So you say you want to put your clients first…

September 9th, 2016

by Philip Boxer BSc MBA PhD

So you say you want to put your clients first. By saying this, I assume you have decided that product/service excellence is not sufficient for you to survive.[1]

In order to put your clients first, you are going to have to think not in terms of the survival of your enterprise, but in terms of the survival of the ecosystem of which you are a part, and of sustaining a place in it.[2] Two things follow from this:

1. There are things to get clear about the way your enterprise currently operates:

2. To get a better handle on what “putting clients first” means, you will then need:

[1] For the competitive positioning of your enterprise not to be sufficient, in terms of its product/service excellence, you must be facing some kind of dynamic in the relationship that you must sustain with your client-customers. This means transitioning to a relational approach to competitive positioning (see value propositions at the edge).
[2] Whether or not being relational is in the interests of your enterprise is a question of the economics of one-sided versus multi-sided markets. When faced with multi-sided demands, the effect of using silo’d organisation, characteristic of positional competitive positioning, is that it results not only in the costs of alignment falling on the client-customer, but also in the costs to the sources of demand within the larger ecosystem being 30%-50% greater (see competing within ecosystems).
Why? Because while the client-customer is getting a worse service (that they have to compensate for themselves as best they can), the supplying organisations get paid too much for a one-sided approach, the additional expenditures going to the suppliers at the expense of the client-customer.  In the private sector this can be left at the door of ‘market failure’ i.e. the suppliers don’t want things to change because it will work against their interests. In the public sector, however, this means that the citizen pays twice – indirectly in taxes to pay for one-sided suppliers, and directly through having to pay too much for inadequate services and/or paying for the gap personally if they can afford to.
The key issue here is this form of ‘market failure’ aka an inability to sustain a relational form of organisation. Hence the question: do you really want to put your customers first?

On being edge-driven: outside is inside

September 6th, 2016

by Philip Boxer BSc MBA PhD

We have seen in distinguishing task systems, sentient organisation and sovereignty that an enterprise with supply-side sovereignty has no difficulty establishing its boundary or perimeter as an ‘open system’.  Furthermore, its definition of primary task is derived from the way it asserts sovereignty over its behaviors.  But what does it mean to say that an enterprise has multiple primary tasks?  In terms of business platforms and K-type value propositions, it means dealing with client-customers one-by-one, or at least primary task by primary task, ‘primary task’ being specific to customer situation rather than to the enterprise as a whole.  This is the challenge facing an enterprise when faced with the need to innovate or to compete in turbulent highly-connected environments in which it must surrender sovereignty in order to be able to respond one-by-one to the demands it encounters at its edges.

How is an edge-driven enterprise to be defined?

How, then, is an enterprise to be defined, if it is not to be in terms of its primary task and its boundary or perimeter?  To answer this question, we need to return to this graphic from the previous posting, and to consider the nature of the tension between the vertical (hierarchically imposed) accountabilities imposed on individual enterprises within an ecosystem, and the horizontal linkages (i.e. accountabilities to task outcome, ultimately to the client) dominating the ways in which K-type value propositions are aligned to customer situations:
The relation of novel emergences of macrostates of the first and second kind (products & services and product/services), which define the vertical accountabilities, can be thought of in terms of their ‘height’ above a base level of maximal microstates, shown on the left below.[1] In contrast the microstates of customer situations can be thought of as at a depth ‘below’ a surface of novel emergences of macrostates of the fourth kind (i.e. demand situations), shown on the right below:

Novel emergences of the third kind, however, aligning multiple supply-side product/services via effects ladders to demand situations, compose maximal microstates at depth on the right to minimal macrostates at height on the left:

The outside is inside
These alignments compose supply-side sovereignty with demand-side situations within an ecosystem of suppliers, value propositions and client-customers which have the topology of the Klein bottle:[2]

The key characteristic of this topology is that it is a one-sided ‘non-orientable’ surface.  To travel on this surface and return to a point of origin can flip the traveler upside down – there is no inside distinct from an outside, since inside is outside and vice versa:

For an enterprise to engage in edge-driven demand-side alignment, therefore, implies that the enterprise can no longer define itself by a relation between an inside and an outside.  Rather it must do so by the way it takes up the causes of client-customers’ demand situations as its own.[3] These causes involve forming networked interventions that dynamically orchestrate and align supply-side products and services to reduce client-customers’ value deficits.

Asymmetric leadership
Value for the enterprise comes to be defined by the value created through reducing the client-customer’s value deficit.[4] This creates a new kind of challenge for leadership. It requires that the north-south bias towards sovereignty be replaced by an east-west dominant system of governance, and it requires a double alignment of know-how that enables quality to be driven from the edge through triple-loop processes of learning.

[1] In evaluating platform architectures within ecosystems, in which the supplier’s relation to indirect value is modeled, this ‘height’ relation is separated out into a ‘behavior articulation’ of novel emergences of the first kind and a ‘constraint articulation’ of novel emergences of the second kind. The ‘value articulation’ captures novel emergences of the fourth kind, while the relation between the three articulations capture novel emergences of the third kind.
[2] “In mathematics, the Klein bottle is an example of a non-orientable surface; it is a two-dimensional manifold against which a system for determining a normal vector cannot be consistently defined. Informally, it is a one-sided surface which, if traveled upon, could be followed back to the point of origin while flipping the traveler upside down. Other related non-orientable objects include the Möbius strip and the real projective plane. Whereas a Möbius strip is a surface with boundary, a Klein bottle has no boundary.  For comparison, a sphere is an orientable surface with no boundary.” (from Wikipedia)
[3] ‘Cause’ here refers to Aristotelian cause, in particular the final cause. This is the other side of the third of the dilemmas of ignorance, i.e. affiliation versus alliance.
[4] This concept of value is that which defines multi-sidedness – the value is more in the impact on the demand-side network of relations than on the supply-side networks of production. (This is the revolution currently taking place in the economic logic of societies subject to digitalisation and globalisation.)

Surrendering sovereignty through business platforms and K-type propositions

September 6th, 2016

by Philip Boxer BSc MBA PhD

What happens when an enterprise must respond to its client-customers one-by-one? The enterprise will face demand asymmetry and therefore will need to be able to make under-determined choices at its edges over the extent of any value deficit it seeks to address in creating shared value.  The multi-sided nature of the demand will require that the enterprise must support multi-sided relations between multiple product/services and therefore a business platform that is itself multi-sided, these business platforms then requiring network-based architectures. This all means that we are dealing with supporting novel emergence of a third kind.[1]  What does all this mean for how we define the enterprise?

K-type propositions dynamically align orchestrations of product/services to customer situations
The minimal macrostates of this third kind of novel emergence, defined by matrices 5 and 5b, are based on the maximal microstates of the r-type and c-type propositions generated by novel emergences of the 1st and 2nd kinds:
Note the ‘big data’ matrix here, representing all possible traces of behavior, whether generated directly or indirectly, which support the K-type dynamic alignment processes, along with the platform (matrix 4-platform), through which multiple product/services are dynamically aligned to the customer situations in matrices 6 and 7.[2]  Whereas the effects ladders (matrix 6) define how effects are generated on the overall demand situations of client-customers (matrix 7B), Matrices 5 & 5B define the K-type propositions through which ‘big data’, the platform and the product/services are orchestrated and aligned to the customer situations.

If we think of a patient’s condition as a demand situation, then a hospital is not only the source of treatments (the columns in Matrix 4).  It is also a platform that supports the orchestration and synchronisation of many treatments around the condition of the patient. Another example related to dogs would be the following from Garmin:

Delta Smart is the on-collar training device and activity tracker that works in tandem with the Garmin Canine app on your compatible smartphone. Your pup is more than just a pet, so get the tools you need for effective training and a more comprehensive look at your furry friend’s activity, even when you’ve been away. Our system lets you monitor and train with bark detection/limiting, behavior corrections, activity monitoring and more.

