Descentralized markets work exceptionally well because the people and companies in those markets are getting constant feedback from customers. Companies that aren’t doing a good job or that are spending too much learn to adjust or else they go out of business. In a corporation, however, the feedback from the market is indirect. Different divisions can see how they’re doing, but individual workers are not directly rewarded (or punished) for their performance. And although corporate budgets should theoretically echo the market’s verdict on corporate divisions, in practice the process is often politicized. Given that, divisions have an incentive to look for more resources from the corporation than they deserve, even if the company as a whole is hurt.

James Surowiecki – The Wisdom of Crowds


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