommendation to the Board. It is worth paying the extra money to have the recommendation come from Arthur D. Little or McKinsey. As seen above based on the trade association and franchise models, however, it is possible for Empowerment Networks to achieve strong branding images, though they mostly don’t have them now.
Large International scale. The consulting Empowerment Networks I know of do not have the scale of thousands of employees as do the big international consulting firms. In practice however, rarely do the very large consulting firms go outside of the employees in their own branch offices for project staffing, except possibly for one imported superstar who visits to "show and tell."
Formal organization and quality assurance mechanisims. The informal consulting networks I know of also do not have the quality-assurance, support, and knowledge-sharing capabilities of the National Association of REALTORSâ or McDonalds, although knowledge and information is often shared informally. The areas of structured cooperation and quality control have to be strengthened considerably before the informal networks can really compete with the large consulting firms.
The current situation, I believe, is indicative of the early stage of development of consulting Empowerment Networks, and will evolve to favor Empowerment Networks in time. Meanwhile, there are signs of at least some of the large international consulting companies themselves evolving in the direction of becoming Empowerment Networks. The McKinsey and Company website describes the company this way: "McKinsey and Company can thus be characterized as a multinational network of equal partners and associates, all of whom are professionals who put client interests first."
VII. Where are Empowerment Networks unlikely to emerge?
I believe Empowerment Networks will become more important in those areas which are intensive in human capital. Traditional manufacturing, mining, and transportation are among the areas where money capital will continue to be very important and where Empowerment Networks are unlikely to form, except in specialized segments. And there are several industries having segments that are human-capital intensive, and other segments that are money capital intensive. For example:
Films and blockbuster entertainment products. Even though the scriptwriting, directing, and acting aspects of film entertainment are human-capital intensive, film production and distribution are money-capital intensive. A blockbuster film today may require $100 to $150 million to produce and an additional $75 million to market it. Meanwhile, ASCAP, SAG, the Writers Guild, and similar organizations continue to serve as traditional empowerment networks for recording artists, movie actors, and scriptwriters.
Medical hospital and technical facilities. Even though individual doctor practices can be organized in Empowerment Networks, hospitals require big investments. They are increasingly being corporatized.
VIII. Driving forces behind Empowerment Networks
A. Emphasis on productivity
Empowerment Networks will thrive in the future when, where, and because they are more efficient and effective than corporations at doing what they do. What corporate downsizing is largely about is shifting out of corporations activities that are better done in smaller organizations. Millions of people who have been downsized out of jobs now provide services as individuals or via their own small businesses, and a large number of these in turn are cooperating in the formation of specialized Empowerment Networks. I predict that many people now working on their own will be discovering that by going to stronger forms of Empowerment Networks that offer branding, they will be able not only to survive but to thrive.
B. Enabling Information Technologies
Behind virtually every effective Empowerment Network today are supporting services that depend on information technology. The REALTORâ Multiple Listing Services are online-access databases that are updated daily and also used to produce weekly books of listings. They could not operate as they do without those computer databases.
Similarly many Empowerment Networks such as those of consultants could not exist without current information technology. We are little more than two decades from a past of having what would seem to be information work, like insurance, banking, and publishing, conducted in large papermill organizations in skyscrapers. Workers had to be in those office complexes at the same place at the same time, because vital information was passed back and forth via "in" and "out" trays. Information technology consisted of expensive mainframe computers, large copy machines, printing presses, and Telex machines. Telephone switchboards were run by live operators, and even low managers had their own secretaries who typed on electric typewriters. An individual consultant could afford little or none of the support that was required.
Now, all of that has changed. Modern information technologies allow communication from practically any place at practically any time in multiple media at modest cost and with little initial investment. I am talking about fax and answering machines, small copiers, cell phones, personal computers and notebook computers, PDAs, electronic mail, the Internet Web as a medium of communication and commerce, intranets and extranets, ISDN, ADSL, cable modems and other inexpensive high speed communications technologies. And I am talking about a technology stream that is exploding in its capabilities at ever-lower cost. These technologies can be afforded by individuals and the smallest of organizations.
C. Cultural shifts in how business and work is being done
Starting in the 1960s, there has been new wave after wave of "humanware" disciplines that facilitate professionals and businesspeople to assume mastery over their own lives, seek independence, be quickly able to form relationships of trust, and to chart their own futures. Behind these waves have been business school professors with best-selling books, and consulting organizations with approaches to revitalizing organizations. Knowledge Management and the idea of "the learning organization" is one of the latest of the flags that this stream has been flying. But the stream itself has been flowing for over 30 years. Earlier on we had T-groups, Humanistic Management, Total Quality Management, Corporate Re-Engineering, and multiple other initiatives, all focused on empowering people and loosening the rigid hierarchical organizations and ways of thinking of traditional industrial companies. These initiatives have been part of a general cultural shift which has seen the slow introduction into the mainstream of Eastern meditative processes, EST, humanistic education, alternative medicine, new-age and other alternative ways of thinking.
While gradual, there have been many shifts in how intellectual work is accomplished and the underlying assumptions about work. In the 1950s, focus was on input: a way to assure work was being done is to enforce strict 9:00 to 5:00 attendance at the office. Bosses controlled. People could absolutely not be trusted to work at home. Now, focus is on work output. Bosses increasingly empower. Tens of millions of people work at home full and part time, and there is nothing very unusual about these approaches any more.
I believe that many areas human services, such as consulting, offer opportunities for stronger forms of Empowerment Networks than exist now. Using the franchising model, for example, it should be possible in time to create large networks of consultants that share common norms, satisfy high professional standards, are in a constant process learning, and share strong market brand identities.