How Netonomics Will Replace Destructive Economy of Scale


  How we organize supports the kind of economy we’re going to have

"Those that fail to learn from history, are doomed to repeat it."

[Winston Churchill]

    When we don't learn from history, we're bound to repeat it. Giambattista Vico was an Italian political philosopher, rhetorician, historian and jurist of the Age of Enlightenment. He was a precursor of systematic and complex thought and believed that history repeated itself in cycles — primitive/divine, poetic/heroic, and civil history. Only he attributed this continuous repetition to divine providence.

    We like to think our rational decision-making prevails, that we maximize all alternatives in our pursuit of monetary gain, seemingly the only value. But there's a lot of room for improvement in that line of thinking. For one, it excludes how we learn, buy, and relate to each other as we get things done. For seconds, it forgets the role of technology — both with automated and addictive defaults, and he advances that level the playing field.

A technology-first world

    The old world of networking was all about developing relationships with people mostly based on interest. This is the “Who's who”-type connections we tap when we need to get something introductions, information, capital, influence, and so on. Although the idea in principle is good, our natural inclination of running into the same circles along with physical proximity encouraged people to limit opportunity to a small, known group.

    Technology and specifically the world wide web have opened up our horizons by expanding the potential for knowledge exchange, cooperation, and collaboration with a much broader pool of people. In fact, access to someone's thinking through their writing, community building, and an observation of their digital body language — how they behave online — can tell us a lot more about their character and body of work than dozens of interviews and interactions.

    There's another, related point to the value of technology. It has accelerated the scope, scale, and importance of another kind of network that is just as old, but less known until recently. In The Power of Pull, John Hagel and John Seely Brown say this type of network is based less on mutual interest and more on “mutual interests,” plural. Interests include both things people are interested in AND things they value. 

    Interests-cum-values hold communities together, even as our communities get bigger online. But we have an upper limit of people with whom we can maintain social relationships on a consistent basis. Which means that most of our activities require a combination of bonding and bridging. We have more connections, but we're still limited in our human capacity to interaction with people we know and with whom we touch base regularly. Only so many hours in a day — so much we could do, so little time!

    Mutual passions and interests are the entry point to access new opportunities, knowledge, and influence. However, with easier access and potential also come some challenges — fake data, news, and identities thrive in noisy environments where a lot is happening fast, limiting people's ability to pay close attention.

    Can technology provide the transparency we need to make the trust leap? Maybe. But it's not just about trusting technology, it's about using it for smarter aims. To create the conditions for collaboration as in the local mutual interest networks of old built around accountability, we need to go the extra step of figuring out if and how we can build algorithms that make better decisions than us.

    As trust in institutions continues to erode, we need new proxies.

    Community managers and otherish leaders are examples of human proxies for trust. They create trust by being consistent presences and delivering consistency over time. We experience behavior, it's more difficult to fake.

    Ratings and reviews are another mechanism we use to tell the difference between real and fake promises. Humans are still quite good at telling if a comment or a write up is sincere, or from someone behaving badly.

Choosing in a world of apparent abundance

    Technology makes it very easy to start and run a business. It also makes it very tempting to copy, because copying is free or less expensive. But copying is like cutting your nose twice to spite your face. There are only so many big hits, as we learned with Chris Anderson in The Long Tail.

    Copying is also a big short on the original combination of skills and experience of an individual. It's a spare parts approach in a world that rewards the custom-made handsomely. While we're witnessing the fall of complex business models, we're dealing with the rise in complexity of all kinds of problems.

    In The Collapse of Complex Societies Joseph Tainter says that when society’s elite members add one layer of bureaucracy or demand one tribute too many, they end up extracting all the value from their environment it is possible to extract and then some. We're at the “and then some” inflection point, where “under a situation of declining marginal returns collapse may be the most appropriate response.”

    When scale takes most of the value, and few leading actors dominate, it's even more important to offer something that is very different.

    Opportunity comes from differentiation, which in turn comes from a new kind of specialization. Our sweet spot, which sits at the convergence point of interests-cum-values, the principles we follow, our experience and competence with a body of work to show for it, and related commercial value.

    Reputation and access are the elements that help us attract opportunity.

    While authority is easier to build quickly online, reputation is more complex. It involves what other people are saying. We may borrow credibility from brands and work we have done before, but as our work continues to shift in the direction of free agency, our experience and skills need to mesh with the competence and interests of teams.

    In a world where seemingly like-choices abound, what's precious becomes values-value alignment.

Networks know replicas from originals

    Values-value alignment is much harder to replicate, because we don't know what's under the hood.

    Corporate lawyer Peter Tunjic says, “at the top of our game we sell clock speed not memory. Memory is cheap. It's even given away. Clock speed, the ability to make connections with meaning, is what matters. And they're never going to get access to that by treating me like a search engine.”

    Our ability to think our way through business problems is what makes us valuable. This is even more important in a world where opportunity comes from joining high performing teams.

