Esko Kilpi on Interactive Value Creation

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

Category: Social Web / Social Media

From productivity to social innovations

The printing press constituted a true revolution in communication. But what really happened as a wider consequence of that revolution? Let’s try to reconstruct the circumstances that preceded printing. We know that there was a strong, although very divergent scribal culture before the printing press. The cultural texture was quite thin outside monasteries, libraries, and cities such as Bologna. That led to a heavy reliance on the vocal transmission of information, on storytelling.

The information culture was half-spoken, half-written.

The influence of the scribe was greatly enhanced because of a complementary character, the copyist. At first, the shift from script to print produced a social culture that was not very different from the culture produced by scribes. The writer – printer process was not very different from the scribe – copyist process, if looked at from the outside. Of course there was a huge increase in the output of books and a drastic reduction in the man-hours required to turn them out.

The first change was a remarkable increase in productivity. But then, the communications revolution of print caused remarkable changes in information-related practices that led to even wider social changes.

The well-informed man had to spend a part of each day in temporary isolation from his fellow men – reading. Another development was the Sunday papers replacing church going.  Sermons used to be coupled with news about local and foreign affairs. The new media players handled news gathering and circulation logistics much more efficiently.

The most noteworthy social change took place on the community level. To hear, you have to come together. To read encourages you to draw apart. The notion that a society can be regarded as a bundle of discrete units supported the principle that detached people can be represented through a system of disconnected political parties. The reading public was very different from the one before. It was not only dispersed, it was very atomistic and individualistic. As a result, the present political system was born.

Learning, which used to take place through vocal interaction in groups, was now the activity of a solitary, independent individual. The picture of the student in the library reading room was transferred to classrooms and the architectures of education.

According to some researchers, print silenced the spoken word. The orators of Rome gave way to the men of letters. Written text was now about facts and talk was cheap.

From this point on, people have tended to see information and communication technologies as two separate domains, not only for technological reasons, but because of the historical developments described above.

We are again going through another revolution in communication. The way the written word is used on Twitter or on Facebook is much closer to the vocal transmission of information than to writing. Through closely combining communication and information technologies, we are creating a much richer cognitive tapestry than the present separate ICT-systems are capable of.  Second, instead of drawing apart, we can now come (digitally) together. The culture is again half-spoken, half-written. The printing press separated information and communication. The Internet and the new social technologies are causing the two to converge.

The first change is again a remarkable increase in productivity, but again, it does not end there. The real promise of the Internet is in the new information-related practices and the social innovations that are still ahead of us.

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The human-centric future of work

The big move we are in the midst of is towards an economy that is more centred on information products than physical products. Examples of this are financial services, professional services, the online game industry and software.

The second transformative change is global access to relatively cheap and relatively high quality communication networks

New communication technologies have always had a strong impact on industries and the logistics around production. But this time, with information products, the societal changes are even bigger than before. The Internet is the first communication environment that decentralizes the financial capital requirements of production. Much of the capital is not only distributed but also largely owned by the end users – the workers who have their own smart devices.

The characteristics of the new economy are different from what we are used to: the production of physical goods was (financial) capital-intensive, leading to centralized management structures and the shareholder capitalism we have experienced. The production of information goods always requires more human capital than financial capital. It is much more about finding brains than finding money. The good news is that you are not limited to the local supply. Work on information products does not need to be co-located because of the Internet. If the task at hand is inviting and compelling, human capital investments can come from any part of the network.

This is why decentralized action plays a much more important role today than ever before. The architecture of work is the network and the basic unit of work is not a process or a job role but a task.

Our management and organizational approaches are derived from the era of the production of tangible goods and high-cost/low-quality communications. These mind-sets are not only unhelpful, but wrong in a world of widely distributed value creation and ubiquitous connectivity.

The opportunity we have is in new relational forms that don’t mimic the governance models of industrial, hierarchical firms. We are already witnessing the rise of very large-scale cooperative efforts that create tremendous value. Coordinated value in these cases is the result of uncoordinated actions by a large number of individuals with different goals, different values and different motivations to take part.

