Digital Transformation - Part II: Collective Intelligence Is the Game Changer

The science fiction writer William Gibson once astutely observed, “The future has already arrived; it’s just not evenly distributed.” As described in last month’s blog, our future is a digitally transformed world that will usher in an entirely new human epoch where the dominant top-down hierarchical structures of the first 10,000 years of human civilization will rapidly give way to the far more powerful peer-to-peer network architecture that is now possible, practical, and increasingly more pervasive thanks to the proliferation of digital technology. However, despite the increasing evidence of the ascendance of hyper-connectivity, our rapid transformation to a fully networked world remains hidden in plain sight. Although we use our connected iPhones to do Google searches as we step into an Uber car on our way to close a deal we made on eBay, we are in many ways oblivious as to just how radically the world is changing around us. Our tools may be networked and digital, but the world we carry around inside our heads is still very hierarchical and linear. It’s an unsustainable situation, and we know how this ends: The future always wins, and it’s just a matter of time before the future will become very evenly distributed.  

The Power of Many

The prime distinction between hierarchies and networks is that hierarchies are designed to leverage the “power of one,” while networks naturally enable the “power of many.” That is why networks are so much more powerful. Perhaps you may be thinking, if networks are so superior, why is it that hierarchies have shaped our social architecture for all this time? The simple answer is, until the digital technology revolution, we had no way to effectively bring people together into cohesive real-time networks. In the absence of this capability, the best we could do to coordinate the activities of large numbers of people was to build sophisticated hierarchical structures. The fundamental assumption underlying what was once the greatest human organizational innovation is that, by leveraging the individual intelligence of the elite leaders at the top, the whole organization is smarter than it otherwise would be if people were left to their own judgments. And for many centuries, this supposition was true.

However, the current technology revolution has spawned a new and very different innovation in organizational structure that has completely nullified this centuries-old assumption. In the hyper-connected network, the smartest organizations are not the ones with the smartest individuals, but rather those with the capacity to rapidly aggregate and leverage their collective intelligence.

What makes networks so superior is that they are distributed structures that are far more resilient because, unlike centralized structures, distributed structures don’t have single points of failure, which are the Achilles’ heel of command-and-control organizations. If you can disable a leader in a hierarchy, you can often disable the whole organization. This is not so with networks. Instead of leveraging the individual smarts of an elite few, networks leverage the collective intelligence of everyone in the distributed system, thus eliminating single points of failure in complex organizations. This eradication is the great game changer and, arguably, the single most important attribute of digital transformation.

The Wisdom of Crowds

 In his seminal book, The Wisdom of Crowds, James Surowiecki provides numerous examples of where, under the right conditions, distributed groups are highly intelligent and consistently outperform even the smartest individuals among them. He describes how the sports bookmakers at the Mirage assure the reliable profitability of the betting operations at the Las Vegas hotel by relying on the collective judgments of the gamblers to set the betting lines, how Linus Torvalds defied logic by introducing the phenomenon that has come to be known as crowdsourcing to build the highly successful Linux operating system, how the World Health Organization rapidly deployed a global networked communications structure to rapidly solve the SARS threat before it could spread to pandemic proportions, and how Google, a late entry into a crowded field of upstarts, established quick dominance of the search engine market when a pair of Stanford graduate students discovered a way to use the collective intelligence of the users to rank the pages.

Despite these compelling examples, tapping into the wisdom of the crowd is more the exception than the rule. Perhaps that’s because accessing collective intelligence is not as easy as it may appear. There are many leaders who feel that they are tapping into this resource by gathering different perspectives into a room and managing a spirited discussion among the multiple points of view before making an executive decision. While they may be well-intentioned, this is not how collective intelligence works.

Surowiecki specifies four conditions that are necessary to access the wisdom of the crowd:

·      Diversity of opinion: Having different perspectives—even eccentric notions—broadens the available information, provides the capacity for evolving ideas, makes it easier for individuals to be candid, and protects against the negative dynamics of shortsighted groupthink.

·      Independent thinking: Each individual is free to express his or her own opinions without editing and without any pressure to conform to the beliefs of others in the group. Surowiecki makes the point that “paradoxically, the best way for a group to be smart is for each person in it to think and act as independently as possible.”

·      Local knowledge: To truly access collective intelligence, the group must be able to draw upon specialized and localized knowledge because the closer a person is to the problem or the customer, the more likely he or she is to have a meaningful contribution.

·      Aggregation mechanisms: A distributed system can only produce genuinely intelligent results if there are processes or algorithms for integrating the content of everyone’s observations and opinions.

The Importance of Aggregation Mechanisms

Without all four conditions, accessing collective intelligence is not possible. That is why the leader who gathers different perspectives into a lively discussion is not tapping into the collective wisdom of the group. Although he or she may have access to multiple perspectives and have input from people with extensive local knowledge, chances are organizational politics is interfering with true independent thinking and when the leader is processing the consolidation of the information, there is clearly no aggregation mechanism. Google, on the other hand, has all four attributes. The billions of users assure diversity of opinion as well as sufficient local knowledge, people are free to exercise individual choice of the pages to view, and sophisticated algorithms serve as highly effective aggregation mechanisms.

Of the four conditions, perhaps the most important is the use of aggregation mechanisms. This is why so much of social media is dysfunctional. Popular sites such as Facebook and Twitter have the first three attributes, but are clearly devoid of aggregation mechanisms. And so, while we have diversity of opinion, independent thinking, and a great deal of local knowledge, without a way to aggregate the different contributions, we have a cacophony of chaos that divides us into myopic tribes and reinforces a highly polarized climate in which compromise and, even more so, consensus becomes impossible. This is the dark side of our hyper-connected world.

The Great Challenge

The great challenge for social media sites going forward is to become platforms that contribute to the best—and not the worst—that humans have to offer. To do so they need to find ways to develop sophisticated aggregation mechanisms that are capable of accessing and leveraging the collective intelligence of their users to transform tribal positions into innovative solutions that promote the common good. Creating this collective intelligence capability, while admittedly not easy, is the greatest contribution that social media sites could provide humanity for building a better future.

If we are to create this better future, we will need to change the world we carry inside our heads—a world that has been ingrained since the first day we stepped into a schoolroom. There we learned that human intelligence was an attribute of individuals and that knowledge is advanced through a competition of ideas. There is nothing in our educational histories that has prepared us for a world of networked intelligence that has suddenly actualized what used to be a platitudinous sentiment: Nobody is smarter than everybody.

We hold onto old mindsets about human intelligence because, as Surowiecki points out, “One of the striking things about the wisdom of crowds is that even though its effects are all around us, it’s easy to miss, and, even when it’s seen, it can be hard to accept.” Simply put, the phenomenon of collective intelligence has been hidden in plain sight because it defies all our beliefs about how intelligence works. But whether we believe it or not won’t matter for much longer because we are on the threshold of one of the most consequential events that will reshape the human experience and accelerate the evolution of both human and artificial collective intelligence: the connection of all humans and things via the Internet of Things (IoT). More on this in next month’s blog.

This article was originally published in the Huffington Post.

Digital Transformation - Part I:   It’s All About Networks

by Rod Collins, Innovation Sherpa at Salt Flats

In his recently published book, The Seventh Sense: Power, Fortune, and Survival in the Age of Networks, Joshua Cooper Ramo relates the story of one the most closely guarded secrets during the early years of the Cold War: If the Soviet Union had engaged in a nuclear first strike, it was highly likely the United States would have been unable to respond. That’s because the American field officers and their commanders in Washington would have had no way to communicate with each other. Consistent with the technology at the time, the American radio and telephone systems were highly centralized, which made them also highly vulnerable. One of the key structural problems of centralized systems is that each regional center has the potential to become a single point of failure that can disrupt the entire system, as often happens when air traffic across a nation is snarled because of unexpected weather at a major hub. Fortunately, this national security vulnerability was corrected with an innovative solution: the distributed network.

Recognizing the urgency of this challenge, Paul Baran, who at the time was with the joint venture between the U.S. Air Force and the Douglas Aircraft Company known as RAND, devised a way of building messaging systems without any central hubs. Each message would be able to find its own path from point A to point B. Thus, if any part of the system was disrupted, the remaining pathways in the network could resiliently adapt to route all the traffic in the system with minimal disruption. This structural shift from centralized systems to distributed networks, which solved a critical military problem in the 1950’s, would turn out to be a harbinger of a dramatic phenomenon that would shape the early twenty-first century: digital transformation.

Digital Transformation

There is no topic that is both more important and more confusing to business leaders than digital transformation. With the deluge of articles and keynote speeches on how the digital revolution is accelerating radical change, you would think that there would be more clarity about this pervasive phenomenon. Instead there is general sense of confusion reminiscent of the Buffalo Springfield lyric: “There’s something’s happening here; what it is ain’t exactly clear.”

What we do know is that none of us could live without what are now necessary gadgets that just a mere decade ago were figments of our imaginations. We also know that these marvels are changing our lives more profoundly than any of the progression of the twentieth-century gadgets spotlighted in Disney World’s Carousal of Progress.  What isn’t clear, however, is the extent to which the technology revolution has not only transformed our gadgets but also the fundamental fabric for how the world works. And until business leaders understand the full extent of the profound changes spawned by the technology revolution, digital transformation will remain an elusive enigma.

More Than a Technology Revolution

The first thing we need to understand is that digital transformation is not just a technology revolution; it is far more importantly, the most significant socioeconomic revolution in human history.  We are in the middle of an unprecedented inflection point in the development of civilization—the transition from the first human epoch where centralized hierarchies that leveraged individual intelligence were the basis of social organization to the second human epoch whose social structures will be highly sophisticated distributed networks capable of rapidly leveraging human and artificial collective intelligence. This fundamental architectural shift from hierarchies to networks is the essential evolutionary dynamic of digital transformation and is changing the world rapidly and profoundly, and there is nothing that can stop this change. 

In the next decade, we will experience two of the most consequential events in human history: the connection of all humans and things via a common digital network and the proliferation of human collective intelligence via artificial intelligence systems. This transition represents a seismic qualitative shift in the human experience because humanity itself will be transformed. The key building blocks for solidifying this shift are already in place; they just need to be configured.

An Architectural Shift

The next thing we need to understand is how networks work. That’s because, as Paul Mason presciently observes in his book Postcapitalism, “the ‘intelligent machine’ was not the computer but the network.” In other words, it’s not the gadgets that are intelligent, but rather the underlying networks of people and data that connect to the gadgets. What makes the gadgets so powerful is that for the first time we have the wherewithal to rapidly aggregate and leverage the global collective intelligence of human and data networks. And now that we have this capacity, an inevitable evolutionary shift has been set in motion, and when it is complete the fundamental architecture and the basic rules for how all our socioeconomic institutions work will be radically transformed.

 

When we think of architecture, what comes to mind are beautiful buildings or elaborate edifices. We rarely think of architecture as something that explains how societies or economies work. And yet without social architecture, much of what we experience as everyday life would not be possible.

A fundamental social architecture must answer two questions: 1) How does power work? and 2) How do things get done? In hierarchies, power belongs to those in charge and things get done through the application of centralized control mechanisms. Thus, hierarchical structures leverage the individual intelligence of the elite to organize the work of large numbers of unconnected people.   In networks, however, power belongs to the connected and things get done through the application of collective intelligence dynamics that enable the self-organization of work among large numbers of people. Thus, the prime distinction between hierarchies and networks is that hierarchies are designed to leverage the “power of one,” while networks naturally enable the “power of many.”

Networks Outperform Hierarchies

Hierarchies and networks are not equal alternative structures in a hyper-connected world. Networks tend to outperform hierarchies by a wide margin in terms of both intelligence and speed, as we learned in the summer of 2011 when Firas Khatib, a biochemist at the University of Washington, turned to Foldit to solve a stubborn molecular puzzle that had stumped the world’s best scientists for over a decade.

Foldit is a collaborative online video game developed by the University of Washington that enlists players worldwide to solve difficult molecular problems. What’s most interesting about Foldit is that many of the more than 250,000 players have little or no background in biochemistry. There are no special requirements for joining the Foldit community—all comers are welcome.

