Edge Perspectives with John Hagel

Jane Jacobs and Cities

Jane Jacobs, one of the last great public intellectuals, passed away earlier this week at the age of 89.  Jacobs was an extraordinarily insightful writer who anticipated many of the themes that have become foundations for contemporary social analysis – complex adaptive systems, emergence, social capital and social networks, just to name a few. 

Martin Wolf and Jeff Pruzan in their obituary on Jacobs in the Financial Times capture her power:

A genius – no other word will do – she had the defining quality of any brilliant intellect: the ability to look at the world in a fresh way.  She had the knack of asking illuminating questions and coming up with perceptive, original, compelling and above all correct, answers. Despite her lack of formal training she educated even Nobel prize-winning economists.

But she had more than insight – she had passion. She fought for what she believed in, including getting arrested in demonstrations against urban renewal and the draft and emigrating from the country she loved to help her sons avoid the draft during the Vietnam War.

Jane Jacobs loved cities, a passion that I have expressed here, here and here. Much of her writing – especially the triad of her books, The Death and Life of Great American Cities (1961), The Economy of Cities (1969) and Cities and the Wealth of Nations (1984) – compellingly describes why cities are so important. Her first book explores the dynamics that shape city life and make it so rich, as well as providing a devastating critique of urban planners that seek to impose conceptions of order and, in the process, smother the very elements that make cities so vibrant. In the words of Sandy Ikeda, she seeks to explain “how cities full of strangers manage to achieve the high level of social cooperation needed to consistently generate their own economic growth.”

Her second book challenged the conventional view that the development of cities depended on agriculture and instead argued that the development of agriculture depended upon cities.  In Cities and the Wealth of Nations, Jacobs argued that macroeconomics had focused on the wrong unit of analysis – the source of wealth was not nations, but cities. In fact, as the New York Times in their obituary of Jacobs summarized the theme of her book:  “She contended that national governments undermine the economy of cities, which she sees as the natural engines of economic growth.”

Nathan Torkington in his posting about Jacobs’ passing points to a interesting overview of Jacobs’ writing about cities. A broader view of her life and writing is available here.

As you read Jane Jacobs, you begin to appreciate that her love of cities stems from an even deeper love, a love of people.  Cities are so important for Jacobs because she views cities as powerful environments enabling people to realize their fullest potential.

I have often been asked how I can reconcile my love of cities with my view that most interesting things happen at the edge.  After all, aren’t cities at the core and edges out in the rural areas?  Well, that view ignores the real power of cities as outlined by Jacobs – edges of all kinds proliferate and converge in cities.  The diversity of populations and activities and the concentration of people combine to generate enormous productive friction.

That productive friction can be either amplified or dampened by how we develop our cities.  Jacobs is a powerful proponent of spontaneous order in cities and deeply insightful about the interplay between urban design and social interaction. Her work was in part the inspiration for the notion of performance fabrics that JSB and I develop in The Only Sustainable Edge.  Performance fabrics support and amplify extended relationships by weaving together both technology architectures (or, in the case of Jacobs, urban architecture) and techniques for building shared meaning and trust.

In our terms, Jacobs was describing the performance fabrics that give cities their power as centers of innovation and economic growth. To quote Sandy Ikeda again:

One of Jacobs’s principal contributions to our understanding of cities as spontaneous orders is her insight that safety and ultimately trust depends to a surprisingly high degree on the structure and location of public spaces and that the relations that emerge spontaneously from a secure foundation of trust support essentially self-ordering processes of discovery and economic growth. . .  A great city is a spontaneous order par excellence: a self-ordering, self-regulating, and self-sustaining phenomenon, the overall characteristics of which evolve over time without the need for deliberate human design.

Her work on cities was – and remains – path-breaking, but Jacobs also wrote a wonderful book, Systems of Survival (1994), which powerfully contrasts the tension between “commercial syndrome” and the “guardian syndrome” – two moral systems that shape the evolution of societies (and cities).

And, of course, we shouldn’t forget her other great work, The Nature of Economies (2000), which made the case for looking at economies as complex ecosystems.

