By Liu Chunxiong The highest peak of industrial civilization is actually the shift from professional division of labor to modular division. The information revolution brought by the internet will transform the economic cells of society into modules, ushering in modular operations. The greatest change the internet brings to business is the change in operating units or economic cells. From agricultural civilization to industrial civilization, the economic cell shifted from the family to the enterprise. The information revolution brought by the internet will transform the economic cells of society into modules, ushering in modular operations. I have been thinking about this issue for several years, and I have started to write several times but put it down. First, I haven't fully figured it out; second, readers would surely be few. It wasn't until recent exchanges with friends that I was stimulated to think deeply. ━━━━━ What has the internet actually changed? There are many views on the changes brought by the internet. The internet thinking theory, tool theory, channel theory, communication theory, and platform theory all hold under certain premises. Among them, the platform theory is closer to the essence, such as Haier, which turned the company into a platform for small micro-owners; Alibaba is also an operating platform. Not long ago, in a WeChat group discussion about Alibaba's "Lingshoutong" (an internet service platform providing ordering, logistics, marketing, and value-added services to urban community retail stores), I said, "Lingshoutong is self-operated." Someone from Lingshoutong immediately responded, "We are a platform." I later added: People outside see it as self-operated; people inside see it as a platform. Many group members liked it. Alibaba's statement is not wrong; they consider Lingshoutong a platform for employees (who call themselves "partners"), and each partner is an operating unit and an operating module. However, I believe the "platform theory" has not touched the essence or reached the core. The core change brought by the internet should be modular operations. Although modularization did not originate from the internet—China's rise is a result of the modularization of the world economy—the internet makes modular operations more widespread, allowing modules to connect seamlessly, so that in the future, the economic cell may change from the enterprise to the module. ━━━━━ Technological changes go far beyond technology itself What is the most basic operating unit or economic cell in agricultural civilization? Undoubtedly, it is the family. What is the operating unit or economic cell in industrial civilization? It is the enterprise. The change in operating units or economic cells may be the greatest and core change from agricultural civilization to industrial civilization. Because the operating unit expanded from the family to the enterprise, large-scale industrial production became possible. The First and Second Industrial Revolutions started with the invention of the steam engine, internal combustion engine, and electricity. These are undoubtedly tools, but the greatest changes they brought seem unrelated to the tools themselves. When we talk about management, strategy, and marketing in the industrial era, where is the shadow of machines? Machines are constantly innovating and evolving, but once the enterprise form as an operating unit is established, corresponding systems of organization, management, strategy, and marketing emerge. The invention of machines gave birth to the economic ecosystem of industrial civilization. Once the economic ecosystem is relatively fixed, people find it seems unrelated to machines. The changes brought by technology seem unrelated to technology itself. Just as machines brought not the machine age but industrial civilization, this is the same principle. Similarly, if the internet is an invention comparable to the steam engine, internal combustion engine, and electricity, then its greatest value is not the technology itself, not its value as a tool, but whether it can change the economic cells of society. Undoubtedly, when machines were first invented, the focus was on the machines themselves because they directly improved efficiency. The term "industrial civilization" must be a "post-naming"; when machines were born, this term did not exist. Machines not only improve efficiency but also bring about professional division of labor (as discussed in The Wealth of Nations), forming economies of scale. To solve the problems brought by large-scale operations, management was born. For example: Weber's organizational theory was to solve organizational problems after scaling, and Taylor's scientific management was to solve efficiency problems after division of labor. These are the two pillars of modern scientific management. The one who truly saw through the essence of industrial civilization was Drucker, who proposed in his 1946 book Concept of the Corporation that the company is not only an economic organization but also a social organization. This was already more than 160 years after the birth of the steam engine. Truly understanding the changes brought by the internet will take time. So how will the core change brought by the internet as a tool—the module—affect the future? I believe the future economy is a modular economy. ━━━━━ Where do modules come from? Modules represent the highest peak of industrial civilization and are actually a result of industrial civilization. Industrial civilization starts with professional division of labor and ends with modular division. The initiator of modularization was IBM. Early computers had incompatible models, causing many problems for users. When IBM launched the 360 computer, it adopted modular principles, dividing design rules into two categories: One is the pre-established design rules, decided by IBM and announced to participating designers. These rules include determining which modules, specifying the interfaces between modules, and the standards used to measure modules. The other category can be called free design rules, which allow and encourage designers to freely design within modules while following the first category of rules. Modular design solved compatibility