The stubborn puzzle involved figuring out the detailed molecular structure of a protein-cutting enzyme from an AIDS-like virus found in monkeys. Cracking this puzzle could be the breakthrough needed to arrest the medical malady. When Khatib presented the molecular challenge to the Foldit community, what had evaded the world’s best individual scientists for ten years was amazingly solved by the collective intelligence of a diverse group of online gamers within only ten days.

The Network Effect

Although, it may seem counterintuitive, networks are far more effective and efficient than hierarchies because, by leveraging the distributed intelligence of the many rather than the smarts of the elite few, networks accelerate the path to knowledge. This acceleration is a byproduct a what is known as the network effect, which is achieved when networks reach a sufficient level of critical mass to give rise to the sequential evolution of three laws:

·      The law of connections: the simple act of connection changes the fundamental dynamics for how power works by shifting the locus of power from elites to peers.

·      The law of self-organization: When the power shift is complete, peers begin to self-organize their efforts in autonomous and often unexpected ways.

·      The law of collective intelligence: When a network achieves an effective level of self-organization, it develops the capacity to rapidly aggregate and leverage its collective intelligence, often producing extraordinarily intelligent results at incredibly fast speeds.

 As the fundamental architecture for how the world works rapidly shifts from hierarchies to networks, our public and private sector leaders are severely challenged because, as Ramo, notes, “We’re at an extremely primitive point in our understanding of networks.” Rapidly increasing our understanding of how networks work and how to lead them is the most important leadership challenge of our day. Leaders can no longer afford to build centralized organizations where supervisors with the legitimate authority to kill good ideas or keep bad ideas alive become legions of single points of failure. If leaders want to build resilient organizations that have the wherewithal to rapidly adapt to disruptive change, the first task of digital transformation is to learn how to build and lead highly effective distributed networks.

This article was originally published in the Huffington Post.

 

Nobody Is Smarter or Faster Than Everybody

Nobody Is Smarter or Faster Than Everybody

One of the deepest beliefs of command-and-control management is the assumption that the smartest organization is the one with the smartest individuals. This belief is as old as scientific management itself. According to this way of thinking, just as there is a right way to perform every activity, there are right individuals who are essential for defining what are the right things and for making sure that things are done right. Thus, traditional organizations have long held that the key to the successful achievement of the corporation’s two basic accountabilities of strategy and execution is to hire the smartest individual managers and the brightest functional experts.

Command-and-control management assumes that intelligence fundamentally resides in a select number of star performers who are able to leverage their expertise across large groups of people through proper direction and effective control. Thus, the recruiting efforts and the promotional practices of most companies are focused on competing for and retaining the most talented people.  While established management thinking holds that most individual workers are replaceable, this is not so for those star performers whose decision-making and problem-solving prowess are heroically revered. Traditional hierarchical organizations firmly believe in the myth of the individual hero. They are convinced that a single highly intelligent individual can make the difference between success and failure, whether that person is a key senior executive, a functional expert, or even a highly paid consultant.

However, in a rapidly changing world, it is becoming painfully obvious to harried executives that no single individual or even an elite cadre of star performers can adequately process the ever-evolving knowledge of fast-changing markets into operational excellence in real-time. Eric Teller, the CEO of Google X, has astutely recognized that we now live in a world where the pace of technological change exceeds the capacity for most individuals to absorb these changes in real time. If we can’t depend upon smart individuals to process change in time to respond to market developments, what options do business leaders have?

Nobody Is Smarter Than Everybody

 If business executives want to build smart companies in a rapidly changing world, they will need to think differently and discover the most untapped resource in their organizations: the collective intelligence of their own people. Innovative organizations, such as Wikipedia and Google, have made this discovery and have leveraged the power of collective intelligence into powerful business models that have radically transformed their industries. The struggling online encyclopedia Nupedia rescued itself from oblivion when it serendipitously discovered an obscure application known as a wiki and transformed itself into Wikipedia by using the wiki platform to leverage the power of collective intelligence. In less than a decade, Wikipedia became the world’s most popular general reference resource. Google, which was a late entry into a crowded field of search engine upstarts, quickly garnered two-thirds of the search market by becoming the first engine to use the wisdom of crowds to rank web pages. These successful enterprises have uncovered the essential management wisdom for our times: Nobody is smarter or faster than everybody.

Two other companies that understand this management wisdom are W. L. Gore & Associates and Morning Star, both of whom have designed their organizations to leverage collective intelligence by eliminating all bosses. In both of these organizations, no one has the authority to make assignments or to control the work of other individuals. Rather than building top-down hierarchies, the founders of these companies designed their organizations as peer-to-peer networks that leverage the collective intelligence of the people who actually do the work to decide what to do and how to do it. And both have achieved remarkable success. Over its six decades, W. L. Gore has made a profit every year it has been in production and is perennially on Fortune’s list of the Best Companies to Work For. Morning Star, which was founded in 1970, has used what they term “self-management” to become the world’s largest tomato processor.

What all of these organizations have in common is a shared value that the smartest organizations are not the ones with the smartest elite individuals, but rather the ones who have the capacity to quickly aggregate and leverage the collective intelligence of everyone in their organizations.

A Counterintuitive Reality

Until recently, the notion that nobody is smarter or faster than everybody has been little more than a nice-sounding platitude that no one really believed. After all, unless you were one of the few who attended Montessori schools—which Google co-founders Larry Page and Sergey Brin did—most of us were reared in an educational system that worshipped at the altar of individual intelligence. From grade school through college, our academic success was measured by individual grades not our contributions to teams of mutual learners. We learned to compete rather than to collaborate with our fellow students. In fact, what enlightened companies call collaboration is considered cheating in most academic settings.

While smart individuals are important in any organization, it isn’t their unique intelligence that is paramount but rather their unique contributions to the overall intelligence of teams. That’s because the blending of the diverse perspectives of different types of intelligences is often the fastest path to the solution of complex problems, as we learned in the summer of 2011 when a diverse group of over 250,000 experts, non-experts, and unusual suspects in a scientific gaming community called Foldit, solved in ten days a biomolecular problem that had alluded the world’s best scientists for over ten years. This means a self-organized group that required no particular credentials for membership was 365 times more effective and efficient than the world’s most credentialed individual experts. Similarly, the non-credentialed contributors of Wikipedia were able to produce approximately 18,000 articles in its first year of operation compared to only 25 articles produced by academic experts in Nupedia’s first year. This means the wisdom of the crowd was 720 times more effective and efficient than the individual experts.  These results are completely counterintuitive to everything that most of us have been taught about how intelligence works. However, as counterintuitive as this may seem, the preeminence of collective intelligence has suddenly become a practical reality thanks to proliferation of digital technology over the last two decades.

As we move from the first wave of the digital revolution, which was sparked by connecting people via the Internet, to the second wave where everyone and everything will be hyper-connected in the emerging Internet of Things, our capacity to aggregate and leverage collective intelligence is likely to accelerate as practical applications of artificial intelligence become everyday realities.

The New Organizational Challenge

In a digitally disrupted world, the new challenge of managing large numbers of people is not about finding an elite few smart individuals and giving them the power to command and control the work of others; it’s about building an environment and a culture that naturally and rapidly integrates the intelligent contributions of everyone within an organization. This is what Wikipedia, Google, W. L. Gore, and Morning Star have done very successfully over the span of several decades. Each, in its own way, is a highly developed knowledge network with the capacity to leverage the wisdom of crowds to keep up with a relentless accelerating pace of change.

As we progress deeper into the Digital Age, more managers will come to understand that they can no longer survive by assuming the role of engineers and controllers manipulating the levers of order and authority. Managing at the new pace of change means that managers are now pathfinders and facilitators leading their organizations in partnership with their workers on collective quests for knowledge and speed in service of their customers. Managers skilled in both the social and the systems technologies of collective intelligence understand well that the smartest company is the one with quick access to collective intelligence and they also fully appreciate that, now more than ever, nobody is smarter or faster than everybody.

This article was originally published in the Huffington Post.

What Every Company Should Learn From United Airlines

by Rod Collins

The recent outrage over the violent removal of a boarded paying customer to make room for a commuting employee clearly caught United Airlines by surprise. As the facts of this troubling situation unfolded, it appears that the airline’s customer service representatives and its executives were initially convinced that the only real problem that happened during the boarding process of Flight 3411 was a passenger’s refusal to accept the airline’s re-accommodation policy. Within 24 hours of the incident, United’s CEO praised his employees in an internal memo for their adherence to company policy, reinforcing his commitment to stand behind them in their proper handling of a “belligerent” customer who refused to give up his seat in deference to corporate wishes. It appears from the memo that the CEO was certain the airline did everything right and that the passenger did everything wrong.

However, in the subsequent 24 hours, that certainty was shaken when a social media firestorm and a significant drop in United’s stock price brought a healthy sense of reality to the airline’s executive suite. The CEO began rapidly walking back his initial comments and shifting into full damage control mode when he realized, as far as the public was concerned, the passenger did nothing wrong and United did nothing right. How could United have gotten this so wrong, especially when you consider that this wasn’t the first time that United’s blind adherence to a bureaucratic policy created a social media firestorm that tarnished their brand. Had the late Yogi Berra been a passenger on this infamous flight, he might have commented, “See I told you, it’s déjà vu all over again.”  

“They’re Throwing Guitars Out There!”

In the summer of 2008, Dave Carroll and his band were traveling on United Airlines from Halifax, Nova Scotia to Omaha, Nebraska, where they were scheduled to perform. While they were sitting at the gate on their connecting flight at Chicago’s O’Hare Airport, Dave heard someone behind him exclaim, “They’re throwing guitars out there!” Dave’s eyes widened in horror as he looked out the window just in time to see his $3,500 Taylor guitar sail through the air and crash to the ground. When he arrived at the baggage claim in Omaha, he confirmed his worse fears: The neck on his beloved six-string was split in two.

Fortunately for Dave and the band, none of their other instruments were damaged and they were able to fulfill their concert obligations. Once things settled down after the hectic activity of the setups, rehearsals, and performances, Dave placed a call to United to register his claim with the airline for the expensive repair of his guitar. He was stunned when the customer service representative told him that there was nothing that the airline could do to help him and that the repair was his responsibility. According to United’s policy, all claims for damages must be filed within twenty-four hours, and Dave had missed the deadline. Dave protested that he had actually witnessed the irresponsible handling of his precious cargo and it was wrong for United to shirk its responsibility to its paying passengers by hiding behind a rigid policy. Despite his continued attempts over the next nine months, nobody up the chain of command would budge. The policy was quite clear, and it was evident that policy compliance was a prime value at United.

A Viral Solution

Realizing that he was at the end of the line with United’s brass, Dave took a different tack and posted a YouTube video of him and his band playing an original song entitled “United Breaks Guitars.” On its first day, the video received 150,000 hits. By day three, it had gone viral with more than 500,000 hits and caught the attention of United’s executives. The airline had a change of heart and called Dave to let him know that it might be willing to make an exception to its policy. United also asked if Dave might consider taking down the video. Dave responded that there was no way he was removing what had suddenly become his best marketing tool. Besides, he no longer needed to repair his guitar because Bob Taylor, the owner of Taylor Guitars, was so pleased with the positive publicity that he was receiving from the video that he gave Dave two replacement guitars to express his gratitude.

As of today, the original video has been viewed over 17 million times. Dave’s meteoric rise at the expense of what was once known as the “Friendly Skies” continued with the 2012 publication of his book on the power of one voice in the new world of social media. If there’s one airline that should have known from direct experience the power of social media, it’s clearly United Airlines.

The Power of One Voice in a Hyper-Connected World

When we heard Dave Carroll’s voice in protest against his mistreatment by United, it was a light-hearted parody spoofing the mindlessness of rigid bureaucratic policies that all too often defy human decency. We laughed along with Carroll and admired the creativeness with which this David slew Goliath. We all relished the newfound power that one voice could muster thanks to the new tools of social media. While we were irritated at United’s failure to take responsibility for its own actions, Carroll’s canniness and humor shaped the lasting memory of this escapade. In the end, it was Dave Carroll’s wit that we remember, and that was probably a good thing for United.

