The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations

This chapter explores the ways in which a large company with hundreds of employees can organize to maximize their productivity so that the value of the product that the group makes is greater than what can be achieved by the sum of its parts. It broadly surveys the history of American production from World War I until the present, arguing that although businesses discuss to decentralization, they do not actually achieve it in practice.

The chapter begins by using fashion clothing store Zara as an example of successful coordination and decentralization. Prior to Zara’s business model, the fashion industry was inefficient. There would typically be a lag of up to six months between artists completing designs and the clothing arriving in store. This meant that artists had to predict what would be trendy six months ahead. When they were wrong, the unpopular items became piles of unsold inventory.

Zara shifted the paradigm by equipping their store managers with devices that allowed them to immediately report what clothing customers preferred. Artists would receive this information and design similar clothing, which was then produced in Zara-owned factories. By allowing store managers to share information with suppliers, and by choosing not to outsource their production—as they must then pay the cost of spending time negotiating with subcontractors—Zara improved the speed and efficiency of their operations to keep up with the pace of changing trends.