In this case, Garmin is supplying a platform that is a combination of smartphone app and an on-collar training and tracking device. It is also providing the ‘big data’ traces of the dog’s behavior. The point here, however, is that the orchestration and synchronisation of these capabilities within the dog-owner’s context-of-use are left to the dog-owner.  In other words, unlike with the hospital that is itself providing K-type propositions, in this case the platform is aimed at enabling the dog-owner to develop their own K-type propositions.

Novel emergence of the third kind
‘Big data’ and the platform together with matrices 4-5-5B generate economies of alignment: the ability to create additional ways of organising the business relationship with a customer over time, not only reducing the average cost of alignment of business operations to the dynamics of each customer relationship, but also reducing the costs to the client-customer of the value created. Creating economies of alignment are critical to competing within ecosystems by creating indirect value.  In the context of healthcare, there are not just the economies of alignment arising from shortening the length of the patient’s journey through the hospital’s care pathways.  There are also economies of alignment arising for the patient such as reduced recovery times and less travel to-and-fro for appointments.

The tension between supply-side sovereignty and being edge-driven
There is an essential difference between a sovereign supply-side approach to markets, and an edge-driven demand-side approach to the client-customer’s demand situation:

  • the sovereign supply-side (positional) approach does as much as possible for its management without jeopardising its market relationships, while
  • the edge-driven demand-side (relational) approach does as much as possible for its client-customers without jeopardising the sustainability of the enterprise.

In the context of a hospital, the positional approach will be concerned with such things as operating-theater utilization, bed occupancies and costs-of-treatment.  In contrast, the relational approach will be concerned with such things as the patient’s length-of-stay, recovery times and re-admission rates. This tension between the positional and the relational is apparent when all the matrices are put together:
Whether the supply-side or the demand-side are dominant depends, of course, on the competitive dynamics of the ecosystem within which this tension is experienced.  In the case of the hospital, are the costs evaluated at the level of the hospital itself, or at the level of the through-the-life-costs of the patient’s condition.  What makes it difficult to move towards being edge-driven is not just the surrender of sovereignty necessary to becoming edge-driven. It is also difficult because establishing demand-side accountability is inherently more complex.  Nevertheless, all enterprises have to go through a P-K-c-r cycle, as described in value propositions at the edge. The issue facing an enterprise, therefore, is the tempo at which this cycle repeats itself, and how much time has to be spent in each part of the cycle.[3]

[1] Novel emergences and their relation to the four asymmetries, the first three of which we have met before (see the three asymmetries):

[2] Of course not all behaviors leave a trace, not all traces are captured for later recall, and of all the traces that could be captured, not all actually are. Even if traces are captured, there is no reason to assume that they are used in any way for the purposes of managing. For example, looking at commissioning of health care, much data is collected about patients, but the ways of examining that data are not organised in such a way to make the patient’s experience over time accessible for the purposes of managing outcomes.
[3] See also managing over the whole governance cycle – ‘destination’ involves P-type and K-type propositions, ‘comparison’ and ‘custom’ are different kinds of c-type proposition, and ‘cost’ is r-type.

Defining Demand Asymmetry: demand situations, effects ladders and P-type propositions

September 1st, 2016

by Philip Boxer BSc MBA PhD

Demand asymmetry is a fourth asymmetry: the client-customer’s experience always leaves him or her with something more to be desired.[1] It means that a client-customer’s demand can never be fully satisfied – there will always remains a value deficit. The assumption here is that, however hard a client-customer tries to bring into consciousness what it is that s/he needs, s/he will never be able to say all of it – there will always be a deficit.  This deficit may not be apparent until a supplier tries to respond to the client-customer’s demand, when the ways in which the product/service supplied is experienced as falling short of what was hoped for – the client-customer experiences a value deficit. Examples of value deficits would be: the veterinary product didn’t make the owner’s dog better; the patient’s condition remained chronic after all those treatments; the minister’s congregant remained unconsoled despite his or her ministrations; the equipment did not perform as command expected once it was deployed in the field; the citizen felt that s/he had been duped by the government; the meal did not measure up to expectations; the performance didn’t manage to pull it off; etcetera.

Demand situations and effects ladders
In each case the need is experienced by an embodied subject who has tried to articulate, with the help of others, what it is that he or she wants.  The situation in which the need is experienced is a demand situation.  An effects ladder is a way of unfolding as much as possible about the nature of the situated behaviors that, together, are expected to meet the needs of the demand situation.  The situated behaviors are customer situations that can be addressed by value propositions.

In one-by-one consideration of a client-customer’s demand, we are formulating strategy at the edge: we are asking what is needed to address the demand situation of the active client-customer within his or her particular context-of-use on a sustained, through-the-life-of-the-relationship basis? [2] The effects ladder provides a way of thinking through what this involves. It starts with the demand situation in the client-customer’s problem domain – the client-customer’s context-of-use in which s/he is seeking to create value and/or to reduce a value deficit. In this problem domain, the client-customer’s demand situation is defined in terms of drivers.  These drivers are the ways in which the client-customer experiences the situation in terms of pain/pleasure. For example, the owner of a much-loved dog wants to make sure the dog receives all possible care as an important part of his or her life. It is important to note, here, that drivers reflect the way an embodied subject experiences the demand situation.

P-type propositions[3]
To make the client-customer’s demand situation tractable, it has to be broken down into constituent customer situations within a Knowledge Domain that are individually amenable to value propositions.  These value propositions ultimately draw upon c-type product/service capabilities in support below ‘c-level’, meaning that their delivery can be customized without knowledge of the client-customer’s context-of-use. An example above c-level would be caring for the dog at a kennels.  An example below c-level would be customized delivery of food supplies.[4] The laddering effect comes from the way individual customer situations are built and sustained in support of the larger overall effect on the demand situation. A P-type proposition involves defining an effects ladder:
The relation of a demand situation to its constituent customer situations is always one of novel emergence
We can relate this kind of analysis of demand to the previous postings on stratifying relations of novel emergence as follows:
The driver properties desired by the client-customer in the form of demand situations are novel forms of emergence (Matrix 7B) brought together from component client-customer situations (matrix 7) in the form of an effects ladder (matrix 6).  These matrices 6-7-7B then form the context-of-use into which value propositions must be delivered one-by-one.

The customer demand is not the experience
Two kinds of value deficit arise here, therefore, in the way the client-customer experiences the effects ladder.  The first of these defines the third asymmetry, that the client-customer’s demand is not the client-customer’s experience:

  1. There will be a value deficit left by the way a value proposition addresses a client-customer situation.  Beyond that, however,
  2. The effects ladder will itself be a hypothesis (a P-type proposition) about how the needs of the demand situation may be met, so that the experience of its composite effects will be constitutive of a novel emergence in the embodied experience of the subject(s) on whom it is producing its effects.[5] This embodied experience will itself leave a value deficit.

Note that for the client-customer, the demand situation is what is being experienced ‘on the surface’, while its constituent situations involve the client-customer reaching deeper into their experiencing to distinguish its different aspects.  This relation of surface-to-depth is captured by the relation of matrix 7b to matrices 6 and 7.

The next posting will describe the processes of alignment and supporting platform needed to  deliver value propositions into this context, giving rise to the first kind of value deficit above.

[1] The four asymmetries, then, are:

  1. The technology is not the product.
  2. The business is not the customer’s solution.
  3. The customer’s demand is not the customer’s experience.
  4. The customer’s experience always leaves him or her with something more to be desired.

These can be read back onto the psychoanalytically-based dilemmas of ignorance: (top-down vs bottom-up; espoused theory vs theory-in-use; affiliation vs alliance; object vs sinthome).
[2] For large-scale cases considering the implications of through-life management, see meeting the challenge of health care reform, valuing agility through a demand-led approach to capability management and managing the system-of-systems life cycle. These are all cases involving the need for ‘type III’ agility.
[3] See rcKP – value propositions at the edge.
[4] For more on these different kinds of value proposition, see value propositions at the edge.
[5] Note that this will be a fourth kind of novel emergence, the third being of the processes of alignment needed to deliver value propositions.

