I am always skeptical of ‘everything is different now’ style arguments. If we think about the history of business, we have been trying to manage in a state of turmoil going back at least to the start of the industrial revolution, possibly longer. The introduction of railways, the telegraph, electricity and the automobile were all disruptive to lifestyle and business to a degree that is at least equal to and probably greater than we are seeing with the introduction of computers and the internet.
The real issue isn’t that ‘everything is different now’ – the real issue is that people are profoundly uncomfortable with uncertainty. Authors, consultants and others seeking to push an idea take advantage of this discomfort by making sweeping ‘everything is different now’ style arguments to justify whatever it is they’re pitching. It works, but it’s not a very good way to do business.
That is not the approach taken by John Hagel III, John Seeley Brown and Lang Davison in The Power of Pull, which may well be the best business book of 2010. Hagel described some of the key points from the book at the recent Social Business Edge event organised by Stowe Boyd. The video of Hagel’s talk is worth watching (as are those by Venessa Miemis and Baratunde Thurston, among others – it looks like it was a great day!):
Hagel’s talk emphasises two points that I haven’t seen discussed much in reviews of the book. The first is the statistical review that they use to identify just what it is that has been changing in the business world. This is based on the work published in The Shift Index, a report that the authors put together for Deloitte’s Center for the Edge. They assembled statistics on all of the publicly listed firms in the US from 1965 to now. One alarming thing that they discovered is that Return on Assets has steadily declined over that time – it is now about 25% of what it was in 1965 (the figure below is taken from the report).
This is pretty good evidence that things are in fact changing, and the report also provides some evidence of how things are changing. The second point that Hagel brings out is that their belief, based on the evidence, is that this change in ROA is due in large part to a shift in emphasis from knowledge stocks to knowledge flows:
The Flow Index focuses on the key drivers of performance in a world increasingly shaped by digital infrastructure. This includes both physical and virtual flows of knowledge, capital and talent enabled by the foundational advances as well as the amplifiers of these flows. Such amplifiers include the increased use of social media and the degree of passion with which employees are engaged in their jobs.
Improving performance starts with recognizing that knowledge flows can help a company gain a competitive advantage in an age of near-constant disruption. The number and quality of knowledge flows at a firm — both within the organization and especially across institutions — will be a key indicator of any company’s ability to master the Big Shift.
This shift from knowledge stocks to knowledge flows has several critical implications for managing innovation, including:
- As Hagel says, tapping into knowledge flows is not really about engaging in conversation – it is about using these flows to create new ideas. As we have discussed many times here, a fundamental error that many organisations make when they try to become more innovative is to focus on stockpiling ideas – this is a knowledge stock approach. It is much better to focus on making novel connections between ideas – this is the knowledge flow approach.
- In other words, we need to get better ideas, not more. How? By tapping into knowledge flow through our networks. This is how Hagel and Brown describe this in an excellent paper on creation networks (.pdf), which tries to frame a rigorous approach to managing open innovation:
Creation nets represent a particularly powerful form of open innovation
designed to harness the potential of distributed innovation activity
pursued by hundreds or thousands of participants. Creation nets
implement a set of institutional mechanisms designed to mobilize
independent entities in the pursuit of distributed, collaborative and
cumulative innovation. These institutional mechanisms are critical to
understanding how creation nets coordinate innovation efforts and how
these creation nets will re-shape the role and structure of the firm.
These networks are assembled by a network organizer who serves as
gate-keeper, deciding who will be able to participate in the network. The
network organizer also defines fundamental governance processes to
coordinate the activities of the network, for example, determining how
disputes will be resolved and how performance will be measured. These
participation protocols are generally simple and informal, especially in
the early stages of network formation. Participation in the network is
rarely established through formal contractual documents, although
specific initiatives within the network may be governed by such contracts.
Network management is an essential business skill these days. And we need our networks not just as a source of information, but as a resource for generating novel connections between ideas. We can do this by co-ordinating idea exchange within networks of people that share our interests and/or objectives.
We need to stop trying to stockpile ideas. It is much more important to use the ideas we have to create innovative connections. In managing innovation, this means looking at our process for managing ideas. We need to generate great ideas (better ideas, not more!), we need a system for selecting the best ones and trying them out to see if they’ll work, and we need to get the ideas to spread.
Our networks are particularly important in all of these steps. The creation nets that Hagel and Brown discuss are using networks to generate better ideas. Our networks also help us use empathy to help select the best ideas to pursue. And networks are obviously essential for getting our ideas to spread.
Network thinking is at the centre of managing knowledge flows. And as The Power of Pull demonstrates, if we are going to be successful these days, we need to be managing knowledge flows, not knowledge stocks. I’m still not sure if ‘everything is different now’ – but I’m reasonably confident that this is a worthwhile change to make.