Esko Kilpi on Interactive Value Creation

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

Month: February, 2011

Patterns and social objects

Complex systems are, as their name implies, hard to understand. The main difference between the sciences of certainty and the sciences of complexity lies in the different causal frameworks they are built upon. Up to now, we have seen the world around us as systems that, we thought, could be described and understood by identifying causal links between things: if I choose X, then it will lead to Y. If, on the other hand, I choose A, it will lead to B.

We are accustomed to drawing boxes and lines between the boxes. We try to model the world as predictable processes that we can control.

The mainstream ways of thinking about management are based on the sciences of certainty. The whole system of strategic choice, goal setting and choosing actions to reach the given goals in a controlled way depends on predictability. The problem is that this familiar causal foundation cannot explain the reality we face. Almost daily, we experience the inability of leaders to choose what happens to their organizations – or to their countries.

We live in a complex world. Things may appear orderly over time, but are inherently unpredictable. If a system’s long-term behavior is unpredictable, goals can still be set, but there is no certainty that the actions taken are going to realize them.

Complexity refers to a pattern, a movement in time, that is at the same time predictable and unpredictable, knowable and unknowable. Healthy, ordinary, everyday life is always complex, no matter what the situation is. Human patterns that lose this complexity become repetitive and rapidly inappropriate for dealing with life. Unlike mechanical systems, human systems thrive on variety and diversity. An exact replication of behavior in nature would be disastrous. For example, a failing heart is typically characterized by loss of complexity.

Human interaction cannot be understood as predictive processes but as patterns. A pattern is something that unfolds through the complex interactions between elements in a system. Although there is apparent order, there is never exact repetition if the system is viable. This is why human interaction cannot be understood as processes in the way they were used in manufacturing, but as patterns.

Patterns that are more repetitive are normally called routines or habits. However, those routines do not cause our behavior. Instead routines are emergent patterns. They emerge in what we do. They continue to be sustained only as long as they are present in our everyday interaction.

The American sociologist George Herbert Mead (1863 – 1931) distinguished between two types of objects: physical objects and social objects. While a physical object may be understood in terms of itself, a social object has to be understood as being composed of patterns of interaction.

Mead referred to a market as an example of a social object. The acts of buying and selling define a market. Markets cannot exist without these social activities. When one person offers to buy something, this act involves a range of responses from other people. A person making an offer can only know how to make the offer if she is able to understand the attitude of the other parties to the bargain. The ideas of buying and selling are thus always interconnected. This is why it is called a “social” object.

The routines define the object. The social object can only be found in the conduct of different individuals engaged in the social act. Thus, there is no market that can be understood as an “it”. Mead’s social objects are not things but generalized tendencies to act in similar ways in similar situations.

We find it easy to regard social phenomena as things with an independent existence. We talk about financial markets being “nervous”. We want more people to recognize patterns “to predict what is going to happen”. But patterns can only be found in the experience of interaction itself. They have no existence separate from interaction and we cannot influence the patterns as separate entities.

We can just participate in interaction – in a dull and repetitive way or in a creative and rich way.

.

Thank you Jyri Engeström for opening this discussion on the 13th. of April, 2005, with  “The case for the object-centered sociality“. Thank you also Melanie Mitchell, Ralph Stacey and Keith Sawyer.

More on the subject: Venessa Miemis. Thierry de Baillon. JP Rangaswami. Article on Wired magazine. Blog post on Complexitys. Gartner on “Emergent StructuresDeb Roy in TED

Social media, start-ups and the system of management

In a start-up, the coordination of work takes place through the transparency of activities, close proximity of people working together and mostly informal, responsive, ongoing communication. I have often wondered when and how the transformation to the world of formal reports and meetings takes place.

After closely studying several case companies, it seems to me that it is not at all the growth of the company that requires the development of formal communication systems. That takes place as a result of the managerial thinking that has evolved in response to growth.

The mainstream view of management science sees the organization as having a separate existence from individuals. In organizations, as in machines, the interchangeability of parts is thought to promote efficiency. This means that processes retained in workers´ interaction should be recorded in documents and passed back to govern work. The aim is to rise above the individual memory and to establish an organizational memory. This is what mainstream knowledge management was all about twenty years ago: “If only HP knew what HP knows”.

Industrial management has been about depersonalizing the workplace in the interest of efficiency, even up to the point of seeing people as (human) resources or (valuable) assets. Because of the strong desire to outdo the individuals, the communication habits of a “managed” company need to be different from the start-up. You have to go from conversations to documents. Management is really a particular system of communication

In this system you talk about flows, not people. There are flows of information to allow middle and upper management to monitor and control what goes on at lower levels. There are flows to guide the lower levels and to coordinate process steps. The ideology of management demanded “exact” written communication. It dismissed ordinary conversation as just talk. The controlled form of talk was a meeting with an agenda and clear outcomes. And you were supposed to come well prepared.

