Edge Perspectives with John Hagel

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”

Finite and Infinite Games - Which Game Shall We Play in the New Year?

Are there limits? Limits to potential and possibility? This may be the defining question of this century. Our answer will likely determine our views on a broad range of other issues and our actions. As we head into a New Year, it may a good time to step back and reflect on our answer to that question.

A book worth reading

In deciding the answer to that question, one book has had a profound influence on me – James Carse’s Finite and Infinite Games: A Vision of Life as Play and Possibility.

I first read Carse’s book almost 25 years ago. It is one of those books that I keep returning to and finding new insight each time.  I am amazed that this book hasn't received more attention over the years. It's provocative and full of paradox, something that pulls me in every time.

Like any good book, it's difficult to summarize.  Carse makes the case that the world and our experience of it can be divided into at least two different types of games - finite and infinite games. “A finite game is played for the purpose of winning, an infinite game for the purpose of continuing the play.” As its name suggests, a finite game has a definitive end and a defined number of players.  Infinite games in contrast transcend time and invite anyone who is willing to play to join in.

The rules of a finite game are set in advance and cannot be changed. On the other hand, the rules of an infinite game can and must evolve to ensure the continuation and expansion of the game.  “Finite players play within boundaries; infinite players play with boundaries.” Finite players seek predictability while infinite players embrace unpredictability. “Surprise causes finite play to end; it is the reason for infinite play to continue.”

Finite games are ultimately power games – acquiring power, expanding power and retaining power. Infinite games are not about power but strength. “Strength is paradoxical. I am not strong because I can force others to do what I wish as a result of my play with them, but because I can allow them to do what they wish in the course of my play with them.” Finite play requires perception of great power while infinite play encourages expression of vulnerability – “exposing one’s ceaseless growth, the dynamic self that has yet to be.”

Finite games are serious while an infinite game is playful.

Seriousness always has to do with an established script, an ordering of affairs completed somewhere outside the range of our influence. We are playful when we engage others at the level of choice, when there is no telling in advance where our relationship with them will come out . . . . seriousness is a dread of the unpredictable outcome of open possibility. To be serious is to press for a specified conclusion. To be playful is to allow for possibility, whatever the cost to oneself.

This is just a small taste of the distinction that Carse draws between these two forms of games. I urge you to read his book to see how he draws distinctions between society and culture, theatricality and drama, curing and healing, and machinery and nature by exploring the contrast between finite and infinite games.

I love this book for many reasons, but one stands out. It warns us of the dysfunctional behavior engendered by limits and at the same time it highlights the extraordinary opportunity that arises when we embrace potential and possibility. Much of my recent thinking has been exploring the contrast between these two approaches to the world.

How this book has shaped my perspective

Take push versus pull.  While not a perfect match, finite games tend to be won by push strategies while an infinite game rewards those who pursue pull strategies. Push requires predictability and limits while pull draws out potential in unexpected ways without limit. In a similar vein, finite games are all about competing for stocks of knowledge and goods while an infinite game is all about participating effectively in flows to draw out potential and possibility. An infinite game is about fluidity and growth, motivating participants to seek flows while finite games treat resources as a given, shifting the focus to stocks.

My previous post was about the cognitive biases of uncertainty.  Finite games are ways to cope with uncertainty – they impose boundaries and rules.  In doing so, they also shorten one’s time horizons, set people in direct conflict with each other and erode trust. An infinite game counteracts these cognitive biases by focusing players on distant horizons and highlighting the potential to make greater progress by striking a productive balance between competition and collaboration. An infinite game promotes trust and therefore makes it easier to participate in flows while finite games, with their erosion of trust, drive players to focus on stocks that can be owned and controlled.

Similarly, I have written about a distinction between story and narrative – the former has a beginning, middle and end while the latter is open-ended and invites expanding participation by others.  Carse devotes quite a bit of time to stories and myths and their role in both finite and infinite games.  While he does not make the explicit distinction between story and narrative that I do, this distinction maps nicely with his distinction between finite and infinite games.

The finite/infinite game contrast illuminates a distinction I have drawn between two key types of passion – the passion of the true believer versus the passion of the explorer.  The true believer knows exactly what the destination is and the path required to get there – think of adherents to fundamentalist religions and many Silicon Valley entrepreneurs. This form of passion naturally tends to view life as a finite game – the game ends when the destination has been reached and there are clear rules or ways to proceed in order to reach the destination.

The explorer is passionately committed to making an increasing difference in a selected domain but has no destination in mind and certainly has no pre-determined pathway.  The explorer is focused on drawing out potential and possibility and thus naturally drawn to viewing life as an infinite game. An infinite game nurtures both the questing and connecting dispositions that are the defining elements of the passion of the explorer.

On an even more fundamental level, I see an interesting parallel with my writing on masculine versus feminine archetypes and Western versus Eastern views of the world. The masculine archetype and Western view of the world tend to align much more readily with a finite game perspective while the feminine archetype and Eastern view of the world lead more naturally to an infinite game perspective.

How to play an infinite game in a world of finite games

Now, here’s a challenge.  Our institutional architectures – everything from corporations and non-profits to schools and governments – are built on push-driven, finite game views of the world.  If one wants to pursue an infinite game instead, what does one do?  Do you take these institutional architectures head-on and seek to oppose and/or transform them?

This is an issue that Carse addresses only in passing. He provides a clue with this observation: “Infinite players do not oppose the actions of others, but initiate actions of their own in such a way that others will respond by initiating their own.”

Or, in my words, pull, don’t push. By going into opposition with finite game players, it is easy to get sucked into a finite game. 

Far better, if possible, to avoid direct confrontation and find ways to pursue infinite game play on the margins or edges of finite game institutions or in the white spaces not yet occupied by finite game institutions.  By drawing attention to horizons that have not yet been explored and demonstrating the ability to make progress in drawing out more potential and possibility, infinite game players have a greater chance of shifting the game and attracting other players. By building parallel institutions and practices that pull others into their game, infinite game players can attract enough critical mass so that they can pursue their quests with lower risk of intervention from the finite game players who view such actions as deeply subversive.  At our research center, JSB and I are now exploring these kinds of approaches as a way of achieving organizational change within large institutions.

As I noted above, Carse insightfully points out that boundaries are necessary for finite games while infinite game players seek to undermine all boundaries.  Given my preoccupation with the importance of edges, this might appear to be a contradiction.  To be clear, I am drawn to edges (what Carse labels as horizons) precisely because they generate possibility, not because they define limits.  Edges are fertile ground for an infinite game that draws out potential and possibility in part because finite game players tend to avoid them and they attract those who are more excited by infinite games.

The question before us

So, as we approach the New Year, it is time to ask, what game shall we play? In the face of growing uncertainty and the growing dysfunction of push-based institutions, shall we seek the shallow comfort of finite games or head out of our comfort zone to play an infinite game?  And whom shall we seek out to play these games with? As Carse observes, “no one can play a game alone.” Game on.

Cognitive Biases in Times of Uncertainty

We live in a world of increasing pressure and uncertainty, driven in large part by digital technology infrastructures. These marvelous infrastructures bring us unprecedented connectivity and opportunities to better ourselves.

That is a core paradox of our life in the 21st century: our new infrastructures create both opportunity and pressure. The pressure comes from intensifying competition as people previously marginalized in our global economy master these infrastructures and compete for jobs and markets that were previously secure franchises. More importantly, the pressure also comes as those in the core of our economy cling to practices and institutions that were designed for another world and struggle to remain successful in a world that requires new practices and institutions. The turmoil we see around the world today is a vivid illustration of this paradox.

What's our reaction to this?  I fear that we're increasingly heading down a path that we tread at our peril, not just for ourselves as individuals but for societies around the world.

Risk/reward perceptions

How did we get on this path?  It's actually quite understandable, driven by a very natural reaction to uncertainty.  In times of high uncertainty, we all have a natural tendency to magnify risk and discount reward.  We clearly see all the things that could go wrong and tend to focus on those. Sure, there may be rewards down the road, but those diminish in importance in light of all the risks along the way.

Time horizons shrink - the rise of the short-term

What's the consequence of this risk/reward bias?  We dramatically shorten our time horizons.  We don’t spend a lot of time thinking about the long-term because that's so uncertain and fraught with risk. Instead, our attention shifts to what we can get today.

This has all kinds of consequences.  We see it play out on Wall Street as investors focus on short-term returns, often measured in milliseconds in the case of the growing reliance on high frequency trading.  We also see it in the growth of financial derivatives – if it takes time to produce new assets, then the best route to economic gain is to find ways to derive additional value from existing assets and trade those values instead.

