210
10 The Economy 4.0
and timely coordination of resources over large distances. The collection and evaluation of information required to make decisions, however, is often quite slow, because
it takes a long time for information to flow up the chain of command
28 .
Using a top-down approach, it is possible to reach optimal results in a system, if
the goal is well defined and the outcomes can be well determined, i.e. if the system
isn’t too complex, if it doesn’t vary much, if changes are reasonably predictable,
and if problems can be well detected and quickly solved. Under such conditions,
top-down control can increase the performance of a system. Often, however, at least
one of these conditions is not fulfilled.
While the top-down approach can harness the individual intelligence and expertise of exceptional leaders, the large accumulation of power implies that incidental
mistakes can be disastrous.
29 In other words, the centralized leadership structure of
top-down systems can help to solve problems, but it often creates new (and sometimes even bigger) problems. Moreover, although top-down control enables faster
change, it often delays necessary change.
In sum, a top-down approach might be best if a system is sufficiently simple
and deterministic, and its variability is low. Therefore, it benefits from standardization.
30 A top-down approach works well in situations where it is more important
to be decisive than to wait for consensus. A medical emergency might be a good
example. But systems which are controlled from the top-down are vulnerable, and
the concentration of power makes them easily corruptible.
By contrast, bottom-up organization performs better under complex and highly
variable conditions, if suitable coordination mechanisms are in place. Good examples
are our immune system, markets and ecosystems. Bottom-up organization supports
flexibility, local adaptation, diversity, creativity, and exploration. It also tends to be
more resilient to disruptive events.
Bottom-up organization fosters democratic processes, but may also cause herding
behavior. To work well, good education and a willingness to take responsibility at
the bottom is required. Using a decentralized approach, more information can be
processed, and collective intelligence is enabled. However, collating and integrating
this information to make it useful tends to be challenging.
On the whole, top-down organization is based on the principles of power and
control, whereas bottom-up organization empowers people to help themselves and
each other. Top-down governance results from the accumulation of resources and
asymmetry in the system, while bottom-up governance benefits from distributed
control and tools that support peer-to-peer coordination. However, given that topdown and bottom-up approaches both have strengths and weaknesses, neither
28 And often also for commands to reach the lowest level from the top-down.
29 Remember that 40% of TOP 500 companies disappear within a 10 years time
period; see, for example, https://www.aei.org/publication/charts-of-the-day-creative-destructionin-the-sp500-index/ and http://www.cnbc.com/2014/06/04/15-years-to-extinction-sp-500-compan
ies.html. Moreover, many of the most powerful historical figures have caused some of the greatest
tragedies in the history of humankind.
30 Standardization has a number of undesirable side effects, however, including low innovation and
growing inequality, see Footnote xvi of Chap. 10.
10 The Economy 4.0
and timely coordination of resources over large distances. The collection and evaluation of information required to make decisions, however, is often quite slow, because
it takes a long time for information to flow up the chain of command
28 .
Using a top-down approach, it is possible to reach optimal results in a system, if
the goal is well defined and the outcomes can be well determined, i.e. if the system
isn’t too complex, if it doesn’t vary much, if changes are reasonably predictable,
and if problems can be well detected and quickly solved. Under such conditions,
top-down control can increase the performance of a system. Often, however, at least
one of these conditions is not fulfilled.
While the top-down approach can harness the individual intelligence and expertise of exceptional leaders, the large accumulation of power implies that incidental
mistakes can be disastrous.
29 In other words, the centralized leadership structure of
top-down systems can help to solve problems, but it often creates new (and sometimes even bigger) problems. Moreover, although top-down control enables faster
change, it often delays necessary change.
In sum, a top-down approach might be best if a system is sufficiently simple
and deterministic, and its variability is low. Therefore, it benefits from standardization.
30 A top-down approach works well in situations where it is more important
to be decisive than to wait for consensus. A medical emergency might be a good
example. But systems which are controlled from the top-down are vulnerable, and
the concentration of power makes them easily corruptible.
By contrast, bottom-up organization performs better under complex and highly
variable conditions, if suitable coordination mechanisms are in place. Good examples
are our immune system, markets and ecosystems. Bottom-up organization supports
flexibility, local adaptation, diversity, creativity, and exploration. It also tends to be
more resilient to disruptive events.
Bottom-up organization fosters democratic processes, but may also cause herding
behavior. To work well, good education and a willingness to take responsibility at
the bottom is required. Using a decentralized approach, more information can be
processed, and collective intelligence is enabled. However, collating and integrating
this information to make it useful tends to be challenging.
On the whole, top-down organization is based on the principles of power and
control, whereas bottom-up organization empowers people to help themselves and
each other. Top-down governance results from the accumulation of resources and
asymmetry in the system, while bottom-up governance benefits from distributed
control and tools that support peer-to-peer coordination. However, given that topdown and bottom-up approaches both have strengths and weaknesses, neither
28 And often also for commands to reach the lowest level from the top-down.
29 Remember that 40% of TOP 500 companies disappear within a 10 years time
period; see, for example, https://www.aei.org/publication/charts-of-the-day-creative-destructionin-the-sp500-index/ and http://www.cnbc.com/2014/06/04/15-years-to-extinction-sp-500-compan
ies.html. Moreover, many of the most powerful historical figures have caused some of the greatest
tragedies in the history of humankind.
30 Standardization has a number of undesirable side effects, however, including low innovation and
growing inequality, see Footnote xvi of Chap. 10.