Jane Jacobs never graduated from college, but she has had a profound impact on intellectual inquiry in many domains.  As one example, her work influenced the thinking of University of Chicago economist Robert Lucas in the area of human capital – an area of inquiry that won him the Nobel Prize in 1995. Steven Berlin Johnson credits Jane Jacobs with crystallizing his thinking about the potential connection between complexity theory and the organization of cities, leading ultimately to the publication of his book on Emergence.

Jane Jacobs traveled with ease across many intellectual borders – her work remains impossible to pigeon-hole into the disciplinary boundaries that narrow, and often impoverish, intellectual inquiry today.  Her work also transcends conventional political boundaries.  In a world that is increasingly polarized and paralyzed politically, it is remarkable that tributes upon her passing are emerging from all points of the political spectrum. It is also impressive that the blogosphere has erupted with so much commentary – Technorati shows more than 800 posts in the past 48 hours alone.  It appears that Jane Jacobs also has had a significant impact across several generations.

Active almost to the end, Jacobs indicated she still wanted to write two more books – A Short Biography of the Human Race and Uncovering the Economy.  One can only imagine what ground she might have covered in these works – we will all be much poorer with the loss of this independent and original mind.

SOA Versus Web 2.0?

At the end of last year, I posted on the relevance of Web 2.0 technologies for the enterprise. Over the past couple of months, this theme has received a lot more attention, prompted in large part by the writings of Dion Hinchcliffe and by the discussions at two industry gatherings – SPARK/MIX 06 and Software 2006. (For those who have not been following my blog, I attempted my own definition of Web 2.0 here.)

Some of Dion's key postings on this topic are "Running a business on Web-based software", "Web 2.0 for the enterprise: Where the action is?"  and "Web 2.0 for the enterprise?". For discussion of the SPARK/MIX 06 event, see Dion Hinchcliffe here and here, David Hill, Dan Farber, and Phil Wainewright here and here. Also, one of the highlights of the MIX 06 event was an exchange between Bill Gates and Tim O'Reilly and the transcript is available here. For commentary on Software 2006 and the Software 2006 Industry Report prepared by McKinsey & Co. and the Sand Hill Group, see Dion Hinchcliffe, Dan Farber and Ross Mayfield here, here and here.

The discussions in these forums raise one key issue: what is the relationship between Web 2.0 and Service Oriented Architectures (SOA)?  Dion in particular has been wrestling with this topic, including his postings on "The SOA with reach: Web Oriented Architecture",  "Web 2.0 The Global SOA" and "Is Web 2.0 the GLOBAL SOA?"

As I indicated in my previous posting, a cultural chasm separates these two technology communities, despite the fact that they both rely heavily on the same foundational standard - XML. The evangelists for SOA tend to dismiss Web 2.0 technologies as light-weight “toys” not suitable for the “real” work of enterprises.  The champions of Web 2.0 technologies, on the other hand, make fun of the “bloated” standards and architectural drawings generated by enterprise architects, skeptically asking whether SOAs will ever do real work.

This cultural gap is highly dysfunctional and IMHO precludes extraordinary opportunities to harness the potential of these two complementary technology sets. Perhaps because of this cultural gap, we lack a crisp articulation of the relative merits of these two technology sets for the enterprise.

We can make a lot of progress by looking at two key tasks addressed by these technologies: connection and composition.  In the early days of Web services (the early standards that became the precursor to both Web 2.0 and SOAs), evangelists painted exciting visions describing the opportunity for enterprises to dynamically compose exciting new applications from modular services.  In practice, though, the early production deployments of Web services within the enterprise have focused on a much more prosaic task: connecting large, unwieldy legacy applications together so that businesses can get more value from the data and application functionality already in place.

Connection of resources

When you talk to SOA proponents today, you will hear a lot about connecting applications and databases, but not a lot about connecting people together and helping to support their interactions with each other.  In contrast, Web 2.0 advocates put a lot more emphasis on the opportunity to connect people together and to support their collaborative efforts.  Web 2.0 certainly also addresses issues of connecting applications and data, but Web 2.0 is distinctive in the social dimension that it explicitly addresses.

The next wave of innovation by enterprises will depend on the ability to connect people together more effectively, especially at the edge of enterprises, and provide them with tools to support collaborative creation.  In this context, Web 2.0 technologies like wikis will play a key role in driving value creation in the enterprise.  As Dion Hinchcliffe has written, the architects and software engineers that dominate enterprise IT departments disconnect in discussions of Web 2.0 technologies because of the strong social aspect addressed by these technologies. SOA proponents ignore these technologies at their peril.

