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Those Two Enemies Of Innovation – Organization And Process – Are Being Defeated.

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In the twentieth century, the business world developed techniques and structures of organization and process that were instruments of power and control. The heroes of this era include Alfred P. Sloane, Peter Drucker, Michael Hammer and Jay Galbraith. There was some contribution from the military, who perfected the implementation of hierarchical control to the point where front-line soldiers would follow a general’s orders, transmitted through multiple managerial layers, to their death. That’s exemplary management! Hierarchical implementation of processes was the model for control.

Then there was a new reinforcement that entered via software. Processes could be automated so that there was no possible deviation – what Jorge Sanz has likened to “pouring concrete”, so that the path of process was followed faithfully without deviation. Business Process Engineering became the revenue stream of choice for many global consulting firms.

The power of organization and process was embraced by government, and this led to the stifling expansion of the administrative state. Government administrative processes are now so copious, so lengthy, and involve so much organizational apparatus that they can starve initiative to death before it can get going. Consider this example from Greece:

Yianna Balafouti, an entrepreneur in Athens, decided that doing business here isn’t worth the effort. Bureaucracy, along with economic depression and the absence of bank credit led her this year to shut down her delicatessen.

For years while she ran her business, authorities didn’t know how to categorize it. Her applications for approval of different food products were frequently returned because civil servants couldn’t figure out which regulatory codes to use. In the end, she said, she felt powerless to fight, lost all pleasure in running her business and closed it.

And this:

An emblematic investment under the bailout program was supposed to be the redevelopment of Athens’s former airport, now disused. But the project, planned since 2012, has been held up by one public body after another, including the authorities for archaeology, forestry and land registry, as well as slow-moving judicial proceedings to consider challenges from local residents.

Bureaucracy, unclear property rights, and political and judicial obstacles have impeded Greece’s attempt, at Germany and other lenders’ behest, to privatize some €50 billion ($57.7 billion) of state-owned land and other assets. Only around €6 billion of privatization revenue has been collected since the privatization drive was launched in 2011. “Bureaucracy is more powerful than people understand,” said Christopher Egleton, chairman of U.K.-based tourism company Minoan.

But we’d be remiss to pin the errors of organization and process only on government. They are also the reason why big corporations can’t innovate. Innovation is not a process, and it can’t be ordered into existence by a hierarchy. We now know, in fact, that innovation is a result of spontaneous order, emerging from interconnectedness and social conversation rather than process. Doing the right things in the right order can get you nowhere in innovation, while interconnectedness can lead to unexpectedly favorable outcomes.

Organization and process have a lot to answer for in holding back innovation. But there is hope. A new software revolution is developing, and this one is not pouring concrete. It’s liberating consumer sovereignty.

Steven A. Cohen and Matthew W. Granade call the new revolution “model driven businesses” which employ new forms of software to

put continuously learning models, built on “closed loop” data, at the center of what they do. When built right, they create a reinforcing cycle: Their products get better, allowing them to collect more data, which allows them to build better models, making their products better, and onward. These are model-driven businesses.

Cohen and Granade omit one important point. What makes products “get better” is consumer sovereignty. The consumer (or the customer for a B2B model) determines what is successful in the marketplace, what products are purchased, which services garner high ratings and user loyalty, and which producers and service providers make a profit. The authors hints at this in describing Tencent, the Chinese social media giant.

“We are the only company that has customer data across social media, payments, gaming, messaging, media, and music, and we have this information on [several hundred] million people. Our strategy is to put this data in the hands of several thousand data scientists, who can use it to make our products better and to better target advertising on our platform.” That unique data set powers a model factory that constantly improves user experience and increases profitability—attracting more users, further improving the models and profitability.

Those “people” the Tencent executive was referring to are consumers. Software executives refer to them, obtusely, as “users’, which misses the point but does not invalidate it. Consumers now have a much more powerful weapon in their negotiation with corporations over the quality and value of products and services: the creation of data. Every click, search, web-page visit, minutes spent on site, purchase, rating, product return and social media post is now a driver of an algorithm in a “model-driven business”. They should be called consumer-driven businesses. The old military and corporate hierarchies could not respond to consumer input; they were designed to give consumers orders, not to let them run the show. The old processes, set in concrete, were not designed for consumer sovereignty.

