Markets, networks and management
March 18, 2012
The claim is that the best way to understand complicated systems is to investigate the workings of each of the parts. If a car does not start, the mechanic looks for the problem and finds a dead battery. In a similar way a doctor finds a wounded muscle. The idea is that the best way to understand life is to investigate the workings of the parts separately from those of other parts.
In the economic world, the concept of markets is based on the same idea: autonomous sellers and buyers engage in discrete transactions where each agent is independent from the other agents and each transaction is separate from other transactions. The unit of analysis is the individual agent.
Network scientists have recently made very different claims. They say that all human systems are connected and that connected systems cannot be understood in terms of isolated parts. The study of isolated parts offers little help in understanding how the parts work in combination and what emerges as the result of network connections. The notion of emergence is central. Their aim is to discover emergent patterns: is it really so that individual greed turns into a pattern that can be called public good, as proponents of free markets have suggested following the rhetoric of Adam Smith?
The suggested unit of analysis is now communication and emergence, not entities.
This changes many of the beliefs we have taken for granted. The first change deals with the assumption of a knowing individual, the basic idea of Cartesian philosophy. The individual was understood as having a knowing mind. Individuals were thus treated as if they possessed properties such as expert knowledge. On the bases of her personal properties the knowing individual is then understood as the designer and controller of an internal and external world.
The perspective of network science views knowledge as socially created and socially re-created not as stuff of the mind that can be shared and stored by individuals. Knowing is a process of relating. From the network-based, relational perspective knowing is viewed as an ongoing and, never-ending process of making meaning in communication.
Management literature typically emphasizes individuals and locates explanatory power in their personal properties. Leaders are the sources of motivation, control and direction. The manager’s perspective is taken for granted as setting the limits of action and what is thought of as right or wrong.
Management theory is based on the same Cartesian assumptions of the self as subject, the other as object and relationships as influence and manipulation. This is why the present management thinking severely restricts what is thinkable and doable in the world of networks.
The potential of social media cannot be realized without a very different epistemological grounding, a relational perspective. Independently existing people and things then become viewed as co-constructed in coordinated networked action. Accordingly, the role of management is different, opening up new possibilities: power in networks is about “power to” or “power with”, and not “power over”.
The emergent pattern changes when the local interactions change. Self-interest in the network economy looks different from self-interest in the market economy; individual success is likely to take place through enriching relationships and being part of networked interaction aiming to facilitate both the individual and the collective effort.
Cooperation is the new competition.
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Thank you Dian Marie Hosking for great conversations
More: Reid Hoffman interview.
Christmas Letter
December 23, 2011
2011 was a year of major breakthroughs. The creative economy is here and looks very different from what we have been used to. I try to sum up some of the most important findings of the year.
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 was not really created but added step by step. The output of one task was the input of another. The image of work was the assembly line, meaning that work could be fragmented and individual performance goals could be set for each worker. The world was all about people and boxes separated from one another.
Physical tasks can be broken up in a reductionist way. Bigger tasks can be divided by assigning people to different smaller parts of the whole. For intellectual tasks, it is much harder to find parts that make for an efficient division of labour. Intellectual tasks are by default linked and complex.
Reductionism does not work any more.
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. The cognitive opportunity lies in the fact that as we don’t all select the same things, we don’t all miss the same things. If we can pool our insights in a creative, enriching way we can thrive in the complex world we live in. The challenge is that people often treat the existence of multiple views as a symptom of a weakness and conflict rather than as an accurate and needed sign of uncertainty.
Higher performance occurs through the combination of different perspectives and supportive, enriching communication.
Social interactions also play a role in shaping our brain. Repeated experiences sculpt the synaptic connections and rewire the brain. Accordingly, our relationships gradually frame the neural circuitry. Being chronically depressed by others or being emotionally nourished and enriched has lifelong impacts. Our mental life is co-created in an interconnected network. The human mind is not located and stored in an individual. Rather, what we have called the individual mind is something that arises continuously in relationships between people.
Supportive, energizing and enabling patterns of interaction have proven to be the most important explanation behind creativity and business success. The quality of action is always constrained/enabled by the quality of the interaction. The lines between the boxes matter more than the boxes! Communication either accelerates or slows down. Communication either creates value or creates waste. Communication either creates energy and inspiration or demeans and demotivates.
