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Why Your Company Would Never Have Built eBay

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WINDOWS OR WALLS

When eBay co-founder Pierre Omidyar looked at the auction business in 1995, he saw walls everywhere.

Not just the bricks-and-mortar kind that differentiated stodgy, old-line companies from eBay, Amazon, and other dotcom upstarts, but also the bureaucratic barriers the old guard had erected between buyers and sellers. At venerable auction houses like Sotheby's and Christie's, these walls were meant to reassure prospective buyers that the paintings and antiques on offer had been thoroughly authenticated.

But Omidyar recognized that these walls were also stifling the free flow of communication and commerce -- a bottleneck that kept the auction houses in a niche market. Even worse, operating under a fundamental mistrust of their own customers actually encouraged fraud and corruption.

Omidyar has been credited for the insight that the auction business could be streamlined online. But his real innovation was far more profound. He designed his company based on the presumption of trust, tearing down the walls between buyers and sellers and replacing them with windows. On eBay's website, buyers could see sellers directly and rate them for their honesty. Sellers who delivered on their promise got top ratings; those who didn't quickly were weeded out. By designing for trust, Omidyar actually built a system that was more democratic, more robust--and ultimately more secure.

It was also more valuable. By 2000, the five-year-old eBay's market cap was $17 billion -- 20 times that of the 256-year-old Sotheby's.

Omidyar was at the vanguard of a new desire for openness among consumers. In the last decade, the hunger for transparency fueled the explosive growth of Facebook, Twitter, and other social networking sites.

The same desire led companies like Zappos.com to post internal emails from their CEO and COO, providing customers a window into their inner sanctum.

And it led companies like Netflix to scrap bureaucratic vacation policies in favor of trust. Today, all of the company's salaried employees can take off time whenever they want. Nobody tracks vacation days. The company simply assumes employees will keep excess in check themselves.

THE LATTICE VS. THE LADDER

The idea that transparency builds trust has spawned an entirely new form of communication in the workplace. It is a mode that is bottom-up rather than top-down; democratic, rather than authoritarian, and self-policing rather than punitive.

Where once there was a corporate ladder, which defined status, compensation, access to information, and success as a linear climb to the top, today we have a corporate lattice -- a model that let's people to share ideas, innovate, and spread knowledge throughout an organization, regardless of where they fall on the corporate ladder.

In a recent Wall Street Journal article, Alan Murray suggests we've reached the end of traditional management structures. "In recent years," he writes, "most of the greatest management stories have been not triumphs of the corporation, but triumphs over the corporation... The best corporate managers have become, in a sense, enemies of the corporation."

The reason for this shift, Murray writes, is that bureaucracies are by their very definition resistant to change. "They were designed and tasked, not with reinforcing market forces, but with supplanting and even resisting the market."

Under Jack Welch, GE grew to be one of the most profitable and valuable companies in the world by constantly revamping and re-imagining their corporate culture.

Netflix, meanwhile, has grown into a $1.6 billion company in a little over a decade. Both CEO Reed Hastings and talent chief Patty McCord have emphasized an openness to new ideas and a willingness to change. "Great workplace is Stunning Colleagues," Hastings wrote in a recent presentation. "Not day care, espresso, sushi lunches, nice offices, or big compensation."

Yet even as businesses begin to recognize the value of transparency, they continue to manage their people much as they did 50 years ago. In a rapidly changing universe, most corporate structures remain unchanged. As a result, feedback and communication between management and employees remains artificial and constricted, rather than open and organic.

The rapid innovation companies need to survive can only come by building a culture of change into their very DNA, in the process transforming their businesses into free flowing social networks.

This is how people want to work. It is how they talk to everyone else in their lives. And yet companies feel more secure when there are walls -- between employees and managers, between employees and customers, and between employees and each other.

Walls may be comforting. But, as the old-line auction houses learned, the security walls provide an illusion. Companies that tear down walls and embrace trust will attract the best talent in the new century -- and thrive in the marketplace.