The new model-driven business has no organization and no process. It has data, algorithms and models, continuously learning and improving based on consumer input, without the hands or preferences or slow decision-making of managers and executives or the concrete pathways of business process software getting in the way. The future points to the elevation of consumer sovereignty over managerialism, which can only be good for freedom and individualism.

The Term “Small Business” Is Pejorative, Discriminatory And Out-Of-Touch. Naturally, It Comes From The Government.

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The unprecedented interconnectedness of today’s world can give rise to new kinds of business structures that we’ve never seen before. An individual entrepreneur can build a global supply chain from the desktop, with custom manufacturing in China, automation software to manage the logistics of shipping and the related financial services like credit and insurance, sophisticated marketing automation, and precision delivery to the customer’s door. Single entrepreneurs and young start-up teams can download computing power from AWS and run algorithms and A.I. that they find open-sourced on Github. Freelance creatives can get projects from UpWork or join distributed global teams working together on large communications campaigns, and do better (in both performance and compensation) than they would have done while working at behemoths like WPP or Omnicom.

Efficiency, effectiveness and financial and business performance no longer have anything to do with size or scale. Nor, as Bill Gates points out, does economics. What we learned in school about supply and demand and economies of scale no longer applies. We need to unlearn it if we are to have any hope of understanding the future. His blogpost was prompted by reading Capitalism Without Capital, a book (by Jonathan Haskel and Stian Westlake) whose title tells us a lot about the possibility of new organizational structures for firms in the global economy where traditional measures of company size are no longer relevant.

So why, in this day and this age, do entrepreneurs have to put up with the term “small business”? It implies something inferior, less capable, or incomplete. And nothing could be further from the truth. So-called small businesses create two-thirds of the new jobs in the economy in a typical year, and account for just under half of GDP. Since there is a lot of output government fails to include in the flawed statistic that is GDP, especially in services and retail, it is probable that small businesses are a much greater component of real output. And now, with the new structures we can see emerging, they will no doubt account for much more in the future, probably in a way that is hard to understand for the government bureaucrats who try to measure and report these things.

Because that’s where the term “small business” originates and where it is maintained: in the bureaucracy of the administrative state. As the SBA (Small Business Administration) points out in their Table Of Size Standards (where “you can check whether your business is small”), their interest in size is all about how they can tax a business, regulate a business, subsidize a business or allow a business to sell to the government. Their size standards can be based on firm revenues (as the SBA defines revenue), and/or based on number of employees, and /or on structural or legal variables. And their criteria can vary by industry type and over time. It’s not an exact science, by any means. But once a business definition is determined to be “small”, a cascade of bureaucratic triggers are tripped and the appropriate tax, regulation, subsidy and procurement machines begin to roll. The result for the small business owner is generally seen in the form of the interminable stream of demand letters that appear, delivered by USPS: taxation notices, demands for compliance and reports, insistence on meeting various government codes, and so on and so on and so on, ad infinitum. Nothing helpful.

Not only is the characterization of a business as small, it’s insulting. Many so-called small business owners and operators find the term prejudicial. They are rightly very proud of their economic role and size is not something they focus on. Their concerns are about producing a great product or service, serving their customers immaculately, creating jobs for the community, addressing the creative challenge of continuous improvement and the personal challenge of wearing many hats as they deal with operations, finance, marketing and sales from one desk.

Here are some self-evaluations from entrepreneurs who were asked about their perception of the term “small business owner” (from carolroth.com)

SMB Owners Are The Risk Takers For The Rest Of Society.

Sometimes, people that work for large corporations can use “small business” in a negative connotation. I find this very frustrating, because the risks that small business owners take are so much greater than what they take working for a large company. They don’t understand the stress in being available 24/7 or knowing that you have other people relying on you for their livelihood. In fact, small business owners should be embraced by the public and the government for what they do–take risks.
Bob Bentz of ATS Mobile.

“Solopreneurs” Are Unique In The Important Resources We Provide.

Although I do identify myself as a small business owner (SBO), the phrase means many things to different people. If you’re trying to get a loan from the government, a small business can have 200+ people (see http://1.usa.gov/20RKwfF). Most SBOs would consider 200 people to be a large business. Many SBOs are by themselves, so my favorite term is “solopreneur.” I am proud to be part of the small business community. We provide important resources that I wasn’t aware of before I started.
Linda Lovero-Waterhouse of WSI Web Systems.

