“Most of us are still victims of what my colleague in the Media Lab, Mitch Resnick, calls the ‘centralized mindset,’” says organization thinker Thomas W. Malone: that to manage things, it’s best to put somebody in charge, make somebody responsible, have somebody giving orders to other people.

But businesses and organizations are emerging that turn that idea around. Wikipedia and YouTube are the best-known examples of “collective intelligence,” where many people create a lot of different things independently. Similarly, InnoCentive is a web community that outsources companies’ research problems and invites answers from anyone who wants to contribute, awarding a handful to cash prizes to the best of the bunch.

Malone, the Patrick J. McGovern Professor of Management at the MIT Sloan School of Management and the founding director of theMIT Center for Collective Intelligence, has been thinking about outsourcing the non-core functions in companies and the use of intelligent agents for commerce for over 25 years. Through the Center for Collective Intelligence, he’s working to track the “genes,” or design patterns, of companies that are effectively using collective intelligence to innovate, and figure out how those patterns can be replicated best in other companies.

In a conversation with MIT Sloan Management Review editor-in-chief Michael S. Hopkins, Malone talks about the changes being brought on by advances in what he calls “coordination technology,” the new “paradox of power”: the idea that sometimes the best way to gain power is to give it away.

So much has been made of the ways that technology has evolved–computation, storage, communication, and now instrumentation—and how it has completely changed what companies can know. As a close observer of all this, do you see executives keeping up?

Well, sure, executives and everybody else knows about the new kinds of technologies that keep popping up. But there’s a key perspective that a lot of people don’t really get yet, which is that these new technologies change the essence of organizations.

An organization itself is, primarily, a huge human-based machine for communicating information and making decisions. And these new technologies are all about communicating information and helping to make decisions. To a greater degree than any technologies since those that enabled the Industrial Revolution, we’re now in the midst of a transformation in how businesses are organized. And the changes are not in production technology, but in coordination technology.

You don’t think the corporate world understands the distinction you just made?

No, I don’t. Most people still think of technology as something that we use to do the same old things, not as something that changes the things we can do in the first place.

Most of us are still victims of what my colleague in the Media Lab, Mitch Resnick, calls the “centralized mindset.” That is, we have a set of often unquestioned assumptions about how to organize things, about how to get things done when you’ve got a bunch of people involved. We usually assume that you put somebody in charge, make somebody responsible, have somebody giving orders to the others.

That way of organizing worked really well in the last century or two. And it’s still a good way of organizing many things. But there are so many new ways of organizing now that allow far more people to have far more involvement in deciding what to do. Most people don’t begin to realize how important and how pervasive and, in many cases, how desirable those new ways of organizing are going to be.

Really, people still don’t get that? Over the past ten years, haven’t management authors expounded ad nauseam about distributed decision making — pushing strategic choices and critical daily decisions as far out into the field and as close to the customer as possible? Plus, we’ve also seen enormous downsizing and, some would argue, the decimation of middle management — making distributed management more common whether companies wanted it that way or not. Still, you don’t think executives are buying the trends?

Well, first of all, you’re right. People have been talking for a decade or so about things like empowerment, pushing decisions down. That’s certainly true to a degree. But people don’t yet realize how huge this will be.

The very word “empowerment,” which was popular in the 90s, isn’t used as much anymore, but a lot of people still think of things that way. And that word suggests that there’s somebody up here who has the power and is going to give it to people down there.

What I think we’re going to see more and more in business is that more power will start out there, with many people, and that some of it will be given to people at the top to help coordinate others.

A good analogy is the difference between kingdoms and democracies. In a kingdom, the king or queen is the source of power, which often is thought of as coming from God in terms of the divine right of kings. And yes, some kings might empower their subjects more than others. But in a democracy, power starts at the bottom. We assume in a democracy that power originates in the people who elect others to carry out certain well-specified tasks on their behalf. I think that’s more and more what businesses will feel like.

You’ve been a pioneer in thinking about work in this way for a long time. What do you think has gotten in the way of these ideas taking hold as fast as you might have imagined?

Actually, I think changes have been moving pretty fast. In 1987, I wrote an article called “Electronic Markets and Electronic Hierarchies” with Bob Benjamin and JoAnne Yates. We talked about the ways that cheap communication enabled by information technology was going to change how businesses and societies and economies were organized. We predicted that more things that had been done inside big companies were going to be done through market transactions between companies. We predicted many of the things that have happened in the last 30 years or so with the development of the Internet and electronic commerce and intelligence agents.

The change to more decentralized businesses is well underway. I think there’ll be ups and downs. Some companies will go up, down, backwards and sideways. It’ll be a complex process, something that will take place over decades. But it is one of the most profound changes that we’ll see in the first half of the 21st century.

Where are we moving ahead fastest? And why?

I go into a lot of the details about this in my book The Future of Work (Harvard Business School Press, 2004). But the short version is that I think we’re likely to see these changes first in the places where the benefits are most important. The benefits of having lots of people make decentralized decisions are that people are more highly motivated, they work harder, they’re often more creative. They’re willing to be more inventive, to try out more things. They’re able to be more flexible when they can adapt to the specific situation in which they find themselves rather than having to follow rigid rules sent down from on high that may or may not apply in this particular situation. And often, they just plain like it better.