Industrial management is a particular pattern of communication based on specific assumptions about causality and human agency. This approach to coordinating activities was technically based on the high price and low quality of communication tools.

What social media allow us to do in organizations is to create transparency of activities, close proximity of non-co-located people and active, ongoing, responsive communication that coordinates and controls. The price of communication has gone down and the quality of tools is dramatically better today. It is time to rethink some major issues.

What an organization is emerges from the relationships of its members, the interacting individuals. It is the people! The efficiency and creativity of the organization is a result of the efficiency and creativity of daily communication. We all enable and constrain one another all the time, meaning that we coordinate and control one another all the time – as we talk.

Changes in the organization always mean changes in the patterns of communication and vice versa. Novel patterns of communication necessarily change the organization. This is why social media challenge management as a system of communication and coordination. Management as we are used to seeing it is getting more and more outdated.

We have started a research program on management in complex, responsive work. We study human-centric value creation that builds on the Internet and the very latest digital interaction technologies. If you want to be involved in the group of academic researchers and practitioners, please contact me or professor Doug Griffin.

We know that even very big corporations can be like start-ups!

.

Thank you @jobsworth for being the inspiration for this post. I hope the discussions around the “systems of engagement vs. the systems of record” continue

Thank you Doug Griffin, Ralph Stacey and Clay Shirky

More on the subject: Steve Denning. Umair Haque. Peter Stoyko.

What does the “social” in social business really mean?

We have assumed that if we each looked after our own interests, an “invisible hand” would arrange things so that everything worked out for the best for everyone. Game theory has also made it clear to us that in the short run, those who take an I win – you lose approach, will always win out over those who try to employ an I win – you win strategy.

Before Adam Smith wrote “The wealth of nations” and came out with the idea of the invisible hand, he had already written something perhaps even more interesting for our time. In “The theory of moral sentiments” he argued that a stable society was based on sympathy. He underlined the importance of a moral duty – to have regard for your fellow human beings. Those who developed a win – win culture would always do better in the long run.

What defines most problems today is that they are not isolated and independent but connected and systemic. To solve them, a person has to think not only about what he believes the right answer is, but also about what other people think the right answers might be. Following the rhetoric of game theory: what each person does affects and depends on what everyone else will do and vice versa.

When it comes to understanding the organizations in which we work, most of us best understand our own jobs and the work groups of which we are part, our strong ties. When problems arise, this disconnectedness and unawareness of how things work in the larger system often leads to shortsighted and suboptimal solutions. A person or a group is essentially looking after their own interests. As a result, problems are solved in a way that easily leads to more problems. These behaviors often mean that I count and you don’t, resulting in people being pushed away from one another instead of coming together.

The word communication means to make something common. To make things common, we shared ideas and information. But a social business is not about senders and receivers of information. It is not about content that is conveyed from one person who acts as an authority to the others who act as instruments of this authority.

A social business arises as a result of self-organizing interaction within the always developing, jointly constructed reality.

Our experience is that when one person says something, the other person does not respond to exactly the same meaning. Thus when the second person responds, the first sees a difference between what he meant to say and what the other understood. On considering this difference, he may be able to see something new, which is relevant both to his own views and those of the other person. Thus people coming together in conversation are always creating something new.

Connected people are able to create value and solve problems together on a totally new scale and with unprecedented ease. The challenge, however, is still the same as it was in the time of Adam Smith. We need to have regard for fellow human beings beyond our strong ties. We need to value how they think!

Perhaps stable social businesses are based on social value and sympathy?

.

More on the subject: Mark S Granovetter on The Strength of Weak Ties. The Washington Post on the Economics of Cooperation. Luis Suarez blogging about Louis Richardson “A Copernican revolution to become a social business


From systems to ecosystems

In the past, the influence of external forces on business was not significant. The industrial factory was a fairly simple, isolated machine. The rest of this system was designed around the machine with tightly integrated supply chains and optimized use of coupled resources insulating the machine from shortages and stock-outs. Being efficient and productive inside the system was enough to prosper.

The assumptions of industrial management are not suited to today’s business environment. In contrast to the industrial era, when value was added primarily in the repetitive manufacturing processes, value is today created elsewhere, outside of the old industrial system. Value is co-created in the context of usage through customizable, reconfigurable and more or less unique solutions aggregated by the customer, not the manufacturer. There are no consumers any more!

The new environment is marked by conflicting constraints, variables that shift very rapidly and value creating relationships that change constantly. Linear methods of management are not effective in a complex environment.

The ecosystems approach to efficiency is not designing processes but recombining successful elements to create new versions, some of which may thrive. Global coordination arises, unplanned, from the local, responsive interaction of the elements.

