Edge Perspectives with John Hagel

Getting Stronger through Stress: Making Black Swans Work for You

Unanticipated events, especially extreme unanticipated events, can harm us or even destroy us. But they can also help us to grow and make us stronger. If they do the former, we tend to fear them and avoid them wherever possible. If they do the latter, our orientation shifts and we tend to welcome them. In the world of the Big Shift, as I suggested in my post last week on resilience, we all need to find ways to harness the power of randomness, volatility and extreme events to help us grow and develop more of our potential.

Focusing on Black Swans

Nassim Nicholas Taleb has been consumed by black swans over three books: Fooled by Randomness, The Black Swan and, now, Antifragile. Black Swans, in Taleb’s parlance, are “large-scale unpredictable and irregular events of massive consequence.’ The latest book focuses on approaches that enable us to thrive from high levels of volatility, and particularly those unexpected extreme events. It’s a profoundly rich and engaging book that will no doubt prove infuriating to most of our economic, educational and political elites, for he argues that these elites have played a major role in making us increasingly vulnerable to volatility and Black Swans.

While Black Swans can have positive and beneficial impact (think of the invention of the computer and the Internet), many of the most well-known Black Swans (think of World War I, the stock market crash of 1929 or the terrorist attacks of 9/11) can have hugely detrimental effects, leading to massive suffering and death. Whether beneficial or detrimental, volatility and Black Swans can prove highly disruptive, leading the best laid plans of mice and men to go awry.

Our natural reaction to such volatility is to focus on refining prediction and risk models so that we can anticipate the events before they happen. Bluntly, Taleb argues in Antifragile that this is a fool’s errand, that the most profound and important of these unexpected events are by their very nature unpredictable. Even worse, he suggests that such efforts lead to a form of complacency and comfort that result in even more disruption when the unexpected events finally occur.

Not content with this, he also attacks the conventional fall back options – building more resilience and robustness into systems. In Taleb’s terms, the resilient “resists shocks and stays the same” while robustness, never fully defined in this book, seems quite similar – indifference to unexpected events. Taleb views resilience and robustness as far too modest, and perhaps even dangerous.

The quest for antifragility

The real opportunity, in Taleb’s view, is to learn and grow from volatility and unexpected events – not to return to where you were, but to become even better as a result of the exposure and experience.  This is the essence of antifragility, a term that Taleb feels he has to coin because the English language doesn’t have a word that adequately captures this property of systems. While they may not be perfect synonyms, Taleb is seeking to describe the properties of adaptive or evolutionary systems that become better and reach even higher levels of performance as a consequence of encountering and overcoming challenges.  They are dynamic rather than static. They thrive and grow in new directions rather than simply sustain themselves. They actually need random events to strengthen and grow and they become brittle and atrophy in the absence of these random events.

He makes an important point: biological systems in nature are inherently antifragile – they are constantly evolving and growing stronger as a result of random events. In contrast, man-made systems tend to be fragile, they are the ones that have a hard time coping with random events.  Taleb highlights a key paradox: our focus in modern times on removing or minimizing randomness has actually had the perverse effect of increasing fragility.

Institutional barriers

In this context, his perspective is very consistent with the critique of modern push systems that I (and my co-authors) developed in The Power of Pull.  Push systems are driven by two concerns: the ability to forecast or predict events and the quest for increasing efficiency by designing systems that are highly standardized and tightly specified to remove any unnecessary activity – everything is arranged to be in the right place at the right time to meet anticipated demand.  Scalable efficiency is the ultimate goal.

Virtually all of our contemporary institutions – firms, educational institutions and government – have been designed as push systems. While these systems tend to prosper in highly stable times, they do very poorly in times of rapid change and growing uncertainty. They become highly vulnerable to Black Swans, setting cascades and avalanches into motion that amplify and extend the disruptive effects of the initial event. By seeking to remove unpredictability, we are actually becoming more fragile. As Taleb observes: “When you are fragile, you depend on things following the exact planned course, with as little deviation as possible – for deviations are more harmful than helpful. This is why the fragile needs to be very predictive in its approach, and, conversely, predictive systems cause fragility.”

Digital technology is playing a central role in increasing the frequency of Black Swans by enhancing connectivity, compressing lead-times and increasing the potential for friction as divergent interests become more connected.  These are becoming a fact of life and will remain so, unless we try to reverse the deployment or use of digital technology.  But we do have another choice: to move beyond the centralized/push-based institutions that heighten both the risk and the adverse impact of Black Swans. We can instead adopt the antifragile systems and practices that will allow us to thrive from the connectivity of digital technology without as much vulnerability.

One consequence of the Big Shift in the global economy is that push-based systems become increasingly dysfunctional and even dangerous. It’s one of the key reasons why we are seeing sustained deterioration in corporate performance – both in terms of profitability and ultimately even survival. The answer is not to suppress the increasing randomness that accompanies the Big Shift. Instead, we need to craft systems that can grow and improve in the face of randomness and to pursue approaches that will help us to thrive in such systems.

In this context, Taleb’s book is a rich source of insight into ways to harness randomness so that we can become better faster.  Taleb never develops the distinction, but his book addresses both design principles for systems and strategies that individuals and institutions can pursue to increase antifragility. The key is to systematically reduce the downside from randomness while at the same time increasing the potential upside

System design principles

In thinking about system design, it’s important to avoid the temptation to develop detailed top down blueprints for systems.  Taleb observes that “if about everything top-down fragilizes and blocks antifragility and growth, everything bottom-up thrives under the right amount of stress and disorder.” Nevertheless, there are certain design principles that emerge from Taleb’s work that can help reduce the fragility of the systems we design.

(1)    Stick to simple rules
Complex systems do not require complicated rules – in fact, the simpler the rules the better. We must resist the temptation to respond to complexity with complex rules – they have a disturbing tendency to produce cascades of unintended consequences.

(2)    Decentralize
Decentralized systems are better able to learn from randomness because adverse impacts are contained. Decentralized units can watch and learn from each other as each unit improvises in response to unexpected events. Centralized systems are fragile because they make rules that by necessity are more abstract and theoretical so that they can be broadly applicable but at the same time they are removed from the relevant social context.  A small, decentralized political system like Switzerland proves far more antifragile than very large, centralized systems. Taleb repeatedly points to the diseconomies of scale in times of stress.

(3)    Develop layered systems
This is in many respects an extension of the second principle. Taleb points out that the antifragility of a system often comes from the fragility of its components, whether we are talking about the failure of firms that drives the overall success of entrepreneurial regions like Silicon Valley or the death of individual organisms that contributes to the antifragility of nature. By differentiating into layers, systems can once again contain adverse impacts and increase the potential for learning by watching what happens to constituent units in the lower layers.

(4)    Build in redundancy and overcompensation
Redundancy in systems is a key to antifragility.  As Taleb suggests, nature loves to over-insure itself, whether in the case of providing each of us with two kidneys or excess capacity in our neural system or arterial apparatus. Overcompensation is a form of redundancy and it can help systems to opportunistically respond to unanticipated events.  What seems like inefficiency or wasted resources like extra cash in the bank or stockpiles of food can actually prove to be enormously helpful, not just to survive unexpected stress, but to provide the resources required to address windows of opportunity that often arise in times of turmoil. This perspective helps to put into context the praise of inefficiency in Bill Janeway’s important new book, Doing Capitalism in the Innovation Economy.

(5)    Resist the urge to suppress randomness
Taleb warns against the tendency of planners to try to eliminate volatility or unpredictable disruptions to a system.  Sure, they are messy and upset the best laid plans but, as mentioned above, he stresses the paradox that efforts to eliminate this randomness will only intensify the vulnerability of systems to damage from disruption. As he observes, “. . . if antifragility is the property of all those natural (and complex) systems that have survived, depriving these systems of volatility, randomness, and stressors will harm them. They will weaken, die, or blow up. We have been fragilizing the economy, our health, political life, education, almost everything . . . by suppressing randomness and volatility.” Randomness is the root cause of serendipity – a theme that Taleb comes back to repeatedly as a source for most of the great discoveries that have moved our society forward. Without randomness, there can be no serendipity. While I believe we can shape serendipity, the underlying force is the randomness and unpredictability that makes life so interesting.

(6)    Ensure everyone has skin in the game
Systems must ensure that all participants have skin in the game – participants must face the consequences of their actions and endure failure as well as enjoy success. This will ensure that each participant will be motivated to learn as rapidly as possible and not take unwarranted risks.  Danger arises when a select few – especially those with an abundance of resources or power – are able to capture the upside for themselves while exposing others to downside risks of losses or harm.  In other words, bail-outs are highly dysfunctional. As Taleb points out, capitalism is about rewards and punishments, not just rewards.

(7)    Give higher status to practitioners rather than theoreticians
Taleb is eloquent in his contempt for theoreticians and his admiration for practitioners. He believes that a lot of society’s troubles come from the fact that we over-estimate the role of research and analysis and downplay the role of practice and experimentation in driving advances in knowledge and material well-being.

In fact, we reverse the real world flow of knowledge building. Most major historians suggest that theory and research lead to new insights that in turn shape our practices. In fact, he makes the case that most of our significant breakthoughs in knowledge came from experimentation and tinkering by practitioners that then got interpreted and codified by theoreticians. “ . . . we don’t put theories into practice. We create theories out of practice.” This is in part the result of “history written by losers,” the title of one of the chapters in Antifragile.  Taleb asserts that practitioners are too busy doing, so they don’t have the time to write to write their own story. For Taleb, techne (crafts and know how) trump episteme (book knowledge, know what) every time.

If we want to prosper and cultivate the ability to grow through stress, we need to honor the practitioners and suspect the theoreticians. Practitioners are comfortable with messiness while theoreticians will go to great lengths to try to achieve smoothness and predictability, even if that ultimately results in more stress to the system.

Strategies for antifragility

Each of us can pursue a set of practices and strategies as individuals and as institutions to thrive in times of increasing uncertainty and more frequent Black Swans. In Taleb’s view, the end goal for any antifragile strategy is to achieve convexity. Taleb draws a core contrast between concave and convex strategies. The key question in assessing any strategy is whether it’s likely produce more benefits or harm as the intensity of a shock increases (up to a point). In other words, do you have more upside or downside?  If the upside increases, you have positive asymmetry and a convex strategy.  If the downside increases, you have negative asymmetry and a concave strategy – something to be avoided at all costs.