Communication forms much more than informs.
What is now needed is to unlearn the reductionist organizing principles that are still the mainstream. Knowledge used to be understood as the internal property of an individual. Today knowledge should be seen as networked communication.
Work is interaction between interdependent people and the network is the amplifier, and at best a supportive and enriching enabler.
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Networked thoughts and networked emotions
December 5, 2011
Since our individual views are always biased and since we cannot experience everything ourselves, other people become the co-creators of information, experience and meaning. Relationships, connections with others, create a networked way of knowing.
Because of more and more specialized, narrow skill sets, new ways of doing things with new definitions are emerging. Nobody can be successful without supporting contributions. One new role definition coming from Barry Nalebuff and Adam Brandenburger is a “complementor”. A complementor is not the same as a supplier. The connection is based on a non-hierarchic, voluntary network relationship, not the hierarchic value chain.
Complementary contributions may be the most important explanation of business success today. A classic example of complements is computer hardware and computer software. The greatest hardware engineers are in dire straits without the greatest software programmers. Though the idea of complements is most apparent in ICT, the principle is universal: you can never have in-house all the specialized skills you need.
A complement to an offering is another offering that makes it more attractive. People value sausages more when they have mustard. Because work is specialized, it does not pay to try to make both. The new strategic imperative is to identify complementors and to be inviting to them. To be competitive, is to be selfishly collaborative.
In the world of complementary competences, information becomes a process of continuous iteration and networked negotiation. Information networks are the architecture of work and a valuable, shared resource making the interactive movement of thought possible. These networks are the new commons.
Sociologists call such shared resources public goods. A private good is one that the owners can exclude others from using. Private has been valuable and public without much value during the era of scarcity economics. This is now changing in a dramatic way. On the new commons people with many ties and many complementors are better informed and have more signaling power, while those outside the commons and with few ties may be left behind. This may even be the new digital divide.
Network inequality creates and reinforces inequality of opportunity.
Emotional contagion is a fact of life. It means that not only information but our moods and even physical health are created in interaction with other people. We tilt either to the positive or tilt to the negative as a result of our relations, and the further relations, the people that we relate with have. It is a chain of contagion that goes far beyond the horizon.
We could, in theory, make an inventory that evaluates the “richness” of our relationships. My friend Marcial Losada has made breakthrough findings on interaction. The thought-provoking model he has created, which is based on decades of research, has three variables and three parameters. The variables are inquiry-advocacy, positivity-negativity, and other-self or external-internal orientation. The three parameters are connectivity, which is the critical control parameter, negativity bias and resistance to change.
According to Marcial, people are most successful when they are well connected, positive, and are able to balance external vs. internal orientation as well as inquiry vs. advocacy. John Gottman on the other hand, has found that in an enduring, happy relationship, a couple experience five times more positivity than negativity in interaction. If we take the work of Nalebuff/Brandenburger, Losada and Gottman seriously, as we should, it would mean that there is a golden mean for any ongoing relationship in our lives.
Organizations are patterns of relating between people. The critical success factor for a social business is to understand that we share feelings much more than we share information.
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Thank you Barry Nalebuff, Adam Brandenburger, Marcial Losada, John Gottman and Kenneth Gergen
The like button
September 2, 2011
What would life be like if no one acknowledged your existence. What if you were ignored and excluded.
Our social interactions play a role in shaping our brain. We know now that repeated experiences sculpt the synaptic connections and rewire our brain. Accordingly, our relationships gradually frame the neural circuitry. Being chronically depressed by others or being emotionally nourished and enriched has lifelong impacts. This is of course unwelcome news to someone whose relationships tend towards the negative but it also points out to where the possibilities for repairing the situation might be.
We can no longer see our minds as independent and separate but as thoroughly social. Our mental life is co-created in an interconnected network. The human mind is not located and stored in an individual. Rather, what we have called the individual mind is something that arises continuously in relationships between people.
Communication starts with acknowledgement. It is about granting attention to others and making room for them in our lives. Thus how we connect has tremendous significance. Our (management) attention should be on who is talking and who is being silenced? Who is included and who is being excluded? Who do I acknowledge and who acknowledges me?
Changing the way we communicate is the way we change organizations. Changing the conversation is not a major program or change process. It is about understanding and influencing participation. It is sometimes about new connections, new conversations, and new people taking actively part. It is often about asking different kind of questions and pointing to different kinds of issues. It is always about being more positive than negative.
