How technology is redefining the boundaries of the firm

TECHNOLOGY and business are inextricably linked. Entrepreneurs harness technological advances and, with skill and luck, turn them into profitable products. Technology, in turn, changes how firms operate: electricity enabled the creation of larger, more efficient factories, since these no longer needed to depend on a central source of steam power; email has done away with most letters.

But new technologies also affect business in a subtler, more profound way. They alter not just how companies do things but also what they do – and, critically, what they don’t do.

The history of capitalism is a story of such reorganisations. The Industrial Revolution put paid to the “putting-out system”, in which companies obtained raw materials but outsourced manufacturing to self-employed craftsmen who converted these into finished products at home and were paid by output.