(1)    Pursue barbell approaches
What does Taleb mean by this? He basically means pursuing a bimodal strategy: play it safe in some areas to mitigate the potential impact of negative Black Swans while at the same time taking a lot of small risks in other areas to enhance the benefit of positive Black Swans. Above all, he cautions against playing in the middle – we need to be both aggressive and paranoid in carefully selected areas while avoiding the complacency that the deceptive middle produces.

(2)    Focus on options
As Taleb notes, “an option is what makes you antifragile and allows you to benefit from the positive side of uncertainty, without a corresponding serious harm from the negative side.” An option allows you to take the upside if you want but without the downside. Optionality – the availability of options – reduces the need to understand or know something. Wherever possible, seek out options with open-ended, rather than closed-ended payoffs. Given this emphasis on options, invest in people, rather than plans.

(3)    Be curious
“Curiosity is antifragile . . . and is magnified by attempts to satisfy it.” Curiosity and its close cousin, discovery, like disturbances – disturbances create unexpected opportunities to learn more and help us to grow stronger in the face of challenges that we had not anticipated.

(4)    Get out of your comfort zone
Taleb is deeply suspicious of comfort – it makes us complacent, weakens the will and fragilizes us. Far better for us to be uncomfortable – it makes us more alert to our environment, more willing to take risks and more humble about our knowledge and abilities.

(5)    Focus on the edge
How could I not love this? Taleb observes that “to this day I still have the instinct that the treasure, what one needs to know for a profession, is necessarily what lies outside the corpus, as far away from the center as possible.”

(6)    Conduct lots of experiments and tinker
This is part of Taleb’s barbell strategy – you carefully pick the areas for experimentation where there is potential for significant upside.  Taleb is a major advocate of experimentation and tinkering in contrast to theorizing. The key is to structure them so that they are small in potential harm and so that you can pursue many of them.

(7)    Don’t get consumed by data
Be suspicious of data: “. . . the more data you get, the less you will know what’s going on.”

(8)    Focus on building/accessing tacit knowledge rather than rationality and explicit knowledge
As should be clear by now, Taleb is deeply suspicious of abstraction, theorizing and rationality. One of my favorite observations is Taleb’s approving citation of Ernest Renan who observed that “logic excludes – by definition – nuances, and . . . truth resides exclusively in the nuances.” Going back to Nietzche, Taleb clearly highlights the importance of the Dionysian over the Apollonian – the Dionysian “is dark, visceral, wild, untamed, hard to understand, emerging from the inner layers of our selves.” Another one of my favorite social commentators, Camille Paglia, similarly seeks to resurrect the Dionysian.

(9)    Focus on subtractive knowledge
Taleb asserts: “. . . we know a lot more what is wrong than what is right . . . negative knowledge (what is wrong, what does not work) is more robust to error than positive knowledge (what is right, what works). So knowledge grows by subtraction much more than by addition . . .”

(10)     Collaborate and trade
From Taleb’s perspective, collaboration and trade have an explosive and unpredictable upside – they are some of the most powerful ways to unleash positive Black Swans and help to ensure that the potential upside is far greater than the potential downside.

(11)     Respect the old
Taleb argues that “antifragility implies . . . that the old is superior to the new. . . . What survives must be good at serving some (mostly hidden) purpose that time can see but our eyes and logical faculties can’t capture.” Only the antifragile survives and thrives; the fragile is ultimately exposed by time and history.

(12)     Beware of wealth, debt and reputation
The key to antifragility is to have less to lose and more to gain; this will make it easier to love the mistakes that often result from experimentation and tinkering, rather than fearing them. If you have wealth, you are more inclined to make big bets with more potential for downside. In general, you have more and more to lose, increasing the potential for fragility. If you feel you are vulnerable to reputational harm, you will be less inclined to make mistakes, so concern about reputation becomes a source of increasing fragility.  Similarly, if you depend on a lot of debt, reputation becomes more important and you again will be less inclined to make mistakes.

Bottom Line

While at times a frustrating read, I found Taleb’s book to be profoundly inspiring. He is not at all concerned with surviving or “bouncing back” in times of increasing uncertainty.  He wants us to do more. Far more.  He wants us to find ways to thrive – to turn what may at first seem like challenges into opportunities to grow and learn so that we can become even better.  His playbook on systems design and strategies is a rich resource to help us all navigate through the mounting pressure ahead and grow more rapidly as individuals, institutions and a society. Thrivability, in the words of my friend Jean Russell, is ultimately Taleb’s agenda.

A Contrarian View on Resilience

In a world of growing uncertainty and mounting performance pressure, it’s understandable that resilience has become a very hot topic. Everyone is talking about it and writing about it. We all seem to want to develop more resilience. But I’m going to take a contrarian position and suggest that resilience, at least as conventionally defined, is a distraction and perhaps even dangerous.

How can I say that? The view crystallized as I sat through a two day gathering several months ago on the theme of resilience. I was intrigued to go deeper into the topic because I had heard so much about it and these were experts from a broad range of disciplines. But the more I heard, the more distressed I became.

What does resilience mean?

Resilience is used very loosely as a term, so there are many different definitions.  But across all the talks given in that conference (and much of the literature I have read outside the conference) there is one common theme that can be reduced to a simple phrase: it is the ability to “bounce back” in the face of unexpected shocks.  In engineering, it is the ability of a material or structure to resume its original size and shape after being deformed.  In systems science, it is the ability to return to equilibrium, steady state or original function after a shock to the system. In social analysis, it is the capability of a social group to absorb disturbance and reorganize to retain essentially the same function structure and identity.

The conservative impulse driving resilience

The common theme of “bouncing back” reveals an intensely conservative motivation – the key goal is to get back to the original state as quickly as possible.  This conservatism is reinforced by the kinds of shocks that typically are often the subject of resilience conversations – natural disasters like earthquakes and hurricanes, epidemics or terrorist attacks. In the face of such devastating threats, who wouldn’t want to get back to normal as quickly as possible?

Putting resilience into context

But there’s a key assumption behind this conservatism that deserves to be made explicit and examined. The assumption is that the status quo is good, that stability and equilibrium are good.

Making this assumption explicit helps me to understand why resilience has become such a hot topic in the business world as well as public policy circles. Executives feel like they are under attack.  It’s not just about natural disasters or terrorist attacks. It’s much more pervasive and widespread, appearing on a daily basis in thousands of unexpected forms.  In this kind of world, resilience resonates. Help me to get back to where I was.

And, in the context of enterprise resilience, the perception of being under attack is very real. As we have documented in the Center for the Edge Shift Index, corporate performance has been deteriorating for decades, “topple rates” are on the rise, life spans of companies are rapidly diminishing and volatility is increasing.  It’s no wonder that there is intense longing for a “bounce back”.

It helps to make sense of the booming growth on a global scale of the “resilience industry” – books, conferences and experts all willing and able to help executives and their institutions to bounce back. Entrenched interests are desperate for reassurance that they can preserve what they have and will not be vulnerable to unexpected disruptions.

This focus on enterprise resiliency, while understandable, is much too narrow and ultimately dysfunctional and self-defeating. Focusing on enterprise resiliency as the ability to “bounce back” reflects the short-termism that consumes most executives today. It loses sight of the fact that many of these short-term “attacks” are part of a much more profound phase shift at the market/ecosystem level.

This Big Shift is driven by a powerful and ultimately irresistible convergence of two global forces: the deployment and adoption of ever more powerful digital technology infrastructures and a long-term global public policy shift towards economic liberalization, expanding the freedom of movement of people, money, products and ideas across previously insurmountable borders. It has been going on for decades and, by my calculation, will be going on for many decades more.

A key point about this Big Shift is that we are not moving from one static system to another static system. Instead, we are laying the groundwork for growing uncertainty and mounting performance pressure that will become a fact of life, rather than simply a transitional period to be endured in anticipation of new stability.

The danger of resilience

In this context, the conventional view of “bounce back” resilience for enterprises is profoundly dangerous. It simply increases the ability of the institutional status quo to survive when conditions demand a fundamental transformation. It increases the gap between what we are doing and what we need to do. We already face a growing mismatch between the institutions and practices that dominate in business and the needs of the markets and societies that are being re-shaped by the global forces outlined earlier. As long as this mismatch persists, we will face increasing disruptions and stress as we struggle to maintain institutions and practices that are no longer viable. We don’t need to bounce back; we desperately need to move forward.

Aiming higher

We need to find ways to harness the mounting pressure we are all experiencing and the unexpected events that seem to bombard us with increasing frequency so they become catalysts for more rapid transformation of our institutions and practices.  We need to find ways to grow more rapidly to discover the new institutional architectures and business practices that will help us to turn growing stress into growing success. Ultimately, we face an urgent need to frame and pursue an institutional innovation agenda. In this context, “bounce back” resilience is a distraction and delays our movement forward.

So, what is to be done?

At least in the enterprise world (and I might suggest in all institutional arenas, including education, NGO’s and governments), we need to move beyond resilience and focus on something far more ambitious.

If resilience has been captured by the bounce-back folks, perhaps “adaptation” might be a suitable label. My reservation about adaptation is that it tends to suggest short-term sensing and responding to events rather than a more fundamental and powerful adaptation strategy that recognizes the need to drive long-term change.

Nassim Nicholas Taleb in his powerful new book coins the term “antifragility” to describe many of the same things that I am trying capture here. I’ll be reviewing Taleb’s book in a blog post that will go up here next week.

From my perspective, the best term to use is "thrivable", evangelized by the ever insightful Jean Russell.

Whatever term we use, here’s what our institutional leaders need to develop:

An ability to grow, evolve and thrive over time in the face of short-term performance threats, including the ability to accelerate movement towards fundamentally new functionality and roles in our institutions.

Bottom line

This is not just an opportunity. Given the long-term global forces that are playing out, it is an imperative. Our existing institutions will not survive if all they seek to do is “bounce back” to obsolescence. If we get this right, we will find ways to unleash more and more of our potential as individuals and institutions.  Bouncing back will look more and more like the quaint nostalgia that we finally found the courage and conviction to overcome.