There can be no change without changes in the patterns of communication. Organizations of any kind, no matter how large or how small they are, are continuously reproduced and transformed in the ongoing communicative interaction. The patterns of interaction in an organization are highly correlated with its performance. Thus we should pay much more attention to the strength and number of relationships and the wideness and depth of networked thinking.
My friend Marcial Losada has proved that the distinctive characteristic of a high productivity organization is the capacity to generate expansive, positive, emotional states. Emotions can thus be seen as the driving force behind cognition and action. There is a lot of truth in the sentence “I don’t remember what you said, but I remember how you made me feel”
Low connectivity, self-orientation and negativity can trap organizations and people into rigid patterns of thinking and limiting behavior. “We have a human habit of getting stuck in a certain way of thinking and finding it extremely difficult to jump out of the rut into another way of thinking” as Murray Gell-Mann put it.
In modern psychology, the word empathy is used in three senses: acknowledging a persons existence, understanding that person’s feelings and being responsive: I notice you, I listen to you, I act with you.
The new management challenge is to identify the patterns of interaction behind high or low productivity and high or low creativity. It is also about analyzing how and when we get stuck. Is it in endless advocacy? Is it in self-absorption? Is it a result of general negativity? The goal is to create expansive emotional spaces that open up possibilities for effective action, creativity and learning. It is not about having common goals and sharing the same values. It all starts with acknowledgment and recognition between different people with different views and different approaches, evolving into a more responsive and complementary sense of consciousness.
What would it be like to live in a world where acknowledgement was the accepted rule that we freely wanted to follow – any time, any place, and with anybody.
The like button, as one way of saying that I have noticed you, I see you, I hear you, is more important than we know.
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Thank you Marcial, Doug and Ralph, my dear friends
On attention and brain science . The Passion Economy . The architecture of cooperation .
We share feelings much more than we share information
February 10, 2010
There is one universally agreed-upon feature of a good life: enriching relationships. Researchers claim that we take stock of the people in our lives and the “flourishing” we get through being with them. The strategy people normally follow, mostly unconsciously though, is to try to spend more time with the people we resonate with, and less time with the people we don’t resonate with that well. Beyond this obvious solution, an even better possibility would be to create, and re-create, our relationships to make them more mutually nourishing. Emotional contagion is a fact of life. It means that our moods and even physical health are created in interaction with other people. We tilt either to the positive or tilt to the negative as a result of our relations, and the further relations, the people that we relate with have. It is a chain of contagion that goes far beyond the horizon.
We could, in theory, make an inventory that evaluates the “richness” of our relationships. My dear friend Marcial Losada has made breakthrough findings on interaction. The thought provoking model he has created, which is based on decades of research, has three variables and three parameters. The variables are inquiry-advocacy, positivity-negativity, and other-self or external-internal orientation. The three parameters are connectivity, which is the critical control parameter, negativity bias and resistance to change.
According to Marcial, people are most successful when they are well connected, and are able to balance external vs. internal orientation as well as inquiry and advocacy. The relationship should keep a positivity/negativity ratio within the “Losada Zone”, meaning greater than or equal to about 3:1 and not more than about 11:1.
John Gottman on the other hand, has found that in a happy marriage, a couple experience five times more positivity than negativity in interaction. If we take the work of Losada and Gottman seriously, as we should, it would mean that there is a golden mean for any ongoing relationship in our lives, both private and corporate. If the positivity/negativity ratio is below 3:1 it would mean that there is a need for urgent mending. In situations like this, the way we intuitively behave is to end the relationship. But perhaps we should not. Do we know how WE affect the lives of the people close to us? How do WE impact on others? Do we help others to flourish? If not, should they leave us?
The critical success factor of Enterprise 2.0, is to understand that we share feelings much more than we share information.
The unfortunate reality in enterprises is that there is a negativity bias in most in-house communication. Communication is often about solving problems and giving negative feed-back. Organizations are also optimized for repetition. There is an in built systemic resistance to changing communication patterns. It is very safe to assume to start with, that the positivity/negativity ratio is in the red. Thus, the most important management process is enriching the interaction.
Thank you @pekkahimanen and @ Esa Saarinen for meaningful discussions
