My talk looked back at the characteristics of Twentieth Century institutions and tried to identify how those we are creating in Twenty-First Century are different; specifically, how openness – not normally associated with institutions – could be a key factor in the success of both businesses and other kinds of organisation.
The development and reform of institutions fascinates me, especially the way in which values and assumptions can be codified and protected over long periods of time by the dynamics of institutional memory, which is true for religious institutions, universities, political and state institutions, civil society bodies and even long-lived companies. Sometimes institutions and their inherent inertia act against positive change and sometimes they protect against negative change, but I find it interesting that they have the potential to give longevity values and ideas.
Failed states are usually associated with institutional collapse and the absence of neutral organisations that can protect people against the vicissitudes of personal or group power. States that have emerged from rapid or violent change, such as post-colonial regimes or post-conflict states, sometimes struggle to build institutions because the methods required to win liberation are different from those needed to build a state, and sometimes the political actors who led the process see themselves as the embodiment of the national sprit and focus on amassing power and resources rather than leaving the stage for others to take over. States that can provide long term stability and a legal environment in which freedom can flourish usually have stable institutions that cannot be bent too far out of shape by any particular political faction or government.
Kosovo looks set become a successful, modern state in the southern Balkans after its independence in 2008. Albanians in Kosovo lived under virtual occupation after the revocation of the province’s autonomy in 1989, and were forced to run parallel, secret structures to maintain their education system and local institutions. Now, with the youngest population in all of Europe, Kosovo has the potential to rapidly develop into an economic and technological hub in the region, but its leaders need to trust the new generation to make it happen.
The opportunity to create new institutions in this context is exciting, but to truly become a successful modern state, it is important to start with the right values and culture – and I personally think openness should be near the top of the list.
The Twentieth Century was a period that defined people in aggregate, rather than as individuals. Mass war and mass movements led to the dehumanisation of people in conflict, and ultimately to the horrors of the gulag and the Holocaust, whilst mass marketing and mass consumption defined us by our purchasing power and product desires. The so-called Wilsonian nation state model that followed the breakup of multinational empires was also guilty of this, with national elites often regarding their people as patriotic cannon fodder whose role was to support the state, rather than the other way round.
Bosnia, a country that fought for its survival as a multi-ethnic entity in the 1990’s, is a good example of this logic taken to its ultimate conclusion. It has so many layers of government that it sometimes seems everybody with a pulse will at some point have a chance to raid the coffers as a minor minister or deputy-minister. Over 23% of GDP in spent on government, but of this, around two-thirds is spent on its own salaries and costs, and despite the small size of the country and high levels of poverty and unemployment, Bosnia is said to have the most expensive government in Europe, costing some half a million euros per hour. Essentially, the government is the state and the people have relevance only as cheerleaders for the ethno-nationalist kleptocracy that sits on top of them. Clearly, there is a massive need for more openness and better institutions if the country is to emerge from this sad state of affairs.
But this tendency to manage people as resources within closed systems was not just a problem of government and state institutions in the Twentieth Century. In business, contrary to free market ideology, many large corporations in this period sought to occupy defensible niches within which to pursue rent-seeking, if not outright monopolistic behaviours.
As Tim Harford argued in the Financial Times recently, large firms like monopoly positions, but this has resulted in a gradual ageing of the business sector and acts as a brake on innovation:
Monopolists can sometimes use their scale and cash flow to produce real innovations – the glory years of Bell Labs come to mind. But the ferocious cut and thrust of smaller competitors seems a more reliable way to produce many of the everyday innovations that matter. That cut and thrust is no longer so cutting or thrusting as once it was. “The business sector of the US economy is ageing,” says a Brookings research paper. It is a trend found across regions and industries, as incumbent players enjoy entrenched advantages. “The rate of business start-ups and the pace of employment dynamism in the US economy has fallen over recent decades . . . This downward trend accelerated after 2000,” adds a survey in the Journal of Economic Perspectives.
This has led to many companies continuing to pursue a strategy of building castles and defensive walls despite the Twenty-First Century economy looking more like a war of mobility and manoeuvre than a war of position or attrition. But this strategy is producing ever diminishing returns, as Steve Denning pointed out in his introduction to the Centre for the Edge’s Shift Index back in 2011:
“I believe that most large organizations today are suffering from a crippling disease — hierarchical bureaucracy. This disease is resulting in remarkable declines in long term return on assets, life expectancy of firms and engagement of people doing the work…”
This is also consistent with Tyler Cowen’s Great Stagnation thesis about Twentieth Century business having eaten all the low-hanging fruit.
Everywhere we look, Twentieth Century institutions are in crisis, and some of the emerging alternatives look even worse. But we can already see the outlines of new approaches and they give us some comfort that we can create better, Twenty-First Century institutions that are fit for the challenges and opportunities of our era.