A Power of Pull Milestone

Today marks a milestone in The Power of Pull – the release of the paperback edition of the book. It's an opportunity to step back and reflect on the impact that the book has had and explore where there might opportunities to have even great impact.

The challenge of timing

The book that I wrote with John Seely Brown and Lang Davison has had significant influence despite the timing of its initial release.  It was originally published in early 2010 when global business was still reeling from the worst recession since the 1930s. At a time when executives were consumed by intense short-term pressures, we came to market with a message saying that there were even greater challenges posed by a much more profound long-term Big Shift. 

This wasn't exactly what executives wanted to hear.  Many of them were trying to get through the day comforted by the belief that, no matter how intense the pressures they were experiencing, they were short-term and cyclical in nature. If they could only tighten their belts and hold their breath long enough, they would manage to get through this crisis and things would get back to normal again.

The distance from here to there

To compound the challenge, we highlighted the magnitude of the change that would be required to move from a world of push to a world of pull.  This was not just a surface change; it went to the essence of what it meant to be a corporation and would ultimately change all aspects of running a business – strategy, operations and organization, not to mention technology platforms and belief systems. At a time when resources of any kind – financial, time and talent – were in very short supply, executives were overwhelmed by the magnitude to the change that we described.

The overlooked sub-title

On reflection, we should have given more prominence to the sub-title of the book: "How Small Moves Smartly Made Can Set Big Things in Motion." We explored the theme of the sub-title in the second half of the book, but many weary executives no doubt never made it to the second half – they were so overwhelmed by the changes described in the first half, that they likely poured an extra glass of wine and put the book to the side to be replaced by a more light-hearted or "feel good" read.

That’s a shame because the message in the second half of the book is profoundly optimistic – it makes the case that we have a set of pragmatic pathways now available that can help us achieve enormous impact with very modest resources.

From Big Bang to Pragmatic Pathway in change management

If you think about it, large enterprises have been locked into “Big Bang” approaches to change management for decades. These approaches required the investment of large sums of money up front, long lead-times for the changes to take hold and the potential of major upside many years down the road. It’s no wonder that executives had little appetite for embarking on one of these journeys – they had no financial resources to spare, they had no time to waste and little tolerance for the risk of speculative long-term returns. Change management would have to take a back seat to the needs of the moment.

Our message is different. We outline approaches that require very limited up-front investment, short lead-times and rapid iteration to accelerate learning and performance improvement. More recently we've described these approaches to change management as “Scaling Edges.” They are enabled in part by new generations of information technology (especially cloud computing, social software and Big Data) that can be deployed in much more targeted and incremental ways than the large scale enterprise applications that ruled the past several decades of technology investment.  If done right, these technologies and approaches have the potential to yield far greater impact than the Big Bet model of change management.

The window of now

This is an even more important message to highlight given the timing of the release of the paperback edition of the book.  We are no longer in the trough of the recession but the recovery is certainly proving more challenging and precarious than executives had originally hoped.

In recent months, we have seen an encouraging shift in executive attitudes.  A couple of years ago, they could only focus on the intense short-term pressures that threatened the performance of their companies. Now, they are beginning to accept that this is not just a short-term cyclical challenge. The relief they had so desperately hoped for is simply not materializing.

For the first time, executives now appear willing to at least question some of the most basic assumptions about running their business. They are beginning to realize that squeezing harder is a diminishing returns game that is simply not sustainable. There is an openness to new and creative approaches.

When they also realize that small moves, smartly made, can set big things in motion, they really pay attention. This is new and different.

And it doesn’t just apply to change management. These new technologies and approaches can be used to re-frame a whole range of pressing items on the executive agenda.

The power of small moves in driving growth 

Take growth, for example. As recessionary pressures ease, investors are beginning to demand higher rates of growth. In the past, there were two ways to deliver that growth – organic growth and acquisition. But, guess what? Both of these approaches have the “Big Bet” investment profile – large upfront investments, long lead-times and speculative long-term upside.  Near-term pressures may be easing, but they are still intense and these Big Bet approaches are challenging.

What if there were a third way? The Power of Pull outlines this third path – leveraged growth. By identifying and mobilizing complementary capabilities already developed by third parties, companies can deliver significantly greater value to the marketplace and grow revenue and profits with modest upfront investment and much shorter lead-times. Building or buying are no longer the only two options to growth.

The power of small moves in corporate strategy

Or take corporate strategy. In the past, this was also the realm of Big Bet plays – often literally “bet the company” initiatives that either won big or tragically failed, leading to the demise of the company. Shaping strategies – also discussed in The Power of Pull – offer a very different way to build profound structural advantage in global markets and industries. These new forms of strategy hinge on the ability to motivate and mobilize large ecosystems of participants who aggressively invest to support the shaper and who engage in powerful forms of distributed innovation that help shapers to learn far faster than they ever could on their own.

The power of small moves in talent development

And let’s not forget talent development. In the past, training programs were the lynchpin of talent development efforts – again, lots of money spent up front to develop and deploy the programs, people taken out of their day jobs, often for weeks or months at a time, to cycle through the programs and the hope that someday these programs would yield tangible performance improvement. Now, the ability to craft day to day work environments that can accelerate talent development and performance improvement fundamentally alters the economics of talent development.

We’re now able to flip the economics of talent development – rather than investing in talent development and hoping that it someday will materialize in performance improvement, why not focus on driving performance improvement and rest secure in the knowledge that it will develop talent in the process?

The ultimate reward - increasing returns

Most importantly, the pragmatic pathways that are now available to make the transition from a world of push to a world of pull offer the potential to shift from a world of diminishing returns to a world of increasing returns in business performance. That’s the ultimate “big thing” we can set in motion if we smartly make the right small moves.

But wait, there's more . . .

Of course, if that’s not enough to get you to pick up The Power of Pull, there’s lots more – everything from shaping serendipity and the pivotal role of passion in driving performance improvement to big wave surfing and new forms of innovation that will trump even the most powerful forms of technology and product innovation.

And, once you read the book, reach out and let us know what you thought of it.  We're continuing to pursue an aggressive research agenda at The Center for the Edge and we're particularly interested in the questions that we left unanswered. It’s ultimately the questions that keep us excited.

The Paradox of Preparing for Change

I love paradox. Here’s an example: the best way to prepare for change is to decide what isn’t going to change.

Several weeks ago, I had the pleasure of speaking to a gathering hosted by the Churchill Club in Silicon Valley. The theme of the gathering was “Changing the Game.” They gave me exactly three minutes to offer some thoughts on the best way to prepare for change.

Little did they know at the time, but I had deep experience with this topic from a very young age.  You see, as a child, I lived a very nomadic life. My father worked with a multinational corporation. Virtually every year he was transferred to a new post in a different country. 

So, each time my Dad got transferred, I faced the prospect of moving to a country that I had never been to before. I had the challenge of making a new set of friends, knowing that, upon my father’s next transfer, I would have to leave all the friends that I had made and start all over again in the new country. This would be challenging enough for anyone, but for a shy and introverted young boy, it was a nightmare. Talk about preparing for change!

So, what did I learn from this experience? Well, I learned that change can be really, really exciting – it was an awesome opportunity to explore the globe at a very young age and experience so many diverse cultures. But change is also really scary.

As much as we might benefit from change, as human beings we all crave some form of stability in our lives. We need something that we can hold onto in a world that seems to be whirling more and more out of control, an oasis in the swirling sandstorm that clouds our view of the future. 

That is why one of the most pronounced demographic trends of the past forty years has been the global growth of fundamentalist religions.  When everything seems to changing more quickly and uncertainty looms around every corner, it can be enormously comforting to know that there is a Truth out there that will never change. Fundamentalist religions unfortunately tend to go one step further and encourage a belief that change is suspect, that the path of virtue is to fight change and return to some idyllic past.

So, how can we best prepare for change?  My advice based on the experience that I have accumulated over the years: decide what isn’t going to change, especially in three key domains: principles, purpose and people. Ask yourselves three key questions:

What principles or values will I hold constant? 

As we move into a world of ever accelerating change and extreme events that will increasingly come at us from entirely unexpected directions, we will be faced with options in terms of actions that we never expected to face.  Often, we will need to decide quickly which action to take – there will be limited time for reflection or analysis. 

In these circumstances, we will benefit enormously by having a set of moral and ethical guard rails that will help us to narrow choices quickly.  While the consequences of our actions can never be known fully at the time we make our choices, at least we will have the reassurance that we have stayed true to the values that matter most to us.

Not only will this be a comfort for us and enable us to take effective action more quickly, it will also be a comfort to those around us. Through our actions, even very radical and unexpected actions, they will see what will stay true for us even under the most trying of circumstances. In a world that increasingly depends on trust-based relationships, this can be a hugely valuable compass for others as they decide whom to rely on as pressure mounts and as new opportunities surface.

What purpose or direction will I hold constant?

Another way of framing this question is: why am I here and where do I want to contribute?  In a world that presents us with unforeseen events at an ever increasing rate, it’s very easy to become overwhelmed with everything that is occurring and to spread ourselves way too thin, diminishing our impact on all fronts. We all have limited resources. The best way to achieve impact is to mobilize a critical mass of resources, time and attention against opportunities that really matter to us.

Please note: I am not saying we need to have a clear idea of our destination. I am referring here to the passion of the explorer – a clear and unwavering commitment to a domain of action that defines the arena you intend to play and grow in.  That domain will undoubtedly evolve rapidly, often experiencing disruptive change, and the boundaries of the domain are likely to change over time.  Nevertheless, by having some clarity around the domain, you will be much more likely to have increasing impact over time relative to those who are buffeted about by the winds of change that seem to present a shiny new object or an unexpected challenge on a daily, if not hourly, basis.

Who are the people that I’m going to take on the journey and who I am going to stay with, no matter what?

Even the most shy and introverted of us are ultimately social beings.  We draw strength from deep connections that help us get through those really tough times when we are being challenged in ways that we never thought possible.  Regardless of how strong or talented we are, if we don’t invest the time and effort to build these relationships and stay true to these relationships, no matter what, we will find ourselves weaker than those who do. The victories will be more hollow and the defeats will be more difficult without those we can share them with.

In choosing the passengers on your journey, be sure to ask the question: are these people who amplify my energy or are they people who drain my energy?  We will need all the energy we can muster to confront and master change, so we will be far better off if we can find people who provide us with even more energy than we have on our own.

