The End Of Management?

With experimental markets, workers are betting on their company's future--and moving in on the boss's domain

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There could be risks to individual workers in an internal trading system as well. If you lose money in the market, does that mean you're not knowledgeable about something you should be? "You have to get people used to the idea of being accountable in a very different way," says Mary Murphy-Hoye, senior principal engineer at Intel, which has been experimenting with internal markets. "I can now tell if planners are any good, because they're making money or they're not making money."

That is one reason Intel has been bandying markets about for more than two years but has yet to implement them in a real-world scenario. It's not for lack of good results. In a laboratory experiment run with M.I.T.'s Malone, Intel used a market to make a coordination decision: which factories should produce computer chips and when. In the experiment, a centralized, strategic plan was replaced with a market in which salesmen and a plant manager traded futures contracts representing chips. The result was nearly 100% efficiency in allocating manufacturing capacity. That experiment echoed another, real-life market triumph. In 1998 oil giant BP set out to reduce company-wide greenhouse emissions 10%. Instead of issuing plant-by-plant dictums, the company let plant managers trade permits to produce emissions. Managers who could quickly get their plants into compliance and reduce emissions even further could sell their permits to other plants. BP hit its reduction target--nine years early.

Success like that has made true believers out of many. But no one contests that there are risks, and markets are hardly infallible. In the stock market, frenzied buying can lead to bubbles, and day traders make money with no concern for companies' fundamentals. But if the forward march of information technology is any indication, markets will come to play an increasingly important role. No matter the industry, companies are ultimately in the business of predicting the future: what a consumer will buy, where a product can be made most cheaply, how new laws might affect profit margins. There is such an undisputed advantage to knowing the future that corporations employ analysts and strategists, create committees and reports, conduct polls and pilots--all to figure out what will, and should, happen next. As HP's Huberman puts it, "A company that can predict the future is a company that is going to win." And if internal markets can refine those predictions, even incrementally? Well, then, the market signals a strong buy.

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