F. SPENCER + Y. MON­TERO SAL­VATICO

Rotman Management Magazine - - FROM THE EDITOR -

on SMART value cre­ation

the ex­po­nen­tial IN AN AT­TEMPT TO DE­FINE change that is re-fram­ing our tra­di­tional op­er­at­ing sys­tems and so­cial struc­tures, so­ci­ol­o­gist Zi­aud­din Sar­dar coined the phrase ‘Post­nor­mal Times’. Based on the con­cept of post­nor­mal science — in which facts and val­ues are con­stantly in flux — Sar­dar’s frame­work cap­tures the unique as­pects of the am­bigu­ous and shift­ing world in which we find our­selves.

The ideas that have his­tor­i­cally guided us — hi­er­ar­chi­cal struc­tures, top-down gov­er­nance, seg­mented in­dus­tries, in­tel­lec­tual prop­erty, per­sonal own­er­ship, etc. — are be­com­ing in­creas­ingly ir­rel­e­vant. To thrive, mod­ern or­ga­ni­za­tions must cul­ti­vate and em­brace new path­ways to value cre­ation that align with the char­ac­ter­is­tics of a Post­nor­mal Age char­ac­ter­ized by chaos, com­plex­ity and con­tra­dic­tion.

The In­dus­trial Rev­o­lu­tion cer­tainly brought about many won­der­ful ad­vance­ments in hu­man de­vel­op­ment: The in­tro­duc­tion of machine tools in man­u­fac­tur­ing pro­cesses; the mass pro­duc­tion of iron, which re­sulted in the ex­pan­sion of rail­roads and a boom in ur­ban de­vel­op­ment; and a con­sis­tent in­crease in the stan­dard of liv­ing for the gen­eral pop­u­la­tion. How­ever, the same era that framed to­day’s ap­proach to value cre­ation around ef­fi­ciency, pro­duc­tiv­ity, economies of scale and mass con­sump­tion also es­tab­lished sys­tems and struc­tures that have largely ne­glected a gen­er­a­tive and hu­man-cen­tric world­view in favour of a more mech­a­nis­tic ap­proach.

As we con­tinue the shift from the In­dus­trial Age to the Post­nor­mal Age, the met­rics that have led us to ed­u­ca­tional silo­ing, or­ga­ni­za­tional re­duc­tion­ism and the gen­eral quan­ti­fy­ing of life will no longer re­sult in suc­cess­ful value cre­ation. As sus­tain­abil­ity ex­pert Dr. Daniel Chris­tian Wahl points out in De­sign­ing Re­gen­er­a­tive Cul­tures: “What we need is a more nu­anced un­der­stand­ing of how, as liv­ing sys­tems ma­ture, they shift from an early (ju­ve­nile) stage that favours quan­ti­ta­tive growth to a later (ma­ture) stage of grow­ing (trans­form­ing) qual­i­ta­tively rather than quan­ti­ta­tively.”

If we are mov­ing into an era with a greater fo­cus on qual­i­ta­tive growth, it is im­por­tant to iden­tify the pre­vail­ing char­ac­ter­is­tics of what might be called post­nor­mal value cre­ation. Fol­low­ing are three key prin­ci­ples of this new par­a­digm.

1. POST­NOR­MAL VALUE CRE­ATION IS FU­TURE-EM­POW­ERED Re­cently, we spoke to a group of engi­neers and sci­en­tists at an aerospace agency who were tasked with work­ing on novel ap­proaches to ur­ban trans­porta­tion. Rather than talk­ing to them about the lat­est ad­vance­ments in elec­tric drone taxis or driver­less ho­tel rooms, we chal­lenged them to see how mo­bil­ity as we know it to­day is dra­mat­i­cally mor­ph­ing and may no longer be lim­ited to phys­i­cal modal­i­ties. As tech­nol­ogy im­proves and adop­tion rates rise, in­di­vid­u­als will in­creas­ingly lever­age the op­tions pro­vided by ‘holo­por­ta­tion’, aug­mented re­al­ity and dig­i­tal worlds as a sub­sti­tute for move­ment and in­ter­ac­tion in the phys­i­cal world.