In the networked economy, information products and services can now be created and co-created in a human-centric way, by voluntary, interdependent individuals, interacting with each other by utilizing free or very low-cost social media.

Technology does not determine social and organizational change, but it does create new opportunity spaces for new social practices. Some things are becoming much easier than before and some things are becoming possible, perhaps for the first time.

We are living in a world that is built on the centrality of information and radically distributed intelligence. The organization is not necessarily a given entity or hierarchy any more, but an ongoing process of organizing. The factory logic of mass production forced people to come to where the work is. Work was a place. The crowdsourcing logic of mass communication makes it possible to distribute work to where the (willing) people are, no matter where on the globe they may be. Knowledge work is not about jobs or job roles but about tasks. Work is what you do, and most importantly what you want to do!

Knowledge work can, if we want, be human-centric.

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The post is a shortened version of my lecture today at the Department of Industrial Engineering and Management, Aalto University, School of Science.

Thank you Jochai Benkler and Bent Flyvbjerg


Interactive competence and flash communities

All of us have at some point in our lives experienced performance appraisals where we as individuals were evaluated. This approach to judgment was the same in school and at work: individuals separated from other individuals.

As a result of recent developments in psychology and sociology, we are now leaving behind the preoccupation with the autonomous individual and beginning to appreciate the importance of relational processes and interdependence. The way we perceive organizations is changing accordingly. Rather than an organization being though of as an imposed structure of separate, autonomous functions, today’s organization arises from the interactions of individuals who need to come together. An organization is a continuous process of organizing.

This shift in the way we see organizations changes the way we perceive competitive advantages. The new competitive edge comes from openness and interactive capacity: the ability to participate and connect, as and when needed.

Similarly produced products with the same product features are used by different customers in different ways. Just because a product is a commodity doesn’t mean that customers can’t be diverse in their needs and the way they use the product.

Companies used to have no mechanisms for connecting with the end users in order to understand and influence this. Social media and mobile technologies are now changing this.

Organizations are creative, responsive processes of communication. All creative, responsive processes have the capacity to constantly self-organize and re-organize. Change is not a problem or anomaly. Solutions are always temporary and contextual.

In this view, it is information that is the energy of organizing. Or, as Gregory Bateson wrote, “information is a difference, which makes a difference”. When we see information as a power plant that has the ability to organize and change the organization, we realize the power of openness. When information is transparent to everybody, people can organize effectively around changes and differences, around customers, products and new technologies.

When information is transparent, different people see different things and new interdependencies are created, thus changing the organization.  The easier the access that people have to one another and to (different) information is, the more possibilities there are.  What we have still not understood is that people need to have access to information streams that no one could predict they would want to know about. Even they themselves did not know they needed it – before they needed it. Thus information architectures can never be fully planned in advance.

No one person or function can meet today’s challenges alone. We need a community of people who willingly participate and provide their insights to address increasingly interdependent issues. Collaboration is necessary because one person no longer has the answer. Answers reside in the interaction, between all of us.

Therefore the challenges of today are engagement and reducing the transaction costs of participation. Widening the circle of involvement means expanding who gets to participate, comment and contribute. It is about inviting and including relevant, new and different voices.

The unfortunate misunderstanding is that engaging people requires managers to let go. As managers contemplate widening the circle of involvement they sometimes believe that it means to have less ability to provide input based on their knowledge and experience. Paradoxically, engaging more people requires more from managers than the current management paradigm.

Instead of being responsible for identifying both the problem and the solution, they are now responsible for identifying the problem and identifying the other people whose voices need to be heard. Who else needs to be here? How do I invite people who do not report to me? How do I invite customers and other people from outside our organization?

Success today is increasingly the result of skilful management of participation: who is included and who is not. Who is needlessly excluded from the information streams and the subsequent interaction?

A common misunderstanding is that productivity will suffer if larger numbers of people are involved. The new social platforms and interaction technologies have dramatically reduced the cost of communication and participation. Temporary, flash communities can be formed to solve a problem or to tackle an opportunity more easily, more cheaply and faster than ever before – if there is openness and people are invited and if people want to engage. It is about distributing the intellectual tasks at hand and integrating the contributions of many resulting in creative learning.

