Esko Kilpi on Interactive Value Creation

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

Tag: Amyarta Sen

The Internet of Things

Industrial era enterprises viewed customers through the lens of a fairly uniform set of features, leading to customers being seen as having relatively uniform needs. But even commodity products are always a bundle of use contexts, buying patterns, complementary goods and delivery options. Just because a product is a commodity doesn’t mean that customers can’t be diverse in the ways they use the product.

All use cases are somewhat the same and somewhat different. This means that different customers and processes use products that are manufactured in the same way, with the same product features, differently. It is contextual. Customers and the way products are used, are today understood to be active contributors to value creation. The word “consumption” really means value creation, not value destruction. Companies don’t create value for customers, the way the products are used creates value, more value or less value.

The parties explicitly or implicitly “help each other to help each other”. Value creation is a process of interaction. As the goal is to create more value together, a critically important element would be to implant context aware intelligence and interaction capability to a product.

The Internet of Things refers to embedded computing power and networking capability of the physical objects through the use of sensors, microprocessors and software that can collect, actuate and transmit data about the products and their environment. The gathered data can then be analyzed to optimize, develop and design products, processes and customer services. IoT is often about two new digital “layers” for all products: (1) an algorithmic layer and (2) a network layer.

The algorithmic layer “teaches” the customer and the product itself to create more value in a context-aware way, and accordingly teaches the maker the product to develop. As a result, the customer’s need set is expanded beyond the pre-set physical features of the offering. This changes the conceptual definition of the product and it becomes more complex. The more complex the product, the more opportunities there are for the maker to learn something that will later make a difference.

From a marketing standpoint, when a customer teaches the firm behind the product how she uses the product, what she wants or how she wants it, the customer and the firm are also cooperating on the sale of a product, changing the industrial approach to sales and marketing. The marketing and sales departments used to be the customer’s proxy, with the exclusive role of interpreting changing customer needs. Internet-based business necessarily transforms the marketing function and sales specialists by formally integrating the customer use case into every part of the organization. Thus the customer of tomorrow interacts with, and should influence, every process of the maker through the connected, intelligent products.

In the age of the Internet of Things, all products are software products. The value of the code, computing power and connectivity, may determine the value potential of a product more than the physical product itself. The effectiveness of an offering is related to how well it packages the learning from past activities, other use cases and from other similar products and how it increases the users options for value creation through network connections in the present. The offering actuates data via algorithmic smartness and through live presence (in the Internet). Connectivity also enables some functions of the product to exist outside the physical product in the product system, the cloud.

A product or a service should today be pictured as a node in a network with links to supplementary services and complementary features surrounding the product. The task today is to visualize the product in the broadest sense possible.

Visualizing these connections changes the strategic opportunity space dramatically. The study of isolated parts offers little help in understanding how connected parts work in combination and what emerges as the result of network connections. Every link and relationship serves as a model for what might be possible in the future. What new relational technologies are making possible for manufacturing industries is a much, much richer repertoire of business opportunities than what we were used to in a traditional industrial firm.

The ability to create value in a remarkably more efficient and resource-wise way corresponds to possibilities for interaction with relevant actors, information and products. If interdependent links are few, poor, or constraining, the activity and value potential will be limited.

The Internet of Things and technological intelligence in general, create transformative opportunities for more efficient and more sustainable, resource-wise, practices and also higher margins!

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Thank you Rafael Ramirez

More on the subject: Ford’s OpenXC. Bosch. Kari A. Hintikka (In Finnish)

Neuroscience, The Internet and Leadership

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, a wiring together, that increases the strength of the connection. On the Internet there are wired servers and people that are linked in temporal interaction, sometimes as a result of being inspired and interested in the same topic, firing together. This short-term communication sometimes leads to a longer-term relationship, increasing the strength of the connection. New connections are formed, connections get stronger and connections are lost.

It is not uncommon to think that knowing is something that goes on in the brain. Yet the evidence that it is really so is not quite clear. Some scientists have 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.

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

According to Cathy Davidson, attention blindness is the fundamental structuring principle of the brain. Attention blindness is also the fundamental structuring principle of our society. We see and understand things selectively.

The opportunity lies in the fact that just as we don’t all select the same things, we don’t all miss the same things. If we can pool our insights we can thrive in the complex world we live in.

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. Every human relationship, every connection, serves as a model for what is possible. Within any relationship we are in the process of becoming. Each relationship will also bring us 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 before the Internet.

The dominant ways of thinking about the world have their origins in Newtonian mechanics in which the universe was simply the sum of its independent parts. At the moment, this part – whole thinking is being directly applied to the ways we think about leadership. Interdependence plays a minor role and anyway it is seen as the result of a deliberate choice. The Populist political thinking follows the logic that we can choose not to be interdependent.

The old ways of understanding human behavior are not up to the task any more. In contrast to Newtonian traditions, the science of social networks and modern neuroscience offer an entirely new way of understanding the fundamental interdependence of human beings and the human society.

There can be no change without changes in the patterns of communication. Organizations of any kind, no matter how large or how small they are, are continuously reproduced and transformed in the ongoing interaction. These patterns are highly correlated with performance.

In this way of thinking, we leave behind the idea of the self-governing, independent individual for a different notion, of interdependent people whose identities are established and developed in complex interaction with each other.

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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