"Some of these changes were as straightforward as converting processes from analog to digital. In other cases, companies changed how they worked or what they did.

"Yet, amidst all this transformation, something novel — and perhaps fundamental — has changed: where and how companies create value has shifted. More and more, value creation comes from outside the firm not inside, and from external partners rather than internal employees. We call this new production model an 'inverted firm,' a change in organizational structure that affects not only the technology but also the managerial governance that attends it.

"The most obvious examples of this trend are the platform firms Google, Apple, Facebook, Amazon, and Microsoft. They have managed to achieve scale economies in revenues per employee that would put the hyperscalers of the 19th and early 20th centuries to shame. Facebook and Google do not author the posts or web pages they deliver. Apple, Microsoft, and Google do not write the vast majority of apps in their ecosystems. Alibaba and Amazon never purchase or make an even vaster number of the items they sell. Smaller firms, modeled on platforms, show this same pattern. Sampling from the Forbes Global 2000, platform firms compared to industry controls had much higher market values ($21,726 M vs. $8,243 M), much higher margins (21% vs. 12%), but only half the employees (9,872 vs. 19,000).

"In the past, high revenues per employee gave evidence of highly automated or capital intensive operations such as refining, oil exploration, and chip making. Indeed, automation allowed Vodafone to reduce headcount for managing 3 million invoices per year from over 1,000 fulltime employees to only 400. But this time transformation is different. Inverted firms are achieving far higher market capitalization per employee not by automating or by shifting labor to capital but by coordinating external value creation."