At the end of our pre­sen­ta­tion, we shared an even more provoca­tive idea: these dig­i­tal land­scapes are cre­at­ing a

world of ‘quan­tum travel’. If we can vir­tu­ally be in more than one place at one time — or per­haps even em­brace more than one per­sona at any sin­gle point in time — might this not be pre­ferred to tra­di­tional no­tions of phys­i­cal mo­bil­ity?

As we ac­cel­er­ate towards a new world of ed­u­ca­tion, work and com­mu­nity, the present-day def­i­ni­tion of value that stems from short-term agen­das, in­cre­men­tal de­vel­op­ment and his­tor­i­cal fore­cast­ing is be­com­ing just as an­ti­quated as the sys­tem for which it was coined. We must learn to pull from the fu­ture to cre­ate ro­bust value in the present. In a world that is be­ing rapidly re­shaped by net­worked mat­ter, ar­ti­fi­cial in­tel­li­gence and dig­i­tal life­styles, cre­at­ing value re­quires an em­pha­sis on fore­sight rather than hind­sight.

2. POST­NOR­MAL VALUE CRE­ATION IS OR­GANIC AND COM­PLEX

In his ground­break­ing book The Ori­gin of Wealth, Pro­fes­sor of Pub­lic Pol­icy Prac­tice Eric Bein­hocker ar­gues against the classical no­tion of equilib­rium in eco­nomic the­ory, stat­ing in­stead that wealth cre­ation has all of the char­ac­ter­is­tics of a ‘com­plex adap­tive sys­tem’. As is the case with or­ganic or nat­u­ral sys­tems, the econ­omy trends towards greater com­plex­ity, spon­ta­neous self-or­ga­ni­za­tion, pat­tern gen­er­a­tion and the ac­cu­mu­la­tion of nov­elty over time.

Re­fer­ring to this con­cept as ‘Com­plex­ity Eco­nomics’, Bein­hocker notes that, “The most ob­vi­ous char­ac­ter­is­tic of economies is that they are col­lec­tions of peo­ple in­ter­act­ing with each other in com­plex ways, pro­cess­ing in­for­ma­tion, and adapt­ing their be­hav­iours. Rather than por­tray­ing the econ­omy as a static equilib­rium sys­tem, these mod­els pre­sented the econ­omy as a buzzing hive of dy­namic ac­tiv­ity, with no equilib­rium in sight. Just as the pat­tern of a whirlpool arises from in­ter­act­ing wa­ter mol­e­cules, these mod­els showed com­plex pat­terns of boom and bust and waves of in­no­va­tion emerg­ing from the in­ter­ac­tions of sim­u­lated agents.”

Be­yond rec­og­niz­ing that an in­creas­ingly com­plex en­vi­ron­ment is a nat­u­ral and or­ganic sign of ma­tu­rity, re­searchers and pro­fes­sion­als alike are re­al­iz­ing that com­plex­ity is the seedbed of un­lim­ited hu­man cre­ativ­ity. This gen­er­a­tive idea re-frames our view of com­plex­ity from be­ing a force that op­poses progress to one that en­ables us to un­earth cre­ative so­lu­tions to our great­est chal­lenges. Much like an ever-grow­ing can­vas, ac­cel­er­at­ing com­plex­ity is giv­ing us more space on which to paint an un­end­ing se­ries of unique mas­ter­pieces. 3. POST­NOR­MAL VALUE CRE­ATION IS OF­TEN IN­TAN­GI­BLE Ev­ery­one is ex­cited about the pos­si­bil­i­ties sur­round­ing the In­ter­net of Things — the idea that ma­chines of all kinds are be­ing con­nected to one an­other and can com­mu­ni­cate ef­fi­ciently and ef­fec­tively. In such a world, your car can talk to the city’s power grid, or your re­frig­er­a­tor can talk to an on­line de­liv­ery ser­vice. Nev­er­the­less, we still live in a world where Ap­ple’s Siri can’t even talk to Ama­zon’s Alexa. Why can’t there just be a de­sign pat­tern that would cre­ate a model of tech­no­log­i­cal com­pat­i­bil­ity for com­pet­ing tech­nolo­gies?