Small Business, Exceptional Customer Service, Big Loyalty.

There is great local support for small businesses. The top positive attribute people think of when they think “Small Business” is exceptional customer service and a willingness to go above and beyond for customers. Because of this service, customers remain loyal. Behind the curtain, being a Small Business Owner means that I can move faster and be more nimble than a large company. If I want to try something new, there is no red tape holding me back or board to go to for approval; I can innovate.
Michelle Stansbury of Little Penguin PR.

Operationally Excellent And Customer Focused.

After spending 20 years with a Fortune 200 company and 15 years owning a small business, I know which situation requires more knowledge and effort to succeed. Currently, I have several eCommerce properties and we compete with the big brands on a daily basis.

Small businesses can be both operationally excellent and customer focused. I know we can’t out-Amazon Amazon. But, we answer the phone every time it rings.
Robert Shirilla of Tapestry Throws.

Under-appreciated In Silicon Valley……

So, I think the term small business is a loaded term where I live. In SF, we often talk about startups and disruption, a small business isn’t capable of, quite frankly, growing quickly enough to be interesting to many people. I know that’s a local thing and not everyone is the next Uber… but in Southern California, I found the term small business to be a positive one… here, not quite as much.
Mark Aselstine of Uncorked Ventures.

…. Small Business Owners Are The Heart of America.

A “small business owner” is someone I consider the “Heart of America”. They are the people who have an idea, the desire to serve others through their talents, and the belief to make that idea a reality. These are not overpaid fat-cat CEO’s with Ivy League pedigrees. They are people like you and me, trying to provide for their family and contribute to their community. They are what people talk about when they say, “Buy American”.
Mike McRitchie of Critical Path Action.

You Can Make a Big Difference

Small Business is the life blood of the American economy. It accounts for 65% of new jobs created. If we were smart, we’d be developing programs that focus on helping this business segment with capital and mentoring to give existing small businesses a better chance to survive and create new jobs. The government should also be working with funding sources to foster the creation of more new businesses. I am very proud to be a small business owner. I can’t think of a higher calling.
Greg Gottsacker of North Star Business Systems, Inc.

Small Business = Huge Impact

No entrepreneur considers his business to be “small” and, yet, this is a category they may fall into. But no matter the actual size of the operation, the ideas, the reach and the impact of any “small” business is great and the charisma required of the owner to bring a business to fruition is huge. Your business and your efforts will make a big difference in many people’s lives. And that must always be acknowledged.
Kate Edwards of Kate Edwards Consulting, LLC.

Let’s Get Rid Of The Term “Small Business”.

In short, the term “small business” misses all the value and purpose of entrepreneurship: innovation, service, growth, job creation, community involvement, personal lifestyle and individual self-reliance. Let’s get rid of it.

Interconnectedness And Local Creativity Are Reviving America’s Hometowns.

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National politics are divisive, depressing and grim. To hear politicians tell it, failure is rampant, everything is in decline, someone’s always losing, and someone’s always complaining. The collusive national media play along, loving the theme of decline and division.

Meanwhile, back in America, things are pretty good and improving. That’s the finding of James Fallows, who traveled America’s small towns, many of them unknown to – yet disdained by – the politicians and journalists of the Washington-New York corridor.

In fact, Fallows sees enough positive developments to state, “I have seen the future, and it is in the United States.”

All the improvements in this vision are local. No brilliant central planners are involved. No federally elected politicians have their fingers in the pie. Here are a few of the examples Fallows cites:

Innovative local schools: Perhaps the greatest destruction perpetrated by centralized government is the federalization of education. Our children are being taught the wrong things by the wrong people. In his small-town travels, James Fallows found many locals who were proud of their innovations in education. Some were public boarding schools, some were joint ventures with local employers to train students for decent-paying jobs in culinary, architectural, mechanical, agricultural and other fields. Community colleges provide what Fallows calls “connective tissue” in local and regional economies, often in collaboration with the specific needs of employers (like Boeing and Airbus aviation research and aviation engineering projects in Wichita).

Libraries: People across the country are sharing ideas about how to make local libraries centers of learning, training, knowledge sharing, job searching, activities and community. They even provide desk space for young entrepreneurs.