Stratifying relations of novel emergence subject to supply-side sovereignty: r-type and c-type propositions

September 1st, 2016

by Philip Boxer BSc MBA PhD

In distinguishing emergence from hierarchy, the stratified relation of novel emergence was described of a product produced from underlying component technologies.  This relation was linked to the first asymmetric dilemma distinguishing technology from product.   In this posting, a second asymmetric dilemma is identified distinguishing the supplying business from the customer solution offered to the market.

The ‘outputs’ of the systems-of-interest in Matrix 1B – products and services – may be sold directly into markets, or they may form the constituent parts of value chains in Matrix 2.  The properties of these value chains constitute minimal macrostates that, when organised by a supply-side organisation of chains in Matrix 3B, result in the properties of minimal macrostates supplying product/services out of Matrix 3. Matrix 3 is thus representing the way matrix 3b brings together the outputs of chains in Matrix 2 for supply to particular product/service market niches.
Continuing again with the Bob Martin example distinguishing emergence from hierarchy, the products and services from multiple forms of novel emergence described in Matrices o-1-1B were brought together by value chains in Matrix 2 and offered together to customers from matrix 3 as product/services concerned with remedies and prevention:

Bob Martin’s innovative advertising campaigns from the 1930’s onwards led to the Bob Martin range quickly expanding from the original conditioning powders to remedies and preventative healthcare products for a wide range of canine and feline ills. Leading brands such as Pestroy were originally launched as far back as 1936.

Novel emergence of the first and second kinds
Key here are stratified novel emergences, the products and services out of Matrix 0-1-1B being embedded in the product/services out of Matrix 2-3-3B. These two kinds of novel emergence relate to two aspects of supply-side business: novel emergence of the first kind effecting changes to the physical form of things in creating new kinds of product or service; and novel emergence of the second kind effecting changes in appearance and/or location in reaching different markets [1]:

  • matrix 0-1-1b generating economies of scale: The ability to create additional output from an existing capability, reducing average unit cost. (i.e. producing more output from the same technology infrastructure). The focus here is on the ability to replicate some particular form of novel emergence.  When supplied to a customer, this is defined as an r-type value proposition.[2] With Bob Martin’s, an r-type proposition would be the ability to make the conditioning powders described in distinguishing novel emergence from levels of hierarchy
  • matrix 2-3-3b generating economies of scope: The ability of a business to extend the scope of its operations across different markets reducing average operating costs. (i.e. covering more markets with the same business process infrastructure). The novel emergence here is in the ability to deliver some particular form of product/service capability through customization where and when it is needed.  Delivered in the form demanded by the customer, it constitutes a c-type value proposition.[2] With Bob Martin’s, a c-type proposition would be the ability to deliver customized ranges of remedies and preventative healthcare products to customers.

Imposing 3rd order sovereignty through supply-side regulation
Referring back to the different orders of behavioral closure being described here, however, even though the figure is representing stratified novel emergence, what are being represented are still only 1st order systems (Matrices 0, 1, 2 and 3) and 2nd order organisation (matrices 1B and 3B).  In order to account for the 3rd order sovereignty, however, we need to add a further matrix to which Matrices 1B and 3B can themselves be made subject. This Matrix MB represents the forms of supply-side regulation through which sovereign owners can impose vertical accountability on the 2nd order organisation in Matrices 1B and 3B:
Taken together, these matrices will describe 1st, 2nd and 3rd order behavioral closures imposed on the supply of products, services and product/services to their chosen markets.  The amount of detail in the matrices will reflect the resolutions chosen to distinguish maximal microstates and minimal macrostates defined in distinguishing novel emergence from levels of hierarchy.

[1] These are the economies of scale and scope, distinguished from economies of alignment described by matrix 4-5-5b with respect to customer situations in matrix 6-7-7b (defining demand situations and effects ladders).
[2] r-type and c-type value propositions are two of the four kinds of value proposition defined in rcKP – value propositions at the edge.

Defining sovereignty over task systems and sentient organisation

August 30th, 2016

by Philip Boxer Bsc MBA PhD[1]

Open systems and their 1st-order behavioral closures
Individuals identified with an enterprise, the formal behavioral model of which is thought to be deterministic, believe that the enterprise can dictate responses to all events, which are believed to be completely enclosed within its boundary.  This formal behavioral model is denoted by the transitions between its sets of input and output symbols and is referred to as a first-order system. Such a system-of-interest is said to be over-determined if its structure over-determines its behavior in the sense of rendering it deterministic. Such a system-of-interest is a closed first-order system with a first-order structure.

Conversely, a non-deterministic formal model of behavior signifies an under-determined system-of-interest, the behavior of which is uncertain because there is more than one outcome possible from any given set of input conditions.  A first-order system that cannot be assumed to have all its inputs within its boundary is an open first-order system because we cannot know that its first-order behavioral closure is deterministic.  An open system is therefore one for which the first-order closure of its behavioral model is non-deterministic.

Sentient organisation and 2nd order behavioral closure
Consider now the elements of a system-of-interest with a first-order behavioral closure whose degree of non-determinism may be modified by an alteration to its behavior through choices exercised over the transitions available at each of its states, exercised through control of the behavior of its elements.  Any agency that so modifies the system-of-interest’s behavior must be outside the system-of-interest, and may be said to be controlling it. If the behavioral model of this controlling behavior is itself deterministic, then such behavior may be treated as further elements of an expanded system-of-interest through processes of mechanization. If the model of controlling behavior is not deterministic, however, then this agency may usefully be referred to the way the enterprise is organised, defining the forms of novel emergence that are possible with respect to the components of the system-of-interest with its first-order behavioral closure[2]. The relation of 2nd order organisation to 1st order structure is a stratified relation.

The characteristic of such 2nd order organisation is that it is sentient[3]. However, we may redefine the system-of-interest so as to include the elements (aka people!) of its sentient organisation that are the sources of controlling behaviors, defining a second-order system-of-interest referred to as a socio-technical system. The boundary of a second-order system-of-interest whose behavioral closure can be made deterministic is its perimeter.

Each deterministic second-order closure that may be constructed by the exercise of sentient organisation may be considered to be a point in a model space, just as each state of a first-order system is a point in its state space. Each possible modification by its sentient organisation of the structure of the first-order system-of-interest that changes the nature of the second-order deterministic closure is a transition in that model space. The behavior of the enterprise may therefore follow a set of possible trajectories through model space which together comprise its repertoire of possible deterministic second-order behavioral closures. While some changes to sentient organisation may reduce the variety of these possible trajectories of the enterprise through model space, this is unlikely to be the case given that the elements of a sentient organisation are people, the controlling behaviors of whom are not going to be (‘reliably’) deterministic.

Sovereignty and 3rd order behavioral closure
To remove this non-determinism in the second-order behavioral closures, a further form of agency, a governance process, will be needed to restrict the set of trajectories through model space.  The power to impose such a third-order closure through a governance process is the power of sovereignty over the 1st order structure and 2nd order sentient organisation of an enterprise. We may again re-define the system-of-interest to include the elements of the governance process (again, people), referring to it as a third-order system.  If this governance process is able to make the 2nd order behavioral closure deterministic, then it defines the perimeter of the enterprise.  This allows the enterprise to be defined as a system-of-interest in which its governance processes have the power to impose third-order behavioral closure, i.e. single trajectories through model space. We may say that the enterprise can be identified with a 2nd order system-of-interest, but its behaviors are realized through the way sovereignty is exercised over that 2nd order system.