Now, those benefits of decentralized decision-making won’t be important everywhere. In, say, certain kinds of semiconductor manufacturing, the biggest benefits come from things like economies of scale, and we may see more centralization to take advantage of that.

But in a knowledge-based and innovation-driven economy, in high tech, R&D-oriented industries, the critical factors of business success are often precisely those benefits of decentralized decision making: freedom, flexibility, motivation, creativity.

Where have you been seeing change which you hadn’t anticipated? You couldn’t have mapped out all the vectors 20 years ago.

What I’ve found most interesting since I wrote the book is the emergence of a whole class of new extreme examples. One case is Wikipedia. It existed at the time I wrote the book, and it’s included in the book.

But Wikipedia has become an extreme example of collective intelligence – where a lot of people create a lot of different things independently. Another example is YouTube, where many people independently create their videos and put them on the YouTube website.

But we’ve also seen the emergence of a specialized kind of collection, which we call a contest. And that’s best illustrated by InnoCentive. It works with companies to outsource difficult research problems or research questions to get answers from anyone who wants to contribute – we’re talking a global pool of over 200,000 scientists and technologists around the world. Like Wikipedia or YouTube, a collection of possible solutions is created. But since the company really only wants one or two solutions, it selects a handful to reward with prizes as much as $100,000, in return for the intellectual property rights to use the idea.

There aren’t yet very many companies who are taking advantage of this kind of possibility to draw from the world at large. But these examples of collective intelligence have what we’re calling the “genes” of collective intelligence, the design patterns that can be recombined in other ways in other companies.

This is what we’re studying at our Center for Collective Intelligence. We are looking at how people and computers can be connected so that collectively they act more intelligently than any one person, group or computer has acted before.

In understanding this potential, where would you put corporate leadership, on a scale of zero worst to ten best?

If you pushed me, I’d say five. But maybe the better question is how many companies are moving way toward adapting their organizations, and I think the answer to that is maybe 5% or 10%.

Imagine you’re talking to a top executive, and he or she says, “Okay, I buy your general argument, but how do I take the pulse to find out what we’re doing already and what kinds of questions do I need to start asking to understand the possibilities?” What do you say?

One thought experiment we sometimes use is to say, imagine there were some super human intelligence that knew everything that is already known or reasonably knowable by anyone in your company. If you’re General Motors, imagine some super brain that knows everything that is known by anyone in the assembly line, in the dealerships, in the factories.

What kinds of strategies could that super intelligence come up with? What kinds of supply chain optimizations could it define? What could it do that you haven’t yet done?

In a sense, that thought experiment is about collective intelligence. It’s the upper bound of what’s possible. The goal becomes designing better collective intelligence to get closer to that theoretical ideal.

That’s great. So where do people start?

The first question is the sort of thing you have to think about almost any time you’re considering doing anything different, which is what are you really doing here in the first place? What are your real goals? I teach an MBA course called Strategic Organizational Design, and one of the key points I make is that you can’t design an organization without either already knowing or concurrently thinking about what your real strategy is.

If you want to take advantage of some of the new capabilities for collective intelligence, you need to ask that question at a fairly detailed level. What are the specific actions you might hope to do in new ways because of collective intelligence? Are you trying to create new products? Are you trying to make decisions faster?

Then the question is, who should be making these decisions? There are now many, many opportunities for decisions to be made by people not only throughout organizations, but outside of organizations, like customers and suppliers.

If I’m talking to the CEO of this hypothetical organization, I talk about what I call in my book the paradox of power. That’s the idea that sometimes the best way to gain power is to give it away. Linus Torvalds, the developer of the Linux open source operating system, gave power away to thousands of programmers all over the world and was rewarded with a different kind of power. Pierre Omidyar, the founder of eBay, and the CEOs who followed him at that company, gave power away to their customers, and were rewarded with a different kind of power. Same thing with Dennis Bakke, one of the founders of AES Corporation.

It’s really hard to close the gap between where organizations are right now and where this entire new business model is.

It’s not easy. People who have power today have to be willing to give it up. Lou Gerstner, former CEO of IBM, came into a company that many people would say was one of the most centralized companies around. By the time he left, IBM, while it wasn’t one of the most decentralized, was in many ways a lot less centralized.

But those CEOs will be the exceptions. People who have spent their whole careers striving to advance up the management hierarchy and acquire more power along the way are not often going to be the ones who say, oh, okay, now that I’ve got all this power, let me give it up. One of my MBA students asked me, “here I am at the beginning of my career, and I hope to rise to a position of significant power — why are you telling me I shouldn’t have this again?”

I actually think the changes will happen more often from new companies, new organizations that are started on a different basis right from the beginning. They won’t always work. It’s not always a good idea. But in the cases where a decentralized way of working actually works better, those new companies will have an advantage. They’ll grow or be replicated by lots of other similar companies. And eventually, the old companies that haven’t figured out how to change themselves will either be acquired or go out of business or belatedly imitate the new ways of doing things.