Esko Kilpi on Interactive Value Creation

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

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.


The brain, the Internet and the future of work

It is not uncommon to think that knowing is something that goes on in the brain. Perhaps astonishingly, the evidence that it is really so is not quite clear. Some scientists have recently expressed doubts. The mind, they have argued, is not a thing to which a place can be allocated. Intellectual life is essentially social and interactive, they say. Life is carried on through communication between people. These researchers claim that interactions are not secondary by-products of thinking. They are the primary sites of that activity.

The structures of the brain and the Internet look the same. In the brain there are neurons that link as a result of being active at the same time. This firing together creates a connection that increases the strength of their connection. On the Internet there are servers and people that are linked in temporary interaction, sometimes as a result of being inspired and interested in the same topic. This short-term communication sometimes leads to a longer relationship increasing the strength of the connection. No neuron links with all the other neurons at the same time. No server links with all the other servers at the same time, and no one person interacts with all the other people at the same time. So all communication is always contextual and local, whether in the brain, in an organization, or on the Internet. However, local here does not mean spatially local. The nodes in local interaction can be physically located far away, in different parts of the world. The Internet redefines what the local, in local interaction, means.

We often think of individuals as independent and self-contained. The view suggested here sees individuals as nodes of the complex networks they form, co-creating themselves and the reality in which they participate.

Our social interactions play a role in shaping our brain. We know now that repeated experiences sculpt the synaptic connections and rewire our brain. Our relationships gradually frame the neural circuitry. Being chronically depressed by others or being emotionally nourished and enriched has lifelong impacts. This is of course unwelcome news to someone whose relationships tend towards the negative but it also points to where the possibilities for repairing the situation might be. And they are not inside a person’s head.

We can no longer see our minds as independent and separate but as thoroughly social. The human mind is not located and stored in an individual. Rather, what we have called the individual mind is something that arises continuously in relationships between people.

This is why we need to focus on communication practices in addition to, and perhaps even instead of, communication technologies. Communication starts with acknowledgement. It is about paying attention to others and making room for them in our lives. Our attention should be on questions such as who is talking and who is being silenced, who is included and who is being excluded, who I acknowledge and who acknowledges me?

In a corporate context, an organization is still metaphorically a picture of walls defining who is inside and who is outside a particular box. Who is included and who is excluded. Who we are and who they are. This way of thinking was fine in repetitive work where it was relatively easy to define what needed to be done and by whom as a definition of the quantity of labor and quality of capabilities. As a result, management practice created two communication designs: the process chart and reporting lines.

In creative, knowledge based work it is increasingly difficult to know the best mix of capabilities and tasks in advance. In many firms reporting routines are already the least important part of communication. At the same time, much more flexibility than the process maps allow is needed. The variables of creative work have increased beyond systemic models of process design. It is time to learn from the brain and the Internet.

What if the organization really should be an ongoing process of emergent organizing? Instead of thinking about the organization as a structure, let’s think about contextual communication. If we take this view we don’t think about walls but about connections and how groups are formed around what we actually do. The new task is to make possible very fast linking and thus to make it as easy as possible to get the best contributions from the whole network.

The focal point in organizing is not the organizational entity one belongs to, or the manager one reports to, but the reason that brings people together. What purposes, activities and tasks unite us? What is the cause of interdependence and group formation? These contexts should create transparent, permeable boundaries between them, not walls. Instead of the topology of organizational boxes that are often the visual representation of work, the architecture of work is a live graph of interdependence and accountability. Yes, accountability, because the interaction itself constrains and not only enables the people in the interaction.

Changing the way we communicate is the way we change organizations. Changing the conversation is not a major programme or change process. It is about understanding and influencing participation. It is sometimes about new connections, new conversations, and new people actively taking part. It is often about asking different kinds of questions and pointing to different kinds of issues.

The human brain has more than 100 billion neurons. There are around 3 billion Internet users at the moment. So we are still far away from the cognitive potential of the brain when it comes to possible link combinations of communication between people. But this may be humankind’s most valuable untapped resource!

On any scale we choose to look at things, there can be no change without changes in the patterns of communication.


More information: Learning rewires the brain.

