This post is built around a fantastic article called Institutional Innovation by +John Hagel and +john seely brown.
The article is such a rich source of ideas that it has had my head spinning for weeks. It has given me a vocabulary to clothe my ideas, along with some reputable sages who flesh them out. I've been thinking the ideas through in the context of waste, and as I explore I come to a fractal world where waste is dissolved down into its byproducts, a fractal process of looking deeper and deeper into details to extract ever increasing value.
It reminds me of the Mandelbrot set.
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| Mandelbrot set. Source: Wikipedia (jpg) |
Economies of scale are doomed
The premise of the article is that the historical model for success of organisations, establishing scalable efficiency, is no longer relevant. Indeed, all of the things we do to organisations to make them succeed at scalable efficiency adds dead weight in a new world of lithe, networked, prototyping organisations.
To quote:
Scalable efficiency has been a winning model for the past two centuries. However, it relies on centralized governing systems, rigid hierarchies, and a paradigm of long-term planning and forecasting. While effective in times of stability and predictability, these systems break down during times of rapid change and uncertainty. Centralized leadership is unable to dictate all of the requisite changes quickly and, as a result, can, and probably will, become dysfunctional and massively inefficient during times of uncertainty and change.
and
We have reached an important turning point where success is not defined by scale, but by the ability to learn (and unlearn) more rapidly. The traditional model of “punctuated equilibrium” in which companies move from one stable state to another is dead, and companies need to adopt a state of “continually becoming” to keep up with rapid changes in the environment. The institutions that emerged to harness scalable efficiency required a trade-off to be made between efficiency and the ability to learn, one that managers were willing to make in more stable times. Fundamentally different types of institutions may be necessary that break those constraints and harness new tools and practices to simultaneously drive both accelerated learning and high levels of efficiency in rapidly evolving environments. To do so, we need to rethink the rationale for firms.
With this in mind, the authors introduce a new paradigm of scalable learning, rather than scalable efficiency.
Scalable learning builds on the fact that competitive advantage now is NOT based on stocks of knowledge, but is based on having access to flows of knowledge. Access to the tacit knowledge that is up to the minute, that can't be documented, procedurised, captured into knowledge management systems. The knowledge the bounces around in the heads of the cloud of networks that surrounds a company.
It is this knowledge that enables a firm to adapt when adaptability, not cheap unit costs, is the driver for success.
The old world of waste
You can see this challenge writ large in the context of waste management. The focus for waste companies is to lower costs by becoming large. They get the biggest trucks for the job, the largest fleet, the biggest waste processing facilities. This is all to reduce the overhead and dominate through scale.
That worked in an old world where there was little to be done with the waste collected, where information asymmetries meant that nobody know the depth of opportunity available and the waste companies weren't going to broadcast them lest they undercut their own business.
In the old world, value is extracted from long term contracts, from waste collection runs that are hard to break into, from waste plants protected from new entrants by rafts of regulation.
The new world
The new world is all different. Here, things change, and they change fast.
The world is shifting from large volumes of mixed up wastes to smaller volumes of separated byproducts. In this world, a fleet of huge trucks will be swept aside by small, nimble vehicles. Coarse, aggregated data will be useless in the face of detailed, specific information. Big waste processing plants, landfills will scramble for waste because byproducts don't need to be incinerated, dumped. And processing opportunities will rapidly evolve, driven by scalable learning, by shared experiences, by high quality data.
The end point will be a continued race to dissolve waste to its constituent byproducts. The most nimble, most focused, most able to absorb innovation will lead. Indeed, this player will be a dominant player because of the depth of connection across the physical economy. Given the current immense investment in dealing with waste as waste, this will be a massive disruption.
To get there we enshrine learning
To become this nimble entity, learning is vital. As the authors write:
We will never learn fast enough if we limit ourselves to the people within any single institution, no matter how large it is and how smart they are. Creating architectures of relationships reaching beyond the walls of our institution is one of the most powerful ways to tap into richer and more diverse flows of knowledge and accelerate learning.
This is where scalable learning comes in. Scalable learning is leveraging platforms that scale transactions and scale relationships, and moving beyond them to embed the values of learning deep into the institutional design. It is, as the authors call it, the formation of "creation spaces".