Unfortunately, the recent déjà vu incident is not likely to end as well for the airline. That’s because when we heard David Dao’s voice, we were shocked by the shrieks of anguish from the pain of a broken nose. As fellow passengers witnessed mindless bureaucratic policies morph into mindful violence, they sensed in the moment that a line had been crossed, and immediately took to social media to share with the world how Goliath had treated this David. This was no laughing matter; this was a distressing exhibition of violence by a company against a customer whose only infraction was to be firm on his right to remain in the seat that he had paid for. The video of Dao’s dragging has been viewed by over 550 million people who share a common reaction: outrage. Although United has been forced by a public outcry to take full responsibility for its actions, the airline’s callous initial response is likely to shape the lasting memory of this unfortunate scrape. In the end, it will be David Dao’s screams that we will remember, and that is not a good thing for United.

The Purpose of a Business

As United works to repair its tarnished brand, they might keep in mind a guiding principle that today’s best businesses take very seriously: In a hyper-connected world, everyone in an organization should always remember they work for the customers, not the bosses. Companies never go out of business because they lose their bosses. They only disappear when they lose their customers. That’s why the leaders of customer-centric companies wisely understand the primary purpose of a business is not about creating shareholder wealth; it’s about creating customer value. These vanguard leaders appreciate that shareholder wealth is the reward that customers provide when the true purpose of a business is delivered.

Unfortunately, what happened on Flight 3411—giving corporate policy priority over human decency—could have happened on almost any other airline as well as with many other transactional businesses. Far too many companies see business as a collection of financial transactions, and consequently, they don’t attach any real value to their customers because consumers are ultimately viewed as market mechanisms for converting products into profits. When the purpose of a business is to maximize shareholder wealth, it is easy to fall into the trap of thinking that dragging a paying customer from his seat is a sensible action when the airline needs to make room for a flight crew member who is critical for sustaining the profitability of another flight.

A customer-centric company would never see the forced removal of a paying customer as a sensible action. When the purpose of a business is to create customer value, business leaders are more focused on the customer experience than the customer transaction, and empower their employees to give priority to human decency over corporate policy. That’s what happened when a Zappos customer couldn’t find the time to stop by a UPS office to return multiple pairs of shoes when her mother suddenly passed away. Rather than stand on policy, the shoe retailer’s customer service reps arranged to send a UPS truck to a convenient place of the customer’s choosing. But that wasn’t all. The day following the pickup, the Zappos reps delivered a bouquet of flowers to comfort their valued customer in this difficult time in her life. That’s human decency in action!

The ultimate irony—and perhaps the most important lesson that every company should learn from United’s actions—is that policies that are myopically designed to protect profitability can be far more costly than the expenses saved. In a hyper-connected world, the wise business leader understands that human decency, not bureaucratic policies, drives profitability, especially when the purpose of a business is to create customer value.

This article was originally published in the Huffington Post.

 

 

 

Why Holacracy May Not Work For Extraverts

Holacracy & Extraverts Image.jpg

by Rod Collins, Innovation Sherpa at Salt Flats

 Early in my career, I discovered I was a borderline extravert when I completed the Myers-Briggs Type Indicator (MBTI) as part of a management training class. The tool measures psychological preferences among four sets of dichotomies: extraversion/introversion, sensing/intuition, thinking/feeling, and judging/perceiving. While my results showed that I had very dominant preferences in three of the categories, I had only a slight preference for extraversion. I was not surprised to learn that I go back and forth when it comes to being an extravert or an introvert.

The MBTI has been very popular in business circles because it shows how different people on the same team can view problems, process information, and make decisions very differently from each other, and yet, be equally effective. To demonstrate this insight, the class instructor divided our class of twelve into two groups based on our extraversion/introversion preferences, and assigned the same task to both groups. My group—the extraverts—immediately dove into the task, with everyone participating in a free flow of ideas and opinions. We engaged in a lively discussion where we often interrupted each other and sometimes finished each other’s sentences. We completed the task and had a fun time doing it.

When the instructor brought the two groups back together and we compared our results, both groups had come up with a responsive solution to the task. The instructor then asked us if we noticed any differences between the groups. One of the extraverts immediately jumped in and exclaimed how quiet the introvert group was, noticing that for the first few minutes no one spoke as each member was involved in writing notes. And when they did engage in conversation, it appeared very low key and orderly compared to the rowdy extraverts. As the instructor probed more deeply into the dynamics of the two groups, it became clear that everyone was satisfied with how his or her group operated. It was then that the instructor enlightened us with a valuable lesson about the difference between extraverts and introverts: When it comes to gathering and processing information, introverts like to “think things through,” and extraverts prefer to “talk things out.”

As we all know, we usually don’t begin our business meetings by separating introverts from extraverts. So what happens when these two groups are comingled in the same conversation? Typically, the extraverts’ style of talking things out prevails, leaving the introverts frustrated at the seeming messiness of what often feels like thoughtless debate. If organizations want to achieve highly effective work cultures, chances are they will need to find a way to balance the voices of both the introverts and the extraverts.

Building a Highly Effective Work Culture

Companies who take their work cultures seriously are apt to apply for Fortune’s annual list of the 100 Best Companies to Work For. Last month, the magazine unveiled the twentieth edition of this prestigious list. At the top of the list for an impressive eighth time in the last eleven years was Google. Google is one of a handful of companies that are perennial members of this distinguished group. Another company that once appeared poised to be a reliable presence on this list is now conspicuous by its absence for the second consecutive year: Zappos. Once renowned for its unique culture and its chosen mission of delivering happiness, the innovative Las Vegas retailer seems to have lost some of its cultural luster.

Zappos, which was founded in 1999, first appeared on Fortune’s list in 2009 when it debuted at #23. It remained on the list for seven consecutive years, peaking at #6 in 2011. During this time, Zappos had built a fun culture celebrated for treating employees and customers as family. Its reputation for turning culture into a corporate asset was so well-known that the shoe retailer needed to establish daily tours to accommodate the throngs of curious visitors who wanted a glimpse of this unique workplace.

The Biggest Holacracy Experiment

Zappos fall from Fortune’s prestigious list coincides with a singular and much publicized event: it’s adoption of Holacracy. In 2012, Tony Hsieh, Zappos’ CEO, attended a presentation by Brian Robertson who described the management system that he had introduced into his software company to eliminate the messiness of human interactions that often prevent organizations from achieving their full potential. Much of this messiness, according to Robertson, comes from the emotional distress of power struggles that plague traditional bureaucratic organizations. Robertson’s system employs a distributed network of roles within overlapping circles, where people follow very specific rules designed to make sure that all voices are heard as they rationally resolve differences and reach agreements.

Hsieh was so impressed with Robertson’s system, he decided that Holacracy would be the platform Zappos would use to reinvent itself into a self-managed organization. In doing so, Zappos would become the largest company to embrace this controversial organizational model. After piloting Holacracy in Human Resources in 2013, the whole organization adopted the new management system in 2014. Three years into this grand experiment, perhaps it’s time for leaders at Zappos to reconsider the wisdom of this move. And if they do, it might be useful to keep in mind the importance of balancing the needs of the introverts and the extraverts.

A System Designed for Introverts

Because Zappos’ adoption of Holacracy had been a major topic in the business press throughout 2014, I was pleased to have the opportunity in early 2015 to attend a half-day session on the innovative management system. The session was facilitated by one of the trainers who had been part of the team that oriented Zappos staff on the practices and principles of Holacracy. What became clear very quickly in the session—and what was subsequently reinforced when I read Robertson’s book, Holacracy: The New Management System for a Rapidly Changing World—is that Holacracy is a system designed for introverts. I was stuck by how similar the Holacracy practices were to the meeting dynamics that were naturally used by the introvert group in the MBTI training exercise that I had attended many years earlier.

Holacracy values rationality and order. Its rules are very explicit that only one person may speak at a time and usually only when it is your turn to speak. While people are free and encouraged to speak candidly and authentically during their speaking time, there is none of the usual back and forth that is the more natural style of extraverts who like to talk things out. Because I’m only a borderline extravert, my introvert side appreciated and valued the system’s cultivation of thoughtfulness. However, my extravert side was not at all comfortable with the proceedings. That’s probably because Holacracy successfully reverses the typical dynamics for what happens when introverts and extraverts are comingled by making sure that the introverts’ style of thinking things through prevails. Unfortunately, one of Holacracy’s unintended consequences is that it runs the risk of leaving the extraverts frustrated at the seeming rigidity of what feels like tedious and lifeless interaction.

Messiness Is Not the Problem       

As I became more familiar with Holacracy, especially after reading Robertson’s book, I appreciated the sincerity of what he set out to accomplish because I faced a similar task twenty years ago when I was a business executive leading a geographically distributed enterprise where endless debate among business factions thwarted our growth. It became undeniably clear that, if we were going to achieve our growth potential, we would have to stop the endless debate, and that meant designing meetings that worked. As we set out to design a different way of interacting, I remembered the insights learned in the MBTI class and knew that, if we were to work at our very best, our meetings needed to balance the voices and the styles of both the introverts and the extraverts. Our solution was an innovative meeting format that has evolved over the years into what is now known as the Collective Intelligence Workshop. This meeting protocol became the foundation for a networked-based management system that successfully aligned the dispersed activity of our distributed business.

The secret sauce of our new way of working was the continuous iteration between dynamics designed for the different needs of the introverts and the extraverts. There were times in these sessions where only one person could speak or where only clarifying questions could be entertained, especially early on when we were gathering initial information. There were other times where participants were engaged in small group exercises where the discussion was more free form in the accomplishment of a focused task. At other times the facilitator guided the participants through structured large group discussions where the individuals could build on each other’s ideas, often producing powerful ideas or results as the ostensible messy process morphed into creative insight.

We learned that messiness, in and of itself is not a problem—it’s unresolved messiness that’s the problem. Messiness is often the first stage of the creative journey, and if you structure out all the messiness, you run the risk of killing creativity. A great work culture is one where creativity thrives because organizations are able to balance the voices of both the introverts and the extraverts in a way that both of these styles feel their voices matter. If Zappos wants to return to the Fortune list, perhaps pivoting to a system that better balances these differing styles might be the solution.

This article was originally published in the Huffington Post.

The Future of Strategy 

by Rod Collins, Innovation Sherpa at Salt Flats

For more than a century, Kodak was one of America’s top-rated brands. Founded in 1890, the pioneering technology company became one of the great innovators of its time, transforming the photography industry from the purview of an elite few professionals and hobbyists into a market for the masses. Through a product progression of easy-to-use, affordable cameras, Kodak made taking pictures as effortless as the push of a button. Employing a simple and effective strategy—sell inexpensive cameras and make large margins on film and film processing—the photography innovator became a consistently profitable American icon. By 1976, Kodak had corralled a remarkable 90 percent of film sales and 85 percent of camera sales.

Around the same time, in 1975, Kodak’s engineers had created an innovation that was a significant departure from their usual product line: the world’s first digital camera. While the engineers were enthralled with the possibilities of their invention, the executives were less than enthused because Kodak’s economic engine was driven by film, not cameras. The top brass could not envision a world without film sales. Confident that they could maintain their firm decades-old grip over a market they created, the executives shelved the digital camera and stuck to their basic strategy.

At the time, few would have questioned the wisdom of maintaining a course that did, in fact, sustain Kodak’s market leadership for the next three decades. But was this truly strategic wisdom or merely an application of the complacent attitude, “If it ain’t broke, don’t fix it”? After all, how is it that this top-rated company, renowned for its strategic and leadership excellence, missed the eventual and inevitable transformation of its market in the first decade of our new century?

The Most Important Strategic Decision

The most important strategic decision that business leaders need to make is to know when it is time to change. Kodak’s strategic flaw in the mid-1970’s was not the decision to continue with their long-standing strategy; it was their failure to be competent in knowing when to change. Had they had this competency, they might have had the vision to recognize the coming of the digital revolution and the ability to leverage their shelved invention to once again transform the photography industry. Instead, it was Apple and not Kodak, that had the vision to invent the smart phone, which, in a few short years, decimated the market that Kodak had built and controlled for so many decades. The disruption began with the 2007 launch of the first iPhone, which included a basic digital camera, and culminated in 2011 with the high-quality video capabilities of the iPhone 4. By January 2012, the American icon was forced to file for Chapter 11 bankruptcy.

Strategy’s Roots: Planning

Since the invention of management in the late nineteenth century, the foundation of strategic work has been planning. In traditional management, it’s the responsibility of the leaders at the top to set the direction for the firm, chart a course of action, and define a plan for meeting business objectives. For most of the twentieth century, this approach worked well because market change was relatively incremental and business bosses had the wherewithal to shape markets.

