The large, hierarchical corporations that dominated business in the 20th century will not completely disappear in the 21st century, but they will become less important. In their place will be new, more flexible ways of organizing large-scale work that provide great freedom and take advantage of people’s energy and creativity. All of them will depend on the Internet.

Take Wikipedia, whose design is an amazing organizational invention. People from all over the world collectively have created a large and surprisingly high-quality intellectual product: the world’s largest encyclopedia. It’s not a corporation; it doesn’t make money; its boundaries are very loose. Wikipedia contributors have done all this with almost no centralized control. Anyone who wants to can change almost anything, and most decisions about what changes to keep are made by a loose consensus of the contributors who care. And the people who do all this work don’t even get paid; they’re volunteers! Wikipedia illustrates how cheap global communication—enabled by information technologies like the Internet—is making it possible to organize large-scale work in very new ways.

Of course, these new ways of organizing work won’t be universal. In some cases, traditional hierarchies will still be needed to capture economies of scale or to control risks. But with lower communications costs, new technologies now make it possible for many more people, even in huge organizations, to have the information they need to make decisions for themselves rather than following orders from above.

As a result, we can now have the economic benefits of very large-scale organizations without giving up the human benefits of small ones—freedom, flexibility, motivation, and creativity. These human benefits often provide decisive competitive advantages in knowledge-based and innovation-driven work, so we should expect to see them in more and more parts of our economy over the coming decades.

Collective intelligence

There are various phrases for these new ways of organizing work—“radical decentralization,” “crowd sourcing,” “peer production,” and “wikinomics”—but the one I find most useful is “collective intelligence.” At the new MIT Center for Collective Intelligence, we think it can be expressed best by the following question:

How can people and computers be connected so that—collectively—they act more intelligently than any person, group, or computer has ever done before?

What if, for instance, we could have any number of people and computers connected in any way we could imagine to care for patients in a hospital? Or to design cars? Or to sell retail products? We might find, for example, that the best way to do a task that is done today by five full-time people would be to use one part-time employee and a host of freelance contractors each working for only a few minutes a day.

This type of collective knowledge is “crowd intelligence,” where anyone in a large group who wants to can contribute. Sometimes, as with Wikipedia and YouTube, contributors work for free because they get benefits such as simple enjoyment, recognition, or opportunities to socialize with others. In other cases, like eBay, they are paid for their work. Anyone can join the community of eBay sellers, and customers pay them for what they sell. But the key retailing decisions about product mix, pricing, and advertising are primarily made by the collective intelligence of all the eBay sellers themselves rather than eBay managers.

In fact, the eBay community is essentially a very large retailing organization employing more than 700,000 people who say they make their primary or secondary living selling on eBay. If they were traditional employees, eBay would be the second largest private employer in the United States. But they’re not employees of eBay the company; they’re members of eBay the community. The company eBay is essentially made up of just the IT group—and a very special kind of top management team—for eBay the community.

From command and control to coordinate and cultivate

To manage effectively in this new era, we need to move beyond the centralized mind-set that worked so well in the large corporations of the 20th century. We need to move from the top-down view of management as “command and control” to a much more flexible view I call “coordinate and cultivate.”

To coordinate is to organize work so that good things happen, whether you’re “in control” or not. You may be able to do this just by creating a crowd of competent people who are motivated to solve your problem, even if no one in the crowd works “for” you at all.

To cultivate is to bring out the best in a group of people through the right combination of control and freedom. You need to understand and respect the group’s natural tendencies at the same time you try to shape their actions. Managers cultivating organizations sometimes may need to take drastic top-down actions like closing divisions. But at other times, their main work is just to help groups of people find and develop their own strengths and desires.

So coordinating and cultivating aren’t the opposites of commanding and controlling. Rather, they encompass many management approaches, from the completely centralized to the completely decentralized. Thinking of management in terms of coordinating and cultivating opens a range of new possibilities that go beyond the old centralized mind-set. That’s one of the key things successful managers in the 21st century will need—the ability to move flexibly back and forth between centralized and decentralized thinking as the situation demands.

Decentralized markets

Markets provide the most common form of decentralization. Many companies today outsource activities they once performed in-house, from manufacturing to sales and HR management. In cases like eBay, flexible webs of electronically connected freelancers (“e-lancers”) can do many of the same things big companies used to do internally.

In other cases, large companies can get many of the benefits of markets within their own boundaries. Google, Microsoft, and Best Buy have all used internal “prediction markets” to tap the collective intelligence of people throughout their organizations. In these markets, people buy and sell “shares” of predictions about future events such as revenue levels. If their predictions are correct, they are rewarded (either with real money or with points).

Microsoft, for instance, has used a prediction market to estimate completion dates for internal products. When the company tried its first such market, the share prices for a product scheduled to be finished three months later declined within minutes to a price indicating only a 1.2 percent probability that the product would be completed on time. The project’s managers had thought everything was on schedule, but when they saw these results they investigated further and found problems. The product was eventually released three months late. Here was a case where knowledge about the project’s problems was available in the organization, but it took the prediction market to bring this decentralized knowledge to the attention of managers who could do something about it.

Examples of decentralized management like Microsoft’s prediction markets have existed for years, but they are still rare today. And large-scale, electronically connected forms of crowd intelligence like Wikipedia and eBay were not even possible until the last few years. But these unusual examples are not the end of the story; they are just the beginning. As cheap electronic communication makes them more feasible, and the greater flexibility, creativity, and motivation they encourage makes them desirable, changes like these will spread through more and more parts of our economy.

Portions of this article appeared previously in the Financial Times (August 12, 2004, and November 6, 2008) and in the author’s book The Future of Work: How the New Order of Business Will Shape Your Organization, Your Management Style, and Your Life.

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