'Digital leadership': a major benefit of the Decentralised Conglomerate over the DAO
Thursday 26 May 2016
Business is changing. Radical new ideas are being explored. We’re in a ‘Cambrian Period’ – and evolution is brutal.
This article was written in partnership with Ronny Boesing, CEO of CCEDK.
The internet has forever changed the way we do business. Communication across the globe, instantly and at practically zero cost, has forever overturned the traditional model of governance. ‘With the advent of blockchain technology and smart contracts, a new paradigm of global enterprises is quickly emerging,’ writes Forbes’ Roger Aitken. ‘As organizations combine forces in innovative ways, a new form of partnership called a Decentralized Conglomerate is now touted as being the “cutting-edge method” of building communities and establishing diversity in the marketplace. It’s a brave new world – if it wasn’t already before.’ In the relatively near future, we may view the nine-to-five, office-based companies we have taken for granted for so long as the dinosaurs of a pre-connected age.
We're in a 'Cambrian Period' of crypto evolution - and not everything will thrive
The theme of dinosaurs is an apt metaphor because, as some observers have noted, we are in a Cambrian Period in the history of cryptocurrency innovation. The Cambrian Period was a comparatively short phase around 500 million years ago when life on earth exploded, leading to dramatic evolutionary developments – including rudimentary eyes. And, as is the way with survival of the fittest, there were necessarily casualties along the way.
Given the range of new tools that connectivity in general and, specifically, blockchain technology place at our disposal, it’s hardly surprising that we’re seeing an explosion of new forms of business. Some are gradual evolutions of what we formerly used; others are radically different. Not all will thrive; not all will even survive. Competition breeds innovation, and this is the price it exacts.
Take the Decentralised Conglomerate, or DC, mentioned by Aitken. One of the first examples of such a structure is the OpenLedger family of projects that includes a series of financial businesses of various types, all in a kind of loose symbiotic relationship. This is not so very different from the idea of a traditional conglomerate: a network of businesses, with a parent company and subsidiaries, all supporting the same aims. The difference with the DC is that control is not centralised in the usual way. It is distributed among its members, the businesses that constitute it. These communities and entities can vote for how they want funds to be used and may each submit a proportion of their revenues to a collective pot for mutual benefit. ‘This is an evolution of the “executive board” that allows the community to decide on how a brand evolves, rather than just a small group of executives,’ comments Ronny Boesing, CEO of the Decentralized Conglomerate.
‘A Decentralized Conglomerate allows organizations to join the forces of their communities on a universal platform that allows cross-promotion and profit sharing, but does not force it,’ continues Boesing. ‘This paradigm also allows individual brand identities to flourish within the Conglomerate without having to worry about the interests of the Universal Platform conflicting with the interests of any given brand using the platform. In a traditional or even a digital conglomerate, the mission of the parent company guides the decisions of the subsidiaries.’ In the case of Boesing’s Decentralised Conglomerate, a series of organisations generate revenues, plus share in the work and profits of promoting the DC’s various initiatives.
The DC vs The DAO
Perhaps the ultimate expression of the changes we’re experiencing is seen in the concept of the DAO. A DAO is a Decentralised Autonomous Organisation. It’s an entity that exists only in cyberspace. It is owned fully by its members – those who hold a share in the asset representing it. Decisions are made collectively by everyone. The archetype of this is The DAO, an Ethereum-based project that has raised a nine-figure dollar equivalent in ETH, Ethereum’s native crypto token – smashing all crowdfunding records in the process.
Much like the DC, holders vote on a proposal and funds are paid out automatically to workers via smart contracts when approved by the required majority. The difference is that those decisions are taken by everyone. Voting is weighted according to ownership. And that ostensibly subtle change makes the DAO a very, very different beast.
The difference can be summed up in one word: Leadership. ‘Digital leadership is the strategic use of a company’s digital assets to achieve business goals,’ writes TechTarget author Margaret Rouse. ‘Digital leadership can be addressed at both organizational and individual levels.’ And, she writes, having a clear-cut strategy can be the difference between success and failure as a business.
‘At the individual level, digital leadership may be carried out by the Chief Information Officer (CIO) or other individuals who are responsible for overseeing digital assets, including email and electronic documents. No matter what the individual’s job title is, an effective digital leader is always aware of corporate goals and knows how his or her own job responsibilities support them. On an organizational level within a specific marketplace, the digital leader may be a company that successfully takes advantage of its own digital assets to gain and maintain a competitive advantage.’
The ‘wisdom’ of crowds
The DC still has an internal structure; the DAO is more akin to a hive mind. The former allows for a degree of leadership and direction, albeit of a rather different character than the highly centralised and top-down corporations with which we are more familiar. The latter fully democratises the decision-making process, with all the implications that brings.
The DAO’s hive-mind has benefits in that it can be run – indeed it can only be run – by its holders, for its holders. But therein lies a problem. The holders may or may not understand the nature of the business; may or may not share the original vision, or the current vision, or any vision; may or may not achieve consensus with each other. If a DC is a school of fish, all moving freely but with awareness of the mutual aim and direction, the DAO risks becoming something more like the random activity of Brownian motion. Anyone who has kept track of the bitcoin scalability debate knows what can happen when you decentralise decision-making.
For all its exciting possibilities, that overarching strategy is missing in a DAO – almost by nature. The problem with a DAO, explains blockchain specialist and Decentralised Conglomerate entrepreneur Larry Christopher Bates, is that it has no institutional memory: no narrative of its history, its vision or its mechanisms for digital leadership, or indeed anything else. When you have no board, no structure at all – when your business mechanisms are fully embodied in smart contracts and code – leadership is a paradoxically collective endeavour. There are no leaders. Everyone is a leader.
Good decisions need reliable information
And this, Rouse implies, could be a major problem for the DAO. ‘As individuals, digital leaders work in much the same way as a chief financial officer (CFO), a director of human resources or a chief operations officer (COO) works; they need to assure all interested parties that the assets for which they are responsible maintain maximum value. The executive who is exercising digital leadership is doing something that every other person in the C-suite is dependent upon. CFOs cannot do their jobs well if they do not have reliable digital information. Directors of human resources cannot make good hiring decisions if their systems allow false applications for jobs to be submitted without verification of credentials and capabilities. COOs can’t run the plant well if they’re not getting reliable input on the raw materials being delivered.’
And this, for the DAO, is the kicker: how do decision-makers – that is, everyone – ensure they really do have what they need to make the right call? That means not only information, but judgement and experience. ‘If the information can be trusted, if it is reliable and if it is authentic, business decisions are made faster and are more likely to be trusted because of the quality of the information upon which decisions were based.’
This, Bates suggests, will give DCs an inherent advantage over DAOs. ‘A DC has business records, and a unified mission goal driving information analysis. A DC will evolve much faster, and be much more agile than a DAO,’ he explains. ‘With a DAO, there is no organized effort for all the capital, so it goes in different directions based on a “democratic” vote.’
The bottom line: a democratic system will often end up benefiting everyone equally – by benefiting no one at all. In the evolutionary environment of the market, it won’t take long to learn which is the more profitable and sustainable approach.
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