Tuesday, February 24, 2009

Social Media, Job Creation and Economics

How might social media change the size of the firm?

Not only does social media aid in finding a new job as anyone with a LinkedIn account can attest, it also provides the platform for creating and marketing services. In the last hour I've run into blog coaches, presentation guides, writers, designers, developers and speaking docents. They are all using social media to develop their business. This raises some questions: If it works for individuals, why doesn't it work as well for companies? What kind of line forms in the sand where it is easy for people to cross but hard for companies? If this talent is readily available, why is it in-house?

Looking to economics, does Roland Coase's "Nature of the Firm" offer insight? His Nobel Prize ideas focused on understanding why firms were the size they were. In a nut shell, firms grow to the size where the cost of doing something is the same inside as outside; in short transaction costs are in equilibrium. But size comes with a cost - specialization. "My job" becomes more fragmented as we grow from SOHO to Corporate Campuses. Thus, it becomes quite possible that the purpose of a company gets lost in the doing. If we reduce business to a series of transactions, each with a cost and benefit, then we also lose the bigger issue: Brands need to stand for something. (see the book on the topic.)

As companies shed jobs, hopefully they will gain a sense of what they are all about. Here social media plays an important role: Customers will tell them if they dare listen. Equally important companies can find a lot of good talent via social media and recommendations to help develop and deliver the story. If it is easier to find skills via social media, i.e. the transaction cost goes down, then it is likely there will be more SOHOs in the future because it won't be brought in-house. This leads to a thought: companies in the future won't be as large, therefore job creation should focus on facilitating this transition.

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