Bitcoin represents a novel form of organization

The Internet can be seen as the combination of two much earlier innovations. The first was the telegraph, which allowed information to be transmitted electronically. With the advent of the telegraph, people could communicate instantaneously across long distances, which was unimaginable before that time.

The second innovation was the computer, which allowed information to be processed and stored with unimaginable speed and almost limitless storage capacity. Both the telegraph and the computer solved huge problems by themselves, but combining the two facilitated truly new and transformative social innovations that led to the network era we now live.

Our present understanding of the logic of networks is largely a result of the work of Duncan Watts and Steve Strogatz, who connected the research done by Mark Granovetter and Stanley Milgram.

Following their findings, let’s think of people instead of computers and links of acquaintance as telegraph lines connecting them. This social world has not been designed by anyone. It has evolved through countless connections between chance and choice: people meeting people. Our social network is neither ordered nor random, but something in-between.

The potential of the network we are part of is mostly invisible to us in our ordinary social lives. We can only see as far as those to whom we are directly linked. We do not normally know, or think about, the people our friends know. But in a network-science sense these people are important to us. The friends of our friends act as ties that sew the larger social network together. They are the shortcuts to people far away. They make the world small for us. You typically have strong links to family members, friends and co-workers. The weak links, the connections of our connections, and the people we have met only once or meet very seldom, are bridges between worlds. An example of this may be the person from New Zealand whom you met at a conference a few years ago. Without that link you might not be connected to anyone in New Zealand. But because of it, you are linked in two steps to his friends and in three steps to everyone they know. This is called a small-world network.

Order, design, strong links and local proximity have been the leading principles of the world of work, but what if easier and more valuable work were in effect based on dynamic connections and interaction with people in the larger network? Finding these people is now possible with the help of digital social networks. The small-world geometry offers a way to see order and design in these apparently disordered networks. Digital, purpose-driven proximity may replace local proximity in the future world of work.

But the way we work needs to change. As people do their own thing, they also need to act as links for others. That is the new role in all work. People need to be fluent in connecting, curating and re-publishing.

What kind of technology would enable this to happen? I don’t believe the future of digital work is built on platforms like Facebook or LinkedIn.

The “Blockchain”, the engine on which Bitcoin is built, is a new distributed consensus/authority system that allows transactions, or other data, to be securely stored and verified without any centralized authority at all, because the entire network validates them. Those transactions don’t have to be financial and the data doesn’t have to be money.

The future of work may be built on connecting small-world networks and the Blockchain technology. The network is then the market and commons for exploration, coordination and value creation without any central authority. The importance of Bitcoin may not lie in digital currency. It represents a novel form of network-based organization.

This kind of work, I think, may be unimaginable today.


Thank you Rob Wile, Mark Buchanan and Mike Hearn

More: The future of Blockchain.

A new theory of growth

For most of human history, creativity was held to be a privilege of supreme beings, initially, the gods who shaped the heavens and the earth, and then it was extraordinary human beings who were the creators and not the helpless, dependent subjects of the wrath of the gods. We switched our views further as we began to understand more how the world worked. Whether this has helped the human race is debatable. But it would help us if we realized the responsibility that comes with our new role.

Our future is tied to human creativity.

You would think that given its importance, creativity would have a very high priority among our concerns, but we face a disturbing reality if we look at what is really going on today. The arts are seen as unessential luxuries and instead of exploring creative new solutions, cutting expenses is the approach of most managers trying to deal with global competition.

What holds true for the arts and the economy, also applies to education. The models of mass society and mass production still prevail in the world of mass education. The industrial society is re-born daily at the expense of a different sociocultural context that would embrace creativity.

The sociocultural context matters because creativity is a systemic rather than an individual phenomenon. Workable new solutions to our most pressing concerns will not appear by themselves as isolated ideas of independent people. Creativity is born in connections and in enriching interaction.

To say that Thomas Edison invented electricity or that Albert Einstein discovered relativity is a popular, but misleading simplification. These breakthroughs would have been inconceivable without (1) the social and intellectual network that stimulated and advanced their thinking and (2) the people who recognized the value of their contributions and spread them further. A good, new idea is not automatically passed on. 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. One cannot be creative alone. These qualities are co-created in an active process of mutual recognition.

The creative era is about interdependence, not about superhuman individuals.

