Esko Kilpi on Interactive Value Creation

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

Tag: rational causality

Resilience, rationality and how we make decisions

We have been studying companies’ connections and disconnections for more than twenty years and have worked inside a huge number of them. Across all this research, common themes have emerged and intensified during the past few years: good communication in the era of the Internet and the new interactive tools does not mean any more that companies should listen carefully to their customers or that leaders should talk clearly with their subordinates. The linear view of communication, the movement of messages or sharing of content between people is giving way to a totally new understanding of what interaction, and work, are all about.

The first emerging theme is that communication is in fact a process of continuous coordination and knowledge creation. Knowledge is not shared as contents, but arises in action. Knowledge is never transmitted from one mind to another. It is a change from the movement of messages to a joint movement of thought. The future and viability of an organization depend on this process.

Economics still makes the assumption that individuals, the agents, as they are called, operate autonomously, separately from the influences of others. When choosing something, making a decision from a set of alternatives, the agent compares the attributes of the alternatives and selects the one that corresponds to her preferences. It is a world where independent individuals carefully weigh up the costs and benefits of any particular course of action.

However, scientists have emphasized the limits of our understanding. An important point is that these limits apply to everyone. They apply to politicians, to central bankers and to top executives of multinational companies. John Maynard Keynes once wrote that we have, as a rule, only the vaguest idea of the consequences of our actions. Herbert Simon and Stuart Kauffman on the other hand have argued that the number of future paths open to us at any point in time is so vast that it makes no sense at all to speak of the best or optimal decision.  But we still think the world works like a predictable machine operated by rational agents

Behavior that does not follow an economist’s definition is often called irrational, but it may be that in a world of ubiquitous networks, a proliferation of choice and an abundance of information, the economic definition of rationality has itself become outdated and irrational.

We need a new model of rational behavior and a new understanding of how we make decisions. We need a new decision model!

The second emerging theme is that the assumption that people make choices in isolation, that they do not adopt opinions simply because other people have them, is no longer sustainable. The choices people make, their buying decisions and their political views, are directly influenced by other people. That is to say that we construct our world together in communication. Network scientists such as Duncan Watts and Mark Granowetter have proved that the world comes to be what it is for us in our relationships. In the end it all depends on the company you keep and the conversations you have.

This leads to the importance of emphasizing relations instead of reductionism and separations. Reductionism means that the organization is understood as being split from its environment and one functional team is seen as being separate from another function. The worst mistake we make as a result of reductionist thinking may be that we assess and reward employees as if they were disconnected from other employees.

Links and communication are at the centre of organizational life. Depending on the quantity of interdependent links and the quality of communication, the organization lives or dies. Work is interaction between interdependent people.

The third emerging theme is that communication creates patterns. Words become what they are through the responsive actions of the people taking part. The relational view means in practice that if a conversation goes badly, it is always a joint achievement. On the other side, a conversation can only be successful if both participants join in and make it so as Ken Gergen points out. In management, it means that there is nothing one person alone can do to be a good manager. Good ideas don’t count as good ideas, if other people don’t treat them as such.

New leadership is about an awareness of creative and destructive patterns and having the ability to influence what is going on. In a creative pattern, the participants build on each other’s contributions. The conversation, thinking and action are in a process of forward movement.

Destructive patterns are the most harmful in terms of organizational viability. These patterns don’t contain forward movement but running in circles. People and organizations get stuck! People slow down in bitterness and silence, or even to the breaking of the link. The most destructive patterns often begin subtly, but unless they are worked with soon, not only will relations suffer but the whole network will deteriorate.

Being aware of the patterns includes being aware of the roles that we play. Whenever we speak, we do two things: we subtly define ourselves and define the other. Does the speaker in a company context define herself as one who can talk down to others or as an equal? What we say is important to the viability of the organization but the way we say it can be equally important. Talking down or talking up between people creates an asymmetry that leads to bad decisions and inefficient movement of thought.

The machine metaphor meant that we tended to think that the people “above” us have significant power. They are in control. We thus talked up to them. They should decide. They should do things for us because they were the ones who were responsible, not us. Knowing that they are not in control raises the question of a need for a new distribution of responsibility. Bottom-up as a metaphor is as harmful as top-down when the common goal is resilience.

There is no aspect of work or leadership that takes place outside the realm of communication. Human agency is not located or stored in an individual, contrary to mainstream economics. The individual mind arises continuously in communication between people.

Being skilfully present in the forward movement of thought and relational action is the new meaning of being rational.

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Thank you Ralph Stacey, Doug Griffin, Ken Gergen, Marcial Losada, Katri Saarikivi and Paul Ormerod

Links: “Resilient Performance in an Age of Uncertainty” “Possibilianism” “Stanley Milgram and the uncertainty of evil” “The fluid core“. “On functional stupidity and trust“. “Tulipmania” “Neuroeconomics

Business and complexity

Up to now, we have seen the world around us as systems that, we thought, could be described and understood by identifying rational 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 arrows between those boxes. We try to model the world as predictable processes based on knowing how things are and how they will be. We want to be certain, and we think we are.

Management thinking is 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 them, to their organizations – or to their countries. Things may appear orderly over time, but are inherently unpredictable. We live in a complex world.

Complex systems are, as their name implies, hard to understand. Social systems, like organizations consisting of people, are accordingly complex and hard to understand. There is no linearity in the world of human beings. There are no arrows and people are not boxes, or fit inside of boxes. This is why our thinking needs to develop from the sciences of certainty to something more applicable, the sciences of uncertainty, the sciences of complexity.

Complexity refers to a pattern, a movement in time that is, at the same time, predictable and unpredictable, knowable and unknowable. Chaos theory explains how these patterns form. A parameter might be the flow of information in the system. At low rates, meaning no input or more of the same input, the system moves forward displaying a repetitive, stuck behavior. At higher rates and more diversity the pattern changes. At very high rates the system displays a totally random behavior. The pattern is highly unstable. However, there is a level between repetition/stability and randomness/instability. This level where simultaneous coherence and novelty are experienced is called the edge of chaos.

Classical physics took individual entities and their separate movement (trajectories) as the unit of analysis in the same way we have analyzed and rewarded individuals. Henri Poincaré was the first scientist to find that there are two distinct kinds of energy. The first was the kinetic energy in the movement of the particle itself. The second was the energy arising from the interaction between particles. When this second energy is not there, the system is in a state of non-dynamism. When there is interactive energy, the system is dynamic and capable of novelty and renewal.

Interaction creates resonance between the particles. Resonance is the result of coupling the frequencies of particles leading to an increase in the amplitude. Resonance makes it impossible to identify individual movement in interactive environments because the individual’s trajectory depends more on the resonance with others than on the kinetic energy contained by the individual itself.

We are the result of our interaction. We are our relations.

The conclusions are important for us: firstly, novelty always emerges in a radically unpredictable way. The smallest overlooked variable or the tiniest change can escalate by non-linear iterations into a major transformative change in the later life of the system.

Secondly, the patterns are not caused by competitive selection or independent choices made by independent agents. Instead, what is happening happens in interaction, not by chance or by choice, but as a result of the interaction itself.

The new social technologies have the potential to influence connectivity and interaction as much as the sciences of complexity are going to influence our thinking. The task today is to understand what both social business and complexity mean. The next management paradigm is going to be based on those two, at the same time.

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John Hagel on “harnessing the power of randomness” and “resilience