Be careful about the tendency to pick only people who are just like you. It can be very tempting because often these people give us great comfort.  On the other hand, we benefit greatly by having people as part of our cadre who approach things differently from the way we do and who bring a very different set of experiences and skill sets. 

They’re the ones that we can count on to ask the tough questions, the questions we never even thought to ask, but that turn out to be the questions that make the difference between success and failure.  They’re the ones who can take a completely unfamiliar situation and help us to make sense of it and come up with innovative new ways to make the most of that situation.

Bottom line

From my earliest childhood experiences, I’ve found that by focusing on these three elements of stability, I am much better prepared for change.

The change that before seemed scary and created huge stress, now becomes something that we can not only embrace, but seek out and benefit from. It becomes exciting because it provides us with an opportunity to learn faster and develop ourselves more quickly, increasing our potential impact on the world around us.

We can do all this, because we now what is not going to change and where we will find the stability that we all, as human beings, so desperately need.

The Labor Day Manifesto Of the Passionate Creative Worker

[Three years ago today I posted A Labor Day Manifesto for a New World. In classic Hagelian fashion it was long and complicated.  With the help of a few edge collaborators (Christopher Gong, Sarah Scharf and John Seely Brown), we've managed to simplify the Manifesto into some powerful imperatives that can and should guide our daily lives.  On this important day, let us reflect on what we each can do to make our work more meaningful and have greater impact. These are indeed exciting times, full of promise and potential. Let's seize the day.]

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We are living in a modern renaissance. Like the printing press during its time, our new tools have the capacity to spread knowledge faster and farther than ever before, resulting in an unparalleled and ever increasing rate of progress and change. As we consider the free information and universal connectivity that is now available, we are struck by the potential that each individual has to impact the world. And as we reflect on our past progress and the opportunities still ahead, we recognize that the most valuable resource we have is the human creativity and ingenuity innate in every person.

On this Labor Day, we celebrate the passionate and dedicated individuals in all fields who have both led us to where we are now, and are creating and shaping the future. They are explorers, pushing back the limits of our current understanding. They pioneer new ideas, discover new truths, and tirelessly innovate. They actively seek out new challenges and connect broadly with others to solve them. Though they come from every occupation and background, they are unified by the sincere belief that they can leave the world a better place than they found it.

To commemorate Labor Day, we think of those who inspire us through their example, and rededicate ourselves to living life passionately. We strive to:

1. Live our lives, and not someone else’s. We are the arbiters of meaning in our own lives; no one else, no matter how wise, rich, or well intentioned, can decide how we should spend our lives. Our passions serve as our compass as we seek out that which is beautiful, enriching, and meaningful to build our lives and the future.

2. Blaze new trails. There is no established path to greatness; we will need to step off the well-trodden trail and blaze our own. We commit to diligently exploring and creating new ideas, perspectives, methods, relationships, etc. We challenge the status quo, and in turn, seek out things that challenge us.

3. Prioritize learning over efficiency. We are focused on trajectories that lead us toward excellence and progress. We know that to reach our highest potential, we must never compromise growth for short term efficiencies, and we support others on their own learning paths. Mistakes, while the enemy of efficiency, are the fuel for learning.

4. Share knowledge freely. As we find better ways to share and exchange knowledge, each new discovery we make individually has the potential to benefit everyone collectively. We see each person’s enormous potential to contribute to our global knowledge base, and we are committed to moving from a zero sum mentality to one of collaboration and increasing returns.

5. Recognize that institutions exist to serve people.  We don’t exist for institutions, they exist for us. We create and participate in them to cultivate and pursue our passions and to develop more rapidly than we can on our own. We expect those we charge with leading our institutions to do everything possible to foster the growth of those they serve.

6. Quit jobs that we hate. There are too many interesting things to do in this life to waste time on things that don’t matter. In a time when jobs are in short supply for many, those of us who have jobs may be tempted to hold on to them because we have become comfortable with a certain lifestyle. We pledge to give up the corner office, fancy car or anything else of little consequence that may be holding us back from pursuing our passions.

7. Escape the trap of wasting time by being busy. Being overscheduled, even with the best things, will cause us to miss the important things that can’t be planned, and will rob us of the most valuable opportunities of our lives. In a world with so many meaningful things to do, we strive to master the delicate art of deciding what’s not most important to us and letting them go.

8. Live life for the adventure. Life is as amazing as we make it. When considering different opportunities, we ask, “When I look back in five years, which of these options will make the better story,” because no one ever regrets taking the path that leads to the better story.

9. Stay on the edge. The people who change the world are out at the edge of their field, pushing back the boundaries of the unknown. Though exhausting and sometimes risky, that is where we belong. Over and over we have found that the edge is not a cliff, but a fertile field awaiting our exploration.

10. Continually reinvent ourselves. We know that passion is the key to personal growth; it compels us to take risks, overcome fears, and attempt things never done before. And as a result, passion transforms the passionate. Only as we continually reinvent ourselves can we start to discover and reach our full potential.

11. Never settle. Never. Ever. Not even once.

We all have the potential to become passionate creative workers.  Let us join forces and help each other along the way to become better, far better, than we ever could alone. And, let’s have a hell of a time along the way.

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If this Manifesto speaks to you, we ask that you become a "signatory" by indicating your support in the comment section below.  Also, we invite you to sign up on our Facebook page. Let's join forces.

From Race Against the Machine to Race With the Machine

The recent book, Race Against The Machine, has caught the imagination of a growing body of readers. It’s an important book, but it doesn’t go far enough in highlighting the root causes of the unemployment we are experiencing. Rather than framing it as a technological issue, the book would have generated a lot more insight about both the problem and the solution if it had framed it as an institutional issue.

The authors, Erik Brynjolfsson and Andrew MacAfee, take a current news topic that has engaged the hearts and minds of many – persistent unemployment in the US – and suggest that this is a structural issue, not simply a temporary, cyclical event that will quickly improve. They argue that this issue is unlikely to go away in the foreseeable future and may actually become much more severe before it becomes better.

The economic impact of technological progress

Their goal is simple, as the authors state in a sub-heading of their first chapter - “Our Goal: Bringing Technology into the Discussion.”  Appropriately, they start by tracking the rapid advance of digital technology that is increasingly able to take on tasks that we would never have expected possible a few short decades ago.

They then proceed to examine the creative destruction that is driving growing mismatch between economic winners and losers. The authors in particular explore the paradox that advances in terms of economic productivity can at the same time leave a growing number of people behind. As they observe, “there is no economic law that says that everyone, or even most people, automatically benefit from technological progress.” In particular, they highlight three divergences that are increasingly shaping the US economic landscape: “between higher-skilled and lower-skilled workers, between superstars and everyone else, and between capital and labor.” They say the problem is even more stark because “. . . the winners in one set are more likely to be winners in the other two sets as well, which concentrates the consequences.” This is the richest part of the book and there is much to be learned about the economic impact that technology has had on our workforce.

What is to be done?

Race Against the Machine purports to be an optimistic book, but the description of the challenge is far more detailed and compelling than the brief chapter that addresses “What Is To Be Done?” As a framework for resolution of the growing challenge of digital automation, the authors propose that “. . . the key to winning the race is not to compete against machines, but to compete with machines” and ". . .we can learn to better race with machines, using them as allies rather than adversaries.”

This is a powerful turn of phrase, but when the authors dig into how to make this come alive, the specific recommendations appear pretty general.   First, they suggest that we need to foster “organizational innovation: co-inventing new organizational structures, processes and business models that leverage ever-advancing technology and human skills.”

They indicate there’s an opportunity for creative entrepreneurs to imagine new kinds of businesses that can harness the power of machines, pointing out that there are limitless opportunities for re-combinations of ideas and individuals and that “parallel experimentation by millions of entrepreneurs” is the best way to find the winning combinations. There’s no doubt that entrepreneurial energy can accomplish great things, but why has this entrepreneurial energy not been more effective in responding to the structural unemployment to date?

The second major plank of what is to be done involves investing more in education and training to build skills that are complementary to machines rather than vulnerable to automation.  Their more specific recommendations in this domain include adopting new technology more aggressively, paying teachers more, eliminating tenure and keeping students in class longer.

There are other recommendations as well, including increasing investment in our national infrastructure, spending more on basic R&D and a variety of public policy reforms.

Yet, reading through all of these recommendations, I can’t help but think that the authors are just skirting the real issue. The recommendations are “directionally correct” but, without a deeper analysis of the problem, are likely to fall short of the answers we desperately need to cope with the inexorable onslaught of digital technology as exponential improvements make more and more existing jobs vulnerable.

The authors come closest to a powerful answer with their call for “organizational innovation” but the call is far too vague and general. It can't be made more specific and actionable without another layer of analysis as to the root cause of the problem we confront.

Re-framing the core issue - is it technological or institutional?

Let me suggest that the real problem we are confronting is a growing disconnect between the institutional architectures we have so carefully designed over the past century and the pressures that are mounting in our global economy.  This disconnect goes to the very core of why we have institutions in the first place.  Until we address that most basic question, entrepreneurial tinkering will likely have marginal impact.

Ronald Coase won the Nobel Prize in economics for an essay on The Nature of the Firm he wrote in 1937 that provided a simple and compelling answer to the question of why we have corporations. He argued that we need corporations because they reduce transaction costs – the costs of coordinating and executing economic activity. Put in slightly different terms – the rationale for corporations resided in the quest for scalable efficiency.

This was an amazingly accurate analysis of the rise of the modern corporation in the 20th century.  Huge companies were built and enormous wealth generated by pursuing this quest. But here’s the catch. How was scalable efficiency attained? It was achieved by adopting large-scale push programs.  Driven by forecasts of demand, push programs required highly standardized and rigorously specified work activities that were closely monitored to ensure predictability.  The modern, thick process manual was the end-product. The job of the individual was to fit into this tightly regimented work environment and perform predictably and efficiently.

Now, think about this. If we reduce work to highly specified and standardized instructions that can be performed efficiently and predictably, what have we done? We have reconceived work so that it can be performed by computers and robots. In fact, computers and robots are far more preferable than humans because we humans are ultimately unpredictable and have a really hard time following instructions to the letter, day in and day out.

