Emergent Organizations- An Impressive Model for Adaptive Business Culture

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Picture Credit: Doug Priebe, Shutterstock

This is the first article in an ongoing series on the Emergent Era. Learn how to write for Quartz Ideas. We welcome your comments at ideas@qz.com. (Comment: IAI believe that this is one of the most important insights I’ve read about business innovation in years. What’s compelling to IAI is that this presents a workable model for the Adaptive Business Culture).

In the wake of Brexit and the election of US president Donald Trump, it’s clear that big global changes are afoot. But before we can begin to explain how these unexpected, tumultuous events will impact our lives, we have more fundamental questions to answer. How has our widely accepted picture of reality fallen so far behind the true scope and pace of change? How can the systems we use to synthesize our collective opinions and motivations keep pace? What other major, near-term events might be in our blind spot?

The answer is so large that it has become difficult to see, yet it has urgent implications for everything we do. It’s this: as our planet-wide, instantaneous digital nervous system grows, it is causing a mass reorganization of people, money, information, and things. Our digital information flow has become the main driver of change—and we need new frameworks to understand and anticipate what’s coming next.

One of those frameworks is known as emergence. Up until recently, it’s been used primarily to explain natural systems. Basically, the term describes how, when individual agents interact en masse according to a set of simple rules, highly complex structures and behaviors emerge. The billions of neurons that join together in a brain, the multitude of birds in a flock, and the individual ants in a colony are all examples of emergent systems in nature

We’re seeing this same dynamic everywhere today—but in human systems. Emergent properties are what allow the ranks of individual circuits, weak on their own, to join together into a powerful computer. And because of computers, and especially their continuing extension into the physical world via the Internet of Things, emergence has become one of the key forces reshaping our institutions and essential systems.

One characteristic of emergent change is that it seems impossible until it happens, at which point it feels overwhelming, sudden, and inevitable. The moment when water droplets and wind combine into a hurricane is one example. Another example is the moment when, at about 11:00pm Eastern Time in the United States, election predictions made a wild and irrevocable swing in favor of Trump.

In business, emergence explains the huge leaps in value and expansions in functionality that have punctuated the lives of successful start-ups. When a network of people, linked by a new information stream in the form of an app or connected device passes a certain threshold in size, emergence kicks in, and the network doesn’t just get bigger, it transforms.
As of 2016, for example, Facebook has grown so populous that it is no longer just a social network. Through changes in the atomic content contributions of its two-billion plus users, it has become a de facto political organizer, advertiser, news company, video company, and a marketplace for goods and even jobs. By the time you are reading this, it is likely to have acquired or evolved even more functions. Similar things are happening across the world as other networks, like Tencent’s WeChat in China, continue to expand rapidly. Together, these platforms link together 2.55 billion people, just a little over a third of the world’s population.
For business, the environment created by this massive shift toward connectivity means that the most valuable companies for some time to come will continue to be those presiding over the reorganization of assets and experiences around the digital information flow.

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Picture Credit: IAI – Modified picture of the October 2016 Supermoon

Two of Silicon Valley’s most celebrated and studied start-ups, Uber (worth $62 billion as of this writing) and AirBnB (worth $25 billion), are precisely these types of companies. Neither invented or makes the key asset they trade in (transportation in the case of Uber and lodging in the case of AirBnB). But both provided a new stream of information that equipped individual agents (people with smartphones) to respond in new but consistent ways to the real time location of those assets. The interaction of Uber and AirBnB users as a network lead to the emergence of new behaviors and new markets built on them.

It’s as if ants were given a new set of rules by which to respond to their immediate environment, or brain cells a new set of commands to relay signals. In any system with the potential for emergence, a small change in what economist Thomas Schelling calls micromotives can lead to radically different macrostructures. And in The Emergent Era, with its profusion of new, ambient information streams, human micromotives are changing all the time.