Creative learning is the new productivity. In creative, interactive work, productivity cannot be measured in quantitative terms or as a difference between input and output, but as the speed and quality of learning.

The management task is not to understand people better, but to understand better what happens, and can happen between people. Our world is co-created in relations.

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The really big idea of social business

It is often said that the transformation to becoming a social business means facilitating activities such as transparent action and cooperation instead of the competitive individualism we are so used to.

Management buy-ins are also seen as a challenge that needs to be tackled. But can it be that the real challenge is not the return of investment of the new tools or learning new ways of doing things, but acknowledging that there is a need for rethinking what management is and refreshing the theories it is built on.

The way business thinking sees the self and its relationships is based on Cartesian philosophy; I think, therefore I am. Everything in management and thus also in mainstream social business takes place from the first-person point of view.

This Cartesian isolation was strengthened in Newton’s physics, where matter and also people, were seen metaphorically as billiard balls, bumping against one another every now and then. Billiard balls don’t really meet. They don’t get inside each other and alter each other’s internal qualities. During a collision they may undergo a change of position or direction, but they remain essentially the same. This is why psychology and sociology were separate disciplines. This also explains why human capital and social capital are seen as two separate things.

The Cartesian/Newtonian paradigm of isolated individuals having external relations underlies the mainstream thinking about what is going on in Twitter, Facebook and social media in general.

The often-asked question is what causes things to happen. When we seek for causal explanations, we begin to split the world into independent entities. There are causes on the one hand and effects on the other. Thus when we try to understand a person’s actions or try to understand what is happening, we search for an independent set of conditions that bring these about. This is why we search for the good managers and blame the bad ones. The manager is the independent cause – and deserves to be paid accordingly. The rest of us are the effects.

In attempting to understand the big idea of  social business, let us replace the metaphor of billiard balls by the metaphor of baking as Kenneth Gergen suggests. It is then about the combination of ingredients and how the ingredients co-create the end result. With the right combination you get delicious food. The elements don’t independently cause the end result to be a success. From this standpoint a lighted match does not cause a fire. Rather the fire took place because of a particular combination of elements of which the lighted match was one. In the same way, a rude remark does not start a fight. The argument starts as a combination of an offensive remark and a coarse response

The really big idea of social business is to reconfigure agency in a way that brings relationships into the centre. The task is to see action within relationships. It is about interdependence instead of independence.

Every human relationship serves as a model for what is possible. As we observe others we incorporate their actions into our own repertoire. Learning is the fundamental process of socialization. Within any relationship we are also in the process of becoming. We come to play a certain role, a certain identity. With my deceased father, I came to being as a child. This happened even when I was a grown up. With my son, I come to being as a father. Each relationship will bring me into being as a certain kind of person creating a huge repository of potentials. What social technologies are making possible is a much, much richer repertoire than what we were used to in a traditional firm.

Amyarta Sen has written that wealth should not be measured by what we have but what we can do. As we engage in new relationships we are creating new potentials for action. There is still the little boy in me but also much, much more, not least because social media are part of my life.

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Thank you Kenneth Gergen for great conversations! This is based on my notes from our meetings. Thank you also Stu Kauffman and Doug Griffin

Network design

In a typical large organization everybody is a long way away from everybody else. As a result the individual perception of the world is narrow and confined to a small group of immediate acquaintances.

That did not matter in factory-type of settings because physical tasks could be broken up. Bigger tasks could be divided by assigning people to different, smaller, fairly independent parts of the whole. Hierarchies made sense as a way to modularize work. The worker did not need to communicate with many people. The downside was a lack of flexibility. Reconfiguring a hierarchy always created a mess for a long time. And if you had a lot of interaction going on in a hierarchical structure, with many steps going up and down, it was slow and prone to misunderstandings.