In this environment, it’s quite natural to view workers as fungible, cost items. When pressure mounts, the natural reaction is to cut costs by cutting workers, replacing them with machines where possible and, where not, simply making the remaining workers work harder.

Given this perspective, it’s no longer surprising that we see the hollowing out of the middle class.  Where did the middle class come from? They are the workers who so faithfully carried out the tightly programmed tasks defined by our push driven institutions.

Sure, as the authors point out, some of the routine work we do cannot yet be performed by computers, but it's just a matter of time before the delivery truck driver and the customer service rep can be fully automated. And what about all those wonderful things that the authors indicate will never likely be automated – imagination, creativity, genuine insight and emotional and moral intelligence? These attributes have no place in the push driven institutions we have built. They are ruthlessly rooted out wherever they rear their ugly heads.

Smaller, entrepreneurial organizations of course buck this trend, but what happens as soon as they start to scale?  They embrace push programs and rapidly join the ranks of the regimented. Why shouldn’t they? That’s the tried and true way to succeed.

Why should we be surprised that computers and robots are taking over more and more of the work in push driven companies?  And it’s not just companies.  The doctrine of scalable efficiency pervades all of our institutions – schools, NGOs and government agencies. We have all embraced push programs as the way to achieve success.

So, what's the answer?

Until and unless we get to the root cause of the problem, we’ll never solve the problem. The authors frame the issue as a technological issue, but it’s really an institutional issue. Until we can develop an alternative institutional model, one that can scale as effectively as the scalable efficiency model, we will face mounting pressure from machines and remain locked in a race against the machine without the ability to finally race with the machine.

But here’s the good news.  The scalable efficiency institutional model is fundamentally and irreversibly broken as I’ve argued at great length in The Power of Pull, with my co-authors, John Seely Brown and Lang Davison.

Why is it broken? Because digital technology has re-shaped our global business landscape in profound ways. It makes forecasts and predictions more and more challenging as we see more and more volatility and the increasing frequency of extreme, unanticipated events (“black swans”).  We increasingly find ourselves in a Paretian world but predictability can only be found in a Gaussian world where averages are meaningful. The push programs that seemed so essential to scalable efficiency now produce the opposite: increasing inefficiency, as rigidly constructed programs face unanticipated changes in the market.

Equally importantly, we’re moving from a world of knowledge stocks, where competitive advantage resides in proprietary knowledge of lasting value, to a world of knowledge flows, where competitive advantage can only be attained by participating effectively in a larger and more diverse set of knowledge flows. In a world that’s changing more rapidly with growing uncertainty, knowledge stocks depreciate in value at an accelerating rate.

This suggests an alternative rationale for institutions. Rather than pursuing scalable efficiency, perhaps we need a new set of institutions that can drive scalable learning, helping participants to learn faster by working together.  While simple to state and intuitively appealing, this requires profound changes to our institutional landscape. 

Rather than relying on rigid push programs, we need to increasingly develop scalable pull platforms where people can draw out people and resources where they are needed and when they are needed, not just to perform pre-defined tasks, but to engage in creative problem-solving as unanticipated challenges arise. Interestingly, the authors of Race Against the Machine, cite a number of promising entrepreneurial initiatives that all turn out to be examples of scalable pull platforms, but they don’t step back to really develop what is different about these pull platforms or to explore their potential for accelerated learning and performance improvement.

These pull platforms have an interesting property.  They not only accommodate, but demand, the attributes of participants that are least susceptible to automation – imagination, creativity, genuine insight and emotional and moral intelligence. In fact, these pull platforms catalyze, cultivate and reward these attributes – the same attributes that are so suspect in today’s push driven institutions. In pull-driven institutions, participants are no longer fungible cost items but instead become fully visible as assets with the potential for virtually unlimited development.

One more point. These pull platforms are much more challenging to scale without digital technology infrastructure. At long last, we will have an institutional framework that requires us to race with the machine, rather than simply racing against the machine.

This emergence of pull-based institutions isn’t simply confined to the domain of corporations. It will pervade all institutional domains. For example, our educational system is a classic push driven environment – not surprising, given that its primary mission was to prepare individuals to enter the workforce of push driven corporations. Adopting this institutional re-framing in education points out the limitations of the authors’ recommendations on education – simply investing more money and working longer hours in a push driven educational environment will have only marginal impact at best.

The bottom line

Until and unless we re-frame the challenges we face, we’ll have little hope of developing effective programs of change. At its core, this isn’t a technological challenge, but an institutional challenge. We're dealing with a set of institutions that are increasingly inappropriate for the mounting pressure we face. At an even more fundamental level, it's a mindset challenge – it’s about our beliefs about the kinds of institutions that we need to assure our prosperity and well-being.

The good news is that if we can re-frame the challenge, the challenge becomes an opportunity. For the first time, we have an opportunity to build institutions that can help all of us to achieve more of our potential and increasingly differentiate us from machines, while harnessing their power to amplify our efforts. We have reached a point in our history where small moves, smartly made, can set very big things in motion.

The Rise of Vendor Relationship Management

Our world is being turned upside down by the Big Shift. Customer Relationship Management (CRM) emerged in part to cope with the growing power of customers, but Vendor Relationship Management (VRM) flips this equation and anticipates that customers will increasingly take the lead in managing their vendors.

Doc Searls, the key architect of the VRM movement and a co-author of "The Cluetrain Manifesto," has written a powerful new book, "The Intention Economy," analyzing the reasons for this shift and its implications for companies that want to continue to create economic value. His book is a graphic demonstration of the shift from push to pull that is disrupting our business world (not to mention all of our other institutions).

We've long known that customers are gaining power in markets around the world as they tap into the twin forces of digital technology and economic liberalization. They are able to access more and more information about products and vendors and to more readily switch from one vendor to another in a world of expanding choice.  This has become a truism, so much so that our eyes begin to glaze over when we hear it, yet few of us have thought through the profound implications that this power will have.  We’re not just talking about mounting pressure on companies, but also the emergence of what I have called reverse markets.

Most of us think of markets in conventional terms – it is about vendors seeking out customers and persuading them to buy more of their products and services. A reverse market flips this dynamic – it’s about customers seeking out the most relevant vendors and extracting more and more value at lower and lower cost. It’s a fundamentally different mindset. It turns much of what we know about business on its head. Framing it in these terms can create a zero sum view – either vendors win or customers win. As Doc persuasively argues, though, a customer driven market actually generates significant growth in demand that will serve both vendors and customers well.

Customer Captivity

Doc lays out the basic premise of the book as follows:

“. . . rather than guessing what might get the attention of consumers – or what might “drive” them like cattle – vendors will respond to actual intentions of customers. Once customers’ expressions of intent become abundant and clear, the range of economic interplay between supply and demand will widen, and its sum will increase. The result we will call the Intention Economy.”

To achieve the potential of the Intention Economy, Doc is an evangelist for the tools, practices and business models that can support Vendor Relationship Management.  Doc came up with the concept of VRM in 2006. It began to gather momentum when he joined Harvard University’s Berkman Center for Internet and Society and launched ProjectVRM.  As Doc reports, this initiative was built on two basic theses: “Free customers are more valuable than captive ones” and “Free markets require free customers.”

Many executives still express their goal as “owning the customer.”  As Doc reminds us, another word for owning another human being is slavery.  A key theme throughout the book and a driving force of ProjectVRM is the notion of customer captivity and continued efforts by companies to restrict customer choice. For Doc, providing us with greater choice among captors is not sufficient:

“Improving slavery does not make people free. We need full emancipation.  That’s the only way we’ll get free markets worthy of the name.” Perhaps one way to think about ProjectVRM is as a new Abolitionist movement, bent on providing customers with the tools that will free them once and for all from the efforts of vendors to keep them in bondage.

Of course, this overstates the plight of customers since the Internet and associated technology tools have already gone a long way toward empowering customers in their relationships with vendors. Nevertheless, Doc is right to point out that additional tools will be required for customers to become more effective in managing their relationships with vendors. 

Tools for liberation

Rather than relying on a few vendors to develop these tools, Doc has been intent on catalyzing a distributed innovation system that extends well beyond ProjectVRM itself. The few development efforts that ProjectVRM has led itself are all open source to minimize intellectual property barriers and to encourage others to build on the software.  This has spawned a truly global movement, extending far beyond the US.  There are now dozens of development efforts and hundreds of individuals seeking to provide customers with the tools necessary to make VRM a reality.

As Doc freely admits,

“The VRM tools in development today are still at the hammer and screwdriver stage.  But the nail guns and power saws are not far behind, because even primitive VRM tools will prove that free customers are more valuable than captive ones – to themselves, to vendors, and to everybody else.”

Over time, the VRM toolkit will encompass a broad array of functionality. It includes trust frameworks, personal data stores/vaults, tools to help customers define the terms under which they want to deal with vendors and then make choices around payments, including what personal data to pass along with their payments and the terms of use for their personal data, micro-accounting tools that help customers (and their agents) to keep track of what they have done, certified pointer systems to help locate digital assets and associated usage rights.

These tools will be supported and amplified by some broader technology developments on the Internet discussed by Doc.  In particular, he points to the importance of the spread of application programming interfaces (APIs) that help to connect applications and provide a foundation for what Phil Windley (one of the key drivers of this movement) calls the Live Web in contrast to the Static Web. These APIs will help to move beyond short-term transactions that define much of the commercial activity on the Internet today into complex cascades of activity that build upon each other to seamlessly deliver more value to participants.

The business and tech press today is inundated with stories about “Big Data” but Doc draws attention to the need to develop tools to manage small data, your own personal data. He observes that

. . . the end result is that the “small data” that’s yours will be more important than the “big data” behind marketing’s guesswork.  The two in the long run will dance together. But for now the small data side needs to get its act together.  And it will.

In seeking to expand the freedom of the customer, Doc rightly draws attention to contracts of adhesion as a key tool of suppression.  Contracts of adhesion are basically standardized contracts that vendors use to set the terms of their transactions with customers on a “take it or leave it basis.” Think of those “terms of services” tucked away on websites, written in incomprehensible legal jargon and presented in tiny font designed to give an intense migraine to anyone who is foolish enough to attempt to read through them.  Doc observes that these contracts of adhesion “nail down the submissive party while the dominant party is free to change whatever it wants.” It is “Velcro for the vendor and Super Glue for the customer.”