To get a sense of the sheer scale of our new information streams, consider that in the next 18-24 months, a full one-third of the global population will be going online for the first time. By 2020, there will be over 50 billion machines connected to the internet. This presents a unique challenge to those who have to shepherd organizations through this period of change. All the rules and subsequent benefits that have come with command-and-control style bureaucracies no longer apply. The word bureaucracy itself is an artifact of old information technology. A bureau is a writing desk, a physical enclosure for information, fixed in one place, around which power and people tend to accumulate like fat around a cell. Bureaucracies were necessary when information was scarce. But in The Emergent Era, bureaucratic structures act as bottlenecks for information and inevitably throttle change. Organizations should instead use these six concepts to adapt to life in The Emergent Era.
 1. Organize around information flows; ditch hierarchy and bureaucracy.

An adaptive business culture begins with a radically open communication system. It’s only when people have access to real-time data and believe they have permission to both pass it on and act on it, that you get the speed and resiliency that characterize emergent structures.

Emergent systems in nature are a good reminder of what the stakes are. If you erase the pheromone trails left by ants, the colony loses direction. Disrupt the human nervous system, and the result is confusion or paralysis. Unlike natural systems, there is no automatic mechanism in human institutions to keep the lines of communication open. That job falls to everyone who is responsible for shaping a company’s culture and core beliefs, at every level, and often at every moment of the day.
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Picture Credit: Pinterest
 2. Empower individuals

Really empower them. No matter what our official title in an organization may be, everybody needs to get over the illusion that by controlling others, we can control outcomes. Because of accelerated change, we are all, by necessity, becoming collaborators rather than merely managers and employees. In the Emergent Era, it’s best for organizations to mimic emergent systems in nature by distributing the decision making process as widely across the network as possible. In effect, to empower individual “cells” to relay signals and respond to their local conditions as they see fit, when they see fit.

 3. Replace long lists of rules with a good M.O.

By M.O. I don’t just mean modus operandi, a characteristic way of doing things. I also mean “mission objective” and “mindset orientation.” A good M.O. is an intuitive habit of mind that connects the larger vision of an organization with the immediate, tactical objectives of a person or team. It is part habit and part intuition, somewhere between mission and mindset. Leaders provide a vision while allowing their teams to find their own route to achieving it, with room to experiment along the way.

An M.O. can be a powerful tool for unleashing creativity within an organization, because it combines skilled perception with speed and fluidity of execution. An employee with a well-developed M.O. will have a knack for recombining the skills and assets of their organization in new ways in the same way that a jazz improviser recombines notes. Both make decisions partly according to a kind of muscle memory of the established rules and partly according to the unique possibilities and requirements of the moment.
 4. Establish feedback loops. They are critical.

Don’t be afraid of feedback—seek it, give it, use it—but make sure it’s the right feedback. Healthy, adaptive systems tend to be highly feedback tolerant. That doesn’t mean they merely amplify the signals that flow through them; they sometimes dampen those signals by incorporating “negative” feedback. Despite the negative connotation of the phrase, the results of negative feedback are actually positive. It’s the mechanism our bodies use to maintain the right temperature and blood sugar levels, and it’s the way people and processes in organizations stay in accord with larger strategies and goals.

In a company where the information flow is obstructed by bureaucracy, or by managers who create a culture which disproportionately rewards people who confirm existing beliefs, healthy feedback is impossible. For a system to be adaptive, it needs to create regular conditions tolerant of both positive and negative feedback.

5. Learn to Live in the “In-Between”

Learning to live in the In Between is a mindset change—perhaps the defining mindset change—of The Emergent Era. It means abandoning the idea that we can operate with total knowledge, or even with the certainty that the tools we have are sufficient to address the possibilities and problems that face us.

As these new digitally-shaped structure formed, what’s emerging is also disrupting. It isn’t fully clear, and it hasn’t scaled. But emerge it will. There will be many new things that emerge, even if they aren’t fully formed, or we dismiss them as too insignificant, or worse, too crazy. More data faster is creating more options, but not absolute certainty. We must be creative how we deal with constant change, track early signals int he noise, create multiple options and most importantly, keep moving forward.
 6. Tap into the power of minds and machines together.

The work of the future won’t be dominated by people or technology. It will emerge from the collaboration between people and technology.

 As tools, the progress of AI and machine learning in all industries is starting to follow a pattern. Repetitive work is being obviated, freeing up humans to provide the finesse, creativity, or strategic thinking needed to finish the job.