Planning assumes that the world is basically static, the past is a proxy for the future, problems are issues of complication that can be solved with linear thinking, and plans can be executed with minimal modification. When change is incremental, planning works because the past becomes a powerful strategic tool. If leaders can fully understand the fundamental dynamics and interrelationships that explain the workings of their industries and markets, they can linearly extrapolate this understanding to shape future strategy. This explains why the essential work of strategy for most of the twentieth century was about forecasting and planning and why a common attribute of highly effective leaders was that they were experts on the past. If you understood the past, you could create the future by translating forecasts into workable plans, organizing activities around those plans, and executing according to plan.

Strategy’s Future: Sensemaking

But what happens when change is exponential and the past is no longer a proxy for the future? The assumptions that were true in the twentieth century have been rendered obsolete by the sudden emergence of the Digital Age, which has radically transformed how the world works. Business leaders now find themselves in a time of continuous accelerating change where the future is likely to be very different from the past, problems are issues of complexity that can only be solved by nonlinear holistic thinking, and strategic plans, as originally conceived, are short-lived because they no longer fit fast-changing circumstances.

Eric Teller, the CEO of Google’s research and development lab has insightfully observed that, somewhere in the first decade of the twenty-first century and for the first time in human history, the rate of technological change now exceeds the average rate at which most individuals can absorb the changes. When the world is rapidly changing, the danger of strategic plans is that they can suddenly become limiting factors, as happened to Kodak when it was unable to adapt to changing technology and stubbornly stuck to its strategic plan when it no longer made sense.

With the sudden increase in the pace of change spawned by the digital revolution, market shifts are now disruptive and impervious to the preferences and plans of executive leaders. If business leaders want to succeed in an age of accelerations, they need to accept that the foundation of strategic activity is no longer planning—it’s now sensemaking.  A collective sensemaking discipline that has the capacity to rapidly and holistically process change in real-time is a better foundation upon which to build strategy in a time of great change.

This is not to say that planning is no longer important. Quite the contrary, planning remains crucial as a dimension of delivery. It’s just that, in an age of accelerations, planning is a tactical and not a strategic activity. The essential work of strategy today and in the future is about having the capacity to rapidly adapt to accelerating change, and that can’t be done without a sophisticated sensemaking discipline.

Implementing A Sensemaking Discipline

The three most important things to understand about implementing a sensemaking discipline is that the activity is inherently collective, the process is emergent, and the purpose is to discover what’s unknown. When the pace of technological change is faster than the rate at which individuals can process change in real time, leaders need to learn how to rapidly aggregate and leverage their collective intelligence if they are to have any hope of managing at the pace of change. That’s because the popular adage that “nobody is smarter or faster than everybody” turns out to be true, as was clearly demonstrated a few years back in 2011 when the online Foldit community solved in ten days a stubborn biomolecular riddle that had evaded the world’s best individual scientists for over a decade.

When planning is the foundation for strategy, the end is often assumed and the status quo is rarely questioned, which makes strategic shifts difficult, if not impossible, especially if current business and product models have been lucrative. When sensemaking is the basis for strategic discipline, divergent ideas are embraced, independent thinking is encouraged, and aggregation mechanisms are employed to enable the right direction to emerge from the collective intelligence of the group. Often the emergent direction uncovers market knowledge that was previously hidden or unknown, which can then be leveraged into an innovative and sustainable competitive advantage.

We can only image what might have happened if Kodak had a robust sensemaking discipline. If the diversity of perspectives among the engineers and the executives had been better integrated, if the continuance of film and film processing as the core economic engine had been open to question, and if innovative business and product models could have been entertained, perhaps we would be stopping by Kodak stores rather than Apple stores when it was time to replace our mobile phones.

This article was originally published in the Huffington Post.

Rod Collins (@collinsrod) is the Innovation Sherpa at Salt Flats and the author of Wiki Management: A Revolutionary New Model for a Rapidly Changing and Collaborative World (AMACOM Books).

 

 

Why Companies Struggle with Innovation and Collaboration

by Rod Collins, Innovation Sherpa at Salt Flats

In a recent survey of over 1,700 CEOs, IBM reported the need to innovate and collaborate as uppermost on the minds of business leaders in both the public and the private sectors. Three out of every four CEOs in the study identified collaboration as the most important trait that they are seeking in their employees, and, in the face of an increasingly complex world brought about by the sudden emergence of the technology revolution, many chief executives realize that they need to make significant changes if their organizations are to respond to market pressures to innovate. In short, the business survival strategy for a market landscape where technology now tops the list of external forces impacting organizations is a simple mantra: “Innovate and collaborate.”

However, what is simple is not necessarily easy. While chief executives recognize they need to dramatically improve their capacities for both innovation and collaboration, it appears that few of them know what to do to accelerate their performance in these two critical strategic competencies. This may explain why, in his analysis of a recent study by economists Robert Litan and Ian Hathaway, Richard Florida notes that a reduction in business dynamism has led to the troubling condition where “business deaths now exceed births.” Perhaps the reason developing an effective capacity for innovation and collaboration is so hard is that many, if not most, business leaders are unaware of the defining elements of these two competencies.

When people think of innovation, they usually think of inventions, such as the Apple iPhone, Google glasses, or Wikipedia. While these products are indeed the outcomes of innovation, they are not the essential ingredients that make these companies masters of managing change. Often, when business leaders decide innovation is an important strategic initiative, their first move is to set up a department, put somebody in charge, and hold that person accountable for coming up with ideas for innovative products. Unfortunately, these initiatives rarely produce real results.

Innovation is not a department. It is a way of thinking and acting that alters the fundamental DNA of a business and its management so that creativity—which Steve Jobs defined as the simple act of connecting things—becomes the core fabric of the enterprise.

The essential element of innovation is serendipity, which is the capacity to make unusual connections. These connections are the incubators for innovative product ideas. Serendipity is something that is more likely to happen when people from various disciplines exchange ideas than from isolated activity inside a bureaucratic department. People working in silos “doing their part” are far less likely to come up with the idea of combining your telephone and your music collection into one device than a collection of workers from multiple perspectives. That’s why, for example, Google provides free meals for its workers. While many laud the company for its progressive approach to employee perks, the real reason for Google’s free food is to enable opportunities for serendipitous encounters.

When we think of collaboration, what usually comes to mind is a picture of a highly cooperative and coordinated group who really enjoy working together. We tend to think that group collaboration is a primarily a reflection of individual willingness on the part of different people to support each other. With this understanding, many leaders feel the key to improving collaboration is to train individuals to be more cooperative and are surprised when their training investment yields far less than expected. While cooperation and coordination are indeed important elements of collaboration, neither is the essential element.  Jane McGonigal, in her insightful book Reality is Broken, defines collaboration as the intersection of three kinds of efforts: cooperation, coordination, and co-creation. Of the three the most important element is co-creation because when workers have the opportunity to co-create what they do, cooperation and coordination are likely to follow. The simple reality is without co-creation, collaboration is not possible.

The reason why, despite their best intentions, so many companies struggle with innovation and collaboration is that their organizations are usually top-down hierarchies, and thus, are not designed to cultivate these two competencies. In fact, they are designed to unwittingly squash both innovation and collaboration. The defining attribute of the top-down hierarchy is the chain of command, which means, in every traditionally organized company, there is an army of supervisors who tend to be heavily invested in the status quo and have the positional authority to kill good ideas and keep bad ideas alive. Serendipity doesn’t stand a chance against this army because new ideas tend to threaten the status quo. Top-down hierarchies, where the fundamental dynamic is “to do what you’re told” inside fragmented silos, are not places where co-creation is even remotely possible.

If CEOs are serious about improving their companies’ capacity for innovation and collaboration, they need to transform their organizations from top-down hierarchies to peer-to peer-networks and model themselves after companies, such as Google, Amazon, Whole Foods, Morning Star, and Zappos. The leaders of these companies understand that, if you want your organization to be highly competent at innovation and collaboration, you design your organization for serendipity and co-creation. That’s why they build peer-to peer networks rather than top-down hierarchies.

Rod Collins (@collinsrod) is the Innovation Sherpa at Salt Flats and the author of Wiki Management: A Revolutionary New Model for a Rapidly Changing and Collaborative World (AMACOM Books). 

A Glimpse into the Future of Work

by Rod Collins, Innovation Sherpa at Salt Flats

While the technology revolution continues to transform daily living at a remarkable clip, we are suddenly becoming aware of possibilities that few of us could have imagined even a few years ago. Driverless cars, 3D printers, sophisticated robotics, artificial intelligence, and virtual reality are all early stage applications that seem destined to alter the world of work as we have known it. There are some futurists who portend that the current arc of technology is highly likely to rapidly eliminate many, if not most, jobs far more rapidly than any of us are prepared for. For example, as the founders of Google continue to make progress in developing driverless cars, we can envision a world where bus and taxi drivers will become as anachronistic as the long-gone elevator operators. With its recent beta testing of its first “checkout free” brick-and-mortar grocery store in Seattle, Amazon is giving us a preview of the retail store of the future where legions of checkers will be displaced by a network of sensors that will automatically charge us for our purchases as soon as we leave the store. And for those of us who prefer online purchasing, drones rather than couriers will be delivering goods to our doors. With all these developments looming on the horizon, it’s not surprising that many workers are anxious about what technology and globalization may mean for their future employability.

The Great Challenge

One of the great challenges—perhaps the greatest challenge—that we face in a digitally transformed world is finding new ways to create economic value for those whose jobs are eliminated by digital automation. One of the lessons of history is that, once automation eliminates certain types of jobs, they become, for all practical purposes, permanently extinct. And while many economists and business observers have argued this is a good thing because in eliminating lower paying menial jobs, automation often creates higher paying knowledge worker jobs, this is of little comfort to the increasing numbers of knowledge workers threatened by rapid advances in artificial intelligence.  If Watson can easily defeat the two most successful Jeopardy players of all time, how will they be able to compete in a digitally transformed workplace? Perhaps the answer is to rethink the fundamental structures of work. And that’s exactly what the innovative start-up company Stepes is doing by giving us a glimpse into the future of work and showing us how the very forces that are eliminating jobs may be creating new and very different ways of working.

 

Stepes is the world’s first chat-based translation app. First introduced by CSOFT International in 2016, Stepes is a leading-edge solution to a problem that is becoming increasingly more relevant in a hyper-connected global marketplace: rapid language translation. While there are several mechanized translators on the market, these automated applications tend to work best when the translation task is a single word or a simple phrase. However, most business applications, especially customer-facing translations, are more complex tasks requiring an understanding of linguistic context and cultural nuance. Linguistic interpretation can be risky business because companies who get lost in translation can pay a heavy price for their cultural dissonance. According to Carl Yao, CSOFT’s Vice President of Global Strategy, “inaccurate translation will not only deliver poor customer service but will also inevitably result in loss of business.”

An Innovative Working Model

In designing Stepes, Yao and his team recognized that businesses today need a translation capability that’s fast, accurate, and affordable. Building an operational capacity that delivers all three elements of this value proposition is the elusive mission. While mechanized translators are fast and affordable, they’re not necessarily accurate. And while legacy translation services are accurate and relatively affordable, they are often delivered by bureaucratic organizations that are not capable of real-time delivery. Until recently, legacy services were the industry norm because traditional markets had lower expectations about speed of delivery. The sudden emergence of a hyper-connected world where all computers and mobile phones are part of a single Internet means that information can be moved and processed at incredible speeds. This network effect has radically changed basic customer expectations about speed. Fast delivery is no longer a matter of weeks or days; it’s now about minutes and seconds.

Stepes’s innovative working model solves the elusive mission by leveraging the network effect across the entire world’s population of multi-lingual speakers. Instead of being limited to the current cohort of 250,000 professional translators, the Stepes model can rapidly access a resource pool of 3.6 billion people—the number of people worldwide who speak two or more languages. This exponential leap in the population of available linguists not only increases the quantity of translators, it also opens new possibilities for higher quality translations. James Davidson, CSOFT’s Senior Business Development Manager, points out, “If you need a highly technical medical translation, it could be done by a doctor on her lunch break.” Yao adds, “The Stepes operating model works very much like Uber. People can access the service through an app on their mobile devices, describe the work that needs to be done, agree upon a price, have the service provided in real-time, and rate the quality of the translator when the job is complete.”

