Posts Tagged ‘video’

Cloud Company – a New Form of Organization

Friday, June 25th, 2010

How social media and digital working environments are really changing management, collaboration and organizations?

This is the question that is most interesting to me and I believe, very transformational in the long-term on how we relate to each other and how things get done.

I was happy to work on this question for a Finnish telecom operator, Elisa together with their VP of Corporate Customers, Pasi Mäenpää. As we know, the traditional operator business of selling subscriptions and connectivity is commoditizing and many plans are going flat rate. The value has moved upwards to the actual applications of communication technologies in the enterprise. Understanding corporate customers and their true business requirements and opportunities is increasingly important. This leads us to ask the question, how is the business environment and practices of organizations truly changing?

To grasp this question, together with my team we produced a video and a presentation on the future of organizations and management:

On Youtube: Cloud Company – Change Happens (2010)

The related slides “A New Era of Leadership – From Hierarchy to Network” are here.

Cloud is the metaphor for the internet and Cloud Computing is the metaphor for a technological paradigm shift in the way how we utilize software and information. Google and Amazon particularly have been busy building the cloud. Practically it is an idea based on Technological Determinism, that technology would drive the development of society’s culture and social behavior.

An opposite view would see culture as a dominating force in technological development. Neither is accurate, as technology and culture are rather intertwining. Media theorist Marshall McLuhan famously said that “We shape our tools. And then our tools shape us.” What the cloud is shaping is our forms of organization, intertwingled by technology and culture. The internet will dramatically lower the transaction costs of doing business. As companies decentralize various layers including infrastructure, R&D, marketing and sales, they eventually empower a new form of organization to emerge: the Cloud Company.

Management = Communication x Coordination x Responsibility = Collaboration

Management traditionally can be defined as effective communication, efficient coordination and someone taking responsibility of the actions. Manager communicates to subordinates, coordinates resources, supervises operations and takes (and gives) responsibility. This is mirroring the typical hierarchical thinking of organizations.

What happens today in digitally distributed collaborative networks is that communication becomes the means between people, coordination is the distributed peer-production activities among the people and responsibility is something that people will have the ability to take because of transparency of activities and open information. Thus the idea is that in organizations today all effective communication, coordination and taking of responsibility needs to be digitally distributed in order to remain viable.

There are two ideas on how effective organizations work. One that is based on complete centralization and the other based on complete decentralization. Most organizations are more or less different variations of the two.

Centralizated Organizations

A completely centralized organization is centrally planned and hierarchical in nature. The idea is that efficiency requires conscious coordination of resources and division of labor. Communication relationships and channels are pre-defined and planned – who reports to whom, what paper goes from here to there. This is the world dominated by bureaucracies, hierarchies, command & control and people as cogs in the machine.

Lenin tried to run Soviet Union like a big factory, as a centrally planned economy (or command economy). It was the most Fordist and Taylorist system ever envisioned. Everything would be centrally coordinated. The problem of such big hierarchies is that internal coordination costs increase as the size of the organization increases.

Over time it gets increasingly hard to predict the future and efficiently adapt to changing conditions. If internal coordination costs are higher than the value created and generated, the whole system collapses to its own absurdity. This economic calculation problem led to major problems in Soviet Union. Economic planners were not able to detect consumer preferences, shortages, and surpluses with sufficient accuracy. Resources were wasted and misallocated, eventually leading to the collapse of the whole house of cards.

Just like Soviet Union, most companies today are miniature centrally planned economies facing the same problems of internal coordination problems as the size of the hierarchy increases.

Decentralized Organizations

The father of modern economics, Adam Smith wrote in 1776 a revolutionary book, The Wealth of Nations. During the time his work was concentrated on supporting the political agenda of Great Britain to dissipate mercantilism, the economic reality that dominated Western European economic policies at the time. Mercantilism was based on a protectionist ideology of controlling import and export of goods for the nation’s good.

Adam Smith’s idea was that free market economy based on self-regulation would be more effective from the resource allocation point of view. Rational self-interest of individuals and companies in the short term would lead to common good in the long term. Competition and supply & demand in the context of rational self-interest would create economic balance.

The question then becomes, when does economic activity take place on decentralized markets and when do centralized organizations form as a necessity?

Lowering Transaction Costs

In 1991 economist Ronald Coase received the Nobel’s price on his theory of transaction costs. For a reference, take a look at The Nature of The Firm (1937). . When transaction costs increase, centralized organizations form to take care of the necessary side activities to achieve the goal. As transaction costs drop, certain economic activities are increasingly done on the open markets.

As an example, in the newspaper industry a photographer needs to take the pictures, journalist needs to write the story, an editor lays out the text, the printing press produces the publication and then someone takes care of the logistics of delivery. In the context of these activities there are other costs such as legal, marketing and administrative costs. All of these activities include high transaction costs that make it impossible to deliver such a product reliably without centralized coordination and organization.

As we know, Internet has enabled new forms of organization such as the Wikipedia or Huffington Post to emerge in the publication industry. Internet has radically reduced transaction costs involved in producing resources like an encyclopedia or a newspaper. According to Harward Law School Professor Yochai Benkler, digitally distributed collaborative environments have enabled a new form of organization to emerge between the traditional nation state and the private company, based on the logic of commons-based peer-production. In the open markets, people and organizations improve the common resources, eventually gaining more than their individual contribution is worth.