We see it manifest in increasing corruption around the world where long-term progress is sacrificed for payments into secret bank accounts today. We see it unfold in the form of increasing debt at the individual, institutional and government levels, dramatically amplified by concerted government policies around the world to keep interest rates artificially low. We see it take shape in the form of environmental degradation where we focus on near-term economic returns, even at the expense of long-term degradation of the world we live in.

The spread of zero sum mindsets

But it gets even worse.  As we shorten our time horizons, we become prisoners of a zero sum mindset. If we only focus on the short-term, we must accept things as they are.  There's a given set of economic value – it's a fixed amount. If we only have a fixed amount of economic value, then we start to focus on who will get what share of the pie.  If you get a larger share, then by definition I'll get a smaller share.  You win, I lose. If I win, well then you must lose.

Creating new economic value takes time and requires a longer-term horizon. A positive sum view of the world, one where we can increase overall value by working together, only becomes viable if there's time. And time becomes much too uncertain when risk and return perceptions magnify risk and discount returns.

Here’s the really bad part. This zero sum mindset folds back on our perception of risk and reward and the shortening of our time horizons.  If there are only a fixed set of rewards, then we must move quickly to grab our share. We have no time to lose. Our time horizons become even shorter.

The rise of threat based narratives

But, there’s more.  Zero sum mindsets naturally lead us to focus on threat, rather than opportunity. If there’s only a fixed set of resources and rewards, there’s limited upside. Our attention shifts to protecting what we already have, however little it might be.  In a zero sum world, we are constantly vulnerable to the efforts of others to grab our share of the pie.

Threat based narratives take root – enemies are gathering force and intent on destroying or appropriating what we have.  We need to be vigilant and band together to protect our interests.  A quick look at the political narratives dominating the discourse in the US – whether on the Right or the Left – reveals the growing prevalence of threat based narratives.  Threat based narratives lead to polarization – if you're not with us, then you must be against us.

Threat based narratives again have a pernicious effect – they reinforce our tendency to focus on the short-term.  They lead us to further magnify risk and discount potential rewards. The threat is imminent – we must focus on protecting ourselves now from the enemies gathering force.  We can't afford to be diverted by longer-term issues – the battle is here and now. If we don’t win today, we will have no tomorrow.

Threat based narratives lead to a further consequence. They motivate us to seek out those who agree with us.  We can't tolerate divergent views when we are under attack.  We must all come together under the same banner.  Uniformity of thought and perspective is highly valued and rewarded.  This pressure to conform reduces the potential for creative thinking and new ideas which further reinforces our sense that we live in a static world with a given set of resources and wealth. The passion of the explorer gives way to the passion of the true believer. Once again, we find reinforcement for a short-term mindset.

Trust also suffers.  In a world defined by threats with the prospect of attacks coming at any moment, we must be extremely careful about whom we trust. Threats can be used to build solidarity, but they also prompt us to be continually looking over our shoulder.  Even if someone seems like our friend today, they could turn on us tomorrow. We must be on our guard at all times.

This becomes an ugly world, trapped in a vicious cycle. Short-term mindsets drive zero sum mindsets which drive threat based narratives which reinforce short-term mindsets.  Yet, it's a world that we increasingly find ourselves living in.

Crafting an alternative path

What is to be done? As a long-term optimist, I believe that this vicious cycle can and must be broken. Curiously, the best way to break it isn't to challenge it head on, but to understand it, as difficult as that might be.  If we give it prominence as a threat and define ourselves in opposition to it, then paradoxically we become prisoners of the same kind of threat based narratives that are gripping more and more of the world.

Understanding it means accepting that this vicious cycle is triggered by a completely natural and understandable set of cognitive biases. These biases come into play in response to growing pressure and uncertainty.  Our challenge is to find ways to address and shift these cognitive biases, starting with the most basic one of magnifying risk and discounting rewards when faced with growing pressure and uncertainty.

Without going into great detail here, I'll suggest that three elements can come together to help overcome these cognitive biases – narratives, platforms and people.

Narratives shape perceptions in powerful ways.  Opportunity based narratives have the potential to flip our natural risk/reward perceptions.  Rather than magnifying risk and discounting rewards, opportunity based narratives help to make long-term rewards more tangible. As a result, they magnify our perception of the likelihood of those rewards while discounting the potential risks that might arise along the way in our quest to achieve those rewards.  Well constructed narratives create a sense of inevitability by focusing on the fundamental forces that are shaping the opportunity.  At the same time, narratives, in contrast to stories, invite participation and contributions by others to achieve the opportunities.

Think of the narrative that led to the growth of the United States.  America was viewed as a land of unlimited opportunity. This perception motivated people to leave comfortable surroundings and make very dangerous journeys to a new land that presented enormous challenges in the short-term.

Fast forward to today. The rise of global digital technology infrastructures provides the foundation for some extraordinary opportunities for all of us to connect and create together in ways that were simply not feasible in the past.

But narratives alone are not sufficient.  No matter how compelling they might be, if the day to day reality in the short-term doesn't in any way  reflect the potential outlined in the narrative, people will have a hard time embracing the narrative.

This leads to the need for platforms to alter the short-term economics of effort and reward. Platforms create rapid positive feedback loops to build credibility for the longer-term opportunities down the road.

In the case of the United States, transportation infrastructures, cheap land and rapidly growing cities with ample opportunities for small merchants and entrepreneurs provided examples of the platforms reinforcing the longer-term narrative of a land of opportunity.

Digital technology infrastructures provide the potential for very powerful platforms today, but the key is to find creative ways to make these platforms accessible in a meaningful way to broader segments of the global population and to reduce the effort required to use these platforms to generate near-term rewards. One promising example is the use of mobile technology to help impoverished farmers in remote rural areas of Africa and other developing regions access more information about ways to increase the value of their crops.

There’s a third element that has to come into play – people.  That means us. We each need to find ways to provide compelling models through our own actions to demonstrate the opportunities that can be unleashed on these platforms.  We can provide a proliferation of stories that reinforce and amplify the broader narrative. The most effective way to do this is to connect with a passion within us that will help us to turn pressure into opportunity and stress into excitement. With this passion we are motivated to embark on quests to achieve our potential more fully, in part by connecting with others that share our passion. As Gandhi once famously said, we must live the change that we wish to see in the world around us.

Who will be most likely to carve out this alternative path?  Look for the segment of the population that is most hurt by the spread of short-term zero sum mindsets.  As I've suggested elsewhere, my bet is that it's the younger generation that have the most to gain from a long-term view that emphasizes the opportunity to achieve more of their potential. It's not an accident that the Middle East, a region having one of the youngest demongraphics in the world, emerged as an early source of opposition to regimes driven by a short-term view of the world.

We all need to resist the natural urge to magnify risk and discount rewards.   By connecting with the passion of the explorer, we'll be much more likely to succeed in overcoming the cognitive biases that paralyze others. We live in a world of unprecedented opportunity and unparalleled challenge – our actions individually and collectively will determine whether opportunity or challenge prevails.

A Welcome Call to Greatness

"That Used to Be Us" is a welcome new book from Tom Friedman and Michael Mandelbaum.  It is an eloquent wake-up call at an important time in our history.  We will ignore it at our peril.

It stands in sharp contrast to Tyler Cowen’s new book, "The Great Stagnation", which I reviewed in my previous posting.  Tyler suggests that the US is entering into a period of diminished growth and returns as a result of secular forces that cannot be overcome in the foreseeable future.

Friedman and Mandelbaum  will have none of this.  While acknowledging that we face increasing pressure, their book passionately and forcefully argues that our future is up to us. They believe that, if we make the right choices, we can regain the growth and prominence as a nation that we enjoyed only a few decades ago.

We stand at a crossroads.  We need a new narrative to drive our choices in the years ahead.  The narrative we embrace will to a large extent determine the path we take and the destination we reach. Narratives have a tendency to become self-fulfilling prophecies because they have such a powerful influence on choices and actions.

So, what is the narrative that Friedman and Mandelbaum offer?  It has two components: one consisting of transition and change and the second focusing on what needs to be done to respond to this change.

The transition

In describing the transition we are experiencing as an economy and society, Friedman and Mandelbaum focus on two fundamental forces re-shaping our environment – the IT revolution and globalization. These are framed as challenges rather than opportunities because they require significant adaptation, something that we have not yet fully recognized, much less accomplished.

