Esko Kilpi on Interactive Value Creation

The art of interaction, the design of digital and the science of social complexity

Month: December, 2010

The Internet-based firm

We need management thinking that puts creativity at the center of the wealth-creating process. The knowledge-based, learning-intensive firm does not behave in the way our dominant, industrial management thinking assumes. But we lack an alternative theoretical lens. What if we used the Internet as a lens for sense-making?

Organizations are always assemblies of interacting people. The reason for an organization to exist is to simplify, support, and enrich interaction. That is what the Internet does.

However, not all corporate interaction is the same. There are three types of tasks depending on the amount of communication needed and the alternative mechanisms of coordination. The different task inter-dependencies accordingly place different and increasing burdens on interactive capability.

I call these different tasks (1) independent, (2) dependent and (3) interdependent.

Two tasks are independent if they don’t affect each other. The most important communication exists between the employer and the employee, the manager and the worker, or in craftwork between the customer and the craftsman. The execution of two independent tasks does not require communication between the tasks. The corporate architecture consists of black boxes that are not coupled directly but in an indirect way by managers who coordinate the work.

The factory process is sequential. Being dependent means that the output of one task is the input of another. The reverse cannot normally take place. In sequential dependence, those performing the following task must comply with the constraints imposed by the execution of the preceding task. Since the hierarchy is clear, the coordination is mostly about measuring and controlling whether the execution conforms to the planned requirements. The corporate architecture consists of tightly coupled tasks and predetermined processes. Work as “communication” is one-way.

Two tasks are interdependent if they affect each another mutually and in parallel. Interdependent tasks call for responsiveness and coordination by mutual adjustments. The circumstances affecting the execution cannot be fully determined and predicted in advance. Most of the information that is relevant to the situation will be discovered and created during the execution of the task. As a result it is not possible to agree on a coherent approach in advance. Work is learning.

Individuals and tasks must be transparent and must communicate on an ongoing basis to let each other responsively identify feasible approaches. They must communicate information the very moment it is created in order to develop common understanding, an information commons. This makes a fundamental change to our approach to information objects. The basic unit of corporate information is not content in the form of documents but interaction in the form of conversations based on context awareness. Knowledge creation is here understood as an active process of communication. Knowledge is not stored, but is perpetually constructed in interaction.

Knowledge is not transmitted from one individual to another but is the process of relating: one approach in the situation may be optimal from one point of view; another may be preferable from another. Responsive task interdependence always works with and negotiates differences in a creative context. Success is based on emergent and parallel responsiveness.

Architectures differ in the degree to which their components are loosely or tightly coupled. Coupling is a measure of the degree to which communication between the components is predetermined and fixed or not.

The architecture of the Internet is based on loose couplings and modularity. Modularity is the design principle that intentionally makes nodes of the network able to be highly responsive. The Internet-based firm sees work and cognitive capability as networked communication. Any node in the network should be able to communicate with any other node on the basis of contextual interdependence and creative participative engagement. Work takes place in a transparent, wide-area, digital environment.

As organizations want to be more creative and knowledge-based, the focus of management thinking should shift towards understanding participative, self-organizing responsiveness.

The Internet is a viable model for making sense of the value creating constellations of tomorrow.


Thank you Doug Griffin, James Thompson, Yochai Benkler and Barbara van Schewick

About tightly coupled systems. Harvard Business Review post on process improvements and collaboration.

Management at the time of social media

A manager recently voiced his concerns to me: “Many employees prefer being told what to do. They are willing to accept being treated like children in exchange for reduced stress. They are also willing to obey authority in exchange for job security.”

That is the way we have seen it: managers inspire, motivate and control employees who need to be inspired, motivated and controlled. These dynamics create the system of management and justify its continuation. If we want to change the system, both parties would need to transform themselves simultaneously.

The workers changing their role is often seen as a matter of the extent to which the managers are willing to give up responsibility. In reality it is as much a matter of how much the workers are willing to grow their capacity and take responsibility. The problem is that most management education is targeted at managers, not at workers. When employees are not given opportunities to develop and act responsibly, they are in the worst case infantilized and stripped of initiative. They lose their capacity for self-control and self-management. The inability of employees to act responsibly then creates a justification for managers to do so for them.

Historians claim that management emerged as a profession as a result of the rise of slaves in agricultural labour. As the number of slaves increased, the owners created a privileged class of foremen/managers drawn from the ranks of the slaves. The task was to control them and to make sure they did not run away.

The number of managers grew during the time of the Babylonian Empire. They were also mentioned in the Hammurabi code of laws. Aristotle made reference to the need for management not only to control slaves, but in the household to control domestic servants, animals and women.

The tasks of management evolved into motivational issues as a result of the steady decline in the motivation and loyalty of slaves. Successful motivation was typically built on fear together with dreams of upward mobility and sometimes identification with the owners. From this perspective, management and involuntary work always belonged together. What made employees slaves was the fact that they did not have a voice in their work process. The place and time of work was forced on them. They were not viewed as human beings, but as an instrumental resource. One might claim that slavery, in this sense, has not died. It lives on in new clothes.

A few researchers have started to dispute the assumption that management is a fact of life that will always be with us. Perhaps it is time for us to question whether the recent problems created by bad management are isolated and occasional and should be tolerated. Perhaps the problem is a much larger systemic challenge than just kicking out the bad manager and inviting a new, better manager in. Perhaps the problem is not at all employee compliance or management incompetence. What if it is the system itself that is problematic, as it separates employees from responsibility and leaves organizations unable to fully utilize the potential of human beings.

The dysfunctional relationship between managers and employees creates a self-fulfilling prophecy and a systemic failure. Both sides are trapped in a negative, self-reinforcing loop that they just want to get out of as soon as retirement is possible.

What is tragic is that neither side normally understands the predictability of what is going on. The pattern is a mutually reinforcing self-destructive process that manifests itself as a steady decline in the power and authority of management. The process is accelerating: young professionals don’t want to be managers any more.

Luckily management theory and practice are slowly starting to catch up with the dramatic changes brought about by the ideas economy, cloud computing, interactive, task-based work, Internet-based connectivity and smart devices.

For the first time in history it is not profitable to simply think that managers manage and workers work. Creativity and the need for intrinsic inspiration and risk taking demand individual responsibility and rich interaction between interdependent, equal peers. Top-down, one-way communication or separating thinking and acting don’t produce results any more.

In the past we located intention, or thought, apart from or before the action. We assumed a world of cause and effect where the outcomes of our actions can be known before actions are taken. Now we know that intentions arise as much in the actions and outcomes cannot be fully known in advance. This is why a new, different, view of management is required to serve the creative, learning-intensive economy.

It is time to rethink the principle that individual managers are blamed when things go wrong and rewarded when things go right. The rest of us used to be allocated to passive roles when it comes to responsibility, coordination of actions and communication.

That has changed forever!

Thank you Paul Graham, Doug Griffin, Mary Parker-Follett, Kenneth Cloke, Kenneth Gergen, Joan Goldsmith and Riel Miller


Gary Hamel video on this topic