The Automatic Corporation

19/03/2014 | Vivek Haldar

Corporations can be thought of as information-processing feedback loops. They propose products, introduce them into the marketplace, learn from the performance of the products, and adjust. They do this while trying to maximize some value function, typically profit.

So why can’t they be completely automated? I mean that literally. Could we have software that carries out all those functions?

Software could propose new products within a design space. It could monitor the performance of those products in the marketplace, and then learn from the feedback and adjust accordingly, all while maximizing its value function. If the product is a webapp, most of these steps are already within the reach of full automation. For physical products, what’s missing is APIs that allow a program to order physical products, and move them around in the physical world.

A limited version of what I’m describing already exists. High-frequency trading firms are already pure software, mostly beyond human control or comprehension. The flash crash of 2010 demonstrated this. Companies that are centered around logistics, like FedEx or Walmart, can be already thought of as complex software entities where human worker bees carry out the machine’s instructions.

This happens naturally, because over time more and more of the business logic of a company becomes encoded in software. Humans still have some control (or so they think) but mostly what they’re doing is supplying parameters to the computation. A modern corporation is so complex that it does not fit in the brain of a single person (or a small number of persons). Software carries the slack.

The intermediate step to a fully automated corporation is one where tasks requiring humans are performed not by employees but are broken into micro-tasks and fulfilled by crowdsourcing (using, for example, services like Mechanical Turk).

Corporations do not scale, and eventually die. That’s because they scale sub-linearly. Their productivity metrics scale by an exponent of 4/5 on the number of employees.

I hypothesize that the management overhead which makes corporations grow sub-linearly is due to the limited information processing capability of individual humans. People at the top do not have local on-the-ground information: how are individual products performing, what are customers’ complaints etc. And the rank-and-file folks on the ground do not have the relevant high-level information: how does what I’m doing translate to the value that the corporation as a whole seeks to maximize? In fact, the flow of value and information is so complex that employees have pretty much given up on determining that relationship, and know of it only at a macro P&L-center level.

An algorithm will have no such problems with acting on both global as well as fine-grained local information. In fact, I suspect that the more information it gets to act on, the better decisions it will make, making automatic corporations grow super-linearly.

One objection to being a purely automatic corporation might be that it precludes visionary, groundbreaking products, because it resembles incremental hill climbing and is susceptible to get stuck in local maxima. But a visionary, groundbreaking product is (initially) indistinguishable from picking a new random point in the product space, and hill-climbing from there. There is no reason why the automatic corporation couldn’t allocate some fraction of its resources to exploring new points in the space completely unrelated to its current neighborhood.

The CEO of an automatic corporation will be a development engineer: fixing software bugs, writing “features” (i.e. new ways for the corporation to behave), watching performance dashboards (imagine all the pretty graphs!), and providing some vestige of human input to tune parameters used by the software. Eventually they can take their hands off the steering wheel, having configured everything to run on auto-pilot, and set up alerts to page their phone if something really goes wrong.

Automatic corporations will start within narrow domains, where the product design area and value functions are relatively simple. But they will gradually move upmarket. This is a familiar pattern in the dissemination of most new technologies. There will be a smattering of small automatic corporations by the end of the decade.

Source: The “blog of Vivek Haldar”. This work is licensed under a Creative Commons Attribution 3.0 United States License.

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