The big problem in the eyes of Friedman and Mandelbaum is that the end of the Cold War led to a sense of complacency.  We had won.  The enemy that had occupied our attention and energy throughout the post World War II era had been defeated. We stood unchallenged politically and militarily as a global power.  We became complacent, lulled by our own success.

What we didn’t understand, however, was that the downfall of the Communist bloc had an unforeseen consequence. It unleashed into the global economy more than 2 billion people who had been blocked from participating in global markets for decades.  These people had a hunger and sense of urgency that drove them to get better much faster than anyone had anticipated.

And they had new weapons. Information technology and globalization provided them with the means to participate in global markets in ways that would not have been possible for previous generations.  We faced formidable competitors that we did not even see.

But the challenges here are even deeper.  The responses of the past are simply not adequate for dealing with the intensified competition unleashed by IT and globalization.  Chapter 5 of the book is perhaps the best part of the book.  This chapter explores in depth the structural changes to the labor force which are re-shaping how we do business. Without going into great detail in this review, the key point is that the success of our workforce increasingly hinges on expanding the segment that can be characterized as “creative creators” – “people who do their nonroutine work in distinctively nonroutine ways.”

This emphasis on creativity has dramatic implications for the workplace as Friedman and Mandelbaum explain:

Continuous innovation is not a luxury anymore – it is becoming a necessity. In the hyper-connected world, whatever can be done, will be done. The only question for a company is whether it will be done by it or to it: but it will be done. . . . So a company that does not practice continuous innovation by taking advantage of every ounce of brainpower at every level will fall behind farther and faster than ever before.

In discussing the changing workforce, Friedman and Mandelbaum cite Carlson’s law, named after Curtis Carlson, the CEO of SRI International:

Innovation that happens from the top down tends to be orderly and dumb. Innovation happens from the bottom up tends to be chaotic but smart.

This analysis is very consistent with the Big Shift perspective that I have written about extensively in other venues as well as here.  We are wrestling with a fundamental shift in what is required to succeed in business, shaped by both new digital technology infrastructures and public policy shifts towards liberalization.  Citing a business adage that “you win in turns”, Friedman and Mandelbaum make the case that this period of profound shift is fraught with challenges for incumbents and ripe with opportunity for new entrants. Unless we understand the nature of the Big Shift playing our around us, we will be blindsided by those who do and who are more adept at harnessing new forces to attack entrenched positions.

Implications for education

This increasing importance of “creative creators” has a significant implication for education:

For us to grow, we have educate people to do jobs that don’t yet exist, which means we have to invent them and train people to do them at the same time.

Another corollary for education is that we need to teach and inspire creativity and not be satisfied with the basic skills of reading, writing and arithmetic. As Friedman and Mandelbaum put it, everyone must find their “extra” to cultivate that will differentiate them from others.

In this context, I wish Friedman and Mandelbaum had put more emphasis on the need to foster learning throughout one’s entire career.  They spend a lot of time discussing necessary changes to our educational system to adapt to this evolving labor market.  That is fine, but we are now in a world where the educational system is just one small part of the learning challenge. 

An equally important issue is how to sustain and even accelerate learning on the job.  While many companies have training programs to strengthen and expand one’s skills, far fewer companies have thought through the mechanisms required to accelerate talent development on the job.  If we don’t get that right, all the education in the world will not enable us to keep up in an increasingly competitive global market.  As my colleague, John Seely Brown, likes to say, the half life of the average job skill is now about five years, so if we are not continually replenishing our skills, we will rapidly become marginalized and irrelevant.

As if these challenges were not enough, we also face two other challenges at the same time: unsustainable increases to government debt and unsustainable damage to our environment. As Friedman and Mandelbaum characterize it, a war on math and physics by significant segments of the population encouraged us to remain in extended denial regarding the severity of these challenges.  Another way of framing it is that our time preference significantly shifted to value the present rather than future.  In other words, we were willing to trade the likelihood of severe long-term damage in favor of having more resources in the present.

Now we have to respond to four challenges simultaneously. In assessing our potential to address these challenges, Friedman and Mandelbaum  stress the importance of both capacity and will, or as I like to frame them, will and skill.  Friedman and Madelbaum have little doubt about our capacity to solve these challenges – their big concern is our will.  I would certainly agree regarding this assessment.  Addressing these challenges effectively requires that we first overcome the complacency and defeatism that pervades our leadership circles in business and government, Friedman and Mandelbaum declare that unfortunately

people have gotten used to [the current state of affairs]. Indeed, that sense of resignation, that sense that, well, this is just how things are in America today, that sense that America’s best days are behind it and China’s best days are ahead of it, have become the subject of watercooler, dinner-party, grocery-line and classroom conversations all across America today.

So, what is to be done?

Friedman and Mandelbaum argue that effectively resolving the challenges facing America will require collective action on a large scale that goes beyond the fragmented initiatives we see today.

It begins with re-focusing our attention.  Friedman and Mandelbaum observe that we have been consumed over the past decade with “chasing the losers” – focusing on a “war on terrorism” conducted by the disenfranchised and disaffected.  The problem is that, in the process, we lost sight of those 2 billion people entering the global labor force and scrambling to catch up with developed economies.   We need to shift our focus to these competitors and mobilize our resources to engage with them.

Friedman and Mandelbaum argue that a successful resurgence of America will hinge on the five pillars of prosperity that sustained a partnership between the public and private sectors. The authors argue that these pillars have been the key drivers of the nation’s growing success in the global economy over the past two centuries:

• Providing public education for a growing portion of the population
• Building and modernizing infrastructures
• Encouraging immigration from other parts of the world
• Government support for basic research and development
• Implementing appropriate regulation of private economic activity

Now, there is a bit of a contradiction, or at least a paradox, here.  At the very same time that Friedman and Mandelbaum make such a compelling case that we are in the midst of a profound global shift in terms of how we work and live, they fall back on traditional pillars as the answer to drive America’s success in the future. 

Perhaps there is a need to challenge whether these pillars are sufficient, or even appropriate, to respond to the Big Shift playing out around us. Four out of the five pillars (immigration being the one exception) are classic “push” approaches – top down programs depending upon some ability to anticipate what will be required in decades ahead. But what if we are moving to a “pull” world where such top-down approaches are increasingly challenged? What creative new public policy efforts might have even greater impact on our global competitiveness?

Friedman and Mandelbaum themselves make the case that the changes we are experiencing around the world have a systematic effect of empowering individuals at the expense of the top-down institutions that govern our economies and societies.  Yet, the solution to our problems appears to rely on the very top-down institutions that are being undermined everywhere we turn – mobilizing large economic, educational and governmental institutions that are being challenged on every front.

Friedman and Mandelbaum argue that the problem is compounded by the fact that American society has “strayed from three of the core values on which American greatness depended on the past”:

• Shifting from delayed gratification to short-term gratification
• “Loss of confidence in our institutions and in the authority of their leaders across the society”
• “Weakening of our sense of shared national purpose”

So, even if these institutions and programs are appropriate, we appear to have lost the values required to support such massive collective action focused on long-term impact. From time to time, Friedman and Mandelbaum appear to fall prey to Sputnik or Manhattan Project nostalgia.

Friedman and Mandelbaum show in sharp contrast the energy and initiative of plain people throughout America:

America’s greatest strength is the fact that wave after wave of people still either come to this country or come of age in this country eager to try something new, or spark something extra, undeterred by obstacles, hard times, money shortages, or weak-kneed politicians.  Indeed, what keeps us optimistic about America is the seemingly endless number of people who come here or live here who just didn’t get word.

Why aren’t these bottom up initiatives getting more traction?  Maybe it is because they are undermined on every side by push-based institutions that have not only outlived their usefulness but have now become serious obstacles to amplifying the passion, energy and entrepreneurialism of people who “just didn’t get the word.”

Maybe the issue is far more profound than the extreme polarization and the powerful special interests that hold our public policies captive as so eloquently captured by Friedman and Mandelbaum.  Maybe it goes to the root issue of reassessing the rationale for our institutions.  Why do they exist in the first place?  Maybe we need a new rationale that would drive powerful waves of institutional innovation which in turn would create the conditions for economic success and social improvement.

Friedman and Mandelbaum find some comfort in the notion that a shock to the system will help to pull us out of our complacency, whether it takes the form of a market driven shock, a climate driven shock or a political shock like a Third Party campaign that they clearly favor.

Perhaps there is another way.  Perhaps rather than finding a suitable shock to challenge and transform the core of our system, we should begin on the edge or multiple edges. From there, perhaps we might craft pragmatic pathways that help to mobilize a critical mass of people and resources to build new institutions and practices. This approach might be more effective at tapping into the forces re-shaping the world around us and, most importantly, more effective at amplifying the passion and power of the individual. 

