Esko Kilpi on Interactive Value Creation

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

Tag: Social Web / Social Media

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.

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

A relational view to management

Gregory Bateson argued that humankind’s fall from grace began through separations such as separating the self from the other, separating thought from emotion, separating the sacred from the secular and separating the subject from the object.

Today, there is new thinking that is based on the very latest findings in the sciences of complexity and sociology. These new approaches define a participative, relational perspective: we should speak about subjects interacting with others in the co-evolution of a jointly constructed reality.

In mainstream thinking, managers are understood as the prime originators of what happens in their businesses. The central concern is how the manager/subject gets the follower/object to act in ways that reflect the manager’s perspective. Management continues to see relationships in terms of influence and manipulation. The manager’s perspective is taken for granted in terms of what the facts are, and what is true or false. Employees are treated as instruments. They are less active and less knowledgeable although they can be sources of information for the manager.

In identifying management with science, two concepts were imported, which we now take so much for granted that we hardly notice them. There is the assumption of the autonomous, rational individual which corresponds with the atomistic view of society and the objectification of nature. The second concept that is imported into management is that of the objective observer who identifies causality and tests hypotheses like visions and goals based on these identifications. The objective observer is detached from the phenomena being studied. When this idea is imported into theories of organization, the manager is the objective observer who is supposed to act upon rationally formulated hypotheses about organizational success.

These assumptions have created the still prevailing subject-object understanding of organizational relationships. When a person is understood as a knowing individual she is being viewed as a subject, distinct from others, the objects. Relations are considered from the point of view of the subject and are instrumental in nature.

The social business/relational perspective to management views life and knowing from a different point of view: knowledge is socially constructed. Knowledge is not stuff accumulated and stored by individuals. Contextual interpretation takes the place of the objective fact. When knowledge and truth are viewed as social and temporary then constructions of what we call understanding or knowledge are always a part of what is going on.

Whether the social process is called leadership, management, networking, or communication, knowing is an ongoing process of relating. Social media best produce connectedness and interdependence as processes that construct collective authority and responsibility. 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. Accordingly, reality in science is no longer viewed as a singular fact of nature but as multiple and socially constructed as David Weinberger writes in his newest book: “Too Big to Know”.

In a relational model identity is constructed from being in relationships, being connected, as contrasted with the mainstream view of identity through separation. Knowledge of self and the other thus becomes viewed as co-constructed.

The relational view sees networking and social media as conversational processes of meaning making. Here, people who network may be regarded as seeking to understand the meanings of the others’ contributions. To do so, they would have to give up the assumption that they and others necessarily mean the same thing by the same terms or expressions. A manager, when networking, would be asking questions that invite others to make explicit what is usually left tacit. In the end it is a process of movement of thought on the basis of multiple perspectives.

For Bateson and many others, re-engagement is essential for recovering wisdom and long-term vitality. This requires re-connecting with participative ways of knowing, with others as part of the self.

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Thank you Gregory Bateson, Doug Griffin, Ralph Stacey, Kenneth Gergen, David Weinberger and Katri Saarikivi

Why Start-ups should think differently

Corporations are the dominant mechanism by which economic activity is organized in developed countries. Whether there are opportunities for leaner and more agile approaches to value creation in the corporate context, is hence a key question for the prosperity and well-being in the society.

The big move we are in the midst of is towards an economy that is more centered on information products than physical products. Examples of this are financial services, professional services in general 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 the production of information. But this time the societal changes are huge. The Internet is the first communication environment that decentralizes the financial capital requirements of producing information. Much of the capital is not only distributed but also largely owned by the end users. Network servers are not very different from the computers we have at home. This is a complete departure from the model of TV broadcast stations and televisions.

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 now experience. The production of information goods always requires more human capital than financial capital. It is much more about finding brains than finding money. But the good news is that you are not limited to the local supply. Work on information products does not need to be co-located. 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 tangible goods production and high-cost/low-quality communications. These mindsets are not helpful in a world of widely distributed value creation and ubiquitous connectivity.

The opportunity 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 collaborative 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.

