The financial system of the world and the curious case of the Hakkar
February 18, 2010
Jeremy Grant and Michael Mackenzie write in today’s Financial Times about the software driven trading of shares. Software codes, algorithms, have become a common way of trading shares and derivatives. A string of code decides when, how and where to buy and sell financial instruments such as options and futures. No human intervention is needed.
Stock exchanges are at the moment building data centers where traders can place their computers containing their trading software. The exchange has a matching system that takes in and connects the “buy” and “sell” orders. The reason for the computers being at the same server farm is to save time. Buyers and sellers can now save milliseconds from the time it took to complete a trade over the network.
Technology has advanced so rapidly that financial markets are largely driven by computers instead of human beings.
The way many algorithms work is that some event, such as a news article, triggers the decision to trade. Another string of code seeks where in the world the best price can be found. The software technology behind this is so advanced that literally thousands of orders can be sent to the matching engines in a fraction of a second.
The technology has brought with it high frequency traders. They seek to make a profit from the opportunities that are presented by very small price changes lasting less than a second.
On September 13, 2005 World of Warcraft opened up a new area for advanced players. It was inhabited by a massive winged serpent called Hakkar. One of the tricks Hakkar had was the capability to spread a contagious disease called “corrupted blood”. The special thing was that when a player was infected, other players nearby also caught the disease. This was intended as a minor hindrance to the skilled players who had teamed together to fight Hakkar. Anyway the avatars in the World of Warcraft live in the virtual world of software. When they die during a combat, they return to their homes to come back to life and resume playing. No big deal.
This time however, things were different. The players responded to the new string of code in an unanticipated way. Rather than continuing to fight in the closed area, where Hakkar lived, some players teleported themselves to other areas of the game. As a result the infection spread widely through the whole virtual world. What the programmers intended to be a new challenge for advanced, powerful players in a localized area turned into a global epidemic that rapidly killed hundreds of thousands of weaker players. The programmers had no idea what was going on. Nothing seemed to work as they tried to regain control. Ultimately, the programmers resorted to a strategy that may not be an option for the global financial system. They pulled the plug on the whole world. They rebooted the servers and the epidemic died out.
The virtual financial system of the world affects the physical world outside the digital areas reserved for powerful, advanced players. It is a pity there is no plug to pull when hundreds of thousands of weaker companies start to die as a result of “unforeseen programming issues”.
Thank you Jeremy Grant and Michael Mackenzie
The Google lesson for management
February 13, 2010

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!
Thank you Jeff Howe and Ralph Stacey
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