For intellectual tasks, it is much harder to find parts that make for an efficient division of labor. Intellectual tasks are by default linked and complex creating an increased need to interact. Knowledge workers are often put in a position where they have to negotiate some understanding of what they face. The same event means different things to different people. The cognitive opportunity lies in the fact that as we don’t all select the same things, we don’t all miss the same things. If we can pool our insights in a creative, enriching way we can thrive in the complex world we live in.

New technologies give an organization the ability to reconfigure its form any way it desires. We are not confined to any one structure any more. The smartphone revolution has changed the logic of the network. The Web is no longer about linked pages but about connected purposes. We want to do something – with the help of information and other people. Often this means wanting to learn and respond in a situation.

Most often we seek two things: information and interaction.

For information the best structure would be a random, contextual network. A random network has the shortest possible path lengths. An example of this is performing a search. The key measure here is path length. That indicates how far everybody is, on average. The path length measures how many steps a piece of information has to go through between people. To create short path lengths in a typical hierarchical or process based structure you would need to know almost everything and everybody included in the hierarchy/process chart.  You would need to have access to information that we typically don’t have. Hierarchies and process charts are thus not efficient ways to organize knowledge work. They are not transparent enough.

For interaction, the challenge is engagement. Widening the circle of involvement means expanding who gets to participate. It is about inviting and including relevant, new and different voices. The measure is built on the social graph: how many of your friends know each other?

The network design principles successful organizations follow are: ( 1 ) shortening the distance between two randomly picked files/nodes/people; ( 2 ) getting more people who you know personally, to know each other.

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Networks of learning and networks of products

Products that are manufactured in the same way and with the same product features are often used differently by different customers. Just because a product is a commodity doesn’t mean that customers can’t be diverse in their needs and the way they use the product.

Companies used to have no mechanisms for connecting with the end users in order to understand and influence this. Social media and mobile technologies are now changing the model.

The relationship between a customer and an enterprise can get smarter with every interaction. Consider a service as routine as grocery shopping. Suppose that you could turn to your mobile phone and come up with a graph of last month’s or last year’s grocery purchases. Every time a customer buys her groceries, she is not only showing herself and the firm the products she buys, but also teaching the firm the pattern with which she consumes/uses them and implicitly the complementary products she perhaps does not yet know of. The service is creating a history of this particular customer that is virtually impossible for a competing shopping service to replicate.

Interactive value creation is about two new capabilities: the firm needs to be capable of networking with individual customers, and behaving somewhat differently towards a particular customer on the basis of communication and learning.

If a firm wants to create learning relationships with its customers, it must first create links to end users. The starting point is not a company site any more. Linking needs to start from where the people already are and what they already do: the main starting/connecting points are social media platforms, stores and ads.  Also every product needs to be seen as a network node. By listening to customers individually, interacting with them, and then treating different customers differently, the modern retail firm can change the nature of competition and generate customer loyalty as well as higher unit margins.

What often happens is that enterprises view customers through the lens of a fairly uniform set of products leading to their seeing customers as having relatively uniform needs. But even commodity products are always a bundle of use contexts, buying patterns, complementary goods and delivery options.

A product or a service should be pictured as a node in a network with links to ancillary services and complementary features surrounding the product. The more relevant links are considered, the richer the product will become. The task is to visualize the product in the broadest sense possible.

As the customer’s need set is expanded beyond a single item, the definition of the product changes and becomes more complex. The more complex the product, the more possibilities there are for the company to remember something that will later make a difference. When a customer teaches a firm what she wants or how she wants it, the customer and the firm are cooperating on the sale of a product. It is about interactive value creation.

A learning relationship ensures that it is always in the customer’s self-interest to remain with the firm that developed the relationship to begin with. Loyalty then creates more value and is more convenient than non-loyalty.

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More on the topic: “Smart disclosure“. Smartphones as health aids. Everyday health.

Complexity, patterns and links

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 people to choose what happens in their organizations – or in their countries. We live in a complex world. Things may appear orderly over time, but are inherently unpredictable.

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. There is absolutely no linearity in the world of human beings.