Expanding Value Creation

By using an Internet platform to aggregate every multi-lingual person in the world into a single resource pool, Stepes is magnifying economic value creation by accelerating the expansion of an existing market and innovating new ways for people to work and be paid for their efforts in these widened markets. Market expansion is a natural consequence of coming up with a practical solution for delivering all three dimensions of the translation value proposition. We saw a similar expansion when Wikipedia came on the scene and provided instant access to the world’s largest encyclopedia to anyone who owned a mobile device. But unlike the online encyclopedia, which relies upon an army of unpaid volunteers, Stepes employs a network-based organizational structure, which like Uber, pays people for the work they perform.

One of the criticisms of the early network-based applications of the digital revolution is that the economic value created is not equitably distributed among all the value contributors. For example, Google, Twitter, and Facebook, could not survive if none of us contributed content. Yet, almost all the value for this content accrues to the select few who control the social media platforms. As long as people have jobs and participate on social networks in their spare time, a deal where they contribute content for free and get to use the service at no cost is agreeable. However, this arrangement will likely be unsustainable as the basic modus operandi when Big Data, 3D Printing, and advanced robotics converge to accelerate not just the elimination of jobs, but more importantly the passing of the bureaucratic organizations that produced those jobs. As technologies, such as Blockchain, develop the capacity to calculate the value of individual contributors, people whose companies have disappeared or who have lost their jobs will inevitably expect to share in the new wealth generated by their participation in the hyper-connected world. 

The Future of Work

The future of work will not take place in top-down bureaucratic structures for the simple reason that, once alternative networks form and achieve critical mass, they inevitably displace their hierarchical predecessors as happened with iTunes and music retailers, smart phones and Kodak, Netflix and Blockbuster. As the game-changing phenomenon of digital transformation—the fundamental architectural shift in the way that the world works from top-down hierarchies to peer-to-peer networks—continues, corporations are likely to look very different from their traditional counterparts. Instead of top-down hierarchical structures of bosses and employees, they will be peer-to-peer networks capable of accessing talent anywhere in the world. The future of work is not in jobs where people work for bosses; it’s in collaborations of independent agents participating in sophisticated human networks to provide fast, accurate and affordable services. And if these new organizations are to thrive, they will need to create new working arrangements, like Stepes, that better distribute the value created among all the contributors, but more importantly, provide an alternative, and hopefully, better way for people to earn a good living.

This article was originally published in the Huffington Post.

Rod Collins (@collinsrod) is the Innovation Sherpa at Salt Flats and the author of Wiki Management: A Revolutionary New Model for a Rapidly Changing and Collaborative World (AMACOM Books).

 

McINNOVATION Then

by Jason Harris, Head of Clients at Salt Flats

Recently I saw the new Ray Kroc biopic The Founder. The film was great.  

Acting was solid by Michael Keaton, and the storytelling is directionally accurate as to how Ray Kroc, a then 52-year-old milkshake equipment salesman and longstanding “idea man,” came across the McDonald Brothers and took their hamburger concept global.

What underlies the story—and Kroc’s true brilliance as what we would call a “technology scout” today—is all the innovation that McDonalds brought to the world.  

The movie starts in 1954, when a despondent Ray Kroc, who struggles to get restaurant owners to see the value in purchasing even one multi-milkshake mixer, gets an urgent order for eight multi-mixers from the McDonald’s burger restaurant in San Bernardino, CA. 

Baffled as to why one small restaurant would need so many mixers, the salesman hops into his car and drives 2,000 miles to discover what he hopes will be the secret to increased mixer sales. 

When Kroc arrives at the burger shop, he’s amazed as the number of people lined up at the counter and the speed with which the line moves. 

What Kroc sees is a remarkable innovation in how restaurants serve food that leads him to look past the mixers and pursue the expansion of an incredible business model:  An operating platform that applied assembly line mechanics to make 15-cent hamburgers, 10-cent fries, and 20-cent shakes.  

There is a brilliant scene in the movie, based on a true story, of the McDonald Brothers using a tennis court to test the layout of the kitchen equipment and service model.    It is portrayed in the movie as “rapid prototyping,” where they test various models over and over until they get it right. 

Ultimately, the application of Henry T. Ford’s auto assembly line theory to standardize food service creates the Speedee Service Model, which initially caught Ray’s eye … and ultimately transformed how we eat food. 

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Add in macro factors of mobility, suburbia, incentivized local owner operators and terrific branding, and McDonalds was off and growing.  And on the corporate side, the insight to own and leverage the real estate by choosing locations and constructing the restaurants for the franchisees, became the economic innovation engine that allowed the entire enterprise to prosper.Charles Duhigg, the author of Smarter, Faster, Better states in his book that innovation becomes more likely when old ideas are mixed in new ways.   He calls those that do it well, “Innovation Brokers.”

What Kroc and his leaders did better than anyone was to take existing information, answers, and resources, and apply them as solutions to new problems.  The innovation brokerage at McDonalds has a long history:

  • When families needed a place to eat comfortably, the dining room was introduced 
  • When a military man couldn’t enter the restaurant because he was dressed in uniform which was a no-no in those days, a hole was broken into the side of the kitchen and the first”drive thru” was born
  • When franchisees created new menu items to compete in their local markets, the most popular menu items were born:  The Big Mac, Egg McMuffin and Filet-O-Fish
  • When a marketing agency bundled and advertised a children’s meal plus a toy, the Happy Meal was born
  • And thousands of other innovations, large and small, have influenced how we consume food, many of which were behind the scenes in areas such as supply chain, food safety, real estate, finance, franchising, and marketing

McDonald’s, like many innovators, wasn’t always the first to an idea, yet their ability to scout an idea, rapidly test in market, and then scale across their established system became THE brand differentiator.  

Underlying all of this was the fundamental belief of freedom within a framework, a mantra that is as relevant in today’s fast moving, networked society as ever.

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Jason Harris (@jbennettharris) is Head of Clients for Salt Flats.  He spent more than a decade as a corporate executive in McDonalds in roles of strategy, communications and restaurant execution

The Essential Skill for Our Age

by Rod Collins, Innovation Sherpa at Salt Flats

 There is a common problem that imbues every one of our social institutions: We underestimate the full extent of how much and how rapidly the world around us is changing.  Whether you are in business or politics or education or the arts, your world has changed dramatically—if not radically—just within the past two decades. Despite the fact that most of us cognitively acknowledge that we live in a time of accelerating change, we nevertheless emotionally latch onto a familiar mindset to interpret unprecedented and unfamiliar realities. This explains why many traditional leaders believe that we are transitioning from a “Third Industrial Revolution,”—sometimes referred to as the Digital Revolution—to a “Fourth Industrial Revolution” that will be defined by the Internet of Things, robotics, nanotechnology, biotechnology, and 3D printers. While the world will indeed be reshaped by these innovations, it may be a very limiting—even a blinding—perspective to view what is happening around us as an iteration of a socioeconomic revolution that began in the mid-eighteenth century.

The late psychologist, Abraham Maslow, provided insight into the limitations of fixed mindsets when he observed, "I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail." Analogously, if the only mental model that leaders have is an industrial mindset, then it is tempting to treat every major technological breakthrough as another phase of the Industrial Revolution. The payoff for operating from this mental model is a sense of grounding that provides some comfort as we attempt to process what is now more change in a year than most previous generations have seen in a lifetime. But any comfort is certain to be short-lived because the Industrial Age is now decades gone and any interpretation of reality seen through the lens of the industrial mindset is likely to be an illusion.

The Most Significant Inflection Point in Human History

The unpalatable reality is that the Industrial Age began to rapidly recede somewhere in the 1980’s once computers were transformed from highly expensive institutional tools into affordable household appliances. The inevitable end of the three-century era came a decade later near the turn of the century when all these computers were connected to the Internet and a new socioeconomic age emerged: the Digital Age.

The Digital Age is not the third iteration of the Industrial Revolution, but rather the first age of a new epoch in the history of human civilization that has spawned an innovative form of social organization: the peer-to-peer network. The sudden emergence of a hyper-connected world represents the most significant inflection point in human history. In a mere two decades, this phenomenon has been far more transformative far more quickly than anything we’ve experienced in the now-gone Industrial Age.

A Profound Architectural Shift

What has come to be known as digital transformation is a profound architectural shift in the way that the world works from top-down hierarchies to peer-to-peer networks. For over three centuries, the dominant metaphor that shaped the mindset of Industrial Age thinking was the machine. This mechanistic mental model was a useful guide for navigating the challenges of a relatively predictable world where the pace of technological change was slower than our human capacity to adapt to change. When the world is seen as a machine, it is natural that the architecture of our social organizations takes the form of top-down hierarchies, which explains why the typical organizational chart looks like a mechanical schematic. And as long as the pace of change is slower than our ability to adapt to change, mechanistic mindsets are practical tools for interpreting how the world works. Despite its obvious annoyances, the bureaucratic organization is an important—if not the most important—innovation of the Industrial Age because it solved the great challenge of mass production: how to efficiently coordinate the work of very large numbers of people. And, arguably, because it was also the economic engine that created the middle class.

However, one of the consequences of the sudden emergence of accelerating change is that bureaucracies are no longer practical tools for organizing large numbers for the simple reason that somewhere in the past decade, according to Eric Teller, the CEO of Google’s X research and development lab, we crossed the point where the pace of technological change now exceeds our human capacity to adapt to change. That’s why the transformation into a hyper-connected world is the most significant inflection point in human history and why the machine is no longer a workable metaphor for how the world works.

The genesis of this inflection point can be traced to a seminal event: the connection of all computers to the Internet.  Once everyone was connected and the network became firmly rooted, the world and its problems suddenly became more challenging and beyond the solution capacities of linear mechanistic models. But more importantly, a new dominant metaphor emerged that’s a better fit for a connected world: the network. This morphing of social metaphors explains why this inflection point is more than a technology revolution; it is equally—if not more importantly—a sociological revolution. Digital transformation is clearly not a new iteration of the Industrial Revolution. It is a paradigm shift in how we view and solve problems when the world is changing faster than any of us can absorb in real time.

The Need for a Higher Level of Thinking

Another related consequence of digital transformation is that the fundamental context of our problems and challenges has shifted from the complicated to the complex. Complicated problems, such as designing and building an automobile, can be solved by employing mechanical thinking and hierarchical division of labor because machines don’t evolve and fixed blueprints work as reliable guides. However solving complex problems, such as staying one step ahead of disruptive technologies, creating new ways to create economic value for those whose jobs are eliminated by automation, or restoring security to obsolescent systems that fall prey to an increasing army of hackers will require a higher level of thinking than our mechanistic models provide. It requires a deep understanding of networks and how they work. And that’s a problem for most of our leaders today because, according to Joshua Cooper Ramo, “We’re at an extremely primitive point in our understanding of networks.”

A New Power Dynamic

In his most recent book, The Seventh Sense: Power, Fortune, and Survival in an Age of Networks, Ramo provides a timely survey of the uncharted landscape of our new networked world and a practical guide to navigating this unfamiliar territory. He describes the Seventh Sense as a new instinct for understanding how power works in networks and a new framework for thinking that enables people to “look at any object and see potential that is invisible to the rest of us.”

The first thing we need to understand about networks is that they are not products of planning and they don’t follow blueprints. Networks are emergent and follow organic laws rather than mechanical principles. According to Ramo, “Networks emerge when nodes—which can be composed of people, financial markets, computers, mobile devices, drones, or any lively and connectable object—link to other nodes.” And when networks take hold, they often spontaneously and rapidly create results and consequences that were neither planned nor anticipated. For example, when Jimmy Wales launched Wikipedia, all he intended was to create a viable online encyclopedia alternative. He never envisioned that his innovative platform would become one of the five most visited websites and would end the 244-year reign of the iconic industry leader. Those were unintended consequences. They were also manifestations of a new power dynamic.

The Essential Skill of Our Age

When the mere act of connection alters reality in a way that cannot be planned and unleashes a radically different and formidable power dynamic, maintaining a persistent attachment to a mechanistic mindset can be perilous. As Ramo astutely observes, “The failure to spot, understand, and use connected power will be a source of our biggest future tragedies.” In our new hyper-connected world, the successful leaders will be those who, like Wales, understand that the prime organizational challenge is mass collaboration, which means that power is less about planning and control and more about connecting and collaborating.

