‘New’ Business Paradigms, Part Two—‘Hub and Spoke’:
The need to centralize information processing in the early 1800s can be seen
in the structural business models of the times: the Bankers’ Clearing House
of London (discussed last week) which evolved into the Fed’s ACH, automated
clearing house; the 1859 ‘hub and spoke’ method of sending telegraphs: each
message—even from adjacent country towns—going in to London for processing at
a central office before being sent out again; and its more recent sibling one
hundred years later: the hub and spoke ‘innovation’ in the airline industry.
This ‘hub and spoke’ paradigm was based on the earlier model of
centralization for factories; the idea that to increase production
efficiency, resources, machinery and laborers should be aggregated in one
place, and raw materials (or information) brought to this location for
processing. Even the early factories, a windmill or waterwheel for grinding
grain, for instance, were built on this paradigm.
Both models—centralization and, its evolutionary brother, the ‘hub and
spoke’—are carry-overs from the old world of business: business rooted in the
world of physical objects and distances.
Next week we’ll talk about the business models of the new world, the
networked world of digits.