What would these pathways look like? Well, that would take at least one more blog post to sketch out and perhaps a book to do it justice. One thing is for sure – we will only discover the full pathway once we set out on the journey. It is not a pathway that can be fully mapped out in advance, but will become clearer as we proceed.

To embark on that journey, we need a new narrative. Friedman and Mandelbaum provide the kind of narrative we need, with the right blend of frustrated optimism.  The future is indeed bright but we need to muster the sense of urgency required to tackle the significant obstacles that stand in our way.  “That Used to Be Us” provides a promising platform for defining a narrative focused on the opportunity ahead. We desperately need to pay attention to the wake-up call.

Great Stagnation or Big Shift? The Answer Matters

A new book by my old friend Tyler Cowen, The Great Stagnation, has taken the media by storm, leading Business Week to proclaim Tyler as “America’s hottest economist”, even though his book was initially published only as an e-book.  This is an important book because it pulls us beyond the short-term quarterly, monthly or even daily horizons that consume the attention of so much of our media pundits and analysts. It invites us to take a longer-term view of the changes that are re-shaping our economy and our society. The book is thought-provoking, well-written and concise but also profoundly misleading on a number of key points.  One might even suggest that it is dangerous, for reasons developed below.

Even though this book came out earlier this year (ages ago in Internet time), it is timely to revisit it on Labor Day when people are reflecting on gloomy charts like this.  It is precisely this kind of trend that lends so much credence to propositions of a Great Stagnation.

In essence, Tyler suggests that the US has been in a period of prolonged stagnation that began roughly in the early 1970s and shows no signs of receding in the foreseeable future – it is, for all intents and purposes, “the new normal.” Why did we enter this period of stagnation? The short answerTyler offers is that we ran out of three different kinds of “low hanging fruit”: free land, technological breakthroughs and smart, uneducated kids. 

Having diagnosed the problem, Tyler offers little in the way of a solution, other than a vague suggestion that we should improve the social status of scientists and “be ready when more low-hanging fruit actually arrives . . .”

Tyler’s book raises several important questions:

• Are we in a Great Stagnation?

• If so, what are the causes of the Great Stagnation?

• If so, what are the implications of the Great Stagnation?

Let's take a look at each of these questions in sequence.

Are we in a Great Stagnation?

To answer this question, we need to first decide on the metrics to use. Tyler focuses on an interesting metric – median family income. By the way, one of the best parts of Tyler’s book is the chapter in which he shows the extent to which the metrics for productivity and GDP are fundamentally distorted by the way government activity, health care and education are measured, systematically overestimating both quality and results. These sectors account for more than 25% of US GDP and also are three of the most rapidly growing sectors in the economy. As Tyler observes:

At the very least, we don’t know what results we have achieved, and that’s scary.  The future of our economy is hitched to sectors that are not well geared to produce clear results and measurable value.

But back to the metric that matters for Tyler. He shows that growth in median family income in constant dollars began to slow down in the early 1970s after a period of significant growth from 1945 on. The growth rate slowed, but there was still growth in this metric – median family income grew by 22% in constant dollars over the 31 year period from 1973 to 2004. It's important to note that Tyler chose as the benchmark the period from 1945 – 1973, the period immediately following World War II when the US population emerged from a period of great deprivation required for the the war effort and began to enjoy the fruits of a shift back to a civilian economy.

He picked this metric because “it is the single best measure of how much we are producing new ideas that benefit most of the American population.”  This is a puzzling statement.  The metric focuses only on the cash income benefit of new ideas, certainly an important dimension of benefit, but not the only one.

The period from 1973 to today has provided extraordinary benefit to all of us as consumers.  Across a broad spectrum of products and services, we have seen a proliferation of choices available to the consumer who now can obtain far more value at far lower prices, driven both by globalization and the advent of digital technology.

In just one example cited by Ronald Bailey in his review of Tyler’s book, the refrigerator so cavalierly dismissed by Tyler in 1970 cost nearly twice what it does today in constant dollar terms and offers an array of functionality like frost free refrigeration and ice trays that were simply not generally available in the early 1970s. (For those interested, Donald Boudreaux has a fascinating comparison between a Sears catalog in 1975 and today and Steve Horwitz weighs in with another analysis.)

Certainly this compensates in part for a slower growth in median family income – we get more choice (Tyler, think of proliferation of ethnic restaurants) and more value for less money while income is still growing. Tyler rightly points out that this improvement in value for price was also at work during the entire postwar period but unfortunately there is no metric to conveniently and accurately capture the magnitude of this improvement in either period.

So, the question of whether there is a “Great Stagnation” hinges in part on a debate over metrics. Is median household income the best measure of economic progress? Even if we accept this measure, the term “stagnation” appears to overstate the case – there still has been significant progress over the past 30 years when the term stagnation implies no growth at all.  A thought experiment proposed by Arnold Kling suggests why stagnation overstates the case: if you were offered a choice between receiving a 1973 income and goods and services available at that time or receiving a current income and goods and services available now, which would you choose?

This debate suggests that Don Boudreaux may be right when he asserts that “what has stagnated isn’t the economy but, rather, economists’ and statisticians’ capacity to measure economic activity and its contribution to human well-being.”

What are the causes of the Great Stagnation?

For the sake of argument, let’s grant that we are in a period of Great Stagnation.  What are its causes? Tyler strongly argues that the causes – disappearance of “low hanging fruit” – are deeply embedded in demographics and science and are not likely to go away.  The future is dim – he urges us to think of this as “the new normal.”  Well, then again, maybe it’s not so dim.  Tyler tends to waffle a bit here, leaving open the possibility that we might soon encounter some new forms of “low hanging fruit” – he says we need to be ready for it when it arrives.

Tyler is a bit slippery when trying to establish causation for the three categories of “low hanging fruit.” For example, “free land” might have been a significant factor in driving economic growth of the US in the 19th century but certainly paled into insignificance by 1945, so it has little to do in explaining the growth of median family income either during the “boom years” from 1945 – 1973 or the “stagnation years” from 1973 to 2004. (For a more detailed critique of the three low hanging fruits, see David Henderson’s review - pdf, scroll down.)

As a general principle, we should be careful about arguments for stagnation.  As Brink Lindsey points out, we have faced such warnings throughout time, recently ranging from the “secular stagnationists” led by Alvin Hansen in the 1930s to the Club of Rome’s warnings about “limits to growth” in the 1970s.

Perhaps there might be other causes of the slower growth in median family income, causes that are far less deeply embedded in demographics and science as Tyler suggests. I have written about the “Big Shift” in The Power of Pull and quantified key dimensions of this transition in the Shift Index.

In brief, this perspective suggests that the causes of mounting performance pressure in our economy, both at the individual level and the institutional level, stem from the emergence of digital technology infrastructures that require a re-thinking of our institutions and practices.  Not surprisingly, this digital infrastructure really began to take hold in the early 1970s with the advent of the microprocessor and digital networks.

In this context, I would argue that we are facing a growing mismatch between push-based institutions and practices that emerged during our last great infrastructural shift in the late 19th and early 20th century (think railroads, electrical power and telephones) and the pull-based world taking shape around us.

What is the consequence of this mismatch?  Well, as consumers we all benefit because we do receive far more value at lower cost.  Research in the Shift Index showed that “creative talent” (even though I despise the term) received significantly higher cash compensation during the Great Stagnation years – so they also are benefiting because of growing bargaining power.  Who loses? Well, the rest of the workforce. Under increasing pressure, companies are scrambling to automate and squeeze more out of the remaining workers while keeping a tight rein on their salaries – hence the slowdown in median household income growth.

For those who are concerned that we have entered into a long-term stagnation driven by intrinsic forces, it helps to take an even longer-term view than Tyler does.  For this, we might re-visit  Ray Kurzweil’s amazing chart that take us back to the beginning of human time and show the improvements that we have seen unfold exponentially over millennia, not just a few decades.

What are the implications of the Great Stagnation?

So, why does all of this matter?  Here is where I fear that Tyler’s perspective is dangerous.  If we buy his argument that we are in a Great Stagnation and that the causes are deeply embedded in science and demographics, we must accept the inevitable – lower growth for an indefinite future.  There is nothing we can do. Tyler even admits so much at the end of his book, offering a weak recommendation of increasing the status of scientists. Instead, he urges us to learn from the Japanese example of how they handled their slow growth economy of the past 25 years, focusing on small quality improvements, like improved French pastries and automatic umbrella wrappers at the entrance to stores (I kid you not, p. 87).