On the whole, we have free(er) and more open, connected businesses than ever before. It takes less and less capital and specialist knowledge to launch startups than can go on to innovate and invent. We have open business models, whether using APIs and technology or just by virtue of using openness as a weapon in the marketplace.
Getting a new product to market used to take the scale and expertise of a large firm, and a lot of time, but as the story behind the Blaze laserlight shows, it is possible to go from student concept to production in Shenzen, via crowdfunding, in a very short period of time. Ronald Coase’s theorem about firms existing to minimise transaction cost is not only less true than before, it has arguably been reversed thanks to increasing composability and the efficiency of open markets.
We are also seeing the process of disintermediation go further than even before. Institutions that used to provide trust and verification of everything from financial transactions to contract fulfilment are threatened by the notion of computational trust and by technology such as the blockchain that underpins bitcoin, which organisations like ethereum hope to use to verify contracts of any kind.
Also, something the Cluetrain Manifesto told us over a decade ago – the power of small things loosely joined – is now proving itself to be a powerful organisational capability. Distributed intelligence – or ‘intelligence at the edges’ – is pretty much becoming a compulsory feature of system design in everything from mobile apps and data processing to server farms and even factories.
Finally, we also now know that in most contexts, influence is more powerful than control or coercion in getting things done, whether in managing people, marketing products or even changing behaviours in public life. How influence spreads both positive and negative behaviours through social networks is quite fascinating.
However, despite these new features of how business is conducted and how institutions and organisations operate, there is still a will to power and we may yet lose some of the openness of the web if the vertical data and cloud ‘stacks’ – Google, Apple, Facebook, Amazon and Microsoft – continue to operate a walled garden strategy.
So, how can we design the benefits of openness into our organisations? If it is not already clear, I am talking about openness somewhat loosely as a cultural issue, rather than to connote radical transparency. There was lots of discussion at Doku:tech about the NSA, surveillance and privacy, which are important issues for the internet of today, but whilst I agree we need to better educate people (especially young people) about privacy and encryption, for the most part I think the best defence against surveillance is openness, paradoxical as that might sound.
Design principles for Twenty-First Century institutions
First, it is worth reviewing the many successful examples of open business and organisational cultures we have already seen. I think the most comprehensive recent case studies are to be found in Frederic Laloux’s excellent book Reinventing Organisations that talks about the incredibly successful Dutch social care organisations Buurtzorg, the French foundry Favi and the oft-discussed example of the Californian tomato processor Morningstar. I have previously talked about some other examples here.
If we look at these and other examples, and try to think about how best to capitalise on the new features discussed above, I think there are perhaps five key characteristics that should be baked into new organisations and institutions today:
- Networked and human: really, this is our new superpower in my view. Human-scale networks of people pursuing common purpose based on shared values and aims are probably the most effective structures we have, and in seeking to build larger, more complex structures, I would always start from here.
- Agile and adaptive: the OODA loop is as powerful as compound interest when it gets going, and any organisation seeking to future-proof should try to create adaptive capabilities – i.e. the ability to sense change and flex in response to it – rather than trying to predict specific futures and plan for them.
- Evolutionary purpose: Laloux talks about this as a feature of advanced organisations in his book, but it is also present in cybernetics and systems thinking. Stafford Beer used to talk about POSIWIT – ‘the purpose of a system is what it does’. It is a deceptively simple idea, but the notion that an organisation has its own purpose, rather than just being a mechanistic means to an end, can help us create long-lived structures.
- Ecosystems are the new defences: being part of a growing ecosystem of participants whose interests are broadly aligned is a better defence in the Twenty-First Century than building defensive barriers to entry.
- Open Culture: both inside -> out and outside -> in. The stronger the heart of your organisation, the less it needs external walls and the more it can benefit from deeper interaction and exchange with the the outside world. As a cultural cornerstone for modern organisations, I think this is an important feature. In fact, I believe we will see more use of liminal spaces between the inside and the outside, where firms can work with partners, competitors and emerging startups to created shared value.
In technology firms, it is common to find these features within the practice of the organisation. Project management is probably agile, iterative and conducted in the open. Open data is used to track progress against goals. People try to work out loud. Collaboration is open and shared, and follows the ‘wiki way’ – if you see something broken, fix it! But often these organisations are still wedded to outdated organisational forms that prevent this practice being reflected in the overall structure and management culture of the firm. That is starting to change, and has never been easier to address, but it is not yet the norm for how companies are formed, grown and shaped.
In the Balkans, one of the most dangerous folk wisdom phrases is “napad je najbolja odbrana” – attack is the best form of defence. I firmly believe that in building businesses and Twenty-First Institutions, we will learn that openness is the best form of defence in modern, fast-moving markets and societies.