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 / Spring 2010 / Issue 58(originally published by Booz & Company)


The Thought Leader Interview: Erik Brynjolfsson

But that doesn’t mean that it’s inherently less visible. If we want to really see the value of our organizational capital, then we have to change our metrics. The amount of energy and materials that Microsoft or Google uses is obviously not zero, but it’s not nearly as intensive as it would be in a steel mill or automobile company. Their success is all due to human input. The only related metric that most companies use so far is employee head count, but that’s not sufficient.

Our group at MIT, the Center for Digital Business, has been looking at e-mail traffic and other types of electronic communication. Lately we’ve been using sociometric badges [badges that track people’s movements around offices] and telephone traffic. We have also worked with Alex Pentland at the MIT Media Lab, tracking call center employees. [See “The Science of Subtle Signals,” by Mark Buchanan, s+b, Autumn 2007.] You can get incredibly detailed information this way about where people are spending their time and what they’re doing. Most companies don’t make much use of that information, and there are privacy issues and a lot of other things that have to be navigated. But I could imagine that over time — five, 10, or 15 years from now — we will have excruciatingly detailed data about information workers that will make what we knew about physical work seem crude by comparison.

This kind of measurement is like the microscope when it was first used. Before that, people didn’t know about individual blood cells. And from that invention came germ theory, which completely changed medicine. Something similar will probably happen in economics. Right now, most economists treat companies as a black box. Inputs go in, outputs come out, and some mathematical production function happens in the middle that’s highly abstract. But we can make this kind of economic theory much more fine-grained in the near future.

S+B: Certainly, any experienced executive knows that the quality of management matters enormously.
But it has been underappreciated. And only now is the link between management quality and economic growth becoming apparent. The studies that we’ve done, and that others have done, consistently show that when you have a lot of organizational capital, combined with IT in place, you can get a productivity boost. As more of the economy gravitates to services and information work, I think that component of success will increase.

From Taylor to Cisco

S+B: In defining the value of organizational capital, how do you differentiate among management practices? Aren’t some more valuable than others?
We interviewed a bunch of firms, starting in the early 2000s. And we learned a great deal from Cisco Systems Inc. in particular. We wrote a case study about their management approach, based on conversations with their employees, including their director of culture; the fact that they have created such a position is interesting in itself. [See “Networked at Cisco,” by Stephanie Woerner with George Herman, 2001, MIT Sloan School of Management Center for eBusiness, Case Study No. 1.] They carried a card they called the culture badge, about the size of a credit card, that listed 11 principles. Some of the principles correlated statistically with higher productivity: for example, open communication, empowerment, maintaining a quality team, and stretch goals. Others turned out to be more particular to Cisco and might not apply as strongly elsewhere: for example, dedication to customer success (meaning close collaboration with their business-to-business customers), “no technology religion,” frugality, and seizing opportunities during market transitions. About once every few years they might update or modify one or two of the principles, but basically the principles have held steady for the life of the company.

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