    Reputation is based on the type of problems we solve, and the impact our work has on other people. Being head of an organization, having a big title and a corner office, being popular in certain environments creates a certain kind of signal. Doing work that lifts many boats, like saving lives, creates another.

    We may fool some people some of the time, but not all people all the time. Actors behaving badly eventually get outed.

    Networks know replicas from originals. Technology and network effects are accelerating the moment of truth in reputation, where actual experience either matches or disproves perception. Someone is bound to talk.

    What we bring to the table needs to be valuable and unique enough to fit into the needs of a team.

Democratic desires, even in fixed mindset

    General Stanley McChrystal took command of the Joint Special Operations Task Force in 2004. He quickly realized that conventional military tactics were failing. He and his colleagues discarded a century of conventional wisdom to remake the Task Force, in the midst of a grueling war, into something new — a network that combined extremely transparent communication with decentralized decision-making authority. Team of Teams is the story of how they were able to tear the walls between silos. 

    The old models of command and control don't work anymore. Having more information doesn't help make predictions when we're dealing with complex problems. Delegating better, building trust and a shared awareness of the big picture do.

    McCrystal agrees with Vico on the complexity of the world we live in. His answer is not divine providence, it's network theory. We can reapply some of the principles McCrystal found helpful in changing culture, structure, and habits back to a bigger problem — the economy. Vico believed the third age in the cycle of history, the human age, which follows the heroic age dominated by aristocracy, was the most evolved. Reason would lead to equality. We're still working on it. As Richard Thaler's work has proven, most of our decisions are emotional.

    The good news is that human desires are democratic, even in fixed mindsets. Self-interest is a more common trait than selfless motives. That is starting to play out in how we reorganize our underemployed, disengaged energies to help ourselves dig out from a negative value to make things simpler for us while making a living.

    On the supply side of commerce, every business opportunity has become business to business — professionals join teams for projects, programs, seasons, as well as to form companies… for a while. In most cases, a team buys the services, not just one person. The unique combination of skills, experience, and way of seeing the world is a strength in an environment where work is often custom-made to fit a specific problem, organization, and reality. Not easy to copy or fake.

    On the demand side of commerce, value-based needs are also not as easy to copy. Wired co-founder Kevin Kelly examines how technology has been accelerating our ability to leverage the more ephemeral and democratic aspects of desire in What Technology Wants

    He identified eight needs that remain an attractive type of value we can provide and for which people will pay. He calls them generatives because they have to be generated in context, the custom part. They are:

  • Immediacy — in a short term world where speed is of the essence, people are willing to pay for “right now.”  Adding a little bit of context, that may mean five new customers, a piece of information you need to close a deal, making the thorny part of a problem go away. News organizations that are shifting from the endless more of the same news cycle to analysis and point of view are providing contextual immediacy and creating new value.
  • Personalization we tend to think this is about something being addressed to us based on online tracking of behavior, or past purchases. We might want to pay for personalized medicine, we already pay for self-tracking. But what if we go beyond what is now to personal APIs? Organizing and reservation tools that talk to each other on our behalf. We're already starting to see how bots can deal with customer service on individuals' behalf. This is flipping the funnel and putting us as the customer in the driver's seat.
  • Authenticity people are willing to pay for the real deal in art, collecting, design, fashion, cars, and experiences. Authenticity is for profit. The businesses that make high-value work pay attention to this need. It comes from knowing oneself (the Greek γνῶθι σεαυτόν) as the inscription on the Temple of Apollo at Delphi said, and keeping the promises we make.
  • Attention — it's becoming harder to get and to keep without paying for it. Technology is now sweeping the market listening for evidence of surprise and value. Corporations listening to consumers who are listening to corporations in search of clarity of purpose. This is an odd conversation to have, where genuine listening, if it happens at all, is still not connected with behavior.
  • Interpretation — people use and interpret words differently. We also say one thing, and do another. Influence is open to interpretation, so it's up to customers to decide what “right now” means from their experience. With a good experience, the story becomes memorable in ways that turn customers into the next tier of storytellers. Many organizations still aren't there.
  • Accessibility early in my career, I interviewed with a four-star general for a position as interpreter at the Italian Mission to the United Nations. It required living in Manhattan, to be on call. That type of job is probably not going to change, but in many others it's become possible to work from different locations. This is possible because of access, and the value of access to things has since skyrocketed. A lease or rental of a space is a more flexible arrangement than a purchase. Services are more attractive than owning things.
  • Embodiment this is about providing an experience worth paying for. For example, what happens at the Ritz Carlton would not happen in other hotels. Le Cirque du Soleil performances, which are based on universal themes, are unique. For example, Kooza brings together and explores timeless themes like fear, identity, recognition, and power.
  • Findability connecting people with what they are looking for is especially powerful when they are not yet sure of what that is. Google built a highly profitable business on top of it. Amazon's best function is it's search engine. In The Long Tail Chris Anderson talks about the value of filters and aggregators.

