Social media and the change from information to formation
February 25, 2012
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
February 23, 2012
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. Collaboration 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
The social business
September 18, 2011
Almost all leadership concepts start with the assumption that a key role for the leader is to set a direction. This usually means designing and communicating a vision and a set of goals. Traditionally, the roles of vision and goals have been there to help people to understand the direction of the enterprise and how they can contribute to it.
Today we need something more.
We need to define what binds individuals together. Separate individuals connecting with the vision may not be enough if people don’t connect with one another. What we are striving to do is not enough if there is no discussion about who we are, and why we do the things we do. We cannot talk about an organization of people without referring to what makes them a collective.
Leadership in the era of the social business should be about providing a platform for discussing the meaning of work and the collective identity.
Leadership should address the human search for being part of something larger than one’s self. The more gifted people are, the more they want to connect with meaningful people doing meaningful things together.
As almost all organizations are becoming increasingly diverse and network-like, and as all boundaries are increasingly flexible, the notion of what brings people together is becoming even more critical.
When we think of intelligence, we usually think of extraordinary individuals. We imagine the thought processes of independent geniuses innovating in isolation. Nothing could be further away from the reality. Creativity is an interactive and social process for even the most gifted. Significant creative breakthroughs almost always represent years of sustained collaboration with others. Creative individuals need both independence and interdependence to do their best work. A creative organization thrives on the tension that arises from widely different but complementary abilities and views working with one another.
In industrial management, individuals were taken for granted and had no choice or voice. The foundations of work relationships are still largely built on asymmetrical relationships between the employer and the employee, the manager and the worker. This antagonism is already affecting labor markets in developed countries: firms are finding it increasingly hard to hire good people. Younger people are more and more attracted to self-employment and entrepreneurial possibilities instead of joining a corporation.
The ideas and technological solutions around the social enterprise can help renew and refresh outdated approaches to work.
The social business is very different from the industrial corporation. In order to be successful, the firm needs to listen and involve people in the same manner that we are today trying to do with one group – customers. Successful corporations, no matter how large and established, are evolving collectives of talented, passionate and diverse individuals in interaction
Knowledge workers want to have a say in what they do in life; where and when they work and most importantly – why and with whom!
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More on the subject: New social networks. David Weinberger on impractical knowledge and knowledge is the network. Douglas Rushkoff on the future of jobs.
Coworking spaces in London, and Amsterdam and co-working as a phenomena.
Reinventing capitalism
January 8, 2011
Economist Brian Arthur from the Santa Fe Institute argues that the ever increasing role of knowledge in value creation makes the foundations of economics badly outdated. Likewise, Peter Drucker predicted that “knowledge may come to occupy the place in the politics of the knowledge-based society which property and income occupied over the three centuries that we have come to call the age of capitalism.”
Luckily, an important and growing body of research and writing is exploring the theoretical nature of capital-centric enterprises. Although most of these efforts are still sketchy, they may well lead to normative implications concerning the allocation of claims and control rights in firms. If this happens, the new approaches may be very different from those principal-agent models that are the norm in capital-centric firms today.
In principal-agent models, employees are viewed as agents of the firm, and the managers of firms are viewed as agents of the shareholders. The management challenge is to design the terms of the relationships in a way that will encourage the agents to behave in ways that benefit the principals.
The firm is viewed as a contracting mechanism between providers of financial capital (the principals) and managers (the agents). Principal-agent models are extremely influential in corporate governance and have in reality formed the basis of mainstream compensation structures.
As early as 1964 Gary Becker coined the term “human capital” to refer to the fact that many of the skills and knowledge required to do knowledge work could only be acquired if “some investment was made in time and resources”.
In his seminal work, Becker considered the implications of the fact that some of the knowledge and skills acquired by employees have a much higher value in some relationships than they do in others. The labor services of employees with specialized skills can thus no longer be modelled as undifferentiated, generic inputs, for which wages and quantity, the number of employees, and the number of hours of work, are determined. Once employees are understood to have specialized skills, it matters which employee does what tasks for what firm. With specific human capital, the productivity of a particular individual depends not just on being part of a firm, but on being part of a particular group of people engaged in a particular task.
More importantly, once acquired, knowledge and skills that are specialized are assets that are at risk following the very same logic as that by which financial assets are at risk.
Is human capital then conceptually the same as financial capital and should investors in firm specific human capital also be seen as principals? Should capitalism accordingly create a much larger number of capitalists?
According to the mainstream principal-agent view of the firm, a corporation is understood to be something apart from each of its participants. The nexus of investments view suggested here offers a view of corporations that stresses willing participation by both financial investors and human capital investors, and the ability of both parties to protect their interests. A firm is essentially about creating long-term contracts when short-term contracts are too bothersome. Reinventing capitalism is about renegotiating many of the things that we have too long taken for granted.
I believe that everybody will benefit, if, in the future, a larger number of workers think like owners and act like investors.
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Thank you Brian Arthur, Steve Denning, John Hagel, Umair Haque, Gary Becker, Margaret Blair, Ronald Coase, Oliver Williamson, Harold Demsetz, Oliver Hart and Jeff Gates
Background reading. Robert H. Frank in the Boston Globe.
Enterprise 2.0
February 8, 2010
Corporations are the dominant mechanism by which economic activity is organized in our economies. How companies perform and what helps them to perform better are hence questions of huge importance. Corporations have such an enormous influence on our lives that corporate decision-making and actions might well deserve more attention right now than does discussing the new Enterprise 2.0 tools. Or, to put it in another way: what kind of changes in our corporate thinking would enable maximum benefits to be gained from social media?
One key question in corporate governance is, who should have the right to make what decisions, and why.
