Every time you buy or sell something, every time when you deposit, withdraw or transfer money at your bank, a transaction happens. There’s no statistics how many transactions are being conducted globally, due to their sheer amount and dispersed nature. But we can safely assume them to be millions every second, involving goods and services worth billions of dollars.

Monetary transactions have become an inseparable part of our economies, a de facto norm for business-to-business and business-to-consumer dealings. You may think that monetary transactions have reached universal acceptance, but this isn’t really so. There is one huge domain where they are still virtually unused - within the company.

Historically, it is easy to explain where this gap comes from.

Transactions originate from the market, where people exchange money for goods (monetary transactions) or goods for goods (barter). As such, transactions are practically a mechanism for exchange.

Companies, on the other hand, have their roots elsewhere - in the family. The early enterprises were indeed family businesses. Relations in them weren’t exchange-based, as in the market, but governed by the authority of the elders. They were making the major business decisions and distributing the income among the members.

An excerpt from The Company by John Micklethwait and Adrian Wooldridge:

“William Blackstone, the great eighteenth-century jurist, claimed that the honor of inventing companies “belongs entirely to the Romans.” They certainly created some of the fundamental concepts… [t]hey linked companies to the familia, the basic unit of society.”

This organisational model for businesses hasn’t changed significantly over the centuries, even as ventures expanded and started hiring people from outside the family. The arrival of the corporation as a legal entity on its own didn’t change the model either.

So what do we have today? We have companies that perfected the art of transacting with other companies and consumers through the market, but when it comes to the internal dealings of the firm, the concept of transactions is virtually unknown.

I don’t think the traditional family model has served us badly. But it has already reached its limits, hampering the further development of the economy and the society. More in a later post.

Edited 6 Jan 2007

If you work at a company, here I have a short questionnaire for you:

1. Is everyone in your firm able to tell:

a) how much his salary is?
b) how much his work is worth?
c) how productive he is?

2. The remuneration scheme of your company:

a) is perfectly proportional to individual productivity?
b) is perceived as fair?
c) has no artificial organisational ceilings limiting how much a person can earn?

3. Does your business have the level of transparency so that the process of value creation can be observed, in exact figures and end-to-end, regardless of company size and complexity?

4. Can every employee initiate internal investments and oversee them later?

Could you give a positive answer to all questions?

Chances are you could answer only question 1a positively (but if you did more, please, let me know). I guess you might be wondering how a company could pass all of the above questions. I tell you this isn’t difficult to achieve. In fact, these questions outline some of the objectives of The Transaction Company and in my next posts you’ll gradually come to learn how this can be done.

Today, on the first day of the year 2007 and after two months of preparation, is the launch of my new blog on The Transaction Company. For those of you who still don’t know what this name stands for I’ve prepared a separate synopsis page. Succinct and illustrated, it should give you a good introduction to the concept.

This is strictly a business blog where discussions will be kept on topic. As a concept, The Transaction Company has deep implications on business and economy, with plenty of interesting stuff to write about, therefore I don’t think there will be any shortage of readers and blog material.

In addition to this blog I have a project to publish a book on The Transaction Company. Book and blog can complement each other well and later this year I’ll look at ways how the book creation can be opened up to become more of a community process. In any case, I’ve already decided to have a PDF version available for free download as well as the printed version.

Happy New Year!