The financial capital constraints on action meant that having a great idea, or simply wanting to do something, was not enough to get one going and trying it out. In the networked economy, information products can now be created and co-created in a human-centric way, by interdependent individuals, interacting with each other by utilizing free or 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.

Pitching in the world that is built on the centrality of information and radical decentralization of intelligence may be more about justifying human capital investments than justifying financial investments. Perhaps start-ups in the future won’t even seek to create jobs at all because of their industrial-era nature, but may see themselves as platforms for all kinds of contributions from all over the network they are an active part of.

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Thank you Margaret Blair and Yochai Benkler

More on the subject: The work of Yochai Benkler. The Atlantic on progress in life and job careers. A TED video on unintended consequences. Steve Blank´s great post on start-ups. Irving Wladawsky-Berger´s post on new style of working. Luis Suarez writing about the social enterprise. GigaOM: Do we need defined hours of work any more? The Atlantic: A Jobs Plan for the Post-Cubicle Economy. “From a container to a platform”; @Joi Ito’s blog post @ the MIT Media Lab. A very nice Cisco ad.

From information to conversation

People often need to act and make decisions in situations in which causality is poorly understood, where there is considerable uncertainty and people hold different beliefs and have personal biases. However, people very reluctantly acknowledge that they face ambiguity at work. Problems in organizations tend to get labeled as lack of information. It feels more professional to try to solve a knowledge management problem that is called lack of information than a problem that is called confusion.

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 and just getting more information will not help them. What will help is a setting where they could negotiate and construct fresh ideas that would include their multiple interpretations of what they experience. The challenge is that managers often treat the existence of multiple views as a symptom of a weakness rather that as an accurate and needed barometer of uncertainty.

A mix of stimuli always surrounds people. The stimuli have no meaning apart from what the individuals make of it. In other words, the environment is a product of the persons, not something outside of them. People are selective in what they attend to in any situation and what is attended to become the environment. The reality is not an objective set of arrangements outside us, but is continually constructed in daily interaction.

If people want to create shared meaning, they need to talk about their experience in close proximity to its occurrence and have a common platform for conversation. They need to see their different views about the experience as richness and a prerequisite to learn what is going on.

Because any information can mean a variety of things, meaning cannot simply be discovered. Information does not help. We have to talk! Many meetings that are directed at the problems of ambiguity fail to handle it because potentially rich views are silenced by autocratic leadership, norms that encourage harmony or reluctance to admit that one has no idea what is going on.

A crucial property of creative work is that situations are progressively clarified in iterative interaction. Our reality is an ongoing accomplishment that takes form when people together make sense of the situations in which they find themselves.

Therefore our own joint sense-making actions are the determinants of the meaning that situations have. They are the true contents of our learning and development. Quoting Max Planck: “When we change the way we look at things, the things we look at change.”

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Thank you Doug Griffin, Jeffrey Sachs, Karl Weick, Stowe Boyd and Ralph Stacey

Background: Does more information mean we know less?

Communication as crowdsourcing

Communication constitutes reality. Communication is said to be the primary process by which human life is experienced: how we communicate creates and forms our experiences. Accordingly social life consists of dynamic interaction processes rather than stable structures. Therefore the way we communicate is of great interest. Where then do our communication-related habits come from?

We saw communication as a process of senders and receivers. The mass audience was seen as passive receivers and easily influenced by the media. The audience today is very different. Individuals have access to modes of communication that, just a few years ago, were available only for people working inside media channels. Most importantly the mathematical theory of communication, the concept of senders and receivers is not only unhelpful, but has been proven to be plain wrong in human communication!

Two distinct modes of communication have emerged and spread since the invention of the telegraph. The first mode was private point-to-point communication that was meant to connect people. The original telegraph was the classic example. It’s more developed form, the telephone, made synchronous communication between individuals on a global scale one of the defining technologies of the modern society.

The second mode was the public broadcasting of content. These two approaches to communication were advanced significantly by a series of innovations resulting in media technologies being perhaps the most socially disruptive developments of the past century, but the basic division into the two modes of private point-to-point and public broadcasting has remained essentially the same until now.