Some of my libertarian friends like Peter Boettke have actually argued that Tyler has written a book subversive of the liberal establishment.  The logic is that, if we accept that we are in a much slower growth economy for the foreseeable future, we must rein in the spending of our government. Perhaps, but let’s not forget that the option is to maintain or even increase spending levels and raise taxes significantly to bring down the deficit.

If we are facing an inherently low growth economy, then incentives to support growth become less compelling – we are fighting the inevitable.  Instead, the focus of many will shift from stimulating production to ensuring “fair” distribution of the inherently limited resources available to us.  We move from a positive sum world where all can gain through economic growth to a zero sum world where the pie is relatively fixed and the only debate is “fairness” of the shares of that fixed pie. Politics becomes even more polarized as we descend into a “you win, we lose” world.

So, there are definite political consequences to the views expressed by Tyler, even if he may not like or even endorse them.  But the implications are far more profound than that.  They cascade into how we live our professional and personal lives.

This perspective shapes our mindset about what is possible.  If we are truly in a zero sum world where growth evaporates, it materially affects our mental calculus.  Why invest a lot of effort and take significant risk if the potential to drive new forms of growth is so limited? A zero sum view of the world fosters a very conservative, risk averse mindset – with more limited upside, we naturally tend to focus more on preserving what we already have.

Lower expectations have a perverse way of becoming self-fulfilling prophecies. If we expect less, we invest less, work less and get less in return.  The Great Stagnation becomes the Permanent Stagnation.Now, of course, if Tyler is right in his diagnosis, there is little we can do about this – acceptance becomes the only reasonable approach, as he suggests.

But, what if he is wrong?  I have offered an alternative hypothesis, focusing on a growing mismatch in institutions and practices arising from a Big Shift driven by technology infrastructures.  This is still a profound shift, but it is a shift that we can make; we are not trapped in a stagnating world where we must accept the inevitable loss of low hanging fruit. Moreover, there is a huge reward for us if we embark on this journey.  Rather than diminishing returns, we face for the first time the opportunity to harness increasing returns in business beyond the technology sector. Rather than the Great Stagnation, we can unleash the Great Resurgence.

So, if this is right, what needs to be done? As my friend, Steve Denning, eloquently points out, it was management that helped us to reap the rewards of the previous infrastructure and it will be management again, perhaps a new generation just coming into the workforce, that will drive the changes needed to tap into the true potential of our new infrastructures.

Government certainly has a role to play in creating the conditions for this Big Shift to play out more rapidly. Our current policies were framed in a push-based world and there is an increasing mismatch here as well.

As John Seely Brown and I suggested in the Epilogue to The Only Sustainable Edge, we need to reassess all government policies through the lens of what is required to accelerate talent development.  And we don’t just mean education policies, but all policies, ranging from immigration to financial regulation and intellectual property laws. They all have a role to play in talent development and talent development will help us to navigate through the Big Shift as smoothly as possible. In this context, massive bail outs and artificially low interest rates may actually be slowing down talent development by reducing pressure on those who continue to pursue outmoded practices.

And you know what? That lens provides an opportunity for us to come together around the potential to drive a new wave of economic growth, rather than moving ever farther apart as we bicker over the crumbs of an increasingly stale pie.

If we were to adopt this lens and truly understand the opportunity ahead of us, we would remove the ability to excuse current government policies.  If I were Obama, I would buy and distribute a copy of Tyler’s book to every voter (yes, I know, it would add to our deficit, but it would be for a good cause) with a cover note saying something like this: “Don’t blame my administration for this slow recovery, low household incomes and low growth of the economy overall.  See, one of the most brilliant economists in the US says that this is an inevitable result of factors beyond our control.  We must simply accept the inevitable.  This is a time for sacrifice. Vote for me and I will make sure we have fairness.”

Through the lens of the Big Shift we should demand that all of our institutional leaders (business, government and education) aggressively address the obstacles that are slowing the transition from one institutional regime to another and increasing short-term pressure on all of us. Impatience rather than complacency should guide us. We should not accept excuses. My next blog post will address a book that helps to make the case for urgency.

Resolving the Trust Paradox

I love paradox, as anyone can tell from the name of the research center that I run with John Seely Brown in Silicon Valley – the Center for the Edge.  Paradox is basically a puzzle, often juxtaposing two elements that at first seem like contradictions or at least defy explanation.  Isn’t a center for the edge a contradiction in terms? How could that be? By engaging with a paradox and trying to sort through the apparent contradiction, one can often generate profound new insights that expand understanding.

Framing the Trust Paradox

A couple of weeks ago at a gathering in Paris sponsored by the Orange Institute, I explored a paradox that is central to the challenges and opportunities we face as individuals and institutions in the Big Shift.  I call it the Trust Paradox.

In a nutshell, here’s the paradox.  Everyone thinks that trust is important. Have you ever heard of anyone questioning whether trust is important to build and maintain, either for individuals or institutions?  We all strive to build trust.  In fact, it becomes increasingly valuable in a time of mounting uncertainty and performance pressure.

Yet, at the same time, trust in individuals and institutions is eroding.  Survey after survey quantifies the erosion in trust in all of our institutions – corporations, news services, educational institutions, governments, even charities.  And it’s not just institutions.  Trust in leaders, whether CEO’s, teachers or government officials is also eroding. How can this be?

That’s the nub of the paradox: We all agree that trust is increasingly important but trust is rapidly eroding. What is going on? The resolution of this paradox has enormous importance for all of us who are trying to find ways to succeed in an increasingly challenging world.

But, how to resolve this paradox?  It turns out that the very practices that helped us to build trust in the past are now contributing to the erosion of trust.  The harder we work at building trust the more rapidly it erodes. In fact, the approaches now required to build trust are deeply subversive of the institutions that have emerged over the past century.

Traditional approaches to building trust

What do I mean? Perhaps the best way to explain is by starting with the conventional wisdom around building brands, the very essence of trust in our business world.  Listen to all the management experts on how to build brands and the message is clear.  You build a brand by identifying your key strengths and aggressively communicating them.  If you have credentials and accomplishments, by all means prominently feature those to establish credibility.  If you have any weaknesses, hide them.  Brands are not built on weaknesses, but strengths.

This wisdom is now broadly applied to the individual as well as the institution. It has become commonplace to talk about “personal brands.” To succeed in an increasingly competitive world, we all need to develop and communicate our “personal brand.”  How do we do that? Well, the same way that corporations do it – by emphasizing credentials and strengths and hiding weaknesses.  You want to communicate an image of power, being in complete control of your environment.

Makes sense, doesn’t it?  Well, it used to.  When we lived in a world of knowledge stocks, this was a formula that led to deep trust.  Success was all about what you knew that no one else knew and your ability to apply that knowledge in distinctive and repeatable ways.  Think about all the most trusted brands of the past century and that formula is clearly behind the creation and maintenance of those brands.

That formula didn’t just work for companies. It was also behind the success of a broad range of institutions in building trust with their stakeholders – whether media, educational institutions, or national governments. It applied to individuals as well, whether Walter Cronkite or Jack Welch.  These were strong people, people who never seemed at a loss for an explanation, people who understood the way the world worked. You would never catch them fumbling for an answer. They had deep knowledge stocks that gave them the ability to be in control within their domain. You could trust them.

New approaches to building trust

So, what has changed? Well, in a world that is more rapidly changing and where uncertainty displaces certainty wherever we look, knowledge stocks have less value.  They depreciate at an accelerating rate. Trust built on knowledge stocks becomes less compelling.

Worse than that, what used to build trust, now erodes it.  Think about it.  In a more and more challenging world where we constantly confront situations that we never encountered before, what is our reaction when someone presents an image of great strength and complete control, with no weaknesses?  We don’t trust them.

We know that we are all human beings, possessing unique strengths but also great weaknesses.  We are all increasingly challenged as we face mounting performance pressures. If someone only presents strengths and accomplishments, we know they are not sharing with us the full picture. If they don’t trust us enough to share their weaknesses and vulnerabilities, why would we ever trust them?

And all those credentials and certifications that were so important in the past, what do we think of them now? In a world that is so rapidly changing, they mean less. Sure they provide external confirmation of knowledge stocks, but those knowledge stocks are rapidly depreciating. What we learned or did in the past is much less compelling that we are learning or doing now.

At a deeply personal level, trust is built by sharing vulnerability.  If you really trust someone, you will share your vulnerability. It is not only OK, but necessary – it is the foundation of a trust-based relationship. But this is exactly the opposite of what we were taught in a world of knowledge stocks. This is why the new approaches to building trust are so deeply subversive - they require us to challenge the most basic assumptions of the conventional wisdom of the past and to act in ways that directly contradict what we believed in the past.