What is frequently referred to as an ‘open system’ therefore, when used to refer to the way an enterprise is organised, is a third-order system, the behavioral closure imposed by which is deterministic.[4] Continuing with the example of Bob Martin, used in distinguishing emergence from hierarchy, clearly there was a need for 2nd order organisation to manage the 1st order systems of production.  But the maintenance of 3rd order sovereignty over all this is apparent in its continuing status as a family firm:

In 1938 Bob Martin’s opened a showpiece factory in Southport – it was to play an important role in providing vital medical supplies for British soldiers [during the Second World War] as well as in maintaining the growth of the company. Robert Martin continued to run the company after 1948 and maintained an active involvement up until his death in 1979. His son, now Sir Bruce Martin QC, took up the reins of the business in his turn and Bob Martin has remained a privately owned, family firm to this day.

Distinguishing edge from perimeter
If the enterprise must organise its behaviors differently as a function of different kinds of client-customer relationship, then its governance processes must surrender sovereignty to the particular relationship to some extent.  The relation across its perimeter will therefore be different for each different kind of client-customer relationship, becoming an edge. An enterprise may thus have many edges to the extent that there need to be many such ways in which it must surrender sovereignty in its interactions with its client-customers, the most interesting of which involves network formation within a larger ecosystem[5] – interesting because sustaining such surrendering of sovereignty demands asymmetric leadership.

The person and the enterprise
A difference between the person and the enterprise, therefore, is

  • the relationship of a person’s identification to their singular embodiment as a person, whereas with an enterprise, its 1st, 2nd and 3rd order systems provide multiple forms of support for identification by persons.
  • a person takes up a role in the life of an enterprise, whereas with an enterprise, it takes up a role in the lives of its client-customers.[6]

[1] This posting is based on a joint paper with Bernie Cohen on “Modeling and the Modeler”, July 2007.
[2] Novel because if the relation is one of weak emergence, then by increasing the resolution of the state space, then the behavioral model of the 2nd order system may be rendered deterministic. This is what is done to the business models of enterprises through the effects of digitalisation with its attendant de-layering of sentient organisation.
[3] Miller, E. J. and A. K. Rice (1967). Systems of Organization: The Control of Task and Sentient Boundaries. London, Tavistock.
[4] The biological systems from Maturana derived his distinction between structure- function-organisation are 2nd order systems with deterministic 2nd order closures of their behavior. See Lacan and Maturana: Constructivist origins for a 30 Cybernetics in Communication and Cognition (1992) Vol 25. Number 1 pp73-100.  For some of the issues facing ‘open systems’ thinking, see Leading organisations without boundaries: ‘quantum’ organisation and the work of making meaning.
[5] The formation of such networks around their social objects involves new forms of stratification aka novel forms of emergence demanding new governance processes that are incommensurable with the sovereignty of the existing enterprise as a whole. This gives rise to the challenges requiring a double alignment of ‘know-how’.
[6] Note that the implications of the word ‘role’ here are different, in the former use referring to an individual, in the latter a whole system-of-interest. In dilemmas as drivers of change I argue that this latter perspective requires a systemic view of the enterprise.

Distinguishing novel emergence from hierarchy

August 29th, 2016

by Philip Boxer BSc MBA PhD

Some years ago, I published a paper titled: The stratification of cause: when does the desire of the leader become the leadership of desire”[1]. The paper’s aim was to understand an enterprise not so much in terms of its business model(s), as in terms of its being a response to an undecidability, experienced by its client-customers, in relation to which it created value.  The ‘desire of the leader’ had to give way to the ‘leadership of desire’ under conditions of environmental turbulence in which a highly connected environment gave rise to tempos of demand that quickly rendered any static business model(s) obsolete. The demands of client-customers had to be responded to one-by-one in how the enterprise created value.  This had to be a process of continuous innovation responding to the demands as the demands arose in their contexts-of-use.[2]

A persistent problem facing the way we think about how this ‘leadership of desire’ translates into the way an enterprise is organised is the confusion of hierarchy with emergence. The originating innovation (aka novel forms of emergence) of a new way of creating value became ‘fixed’ in the form of a business model subject to hierarchical accountability established by the originator of the business model, in order that it might be repeated.[3] Under conditions of environmental turbulence, however, such hierarchies are insufficiently dynamic.  The need for continuous innovation therefore requires that hierarchy be distinguished from emergence in order that the nature of originating innovations be grasped more effectively.[4,5]

The confusion of levels of hierarchy with emergent strata hides the fact that descriptions in terms of ‘levels’ are unable to account for the emergence of strata either as a natural phenomenon or as an artifact of the process of observation.[6] The emergence of strata can be defined, however, without invoking the prior concept of levels.  It does this through the use of the concepts of spatial and temporal scope, spatial and temporal resolution and state.[7]

Scope, Resolution and State
Implicit in the prediction of the properties of a system by a modeler is that modeler’s interest in that system as a system-of-interest. This system-of-interest is defined by boundaries derived from the properties of the system that are of interest. The modeler may provide an interpretation that maps symbols in the modeler’s model to observable phenomena in the world, but the boundaries around the modeler’s system-of-interest identify its scope, whether as it is modeled or as it is observed.  Saying of a model that “it is able to predict the properties” of a system-of-interest, is to say that the modeler considers the model to provide an adequately explanatory account of the system-of-interest to the extent that causal effects in the system-of-interest are interpretations of inferences in the model. In the following example, the properties that Bob Martin wanted of his conditioning powder led him to define the system-of-interest that could produce the powder: [8]

In his greenhouse in 1892, a 25 year old man called Bob Martin invented a conditioning powder for dogs. Whilst working for a local veterinary practice Bob Martin had become increasingly interested in basic healthcare for ordinary pet dogs. He constantly pestered his new employers with questions and visited local mining districts to talk about canine ills. Miners would show him their simple remedies and inspired him to conduct his own experiments. The new conditioning powder was intended to supplement the poor diet endured by many dogs at the time and to ensure that every pet could be kept in peak condition…

Spatial scope is defined by a spatial boundary. Spatial is used in the broadest sense of the word to include conceptual and formal, as well as physical spaces, provided the system has a physical manifestation (spatial refers to the set of components, in contrast to temporal, which refers to the dynamics of those components). The spatial scope of a system representation is the set of components within the boundary between the associated system and its environment. If an observer shifts from representing the system to representing a component, such that the component is now the system-of-interest, the scope of observation has narrowed. Conversely, when the scope is increased to include components that were previously part of the environment, the scope has broadened. There is also a temporal dimension to scope, temporal scope defining the set of moments of time over which the system is represented. In Jaques’ terms, therefore, a broader spatial scope of a system-of-interest defines a greater span-of-complexity, while a broader temporal scope defines a longer timespan-of-discretion.

Spatial resolution is defined by the spatial distinctions made in describing the representation of a system-of-interest. In comparing two alternative system representations, if a fine (high) and a coarse (low) resolution representation have the same scope, the fine resolution can distinguish a greater number of possibilities.[9]  Once the resolution is set, this determines the ‘size’ of the components that comprise the system-of-interest. There is also the temporal resolution of a representation, defining the duration of a moment in time, where longer moments represent coarser (lower) resolutions.

The State of a system is the information that distinguishes between alternative system representations at some spatial resolution and moment in time. A macrostate M and microstate μ denote states with two different resolutions and scopes, with macro-to-micro relations such that the macrostate has either a coarser resolution or a broader scope, or both. A property of a system-of-interest, then, is defined as emergent if (and only if) it is present in a macrostate and not in a microstate. This leads to distinguishing novel emergence from weak emergence.