Doc writes

It’s pointless to challenge these contracts so long as three conditions persist: (1) only one side gets to write the agreements, (2) the agreements need to cover all conceivable possibilities, and (3) the other side’s only choice is to agree or walk away . . .

Doc is optimistic that freedom of contract can be leveraged to challenge these contracts of adhesion as long as tools can be put in the hands of customers to define and enforce their own terms. More generally, Doc is optimistic that generative technologies like the Internet and generic access devices “invite, run on, and support a boundless variety of other standards, technologies, and uses, for both hardware and software.” This technology becomes a highly adaptive form of infrastructure that has the potential to transform markets.

But Doc is right that technology alone cannot accomplish the vision behind the Intention Economy and VRM.  We also need innovative new services and business models to harness and amplify the potential of the technology.  In this context, it is worth pulling out two big implications of Doc’s vision – the emergence of customer agents and the shrinking of advertising revenue as a fuel to drive advertising supported business models (namely, most of Internet businesses today).

The rise of fourth parties

Doc points out that business today is largely a three party affair.  We of course have the vendor and the buyer, but we often have third parties that get involved in a transaction, usually by supporting the supply side of the transaction.  As an example, he cites the third party app vendors that populate Apple’s online store. 

As we pursue the opportunity for VRM, though, Doc anticipates that there will be growing opportunities for fourth parties, those “whose interests are aligned with those of the customer or user or that act as an agent or fiduciary for the customer or user.” These fourth parties can provide a range of services, including substitutability, service portability, data portability, independence and accountability, in dealing with vendors.

We have early examples of these kinds of fourth parties in other domains, ranging from personal financial advisors to personal shoppers, but so far these fourth parties have generally been a luxury available only to the very affluent.  The Internet and a host of VRM tools offer the potential to make these fourth parties more broadly available to customers.  While these fourth parties may be paid by customers themselves, Doc suggests that they might also generate revenue from vendors who will now be able to target intentions much more effectively.

I wrote about the potential for these fourth parties over a decade ago in my book "Net Worth: Shaping Markets When Customers Make the Rules," which focused on the opportunity to create infomediaries, essentially customer agents who would help us to collect and manage data about ourselves so that we could maximize the value of that data for ourselves. A lot of entrepreneurs were inspired by the vision and formed companies seeking to become infomediaries.

This early wave of infomediaries failed to gain traction because they misunderstood how to maximize value for the customer.  On the one hand, many of them thought that privacy was the big concern and that it was simply a question of limiting access to personal data. In fact, relatively few of us are that concerned about privacy in terms of denying access to information about ourselves.  But we do want to ensure that we are getting value in return for the data. 

Other entrepreneurs, though, came at this from the perspective of maximizing cash payments to the customers in return for access to their data.  Once again, this was misguided – the cash value of our data is actually relatively small, with the further paradox that those who might be motivated by cash for their data had the least valuable data. The affluent individuals who could generate more cash for their data found that it was not enough cash to really motivate them.

The key to unlocking the potential of fourth parties like infomediaries is to understand that the real value locked in our personal data is the ability to significantly strengthen convenience, relevance and discovery in our quest for products and services that are most useful and engaging to us.  By having a holistic profile of our own activities, an infomediary can truly become a trusted advisor, helping to suggest new vendors or products and services that we might not even be aware of.  Thanks to the efforts of the VRM movement, we are finally developing the technology standards and tools that can make this business opportunity feasible.

Implication for advertising

If we think through the implications of VRM in terms of advertising, the impact could be very disruptive. As Doc points out, advertising “flourishes in the absence of more efficient and direct demand-supply interactions.”  As VRM achieves its vision of making the intentions of customers more visible and connecting customers to relevant vendors, the “advertising bubble deflates.”

Doc is quick to add that advertising will certainly not go away, but it will likely play a smaller role in the marketplace.  This has significant consequences for any business that is heavily advertising supported, which includes most Internet businesses.  While there is still time, it may be useful to start re-thinking advertising supported business models and defining products and services that customers might actually be willing to pay real money to obtain.

Bottom line

Doc is emphatic throughout the book that VRM is still in very early stages of emergence and there is much to be done to make it a reality.  Invoking Heisenberg, Doc suggests that “Searls’s corollary for the future is that you can know neither position nor momentum, but that shouldn’t stop you from trying to influence both. Or don’t be the pinball. Be the machine." 

In this context, Doc is performing the classic role of a shaper as I've written about in the context of shaping strategies: he's articulating a compelling shaping view, helping to define a viable shaping platform and pursuing a set of acts and assets that demonstrate both conviction and capability to pull this off.  Fasten your seat belts; this is going to be a very interesting and disruptive ride.

Exploring passion – what kind of passion do you have?

I've become passionate about passion.  The more I explore it, the more convinced I am that it’s the key to unlocking sustained extreme performance improvement, both at a personal and institutional level. 

In the world of the Big Shift, where pressure will continue to mount, passion will become a key differentiator between those who thrive and those who crumble.  If we have passion, the challenges of the Big Shift become exciting and turn into opportunities to tap into more of our potential. If we don’t have passion, we risk becoming increasingly stressed and overwhelmed.

Passion, performance and potential – these three weave together into a seamless web.  Whether we come at it from the perspective of achieving more of our untapped potential or from the perspective of driving performance to ever higher levels, passion is the necessary foundation. Without it, our potential will remain exactly that – latent within us, something that we can only imagine but will never experience or be able to share with others. 

Similarly, without passion, we can squeeze ourselves and others to get the next increment of performance or perhaps even try to motivate it with cash rewards, but these approaches are rarely sustainable and only draw out a small fraction of the performance that is available.

As I’ve spent time exploring passion, I’m constantly confronted with a key issue – passion has an almost infinite variety of meanings. I’ll be talking with someone about passion, they’ll be nodding their head and only later will we discover that we have very different meanings of passion.  We’re using the same word, but we’re not talking about the same thing.

Perhaps it’s a compulsion of mine, but when confronted with that kind of ambiguity, my impulse is to try to develop a taxonomy to try to develop some clarity around the language we use. Perhaps if we can agree on the different forms of passion, we can not only enhance mutual understanding but perhaps even develop some insight regarding the relative power of these different forms of passion.

What are the key attributes of passion?

Let me start by suggesting some boundaries around the domain of passion.  At the most fundamental level, passion is often used very loosely to describe excitement or emotional intensity.  If someone is very emotional, they are often described as passionate. I propose that we focus on a more narrow form of passion.

I’d like to suggest that passion is all about commitment to personal improvement.  In contrast with obsessions, which are all about losing oneself in an external object, passion is all about connecting with, and developing, one’s own capabilities.

Two key dispositions, or orientations towards action, define the domain of passion:

Questing disposition – A constant desire to challenge and test oneself to see if we can achieve higher levels of performance and draw out more of our potential

Connecting disposition – An orientation towards connecting with others who share our passion or who can be helpful to us in addressing the challenges that we’re pursuing

Passion is not the same as engagement

In this context, it might be useful to contrast passion with another term that’s often used synonymously with passion – engagement.  In the business world, we’re all seeking employee engagement.  Let me suggest that engagement is not enough; we need passion. 

What do I mean? Well, it may be about semantics, but semantics are important.  When I hear most people talk about employee engagement, they tend to focus on excitement about the work and about the people they are working with. Engaged employees look forward to getting to work, pay a lot of attention to details, make an effort to get to know the people they are working with, and will often talk about their work with friends and family.  Often, reference is made to getting into the flow, in the sense that Mihaly Csikszentmihalyi so compellingly described – becoming fully absorbed in work and losing oneself in the task at hand.

This is all well and good, but is it enough?  What’s generally missing from these descriptions is a commitment to achieving more of our potential and driving ourselves to new levels of performance improvement.  Engaged employees are very content with the work they are doing, but don’t necessarily have that commitment and restless desire to get to the next level of performance. Passionate workers are deeply engaged in their current work but their focus is on getting to the next level – if they can’t find challenges that will take them to that next level, they’ll quickly become bored and restless and ultimately seek some other environment where they can more effectively challenge themselves.

In this context, engagement is necessary but not sufficient.  In a world of rapidly mounting pressure, we need that questing and connecting disposition that will take us to new levels of performance. We need passionate workers and colleagues – it is a much higher bar and one that most companies fail to target, much less achieve. The Shift Index that I helped to develop suggests that, at best, only 20% of the US workforce is passionate about their work and levels of passion vary inversely with the size of the enterprise – the larger the firm, the lower the levels of passion.

OK, but is passion enough?  Here is where it is important to pull apart different types of passion. I’ll briefly explore four different types of passion that I’ve come across in my discussions.

Passion of the fan

We all know people with this kind of passion.  We develop a deep interest in a person, team, idea or discipline and we set out on a quest to learn everything we can about the object of our passion. We seek out information wherever we can and we’re insatiable in our interest.  As soon as we learn something, we get really, really excited but then we have five more questions that we want to pursue. 

Fans generally seek each other out to share the questions they have and the information they have gathered.  Conversations go on late into the night and there never seems to be enough time to cover all the ground. If it is a person or a team, we go out of our way to see them in action, even if it means traveling to distant cities.

Fans can have deep, long-term passions but sometimes it’s more fleeting – we get really excited about something, but then, as time passes, we get tired of it and move on to something else. Yet, while it exists, it’s deeply felt and drives us to go above and beyond to learn more about the subject of our passion.

Passion of the player

This is a common form of passion.  We get really deeply immersed in a topic or domain (or sometimes a person or a team), and we not only want to learn more and more about it, but we’re driven to create something or contribute something to the subject in a way  that goes beyond mere conversation or discussion with other fans.  We might want to pursue original research to discover something entirely new, write about the subject, build something – but the urge is to make a difference, not just learn about, or talk about, a subject.

But, here’s the catch.  Players have a hard time sustaining their commitment to a particular subject or domain.  They get really, really deep into something and make some awesome contributions but then they get distracted by something else that attracts their attention.  They drop the first subject and dive into the new subject with equal vigor. This pattern repeats over and over – nothing seems able to hold the player for very long.