MiinaAn inspiring person is only inspiring by virtue of others who treat her this way. A good decision is only good if there are people around to agree with it. It is not enough to look at the individuals who seem to be responsible for a new idea. Their contribution, although important, is always a node in a network and a phase in a movement of thought. Creativity takes place in connections and communication. The network is the enabler and amplifier. It is time now for a new epistemology; new ways of talking about knowledge creation.

However, people have always networked. Scholars depended heavily on correspondence networks for the exchange of ideas before the time of the universities. These communities, known as the “Republic of Letters” were the social media of the era, and resembled the communication patterns of today astonishingly closely. The better-networked scientist was often the better scientist. Today, the better-networked knowledge worker is usually the better worker. In the future, the better-networked student will always be the better student.

The main difference from the time of letters and the printing press is the transformative efficiency of our new interaction tools. A “man of letters” may today be a man of tweets, posts and updates, but the principle is the same: what matters most is the way we are skilfully present and communicate using all the different means that are available.

Mutually recognizing and mutually supporting relationships are the core of creative progress and growth.

To be human means communicative interaction. Creativity is an emergent pattern of that interaction.


Thank you Ari Manninen, Pasi Aaltola, Katri Saarikivi, Kenneth Gergen, Doug Griffin, Edmund Phelps, Esa Saarinen and Mihaly Csikszentmihalyi

More on creativity and non-routine work


The way we want to make sense of the world around us often has to do with causality. The question we ask is what caused “it” to happen. The mainstream approach is that an arrow, or arrows, can be drawn. There is a variable, the “it”, that happened, that is now to be explained. In scientific study this variable is regarded as dependent. An independent variable, or variables, that cause it are then sought. Causality means that X causes Y. If there is more X there will also be more Y. This is the if-then model of management. In organizations, a familiar explanation for success is that a particular manager or a particular culture caused it.

But there is something significant happening today. Scholars are increasingly pointing out the fact that this view of the relationship between cause and effect is much too simplistic and leads to a very limited or even faulty understanding of what is really going on.

Cybernetics recognized a much more complicated causality. In this kind of system the arrows, the links, between cause and effect can be distant in terms of time or place. The system can be highly sensitive to some changes but very insensitive to some others. For the first time, it was understood that it is a non-linear world.

Complexity challenges the assumption of earlier systems theories that movement in time can be predictable in the sense that X causes Y, or that the movement follows some archetypes. The modelling differs significantly from all previous systems models.

Complexity means a different theory of causality.

The most important insight is that it is often not possible to identify specific causes that yield specific outcomes. Almost indefinite number of variables influence what is going on. The links between cause and effect are lost because the tiniest overlooked, or unknown, variable can escalate into a major force. And afterwards you can’t trace back, you can’t find the exact butterfly that flapped its wings. There is no trail that leads you to an independent variable.

The future of a complex system is emerging through perpetual creation. Complexity is a movement in time that is both knowable and unknowable. Uncertainty is a basic feature of all complex systems. It is a dynamic in time that is called paradoxically stable instability or unstable stability. Although the specific paths are unpredictable, there is a pattern. The pattern is never exactly the same, but there is always some similarity to what has happened earlier.

In the end it is about the combination and interaction of the elements that are present and how absolutely all of them participate in co-creating what is happening. None of the elements cause the end result independently. 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 just 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 big new idea is to reconfigure agency in a way that brings complex relationships into the center. The task today is to see action within these relationships.

Complex relationships cannot be understood through spatial metaphors such as process maps or network charts. Unhelpful or wrong models and metaphors are often a big obstacle to moving our thinking forward after the technological constraints are gone.

We need to move towards temporality, to understand what is happening in time.

An organization is not a whole consisting of parts. There is no inside and outside. An organization is a continuously developing or stagnating pattern in time. Industrial management was a particular pattern based on specific assumptions about communication, causality and human psychology.

Recent developments in psychology/sociology have shown that human agency is not located or stored in an individual, contrary to what mainstream economics would have us believe. The individual mind arises continuously in communication between people.

The focus of industrial management was on the division of labor and the design of vertical/horizontal communication channels. The focus should now be on cooperation and emergent interaction based on transparency, interdependence and responsiveness.