Downtown reinvention: The bi-coastal media set may portray small town America as decrepit and decaying, but, in fact, Fallows on his travels found over 1000 downtown revitalization projects under way, combining residences, shopping, dining and entertainment. He contrasted them favorably to the homogenized and faceless big malls favored by suburbanites.

Small high-tech advanced manufacturing: The national media paint the pcture of abandoned factories, but Fallows found smaller advanced technology manufacturing workplaces in almost every town he went to, including over 1000 successful manufacturing start-ups, and several manufacturing incubators. This is coincident with a significant talent re-migration back to smaller towns, with rising communities. Venture capital for start-ups is following, countering the current over-concentration of venture capital firms on the coasts. Steve Case, a co-founder of AOL and now the CEO of technology-investment form Revolution calls this shift the “third wave” of technology businesses (after the internet and then the companies that built businesses on the internet).

Conservation: Politicians want to handcuff the entire nation to the hubristic promises of the Paris Treaty and similar grandiose but ridiculously impractical global schemes. Meanwhile, Fallows found many localities and private donors setting aside land for conservations at a fast and increasing pace. We don’t need the Paris Treaty when individuals dedicate themselves and their private property to local conservation in their home towns.

Immigrant assimilation: Small and medium-sized communities do well at assimilating migrants because they stay away from the national political issues and associated hate campaigns. They focus on jobs, neighborhoods, new services, and civic engagement. Many of these small communities have been welcoming immigrants for decades, and that’s why they’re good at it today. When they experience an outflow of their home-born population as a result of industrial and technological change, they welcome newcomers from outside to participate in the revitalization process.

Competent, popular and integrated civic governance: Fallows writes, “Even as national politics induces trust and despair, most polls show rising faith in local governance.” Mayors serve multi-year terms, and realize that they’ll encounter their neighbors  – the people who pay the city’s taxes and rely on its services – in daily life. Accountability is face-to-face. Many communities are working with supportive tech companies to improve the quality and responsiveness of local services. And citizens have proved willing to raise local taxes for projects they believe in, such as parks, swimming pools and libraries. Fallows also points out that there is significant training for local officials to co-develop projects with their citizens. Imaging that: trained and responsive politicians.

What are the common threads behind these local trends, which are so favorable in comparison to the horrors of a and state level authoritarian bureaucratic government? Fallows suggests three:

Interconnectedness.

At the local level, people and organizations are working towards common goals, using online platforms and other tools to connect citizens and their governments. With the public much more involved in the future of their local communities and much more connected to officials, much more involved in decisions, participating much more in school innovation, and sharing information with the companies that support them, a civic renaissance can occur.

Moreover, there is a second level of interconnectedness. The local communities themselves are connected with other communities across America.  They share ideas, about schools, art projects, conservation and civic-tech, including both examples of success and learnings about what doesn’t work. Emerging civic networks make locals recognize they are part of something bigger, a shared revitalization and a common path.

High engagement.

“If you want to create a great community, you move someplace that needs your help.” This means, says Fallows, taking responsibility for the world outside one’s front door – for the reinvention and sustenance of the community where you live. Don’t leave it to politicians. Engagement could include attending PTA meetings or joining a group that addresses some local problem. Many great transformational movements start from local roots, because that’s where engagement takes place.

Local information.

The perceptions of decline with which we contend are often the products of national media and national commentators – a distorted picture of events beyond the actual experience of the reporters. And local media are strained to survive economically today, so they often just regurgitate national reporting. It is important to nurture local media – including local newspapers – who not only report the truth about local conditions, but also encourage the engagement of the local population in civics by acting as a catalyst and a central point of knowledge-sharing. The specific knowledge of local time and place, as Hayek described in The Use Of Knowledge In Society, can be utilized to generate a special kind of innovation and betterment.

Interconnectedness, engagement and local information. We can all promote these practices in our local communities to revive our home towns.

Exponential Growth In Entrepreneurship: #2 Interconnectedness Is The New Innovation

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It is easy to dismiss the social media fascination of today’s young people as a misaligned priority and an escape from productive work. Out-of-touch U.S. Senators try to decide how to legislate against it, without a scintilla of understanding of the phenomenon.  Unbeknownst to them, there is a deep idea behind social media that will accelerate and elevate innovation and entrepreneurial productivity.