The traditional management approach was to require each worker to assume a predetermined responsibility for a specific role in the process sequence. The ecosystem approach represents a different logic of organizing based on neither the traditional market nor the process. Whereas processes involve relations based on dependence and markets involve relations based on independence, ecosystems involve relations of dynamic interdependence.

Minimal hierarchy, organizational diversity and responsiveness characterize ecosystems. Ecosystems are a response to the increasing complexity of strategic horizons and short half-life of designs. To cope with the uncertainties firms see themselves and the world around them as ecosystems, where every unit, every node in the network, should engage with learning. Instead of centralized design and planning, the activities of exploration are the responsibility of the whole network. Because of greater complexity, coordination and communication cannot be planned in advance, controlled or managed hierarchically.

Authority needs to be distributed; it is no longer delegated vertically but emerges horizontally in the networked ecosystem. Under distributed authority work teams and knowledge workers need to be accountable to other work teams and other knowledge workers instead of a single boss. You need to have many “bosses”. Success at ecosystems depends on learning by mutual accountability and responsiveness. This is much more than matrix organizations or internal markets.

Management and strategy used to be about rational choice between a set of known options and variables. Under circumstances of rapid technological change, the challenge is to create openness to possible options. Management of ecosystems is about facilitating continual renewal. Organizing in ecosystems is not something you do before you can work, but work is organizing. Success is based on continuous redefinition of the organization itself. It is about recombining options and contributions in a competing and collaborating environment.

The industrial model was based on thinking alike and subscribing to the same goals. The ecosystem model is based on diversity. New forms can emerge only if the nodes of the network differ from each other enough.

Instead of focusing on whether some managers institute more efficient processes or design the division of work better than others, ecosystem theory suggests that the properties of communication and connection between people are the causes of success. What the ecosystem becomes, emerges from the relationships of its members.

Value creation cannot be understood as industrial systems any more, but as continuously developing, complex, responsive ecosystems of connected people.

.

Discussions around the Nokia / Microsoft ecosystem: TechCrunch. GigaOM. Scobleizer. The official Nokia blog. GigaOM. The Intel opinion. The Wall Street Journal. Asymco on the Burning Platform Strategy.

More on the subject: Consumer innovation by Eric von Hippel. Blog post by Stowe Boyd. The connected company by Dave Gray. From products to ecosystems by John Steen. Blog post by Michael Anton Dila.

Social platforms for work

Before the industrial era, the mainstream economic activity was harvesting resources and trading them. In order to sell fish you needed to have access to the waters where the fish were, and you needed to have the right harvesting tools.

The industrial economy was centered on a different logic than the harvest and trade mindset, although the mining industry still today follows this logic. The new principle was to transform the raw materials into more valuable products. The success factors were now different. Raw material access was not the differentiator. In the new transformative economy, one could convert resources into products in places independent from where the raw materials or energy could be found. Securing access to production knowledge instead of access to raw materials became the key success factor. As it was important to know, information became the differentiator.

The industrial economy was based on economies of scale, standardization and specialization. The industrial logic was most vividly captured in the idea of the value chain. Value creating activities were sequential, unidirectional and linear. In the model, value is not really created but added step by step. To produce value, one receives something from one’s supplier, adds value to it and then passes it on. It is almost impossible to consider a supplier as a customer or a customer as a supplier.

But the relationships between firms, suppliers and customers are changing. The relationships are not purely transactional any more. The industrial relationship was based on the idea that the supplier did something for the customer that relieved the customer for doing that herself. Today leading firms are moving from the relieving logic to an enabling logic. Here the supplier does something together with the customer that enables the customer do things that would not be possible without the relationship.

The customers are not passive receivers and consumers of value but active contributors helping the providers to help them. Without the contribution of the customer, the value of the offering could not exist. Firm-customer relationships are not one-way but responsive interactions in which the parties “help each other to help each other”. Value creation is parallel and necessarily collaborative.

Division of work is now very different from the sequential, industrial value chain. Actors come together to co-create in a parallel, interactive manner. Different actors participate differently in different times leading to each value creating situation being somewhat different and unknowable in advance. Thus it is not possible to take any organizational form, process or skill set as pre-given. It is about ongoing, context specific, processes in time.

The move from the one-way and transactional business logic to interactive and relational logic changes the concept of management. Organizational change or strategic direction are neither caused by chance nor the choices of managers, but by the very nature of interaction, relationships and collaboration between people in the value network.

It is time to move away from thinking about an organization only as a system of predictive processes. Efficient participation in complex, ongoing, responsive interaction is the key differentiator and number one success factor today.

It is about access to people and confluence this time.

.

Thank you Richard Normann, David Weinberger and Doug Griffin. More on the subject: “A social way of structuring work” by Stowe Boyd. The connected company by Dave Gray