Looking at communication, not through it, what we are creating together.


Thank you Ralph Stacey, Ken Gergen, Doug Griffin, Jim Wilk, Marko Ahtisaari and Katri Saarikivi

The wiki way of working

Physical tasks can normally be broken up in a reductionist way. Bigger tasks can be divided by assigning people to different smaller parts of the whole. For intellectual tasks, it is much harder to find parts that make for an efficient workflow. Intellectual tasks are by default complex and linked. Knowledge work is a social construct.

The machine metaphor led to the belief that if we can only arrange the parts in the right way, we optimize efficiency. The demands of work are different now: how efficient an organization is reflects the number of links people have and the quality of the links they have to the contexts of value, the things that matter.

How many handshakes separate them from one another and from the things that matter most? We are beginning to see the world in terms of  relations.

We have examples of new social architectures that redefine some basic beliefs about work and cooperation between people.

At the moment the wiki is the best departure from the division of labor and workflows. Wikis let people work digitally together in the very same way they would work face-to-face. In a physical meeting, there are always more or less the wrong people present and the transaction costs are very high. Unlike email, which pushes copies of the same information to people to work on or edit separately, a wiki pulls non co-located people together to work cooperatively, and with very low transaction costs. Email and physical meetings are methods which exclude. They always leave people out. A wiki, depending on the topic, the context and the people taking part, is always inviting and including. The goal is to enable groups to form around shared contexts without preset organizational walls, or rules of engagement.

In 1995 Ward Cunningham described his invention as the simplest online database that could possibly work. An important principle of the wiki is the conscious emphasis on using as little structure as possible to get the job done. A wiki does not force a hierarchy on people. In this case, less structure and less hierarchy mean lower transaction costs. A wiki always starts out flat, with all the pages on the same level. This allows people to dynamically create the organization and, yes, also the hierarchy that makes most sense in the situation at hand.

People work together to reach a balance of different viewpoints through interaction as they iterate the content of work. The wiki way of working is essentially a digital and more advanced version of a meeting or a workshop. It enables multiple people to inhabit the same space, see the same thing and participate freely. Some might just listen, some make comments or small edits, while others might make more significant contributions and draw more significant conclusions.

New work is about responsive, free and voluntary participation by people who contribute as little, or as much as they like, and who are motivated by something much more elusive than only money. Society has moved away from the era of boxes to the time of networks and linked, social individualism. Being connected to people, also from elsewhere, is a cultural necessity and links, not boxes, are the new texture of value creation.


Architectures of work and Internet-based firms

The characteristics of work in the network economy are different from what we are used to: the industrial production of physical goods was financial capital-intensive, leading to centralized management and manufacturing facilities where you needed to be at during predetermined hours. The industrial era also created the shareholder capitalism we now experience. In the network economy, individuals, interacting with each other by utilizing free or low cost social platforms and relatively cheap mobile, smart devices, can now create information products.

The production of information goods requires more human capital than financial capital. And the good news is that you are not limited to the local supply. Because of the Internet, work on information products does not need to be co-located. The infrastructure of work does not resemble a factory but a network.

Decentralized action plays a much more important role today than ever before.

Work systems 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 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 new value creating constellations of tomorrow.

But something crucially important needs to change:

The taken for granted assumption is that it is the independent employer/manager who exercises freedom of choice in choosing what is done and by whom. The employees of the organization are not seen autonomous, with a choice of their own, but are seen as rule-following, dependent entities. People are resources.

Dependence is the opposite of taking responsibility. It is getting the daily tasks that are given to you done, or at least out of the way. We are as used to the employer choosing the work objectives as we are used to the teacher choosing the learning objectives. The manager directs the way in which the employee engages with work, and manages the timing and duration of the work. This image of work is easy to grasp because it has been taught at school where the model is the same.

In contrast to the above, digital work and the Internet have brought about circumstances in which the employee in effect chooses the purpose of work, voluntarily selects the tasks, determines the modes and timing of engagement, and designs the outcomes. The worker here might be said to be largely independent of some other person’s management, but is in effect interdependent. Interdependence here means that the worker is free to choose what tasks to take up, and when to take them up, but is not independent in the sense that she would not need to make the choice.