 

When power is a function of connectivity, mastery of network connections, Ramo counsels, “is the essential skill of our age.” Surviving and thriving in our new epoch will require leaders to learn a higher level of thinking that is “fluent both in the new language of networks and in their new cultures.” To do so, leaders must be willing to let go of an old mindset that was once useful but has now become a flawed worldview. They will need to appreciate and not underestimate the full magnitude of how rapidly the world and its rules are changing because the faster they embrace a mental model that reflects the dynamic architecture of networks, the better they will be able to handle the next iteration of network challenges. That’s important because, as Ramo advises, “we know that lingering ahead is an even faster, more complex world: Quantum computing, for instance, may yet push computer speeds to 100 billion times faster than what is achievable with older technology.”  

 

This article was originally published in the Huffington Post.

 

Rod Collins (@collinsrod) is the Innovation Sherpa at Salt Flats and the author of Wiki Management: A Revolutionary New Model for a Rapidly Changing and Collaborative World (AMACOM Books). 

 

Four Key Lessons On How Innovation Works

Innovators Book Image.jpg

by Rod Collins, Innovation Sherpa at Salt Flats

 There are few business leaders who would deny that we are living in a time of unprecedented innovation.  Google and Wikipedia, Facebook and Twitter, iPhones and iPads, Spotify and Netflix—none of which existed a mere two decade ago—have radically changed the way markets work. Toward the end of his life as he contemplated the rapid developments of the emerging digital age, Peter Drucker astutely observed, “If you don’t understand innovation, you don’t understand business.”  The need to innovate—and to innovate quickly—has become a business imperative for thriving in a post-digital hyper-connected world, and yet most businesses today struggle in the face of this challenge.

According to Steve Denning, the principle reason that many U.S. firms are dying is a failure to innovate that stems from a lack of resources to cultivate new ideas and pursue innovations capable of keeping pace with a more competitive global marketplace. If Drucker and Denning are right in their assessment of the importance of innovation, filling this resource gap may very well be job one for today’s business leaders.

Walter Isaacson’s recent book, The Innovators: How a Group of Hackers, Geniuses, and Geeks Created the Digital Revolution provides important insights into what business leaders need to do to install the processes that naturally enable innovative workplaces. Isaacson’s comprehensive overview of the evolution of the digital age is as much a story about management evolution as it is about technological revolution. While Isaacson chronicles the back-stories behind the development of physical devices, such as the transistor, the computer, and the Internet, he also sheds light on the creation of new organizational structures that serve as the incubators and the accelerators of innovation. The “invention of a corporate culture and management style that was the antithesis of the hierarchical organization” is the context, without which, the content of innovation may have never happened. Perhaps the reason so many companies struggle with innovation is because they are operating from the wrong context.

Among the many lessons that Isaacson draws from understanding the dynamics of how innovation works, there are four key lessons that may help business leaders close their innovation gap.

1.  Collaborative Teamwork

 Innovation is a collaborative process and teamwork is its essential skill.

“Innovation comes from teams,” according to Isaacson, “more often than the lightbulb moments of lone geniuses.” This is perhaps the one most important observation about how innovation works. The context for innovation has more to do with leveraging the collective intelligence of the many than with relying on the individual intelligence of the few.  Teams that excel at innovation tend to be collegial and typically bring together people with a wide diversity of skills. Whereas traditional organizations organize by departments of similarly skilled workers under the direction of single supervisors, innovative organizations tend to organize by project in more self-managed structures that are better suited for enabling the serendipity that is often the fuel of innovation.

Teamwork is the essential skill because innovation is, at its core, a collaborative process. While traditional leaders recognize the need for collaboration—as noted in a recent IBM CEO study that found that 75 percent of CEO’s identified collaboration as the most important organizational attribute—the same study found that most of them are not quite sure what to do to transform their organizations into collaborative enterprises. As long as they remain unsure, their organizations are likely to be disadvantaged in a rapidly changing world.

2.  Distributed Power

Innovation is more likely to thrive in organizations where power is distributed rather than centralized.

Isaacson notes, “The Internet was born of an ethos of creative collaboration and distributed decision making.” This ethos runs contrary to the fundamental norms of traditional hierarchical structures where power is centralized at the top. It is not surprising that leaders are challenged when it comes to building collaborative organizations because embracing collaboration inevitably means enabling distributed decision-making, which doesn’t come naturally to leaders schooled in the dynamics of command and control.

The problem with maintaining centralized power in fast-changing times is that business leaders are prone to miss innovative breakthrough opportunities because they are far more comfortable with attempting to preserve the status quo than they are with adapting to new emergent realities. Isaacson points to the example of Xerox, whose leaders were not equipped to handle a radically new innovation—a rudimentary personal computer—created by their own research and development team. If the Xerox organization had been more of a network of distributed authority, such as Google is today, the history of the personal computer could have been very different. According to Isaacson, “Xerox could have owned the entire computer industry.” Instead, they ceded this opportunity to Steve Jobs, who on a chance visit to the Xerox R&D facility, recognized the possibilities of an amazing new technology.

3.  Complementary Styles

The best leadership of innovation comes from teams that bring together people with complementary styles.

 A key finding that Isaacson observed in his study of innovative organizations is that, in building leadership teams, they were highly effective in pairing visionaries with people who could execute innovative ideas. Isaacson cites the example of Intel, founded by two visionaries—Robert Noyce and Gordon Moore—whose first hire was Andy Grove, a disciplined manager who knew how to install operating procedures and get things done.

The leadership at successful innovative enterprises rarely emanates from one strong leader. Instead, it “comes from having the right combination of different talents at the top.” In addition to the threesome at Intel, another example of effective tripartite leadership is at Google, where Larry Page, Sergey Brin, and Eric Schmidt have combined their skills to build one of today’s most innovative businesses.

Another way that leaders can bring together complementary styles is by building crowdsourced organizations, such as Wikipedia and Linux, that provide the framework for a diversity of people to combine their talents in self-organized structures where the leadership team emerges from the interactions of the participants. While Jimmy Wales and Linus Torvalds are the recognized leaders of their respective ventures, neither of these two visionaries maintains tight control over their innovative enterprises.

4.  Learning Systems

The most important development of digital age innovation is the human-machine symbiosis that has transformed the essential orientation of all systems from programming to learning. 

This fourth lesson is significant because it undercuts the fundamental dynamics that have defined the way large groups of people work together. Human-machine symbiosis began in the Agrarian Age when humans first built tools to ease the burden of physical work. This symbiosis catapulted to a new dimension with the advent of mass production. The human-machine symbiosis of the Industrial Age was almost Borg-like where large numbers of people interacted with each other in rigidly prescribed ways. This form of symbiosis led to the creation of the command-and-control structures that have defined the practice of management for over a century. The basic orientation of these management systems is prescribed programming where workers are presented with fixed plans and incentives are put in place to make sure they don’t deviate from the program.

With the advent of the Digital Age, the human-machine symbiosis has once again catapulted to a new dimension that can be best described as mass collaboration.  Isaacson observes that today’s computer technology “augments human intelligence by being tools both for personal creativity and for collaborating.” As a result, the symbiotic relationship is an iterative learning partnership that combines the strengths of both humans and machines. While machines can collate information incredibly fast, humans are better at the intuitive skills of sense-making and pattern recognition. Isaacson points to the example of the Google search engine, which rapidly collates the individual judgments of billions of people to provide sensible search results. He notes, “the collaborative creativity that marked the digital age included collaboration between humans and machines.”

An Emerging New Management Model

 Filling the innovation resource gap requires a rethinking of a century-old management model that has been the foundation for how things get done in large organizations. Fixed plans and tight controls are of little value in a world that is rapidly changing. Instead, business leaders need to heed the four key lessons of the innovators to guide them in transforming their management structures into highly effective learning systems where collaborative teams blend complementary styles to exercise distributed power in serving the needs of their customers. To do so, business leaders will need to operate from the right context, embrace the emerging new management model of the innovators, and organize themselves as collaborative networks rather than top-down hierarchies.

Rod Collins (@collinsrod) is the Innovation Sherpa at Salt Flats and the author of Wiki Management: A Revolutionary New Model for a Rapidly Changing and Collaborative World (AMACOM Books). 

 

 

 

 

 

 

 

Rethinking Values in the Workplace

 

by Rod Collins, Innovation Sherpa at Salt Flats 

In a recent global survey of more than 1,700 chief executive officers, researchers at IBM found that the CEOs identified empowering employees through values as an essential driver of high performance. When we think of values, what usually comes to mind are virtues, such as integrity, honesty, fairness, and trust. These virtues are the attributes that are generally reflected in well-meaning corporate mission statements. Unfortunately, in far too many instances, these values are more “talk” than “walk.” Despite management’s best intentions, corporate mission statements rarely become corporate behavior templates. Why, if values are so important to performance, do so many organizations have trouble walking the talk? Perhaps it’s because managers are focused on the wrong values.

Virtues are like blooming flowers. They are the most visible and the most defining part of a plant. But flowers are also the plant’s most vulnerable part. Without solid roots, fertile soil, and plentiful water, flowers quickly shrivel and die. So it is with business organizations. Wherever we find organizations that are blossoms of virtuous values, we are likely to discover the fertile soil of a collaborative culture rooted in a subtle set of structural values.

Value Choices

An effective business organization is the intersection of three workable models: a business model, an operating model, and a management model. In defining these models, managers generally need to make a series of structural value choices among five sets of paradoxical values:

Serendipity vs. Planning

Self-Organized vs. Centrally Organized

Emergent vs. Directed

Simple Rules vs. Detail Coordination

Transparency vs. Control

 

In approaching these choices, the best option is usually a balance between the two paradoxical values rather than a selection of one value and the dismissal of the other. To understand how these choices work, let’s borrow an analogy from the field of psychology.

The late psychologist Erik Erikson developed a model of human development that postulated that every person moves through a progression of eight psychosocial stages to reach her full development. The developmental task of each of these stages is the resolution of the tension between two paradoxical psychosocial values. So, for example, in the first stage— Basic Trust vs. Basic Mistrust—an individual needs to choose between these two values in approaching and dealing with other people. In the healthy personality, this is not an “either/or” choice but rather a “both/ and” balance. While it may appear at first blush that trust is a virtue and the obvious choice in this paradoxical pair, keep in mind that a person who is always trusting is often regarded as a “Pollyanna.” Similarly, one who is always mistrusting is considered to be paranoid. The healthy person develops a sense of both trust and mistrust, but not necessarily in equal parts. In striking a balance between the two values, the psychologically fit person has a clear preference for trust over mistrust. In other words, while she usually leads with trust, she is savvy enough to know when to mistrust.

The dynamics of this analogy apply to organizational development. As businesses move from the entrepreneurial stage to growth and then to maturity as large established companies, their leaders need to make a series of structural value choices. In resolving these paradoxical value choices, they need to strike a preferential balance of one value over the other.

Value Preferences

Since their inception well over a century ago, corporations have clearly preferred the values shown on the right in the above list to those on the left. Over time, these preferences have become so solidified that many, if not most, traditional organizations today find themselves in a position where they value only the items on the right to the exclusion of those on the left. This explains why the longstanding tasks of management have been defined as planning, organizing, directing, coordinating, and controlling. It also explains why in the typical top-down hierarchical organization, there are hardly any simple rules and little self-organization and transparency, and why serendipity and emergence are foreign concepts. This also explains why so many companies have difficulty in walking the talk when it comes to virtuous values. It’s hard to be trusting when the dysfunctional dynamics of bureaucratic silos foster intense internal competition in a zero-sum game for resources and control.

Now, a new breed of business leaders who are making very different value choices are providing increasing evidence that the blossoms of virtuous values are possible only when nurtured in the soil of the structural values shown on the left. Richard Sheridan, the cofounder and CEO at Menlo Innovations, is a trailblazer who’s built an extraordinary workplace by emphasizing the values on the left.

