Business organisation : The fuzzy corporation. Digital technology is redrawing the boundaries of the firm. Technology and business are inextricably linked. Entrepreneurs harness technological advances and, with skill and luck, turn them into profitable products.

Technology, in turn, changes how firms operate. Electricity enabled the creation of larger, more efficient factories, since these no longer needed to depend on a central source of steam power; email has done away with most letters.

But new technologies also affect business in a subtler, more profound way. They alter not just how companies do things but also what they do - and, critically, what they don't do.

The Industrial Revolution ended the ''putting-out system'', in which companies obtained raw materials but outsourced manufacturing to self-employed craftsmen who worked at home and were paid by output.

Factories strengthened the tie between workers, now employed directly and paid by the hour, and workplace. 

The telegraph, telephone and, in the last century, containerised shipping and better information technology [IT], have allowed multinational companies to subcontract even more tasks to ever more places.

China became the world's factory; India became its back office. Nearly three years after the pandemic began, it is clear that technology is once again profoundly redrawing the boundaries of the firm.

In the rich world, fast broadband and apps like Zoom or Microsoft Teams are allowing a third of working days to be done remotely. Jobs are trickling out from big city corporate headquarters to smaller towns and the boondocks. And the line between collaborating with a colleague, a freelance worker or another firm is blurring.

Companies are drawing on common pools of resources, from cloud computing to human capital. By one estimate, skilled freelance workers in America earned $247 billion in 2021, up from about $135 billion in 2018.

The biggest firms in America and Europe are outsourcing more white-collar work. Exports of commercial services from six large emerging markets have grown by 16.5% a year since the pandemic began, up from 6.5% before it.

On January 9th Tata Consultancy Services [TCS], an Indian IT-outsourcing giant, reported another bump in profits.

A useful lens for understanding these changes was offered by Ronald Coase in his paper from 1937 entitled ''The nature of the firm''. Stay small and you forgo the efficiencies of scale. Grow too big and an enterprise gets unwieldy - think of Soviet-style command-and-control economies.

Most commerce happens in between those extremes. Coasce, whose insights earned him a Nobel Prize in economics, argued that firms boundaries - what to do and what not to do yourself - are determined by how transaction and information costs differ within firms and between them.

Some things are done most efficiently in-house. The market takes care of the rest.

The World Students Society thanks ' The Economist '.


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