Thomas Edison filed a patent claim in the autumn of 1888 for a device, which, according to him “does for the eye what the phonograph does for the ear.” The kinetoscope as it was called, carried a long spiral of tiny images that could be viewed in a moving sequence by turning a crank and peering through a magnifying glass. Edison’s vision of this new technology was quite quickly taken over by people who saw motion pictures not as a personal experience but as a publicly broadcasted mass media.

In the US the primary financing for radio and TV broadcast stations came very quickly from airtime used for advertising. In other countries, different models emerged. In Europe radio/TV was funded largely through license fees paid by radio/TV set owners. This model was grounded in the belief that radio/TV is a political voice that should serve the interest of the “people” and not the interest of making a profit.

The broadcasting model of communication was now turned into the property of either advertisers or politicians.

This was because of the inherited way of thinking about people’s actions. We have two major ways of understanding why people behave the way they do. On the one hand, there is the causal explanation. People change because of external forces. People can be influenced, educated, motivated or even forced to change their behaviour. This is the causal thinking of mainstream management theory: I send you a message and you act. I steer you and your use of time.

On the other hand, there is the assumption of agency based on response-ability and responsiveness. Instead of seeing the audience as an undifferentiated, passive mass, we understand the audience as a network of people, forming small groups and larger communities. The commercial and political interest to broadcasting was a result from the belief that the media can mold masses. In contrast to earlier thinking, the society is today seen to consist of numerous differentiated communities, each with own values and interests. All media content is interpreted within the community according to social sense making within the group. The individuals are influenced more by their peers than by media. Meaning is not in the message, but is produced in interaction. Different people will understand what they view and read in very different ways.

A new, third form of communication in the digital, networked world combines broadcasting and point-to-point. The means of broadcasting are today available for individual people. They are not only the property of institutions. The audience for this new form of private broadcasting is not a passive mass, but the emerging, active communities that the individual wants to reach and connect with.

In it’s most basic form, responsive communication involves a three-part relationship: an initial broadcasted gesture from one individual, leaving it free who in the audience acts on the gesture, a voluntary response to that gesture by another, and resulting crowdsourced activity. Meaning here does not reside solely in any one of these parts but in the relationship of all three.

The passive audience view suggested that people are easily influenced by the media. The active audience view thinks that people make active decisions about how to aggregate, and how to respond. The mass society theories subscribed to the passive conception of the audience and public broadcasting. It is time now to subscribe to an active, responsive notion of the audience and the possibility of private broadcasting.

A transformative, third mode of communication is here.

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Thank you Robert Friedel, Kenneth Gergen, Stephen Littlejohn, Stowe Boyd, Doug Griffin, Clay Shirky, Kim Weckström and Jeff Jarvis

More on this: confused of calcutta and Using communication tools as a form of “co-presence” (The New York Times). Changing communication patterns.

Online is not a separate place

With the emergence of writing, physical presence was no longer necessary for sharing information. In other words, a person’s being there was not necessary for their influence to be felt. As typing replaced handwriting or when movable type replaced the hand copying of words, it became even easier to communicate with words that replicated ideas and simulated human interaction without face-to-face contact.

Cultures without writing used human contact as a means for interpreting shared reality. Information within these cultures was community-based and people tended to construct their identities in relation to the community. People were dependent on contact with others for information. Print cultures in contrast encouraged more individuality and less connectivity with the community. Literacy led to people looking for information through the relatively isolated practice of reading rather than through face-to-face interaction.

When encountering anything for which we don’t already have a term, we turn to metaphor in order to make a comparison between the new phenomenon and a familiar thing. For example we display applications on our desktops, we place documents in folders, and we check our mailboxes for messages or we speak about virtual communities when we refer to groups of people communicating online.

Online communication has challenged our ideas of what a community can be. Social media allow people to relate to groups of people who live beyond the borders of location and time in the very same way that print once allowed information to be free from the constraints of location. Social media thus redefine what local interaction is and remove the constraints we earlier had on community building. The view of online as a separate space, a “virtual” space or “cyberspace” is an unfortunate example of a misleading metaphor that makes it hard to understand what is going on today. Our social media tools are no more alternatives to real life than books; they are very much part of it – making life more meaningful. People who are concerned about the increasing use of online communication and digital media often express their worries about the decay of face-to-face contact, but in effect social media are reducing the transaction costs of group activities and are increasingly the new coordination tools for real-world action. It is all about a richer life!