The interdependent, task-based worker negotiates her work based on her own purposes, not the goals of somebody else, and chooses her fellow workers based on her network, not a given organization. The aim is to do meaningful things with meaningful people in meaningful ways utilizing networks and voluntary participation.

It is not the corporation that is in the center, but the intentions and choices of individuals. This view of work focuses attention on the way ordinary, everyday work-tasks enrich life and perpetually create the future we truly want through continuous learning.

The architecture of work is not the structure of a corporation, but the structure of the network. The organization is not a given hierarchy, but an ongoing process of organizing. The main motivation of work is not financial self-interest, but people’s different and yet, complementary expectations of the future.

The factory logic of mass production forced people to come to where the work is. The crowdsourcing logic of mass communication makes it possible to distribute work/tasks to where the right/willing/inspired people are, no matter where on the globe they may be.

Knowledge work is not about jobs or job roles but about tasks. Most importantly knowledge work can, if we want, be human-centric. Through mobile smart devices and ubiquitous connectivity, we can also create new opportunities and a better future for millions of presently unemployed people.

It is possible!



The magic power of transparency and links

Eugene Garfield founded the Institute for Scientific Information in 1960.  His pioneering work was in citation indexing. This allows a researcher to identify which articles have been cited most frequently and who has cited them. Garfield’s studies demonstrated that the number of citable items, i.e. the number of papers, together with the frequency of their citation, meaning how many scientists link to the paper, is a good measure of scientific success. The system effectively measures quantity and quality at the same time.

The whole Web is a densely interconnected network of references. It is no different from the practice of academic publishing and citation indexing. Links on the Web are also citations, or votes, as the founders of Google realized. The observation of Larry Page and Sergey Brin that links are in fact citations seems commonplace today, but it was a breakthrough at the time Google started on September 7, 1998. What Google did was essentially the same as had been done in academic publishing by Eugene Garfield.

But at this time, relevance and importance were measured through counting the number of other sites linking to a Web site, as well as the number of sites linking to those sites. What Google has proved is that people’s individual actions, if those actions are performed in a transparent way, and if those actions can be linked, are capable of managing unmanageable tasks.

Cooperation and collective work are best expressed through transparency and linking.

The mainstream business approach to value creation is still a predictive process designed and controlled by the expert/manager. This is based on the presuppositions that we know (1) all the linkages that are needed beforehand, and (2) what the right sequential order in linking and acting is. Neither of these beliefs is correct any more.

The variables of creative work have increased beyond systemic models of process design. It is time to learn from the Internet

By relying on the unmanaged actions of millions of people instead of 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. The transparency of tasks is the corporate equivalent of publishing academic articles. Responsive linking, rather than predictive linking, as in hierarchies and process charts, acts as a measure of contextual relevance.

Complex, creative work requires new approaches to organizing. The Google lesson for management is that the more work is based on responsive processes of relating and the more organizing is an ongoing process in time, the more value we can create!


On the perceived relevance of academic papers.

The Social Graph of Work

The approach of the industrial era to getting something done is first to create an organization. If something new and different needs to be done, a new and different kind of organizational form needs to be put into effect. Changing the lines of accountability and reporting is the epitome of change in firms. When a new manager enters the picture, the organizational outline is typically changed into a “new” organization. But does changing the organization really change what is done? Does the change actually change anything?

An organization is metaphorically still a picture of walls defining who is inside and who is outside a particular box. Who is included and who is excluded. Who “we” are and who “they” are.

This way of thinking was acceptable in repetitive work where it was relatively easy to define what needed to be done and by whom as a definition of the quantity of labor and quality of capabilities.

As a result, organizational design created two things: the process chart and reporting lines, the hierarchy.

In creative, knowledge based work it is increasingly difficult to know the best mix of people, capabilities and tasks in advance. In many firms reporting routines are the least important part of communication. Much more flexibility than the process maps allow is needed. Interdependence between peers involves, almost by default, crossing boundaries. The walls seem to be in the wrong position or in the way, making work harder to do. What, then, is the use of the organizational theatre when it is literally impossible to define the organization before we actually do something?

What if the organization really should be an ongoing process of emergent self-organizing? Instead of thinking about the organization, let’s think about organizing.