A small group of fans actually become players – they get so immersed in their subject area that they shift from simply wanting to learn about the subject to wanting to contribute something.  Henry Jenkins talked about participatory cultures in his research, where fans come together “to construct their own culture – fan fiction, artwork, costumes, music and videos – from content appropriated from mass media, reshaping it to serve their own needs and interests.” 

Another example of fans becoming players can be seen in some products like Lego building blocks where certain people become so passionate about the product that they actively engage with companies on the design of next generation products.

Passion of the true believer

I’ve talked about this passion type before.  The true believer is deeply committed to a domain for the long-term.  They have a very clear view of the destination and, perhaps even more importantly, of the path that they’ll need to take in order to reach the destination.

It will be a long and challenging journey, but also an exciting one, and the true believer is committed to staying the course.  True believers are committed to taking actions that will accelerate movement down the path for themselves and for others. They’re not content to study the path – they want to travel it and, where necessary, build whatever it takes to travel the path more successfully. They are also committed for the long-term – if not a life-time, then a significant portion of one’s life-time.

True believers reach out to others and work hard to draw them into the journey.  But there’s a catch. The true believer doesn’t want to confront challenges or questioning about either the destination or the path.  These are a given and it is simply a distraction and a waste of time to debate these.  If you want to help make the journey along the defined path, the true believer welcomes you with open arms. But if you challenge the true believer, you’ll often find yourself quickly expelled from the true believer’s circle.

Fundamentalist religions tend to cultivate the passion of the true believer.  But true believers can be found in many domains – a lot of the entrepreneurs that I run across in Silicon Valley and elsewhere are very much true believers. There are certainly true believers in large enterprises, schools and government as well.

Passion of the explorer

I’ve also discussed this passion type before. The explorer commits to a domain, usually one that is broadly defined, and is excited about the prospect of making a growing impact in the domain over a long period of time, often a life-time. But here’s a key difference relative to the true believer.  The explorer has no idea where they will end up and they have little sense of the long-term path they will pursue.  That’s part of their excitement, they get to carve out their own path as they go and they get to be surprised about where it leads.

Explorers also reach out to connect with others.  They are constantly seeking new challenges that will test them and help them to make an increasing impact in their domain. As a result, they’re always seeking others who either share their passion or who have some expertise that’s relevant to the challenges they are confronting.

The passion matrix

In fact, not able to resist the consultant impulse, I’ve devised a two by two matrix to represent two dimensions that I think help to map these different forms of passion.

The first dimension is the time frame for the passion – is it short-term or long-term? The second dimension differentiates between two different types of improvement goal – learning or impact. The four types of passion fall into different parts of the matrix depending on their position along these two dimensions.

Now, why have I invested all this time and effort to differentiate four different types of passion and position them on a matrix?  Well, I think it helps us to make more sense of what we mean by passion. But more importantly, the matrix helps to answer a key question: what kind of passion do we most want to foster and amplify if our goal is to achieve sustained extreme performance improvement?

Bottom line

Through this lens, it becomes clear that you want to focus on passion that is sustained over the long-term, rather than experienced in relatively short sprints.  You’d also want to focus on passion that seeks to make an increasing impact in a domain rather than simply learning more about it and talking about it. That leads us up to the upper right quadrant – the sweet spot of any self-respecting matrix.

But how to choose between the passion of the true believer and the passion of the explorer?  Well, in relatively stable times, the passion of the true believer can achieve amazing results because the destination is very clear and the path has been traveled many times.  But in more rapidly changing times, filled with growing uncertainty, my bet would be on the passion of the explorer, who loves unexpected challenges and is prepared to quickly adapt to extreme changes, learning as they go.

Of course, if you’re recruiting a team to embark on a series of challenges, they don’t all have to have the passion of the explorer. You could also draw in some folks who have the passion of the player, who will at least participate in, and contribute actively to, some of the early sprints, even if they may not stay the full course. They can add diverse experiences and talents to the team. But the anchor of the team had better be people who have demonstrated the passion of the explorer. That is what will deliver sustained extreme performance improvement and perhaps help to keep the players sufficiently challenged that they will not get easily bored.

Relatively few people have the passion of the explorer, but it’s those folks who will thrive in the Big Shift and carve out new paths to more rapid performance improvement.  But, what do you do if you don’t have the passion of the explorer?  Well, that’s a whole other topic and this posting has already become far too long, so let me resist the temptation to address it now and save it for a later posting.

So, what do you think?  Do these passion categories make sense?  Are there other categories that I’m missing? What types of passion, if any, do you have? Is it possible to have more than one passion at the same time?

Pull Platforms for Performance

We live in a world of mounting performance pressure. Our Shift Index reveals that return on assets for all public companies in the US has eroded by 75% since 1965. Companies clearly are failing to respond effectively to these mounting pressures. If we hope to turn this around, we need to step back and take a systematic look at the performance levers that drive these results and question the approaches of the past.

What drives company performance? It’s actually quite simple. Most businesses can be understood as bundle of three core operating processes, each driven by a unique performance lever. These three operating processes are: customer relationship management, product innovation and commercialization and infrastructure operations. Each of these core operating processes is under increasing pressure. Let’s look at each one in sequence.

Customer relationship management

Customer relationship management is all about connecting with a set of customers, getting to know them deeply and delivering more and more value to them.  The metric that drives the performance of this core operating process is simple: customer life-time value. Customer life-time value itself is a function of three variables:

[(Profit generated per year) x (years of relationship)] – cost of customer acquisition

While simple to state, these variables are more and more challenging to manage.  In fact, each one is under growing pressure.  In most industries, customer loyalty is eroding, leading to a significant reduction of the average life of a customer. To make matters worse, margins are eroding as well, diminishing the profit generated per year of a customer relationship. In many industries, the cost of customer acquisition is also rising. Other than that, everything is find with the customer.

Product innovation and commercialization

This core operating process focuses on the research and development required to generate innovative new products and services, getting new products and services quickly into market, accelerating adoption of these products and services and then striving to extend their lives in the market as long as possible.  Similar to customer relationship management, the metric that drives this core operating process is simple: product (or service) life-time value.  This metric can also be decomposed into three variables:

[(Profit generated per year) x (years of market life)] – cost of developing the product

Once again, each of these variables is under increasing pressure.  Across virtually all industries, product life cycle compression has become a fact of life.  Product margins are under increasing pressure. Greater efficiencies in procurement can help to offset these growing margin pressures to some degree.  Brand used to help a lot in charging a price premium, but the brand premiums are rapidly eroding in most industries.  As if that is not bad enough, the cost of developing new products and services is also increasing in many industries. And yet we keep churning out more of them.  In many cases, we seem to be compensating for diminishing product profitability by making more of them - we desperately hope to make it up on volume.

Infrastructure operations

Most businesses require some type of asset intensive infrastructure to operate.  The nature of the infrastructure differs significantly across industries.  In many product businesses, it might be factories to produce the products. For retailers, it would be the physical store fronts. For banks and brokers, it could be the back office processing facilities that they operate to execute transactions, not to mention the branch offices to engage with customers. Even digital Internet businesses typically require large data center operations.

Whatever the physical facilities, they typically consume significant assets and require substantial operating expense. In this context, managers tend to focus on asset life-time value:

[(Profit generated per year) x (years of asset operation)] – cost of building/acquiring asset

By now, the story becomes monotonously similar. Margin pressure reduces profit generated per year, accelerating technology and consumer preference changes diminish the average years of asset viability and cost of building/acquiring assets tends to increase.  In this particular case, asset utilization can also have significant impact on profit generated per year.  Finding creative ways to increase asset utilization can often help to offset increasing margin pressure.

Begin by measuring

In coping with increasing performance pressure, it is important to tightly manage these performance levers. Of course, it's hard to manage these levers, if they are not even measured.  I continue to be amazed at the number of companies that have yet to even systematically measure and monitor these levers.  Most companies do a pretty good job at focusing on product life-cycle value but the attention to customer life-cycle value and asset life-cycle value is far more sporadic. If you're not relentlessly measuring these performance levers, you'll have little chance for success in the global economy ahead.

These operating performance levers are especially critical because they represent leading indicators of financial performance. By aggressively measuring, monitoring and managing these performance levers, executives can anticipate how their company will do financially.

As companies develop measurement and monitoring systems for these performance levers, they need to be wary of the tyranny of averages.  Customers, products and facilities often vary dramatically in terms of life-cycle value.  In fact, the Pareto principle is often missed by companies – 20% of the customers, products and facilities usually generate 80% of the profits.  But which 20%? Few companies can answer this with any assurance or precision.

One way to start improving performance dramatically is to ask two questions.  First, what are the characteristics of the 20% that generate the 80% of the profitability and is there anything that can be done to increase the share of these highly profitable parts of the business?  Second, is there a compelling reason to retain the other 80% of customers, products and facilities given their low contribution to profitability and, if so, what can be done to increase their profit contribution? Alas, few companies even ask these questions in any systematic way, much less answer them.

But measuring is not enough

Measurement is just the beginning. The key is: what actions can managers take to improve the overall performance of these operating levers?  Unfortunately, the prevalent instinct of executives as they focus on these operating levers is to cut costs.  While certainly understandable, and worthy of pursuing wherever feasible, cutting costs is a diminishing returns proposition.  The more costs are cut, the harder and harder it will be to achieve the next increment of cost reduction.  In a world of steadily increasing performance pressures, cost reduction is never enough to sustain performance improvement.

In this kind of environment, executives will need to broaden their horizons and look for more powerful ways to drive performance improvement.

The power of pull platforms

One way to drive increasing value from all three of these core operating levers is to shift to a platform mindset.  What does this mean? Let’s take a look at each of these core operating processes through a pull platform lens.

Customer relationship management traditionally has been viewed as a narrow pipeline.  Nirvana is to build an enduring one to one relationship with each customer – me, the vendor, working closely with you, the customer, and with no one else to distract us from doing business with each other. This is a much too narrow view of the opportunity, especially in a world where customers are gaining increasing power and seeking ever more value at lower cost.

What if we viewed the ideal customer relationship as one where I, the vendor, seek to build an expanding platform to help customers connect more effectively with the resources that are most valuable to them individually? Now we have an opportunity to generate increasing value from the relationship and the potential to build a much for sustaining relationship.  We might even reduce customer acquisition costs as word spreads among the customers regarding the increasing value available on this platform.