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 and seen as neurotic in social life. For example, a failing heart is typically characterized by increasing loss of complexity.

A pattern is something that emerges 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. This conclusion is important for us. Novelty emerges in a radically unpredictable way. Creativity is seldom the end result of a repetitive process.

The Internet changes the patterns of connectivity, transforms our understanding what “local” is, and makes possible wide participation and new enriching variety in interaction. By relying on the interactions of millions of people instead of a few experts/managers to classify content on the net, Google democratized scientific citation indexing. To be able to manage the increasingly complex organizations of today, the same kind of democratization needs to take place in the corporate world. Companies are transforming themselves from industrial mass production to creating value in networks of mass communication.

Transparency of tasks is the corporate equivalent of publishing academic articles. Responsive linking, rather than predictive linking such as in corporate hierarchies and process charts, acts as a measure of relevance, control and value. This has served the academic community well. It made Sergey Brin and Larry Page billionaires. Now is the time to do the same in the corporate world.

The Google lesson for management is, that the more work is based on responsive, democratic processes of relating and the more organizing is an ongoing process of communicative linking, the more value we can create!

It is now time for the sciences of uncertainty.

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Markets, networks and management

The claim is that the best way to understand complicated systems is to investigate the workings of each of the parts. If a car does not start, the mechanic looks for the problem and finds a dead battery. In a similar way a doctor finds a wounded muscle. The idea is that the best way to understand life is to investigate the workings of the parts separately from those of other parts.

In the economic world, the concept of markets is based on the same idea: autonomous sellers and buyers engage in discrete transactions where each agent is independent from the other agents and each transaction is separate from other transactions. The unit of analysis is the individual agent.

Network scientists have recently made very different claims. They say that all human systems are connected and that connected systems cannot be understood in terms of isolated parts. The study of isolated parts offers little help in understanding how the parts work in combination and what emerges as the result of network connections. The notion of emergence is central. Their aim is to discover emergent patterns: is it really so that individual greed turns into a pattern that can be called public good, as proponents of free markets have suggested following the rhetoric of Adam Smith?

The suggested unit of analysis is now communication and emergence, not entities.

This changes many of the beliefs we have taken for granted. The first change deals with the assumption of a knowing individual, the basic idea of Cartesian philosophy. The individual was understood as having a knowing mind. Individuals were thus treated as if they possessed properties such as expert knowledge. On the bases of her personal properties the knowing individual is then understood as the designer and controller of an internal and external world.

The perspective of network science views knowledge as socially created and socially re-created not as stuff of the mind that can be shared and stored by individuals.  Knowing is a process of relating. From the network-based, relational perspective knowing is viewed as an ongoing and, never-ending process of making meaning in communication.

Management literature typically emphasizes individuals and locates explanatory power in their personal properties. Leaders are the sources of motivation, control and direction. The manager’s perspective is taken for granted as setting the limits of action and what is thought of as right or wrong.

Management theory is based on the same Cartesian assumptions of the self as subject, the other as object and relationships as influence and manipulation. This is why the present management thinking severely restricts what is thinkable and doable in the world of networks.

The potential of social media cannot be realized without a very different epistemological grounding, a relational perspective. Independently existing people and things then become viewed as co-constructed in coordinated networked action. Accordingly, the role of management is different, opening up new possibilities: power in networks is about “power to” or “power with”, and not “power over”.

The emergent pattern changes when the local interactions change. Self-interest in the network economy looks different from self-interest in the market economy; individual success is likely to take place through enriching relationships and being part of networked interaction aiming to facilitate both the individual and the collective effort.

Cooperation is the new competition.

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Thank you Dian Marie Hosking for great conversations

More: Reid Hoffman interview.

Social media and the change from information to formation

The change towards the creative economy has major implications for the nature of what we have called assets. In the industrial age, the assets were physical resources, plant and equipment. Most of the resources were traded in markets and could thus be valued. Taking care of the value of an organization could be understood as managing physical assets and resources.