This is the ques­tion that tech­nol­o­gist Pria Ran­dolph asked when she de­cided to cre­ate Bit­gram, a ser­vice that uses machine learn­ing and blockchain to cre­ate a ‘Su­peri­den­tity’ for ev­ery per­son on the planet. Tran­scend­ing hard­ware and soft­ware com­pat­i­bil­ity — as well as time and space — this Su­peri­den­tity acts as your uni­ver­sal DNA in the dig­i­tal realm. Thanks to Bit­gram, “Real-time col­lab­o­ra­tions be­tween global busi­nesses — for in­stance, a bank, hospi­tal and an in­surance provider — through a dig­i­tal iden­tity is no longer in the realm of the imag­i­na­tion, but is be­com­ing a re­al­ity.”

The past sev­eral years have seen the dom­i­nance of in­tan­gi­ble com­pa­nies such as Uber (which owns no phys­i­cal fleet of cars), Airbnb (which owns no phys­i­cal prop­er­ties) and Face­book (which cre­ates no con­tent)—but the big­ger po­ten­tial for im­pact ex­ists around the grow­ing in­tan­gi­bil­ity of ev­ery sin­gle per­son on the planet. As tan­gi­ble value takes a back­seat to in­tan­gi­ble ben­e­fits, the hard skills we have craved for so long are giv­ing way to skills such as sense­mak­ing, cre­ativ­ity and em­pa­thy.

To prop­erly re­spond to the myr­iad changes around us, we can­not rely on the men­tal mod­els that were con­structed for suc­cess in a pre­vi­ous era. Fol­low­ing is our frame­work for post­nor­mal value cre­ation, which goes by the acro­nym SMART.

Those who hone the skills of sense­mak­ing and pat­tern recog­ni­tion will be able to un­der­stand and lever­age the world that is emerg­ing around us.

Value Cre­ation is de­rived through SENSE­MAK­ING. Trends in quan­tifi­able tech­nol­ogy, so­cial al­go­rithms and Big Data are ex­plod­ing, but it is those who hone the skills of sense­mak­ing and pat­tern recog­ni­tion who will truly be able to un­der­stand and lever­age the world that is emerg­ing around them. As a mat­ter of fact, it is the quan­tum speed at which these ideas are un­fold­ing that is mak­ing the hu­man-cen­tric qual­ity of holis­tic sense­mak­ing a vi­tal lead­er­ship mind­set. This way of think­ing is not only crit­i­cal for

look­ing be­neath the sur­face of fast and fu­ri­ous change, but al­lows us to en­vi­sion the out­comes to the con­ver­gence of trends and com­plex sit­u­a­tions so that we can get ahead of the fu­ture.

Value cre­ation is de­rived through MESHING. In this new era, we must ‘un-silo’ dis­ci­plines and prac­tices to foster the emer­gence of unique ideas and ac­tions. This is the skill of in­ten­tion­ally cre­at­ing the ‘spa­ces in be­tween’. As it turns out, the si­los be­tween dis­ci­plines have ac­tu­ally cre­ated many of our great­est prob­lems and chal­lenges, and the abil­ity to ex­plore the sweet spots be­tween ideas and prac­tices al­lows us to ‘dance with com­plex­ity’, pur­posely em­brac­ing, har­ness­ing and lever­ag­ing the new land­scape in or­der to cre­ate unseen or­ga­ni­za­tional mod­els, strate­gies, in­no­va­tions, ex­pe­ri­ences, and ser­vices. We of­ten frame the mind­set of meshing as the abil­ity to think in ‘si­mul­ta­ne­ous mul­ti­ples’, en­vi­sion­ing the ex­pand­ing land­scape of pos­si­ble fu­tures.

Value cre­ation is de­rived through ADAP­TA­TION. Adap­ta­tion is the abil­ity to learn from the con­text of a sit­u­a­tion and evolve busi­ness prac­tices in real-time to be­come bet­ter suited to re­spond to in­ter­nal or ex­ter­nal change. Core to this def­i­ni­tion is fast-paced flex­i­bil­ity, with the most adap­tive or­ga­ni­za­tions em­brac­ing fluid, de­cen­tral­ized struc­tures that em­power de­ci­sion-mak­ing at all lev­els. Adap­tive lead­ers em­brace a learn, un­learn and re­learn strat­egy, re­al­iz­ing that a per­pet­ual state of re­vi­sion is re­quired for suc­cess in the cur­rent en­vi­ron­ment. Au­thor Greg Satell de­scribes the value of adap­ta­tion in a volatile land­scape: “In a fast-mov­ing world, where tech­no­log­i­cal cy­cles out­pace plan­ning cy­cles, we need to con­tin­u­ously reeval­u­ate the con­text in which we op­er­ate. In an age of dis­rup­tion, the only vi­able strat­egy is to adapt.”