Andrew McAfee has just published “Enterprise 2.0: The Dawn of Emergent Collaboration” (purchase required) in Sloan Management Review highlighting the role of Web 2.0 technologies in connecting people within the enterprise.  It focuses on the potential role of Web 2.0 technologies in knowledge management:

Enterprise 2.0 technologies have the potential to let an intranet become what an Internet already is: an online platform with a constantly changing structure built by distributed, autonomous and largely self-interested peers.  On this platform, authoring creates content; links and tags knit it together; and search, extensions, tags and signals make emergent structures and patterns in the content visible, and help people stay on top of it all.

It’s a great article, but it focuses too much on knowledge capture and not enough on the use of these tools for collaborative knowledge creation. Focusing these tools on knowledge creation is likely to be the way that these tools overcome the skepticism expressed by Nick Carr. For those interested, McAfee responds to Carr at his blog and he has also developed a Harvard Business School case study on Wikis at Dresdner Kleinwort Wasserstein.

Composition of platforms

Both Web 2.0 and SOA technologies re-conceive software as services. Perhaps even more importantly, they view services as platforms.  Rather than viewing services as standalone offers designed to be consumed exactly as written, both sets of technologies start with the vision that the role of any service is ultimately to become the building block for even more services that will be built on top of the original service.

Amazon provides an early, and very limited, example of this opportunity.  By developing an affiliate program and offering a book buying service that can be embedded into other web sites, Amazon has been able to significantly expand its reach and create a much more robust platform for driving e-commerce activity.

Both sets of technologies share the same vision, but they are deeply skeptical of each other in terms of the approach used to accomplish this vision. Web 2.0 champions dismiss SOAs as much too rigid and slow moving in terms of building platforms for cumulative creation. Here’s the irony. SOAs initially generated significant interest within the enterprise because they appeared to offer a much more flexible and rapid way to build new application functionality relative to traditional enterprise application architectures.

What happened?  SOAs were hijacked by an alliance of CIOs and IT consulting firms, each with their own reason for extending the effort required to deploy SOAs.

CIOs have become more and more risk averse for a variety of reasons. As a result, they are very nervous about the deployment of new technologies within the enterprise (and even more so across enterprises).  Their natural instinct is to resist the rapid deployment of new technologies that might disrupt operations in unforeseen ways.

Many IT consulting firms, on the other hand, are economically dependent on projects that require a lot of consultants to work with clients for extended periods of time. As a result, they have a natural incentive to emphasize the complexity and issues associated with SOA definition and deployment.

The growing appeal of Web 2.0 technologies in part stems from this hijacking of SOAs.  Line executives within the enterprise are experiencing mounting frustration over the escalating hype around SOAs, the growing spending over SOA design initiatives and the relatively limited business impact achieved by SOA deployments.  In contrast, Web 2.0 initiatives are leading to a proliferation of mashups (one form of composition), as described by Dion Hinchcliffe in "The Web 2.0 Mashup Ecosystem Ramps Up" and "Some Predictions for the Coming 'Mashosphere' "

Breaking the logjam

What is required to break this SOA logjam?  Two things.  First, Web 2.0 technologists need to work on connecting directly with line executives of large enterprises without trying to go through the IT departments. Second, they should avoid the temptation to present grand visions of new architectures and concentrate instead on starting points where these technologies can deliver near-term business impact. (This should not be too hard since by nature Web 2.0 technologists are bootstrappers and hackers.)

Adoption will be guaranteed if they can show that tangible savings can be generated in a six to twelve month period with modest investment.  When they engage these line executives, they should focus on the distinctive value of connecting people and deploying service platforms that support rapid incremental composition of new application functionality. To make these discussions tangible, they can point to the growing array of Web 2.0 software that is usable by the enterprise (see the list compiled by Jeff Nolan at SAP, with a hat tip to Dion Hinchcliffe).