Now knowledge and people are seen as the major assets. But since neither of them are efficiently traded in markets, their value cannot easily be measured. Neither can knowledge be understood as an asset that can be managed like a physical asset. This is what many people within the Knowledge Management community learned the hard way. Knowledge is not a thing! Thus it cannot be stored, measured or shared.

From a more modern point of view, knowledge creation is understood as an active process of communication between people. Knowledge cannot be stored but is constantly constructed and re-constructed in interaction. Knowledge cannot be shared but arises in action. Knowledge is the process of relating.

The assumption was that learning and knowledge management involve processes that transmit content. This notion derived from the information theory/model of communication developed by Claude Shannon and Warren Weaver. Their theory created a sender-receiver model of communication according to which person A sends a signal (message/content) to person B, who receives it and then perhaps sends a responding feedback signal back to A. From this perspective, learning and knowledge creation are processes that resemble transmission or the sharing of content. This is why schools and other educational institutions still look the way they do.

But Shannon & Weaver’s concept was meant to be purely technical. They were interested in whether a byte sent was a byte received in a technical sense. They said nothing about the meaning of the bytes. For a human being a message can evoke a very wide range of associations and interpretations depending on the experience and emotional state of the individual. One person’s interpretation is never quite the same as another person’s interpretation. There is no linear causality in the world of human beings.

If learning was understood from a more modern relational perspective it would resemble a process of many voices interacting at the same time. In this way, each comes to know the context in which the other makes meaning. The progression of B’s understanding of A’s story also constitutes a change to A’s story – creating new meaning, learning, for both.

Social media are most meaningful when giving voice to multiple perspectives, making it possible to seek out, recognize and respect differences as different but equal.

All stories continue, meaning that learning takes place, as participants create a more shared understanding of what the other means. Knowledge which used to be regarded as existing independently in people and things – becomes viewed as co-constructed in communication.

Communication does not represent things in the world. It brings people and things into being in constantly surprising ways.

Supportive, energizing and enabling patterns of interaction are the most important “assets” of a modern organization. That is what should be nurtured and taken care of. Communication either accelerates and opens up possibilities or slows down and limits what would be possible. Communication either creates value or creates waste. Communication either creates energy and inspiration or demeans and demotivates.

Information theory is not only unhelpful but harmful, when trying to understand communication between human beings. Communication is not about sharing information but a process of formation.

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Thank you Karl-Erik Sveiby and Doug Griffin. What a great meeting!

Contributions from many to participate with one

The nature of the relationship between customers and firms has changed dramatically. For over a hundred years, companies have assumed that consumers are an undifferentiated mass. Lately, we have moved through different degrees of market segmentation. Today, we have reached a point where the latest interaction technologies are creating an entirely new dynamic between the firm and the people we used to call consumers. Tomorrow firms will compete in making unique customer experiences possible.

The traditional approach was that the firm created value and then exchanged it with its customers. This firm-centric view of value creation is now being replaced by customers’ contextual experiences and co-created value. Value is created in interaction, but outside the corporate firewall. Even if a company is dealing with a very, very large number of customers, the firm must focus on one customer at a time.

We are in a world in which value is determined by co-created experiences – all a bit alike but all a bit different.

During the still (mentally) prevailing industrial era, most firms were vertically integrated. It was only around twenty-something years ago that firms started to source components from outside, from suppliers on a large scale. Today it is natural to rely on global supply chains. This is because the business goal is to access the most competent, knowledgeable sources and paradoxically, at the same time the lowest-cost producers. Access to resources and resource allocation is today by default multi-vendor, crowdsourced and global.

The changing relationships with customers and vendors are the main drivers behind the new ecosystems for communication and participation.

These trends also explain the situation we are in at the moment. The network is the architecture of work. People need to communicate and participate in order to invite contributions and to co-create unique experiences. It is about the relational view. It is not necessary to own the contributing parties. Capacity to connect and cooperate is what is needed. Cooperation is the new competition.

The world we live in today is in many ways the polar opposite of what we have been used to. The management challenge in the era of social media is to invite and combine the contributions of many in order to participate with one (at a time).

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Thank you C K