issues between different models, brands, and uses, and also brought rapid upgrades to computers. After modular design, IBM engineers left to start businesses, providing compatible modules for the 360 and 370 systems. The prosperity of Silicon Valley originated from this (as discussed in Aoki Masahiko's book Module Age: The Essence of the New Industrial Structure). ━━━━━ The formation of the modular economy When China began reform and opening up, it coincided with the rise of the modular economy. China is a beneficiary of the modular economy. Take Apple as an example: R&D in the U.S., manufacturing in China, and sales worldwide. This forms a simple modular economy. There is a saying now: R&D centers in Silicon Valley, manufacturing centers in China, design centers in London, marketing centers in New York, and call centers in India. World division of labor has shifted from division by advantageous industries to modular division. American writer Edward Tse, in his book China's Logic, proposed a concept that China's success is the result of "institutional outsourcing." Tse said: "The real driver of China's changes is institutional outsourcing! In integrating into the global system, China completely deviated from the logic of economics textbooks, bravely opened its doors to overseas companies, allowing them to move any production activities they deemed appropriate to China. In this process of institutional outsourcing, China became a part of the global system. " The result of institutional outsourcing is that the Chinese manufacturing module has become the largest module globally. Institutional outsourcing brought technology, products, and training to Chinese workers, and finally turned China into the world's manufacturing base. In some industrial clusters in China, I have observed a phenomenon: the professional division of labor that used to be within enterprises, such as the production process of a part, has become small enterprises in places like Zhejiang, Guangdong, and Fujian. These enterprises' products are then matched with others to form final products. This can also be considered a form of modular economy. ━━━━━ Economic cells "modularize" IBM's 360 product brought modularization to a category. The modular economy brings large-scale modular division of labor in enterprise systems. The modular division of labor within many industrial clusters in China still has industrial characteristics. This type of modular division is completed within the industrial civilization system and is basically unrelated to the internet. The highest peak of industrial civilization is actually the shift from professional division of labor to modular division, but modular division is still limited. The initial changes brought by the internet are communication, connection, and broader connections beyond original social circles. For example, Taobao connects a wider range of manufacturers and consumers. In fact, as a result of industrial civilization, modularization is not a technical problem. But the way to allow free combination of modules to transcend original boundaries and achieve comprehensive modularization of economic cells must be brought by the internet. If the family economic cell in agricultural civilization was too small to be economical, then the gigantism of economic cells in industrial civilization brought enormous human distortion and management costs. I have previously called this the three "alienation" results of management: First, a huge and ineffective management layer; second, complex management processes brought by the huge management layer; third, KPIs derived from complex processes. So, the modular economy is larger than the family cell but more specialized and efficient; smaller than the giant enterprise but does not distort human nature. Modules can be seamlessly connected and arbitrarily assembled through the internet. The modular economy may be the economic unit with the highest innovation, released human nature, and greatest operational efficiency. If the management of family operating units is simple, and the management of giant enterprises is alienated, then management after modularization may be both humane and efficient. If the modularization of economic cells holds, then the management system based on industrial civilization must be rewritten. ━━━━━ The evolution of the modular economy IBM's 360 system shows us the process of product modularization. The modularization of the world economy shows us the evolution of large modules of multinational companies distributed worldwide. These are all achievements of the traditional industrial era. In the internet era, platform-based modularization has emerged. One is modularization based on internal platforms, such as Haier's "small micro-owners," which is essentially modularization within an enterprise. However, some focus on the platform, others on the module. In fact, the platform serves the modules; without modularization, platformization has no value. The other is modularization in professional fields, such as Alibaba's Taobao, Tmall, and JD.com, which are platforms, but what operates on the platforms are modules—the e-commerce modules of various enterprises. Handu Yishe's "three-person team" goes a step further. The "three-person team" exists on the premise of modularization. Without modularization of service R&D and manufacturing, and without e-commerce platforms, what could the "three-person team" accomplish? So, the premise of the "three-person team" is social modular operations. As an achievement of industrial civilization, modularization is no longer a problem. But whether modularization can become a basic production unit of society depends on the degree of intelligent connection via the internet, which is no longer a technical problem. For example: Germany's Industry 4.0 has a technical premise: enabling every machine to connect intelligently with the outside. If the economic cell of the future changes from the enterprise to the module, given that modules are smaller, possibly even smaller than the family, so small that one person is an operating unit, then management, organization, strategy, and marketing related to the size of operating units will all undergo tremendous changes. -END-