Does this mean SOAs are DOA? Not at all.  SOAs still provide a valuable foundation to support the sustained relationships required for distributed creation.  But these SOAs need to be deployed in a much more incremental and pragmatic way.  Perhaps a little competition from Web 2.0 technologies will help to break the logjam and force both IT departments and IT consultants to adapt their culture and operations to growing business pressure for accelerated impact and learning.

As JSB and I discuss in much more detail in The Only Sustainable Edge, the convergence of SOAs, virtualization architectures and Web 2.0 social software will drive the next wave of value creation within and across enterprises.  The convergence will not unfold smoothly, as much of the current debate confirms, but it will take place - there is too much at stake and each of these technology arenas offers something distinctive in supporting next generation business platforms.

ABC and the Future of Media

There’s been some debate online in the past few days regarding ABC’s announcement that it will make some of its key programs (including Lost and Desperate Housewives, two of my favorites) available on the Internet for free. Fred Wilson and Jeff Jarvis celebrate this as major news, indicating that at least one major media company finally understands what the future of media is about.  Umair Haque jumps in on the other side, arguing that “Disney is making exactly the wrong move.”

I find myself somewhere in the middle, although leaning much more in Umair’s direction.  I wouldn’t say this is exactly the wrong move, but Umair is on to something when he observes:

The point: unbundling media is only half the game: the value creation half. And it's exactly and totally the wrong half from a strategic point of view.

Rebundling is where value capture will happen - at communities, reconstructors, markets, networks - that direct people's attention to individualized 'casts. This is where branding will be reborn - and where advertising is already being disrupted, ripped apart, and reborn (viz, Google, PPC, pay per call, etc)

Umair draws too bright a line between value creation and value capture.  Providers of unbundled media will be able to capture some of the value or there won’t be incentives to create engaging content in the first place. But he is spot on in the belief that rebundling of media will be where the bulk of value capture occurs in the media business. It will certainly be the key to building scalable and sustainable media businesses.

That is one of the consequences of the growing relative scarcity of attention – anyone who can help audiences connect with the most relevant and engaging content will be richly rewarded.

Umair is also correct that branding will be re-born in the process.  Branding in the traditional media business still remains largely with the talent rather than the intermediary.  Few people go to a movie because of the studio that produced it, watch a TV show because of the network that broadcast it, buy a CD because of the music company that produced it or read a book because of the publisher that issued it. Magazines and radio are partial exceptions that prove the rule – it is not accidental that these are the two traditional media businesses with the most “micro-chunked” content.

As content proliferates, this is going to change profoundly.  The most powerful brands in the media business will be held by successful intermediaries that help to consistently improve return on attention for audiences. In the process, the nature of the brand promise will change in a profound way.  It will be a massive opportunity for media companies that understand the shift in economic and competitive dynamics and that focus on the rebundling plays required to build these brands.

There’s another way to frame the strategic opportunity/challenge for media businesses going forward.  In addition to unbundling and rebundling of content, media companies face a choice: do they want to remain product businesses or do they want to become audience relationship businesses? (I developed the distinction between these two types of businesses more fully in a broader article that I wrote for Harvard Business Review on “Unbundling the Corporation” – unfortunately only available online for purchase.)

Of course, media companies have elements of both embedded in their companies today, but their hearts and minds are firmly in the product business.  Here’s the test:  how open is the media company to providing access to third party content on behalf of their audiences?  If the answer is not very open, the company is primarily a product business.  If the answer is very open, then the company is primarily an audience relationship business.

Let’s look at ABC’s website in this context. You would have to look long and hard to find anyone else’s content on this website – it is all about ABC programs. This is not a walled garden, it is a vacuum sealed bubble where third party content is treated like a virus to be exterminated. To its credit, ABC does sponsor message boards where audience members can contribute their views, but how are the message boards organized?  You guessed it, the message boards are organized around ABC programs.  It is all about the product. Anything else is irrelevant.

Now, there is nothing wrong with remaining a product business in the media industry.  If you come up with compelling and engaging products (content), you will still own a profitable business. You may even attract a loyal audience. But the challenge will be to build a scalable and sustainable business.  In a world of intensifying competition and proliferating options, that is going to get harder and harder. In most cases, audience "loyalty" is only as good as the most recent product issued.

In contrast, audience relationship businesses take these proliferating content options as an opportunity, rather than a challenge.  The more options there are, the more value that can be created by organizing, packaging, presenting and adding to these options for specific audiences. It’s a completely different mindset, skill set, culture and economics.