Instead of thinking that we already know the answer, let’s look at what is going on. Companies that focus on their share price, which is the business press doctrine, have the incentive to shut down, or move operations that are not generating the best possible profits for their shareholders, even though those operations are still generating substantial economic value in the area they are located in.
From the point of view of the people who are employed, and the society where those corporations are located, this is obviously not very efficient. I am not against globalization, quite the contrary, but it is doubtful whether maximizing the value of shares, maximizes social wealth. Can it be that the idea of companies’ “raison d étre” being the maximizing of shareholder value is a dangerously incomplete performance standard in post-industrial economies?
I am not suggesting at all that firms should serve all their stakeholders, or even society at large. I am certainly not talking about social responsibility here. What I am claiming is that there are other parties, other than shareholders, who have made an investment in the enterprise. In order to understand this, we should start by asking who is contributing to the enterprise, and what, and who is bearing what risk.
The question I am raising here is whether we can think of employees as labour any more. It matters in a very specific way who does what. The contributions of knowledge workers cannot be understood as fixed-wage generic inputs, but they can easily be understood as risk investments, in the very same way as we today understand shareholders’ financial contributions. We should ask whether the current social construct of allocating risks and rewards is inevitable for some reason, or whether it is an outdated industrial artefact that should be redesigned?
A large part of the economic surplus that a company creates is paid to the employees as wages. This is treated as an operating cost. Naturally, costs should be lowered. The picture would look somewhat different if we understood employees as being investors of human capital, and treated them accordingly. Our system of industrial management creates a systemic inefficiency in knowledge-based work. It can only be removed if the worker’s role included a more active (managerial) responsibility leading to responsive, agile practices. This cannot be achieved unless our mental construct of the employer employee relationship changes radically.
The change would mean that employees would explicitly bear the entrepreneurial accountability for the success or failure of the company, as they do any way and additionally benefit from any possible upside, just as shareholders do. From the point of view of corporate governance, it would mean that companies should be run in the interests of their employees, as much as in the interests of their owners.
To be honest, I don’t think that Enterprise 2.0 has that many employees, more contributors of different resources – mainly financial capital and human capital. Some investors invest for a long term, some for a very short term.
Thank you Gary Becker, Margaret Blair and Yochai Benkler
Crowdsourcing and the theory of the firm
January 4, 2010
A firm is normally seen as an entity that is separate from its members. After specific financial investments have been made, the firm is defined by the ownership of the physical assets and the power that the people who made these investments have. The owners choose their representatives, who choose the managers, who act as the “agents” of the “principals”/the owners. The managers then choose the workers. The most important role for the agents/managers is to serve the interest of the owners, the people who made the financial investment. As a result of this model, the relationship between the company and the contributors of financial capital is very different from the relationship between the company and the employees. Employees are seen as a resource, although a human resource, thus differentiating human beings from other resources serving the value chain. The role of the employee/resource is derived from the value chain architecture. The management target here is a close fit between the skill set of the employee, the job role description and the value chain. Because of this close fit, when major changes are planned to the value chain, it is more often good news for the investors than for the employees.
The system of selling and buying people in large chunks as a result of management decisions about “doing it inside the organization or outsourcing” is today explained as cost saving. In the 17th century the very same system was called slavery.
The modern firm has developed into a perfect vehicle for financial contributions and as a toolkit serves the needs of financial investors well, at least in good times.
As creativity and knowledge define success today, access to capabilities is as important for a firm as access to money. But, what if people mattered even more than money? What if it is going to get harder in the future to get knowledge workers’ contributions than to get financial investors’ contributions?
Should firms serve ideas and creativity more than they serve money?
Is the way we think about firms helping us to meet the challenge of the future or is the mainstream theory of the firm an obstacle for us? Firms are social and legal constructs. They are what we think firms are. Should we renew our old social construct of the firm being based on mass production and high capital costs to a newer version, a knowledge- and innovation-based view of the firm?
In the knowledge-based world we live in today, a knowledge worker is a knowledge worker because of a particular experience base. Being able to do knowledge work requires learning, very often a lot of learning, for a long time. Thus the capabilities of a knowledge worker can be seen as resembling accumulated capital, following the same kind of logic as we use when we speak about the accumulation of financial capital.
However, I use the term “human capital” here only as a metaphor in describing the new relationship between a firm and its employees. Skills are very different from money. Knowledge work is always contextual. It matters who does what and with whom. The skills of knowledge workers thus cannot be seen as homogeneous resources or as generalised labour. Knowledge work involves specific contributions to specific tasks. The knowledge-based view understands firms as contextual interaction, rather than seeing them as entities outside of interaction. Neither is it helpful to prioritise financial investments above human capital investments in the future. The knowledge-based view sees firms as continually evolving live networks of investments and interaction
Knowledge work is not job roles, but task specific contributions
A knowledge worker is thus always an investor. This means that in practice that we should not talk any more about the employer – employee relationship, when talking about knowledge work. Instead, it is an investment – investor relationship. The challenge for the firm is to be inviting to as many contributions/investments, as possible, from as many people as possible. Another difference from the industrial model is the growing need to cross organizational and geographic borders when trying to optimally match tasks and skilled contributions. The basic logic of knowledge work is thus Internet-based global crowdsourcing.
The firm of the future may be 100.000.000 people working together for ten minutes.
Crowdsourcing is not about the company consuming the information outsiders produce. By communicating and creating more relationships, the networked business increases its intellectual capital as the nodes of the network do the same. The network acts as an amplifier of knowledge.
The challenge for the knowledge worker is to take responsibility for the value and growth of her human capital and to plan her investment portfolio carefully. Work should always equal learning. As work requires interaction between people who need each other according to the context and the task, taking responsibility for human capital also requires taking responsibility for the value and growth of the human network.