A New Way of Working

In his best-selling book, Joy, Inc.: How We Built a Workplace People Love, Sheridan shares his experience of creating a very different type of organization. Menlo is a software company located in Ann Arbor, Michigan. When you walk into the Menlo office, the first thing you will notice is that there are no offices. Everyone sits at long tables arrayed in a large open room where people work in pairs—two people sitting together at one computer, working on the same task at the same time. These pairs are rotated on a weekly basis so that over time everyone has a chance to work with each other. Pairing, rotating, and working in an open environment provide ample opportunities for Menlonians, as they like to call themselves, to leverage the power of serendipity to delight their customers. According to Sheridan, “a culture that embraces and honors its people with a changeable space encourages serendipity. This may be the single greatest value of wide-open space.”

Menlonians are heavily involved in organizing their work. A core discipline at Menlo is that every project is captured in a sequence of story cards produced by the people who will actually do the work. Once a week, all the workers come together as a group in a weekly ritual where the different teams do time estimates for the various story cards. Because the people closest to the work are defining the parameters, these estimates are more reliable than arbitrary dues dates assigned by harried managers. The story cards and the time estimates are posted on a common Work Authorization Board so teams who finish projects more quickly than expected can support other teams with work in progress.

One of the ways Menlo builds the value of emergence into its structure is through the innovative practice of High-Tech Anthropology®. HTA’s, as they are called, engage with clients in their native environments to better understand the full scope of needs behind the client’s software requests. Their job is to listen, observe, and most importantly, to discover unrecognized needs, unusual uses of their products, or new opportunities for creating value. Their learnings are converted into stories that may inform future projects or enable new innovative lanes of value creation.

Unlike their traditional counterparts, the project managers at Menlo don’t tightly coordinate the details of day-to-day work. That’s left to those who actually do the work. Menlonian managers are facilitators whose primary job is to be the custodians of the simple rules behind Menlo’s extraordinary success. The company’s prime rule is that nothing gets done on a client project unless it’s written on a 5½-by-8½ index “story” card. Another rule is that each story card must be estimated by the people who do the work. As noted above, these are the two rules that enable Menlo’s practice of self-organization. A third rule is that story cards are not placed on the Work Authorization Board unless specifically authorized by the client. And finally, project managers are responsible for assigning the specific Menlo pairs for each of the authorized tasks. These later rules assure that there is no ambiguity around assigned work.

Transparency is the underlying context for everything that happens in Menlo. The wide-open office and worker involvement in defining work parameters, along with the unusual practice of the employees being responsible for interviewing, hiring, and onboarding all new hires contribute a sense of belonging and ownership rarely found in the workplace. 

Changing how we manage is not easy, given the pervasive presence of hierarchical management and its preference for centralized command and control by an elite few. While this traditional management may have worked well in slower more stabile times, emphasizing the values on the right could be a formula for failure in a rapidly changing world. Sheridan’s successful experiment in giving preference to the values on the left provides a practical example of how and what to do to build an organization that’s able to keep pace with a rapidly changing world, while at the same time creating a workplace where people love to come to work.

This article was originally published in the Huffington Post.

 

Rod Collins (@collinsrod) is the Innovation Sherpa at Salt Flats and the author of Wiki Management: A Revolutionary New Model for a Rapidly Changing and Collaborative World (AMACOM Books). 

Are You Ready for the Second Wave of the Digital Revolution?

  

by Rod Collins, Innovation Sherpa at Salt Flats

There are few business leaders who would disagree that we are living in a time of great change. In the brief sixteen years since the new millennium began, we have experienced more change than we saw in the last five decades of the previous century. Perhaps the author Tom Friedman captured this phenomenon best when he recently quipped, “In 2004, Facebook didn’t exist, 4G was a parking space, an app was something you sent off to college, LinkedIn was a prison, Tweet was a sound a bird made, and Skype was a typo.” None of these things existed a mere twelve years ago, and yet, each of these innovations is now a staple of our day-to-day lives.

However, despite all this change, not all industries have felt the full effect of the technology revolution. As we approach the end of what can be described as the first wave of the digital revolution, we are reminded of the sagacious observation of the science fiction writer, William Gibson, “The future is already here; it’s just not evenly distributed.” If you are in the media, entertainment, retail, or communications industries, your world has been turned upside down. Stalwart names, such as Border’s, Blockbuster, Kodak, Tower Records, and the Encyclopedia Britannica, have been either disrupted or displaced by the upstarts Amazon, Netflix, Apple, Spotify, and Wikipedia. However, if you work in the healthcare, insurance, energy, food processing, or, until recently, the financial services industries, your world has not been heavily impacted by the first wave of the digital revolution. For these core economic industries, digital transformation has been about digitizing existing product models, whereas for the media and retail industries, digital transformation has been about the radical disruption of longstanding business models.

The Emergence of Peer-to-Peer Networks

The engine that drove the first wave was the Internet, which unleashed the unprecedented capacity for mass collaboration. Suddenly, everyday people could work directly and effectively together without having to go through a central organization thanks to the emergence of a new organizational model: the peer-to-peer network.

While most companies did not rush to embrace this very different way of working together, their customers did. Those companies that produced digitized products, such as music and videos, were particularly vulnerable to peer-to-peer networks, as their customers began exchanging digital files via the online web application Napster. Although the music industry was able to shut Napster down, it was ultimately helpless against the forces of change: CD’s and music stores quickly gave way to digital downloads and iTunes. The longstanding business and operating models of the music industry were suddenly and radically transformed.

The core economic industries, however, did not feel the pain of the emergence of peer-to-peer networks because their products were not digitized files. These companies were in the business of risk management, perishable goods, or utility services. The primary way the first wave of the digital revolution affected these firms was that they all developed websites, which allowed them to cut costs by eliminating paper documents and postage costs associated with their services. The future indeed was not evenly distributed.

However, this is likely to change very soon as we see early signs of the arrival of the second wave of the digital revolution, which will leave no industry untouched. This second wave is driven by not one, but two engines: the Internet of Things (IoT) and blockchain technology. The interplay between these two engines will accelerate the capacity for mass collaboration and will amplify the power and the practicality of the defining transformative phenomenon of the Digital Age: collective intelligence.

The Internet of Things

The Internet of Things (IoT), sometimes referred to as the Internet of Everything (IoE), is the network of physical objects embedded with electronics, software, sensors, and connectivity to enable objects to exchange data with manufacturers, operators, and other connected devices. These would include household appliance electronics, smart watches, medical injectables, utility pole monitors, solar energy sensors, mobile phones, and other GPS devices.

IoT is a significant leap forward in aggregating and leveraging collective intelligence because it does not rely on voluntary user entries to populate the data in the system, as is the case with the regular Internet. Instead IoT passively, automatically, and continually gathers data and applies sophisticated analytical algorithms to produce highly useful information that was previously unavailable. A practical example is Google Maps, which collects data about speed and traffic flow from the GPS sensors in every driver’s mobile phone and collates that data into a practical map to provide real-time up-to-date traffic patterns.

By 2020, connected devices are expected to outnumber humans by a ratio of six to one. With an estimated 50 billion devices distributed throughout the globe, the interconnectivity of many smart sensors seamlessly communicating together has the potential to radically redefine the customer experience, as we are learning from the rapid development of driverless cars.

As short as five years ago, most of us would have thought the notion of driverless cars was either science fiction, or at a minimum, decades away. Yet, today driverless cars are a reality as Google is currently testing these autonomous vehicles on open roads and traditional automakers such as Mercedes-Benz, Nissan, and Audi are revamping their business strategies around this transportation game-changer. But chances are most of us underestimate just how transformative driverless cars will be. That’s because most of us think that driverless cars will be individually driven, as autos are today—the only difference being the computer will be at the controls instead of a human operator. Although that may be the initial modus operandi, the ultimate operating system for these autonomous vehicles is likely to be shaped by the IoT.

Because each driverless car is a collection of smart sensor devices that can be interconnected into a holistic network, the IoT will be able to aggregate and leverage the collective intelligence distributed throughout the network to drive all the vehicles concurrently. In other words, no longer will individual drivers, whether human or automated, be making individual decisions by anticipating what other drivers will do. Rather the IoT system will be making proactive decisions for all the driverless cars with the full knowledge of what each car is doing in real-time. This holistic driving capability has the potential to drastically reduce car accidents. That’s what it means to radically redefine the customer experience.

Blockchain Technology   

Perhaps the most significant consequence of the Internet of Things is that, for the first time in human history, we will be able to experience an omniscient system that will know everything about everybody. While the potential for good is enormous with new capabilities for improving quality of life, expanding social collaboration, and preventing illness and accidents, many of us are nevertheless concerned that an omniscient system in the wrong hands could turn into an Orwellian nightmare. That’s where blockchain technology can make a big difference.

Blockchain is a distributed ledger system that uses a network consensus to record and execute transactions. It’s best known as the platform for the Web currency “bitcoin,” which is currently wreaking havoc on the financial services industry. However, blockchain has recently drawn wider attention as an increasing number of business leaders recognize the underlying technology of this transformational architecture can be applied to almost any industry.

Blockchain’s most distinguishing characteristic is that no single agent has the ability to execute control over system activity. To understand this, consider this analogy. Suppose a speaker is addressing a public audience of 100 people and assume this audience represents a blockchain community. Picture that, in the middle of the presentation, a 3-foot by 3-foot piece of ceiling tile suddenly falls and lands two yards from the speaker’s feet. If one of the members of the audience wants to record this event on the blockchain, she may propose the entry, but the event will not be recorded until a majority of the audience agrees with and validates the entry. Once the event is recorded, it is immutable and can never be altered. This means that, if later in the day, another audience member wants to “spice up” the event and change the record to reflect (falsely) that the ceiling tile hit the speaker in the head and knocked him out, she will be unable to do so because the majority of the audience members are not going to validate a false entry. This systems architecture is likely to revolutionize the way we build IT systems because it has the potential to eradicate most hacking and fraud activity.

Another characteristic of blockchain is that stored information is both transparent and private, which makes it a perfect architecture for IoT. This is accomplished by separating identity verification from transaction validation. Thus, all the attributes of a particular person can be known without knowing that person’s identity. This is possible because blockchain employs avatars as an information processing mechanism to preserve individual privacy.

The Internet of Everything in combination with the Ledger of Everything is about to accelerate the rate of digital transformation spawned by the first wave of the digital revolution. Only this time, in the second wave, the future will not only be evenly distributed, it will also very likely change the way the world works across all industries. Are you ready?

 This article was previously published in the Huffington Post.

 Rod Collins (@collinsrod) is the Innovation Sherpa at Salt Flats and the author of Wiki Management: A Revolutionary New Model for a Rapidly Changing and Collaborative World (AMACOM Books). 

 

 

 

 

 

The Network Effect: Changing the Way the World Works

 

by Rod Collins, Innovation Sherpa at Salt Flats

On January 2, 2001, Larry Sanger met his good friend Ben Kovitz for dinner at a small Mexican restaurant in San Diego. It is arguably the dinner that changed the way the world works. It had been almost a year since Sanger had come to Southern California to work as the editor-in-chief for Nupedia, a start-up online encyclopedia. Over the course of the dinner, Larry related how Nupedia’s founder, Jimmy Wales, had come up with the novel idea of using the platform of the budding Internet to solicit volunteers who would contribute articles to build a free encyclopedia. However, by the end of 2000, the seven-step peer review process that Sanger and his academic advisers had designed had produced only a handful of articles. At this glacial rate, Wales and Sanger were both concerned about the viability of their ambitious project.

As Kovitz empathized with Nupedia’s predicament, he urged Sanger to take a look at the WikiWikiWeb site, an innovative but obscure computer program developed by software engineer Ward Cunningham to provide individual programmers with the ability to pool their collective knowledge and create common staples for the software community. Given its ease and transparency, Kovitz suggested that the wiki page just might be the solution for how large numbers of volunteers could quickly produce and edit a high volume of encyclopedia articles. Sanger liked the idea, and he had no trouble convincing Wales, who on January 10, 2001, added the wiki software to the Nupedia website.

However, not everyone in the Nupedia organization was as enthusiastic as Sanger and Wales about this novel way to build an encyclopedia. The academic experts were vigorously opposed to the notion that the masses could provide any value to a scholarly pursuit. The academics were professionals, and they were adamant that a collaboration with the crowd could never meet their high quality standards. Consequently, just five days later, on January 15, 2001, Wales removed the wiki software from Nupedia. While the academics were pleased that they had defended the traditions and the honor of their profession, Wales still thought the wiki approach had merit. So, he decided to launch a second independent project, which Sanger dubbed Wikipedia.