Media companies that want to make the transition from a product business to an audience relationship business don’t have to do this overnight.  There is a pragmatic migration path that evolves from product mindsets to platform mindsets and then eventually leads to a full blown audience relationship mindset.  I  wrote ever so briefly about the transition from product to platform in the media business before, but a fuller discussion of this transition will unfortunately have to wait for a future posting.

So, where does this leave us with ABC and its decision to offer hit programs on the web for free?  It is an important break with traditional media company practices. It will have lots of potentially painful implications in areas like syndication and network/station relationships. It therefore suggests significant courage. It also indicates a realization that survival in the media business hinges on making content more easily accessible.

But it also reveals that ABC is still firmly in the product business. The move does not suggest that ABC recognizes that the path to scalable and sustainable media businesses in the future depends on the transition to an audience relationship business. It certainly does not suggest that ABC “gets the future of media.”

Joga.com and the Return of Community

There’s no doubt about it – community is back, big time.  My personal barometer for this is the number of phone calls I am getting from senior executives of large enterprises where they start out by saying, “remember that book, Net Gain, you published back in 1997?  Well, we need you to come out and talk to us about it.”

In a way, I worry about the resurgence of interest in the concept of virtual communities as commercial enterprises.  Back in the late 1990’s, when I first wrote about this opportunity, virtually every dot com business proposal pitched the “virtual community” concept.  Few of these initiatives had anything to do with virtual communities and most of the ones that did had little understanding of what it took to build a vibrant, sustainable and scalable virtual community. The backlash was predictable.

Now, I fear that history is repeating itself.  For evidence, one need only look at Joga.com, a joint initiative sponsored by Nike and Google (for more information, see the Business Week article “Nike, Google Kick Off Social-Networking Site”).  Joga.com seeks to tap into the global enthusiasm for soccer by building a virtual community so that fans can get together online and share their interest in this sport.

So far, so good.  This is clearly a huge community, there’s a major World Cup tournament coming up this year (for those who are not soccer fans, it is the FIFA World Cup 2006 event – something that happens only every four years) and the opportunities for corporate sponsors to help organize such a virtual community are clear.

But let’s look at the implementation.  Joga.com started as a closed community – you had to be invited to join. While closed communities certainly have a valid place in some contexts, the culture of soccer is inherently open. Joga.com apparently has since opened up, presumably in response to a lot of early criticism of the invitation only policy. Once you get into Joga.com, you find that it  features Nike players, again conflicting with the open and all-embracing culture of soccer. Joga.com is closed in another important sense – it is presented as an entirely self-contained environment with few if any pointers to the enormous wealth of soccer-related content that already exists on the Web.

The organizers of Joga.com were clearly influenced by the huge success of MySpace, so they provided everyone with a personal web page.  Now, for MySpace this worked well as an opening gambit because the early participants were independent bands that got to showcase their music on these web pages and this in turn attracted their fans.  Soccer is different – this is about getting fans involved from the outset and sharing their enthusiasm with each other.  Personal web pages isolate and fragment fans, at least at the outset.

Discussion boards help to build a sense of community and there are some in Joga.com, but they are not easy to find. Also, the organization of the discussion boards swings from topics that are too broad to focus discussion to topics that are too narrow and once again contribute to a sense of fragmentation and isolation, especially in the early stages of community formation.

Joga.com is  facing the challenge confronted by every virtual community – in the early days, it is pretty lonely for the first participants – there are very few others to talk to.  One of the best ways to overcome this obstacle is by providing a rich set of quality content or some provocative experts that can engage community members and precipitate discussion.  Unfortunately, despite a few Google videos and Nike ads, there isn’t much content provided by the organizers to spark or stimulate discussion. The limited content that is available is not well organized and easily findable.

On the other hand, the organizers have clearly spent a lot of time on the design of the site (Business Week reports that the site has been under development for eight months) – perhaps too much time. Especially in the absence of stimulating content, the site comes across as too commercial and cold.

This is not a promising start for a vibrant, sustainable and scalable community.  For a creative alternative that has been flying under the radar screen, check out soccerblog.com (full disclosure: one of the talents behind soccerblog.com, is Christian Sarkar, a collaborator of mine for many years and one of the few guys who really understands what it takes to build successful commercial communities online).