As companies thrive for higher value creation and move up in the economic food chain, it is impossible to do so today without lowering the transaction costs involved in producing these goods and services. Therefore all effective organizations today will utilize digitally distributed collaboration and management environments and practices, because of lowered transaction costs.

The Emergence of the Cloud Company

The next stage in running successful organizations is to understand that effective organizations today are operating closer to the logic of the open free markets. This means that companies thriving for higher value will decentralize many core layers that were traditionally centralized, including infrastructure, information storage and processing, collaboration, services, sales and customer service.

This stage will be driven by cloud computing, crowdsourcing, digital mass-customization (such as the iTunes App Store where each person actually creates the end product through individual customization), commons-based peer-production and other emerging decentralized models for carrying out work in the digital business ecosystem: therefore the name Cloud Company.

Here is how one company might look like, where certain organizational functions have been supported with internet-enabled decentralized models and technologies:

Cloud Company.029 Cloud Company – a New Form of Organization

A Cloud Company (or real Enterprise 2.0) will be much more effective than its more or less centralized competitors, because it’s capable of distributing certain organizational activities on the market, operate in a much more customer-oriented and centered way, changes dynamically the costs of running the business, is capable of lowering transaction and internal coordination costs and utilizes latest social media and collaboration environments for digitally distributed communication, coordination and wide taking of responsibility.

My colleague Esko Kilpi writes:

Today, with social media, we stand on the threshold of an economy where the fundamental processes of communication and coordination are being transformed.  Familiar economic entities are becoming increasingly irrelevant as the Internet, not the traditional organization, becomes the most efficient means to communicate, coordinate and exchange value.

That’s the future of organizations in the digital age.

Thanks to: Esko Kilpi, Pasi Mäenpää

Experiential Learning Cycle & Social Technologies

Wednesday, March 17th, 2010

In this video I will talk about David Kolb’s experiential learning cycle and how to consider the role of wikis, blogs and other tools in social reflective practices.

I would love to hear what you think about it. Should I do more of these?

Fractal learning

Sunday, October 11th, 2009

One day I asked myself the question, what would learning look like if it could be visualized?

322px Mandel zoom 00 mandelbrot set Fractal learning

A fractal. Latin fractus, meaning fractured. It is recursive by definition.

What comes to my mind is the Mandelbrot set. In 1975, Benoît Mandelbrot first coined the term fractal. Mandelbrot emphasized the use of fractals as realistic and useful models of many “rough” phenomena in the real world. In The Fractal Geometry of Nature (1982) he writes:

Clouds are not spheres, mountains are not cones, coastlines are not circles, and bark is not smooth, nor does lightning travel in a straight line.

If something is rough, that’s learning. As you approach a new topic, you start from a fuzzy idea of what it could be. As it comes into focus, new details expose themselves on the fringes, enabling you to discover even more interesting perspectives you were not aware beforehand.

Fractals are seen in many parts of nature. Even fractal cosmology exists as an area of study. In a New Scientist article (2007) Labini & Pietronero asked the question, “Is the universe a fractal?“. Their study of nearly a million galaxies suggests that the matter in the universe is arranged in a fractal pattern up to a scale of about 100 million light years.

The Second Law of Thermodynamics states that the total entropy in the universe increases over time, as change happens. In layman terms that would be analogous to a room getting messed up over time as people live in it. In thermodynamics, entropy is a measure of the amount of energy in the system that is no longer available. As entropy increases in the universe, at the same time incredibly intricate and detailed order emerges from the details. Think of the human brain on planet earth for example.

250px Fibonacci spiral 34.svg Fractal learning

Fibonacci spirals also depict the fractal pattern of beauty in nature. Golden ratio is a very well known principle in mathematics and art, first originating in the Liber Abaci (Book of Calculation) in the 13th century. Good examples of forms with Fibonacci spirals include the spirals of shells, various flowerings, the branching of trees and arrangement of leaves on a stem.

The internet looks like a fractal.

So what do fractals have to do with learning?

When considering learning, we are pattern recognizers. Just like fractals, our neural networks evolve over time and extend outside of us. As our environment changes, so do we.  As we process information, in addition to entropy, new patterns emerge. By increasing the ammount of information, you increase the possibility of new patterns to be recognized by people.

In the digital world, entropy is information overload and order is the pattern that emerges from the interconnection of such information.

Knowledge is like a hologram. In holograms, even smaller pieces of it include the picture of the whole object. Knowledge is like a hologram. The experience changes as your point of view towards the object changes. The knowledge is not in a single image, but distributed on a network.

This is pattern recognition. And it’s the culmination of fractal learning. It’s a Mandelbrot set that zooms into the details indefinitely. Universe is fractal by nature. So is learning fractal by nature. It’s rough, it’s self-similar, it’s recursive and increasing the likelihood for serendipity is key for building higher structures.

Here is a recent Finnish presentation recording of my talk on the subject at a conference (Verkkoja kokemassa):

Warning: video ID not specified!

Here are my slides from the Distance Education & Teaching conference in Madison, USA (still waiting for the presentation recording to be published):