A new definition of entrepreneurship is now emerging. Entrepreneurship is no longer the linear, sequential, pre-social media idea of finding a market gap and filling it, or finding a consumer dissatisfaction and solving it. Entrepreneurship lies in interconnecting people, knowledge, technology, ideas and actions so that new innovations emerge. It is the interconnecting itself that constitutes entrepreneurship.

In other words, individual entrepreneurs do not start with a brilliant and disruptive business idea.  They start with connections.

The First Collaborative Car.

Recently, thousands of people from all over the world came together to design a new car. The context was a development project called “Fiat Mio”- “the first collaborative car.” It was a deliberate attempt to overturn the traditional development process by interconnecting as broad a network of people as possible to gather and shape innovation ideas. Thousands of ideas from over 100 countries were gathered, and integrated into a new car launch. Moreover, all the ideas were placed in Creative Commons, so that they remain available to all, a complete inversion of the traditional route of secrecy and patent protection. The Fiat Mio project started with connections, with no end result in mind.

The new paradigm starts with economic actors assessing their own knowledge (“What Do I Know?) and their own network (“Who Do I Know?”) and then using devices to interconnect with new knowledge or data, and with other knowledgeable actors who might be able to supplement the data or may have ideas on how to use the data in new ways. It’s an entrepreneur-centric system in which the individual takes responsibility for compiling their own data and then connecting to others to act upon that data. For example, if you are managing your own healthcare entrepreneurially, you will take charge of compiling your own healthcare records and then assemble your own network of doctors and clinics and pharmacies and insurance providers to act upon the data in those records.

Knowledge Is Now Social.

We are used to thinking of knowledge as expertise, something on which an expert holds some kind of specialist monopoly. We might think of college professors, or doctors or chefs as experts – trained, specialized, career-long accumulators and protectors of scarce knowledge. No longer. Now knowledge lies in the social domain. We can collect our own knowledge through interconnection – with online sources, with peers who have relevant experience that they will share, with communities who give knowledge support. The entrepreneur is active in collecting, curating and interpreting the knowledge that is available.

Control Has Shifted.

Now that experts are no longer required, the entrepreneur is more in control. The individual can choose and manage his or her interconnections, pursuing those that yield the most assistance and productivity and collaboration. Building and nurturing the right portfolio of interconnections – the right social media network, if you will – becomes an important entrepreneurial skill.

The Expertise Of Innovation Has Shifted.

Innovation used to be thought of as a scientific or technical process competence of skilled innovation producers who “bring new products and services to market”, or “introduce” or “launch” new initiatives. These are all linear concepts. Now that knowledge is social rather than scientific, innovation becomes a social competence practiced by those who are good at social networking. Innovation is socially embedded co-creation. The social network can include people, knowledge, devices and software. It is socio-technical. Entrepreneurial innovation is the continuous co-construction and co-creation that results from individual sharing across networks of actors, actions, contexts and resources. It’s an emergent outcome, not a planned or designed outcome. There is no breakthrough action or aha! moment of one R&D lab or one company or one inventor.

The 4 Practices Of Social Media Maestros

Social media maestros (a word that is derived from Italian meaning to orchestrate with others to create a successful collaboration) can bring together different people, who have different expertise, and create a successful venture. They are masters of the 4 practices that the new innovation requires.

Engaging: connecting people who are seeking opportunity to co-create innovation. These people could be designers, thinkers, engineers, inventors, teachers, or parents, or play in any one of a myriad of roles. They have talent and interest in innovation, they want to collaborate and share and develop ideas and projects. Engagement is the practice of expanding the variety of actors and roles in any collaboration to capture new possibilities for novelty.

Exploring: the continuous dynamic of knowledge creation and recombination through shared interaction – knowing and learning together. This is where problem solving occurs, through interconnected creativity, knowledge and competency.

Collaborating: the combination and transformation of knowledge in new contexts, seeking ways to re-use and re-combine knowledge and technologies in new ways. Collaborators modify and extend their concepts into new opportunities, translating knowledge in new ways and developing commercial concepts.

Orchestrating: ensuring, out of all the possibilities, the best flow of actions and resource integration. Orchestrators frame the network of collaborators to promote the most effective linkages and connections, mobilizing individuals to increase their personal empowerment and confidence, while also fostering community level speed and alignment.

So let’s not disparage those engaged in social networking. With these 4 practices, they are leading the world towards a new and more productive form of entrepreneurial innovation.

 

 

 

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