Steve Rubel, over at Micro Persuasion, takes another angle on the story, noting:

It’s a departure from Google’s focus on driving more customers toward search marketing. They’re not just moving into brand marketing programs, but branded communal marketing programs.”

This is certainly a significant initiative in terms of understanding Google’s broader strategic agenda.  Google clearly has aspirations to build out communities and social networks to broaden and deepen its relationships with search users (and to provide additional platforms for context specific advertising).  Its early foray with Orkut met with mixed success at best and Google Groups appears to be gaining some momentum, but this latest initiative indicates that Google will keep trying to carve out a meaningful presence in the community space.

Alex Osterwalder at Business Model Design Blog also has an interesting take on Joga as an illustration of the “Clash of the Soccer Business Ecosystems: Google/Nike vs. Yahoo/Adidas.”  Alex notes that Yahoo! and Adidas signed up as official sponsors for the FIFA World Cup 2006. In this context, the Joga initiative can be seen as an attempt by two other key players to reap the benefits of the excitement around the World Cup without paying large sums to become official sponsors of the event.  He also characterizes the Yahoo!/Adidas play as an example of Web 1.0 thinking versus the Google/Nike play as an example of Web 2.0 thinking.

On the surface, it’s an interesting analogy, but given the concerns outlined above, it is not entirely clear that Google and Nike have really embraced the open and participatory culture of Web 2.0.

Airlines and Cell Phones

Jagdish Bhagwati, one of the most prominent economists in international trade theory, recently weighed in on a topic that is near and dear to my heart.  It’s only indirectly related to international trade – it has to do with the impending approval of cell phone use on airlines.

Bhagwati wrote an op ed piece in the Financial Times last week entitled “Fight the Phone Invasion at 30,000 Feet”.  Observing that noise pollution in public spaces on the ground is spreading like bird flu, Bhagwati warns that:

The final straw in the US (followed, presumably, by everywhere else in rapid sequence) is the impending decision to allow the use of mobile phones on flights. In this way, loud passengers will be free to jabber away in a closed cabin, saying "hi" to Joey, Joel and Josie at home just for the heck of it, or conducting their business, which is no concern of yours, by public declamation.

Bhagwati is passionate and eloquent in his opposition to this new intrusion on our privacy.  Personally, I treasure my time on airplanes as one of the few occasions when I can be out of range in an increasingly connected world. It is the one place where Linda Stone’s “continuous partial attention” still has not become the dominant mode of interaction.

We are already seeing assaults on this sanctuary in terms of wireless data connections that allow us to access the Internet and e-mail while flying 30,000 feet above the ground.  I am proud that I have generally managed to resist the temptation to connect while flying.

But this extension of the connected world is far less upsetting to me.  At least I have the choice whether or not to connect.  If my seatmate chooses to connect, it makes no difference to me.

Cell phones are another thing entirely.  Even if I choose not to connect via cell phone while flying, I am still at the mercy of anyone within a three to four seat radius of me who chooses to connect.  The sanctuary walls will be irretrievably breached.

Bhagwati does not really offer any great solutions for this attack on our privacy.  My personal hope is that some airlines will decide to block cell phone usage in an effort to attract passengers from the airlines that do allow cell phone usage.  Those airlines will have my undying loyalty – I will forgive them all their other service shortfalls.  In an effort to encourage airlines to think twice before approving cell phone usage, I encourage all of you to contact the airlines you fly most often and express your opposition to this assault on our privacy.

In the meantime, if Bose were a public company, I would advise you to go long on Bose stock.  Their QuietComfort 2 noise canceling headphones will become essential travel accessories for anyone seeking respite from the growing cacophony in the air.

The Next Revolution in Interactions

Almost ten years ago, McKinsey sponsored landmark research seeking to quantify the total amount of economic activity consumed in “interactions” – the “searching, coordinating and monitoring required to exchange goods or services.”

Now, one of the authors of that original research report – James Manyika – is leading a new effort at McKinsey to push this analysis one level deeper.  “The Next Revolution in Interactions”, an article published by the McKinsey Quarterly in the fourth quarter of 2005, reports on the initial results of this new work. It is a fascinating article with important implications for business strategy and information technology investment.