Communities are about bonding and belonging. The public access that the Internet now allows people to have is mistakenly believed to mean trying to get the broadest possible audience. But in effect people are trying to reach people like themselves, like-minded people, in order to belong to a community. There has been a tremendous increase in the amount of material that is available to the public, not really intended for the public, but instead for the emerging communities.

Many of our behaviours are held in place not by rational decisions or desires but by present or bygone constraints. Our cultures are shaped as much by these constraints as they are by capabilities and aspirations. Changes often take place very fast when the constraints are removed. The challenge is that misleading metaphors are often the biggest obstacles to moving forward after the technological constraints are gone.

Change occurs not so much as a result of new information leading to individual learning but when the patterns of connectedness between individuals change. Learning as a result of the print revolution was seen as an individual process. Learning as a result of the social media revolution is an active process of communication between people. Knowledge was earlier seen as being stored in content. Today knowledge is understood to be perpetually constructed in communication. Books could be transmitted from one person to another. Today knowledge is the process of relating. The technological constraints are gone; now is the time to get rid of the wrong, constraining metaphors.

We are living a communication revolution that equals the changes brought about by print.

Thank you Andrew Wood, Euan Semple, Matthew Smith, Clay Shirky and Ralph Stacey

Background

Reading revolutions Thomas vander Wal’s blog

The theory behind hierarchies, markets and market makers

Vladimir Lenin (1870-1924) famously said that the economic system in Russia after the revolution would be run as one big factory. Many economists at the time said that this was impossible. Yet there were already big factories in the West then, and there still are, so why not? Is there a limit to the size of a factory that cannot be surpassed, or is it because the factory logic cannot be used outside a real factory?

The typical hierarchical, factory, form of an organization is meant to simplify communication, accountability and the coordination of tasks. In theory an employee needs only one connection, to the boss. This is far easier than communicating with all and trying to coordinate actions with everyone. And what about accountability? The worker is accountable only to her manager. That manager reports to her manager on the next level up, and the chain goes further, leading in the end to – Lenin.

During the centuries since the publication of “The Wealth of Nations” in 1776 by Adam Smith (1723-1790), the principal theme of most economists has been that government regulation or centralized planning were not necessary, or even welcome, in order to make an economic system function well. The coordination would be the result of pricing mechanisms in markets. Lenin and the communists were advised to move to a market economy. The parties in this system follow their own self-interest and are “governed”, when it comes to the actual choices they make, by the system of prices and information they possess. This is the polar opposite of centralized planning. Adam Smith was a proponent of extreme decentralization and something that did not really have a name at the time – democracy.

Ronald Coase (1910-2013) was one of the first economists who started to question mainstream thinking in economics. If a system of prices and competition could perform all the coordination that is necessary, why did we have centralized planning, not only in the now bygone communist countries, but also in well-functioning and successful firms? Why did we need management, whose function was to coordinate? Why didn’t we rely on markets?

Ronald Coase set out to bring these two different views together. It is almost impossible now to fathom that he found the answer as early as during the summer of 1932, at the age of 22. He realized that there were costs involved in using the pricing mechanism. The needs and offerings have to find one another. The prices have to be discovered. Negotiations need to be undertaken. Contracts have to be made. There may be disputes that later have to be settled. Adam Smith did not see this. These costs were not part of “the invisible hand” equation. Ronald Coase called these costs transaction costs.

The first revolutionary argument was that a firm would emerge, exist and continue to exist successfully if it performed its planning, coordination and management functions at a lower cost than would be incurred by means of market transactions, and also at a lower cost than would apply if the same things could be performed by another firm. This is where competition keeps firms internally efficient and where non-competition in the public sector creates complex, non-efficient governance models and units that are too big.