Back to the authors:
These creation spaces focus on integrating learning benefits at two key levels. The first revolves around team effectiveness, and involves facilitating deep and sustained interactions within teams or local work groups. The second level seeks to foster a broader set of platforms to help spread learning across teams by granting them access to rich knowledge repositories and discussion forums.
Creation spaces in waste
This is a call to create teams that drive deep interactions, but also drive the diffusion of ideas across teams.
So you can imagine a team that sees an immense opportunity in the recycling of waste carpet, and scours the globe for ideas, tests them at home, embeds systems to gather and evaluate insights quickly.
You can also imagine this team chatting with a team alongside (physically or virtually) that is developing new insights into shredding, or textile processing, or generating new carpet materials. All of this leads to sustained and undirected learning.
Making such learning happen isn't a matter of decree. It requires a balance of structure with organic evolution. The authors describe three elements:
Participants - The first challenge is to achieve a critical mass of relevant participants. Organizers should keep barriers to entry low to allow a wide range of participants to join the creation space. Additionally, organizers should provide compelling reasons to encourage participation, such as meaningful real-time feedback and performance measures.
Interactions - In order to increase learning for participants, organizers should consider two critical forms of interaction: team interactions and looser interactions across a broader range of participants. Creation spaces can become rich sources of serendipity, increasing the probability of chance encounters that lead to important new insights. Over time, teams become insular, and one of the challenges is creating a second layer of interactions to expose them to new ideas and accelerate performance improvement.
Environments - At a foundational level, a creation space organizer should provide the platforms and infrastructure to support the interactions of participants. This environment should support various layers of interaction, including those within teams, among teams, and among peers on different teams. In addition to providing these channels of communication, the organizer should also provide the right blend of governance protocols and incentive structures (both intrinsic and extrinsic) to encourage interactions."
This is when the whole insular world of waste management gets torn apart. What is being called for is a zone where the answers are not known. Where knowledge is actively shared in the pursuit of new insights. Where imperfectly optimised systems that can be rapidly modified are preferred to perfect, but rapidly obsolete, solutions. Where economies of scale are the last thing you want to do.
This is a revolution of many
There are many, many parties to fostering this foment. There is the "makers" movement. Social media. Oblique references nurtured for their serendipity. Cutting the problem in a million different ways, experimenting everywhere to eventually, maybe, finding a way that can form a node around which solutions cluster.
It is a world of free-form innovation, of refusing to accept constraints that were applied in a previous age. In this world, why wouldn't you create byproduct collection runs that service one or two of a manufacturer's many bins, and are done in a utility (pickup truck for Americans). Indeed, the waste might be processed at the place of waste generation, creating a product for the customer to resell.
Wouldn't that be an insane world? Rather than trying to sell bin collections to fill out a truck's run, you make a cut on value add markets for products extracted and resold from the waste.
Fractals rather than monoliths
Rather than working to funnel all waste down your own maw, you work to create dense networks of partners, sharing a stake in their success, and creating structures where all are rewarded for elevating value. A world where value is extracted from a better grasp of the details.
Being able to add value to wool based carpet differently to polyester carpets. Having network partners who want to keep you up to the minute because your success is their success - you being able to supply wool that meets their changing needs is to your mutual benefit.
It is a crazy, crazy world, almost unimaginable when you look at vast waste collection trucks, enormously expensive processing plants and the whole structure of belief, business and regulation that ties it all together. Unimaginable, but created by pulling gently, if persistently, at this little thread of "value add". Being dogged in the formation of structures that make the unimaginable inevitable.
Given the significance of the authors of Institutional Innovation in this post, it seems only fitting to close with their closing paragraph
But as creation space design advances, it offers the potential to drive increasing returns at two levels. First, creation spaces can deliver the benefits of the traditional network effect, as illustrated by the classic example of fax machines: Each participant can add more value simply by connecting with, and mobilizing, a broader range of resources. Second, creation spaces can harness the benefits of learning effects: New institutional architectures have the potential to scale learning so that everyone learns faster by working together. We no longer deal with static resources in a network, but create environments where participants learn faster as a result of participation in the network. The result of engaging in institutional innovation is that we can begin to unlock the unlimited potential of ourselves and our organizations.
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