Esko Kilpi on Interactive Value Creation

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

Tag: Strategy and complexity

Patterns and social objects

Complex systems are, as their name implies, hard to understand. The main difference between the sciences of certainty and the sciences of complexity lies in the different causal frameworks they are built upon. Up to now, we have seen the world around us as systems that, we thought, could be described and understood by identifying 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 lines between the boxes. We try to model the world as predictable processes that we can control.

The mainstream ways of thinking about management are based on the sciences of certainty. The whole system of strategic choice, goal setting and choosing actions to reach the given goals in a controlled way depends on predictability. The problem is that this familiar causal foundation cannot explain the reality we face. Almost daily, we experience the inability of leaders to choose what happens to their organizations – or to their countries.

We live in a complex world. Things may appear orderly over time, but are inherently unpredictable. If a system’s long-term behavior is unpredictable, goals can still be set, but there is no certainty that the actions taken are going to realize them.

Complexity refers to a pattern, a movement in time, that is at the same time predictable and unpredictable, knowable and unknowable. Healthy, ordinary, everyday life is always complex, no matter what the situation is. Human patterns that lose this complexity become repetitive and rapidly inappropriate for dealing with life. Unlike mechanical systems, human systems thrive on variety and diversity. An exact replication of behavior in nature would be disastrous. For example, a failing heart is typically characterized by loss of complexity.

Human interaction cannot be understood as predictive processes but as patterns. A pattern is something that unfolds through the complex interactions between elements in a system. Although there is apparent order, there is never exact repetition if the system is viable. This is why human interaction cannot be understood as processes in the way they were used in manufacturing, but as patterns.

Patterns that are more repetitive are normally called routines or habits. However, those routines do not cause our behavior. Instead routines are emergent patterns. They emerge in what we do. They continue to be sustained only as long as they are present in our everyday interaction.

The American sociologist George Herbert Mead (1863 – 1931) distinguished between two types of objects: physical objects and social objects. While a physical object may be understood in terms of itself, a social object has to be understood as being composed of patterns of interaction.

Mead referred to a market as an example of a social object. The acts of buying and selling define a market. Markets cannot exist without these social activities. When one person offers to buy something, this act involves a range of responses from other people. A person making an offer can only know how to make the offer if she is able to understand the attitude of the other parties to the bargain. The ideas of buying and selling are thus always interconnected. This is why it is called a “social” object.

The routines define the object. The social object can only be found in the conduct of different individuals engaged in the social act. Thus, there is no market that can be understood as an “it”. Mead’s social objects are not things but generalized tendencies to act in similar ways in similar situations.

We find it easy to regard social phenomena as things with an independent existence. We talk about financial markets being “nervous”. We want more people to recognize patterns “to predict what is going to happen”. But patterns can only be found in the experience of interaction itself. They have no existence separate from interaction and we cannot influence the patterns as separate entities.

We can just participate in interaction – in a dull and repetitive way or in a creative and rich way.

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Thank you Jyri Engeström for opening this discussion on the 13th. of April, 2005, with  “The case for the object-centered sociality“. Thank you also Melanie Mitchell, Ralph Stacey and Keith Sawyer.

More on the subject: Venessa Miemis. Thierry de Baillon. JP Rangaswami. Article on Wired magazine. Blog post on Complexitys. Gartner on “Emergent StructuresDeb Roy in TED

Social platforms for work

Before the industrial era, the mainstream economic activity was harvesting resources and trading them. In order to sell fish you needed to have access to the waters where the fish were, and you needed to have the right harvesting tools.

The industrial economy was centered on a different logic than the harvest and trade mindset, although the mining industry still today follows this logic. The new principle was to transform the raw materials into more valuable products. The success factors were now different. Raw material access was not the differentiator. In the new transformative economy, one could convert resources into products in places independent from where the raw materials or energy could be found. Securing access to production knowledge instead of access to raw materials became the key success factor. As it was important to know, information became the differentiator.

The industrial economy was based on economies of scale, standardization and specialization. The industrial logic was most vividly captured in the idea of the value chain. Value creating activities were sequential, unidirectional and linear. In the model, value is not really created but added step by step. To produce value, one receives something from one’s supplier, adds value to it and then passes it on. It is almost impossible to consider a supplier as a customer or a customer as a supplier.