Novel and weak emergence
A property of a system-of-interest is a novel emergent property if (and only if) it is present in a macrostate but not present in any microstate, where the microstates differ from the macrostate only in scope. In contrast, a property is weakly emergent if (and only if) it is present in a macrostate but not present in any microstate, and this macrostate differs from the microstate only in resolution.[10] A weakly emergent property is a limitation of the observer, therefore, and not a property of the system-of-interest.  There was novel emergence in the way manufacturing processes and supply chains were organised to enable Bob Martin to produce the conditioning powder – under no circumstances could the powder be the predictable outcome of the constitutent parts of those processes and chains.
This macrostate/microstate distinction allows us to define a minimal macrostate M* with respect to an emergent property, if the emergent property is present in M*, and is not present in any microstate μ with the same resolution and narrower scope (i.e. in any proper subset of the components of M*).  In the case of the conditioning powder, this would have been the irreducible core of the way the product had been defined. We can now return to the definition of the boundary of the system-of-interest:

  1. A system-of-interest is defined by the set of properties that characterise and identify that system.
  2. For each property, the minimal macrostate is identified, which associates that property with a particular scope.
  3. The system boundary is defined as the set union of the scope of each property.
  4. The resolution must be at least as fine as the highest resolution minimal macrostate.

This definition removes the effects of weak emergence in distinguishing systems-of-interest and their component systems.  In these terms, therefore, while the behavior of a system-of-interest exercising control relationships over the behavior of its component systems exhibit weak emergence (i.e. its components have an is-a-part-of relationship to the system-of-interest), the behavior of a system-of-interest with a stratified relationship to its component systems exhibits novel emergence (i.e. its components have an is-used-by relationship to the system-of-interest).[11]

In the case of Bob Martin’s powder, with its novel emergent properties, we can assume that he patented the means of its production (or kept it secret).  As the demand for the product expanded, however, and production was scaled up, while its production would have become standardised and routinised, its quality would have remained dependent on the way the enterprise was organised in order to generate novel emergent properties from its component parts:

… The Bob Martin range quickly expanded from the original conditioning powders to remedies and preventative healthcare products for a wide range of canine and feline ills. In 1938 Bob Martin’s opened a showpiece factory in Southport.

Distinguishing stratification and levels of hierarchy
In order to describe stratified relationships, we also need the parallel definition of a maximal microstate μ*, which is maximal with respect to an emergent property in M* if the emergent property is not present in μ* and is present in any μ with broader scope and the same resolution.  Stratified relationships between systems-of-interest and their component systems can be described in terms of the relationship between matrix 1 of maximal microstates and matrix 1b of minimal macrostates in the following set of matrices (in which all of the states are described at the same level of resolution):[12]
This stratified relationship between systems-of-interest and their component systems is based on a structural distinction between their representations.  This differs from a hierarchical relationship between systems-of-interest, levels of which are distinguished by the observer solely in terms of the modeler’s perspective and interpretation, independent of any structural distinction.[7,13]

Defining the first asymmetry – the technology is not the product
Remembering that the states in the above matrices are all defined at the same resolution, the importance in separating out matrix 1 from 1b is therefore because it distinguishes novel emergent behaviors of any given (composite) system-of-interest that “cannot be localized to any single component of the composite system but instead produce effects that arise from the cumulative action and interactions of many independently acting components.”[14] A novel emergence would be a ‘product’, the nature of which cannot be reduced to the ‘technology’ of its component systems. The first asymmetric dilemma, therefore is the fact that “the technology does not define the product”.[15] The following hints at this transition from a focus on organising the technological means of production to a focus on the business of selling the product, leading up to the opening of the showpiece factory in 1938:

His son, Robert, was born in 1901 and at the age of 20 followed his father into the family firm. Over the years he gradually took over the business side and was responsible for Bob Martin’s innovative advertising campaigns from the 1930’s onwards.

[1] Published in Psychanalytische Perspektieven, 1998. 32(33): p. 137-159. An earlier form of this argument was presented as a paper at the 8th International Conference on Systems Research, Informatics and Cybernetics in Baden-Baden on August 14th-18th 1996, sponsored by the International Institute for Advanced Studies in Systems Research and Cybernetics and the Society for Applied Systems Research.
[2] Failure to do this through processes of maladaptation was what gave rise to vortical environments. See Must we fall into the vortex?
[3] This is to be seen in The ideologies of Architecture, and the difficulties encountered in the impact of (inappropriate) governance approaches on system-of-system environments, as well as in the north-south bias in leadership qualities and the difficulties of leading organisations without boundaries.  This confusion is compounded by the work of Elliot Jaques in his work on hierarchy, which nevertheless makes a distinction between levels and pseudo-levels in arguing the necessary presence of 7 levels in all enterprises.  These levels are argued for in the differing nature of timespans of discretion/span or complexity.  I begin to disentangle Jaques’ levels from hierarchy in timespan of discretion and the double alignment of know-how. The double alignment is because there needs to be alignment not only to the founding assumptions of the enterprise, but also to its edges where it meets the demands of client-customers.
[4] This is an issue facing not only current ways of understanding the organisation of an enterprise in terms of what is happening to boundaries, authority and containment (the boundaries, authority, role and task (BART paradigm), but also to the way we understand authority itself.
[5] An originating innovation is what lies at the heart of a ‘network intervention‘, itself a response to a something lacking made present as a social object.
[6] Based on extracts from Alex Ryan’s paper “Emergence is coupled to scope, not level”, September 2006.
[7] Implicated also are the concepts of the observer’s perspective and interpretation that influence the representation of a system by an observer. Perspective is that through which some information at a particular resolution is hidden e.g. the state of internal organs to the naked eye; and interpretation allows for there to be multiple valid interpretions, not only in the sense of optical illusions, but also in the sense of there being multiple ways in which the representation of a system by an observer is itself structured by the observer-as-a-structuring-system – Miller, J.-A. (2009 [1968]). “Action of the Structure.” The Symptom 10(Spring). We will return to this in a later posting.
[8] This example is taken from Bob Martin History.
[9] A closely related concept is scale, which is a transformation by multiplication. The connection is that as a property is scaled up (multiplied) within a system, it can be detected at coarser resolutions. The distinction (which is rarely made) is that scale is independent of how the system is represented, whereas resolution is an attribute of the representation (scale is ontological, but resolution is epistemological).
[10] In essence, weak emergence assumes that the properties of a macrostate can be simulated on the basis of modeling the behaviors of its component systems if enough could be known about their behaviors and interactions. In effect, a presumption of weak emergence is reductionist. See Mark A. Bedau’s (1997) ‘Weak Emergence’ in J. Tomberlin, ed., Philosophical Perspectives: Mind, Causation, and World, Vol 11, Malden:MA, Blackwell. pp375-399.
[11] In evaluating platform architectures within ecosystems (modeling the supplier’s relation to indirect value), novel emergence was identified with structural holes of three kinds (corresponding to the three asymmetries) in the relations between component systems with their maximal microstates.  These are described in this posting, in stratifying relations of novel emergence subject to supply-side sovereignty, and in surrendering sovereignty – business platforms and K-type propositions. What this use of novel emergence adds, however, is a fourth asymmetry between the effects ladder and its associated demand situation and a something more that always escapes this formulation of an organisation of demand. This fourth asymmetry might be expressed as “what we demand is never what we desire”. This fourth asymmetry is between the effects ladder and its associated demand situation, which define a ‘pseudo value articulation’, and the embodied subject’s actual experience of value and of value deficit aka desire.
[12] Note that in Matrix 0, some of the states are considered ‘inputs’, while others are ‘outputs’.  This becomes significant when further layers of stratification are considered.
[13] For an earlier treatment of this issue in terms of the three asymmetries, see why is a stratification not a universal hierarchy?.
[14] See Fisher, D. S. (2006). An Emergent Perspective on Interoperation in Systems of Systems., SEI Technical Report CMU/SEI-2006-TR-003. Key here in the stratified relationship is the absence of dominant (vertical) control relationships over the component systems, allowing (horizontal) cause-and-effect relationships between component systems to become dominant in the generation of properties.The characteristics of these distinctions between different kinds of system are summarized in the following:
simple-complex-complicatedFor more on the distinction between simple-complicated-complex-chaotic, see the drivers of organisational scope.
[15] This is the first of the three asymmetries.

