How is technological change affecting the nature of the corporation?

Abstract

This paper examines how the ‘digital revolution’ (enabled by exponential increases in processing power and connectivity) is bringing about fundamental changes to the size and scope of firms, and to how they are organised and managed. The large, vertically integrated firms of the industrial era are being superseded by narrower, more specialised, firms that link buyers and sellers through digital ‘platforms’. The traditional bureaucratic ways of organising that were invented in the industrial era are gradually being replaced with flatter and more fluid ways of organising. The consequences of these changes are discussed, with a particular focus on public policy. Many of the current tensions between governments and big digital firms—for example, in terms of competition policy, intellectual property rules, and labour laws—are the result of a disconnect between regulations developed during the industrial era and the demands of firms operating by digital era norms. The paper identifies opportunities for institutional innovations to resolve these tensions.