But the relationships between firms, suppliers and customers are changing. The relationships are not purely transactional any more. The industrial relationship was based on the idea that the supplier did something for the customer that relieved the customer for doing that herself. Today leading firms are moving from the relieving logic to an enabling logic. Here the supplier does something together with the customer that enables the customer do things that would not be possible without the relationship.

The customers are not passive receivers and consumers of value but active contributors helping the providers to help them. Without the contribution of the customer, the value of the offering could not exist. Firm-customer relationships are not one-way but responsive interactions in which the parties “help each other to help each other”. Value creation is parallel and necessarily collaborative.

Division of work is now very different from the sequential, industrial value chain. Actors come together to co-create in a parallel, interactive manner. Different actors participate differently in different times leading to each value creating situation being somewhat different and unknowable in advance. Thus it is not possible to take any organizational form, process or skill set as pre-given. It is about ongoing, context specific, processes in time.

The move from the one-way and transactional business logic to interactive and relational logic changes the concept of management. Organizational change or strategic direction are neither caused by chance nor the choices of managers, but by the very nature of interaction, relationships and collaboration between people in the value network.

It is time to move away from thinking about an organization only as a system of predictive processes. Efficient participation in complex, ongoing, responsive interaction is the key differentiator and number one success factor today.

It is about access to people and confluence this time.

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Thank you Richard Normann, David Weinberger and Doug Griffin. More on the subject: “A social way of structuring work” by Stowe Boyd. The connected company by Dave Gray

The Google lesson for management

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. Nobel laureates write more papers than other scientists and these papers are more linked to than other papers. The system effectively measures quantity and quality at the same time.

Links on the Web are also citations, or votes, as the founders of Google realized. The whole Web is a densely interconnected network of references. It is no different to the age-old practice of academic publishing and citation indexing.

The observation of Larry Page and Sergey Brin that links are 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. 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. The PageRank algorithm includes other variables as well, but the measurement of links is still the core functionality of the system.

What Google has proved to managers 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.

Collaboration and collective work are best expressed through transparency and emergent, responsive 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 Web.

By relying on the uncoordinated 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. Companies are transforming themselves from industrial mass production to creating value in wide area networks of mass communication. The transparency of tasks is the corporate equivalent of publishing academic articles. Responsive linking, rather than predictive linking, acts as a measure of relevance and is the guarantee of quality. This has served the academic community well. It made Sergey Brin and Larry Page billionaires. Now is the time to do the same in the corporate world. Complex, creative, knowledge-based work requires new approaches. 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 create!

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Thank you Jeff Howe and Ralph Stacey

The problem of strategic choice

Either or thinking in strategy arises from the Aristotelian logic, which requires the elimination of paradoxes and dilemmas. Examples of these dilemmas are competition and collaboration or saving money and creating more value – at the same time. These dilemmas, if not resolved through choice and decision were seen as a sign of faulty thinking. As an alternative one could think of the problem of competition and collaboration or saving and providing a better service as a creative dilemma and a positive paradox. There are many different definitions of a paradox. It may mean a contradiction, a situation in which two conflicting elements exist at the same time. A paradox in this sense can be removed by choosing one side instead of the other or by reframing the problem to remove the contradiction. A paradox may also mean a state in which two opposing needs are simultaneously present, neither of which can be eliminated. There is therefore no possibility of a choice between the opposing poles or possibility of locating them apart without halting the process in time.

What is then required is a different kind of logic, such as the approach of Hegel instead of Aristotle. In Hegel’s thinking, the word paradox means the natural, and necessary, presence of conflicting ideas at the same time. A paradox is then the essential requirement for creativity and transformation. Paradoxes are a requirement of life. We live in a time when we have compartmentalized ourselves into disciplines, using engineered processes. Instead of these separations, we need to cross boundaries and interact to make new connections and insights. Crossing boundaries is always about working with differences. Differences are potentially conflictual in nature, and this is something we should now welcome. Conflicts give rise to the possibility of innovation and the potential for finding new solutions. Another example of this is the mathematical concept of chaos in the sciences of complexity. There the edge of chaos is a dynamic pattern in time that is stable and unstable at the same time. Stability and instability are inseparable. The dynamic is paradoxically both predictable and unpredictable. It is about predictable unpredictability or unpredictable predictability, stable instability or unstable stability. The contradiction and dilemma between stable and unstable cannot be resolved, but gives rise to the potential for creativity and innovation. It is time to refresh our thinking about strategic choice. It is time to embrace complexity and the enormous creative potential of live paradoxes.

Thank you Doug Griffin, Tomi Laamanen and Ralph Stacey