    Kelly believes we overestimate the effects of technology in the short term, but underestimate them in the long term. We do the same with human behavior — the effects are cumulative, and do compound. A fixed mindset will take us only so far. Eventually, we will hit a wall.

    To go further, it's not sufficient to have a growth mindset as individuals, we need Uniform ideas originating among entire peoples unknown to each other must have a common ground of truth,” as Vico said.

Economies of network or netonomics

    I just made that up, but I believe we need to get to the human age, where simplicity is on the other side of complexity. The expression comes from Oliver Wendell Holmes, a Supreme Court justice who said, “For the simplicity that lies this side of complexity, I would not give a fig, but for the simplicity that lies on the other side of complexity, I would give my life.”

    We're in the middle of throwing more knowledge and information on top of knowledge and information while we've retained the assumptions and guesses, likely wrong, we had before we got here. We have all this and are holding it in different part of our economy, where people see things from different perspectives, based on their roles and trajectories.

    Each person sees meaning in what they do and have learned, but cannot cross the pond to others to communicate it effectively for collaboration. What we know and do is likely meaningful to us, but we have not distilled down what we can transmit to others that is meaningful to them.

    This is the old world interest on how we got to economies of scale, with a rare sprinkle of interests-cum-values buried in the mess, and good luck on making it.

    Big organizations are running on inertia, with some innovation thrown in here and there. Institutions are running on budget cycles rather than service. Even in the startup world, unicorns are making news, everyone else hopes to become one or fail trying. Small- to mid-sized businesses chug along. Bigger, faster, more are bankrupting our ability to cope and to exist.

    A bright light is the B-Corporation, where B is for Benefit. It provides a framework and certification for companies wishing to benefit society as well as their shareholders. This for-profit corporate entity includes positive impact on society, workers, the community and the environment in addition to profit as its legally defined goals.

    B-Corporations differ from C corporations in purpose, accountability, and transparency, but not in taxation. To change how we operate, we need a new container as we need new words to connect with our imagining.

    In 2015, Italy became the first country in the world to legally recognize benefit corporations across its entire territory. This is not surprising, because Italy has a long tradition of using different containers for commercial value. One such container is the co-operative. Rather than maximizing profit, their purpose is to harmonize the interests of the stakeholders they serve. 

    A co-operative can include a blend of workers, patients, volunteers, investors, and donors in its structure. They go way back in history to the Middle Ages. Founded in 1088, the University in Bologna was a kind of cooperative among students who hired professors to teach them. This is the region I grew up in.

    Incidentally, Enrico Fermi's father was born near Piacenza, also in Emilia-Romagna, and so was Giorgio Armani. Most people know about Enzo Ferrari, balsamic vinegar, Parmigiano Reggiano, and Prosciutto di Parma. Foodies will know Massimo Bottura, the chef who reinvented classic Italian cuisine and is behind the world's best restaurant, Osteria Francescana. He's opening soup kitchens to cook gourmet meals for the needy from left-overs.

    An article in America magazine about co-operatives caught my eye as worth sharing in Learning Habit, our weekly dose of things to think about. It says:

[Emilia-Romagna] is a region that has been, since the late 19th century, a leftist stronghold.

Communists and socialists dominated the first national cooperative association, Legacoop, founded in 1886 in Milan, only 15 years after the unification of the nation of Italy itself.

Catholics, searching for their own responses to the era’s conflict between capital and labor, formed another association, Confcooperative, in 1919.

Confcooperative later led the development of the social co-op model, while Legacoop feared that social co-ops would be a vehicle for privatizing state-run services. Today, however, the two organizations have come to regard their ideological differences as negligible. They have initiated a merger.

[…]

Social co-ops have a dedicated statute in Italy, but they are not an isolated experiment. This is a country where the two largest grocery-store chains are cooperatives—one owned by its consumers, the other by local retailers.

Co-ops also own Unipol, one of the largest insurers, whose modern skyscraper towers over Bologna’s terracotta rooftops. In northern territories like Tuscany, Trentino and above all Emilia-Romagna, with Bologna as its capital, cooperatives organize the shape and tempo of the whole economy.

    Cooperative networks enable small to medium-sized organizations to remain a dominant economic engine in Emilia-Romagna, a region that exports world-renowned food and cars. The culture of cooperatives is part of the reason median family income in the region among is the highest in the country with the lowest unemployment rate and the highest participation of women in the workforce.

    Social co-ops are young in the U.S., but there are some signs of development. Anyone who wants to learn about how to make them work goes to Italy to study how they work due to the considerable experience and longevity of this form of collaborative commerce.

    Historian Vera Zamagni notes that economy is a form of culture. Since the Middle Ages, “Italy has tried to substitute economies of scale with economies of network.”

    We already have the cure for the destructive economy of scale. Entrepreneurs who are are building teams of teams and participating in cooperative networks have staying power. Netonomics is the answer to get on the other side of complexity.