The shifting balance of trust

One way to think about trust is in terms of will and skill.  In deciding whether to trust someone, we focus on two basic questions. First, do they have the values, conviction and courage to do the right thing? Second, do they have the capability and skills to do the right thing?

In more stable times, the balance of trust was on assessing capability and skills – it was clear what was required to deliver expected value and one could assess those capability and skills through track records of performance. As we move into more unstable times, the balance of trust shifts from skill to will.

Existing skills are less relevant; the key question is whether the person or institution has what it takes to embrace uncertainty and work together to find a way to continue to deliver value even when the skills of the past are called into question.  This shift in the balance of trust has a number of profound implications.

Trust used to be largely backward looking – did the person or the institution have a track record indicating that they had the necessary skills to deliver results? In these more uncertain times where skills have a depreciating half-life, the focus shifts to a forward looking question – does the person or institution have the values and disposition required to learn faster by working together in times of increasing uncertainty and rapid change? Can they be relied upon even though their existing skills are increasingly challenged and undermined by rapid change?

Trust in business also used to be very domain specific.  In a more stable world, I could trust my doctor or financial advisor based on an assessment of domain specific skills – did they have the right credentials and experience relevant to the specific domain?  I didn’t invest as much time in trying to learn about them as people and explore the values and dispositions that drove them. 

Now, trust is becoming less domain specific.  There is a need to be able to quickly integrate new knowledge, coming often from quite distant and unexpected domains. Now the trust becomes much more general and personal – is this a person who can be trusted to respond appropriately to unexpected challenges and mobilize the personal and institutional resources required to come up with productive solutions even when the questions have never been seen before and require reaching far beyond the domain in question for answers. It becomes much more a question about personal attributes than impersonal skills.

Another way of framing the shifting balance of trust is from push to pull.  In the past, trust was a matter of assessing whether the person had the skills already in place to push the right solution at the right time. Now, the question is whether the person has what it takes to pull out innovative solutions to unexpected situations by drawing out whatever resources might be required whenever they might be needed.

In the shifting balance of trust, willingness to express vulnerability becomes much more central. People who do not express vulnerability either have little awareness that their existing strengths or skills are increasingly challenged or they are unwilling to share the vulnerabilities they know they have.  In either case, one begins to doubt whether they have the will to work together in developing creative new approaches to address unanticipated challenges and opportunities.

The importance of passion as a foundation of trust

So, how do we overcome the natural instinct we all have to avoid expressing vulnerability?  How do we build trust today? One way to build trust is to pursue our passion.  As I explored in an earlier post, passion helps to build trust based relationships.  Think about any person you know who is deeply engaged in pursuing a passion. How do they present themselves?  They have no time or patience for crafting a façade that showcases strengths and hides weaknesses.  They present themselves as who they are, warts and all.  What you see is what you get.

Even more importantly, they are quick to share vulnerability. Within a short period in any conversation, a passionate person is sharing with others the problems that are keeping them up at night, the questions that they have not been able to answer. They share these problems and questions because they find them exciting, not something to hide, but something to share to see if they can get help in pursuing them. As a result, people who have the passion of the explorer are quick to build trust – they express vulnerability and make it safer for you to express your own vulnerability.

They use vulnerability to amplify knowledge flows, rather than jealously guarding knowledge stocks. They are driven to learn as much as they can as fast they can by connecting to a larger and more diverse range of knowledge flows. How can they learn if they are unwilling to share the problems and questions that occupy their attention?

This is particularly valuable as we move from a world of knowledge stocks to a world of knowledge flows. The knowledge that turns out to be most valuable in a world of accelerating change is tacit knowledge, the knowledge that is in our heads and that has not yet been expressed in the documents and texts that Google can so effortlessly help us find. In fact, we have a very difficult time articulating tacit knowledge. If we try to express this tacit knowledge we are likely to stumble and fumble as we struggle to find the right words. We risk making mistakes and embarrassing ourselves.

As a result, tacit knowledge is remarkably sticky, in the words of my colleague and friend, John Seely Brown. It does not flow readily. In fact, one of the most powerful ways to access tacit knowledge is in the context of trust-based relationships.  If we really trust someone else, we are much more likely to take the risks involved in sharing tacit knowledge. So, trust builds advantage by providing privileged access to tacit knowledge. But first we have to be willing to share vulnerability. JSB emphasizes that tacit knowledge flows when there is shared practice. There are many reasons for this, but certainly one of them is that shared practice builds trust – you can quickly see each other’s strengths and vulnerabilities in action.

The shift from masculine archetype to feminine archetype

What is another implication of exploring the trust paradox? Success in the future will involve scaling back the masculine archetype and giving the feminine archetype more prominence, something that I discussed in a previous post.

The masculine archetype is all about projecting strength and not sharing weakness. Machismo is the epitome of the masculine archetype.  In contrast, the feminine archetype expresses vulnerability much more readily. As I have suggested before, the future belongs to the feminine archetype as we move from a world of knowledge stocks to knowledge flows.

Making it personal 

OK, so I can hear you asking, does John practice what he preaches?  Does he express his vulnerabilities? Now, that’s a great question.

In truth, I try but I am not yet very good at it.  Like most males, I learned early on that vulnerability means weakness, that it creates risk and that it is dangerous. On top of that, I developed an intense shyness as a child that made it very difficult for me to connect with others on a personal level, much less share vulnerabilities. Painful experiences in my childhood also made it very difficult for me to express my emotions, even to myself.  I retreated into the world of books and ideas, consumed in intellectual pursuits that allowed me to escape feelings that represented danger. I connected with people through ideas, preferably through reading and writing.

Over time, I began to recognize the limitations in engaging with the world in this way. I began a concerted effort to change, often stumbling along the way. My evolving passion provided an early catalyst for connection – I felt a need to reach out and connect with people in order to pursue my passion.

Because of my passion, I instinctively share the problems and questions that consume me. When I first set up the Center for the Edge, I gave a major talk that focused on the questions that I thought were really interesting but that I could not yet answer. In recent months, I have gone around to various conferences giving a presentation that focuses on questions regarding how to redesign workplaces to accelerate talent development. I freely admit that don’t have the answer for this, but I think the questions are hugely interesting and engaging. I am reaching out to try to connect with others who share my fascination with this question.

On a personal level, one of the most interesting exercises that I did was to try to craft a “25 Random Things” note on Facebook that focused not on ideas and concepts, but sharing much more personal things, including some of my vulnerabilities. The response was amazing. Rather than creating risk, it created amazing opportunity, connecting me to people in ways that I never would have imagined possible. In particular, I found that I built trust with people much more broadly and rapidly.  It encouraged me to make more effort to share, a path that I am still traveling, nourished by the response that I am receiving along the way.

What are your vulnerabilities? What are the problems and questions that you are working on that you have not yet resolved? How active have you been in expressing these to others? Can you really build trust without this?

The Pull of Narrative – In Search of Persistent Context

We live in a world of ever more change and choice, a world where we have far more opportunity than ever to achieve our potential. That kind of world is enormously exciting, and full of options. But it is also highly disorienting, threatening to overwhelm us with sensory and mental overload. 

In that kind of world, the ability to provide persistent context becomes paradoxically ever more valuable. Persistent context helps to orient us and connect us in ways that can accelerate our efforts to achieve our potential.

Content versus context

In our digital world, content providers progressively chunk up their offerings to provide more choice and easier access. Music is now available by the track rather than packaged onto a CD. Sure, we will continue to watch movies and TV programs on our digital devices, but increasingly we consume video in bite-sized chunks – the preferred length of a YouTube video is 2 – 5 minutes.  As for text, it has been progressively deconstructed from books to articles to blog postings to 140 character tweets.

As this occurs, value moves from content to context.  In the old days, context came in various forms.  It came in the package that delivered the content (you often could judge a book by its cover) or, even more broadly, it came from the stable surroundings that produced the content.  We had familiarity with the institutions and societies that generated the content.  As our world fragments and changes ever more rapidly, we find that context cannot be taken for granted – it must be defined.

We have already seen a growing emphasis on experience as an important element of context. Stories have become increasingly important to provide even broader context.  We are now on the cusp of a revival of narrative as an even more valuable context.

The context trajectory – from experiences to stories to narratives

What is the context trajectory here? Experience is content specific and static – it generally ends when the interaction with the content ends.  Stories add a more dynamic element – they position specific content within a flow of events but these events typically have a beginning, middle and end. Stories unfold over a defined period of time.