On stratification

August 28th, 2014

by Philip Boxer PhD

Why the interest in stratification?
A colleague, Simon Western, referred me recently to Actor-Network Theory and the work of Bruno Latour in the context of a conversation about the behaviour of health care networks.

  • His point was that the value of this approach was in the way it focused on ‘following the interactions’, including in a network anything that “modifies a state of affairs by making a difference”.[1] Physical objects that constrain or enable interactions are thus just as important in defining a network as are human actors.  His observation was that standardisation, while restrictive if it became overly prescriptive and bureaucratic, could be liberating, “underpinning all successful business networks”.  Just enough standardisation was the key, for without minimal standardised interfaces, nothing happened.  His examples were:
    • Ryan air- the biggest airline in Europe, grown from nothing on the basis of standardisation creating behaviour change from all stakeholders, to grow a huge network of passengers and air travel;
    • McDonalds- standardised processes, fueled by entrepreneur franchise ownership + fantastic supply chain networks
    • Facebook and Twitter – phenomenal growth through simple standardised frames for individuals to fill with their own personalised content
  • I commented that I thought standardisation per se was insufficient in understanding what made networks effective, the issue being to understand their stratification.  Thus standardisation operated within some of the strata of a stratification and then in different ways depending on the nature of the relationship to demand that the network as a whole was mobilising.[2]
  • His response was that my use of strata and layers spoke more of an engineering project, geology or construction site rather than the fluid complexity of networks. Following Latour’s understanding of networks, his point was that “standardisation and structure are actants within networks, but not the architecture of them.”

So here we were with what looked like a disagreement – follow the networks of interactions and the worlds they construct versus how are the worlds of networks built? In what follows, I explore the ways in which there is no disagreement between these positions.

Follow the networks of interactions and the worlds they construct
In relation to what does a network form?  A useful place to start here is the social object.  An example of a social object would be the condition of a patient[3], but the condition encountered as an event – some singular moment in which there is something about the condition that disrupts existing understandings and/or irrupts in a way that insistes on being attended to [4].  A social object represents a particular affective relation to a situation in which some aspect of the situation itself is experienced as complex, question-generating, endlessly unfolding and incomplete.  The social object is to be distinguished from a ‘real’ object, being like a flag around which people may gather allied in relation to the situation that the flag signifies.[5]  Its efficacy in serving as a social object depended on there being a fit between the nature of its incompleteness and the individuals’ own experience of lack – an identification between some aspect of an individuals’ unconscious lack and the imaginary form given to it by the social object.[6] This ‘gathering around’ takes the form of a network of interactions that includes not only people as actants, but tools, technologies, ways-of-thinking and anything else that enables a current state of affairs to be modified by the differences it makes in the interactions. In the case of our patient, it is hopefully a gathering around the cause of addressing his or her condition.

Latour introduced the notion of punctualisation as a way of thinking about how actants are related to as ‘black boxes’[7]:

the way scientific and technical work is made invisible by its own success. When a machine runs efficiently, when a matter of fact is settled, one need focus only on its inputs and outputs and not on its internal complexity. Thus, paradoxically, the more science and technology succeed, the more opaque and obscure they become.

The definition of these black boxes ‘punctualise’ the actants between which interactions are taking place, and when there is some breakdown in the interactions, such black boxes are ‘depunctualised’ in the sense of being opened up themselves as a network. It is this relationship of embeddedness of networks as elements of networks that is described as a ‘stratification’.

Latour further distinguished a ‘real’ object “not by virtue of being tiny and fundamental, but by virtue of having an intrinsic reality that is not reducible to its sub-components or exhausted by its functional effects on other things.”[8] This is consistent with a view of all objects and systems as forms of novel emergence, even though it is convenient for many of such objects to be considered ‘objective’ in the sense of their existence being inter-subjectively agreed as independent of the observer .[9]

So now we have networks, each one formed by interacting actants allied by a relation to a social object the relation to which operates as the (final) cause of the network.  Such networks are stratified by the ways in which they are constituted in relation to embedded networks that are ignored so long as the network as a whole performs as expected in relation to its cause.

How are the worlds of networks built?
The ambiguity in this heading is intended.  We are interested both in finding ways of describing the way networks are punctualised into strata, and also interested in how new forms of punctualisation become possible in pursuit of new kinds of effect.  Latour identified a second type of  ‘intentional’ object that “has no interior of its own, but exists purely on the interior of some other object”.[8] The descriptions of interacting actants from which stratified networks are constructed have this intentional nature.[10] Looked at like this, it is possible to see why Simon was concerned.  In terms of the following diagram, by seeking to identify the ways in which structures might shape the ways in which actants interacted with each other, we would also be creating new understanding of the actants within the network itself. [11] How so?

actantsSuch structure structures an actant’s way of understanding his or her interactions with the network. The actant is subject to this structuring, over-determining the way that they attribute ontic status to their constructions.[12] Using this approach, three kinds of depunctualisation can be articulated in the ways in which these structuring structures structure the way actants’ constructions are made. These depunctualisations are particular to the actant’s subjection to the structuring structure that they embody.

These depunctualisations are referred to as asymmetries, producing a stratification of six types of embeddedness.  When this stratification is projected into the actant’s constructions, they articulate the embeddedness of underlying technologies in relation to the social objects of actants embodying demands within their contexts-of-use[13]:

  • The first asymmetry, separating a product/service from the technology embedded in it.
  • The second asymmetry, separating a solution delivered to a customer from the business organisation embedded in its processes of delivery.
  • The third asymmetry, separating the customer’s experience of the solution within their context-of-use from the customer’s demand.

When the delivery of a product/service, solution or experience is by a network that can be identified with a single organisation, its embedded behaviors describe a theory-in-use that may or may not correspond to what members of the organisation say they are doing.[14] When the relationships between these embedded behaviors become fixed by supply-side interests, they are fixed by an accountability hierarchy. [15]  The delivery of a particular customer’s experience is more likely, however, to be identified with a number of organisations operating as a network, describable also as a ‘system of systems’. [16] For such networks to function effectively, there has to be sufficient agility in the relationships between its embedded systems for them to be capable of being aligned dynamically in response to accelerating tempos in the emergence of new forms of demand. [17]

No disagreement?
Why should we not want to think about the ways in which networking is made impossible by the ways in which it is not possible to punctualise? The engineer in me wants to find ways of overcoming such impossibilities. But my colleague is right in pointing out that what always comes first must be the desire motivating the formation of the network.