Similarly, we've become much too accustomed to viewing products and services as standalone offers to the customer.  What if we began to re-conceive products and services as platforms that would invite and support third parties to add customized modules and extensions to the functionality available in the core platform?  Such an approach might reduce the cost of development since we no longer have to design in all the functionality at the outset, it might extend the life of the offer (particularly if network effects begin to kick in) and we might generate more profit with each year that the platform is available.

Finally, how might we re-conceive infrastructure as a platform?  Perhaps rather than viewing it as a captive resource only available to our company, we might explore ways to make it available to third parties so that we can increase utilization of the resource and generate more profitability from our investment.  It was this shift in mindset that set Amazon down the path of offering Amazon Web Services, its hugely successful infrastructure as a service offering – it was wrestling with the challenge of investing for peak loads and the availability of spare data center capacity for much of the time.
In exploring the potential of a pull platform approach, executives might think about the three distinct levels of pull that we developed in our book The Power of Pull – access, attract and achieve.  The big win would be to design platforms that address all three levels of pull.

The unbundling option

If any of the three operating levers are underperforming and the option to develop pull platforms appears unrealistic, executives should explore the most radical option of all – shedding the core operating process that is underperforming.

I explored this option in a Harvard Business Review article – Unbundling the Corporation – which has gotten a lot of attention from executives around the world.  The article had a provocative proposition – companies will ultimately have to choose one of three business types to focus on and shed the other two. These business types map closely, but not completely, to the three core operating processes outlined above.

Through this lens, the outsourcing and offshoring trend of the past several decades can be understood as a systematic shedding of infrastructure management processes by larger companies.  In turn, the successful outsourcing providers can be viewed as creating very effective pull platforms for infrastructure management operations.  We'll also see increasing options to shed either the customer relationship management or the product innovation and commercialization business processes.  If you can’t fix it, shed it.

The bottom line

Does your company explicitly and systematically monitor these key performance levers?  Has your company applied the Pareto lens to understand where your real profitability is? What steps is your company taking to manage these performance levers in a more effective way? Are you aggressively pursuing pull platform or shedding options? What are the barriers that prevent more effective pursuit of these options? Do you have a going out of business plan?

The evolution of design to amplify flow

If we want to understand the importance of flows in our world, the new book Design in Nature released this week by Adrian Bejan and J. Peder Zane is a must-read. It will literally change how you view the world – everything from snowflakes to volcanos. As with most great books, this one is impossible to summarize in a brief blog, but I will try to offer enough of a glimpse to tease you into buying and reading the book.

This book illustrates the power of living on the edge.  It crosses a wide array of disciplines, ranging from physics and biology to technology and urban studies, in its quest to define a universal law of flow.  By pulling back from individual disciplines, it identifies patterns that were either missed or misunderstood in more narrow contexts.

Introducing the constructal law

The core mission of this book is to introduce us to the constructal law: “For a finite-size flow system to persist in time (to live), its configuration must evolve in such a way that provides easier access to the currents that flow through it.” There is an imperative here:  “The constructal law is a shout from the rooftops: Everything that flows and moves generates designs that evolve to survive (to live).

The constructal law has a very broad reach:

“The constructal law is revolutionary because it is a law of physics – and not just of biology, hydrology, geology, geophysics or engineering.  It govern any system, any time, anywhere, encompassing inanimate (rivers and lightning bolts), animate (trees, animals) and engineered (technology) phenomena, as well as the evolving flows of social constructs such as knowledge, language, and culture. All designs arise and evolve according to the same law.”

The authors caution

“that nothing operates in isolation; every flow system is part of a bigger flow system, shaped by and in service to the world around it. The flow system we call a tree is also part of the larger flow system (that also includes rivers and weather patterns) for moving water from the ground to the air in order to achieve an equilibrium of moisture locally and globally.”

In fact, the authors suggest that, by teaching us that life is flow, the constructal law collapses the false distinctions between the animate and the inanimate, providing a single, universal law that accounts for all design and evolution in nature.  The constructal law shows us that humanity does not stand apart from nature but is a manifestation of, and governed by, nature.” “ . . .the constructal law brings science in line with poetry. It reveals our deep connection. It illuminates the tendency that unites everything that moves.”

“Flow systems have two basic features (properties). There is the current that is flowing (for example, fluid, heat, mass, or information) and the design through which it flows.”  Flow systems must deal with the constant tension between flow and friction. The design of the flow system seeks to facilitate flow within the constraints imposed by various forms of friction.

The importance of design in flow systems

As the title of the book suggests, the constructal law is ultimately a law about design. It determines which designs will survive and thrive over time. The constant interplay between flow and design drives the evolution of flow systems.  The design of flow systems must evolve to enhance the flows within the system or they will die.

In focusing on design in nature, the authors realize they are treading on thin ice:

“Design may be the foundation of the built world, but it is anathema when the conversation turns to nature. Its six letters have become the four-letter word of biology and physics.”

The direction of design evolution

From the perspective of the authors, design is not static.  It is continually evolving in a quest to find more effective ways to support flows. “This evolution occurs in one direction: Flow designs get measurably better, moving more easily and farther if possible. “ This evolution can be observed at all timescales. Rivers evolve at a different rate than a lightning bolt or snowflake. If a design ceases to evolve, it will quickly become a fossilized flow system, tossed aside to make way for more effective flow designs.

The authors assert:

“The constructal law does much more than explain the designs we see in nature. It articulates a law we can use to understand why designs emerge and predict how they will evolve in the future.”

In this regard, the book challenges at least one dominant view of Darwinian evolution:

“that there is no overarching direction to evolution. Proponents of that view claim that adaptations makes species better able to survive, but they never explain why these changes should occur and what they mean by “better.” . . . [The constructal law] expresses the meaning of “better” in unambiguous physics terms – change that facilitates faster, easier movement.”

There is a direction to evolution:

“[The constructal law] offers a scientific confirmation, a rational, testable basis for our intuition that there is a direction in time to the evolution of all around us, a purpose, a direction toward flow performance in all that goes on around us.”

While these may all seem like blanket and arbitrary statements, read the book to see the remarkable empirical evidence mustered to support this law in an incredibly diverse array of domains. It is particularly interesting to see how the constructal law is used in a predictive manner – anticipating what the design of a particular flow system might look like and then empirically testing it in various natural settings. For the full range of academic research on the constructal law, check out the Constructal Theory Web Portal.

The constructal law applied to society

The authors apply the constructal law to analyze the evolution of society:

“Civilization with all its constructs (science, religion, language, writing, and so on) is the never-ending physics of evolving flow configurations from the movements of mass, energy, and knowledge to the world migration of people to whom ideas occur.”

I am surprised in this context that the authors do not explore in more detail the growing role of cities in enhancing flows in society.  Surely one of the key reasons that our world is growing more spiky, with an acceleration in the trend towards urbanization, is that cities are powerful amplifiers of flow.  In this context the work of Geoffrey West and Bettencourt comparing the scaling and life spans of cities and companies would be a very interesting illustration of the constructal law in action.

Freedom enhances the evolution of design

This focus on the evolution of design also leads the authors to emphasize the importance of freedom. “A prerequisite, then, is for the flow system to be free to morph. . . . Freedom is good for design. Later on, the authors observe: “Freedom is what allows flow systems to configure and reconfigure themselves. It is what allows them to “get design” and get better. Without freedom there would be no design and no evolution.”

Moving towards greater potential and possibility

Overall, the book offers a very optimistic view of the future:

“What’s ahead? The short answer should be obvious by now: a multitude of flow designs that move more mass better – cheaper, farther, faster. On the world stage, you can place solid bets that the entire globe will continue spreading the rule of law, free trade, human rights, globalization, and all the other design features that guarantee more movement for us and our stuff. Sure, there are obstacles; dictators will not like this prediction. But the nature of the flow system composed of the huge numbers of individuals makes their reigns short-lived in the grand scheme – because of physics.”

As this suggests, the authors offer an inspirational view of the potential and possibility ahead of us as evolution drives us to ever more effective flow systems.

“Thus the constructal law suggests the idea of progress, conveys the promise of hope: Given freedom, flow systems will generate better and better configurations to flow more easily.”

Relevance to the Big Shift

I love this book for many reasons – its insight, optimism, breadth of scope and edginess.  More immediately, it casts a new light on the analysis of the Big Shift that is re-shaping our global business landscape. Both our Shift Index and The Power of Pull explore the various dimensions of the Big Shift but one way of framing this shift is from a world of knowledge stocks to a world of knowledge flows.The Big Shift will lead to enormous wealth destructuion and even greater wealth creation.

Our institutions that emerged in the latter part of the 19th century and the early part of the 20th century were designed around knowledge stocks.  The irony is that these institutions emerged in response to new transportation and communication infrastructures that facilitated flow.

Now that new digital technology infrastructures are emerging globally, we are witnessing a profound and disruptive shift to from knowledge stocks to knowledge flows as the source of value creation.  With the benefit of hindsight, we may come to realize that the powerful institutions that emerged in the last century and continue to govern our lives – whether companies, NGO’s, schools or government – were in fact a very brief detour in the evolution of institutional design to facilitate flow.

Is knowledge flow different?

In thinking about the design of a new generation of flow-based institutions, there is much to learn from this book.  At the same time, I would insert a word of caution that the concept of flow may need some further refinement in a social and business context, especially when we are talking about flows of knowledge. 

Knowledge is not a finite quantity and in this respect it is unlike many of the other kinds of flows discussed in the book – e.g, river water or volcano lava – where the key is to enhance speed and efficiency of movement from one point to another point with minimal dissipation. Knowledge can and does grow as part of flow.  What are the institutional mechanisms that can accelerate new knowledge creation as part of flow design?  Those who answer this question will generate enormous wealth and drive a whole new wave of institutional innovation and design.

The bottom line

So, what does this mean for all of us?  The message is simple and compelling.  If we are not enhancing flow, we will be marginalized, both in our personal and professional life.  If we want to remain successful and reap the enormous rewards that can be generated from flows, we must continually seek to refine the designs of the systems that we spend time in to ensure that they are ever more effective in sustaining and amplifying flows. As the authors observe, “it is not love or money that makes the world go round but flow and design”