For companies and individual employees, the combination of a good M.O. and a powerful A.I. will seem at first impossible, then inevitable, and finally invincible. In the Emergent Era, companies that combine a transparent, reliable information flow, a sound feedback system, and meaningful intelligence will see solutions to their problems consistently and spontaneously emerge—before they become a catastrophe or emergency to confront. Emergence-ready organizations need to adopt an agile, adaptive decision-making formula optimized for our accelerating world—with its unprecedented levels of speed and unpredictability.

But even in this new era, some things will remain the same. Emergent organizations will still need leaders to hire the right people, define goals, values, and beliefs, and provide and point to sources of inspiration and renewal. Ant colonies and brain cells don’t need visionaries—but human institutions always will.

 

The Transformative Business Model

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Picture Credit: Leandro Castelao

An interesting Harvard Business School article called “the Transformative Business Model” by Stelios Kavadias, Kostas Ladas, and Christoph Loch investigates 40 new business models with widely different outcomes. These business models relate to how companies organize to serve customers and deliver value, the complimentary firms that they select to partner with, and the means by which their supply chain operates. The professors summarize:

We usually associate an industry’s transformation with the adoption of a new technology. But although new technologies are often major factors, they have never transformed an industry on their own. What does achieve such a transformation is a business model that can link a new technology to an emerging market need.

So, part of the trick to to see the emerging market need before competitors do and to find the early adopters among the customer population that make demand go viral. As the business model evolves, the key is to select, allocate and organize the critical resources (i.e. MP3 combined with a pay-per-listen music service like iTunes driven by an easy-to-use online menu that is a front end to remote, large scale storage such as the Apple Cloud). The authors allude to Thomas Kuhn‘s concept of “paradigm shift” when they explain, “Most attempts to introduce a new model fail—but occasionally one succeeds in overturning the dominant model, usually by leveraging a new technology. If new entrants use the model to displace incumbents, or if competitors adopt it, then the industry has been transformed.” NPR did a nice profile on Kuhn’s 94th birthday last July 18th, defining a paradigm shift as “an important change that happens when the usual way of thinking about or doing something is replaced by a new and different way.”

Interestingly, even though a natural scientist, Kuhn was highlighting that paradigms determine large areas of experience at the same time and the “shift” involves an accelerating adoption of a new way of thinking or doing something. (Kuhn fascinates me and I wrote my senior thesis at Yale in the early 1980s about the shift from a bipolar world to a unipolar political economy in the wake of the collapse of the Soviet Union).

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HBR always does the basic takeaway points well (analysts take note)- the professors define the “Transformative Business model” as linking technology and the market:

1. A more personalized product or service.

Many new models offer products or services that are better tailored than the dominant models to customers’ individual and immediate needs. Companies often leverage technology to achieve this at competitive prices.

2. A closed-loop process.

Many models replace a linear consumption process (in which products are made, used, and then disposed of) with a closed loop, in which used products are recycled. This shift reduces overall resource costs.

3. Asset sharing.

Some innovations succeed because they enable the sharing of costly assets—Airbnb allows home owners to share them with travelers, and Uber shares assets with car owners. Sometimes assets may be shared across a supply chain. The sharing typically happens by means of two-sided online marketplaces that unlock value for both sides: I get money from renting my spare room, and you get a cheaper and perhaps nicer place to stay. Sharing also reduces entry barriers to many industries, because an entrant need not own the assets in question; it can merely act as an intermediary.

4. Usage-based pricing.

Some models charge customers when they use the product or service, rather than requiring them to buy something outright. The customers benefit because they incur costs only as offerings generate value; the company benefits because the number of customers is likely to grow.

5. A more collaborative ecosystem.

Some innovations are successful because a new technology improves collaboration with supply chain partners and helps allocate business risks more appropriately, making cost reductions possible.

6. An agile and adaptive organization.

Innovators sometimes use technology to move away from traditional hierarchical models of decision making in order to make decisions that better reflect market needs and allow real-time adaptation to changes in those needs. The result is often greater value for the customer at less cost to the company.

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