[1] Bruno Latour (2005) Reassembling the Social: An Introduction to Actor-Network-Theory, Oxford University Press. p71
[2] Standardisation can be applied both to the way supply is coordinated and also to the way demand is defined in relation to the client/customer’s context-of-use. These two forms of standardisation have to be managed over a governance cycle. The examples of Ryan Air, McDonalds, Twitter and Facebook belong to particualr parts of that cycle in which there is competition on ‘customisation’ and/or ‘cost’.
[3] Accountable know-how in relation to the patient’s particular pathway is about much more than cost. The process of healthcare must be (and must be expected to be) a collaboration around a social object (the patient’s experience) in the full sense of the word. See Learning about Clinical Commissioning from the USA
[4] ‘Event’ is being used here “the problem of irregularity and indetermination, of the unforeseen and the unforseeable, of the eventually subversive and the disruptive.” See Parker, I. and D. Pavon-Cuellar (2014). Lacan, Discourse, Event: New Psychoanalytic Approaches to Textual Indeterminacy. New York, Routledge.
[5] This understanding of a social object is written about more fully in The social object – distinguishing Kleinian, ‘real’ and Lacanian objects. In explaining the basis of these social objects, Karin argued that the ‘real’ object came to serve as a social object to the extent that it supported a being-in-relation, mutuality or reciprocity between individuals on the basis of enabling temporal synchronisation or on the basis of establishing a shared temporal immediacy – individuals able to collaborate around a shared task, or individuals able to be present to each other in some situation (in contrast to the more familiar spatial synchronisation and immediacy of a face-to-face meeting). Furthermore, to the extent that this mutuality was experienced, it was experienced as a ‘We’-ness embedding the individual in a larger context, but derived from the nature of the shared situation rather than from an institutional affiliation.
[6] This understanding of the relation to ‘lack’ is developed further in a conversation on the refusal of (symbolic) castration. It is to be understood not in the sense of something unconsciously known but not yet brought to consciousness (an interpretive unconscious), but as something radically unknowable in relation to the unconscious per se – a real unconscious (in the sense of the Lacanian Real, not in the sense of ‘real’ reality). See Soler, C. (2014[2009]). Lacan – The Unconscious Reinvented. London, Karnac.
[7] Taken from Bruno Latour (1999) Pandora’s hope: essays on the reality of science studies. Cambridge, MA. Harvard University Press.
[8] Quoted from Harman, G. (2009). Prince of Networks: Bruno Latour and Metaphysics (Anamnesis). Melbourne, This is teh definition of novel emergence.  See later posting distinguishing novel emergence from hierarchy.
[9] This leads to an understanding of embedded strata of novel emergence as an effect of the interest and capabilities of the observer rather than an inherent property of that-which-is-observed. See Ryan, A. (September 2006). “Emergence is coupled to scope, not level.” Complexity – Complex Systems Engineering 13(2): 67-77. See the following series of postings.
[10] The ‘intentional’ nature of these objects may be understood as themselves networks that, in addition to their synchronic characteristics as a network, also have diachronic characteristics to do with the tempo at which they exhibit their behaviours, corresponding to a timespan of discretion. See Timespan of discretion and the double alignment of ‘know-how’.  For more on the significance of tempo, see [17] below.
[11] Category theory is one medium in which the relationships between these actants may be thought about. See A Categorial expression of Demand Asymmetry.
[12] The nature of such ontic assumptions are described in Describing what is going on (wigo)
The Oxford English Dictonary defined ‘ontic’ as follows: “Of or pertaining to knowledge of the existence or structure of being in a given entity.” Thus any ‘realist’ assertion of ontology is mediated by the ontic assumptions being made by the observer-entity making the assertion i.e. an ontology is built by an entity making ontic assumptions. The 4-quadrant model gives us a way of thinking about what kind of ontic assumptions the entity is making. The concept of the strategy ceiling further elaborates on the way these ontic assumptions are held by an entity in the form of stratified relations between the enterprise and demand.
[13] For more on these layers see 3 Asymmetries.
[14] These behaviors relate to each other in the form of a stratification of nested contexts which places the supply-side behaviors of the enterprise in relation to the demand-side contexts with which it interacts. Where such a relationship does not exist, we may say that the strategy ceiling of the enterprise prevents it. See The strategy ceiling.
[15] East-West dominance means having a business agile enough to support the particular relationships of embeddedness needed to sustain a relationship to the distinct forms of demand arising at its edges. Under these conditions, the 6-layer stratification is no longer usefully thought of as a hierarchy, but rather as a particular structuring of the alignment between supply and demand. Note that it is only by including the third asymmetry that the stratification can no longer be thought of as hierarchy. See When is a stratification not a universal hierarchy?
[16] Such networks involve distributed collaboration in a complex system-of-system multi-enterprise context over which there is no single source of control. See Enterprise Architecture for Complex System-of-Systems Contexts.
[17] The tempo at which an enterprise creates new uses for its systems is different from that of its acquisition or systems development processes. For example, the military continues to confront the issue of how fielded systems can support the agility needed by its deployed forces. This problem of diverging tempos applies to a variety of large-scale, software-reliant enterprises-such as those found in healthcare and digital communications. See Building Organizational Agility into Large-Scale Software-Reliant Environments.

Competing within ecosystems: sustaining ways of creating indirect value

January 2nd, 2013

by Philip Boxer PhD

What follows is the abstract and presentation given as an invited talk at the School of Systems & Enterprises, Stevens Institute of Technology:

The challenge
Organisations driven to avoid losses and improve gains must ultimately achieve new levels of value for their customers if they are to survive in the long run. This in turn means transforming the way they create value. As the competitive pursuit of value moves them further and further away from products towards services [1], value becomes increasingly specific to the customer’s context-of-use, and dependent on the organisation’s capacity to learn from those contexts [2]. The complexity involved in delivering this value is organised, and not just emergent from amongst the interactions between multiple organisations and stakeholders [3, 4]. To organise complexity, the forms of agency demanded of actors present them with unprecedented challenges, not only in defining relevant relationships between systems and environments, but also in defining the architectures organising the complexity [5, 6].

If we compare the approach to value creation in healthcare to that in manufacturing, we find the focus of effort moves beyond managing the supply-side complexity of supply chains [7]. The clinician has to manage the demand-side complexity of aligning services to the patient’s condition within a healthcare system that is a complex adaptive system with no overseer [8]. How is complexity to be ‘organised’ within such an environment? What forms of agency does this ‘organising’ demand of actors? And what approach to creating value does this imply?

A closer examination of the assumptions making healthcare delivery different to manufacturing has revealed eight differences [9]. From these eight (in single quotes below), two main challenges can be drawn:

    1. In considering ‘the expectations of customers’, there always remains an unknowable aspect of the customer’s need. It is experienced by the customer as a value deficit, and only becomes apparent over time as new forms of demand. The tempo at which these new forms of demand emerge is much faster in healthcare than the tempo at which manufacturing has classically designed new ways of delivering value.
    2. Bridging between the supplier’s design tempo and the customer’s demand tempo are the clinicians’ processes of alignment. The tempo of these processes link suppliers’ products and services together in ways that challenge the traditional uncoupling of supply from demand. They entangle the way any individual supplier creates value with others’ ways of creating value. This leads to the emergence of complex adaptive behaviours by the larger system because of the circular paths of causation they set up. This entanglement puts in jeopardy the classical supplier’s expectations concerning their ability to be certain with respect to ‘their knowledge of their future’, ‘the traceability between their performance and the result for the customer’, ‘the longevity of the production process’, ‘the ability to buffer the production process against variability in levels of demand’, ‘the connection between cost of production and revenue from the customer’, ‘the variability in their work processes’, and ‘the costs of production’.

How are these challenges to be taken up within a service environment such as healthcare?

Responding to the challenge
The presentation reports on research into the way suppliers use platform architectures to capture indirect value within business ecosystems [10]. Examples are used to illustrate how the concepts of value deficit and entanglement lead to a different approach to understanding the role of a supplier within an ecosystem. This difference is based on considering the relationships that suppliers have to indirect forms of demand, and the organisational processes by which suppliers’ products and services can be aligned with those of other suppliers to meet those demands. These indirect forms of demand render customers’ demands multi-sided [11], and reflect indirect forms of value.

The costs associated with these indirect forms of value include the costs of aligning suppliers’ products and services to the customer’s demand, and fall ultimately on the customer. Driven by their value deficits, the accelerating tempo at which customers make demands increases these costs of aligning products and services. The opportunity created for the supplier by multi-sided demands therefore comes from capturing some part of the economies in the costs-of-alignment that it can create for the customer. This in turn means that the supplier must adopt a platform architecture capable of capturing indirect value [12, 13].