Stories and narratives are often used interchangeably, as synonyms.  But here I will draw a crucial distinction between the two.  Narratives, at least in the way I will be using them, are stories that do not end – they persist indefinitely. They invite, even demand, action by participants and they reach out to embrace as many participants as possible. They are continuously unfolding, being shaped and filled in by the participants.  In this way, they amplify the dynamic component of stories, both in terms of time and scope of participation. Stories are about plots and action while narratives are about people and potential.

Examples of narratives

What are some examples of narratives?  Religion is full of narrative.  Take the Christian narrative: people are born in sin but have an opportunity for redemption through a Savior.  All of us are part of the narrative and it is open ended – how it turns out depends on our choices and actions and it continually unfolds as new people are born every day.

The growth of the United States critically hinged on a compelling narrative that we have a Manifest Destiny as fugitives from oppression to deliver freedom to the rest of the world (I didn’t say narratives had to be true, only that they have to engage the imaginations and actions of participants).  As long as oppression exists in the world, this narrative mobilizes us to act and the future awaits to be defined.

Narratives are versatile.  Many different stories can nest within a broader narrative – witness the many stories in the Bible and religious texts that help to illustrate and support the broader narrative.  In an even more fine-grained way, experiences can be designed and used to support narratives as well.  Anyone who has attended a Catholic mass can appreciate the way that experiences help to draw people into and reinforce the power of broader narratives.

The role that narratives play

Narratives provide stability and continuity in our lives. Narratives help to orient us.  When confronted with a growing barrage of demands on our attention, narratives help us to filter, select and prioritize what should receive our attention.

In fact, narratives motivate action by helping to make sense of the world around us.  They can diminish our perception of risk while at the same time increasing our perception of rewards.  Thus, by making sense, narratives also help us to make progress.  By inviting people to take initiative, narratives encourage people to lead. Narratives have the potential to profoundly shape the future. 

Narratives also help participants construct meaning, purpose and identity for themselves.  They help to situate participants in a broader context and to build relationships across participants.

At their most profound level, narratives help to ignite and nurture passion within us.  They help us to imagine new possibilities, develop confidence that we can act to create those possibilities and motivate us to overcome any obstacles that we face in achieving those possibilities.

The need for new narratives

Narratives became deeply suspect in the post-modernist world, where eternal truths gave way to texts that needed to be situated and then deconstructed. Deconstruction and fragmentation reigned supreme.

Now we must pick up the pieces and re-assemble them into new and more compelling narratives. As human beings, we resist atomization and fragmentation; we yearn to connect and build on the efforts of others.  We also seek meaning, purpose and identity on an individual level – something that narratives, and little else, are exquisitely designed to provide.

This human need helps to explain the resurgence of fundamentalist movements around the world as well as the continuing appeal of nationalism.  Without new narratives, we will fall back onto older narratives that help us to make sense of the increasing confusing world around us and provide a compass to guide our actions.

We desperately need new narratives that will provide alternatives to the older, more confining narratives.  These new narratives must embrace the fragmentation and change that give us more choice and options while helping to orient us and calling us to more fully realize the potential that we all have.

While narratives can help to orient and provide meaning, they also can blind us to alternative ways of viewing the world around us.  What we need are narratives of explorers, rather than narratives of true believers.  The narratives of explorers emphasize the opportunity to learn and grow by constantly framing new questions and embarking on quests to gain new insight through action. They focus on the possibilities to be discovered rather than the certainties to be recovered.

In constructing new narratives, we have many choices.  Narratives can serve as unifiers (US national narrative) or as dividers (Marxist narrative).  I suspect we need a narrative somewhere in the middle – one that celebrates our diversity but highlights the opportunity to create remarkable things by focusing this diversity on common goals.  There are threat based narratives and opportunity based narratives; if we want to achieve our potential, we are better served by opportunity based narratives.  Similarly, there are tragic narratives and heroic narratives – heroic narratives draw out the best in all of us. 

Joseph Campbell identified the hero’s journey as the core foundation of the mythology that helped orient people in civilizations around the world. While the hero’s journey can be read as an elitist, even paternalist, narrative, perhaps we have an opportunity to reframe that narrative as one where we all have the opportunity to participate as heroes, subject to the same challenges and distractions as the heroes of the past but also having the same potential to improve the world. Rather than waiting for, and looking up to, the heroes who will bring us salvation, we can begin to look within and find the hero in all of us.

Different levels of narratives

Narratives can be framed at the individual, institutional and society levels.  Many of us are embracing the possibilities created by the Big Shift and we are framing new narratives for ourselves at the individual level.  The problem is that most of our institutions have abandoned narratives and instead focus on short-term performance.  Our Shift Index and the revelation of steadily deteriorating ROA suggest that this approach is fundamentally flawed.  The deteriorating trust in all of our institutions, both commercial and governmental, is another indication that the absence of compelling institutional narratives undermines our ability to build long-term trust based relationships with our institutions.

This is an extraordinary white space that is becoming ever more valuable as the fragmentation of content continues and the pace of change accelerates.  The institutions that recognize this opportunity and move quickly to fill this vacuum will create enormous value and play a significant role in shaping our future.

But here’s the catch.  Narratives cannot be crafted by PR departments.  They emerge out of, and are sustained by, daily practice. They require taking a long-term view of trajectories that extend well beyond the individual institution. They also need to penetrate beneath the surface events that occupy our daily newspaper headlines to tap into the deep forces that are shaping these surface events. Our existing institutional leaders are generally poorly equipped to take on this opportunity.

The narrative opportunity is not just at the institutional level.  It is even more significant at the level of society.  As we become more and more fragmented and polarized, we need a compelling narrative that will help to focus our collective initiatives beyond any single institution.  To have real power, it must be a far-reaching narrative, one that helps to stimulate, explain and focus all of the initiatives within society.

The technological foundation of narratives

On the positive side, the tools required to take on this task are becoming more and more powerful and ubiquitous.  Think of all the great narratives of the past – their penetration of the society ultimately depended on their ability to transcend the confines of any individual medium.  Yes, Christians had their bible as a core text, but they quickly moved into sermons, music, theater and video to evangelize the message.  Look at the most successful evangelical preachers today and you will discover some of the most sophisticated transmedia platforms available.  They have even discovered the power of small, local gatherings of believers to co-create the narrative. Our digerati talk in glowing terms about the emerging power of transmedia but its full power will not be harnessed until appropriate narratives emerge.

Digital technology provides all of us the ability to define and communicate narratives in rich and textured ways.  Video and audio tools and platforms supplement conventional text-based forms of communication, and put them in the hands of everyone. Of course, the democratization of communication poses its own challenges.  While it helps us to frame and communicate our own personal and institutional narratives, it makes it more challenging to frame social narratives that can unite rather than fragment us as we seek to learn faster by working together.

So, we increasingly have affordable and ubiquitous tools to help us communicate and enrich engaging narratives. We now need a new generation of leaders to put these tools to good use.

The bottom line

The role of a narrative is ultimately to attract, engage, motivate and call people to more fully achieve their potential.  Narratives represent a powerful pull mechanism that can shape the world around us.

Who will craft these broader social narratives?  Who even understands the need and power of a new set of social narratives? What would such social narratives look like?

Anticipating the Next Wave of Experience Design

We live in a world defined by increasing time pressure and more and more things competing for our attention. In such a frenetic world, it is understandable that we place more value on the quality of our experience. We want to make the most of the time we have.

Experience design has emerged in part as a response to this growing need we all have.  It is no longer enough to design products and services so that they have aesthetic appeal and perform well.  We demand a more satisfying broader experience when interacting with these products and services so that we more effectively pull out the true potential of these products and services.

The next wave

But this is just the beginning.  We are on the cusp of another major shift in the focus of experience design, one that moves far beyond the impact of individual products and services. What if, instead of pulling out the full potential of our products and services, we focused instead on pulling out the full potential of ourselves? What if we could apply the tools and principles of experience design to help each of us to more effectively drive more rapid waves of learning and performance improvement by working together?  What if those experiences were not only helpful to us, but also provided a deeply engaging and pleasurable experience? What if these experiences became deeper and more powerful as more and more participants engaged with us? What would those experiences look like?

What benefits would accrue to those who could offer such experiences? They would surely attract sustained attention and interaction with more people. These experiences would likely earn a degree of trust and loyalty from participants that would far exceed more narrowly entertaining or useful experiences.  The providers of these experiences would likely enjoy significant and sustained benefits in the intensifying competition for attention.