James and his co-authors distinguish three forms of work:

• Transformational – “extracting raw materials or converting them into finished goods” – examples cited include “mining coal, running heavy machinery, or operating production lines”

• Transactional – “interactions that unfold in a generally rule-based manner and can thus be scripted or automated” – examples of transactional jobs include cashiers, office clerks, truck drivers and accountants

• Tacit – “more complex interactions requiring a higher level of judgment, involving ambiguity, and drawing on tacit, or experiential, knowledge” – examples of tacit-intensive jobs include retail sales people, customer service representatives, registered nurses and general managers

Broadly, the article makes the case that there has been a pronounced shift in the composition of the US labor force towards tacit work, in part driven by a shift towards a service economy accompanied by aggressive efforts to automate transactional work. The authors point out:

This shift toward tacit interactions upends everything we know about organizations . . . . the rise of the tacit workforce and the decline of the transformational and transactional ones demand new thinking about the organizations structures that could help companies make the best use of this shifting blend of talent.

The article focuses in some detail on the role of information technology in amplifying the impact of tacit labor at three levels:

• “Eliminat[ing] low-value-added transactional activities”

• “Boost[ing] the quality, speed, and scalability of the decisions employees make”

• “Extend[ing] the breadth and impact of tacit interactions” through new and emerging technology

The authors suggest that this shift in the composition of work is important from a strategic perspective as well:

For the past 30 years, companies have boosted their labor productivity by reengineering, automating, or outsourcing production and clerical jobs. But any advantage in costs or distinctiveness that companies gained in this way was usually short-lived, for their rivals adopted similar technologies and process improvements and thus quickly matched the leaders.  But advantages that companies gain by raising the productivity of their most valuable workers may well be more enduring.

They buttress this perspective with some interesting findings on performance spreads:

The performance spread between the most and least productive manufacturing companies is relatively narrow. The spread widens in transaction-based sectors—meaning that investments to improve performance in this area still make sense. But the variability of company-level performance is more than 50 percent greater in tacit-based sectors than in manufacturing-based ones. Tacit activities are now a green pasture for improvement.

In general, I agree with the analysis presented in the article.  In particular, companies in the US have focused on improving labor productivity in large part by reengineering, automating, outsourcing or offshoring transactional activities.  There are significant opportunities to build strategic advantage by developing organizational practices to improve the productivity of tacit labor.

On the other hand, the article reinforces an unfortunate bias among American managers by creating such strong distinctions across the three different categories of labor. US companies tend to look down on transformational and transactional labor, while giving much more status to tacit labor.

In practice, the boundaries across these labor categories are much less clear. Watch a really good front line production worker or truck driver at work and you will see a lot of tacit knowledge shaping performance.  In large part, American managers have created a self-fulfilling prophecy – by defining certain work as routine, they have suppressed tacit knowledge, made existing tacit knowledge invisible and discouraged the development of new tacit knowledge.

In fact, the global success of Toyota (a company briefly referenced in the article) in competing with American auto companies is due in large part to the Toyota Production System, an approach that  makes all workers problem-solvers who are continually pushing the frontier of performance. TPS hinges upon tightly integrating transformational, transactional and tacit activities in a sustained effort to drive rapid incremental improvements in performance.

More broadly, as the pace of change in global markets accelerates and uncertainty increases, the entire notion of routine, rule-based activities ought to be challenged. In the words of my colleague, JSB, companies will need to move from coercive processes to enabling processes that encourage all participants to develop and apply tacit knowledge in their daily activities.  The winning companies will be those that reconfigure their organizations to enable all activities to become tacit activities.

There’s another bias that the article indirectly reinforces.  Confronted by accelerating change, Western executives search desperately for “safe harbors”, sources of advantage that will give them some respite from growing competitive pressures.  The article suggests that productivity improvements in tacit interactions may be more difficult to copy. This may be true, but the real message is that the only sustainable edge will come from accelerating the pace of capability building, rather than relying on any specific set of innovations in tacit interactions.

Perhaps the next revolution in interactions will come from efforts to accelerate the pace of tacit knowledge building in all activities, not just within enterprises, but across enterprises as well.