The second revolutionary argument was that a well-functioning economic system needs both markets and planning. This depends on the size of the organization and the level of the market side transaction costs. Increasing the size increases the internal transaction costs. Running a sizable organization is difficult and running an even bigger organization is even more difficult.

Managerial overheads increase as the organization grows. Management, communication and coordination are all transaction costs. Every sales call, every offer, every agreement and every meeting also consumes limited resources and increases transaction costs. As the corporation grows, all its energy finally goes into maintaining the corporation and does not benefit external stakeholders.

Whenever the transaction costs inside the organization reach the level of the transaction costs in the (outside) markets, markets outperform firms and outperform central planning/coordination in general. This was the main theoretical argument against Lenin. The same thing is clearly still evident today in companies like GM or organizations like large health care units. Communist countries learned their lesson, but we still haven’t.

The existence of high transaction costs outside firms led to the emergence of the firm as we know it, and management as we know it. A large part of corporate economic activity is designed to accomplish what high market transaction costs prevented earlier.

If the (transaction) costs of exchanging value in the society at large go down drastically as is happening today, the form and logic of economic and organizational entities necessarily need to change! The firm, as we have known it, becomes the more expensive alternative. Accordingly, a very different kind of management is needed when coordination can be performed without intermediaries with the help of new technologies.

Today, we stand on the threshold of an economy where the familiar economic entities are becoming increasingly irrelevant. The Internet, and new Internet based firms, rather than the traditional organizations, are becoming the most efficient means to create and exchange value.

For most of the developed world, corporate hierarchies, as much as markets, make up the dominant economic pattern. The Internet is nothing less than an extinction-level event for the traditional firm as we have known it for the past 100 years. The Internet makes it possible to create totally new forms of economic entities.

The Internet changes our views of markets and hierarchies in ways that Adam Smith or Vladimir Lenin could never have imagined. But Ronald Coase did much to explain the theory behind Uber, Airbnb and other new market makers as early as 1932.

Thank you @cs

Communication and diversity secure system-wide performance

In our competitive view of the world, we often think that the most capable are those who are the most competitive, and accordingly that competition creates and secures efficiency. It may be that high performance is incorrectly attributed to competition and is more a result of diversity, self-organizing communication and non-competitive processes of collaboration.

Competitive processes lead to the handicapping of the higher-level system that these processes are part of. This is because competitive selection leads to exclusion: something is left outside. Leaving something out always means a reduction of diversity. The resulting less diverse system is efficient in the short term, but always at the expense of flexibility. Agility and complex problem solving require diversity. Everything goes fine if nothing changes and if there are only easy problems to take care of!

Self-organizing, non-competitive processes are about interdependent individuals and groups solving problems in a shared context. Interaction creates capability beyond what could ever be predicted just by looking at the performance of the individuals involved. The higher performance and robustness are emergent properties of interaction. They are not attributable to the parts of the system. Social networks provide problem-solving capability that results directly from the amount of communication and level of diversity of communication.

Most organizations would soon fail if all their employees thought alike or had little or no contact. There are two new challenges. The first is to understand the need for networking with views and values that are different. The second challenge is even bigger because of the mainstream reductionist thinking: our assumption has been that by understanding the parts in detail, we understand the whole. This is simply not possible! What happens in interaction between the parts is more important than the parts. The whole is the emergent pattern of that interaction, not the sum of the parts.

Diversity here means the degree of unique information in the network. If all contribute the same information, then diversity is low. If each agent contributes relevant, unique information that is not shared by others, then the diversity measure is high.

Networks with a wide spectrum of filtering information are resilient to noise. This facilitating effect of diversity is critical when dealing with difficult problems where false information can lead to expensive consequences. Higher system performance and robustness occur through the simple collaborative combination of the different experiences of individuals, even though each individual takes part in communicative interaction from their own limited perspective.

The importance of self-organization and diversity is unfortunately still greatly underestimated today, particularly in centralized, monoculture systems – like firms. One of the great societal promises of social media is that interaction in wide-area networks, with enough diversity, can solve problems beyond the awareness of the individuals involved.

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Background: On serendipity

Thank you Stuart Kauffman, Sari Baldauf and Norman Johnson