Value cre­ation is de­rived through RE­SILIENCE. Re­silience is the abil­ity to mit­i­gate risk in the face of dis­rup­tions, re­cover quickly while main­tain­ing con­tin­u­ous busi­ness op­er­a­tions and safe­guard peo­ple, as­sets and over­all brand eq­uity. Sim­ply stated, a re­silient struc­ture is able to bend with­out break­ing. Au­thor Ja­mais Cas­cio high­lighted re­silience through the real-world ex­am­ple of the tra­di­tional elec­tric­ity grid, not­ing that, “To­day’s power grid (centralized, with lim­ited di­ver­sity) is brit­tle, and the com­bi­na­tion of a few lo­cal fail­ures can make large sec­tions col­lapse; a ‘smart grid’ (de- centralized and highly di­verse) has a wide va­ri­ety of in­puts, from wind farms to home so­lar to bio­fuel gen­er­a­tors, and its net­work is de­signed to han­dle the churn of lo­cal power sources turn­ing on and shut­ting off.”

We are ex­pe­ri­enc­ing an in-be­tween pe­riod where old or­tho­dox­ies are dy­ing, new ones have yet to be born, and very few things make sense.

Value cre­ation is de­rived through TRANS­FOR­MA­TION. An in­creas­ingly com­plex world de­mands that we move be­yond in­cre­men­tal de­vel­op­ment into trans­for­ma­tional think­ing in or­der to de­liver sus­tain­able value. In this en­vi­ron­ment of volatile change, lead­ers must be will­ing to em­brace the un­known, de­vel­op­ing an abil­ity to go be­yond their com­fort zone and ex­plore ideas out­side of the scope of their ev­ery­day ac­tiv­i­ties. Ac­cord­ing to au­thor Stephen Den­ning, 21st cen­tury lead­ers and or­ga­ni­za­tions must be­come ‘fu­ture fit’, and this is ac­com­plished by ex­pand­ing the field of vi­sion when it comes to trans­for­ma­tion: “Trans­for­ma­tional in­no­va­tion re­quires lead­er­ship that con­tin­u­ously looks at the world so as to un­der­stand the story that is emerg­ing, and is con­stantly on the look­out for the pos­si­bil­ity of cre­at­ing a new nar­ra­tive that can suc­cess­fully guide the or­ga­ni­za­tion into the fu­ture.”

In clos­ing

As de­scribed by Pro­fes­sor Sadar, post­nor­mal times are “an in-be­tween pe­riod where old or­tho­dox­ies are dy­ing, new ones have yet to be born, and very few things seem to make sense.” Most or­ga­ni­za­tions to­day have spent con­sid­er­able time and re­sources to en­sure that they can suc­cess­fully cre­ate (or at least sus­tain) value in an en­vi­ron­ment char­ac­ter­ized by in­no­va­tion and dis­rup­tion. How­ever, very few are pre­pared for a world in which the con­cept of value it­self is com­pletely re-framed.

The pro­found changes that are tak­ing place to­day de­mand that we let go of out­dated mind­sets and prac­tices and adopt a novel way of see­ing, de­sign­ing and ac­ti­vat­ing value. For those with the courage to pivot, an un­tapped well­spring of op­por­tu­nity awaits.

Frank Spencer is the Found­ing Prin­ci­pal and Cre­ative Di­rec­tor of Kedge Fu­tures. Yvette Mon­tero Sal­vatico is Prin­ci­pal and Man­ag­ing Di­rec­tor of Kedge. She pre­vi­ously led the ef­fort to es­tab­lish the Fu­ture Work­force In­sights divi­sion at the Walt Dis­ney Com­pany. Their clients in­clude Proc­ter & Gam­ble, Toy­ota Fi­nan­cial Ser­vices, Pets­mart, X-prize, Dis­ney and LEGO.

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