The reported research uses a framework that (i) describes the variety of indirect demands, (ii) the organisation of the alignment processes, and (iii) the agility of the supporting business platforms, where agility is defined as the variety of indirect demands a platform can support at a given tempo. This framework is ‘triply-articulated’ because of the need to articulate relationships among three types of sub-model: (i) the organisations of value implicit in indirect customers’ demands, (ii) the social entities and supporting systems managing the supply and alignment of products and services, and (iii) the socio-technical systems generating these products and services. The framework enables the derivation of a layered analysis of the risks to which the capture of indirect value exposes a supplier, and provides the basis for an economic valuation of changes in the agility of platform architectures.

Implications of the research
The presentation discusses the nature of the complexity that makes this way of thinking about the relationships between suppliers and customers ‘non-classical’. Thus entanglement means moving from a one-sided to a multi-sided understanding of markets, which changes the unit of analysis from the supplier to the ecosystem with which the supplier is interacting. Analysing market behaviours in a way that is driven by a tempo of demand organised by customers’ value deficits means that there are many different local environments within which market behaviours are expected to be aligned.

A quantum metaphor will be used to cast light on what makes this way of thinking ‘non-classical’. The varieties of simultaneous behaviours which the business platform must be able to support are a superposed set of states. Each customer’s local environment collapses a singular local state from this platform that need not be correlated with states experienced in other customers’ environments. This collapse takes place through the local coherence created by alignment processes organised by shared meaning established within the customer’s local environment.

Two implications can be drawn from this way of thinking: first, agile platforms have to be engineered to support this level of variety in simultaneous complex behaviours; and second, forms of agency have to be developed within an organisation through which many forms of simultaneous local coherence may be created and sustained cost-effectively at its edges.

1. Prahalad, C.K. and V. Ramaswamy, The Future of Competition: Co-Creating Unique Value with Customers. 2004, Boston: Harvard Business School Press.
2. Rouse, W.B., A Theory of Enterprise Transformation. Systems Engineering, 2005. 8(4): p. 279-295.
3. Carlson, J.M. and J. Doyle. Complexity and robustness. in Proceedings of the National Academy of Science. 2002.
4. Doyle, J.C., et al., The “robust yet fragile” nature of the Internet. Proc natl Acad Sci USA 102(41), 2005: p. 14497-14502.
5. Rouse, W.B., Complex Engineered, Organizational and Natural Systems. Systems Engineering, 2007. 10(3): p. 260-271.
6. Barandiaran, X., E. Di Paolo, and M. Rohde, Defining Agency: individuality, normativity, asymmetry and spatio-temporality in action. Journal of Adaptive Behavior (Rohde, M. & Ikegami, T, (Eds) Special Issue on Agency), 2009: p. 1-13. This reference points to the singular and non-rational nature of the agent (“non-rati0nal” in the sense of not being governed by ‘rules’) .
7. Porter, M.E. and M.R. Kramer, Creating Shared Value: How to reinvent capitalism – and unleash a wave of innovation and growth. Harvard Business Review, 2011(January-February).
8. Rouse, W.B., Health Care as a Complex Adaptive System: Implications for Design and Management. The Bridge, 2008. 38(1): p. 17-25.
9. Rouse, W.B., et al. Models of Complex Enterprise Networks. in Second International Symposium on Engineering Systems. 2009. MIT CAmbridge, Massachusetts.
10. Boxer, P.J., Evaluating Platform Architectures within Ecosystems: modeling the relation to indirect value, in School of Engineering and Information Sciences. 2012, Middlesex University.
11. Evans, D.S., Some Empirical Aspects of Multi-Sided Platform Industries. Review of Network Economics, 2003. 2(3).
12. Gawer, A. and M.A. Cusumano, Platform Leadership: How Intel, Microsoft, and Cisco Drive Industry Innovation. 2002, Boston: Harvard Business School Press.
13. Evans, D.S., A. Hagiu, and R. Schmalensee, Invisible Engines: How Software Platforms Drive Innovation and Transform Industries. 2006, Cambridge: MIT.

What distinguishes a platform strategy?

May 14th, 2012

by Philip Boxer PhD

What distinguishes a platform strategy is the way it extracts value from the relationship to demand, not the characteristics of the platform itself.1

Richard Veryard asks does everyone (except Google) have a platform strategy?  The consensus appears to be that it does not, because as Richard argues in Google as a Platform (not), while it ‘gets ecosystems’, its approach to it is  ‘closed source’2, contrasting with the open source approaches of an Amazon or an Apple.

If we follow Haydn Shaughnessy’s argument for why Amazon succeeds, a platform strategy succeeds because it enables businesses within its ecosystem to create shared value; its use makes possible the development of complex option portfolios for pursuing business opportunities, assuming it has cloud characteristics and can minimise friction in establishing new connectivities; and its owners know how to use the platform to pursue radical adjacency:3

The ability to go beyond normal business practice and to seize opportunity in widely adjacent markets – think Apple in music, smartphones and, soon, TV.

This does not appear to be what Google is doing, with its continuing reliance on its advertising revenues, and with everything else it does being seen as a means of building traffic on which its revenues depend.

But what about a different perspective on this?  Amazon and Apple are pursuing direct value4 from their products and services that are in turn dependent on building  indirect benefits for the customers and businesses within their respective ecosystems.  But Google’s strategy is to pursue indirect value5 – the value it extracts  from the indirect relationships within the web-sphere from enabling advertising, explicitly subordinating the direct value of its products and services.  This is a strategy for pursuing asymmetric demand. This suggests that we need to think about two things:

  • firstly what constitutes a platform strategy (enabling the creation of shared value within an ecosystem); and
  • secondly whether or not the platform is used primarily for capturing direct (one-sided) or indirect (multi-sided) value.

I propose that it is this second thing that distinguishes the platform strategy.6 What about shared value? This is still being created because of the focus on the performance of the ecosystem rather than just on that of the supplier, whether the platform is being used to pursue direct or indirect value itself…

Looked at in this way, we can draw a parallel with the difference between acute and primary health care: both forms of care depend upon playing a valued part within larger ecosystems, but while the former aim to capture direct value from acute episodes of care, the latter aim to capture indirect value through the way they enable patients to manage their long-term risks of becoming unwell.7

[1] Note that the platform strategies described here use network-based architectures. See ideologies of architecture
[2] ‘Closed source’ is contrasted with ‘open source’ in Architectures that integrate differentiated behaviors, in which the platform supports indirect value for the customer, but does so through providing its own portfolio of complementary products and services.
[3] Real options are used in Evaluating platform architectures within ecosystems: modeling the supplier’s relation to indirect value. To be effective, these valuations have to be defined using a structural model of the supplier’s ecosystem and its relation to demand.
[4] Direct value is value captured from the direct relationship with a customer, the direct value being a cost to the customer of the direct benefit they derive from the direct relationship. From the supplier’s perspective, this is referred to as a ‘one-sided’ relationship because there is only one relationship to consider.  In Amazon’s case for example, I end up paying money to Amazon for the book.
[5] Indirect value is value captured from the direct customer’s relationship with other customers and complementors – relationships that are indirect from the perspective of the supplier, making the supplier’s relationship with the customer ‘multi-sided’.  This indirect value is a cost to the parties to an indirect relationship of the indirect benefit they derive from using the supplier’s service.  In Google’s case for example, the advertiser pays Google for being linked to the customer’s situation in which the customer is searching for something.  The advertiser gets linked and the customer gets to use a Google ‘product’.  (More on complementors etc can be found in asymmetric demand is multi-sided demand.)
[6] Richard’s use of ‘positional’ to describe Google’s strategy only works if we define their business model as extracting ‘rent’ from their proprietary search capability. And it is true that Google pursues the first two of the three asymmetries in the way its uses its technologies and market channels in delivering its services. But here I am arguing that their pursuit of the third asymmetry through the capture of indirect value makes their strategy ‘relational’ – Google is  endlessly trying to find ways of being indirectly useful within the context of the customer’s working/searching situation.
[7] This brings us to the world of edge-driven collaboration and many of the challenges facing government in how it evaluates services for its citizens (for exampling investing in e-Government).