If we take this view we don’t think about walls but we think about what we do and how groups are formed around what is actually going on or what should be going on. The new management task is to make possible the very easy and very fast emergent formation of groups and to make it as easy as possible for the best contributions from the whole network to find the applicable tasks, without knowing beforehand who knows.

The focal point in organizing is not the organizational entity one belongs to, or the manager one reports to, but the reason that brings people together. What purposes, activities and tasks unite us? What is the cause of interdependence and group formation?

It is a picture of an organization without walls, rather like contextual magnetic fields defined by gradually fading rings of attraction.

Instead of the topology of organizational boxes that are still often the visual representation of work, the architecture of work is a live social graph of networked interdependence and accountability. One of the most promising features of social technologies is the easy and efficient group formation that makes this kind of organizing possible for the first time!

It is just our thinking that is in the way of bringing down the walls.


Why companies don’t grow – The idea of the platform company

The effects of Moore’s law on the growth of the ICT industry and computing are well known. A lesser-known but potentially more weighty law is starting to replace Moore’s law in strategic influence. Metcalfe’s law is named after Bob Metcalfe, the inventor of the Ethernet. The law states that the cost of a network expands linearly with increases in the size of the network, but the value of the network increases exponentially. When this is combined with Moore’s law, we are in a world where at the same time as the value of the network goes up with its size, the average costs of technology are falling. This is one of the most important business drivers today. The implication is that there is an ever-widening gap between network-economy companies and those driven by traditional asset leverage models. Traditional business economics focus on economies of scale derived from the capital base of the company, which tends to scale linearly

In practice this means that digital services can attain the level of customer reach and network size, required to capture almost any market, even as the size of the company stays relatively small. This is why network-economy based start-ups have such a huge advantage over asset leverage based incumbents.

The principles behind this are not totally new.

It used to be argued that goods for which the marginal costs, the cost of producing one more unit of customer value, were close to zero were inherently public goods and should be made publicly available. Before the digital era, roads and bridges were commonly used as examples. Maximum benefit from the initial investment is gained only if the use is as unrestricted as possible. People should have free, or almost free access.  Once the capital costs have been incurred, the more people there are sharing the benefits, the better it is for the whole value system in the future. This was the economic explanation for why roads were, and still are, under public ownership. The same logic applied to public libraries: a book can be read repeatedly at almost no extra cost.

What used to be called “public goods” is today called “platforms”. A new form of a company is being born!

Once the up-front costs have been incurred and the platform is established, the more people there are who are sharing the benefits, the greater the net present value of the whole value system becomes.  A platform company should therefore be as open, as accessible and as supportive as possible, to as many users as possible.  This is unequivocally the route to optimum value creation.  Moreover, the higher the value of the system, the costlier it becomes to all its members to replace it – creating a major barrier to entry.

Restructuring a firm for the new world would require concurrent relative downsizing of legacy systems and upsizing of the new open platforms.  As both are explicitly costly things to do and the financial rewards of the latter are typically deferred, the exercise becomes challenging for incumbents to implement within the constraints of the existing financial frameworks. But it is happening!

Internet scale economies can create almost boundless returns without the company growing at all. The goal of Supercell is to be “as small as possible” as Ilkka Paananen has said. At the beginning of 2013 Tumblr had only 145 employees and 100 million visitors. That meant it had 700.000 visitors per employee. The sheer size of an enterprise will tend to mean less in the digital network business than in the world of physical goods. Companies don’t grow any more in the way they used to! It is the networks that grow!

But something else needs to change too: customer focus has been the dominant mantra in business. Everybody knows that everything should focus on the customer. However this is not enough any more. Up to now, business has focused on the customer as an audience for products, services and marketing communications. In the world of digital networks, the customer will be transformed from being an audience to an actor. The activity of the customer focuses corporate effort.

The central aggregator of enterprise value will no longer be a value chain, but a network space, where these platform companies are fully market-facing and the customer experience is defined by applications connecting to the platform.

The basis of executive power is shifting from being in charge to being connected. New leaders understand that power with people is much more effective than power over people. It is about integrating the best of networked thinking and leveraging the new platforms for value creation.


Thank you Sasu Ristimäki for the iterations and thank you for developing my thinking.

More on the subject: Jeremy Rifkin.