October 31, 2011
The approaches of industrial management have given us remarkable material well-being over the last few centuries, but are increasingly being criticized for not being suited to handling the needs of today. Organizations need to excel in innovation. Companies also need to embrace rapid change and uncertainty. Some of the most creative ones have even gone so far as to take a “let’s just do cool things and see what happens” approach, trying to avoid traditional governance systems. Is this yet another sign that management is in crisis?
The industrial theory of management is based on top managers choosing the future of their organization and guiding its development in the right direction. The belief is that managers can make useful forecasts and set goals. Their daily responsibility is to monitor activities to identify gaps between the goals and actual outcomes so that the gaps can be closed. Uncertainty plays a minor role. Managers know what is going on.
Every business is a set of assumptions that are taken as given, thus reducing the perceived uncertainty. The whole plan–execute cycle is a process designed to prove those assumptions correct. But assumptions are never totally right most often not totally wrong, either. Accordingly, it is quite seldom that ideas are turned into a successful business in just the way described in the business plan. Things change.
In conditions of rapid change and uncertainty, there have to be systematic processes indicating progress and new opportunities as they emerge. This is much more important than forecasting or planning. It is about testing the assumptions continuously and signalling which assumptions are helpful and which are not. It is about finding out repeatedly which of the efforts are creating value and which are wasteful. Are we on the right track? Are we progressing? What new possibilities have become visible?
Lean thinking defines value as providing benefit to the customer. Anything else is waste. But what if we really don’t know? Then the most important business process is to find out. We have to learn what creates value for different customers in different situations. “Anything that does not contribute to learning is waste” as Eric Ries puts it. The business challenge for a creative company is to learn fast and cheaply!
Management theory needs to leave behind the industrial, mechanistic model of reality and the belief in linear if-then, causality. The sciences of complexity, non-linear dynamics, uncertainty and creative learning are the foundations of modern, human-centric management.
The task of managers is not the reduction of uncertainty but to develop the capacity to operate creatively within it. Ilya Prigogine wrote in his book “The End of Certainty” that the future is not given, but under perpetual construction:
“Life is about unpredictable novelty where the possible is always richer than the real.”
Thank you Eric Ries, Stu Kauffman and Ralph Stacey
February 27, 2011
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.
February 12, 2011
In the past, the influence of external forces on business was not significant. The industrial factory was a fairly simple, isolated machine. The rest of this system was designed around the machine with tightly integrated supply chains and optimized use of coupled resources insulating the machine from shortages and stock-outs. Being efficient and productive inside the system was enough to prosper.
The assumptions of industrial management are not suited to today’s business environment. In contrast to the industrial era, when value was added primarily in the repetitive manufacturing processes, value is today created elsewhere, outside of the old industrial system. Value is co-created in the context of usage through customizable, reconfigurable and more or less unique solutions aggregated by the customer, not the manufacturer. There are no consumers any more!
The new environment is marked by conflicting constraints, variables that shift very rapidly and value creating relationships that change constantly.
Linear methods of management are not effective in a complex environment.
The ecosystems approach to efficiency is not designing processes but recombining successful elements to create new versions, some of which may thrive. Global coordination arises, unplanned, from the local, responsive interaction of the elements.
The traditional management approach was to require each worker to assume a predetermined responsibility for a specific role in the process sequence. The ecosystem approach represents a different logic of organizing based on neither the traditional market nor the process. Whereas processes involve relations based on dependence and markets involve relations based on independence, ecosystems involve relations of dynamic interdependence.
Minimal hierarchy, organizational diversity and responsiveness characterize ecosystems. Ecosystems are a response to the increasing complexity of strategic horizons and short half-life of designs. To cope with the uncertainties firms see themselves and the world around them as ecosystems, where every unit, every node in the network, should engage with learning. Instead of centralized design and planning, the activities of exploration are the responsibility of the whole network. Because of greater complexity, coordination and communication cannot be planned in advance, controlled or managed hierarchically.
Authority needs to be distributed; it is no longer delegated vertically but emerges horizontally in the networked ecosystem. Under distributed authority work teams and knowledge workers need to be accountable to other work teams and other knowledge workers instead of a single boss. You need to have many “bosses”. Success at ecosystems depends on learning by mutual accountability and responsiveness. This is much more than matrix organizations or internal markets.
Management and strategy used to be about rational choice between a set of known options and variables. Under circumstances of rapid technological change, the challenge is to create openness to possible options. Management of ecosystems is about facilitating continual renewal. Organizing in ecosystems is not something you do before you can work, but work is organizing. Success is based on continuous redefinition of the organization itself. It is about recombining options and contributions in a competing and collaborating environment.
The industrial model was based on thinking alike and subscribing to the same goals. The ecosystem model is based on diversity. New forms can emerge only if the nodes of the network differ from each other enough.
Instead of focusing on whether some managers institute more efficient processes or design the division of work better than others, ecosystem theory suggests that the properties of communication and connection between people are the causes of success. What the ecosystem becomes, emerges from the relationships of its members.
Value creation cannot be understood as industrial systems any more, but as continuously developing, complex, responsive ecosystems of connected people.
Discussions around the Nokia / Microsoft ecosystem: TechCrunch. GigaOM. Scobleizer. The official Nokia blog. GigaOM. The Intel opinion. The Wall Street Journal. Asymco on the Burning Platform Strategy.