From diminishing returns to increasing returns

What is the full potential here? By taking experience design to the next level, we may for the first time have the opportunity to shift diminishing returns performance curves into increasing returns performance curves.

What does this mean? Think of the well-known experience curve, developed and popularized by Boston Consulting Group.  Over the years, they have demonstrated that it applies to an awesome array of industries, ranging from semiconductors to Japanese beer and toilet paper.  It is a remarkably accurate description of operating performance improvement in many industries.  But it is a diminishing returns curve – the more experience an industry accumulates, the longer and harder people have to work to get the next increment of performance improvement.  Perhaps this helps to explain the increasing stress most of us are experiencing.

What if there were an alternative? What if we could turn this diminishing returns curve on its side and unleash an increasing returns curve, one where the more people who join in, the faster everyone would learn? What would that require?

Well, for one thing, it would require a major shift in our beliefs and practices – a key dimension of what we call the Big Shift – and a corresponding shift in design focus.

Shifting from knowledge stocks to knowledge flows

To begin with, we would need to shift our beliefs about what is required to create economic value. Our large companies were built on the belief that the source of economic value resided in knowledge stocks – creating proprietary knowledge, aggressively protecting that knowledge from access by anyone else and then as efficiently as possible, extracting economic value from that knowledge and delivering it to the marketplace for as long as possible.  As we plunge into an era when knowledge stocks depreciate in value at an accelerating rate, we need to shift our focus to knowledge flows.  Increasingly, the source of economic value resides in effective participation in a larger, richer and more diverse set of knowledge flows to refresh knowledge stocks at an accelerating rate. (See The Power of Pull for a more detailed discussion of this shift.)

The design challenge becomes how to design experiences that maximize flow. In this context, the constructal design theories of Adrian Bejan and Sylvie Lorente may be particularly relevant.  They have build a design perspective based on a “constructal law” that they have observed in action across physical, biological and social systems.  In order to survive, all of these systems must evolve to provide greater and greater access to the currents that flow through it.  Whether we are talking about river basins, trees, lung design or our cities, it turns out they all obey this constructal law.  The systems that survive and thrive are those that evolve most rapidly and effectively to enhance flows.

These constructal design theories have profound implications.  Designing for flows becomes the core of system design.  The emphasis also shifts from design of static systems to design of evolving systems. Rather than optimizing for the present, the challenge becomes designing in ways that accelerate evolution.

What would it mean to design the systems we live and work in to continually evolve our ability to experience more and more flow, especially the flow of people and ideas? Aerotropolis, an intriguing new book by John Kasarda and Greg Lindsay, suggests that increasingly our cities will be designed around massive airport facilities that help to maximize the flow of people from city to city and reduce the risk of cities turning inward as they grow in scale.

Shifting from push to pull

There’s a second shift that will shape this next wave of experience design.  We are moving from a world of push to a world of pull, another theme developed more fully in The Power of Pull. In thinking about the implications for experience design, it is important to differentiate three levels of pull:

• Access – seeking out and connecting with people and resources when and where needed – think of Google and other search engines

• Attract – shaping serendipity to increase the quantity and quality of unexpected encounters, drawing people and resources to you that you were not even aware existed but that turn out to be extraordinarily relevant and helpful.  In this context, what are serendipity rich experience designs?

• Achieve – pulling out of each of us and out of our institutions our full potential  - how would we design experiences that enhance this?

Across all three levels of pull, the key question is how to design scalable pull experiences - not just experiences with a few close friends or co-workers, but with a growing number of participants on a global scale.

I confess that I don’t have the answers to these questions. I don’t think anyone does at this point.  I am hoping to intrigue and tease enough of you with the opportunity that you will come up with the answers to these questions.

While I don’t have the answers, I can frame some of the questions that need to be answered. In particular, I want to highlight two dimensions of the challenge – platforms and pathways

• What are platform designs that would accelerate scalable peer to peer learning?
• How can we design pathways that will help us get pragmatically from a world of push to a world of scalable peer to peer learning?

 

Platform design – the first design challenge

We all know that teams become incredibly rich environments for accelerated peer to peer learning and there has been some attention to how to more effectively design team environment. This is particularly important because the most valuable knowledge flows involve tacit knowledge. Yet, tacit knowledge does not really flow – it is, in the words of my colleague, John Seely Brown, remarkably sticky. However, tacit knowledge can be accessed in the context of deep trust based relationships that often emerge in team settings.

But here’s the challenge – teams don’t scale. So, how do we embed teams in increasingly rich platforms that will scale by encouraging the formation of  more and more teams. How do we then motivate and help these teams to connect with and learn from each other? What would these platforms look like?

For inspiration, we might look at some unlikely places

• World of Warcraft – this online gaming environment now engages 12 million participants. Most of these participants are organized into high performing teams (known as guilds), yet the participants stay richly connected with others outside their teams through rich networks of discussion forums, video repositories and social relationships that transcend individual teams

• Extreme sports like big wave surfing –These sports are characterized by intense engagement with local physical environments – for example, specific surf breaks are where big wave surfing practices evolve. While these physical environments serve as gathering spots for a limited number of practitioners, scalability of learning is achieved through rich virtual networks that help participants to learn from each other, regardless of where they are physically. Again, broader learning platforms leverage discussion forums, video repositories and extended social networks to create global reach.

Designing pragmatic pathways – the second design challenge

Scalable platforms are the ultimate goal, but the key is how to start small, designing relatively narrow experiences that can scale over time to include much richer and much broader interactions. I have written a lot about the SAP Developer Network (SDN) as an interesting platform for scalable peer to peer learning. Equally important are the lessons for designing a pathway that is pragmatic and provides short-term value while also building the foundations for much more powerful long-term learning and performance improvement.

Follow a trajectory. First, the SDN started relatively modestly as an online environment focusing on simple problem solving transactions – software developers could post a coding problem they were wrestling with and see if anyone else had encountered a similar problem and had a possible solution to offer. On both sides limited investment of time and effort was required but positive reinforcement was quickly achieved. As problem-solvers started to build reputation, others with similar interests in the SDN began to seek them out and the discussions that ensued started to build sustaining, trust-based relationships. Ultimately, these trust-based relationships led to the formation of global teams of software developers seeking to develop entirely new applications. This trajectory – from narrow transactions to reputation and relationships and ultimately to sustained, long-term performance improvement initiatives – defines a pathway that many collaborative learning platforms have traveled.

Iterate rapidly. Second, the SDN started with a relatively modest platform with limited functionality and evolved through rapid iteration of design, based on careful observation of how participants used the platform and where the opportunities for enhancement seemed most promising.

Stay on the edge. Third, the SDN started on the edge of a very large enterprise, initially focusing on reaching out to and connecting third party software developers operating in SAP’s channel partners and customers.  Over time, it pulled in more and more of SAP’s own developers and employees. The early introduction of new experience platforms often works best on the edge of larger institutions where practices, processes and policies are less well defined and there is more motivation to experiment with new approaches.

Focus on performance improvement. Fourth, the pathway pursued by SDN was carefully shaped by explicit performance metrics. This enabled the designers to regularly assess their progress and learn from the experiences they had created.  The key questions here are: what are people trying to get better at?  How would one measure this in terms of performance improvement as a proxy for learning? What would be leading indicators to determine whether this performance improvement is likely to materialize?

The bottom line

If we get these platforms and pathways right, we have a significant opportunity ahead. But it isn’t just an opportunity – it is an imperative.  We live in a world of mounting economic pressure – pressure that our current institutions are simply not prepared to address. This is graphically confirmed by the sustained deterioration in return on assets that all public companies in the US have experienced since 1965. We are running faster and faster but, unlike the Red Queen, we are not simply staying in the same place – we are falling farther and farther behind.  In the face of this increasing economic pressure, we simply don’t have a choice. The experience designers who master the techniques required to address this growing challenge will be richly rewarded.

But I want to end by focusing on the real opportunity. I began this post by suggesting the opportunity to unleash increasing returns. When we take on this design challenge and crack the very difficult problems it raises for designers, we will find ourselves on the edge of a whole new wave of design activity.

As we begin to see the potential, we might be motivated to take on an even greater challenge.  Rather than focusing on sustainability, we might pursue “thrivability” as described by my friend Jean Russell – how do we generate more and more sustainable prosperity from the limited natural resources that our planet has been endowed with?  It’s not just our business that depends on this; it is our planet.

(This posting is an adaptation of a talk that I gave at the MX Conference hosted by Adaptive Path in San Francisco on March 6-7, 2011)