We all know what happened from there. None of us have ever heard of Nupedia and all of us are using Wikipedia. Larry Sanger and Jimmy Wales made an incredible leap to extraordinary performance because they discovered how to aggregate and leverage collective intelligence.

The Network Effect

The capacity to access collective intelligence is the defining transformative phenomenon of the Digital Age. This digital transformation has given rise to what can best be described as the network effect: the fundamental architectural shift from hierarchies to networks. Those who have the courage to embrace the network effect quickly discover that hierarchies are no match for networks, especially in a hyper-connected world. While Wikipedia would produce more than 18,000 articles in its first year, Nupedia continued to struggle and would shut down in 2003. But more significantly, and perhaps surprisingly, as Wikipedia grew in both volume and popularity, the network effect would eventually disrupt the longstanding market leader in the encyclopedia world when the editors at the Encyclopedia Britannica announced on March 13, 2012 that after 244 years, the reference book was going out of print.

Sanger and Wales resurrected their fledging effort because they transformed their fundamental model from a top-down hierarchy to a peer-to-peer network. Sanger and Wales made this leap because they had nothing to lose. After all, Nupedia was failing badly. The academics, however, couldn’t embrace a network structure because it violated all their beliefs about how the world works. There was nothing in their mental DNA that would allow them to see how a collaboration of the masses could be a workable business model. Fixed in their beliefs, they were unable to recognize that the Internet was changing the rules for how the world works.

Two Fundamental Questions

Workable architectural structures need to address two fundamental questions: How does power work? And how do things get done? In hierarchies, power is about being in charge, and the way that things get done is accomplished through the exercise of control mechanisms. Thus, the mantra for traditional hierarchical management is “command and control.” The mindset of the academics was thoroughly rooted in hierarchical thinking. And given that the academics were at the top of the pyramid, there was no incentive for them to give up the power positions they held in their professional world, even it that meant Nupedia ultimately failed.

Networks, on the other hand, answer the two fundamental questions very differently. In networks, power has nothing to do with being in charge and everything to do with being connected, as we discovered within the past year or two when executives at a national telecommunications company announced they would install an additional fee to anyone who elected to pay their monthly bills online. Those in charge who tried to impose this fee were forced to quickly reverse themselves within 24 hours when their connected customers leveraged their collective power by raising a fuss on social media.

When it comes to how things get done, networks rely on collective intelligence dynamics rather than control mechanisms to accomplish work. Control mechanisms are methods or devices that are used to regulate variable behavior in a desirable way. A usual example is a home thermostat system where the desired temperature is programmed into the system and the mechanism maintains this temperature by turning on the heating or cooling system as needed. These controls work by giving an individual unit or agent the ability to exercise an expected judgment. In human organizations, control mechanisms include supervisory reviews, budget authority parameters, and established work standards. Collective intelligence dynamics, however, don’t rely upon individual units or agents to assure that things are done correctly. That’s because networks don’t behave like mechanical systems. Instead, they employ the rules of complex adaptive systems, such as flocks of birds, colonies of ants, or the human brain, to process information and make decisions. Collective intelligence dynamics are ways to rapidly achieve a workable consensus among a diverse group of agents about what needs to be done. In networks, the guiding mantra is “connect and collaborate.”

Smarter and Faster

While it may seem counterintuitive, a well-functioning network leveraging the collective intelligence of large numbers is not just smarter and faster than traditional hierarchies, it is often far smarter and far faster, as we learned in the summer of 2011 when Firas Khatib, a biochemist at the University of Washington, turned to Foldit to solve a stubborn molecular puzzle that had stumped the world’s best scientists for over a decade.

Foldit is a collaborative online video game developed by the University of Washington that enlists players worldwide to solve difficult molecular problems. What’s most interesting about Foldit is that most of the more than 250,000 players have little or no background in biochemistry. There are no special requirements for joining the Foldit community—all comers are welcome.

The stubborn puzzle involved figuring out the detailed molecular structure of a protein-cutting enzyme from an AIDS-like virus found in monkeys. Cracking this puzzle could be the breakthrough needed to arrest the medical malady. When Khatib presented the molecular challenge to the Foldit community, what had evaded the world’s best individual scientists for ten years was amazingly solved by the collective intelligence of a diverse group of online gamers within only ten days.

Wikipedia and Foldit are two examples of how the digital revolution, the network effect, and the phenomenon of collective intelligence are transforming the way the world works. The Internet has been the engine that has suddenly thrust us into a new world with very different rules from the old world that many of us now recognize is rapidly fading away. This transformation is not only likely to continue, but more importantly, it’s likely to accelerate as we now enter the second wave of the digital revolution with its twin engines of the Internet of Things and Blockchain technology. These two collective intelligence systems, which will be subjects of future blogs, will very likely solidify the network architecture as the basic fabric for how we build business, operating, and management models in a hyper-connected world.

This article was originally published in the Huffington Post

Rod Collins (@collinsrod) is the Innovation Sherpa at Salt Flats and the author of Wiki Management: A Revolutionary New Model for a Rapidly Changing and Collaborative World (AMACOM Books). 

 

 

 

 

An Epoch Change: The New Rules for How the World Works

by Rod Collins, Innovation Sherpa at Salt Flats

We live in a new world with a radically different set of rules. This is not hyperbole. It’s a reality, albeit a reality that very few of the leadership elite want to recognize. That’s because this new reality is unpalatable to those who hang onto the traditional reigns of power, even as they find themselves increasingly powerless to hold back the acceleration of a technological Cambrian-style event that is rapidly rendering old ways obsolete.

Whether we’re ready to accept it or not, the way the world works today—and more importantly, the way the world will continue to work tomorrow—is radically different from the way the world worked just a few decades ago. A number of insightful thought leaders have recognized that we are in the midst of a major social and economic transformation. John Hagel calls it the “Big Shift.” Stephen Denning likens what’s happening today to the Copernican revolution. Don Tapscott writes about the Wikinomics and Blockchain revolutions, describing how each of these manifestations of the unprecedented capacity for mass collaboration “changes everything.” And Ken Auletta has chronicled in great detail how Google, which has topped Fortune’s100 “Best Companies To Work For” in seven of the last ten years, portends “the end of the world as we know it.” If this seems to be a little overstated, think about this question: Are the companies of tomorrow more likely to resemble General Motors or Google?

An Unprecedented Challenge

Change is happening at a pace that the vast majority of us find difficult to absorb. A few decades ago, none of us envisioned that driverless cars would be possible in the second decade of the twenty-first century. Not even the fiction screenwriters of Back to the Future, who presciently anticipated the Chicago Cubs in the World Series, saw that one coming. When the world is changing more rapidly than we can take it in, it’s not surprising that so many of us feel overwhelmed, especially the leaders of traditional organizations.

Today’s managers are confronted with an extraordinarily difficult challenge because the amplitude of change that we are experiencing today is truly unprecedented. This challenge is both validated and compounded by the unpleasant and sudden reality that strategies, methods, and practices that managers have relied upon for decades to deliver predictable results don’t work anymore. This has been a hard lesson for some managers, who in failing to recognize that the rules for business have been radically transformed, doubled down on the old ways when faced with the forces of turbulent change only to severely damage their businesses. Examples include Kodak, Blockbuster, and Borders, each of whom were at the top of their industries and suffered dramatic falls because they could not adapt to rapidly changing markets.

The Pace of Change Continues to Accelerate

Perhaps what is most troubling and overwhelming to managers is that our fast-forward world shows no signs of letting up. In fact, with the forthcoming emergence of the Internet of Things and Blockchain technology, the one certainty in an increasingly uncertain world is that the pace of change is only going to get faster.
As hard as it may be to accept, there will probably be more change in the next decade than we have seen in the last twenty-five years.

If managers are to have any chance of thriving in an even more rapidly changing world, a good place to start is by coming to terms with the essential complexion of current events because what’s happening now really is changing everything and ending the world as we have known it. For the first time in the history of human civilization, we find ourselves in the midst of a transition from one epoch to another. That’s why all the rules for how the world works are changing. If business leaders want to master the challenges of a new epoch, they will only be able to do so if they play by its new rules. And those business leaders who fully grasp these new rules will create for themselves and their organizations a progression of extraordinary opportunities.

The Waning Epoch

Until recently, the entirety of human civilization has evolved within the context of a single epoch, which can best be described as the Hierarchical Epoch. This first epoch was comprised of three ages: the Hunter Gatherer Age, the Agrarian Age, and the Industrial Age. As Frederic Laloux has chronicled in his survey of human organizations, Reinventing Organizations, our social structures have evolved with each age as we have morphed from tribes to bureaucracies. While tribal chiefs gave way to kings and queens, who in turn were supplanted by public and private sector chief executives, the one common characteristic that persevered across the ages was the unquestioned assumption that the foundation for human organization was the hierarchical structure. Whether you were a tribal chief, a monarch, or a CEO, power belonged to those who were in charge and who had the wherewithal, either through force, law, or position, to exert their will over those in their charge. 

Another basic characteristic of hierarchies is that control is the ultimate mechanism for the execution of power. These control mechanisms have matured over time as fear of consequences at the hands of an absolute authority was displaced by the regulatory structures of sophisticated bureaucracies. Nevertheless, the essential goal remained constant: compliance. Throughout the entirety of the Hierarchical Epoch, the underlying dynamic of human organizations was some form of the basic rubric of top-down structures: command and control.

The Emerging Epoch

What makes our times unique is that the digital revolution has not only ushered in the new Digital Age, it has, more significantly, catapulted us into a new epoch: the Network Epoch. Digital technology has provided the pervasive and practical means for people to self-organize within the context of hyper-connected networks in ways that were never possible before. For example, who would have thought a mere 30 years ago that the world’s largest reference work would be a self-organized effort of volunteers working without assignments and without pay? None of us three decades ago could have conceived of a bossless enterprise such as Wikipedia. After all, how would anything get done if no one was in charge?

Perhaps the most important thing to understand about networks is that the way power works is radically transformed. In networks, power belongs to those who are connected, not to those who think they are in charge. And when a network takes firm hold in the market place, it tends to operate far smarter, far faster, and far more efficiently than hierarchical counterparts, which explains why—without any intention to do so—Wikipedia’s meteoric rise ended the reign of the 244-year-old market leader within a decade. This network effect has also played out between Craigslist and newspaper advertising, iTunes and the recording industry, Netflix and Blockbuster, and Amazon and Borders. The transition from hierarchies to networks results in a radical paradigm shift in the way that power works. It’s no wonder that the leadership elite find the new rules of our new networked world so unpalatable.

Another paradigm shift resulting from the metamorphosis from hierarchies to networks is that control mechanisms become liabilities rather than assets because, in a hyper-connected world, thousands—perhaps millions—of bad agents can now single-handedly take control and wreak havoc on systems built using traditional IT structures, as we recently learned when several social media sites were shut down for a few hours by a few pranksters who did so just because they could. It is probably not an exaggeration to say that there isn’t a traditionally built IT system today that is safe from a single determined hacker. Fortunately, a new architecture for building systems in a hyper-connected world is emerging in the form of Blockchain technology. The great innovation of Blockchain is that no single individual can effect an action because the game-changing architecture—consistent with the fundamental rules of networks—uses collective intelligence dynamics rather than control mechanisms to make sure things are done right. As the world becomes more networked, it will become essential that the basic architecture of all our systems employ collective intelligence dynamics to preserve their security.

Digital Transformation

However, it not just our information systems that need to be reengineered to adapt the new rules of a new epoch. Our human organizations will need to be transformed if they want to avoid joining the list of stalwart companies that have rapidly declined from market leadership to oblivion because they could not adapt to a new epoch. As unsavory as it may be, business leaders need to understand that digital transformation has as much to do with the overhaul of the human technology we use to organize ourselves as it does with the proliferation of gadgets that continue to wow us. In this new epoch, power will increasingly accrue to the connected, and collective intelligence platforms will propel both human intelligence and human capability. Take a close look at the new breed of leaders who are changing the world as we have known it, and you will notice that they are fully competent in understanding the rules for how to build and lead networks.

This article was originally published in the Huffington Post.

 

Rod Collins (@collinsrod) is the Innovation Sherpa at Salt Flats and the author of Wiki Management: A Revolutionary New Model for a Rapidly Changing and Collaborative World (AMACOM Books).