Approach: Cases and project-laboratory.

Faculty: Philipp Mueller, Bernie Krieger (Cambridge)

Who should participate: anybody who wants to use social media more effectively.

Approach: Cases and project-laboratory.

Faculty: Philipp Mueller, Bernie Krieger (Cambridge)

Who should participate: HR executives, public affairs executives, senior decision makers.

Frameworks: Anti-Leadership

Approach: Cases and reflection workshop.

Faculty: Philipp Müller

Who should participate: Senior executives from private, public, and civil society organizations.

Frameworks: Post-Coasian Economics, Open Value Chain Analysis

Faculty: Philipp Müller

Who should participate: Senior executives from public, and civil society organizations.

Frameworks: Project Finance, Risk Allocation, Interest/Knowledge Analysis

Approach: Case Based

Who should participate: Senior executives from private, public, and civil society organizations.

Faculty: Akash Deep (Harvard Kennedy School), Philipp Müller

Frameworks: Porter’s Diamond, Performance Ecosystems, Learning Networks.

Approach: Case Based.

Who should participate: Senior executives from private, public, and civil society organizations tasked with setting up industry clusters.

Faculty: Edgar Aragon (Harvard Business School), Philipp Müller (SMBS)

Consider Apps for Democracy, which yielded 47 iPhone, Facebook and Web apps in 30 days – a $2.3 million value that only cost the city $50,000. It’s hard to dismiss an estimated 4,000 percent return on investment in one month’s time. The contest’s success, powered by iStrategyLabs, spurred Apps for Democracy “Community Edition” and spinoffs in other cities.

This approach of utilizing the ROI framework to defend 2.0-strategies, however, has several flaws, (a) it might have been a lucky shot, (b) it might not be sustainable, (c) contests might not focus on what citizens need (d) any impact below a certain threshold, let’s say $ 1 billion does not carry weight in big governmental or corporate organizations, but (e) most importantly, ROI is the wrong tool to evaluate success of enterprise/government 2.0 projects, because most of the value is accrued with the consumer not the producer of the value.

If we look at the most successful 2.0 projects of the last years, we see a pattern, where the ROI is not a relevant indicator to evaluate the project. One of the first big 2.0 projects, Wikipedia, destroyed the encyclopedia industry, but is not generating major revenues.  Couchsurfing and sites like http://airbnb.com/ or http://www.crashpadder.com/ are taking big bites out of the Hotel industry without generating equivalent returns. Open Street Map is having a huge impact on the mapping industry, one of the most profitable industries of the last years. Dynamic ridesharing is creating a secondary mobility infrastructure in most countries, basically competing with our complex integrated public transport systems such as the German Railway, with revenues of more than 10 billion euro in passenger transport per year or shorthaul flights. The combined revenues of the 5 major German ride sharing companies is way less than $ 10 million, but the impact on the lifeworld of their users is dramatic.

There are three lessons to be gleamed from this:

• the impact of 2.0 project are not to be evaluated in ROI, but in consumer-focused metrics (shadow prices, counterfactuals, reduction in average cost, rate of demonetarization, etc.). Ideally, not in monetary terms, because 2.0-strategies aim to de-monetarize.
• for corporations, 2.0 strategies go way beyond “normal” cannibalization strategies. They focus on the de-monetarization of industries. Therefore, as strategists, we need to ask, how can we generate a revenue flow that does not inhibit adoption, but sustains the effort.There is no choice, either we do it, or someone else will do it.
• For public value strategists that are not entrenched in existing practices this is a dream-come-true. You can now recreate a multi-billion-dollar infrastructure (the German railway system) with a web-page.

If this does not sound like a fun scenario from the perspective of an existing organization (be that governmental or private), be assured that there is nothing you can do against it. The two mega-trends driving the development are the dematerialization of the economy which has been going on for over one hundred years (the weight of the US economy per dollar of GDP has been decreasing more than 100-fold in the last century) and the implosion of transaction costs of organization through digitization and the rise of n-to-n (peer-to-peer) media are leading to new forms of organization (open value chains) and new products and services that can be digitally provided at basically zero marginal costs.

An analogy of what is happening today can be seen, when we look at the historical institution of medieval knighthood, probably the most expensive and sophisticated approach to individualized fighting and organization of social and cultural life in the history of humanity. In 1386, at the battle of Sempach, a “web-startup” consisting of Swiss peasants defeated the Austrian knights, by pushing them down from their high horses by using long poles. Not very sophisticated, but sufficient to get the job done. Expect more of that today.

When in Berlin, I also had breakfast with Peter Scheufen, the CEO of Skobbler, a smartphone navigation company that was globally the first to utilize Open Street Map in its core navigation product and that is making the navigation industry very nervous.  Peter sees his role as a negotiator between the world of the voluntary mappers, software developers that might want to build applications on top of his server offering, and consumers that expect a working navigation product for as close to free as possible, and believes he can build a business model where he can generate a non-intrusive revenue stream for his company. Navigating these waters is not easy, but it can be very rewarding for all of us, who believe we can have a positive impact on this planet and generate revenues, by figuring out how to generate revenue streams that do not disturb the value chain. So, ignore the ROI-issue and focus on the big picture of (public) value creation!

Open government is the doctrine and governance approach which holds that the business of government and state administration should be opened at all levels to effective public scrutiny and oversight to improve capacity and legitimacy of collective action. It outlines a “brave new world” of doing governance. The discourse on the topic has focused on the technical aspects (open data) and the legitimatory aspects (e-participation) but has dangerously ignored the managerial aspects (open statecraft). In the following I argue, why we should put more emphasis on this concept.

In 2010 we are confronted with new policy and management approaches in the public sector like technologically mediated policy initiation and formulation (Obama’s Open Government Initiative), distributed intelligence gathering (the US intelligence communities Intellipedia), crowdsourcing of accountability (The Guardian’s British Parliament invoice scandal platform), or peer producing political campaigning (the Obama Campaign), and social media enhanced (twitter) revolutions (Iran). No government in 2010 can afford to not use these types of new public governance. Most governments today are confronted with several policy and administrative challenges (transparency, effectiveness, corruption, legitimacy, etc.) that can be addressed by an open value creation.

Open Value Chains that interface to experts, local knowledge, stakeholders, and crowds allow for new modes of organizing collective action in business, society, and government. Recent dramatic reductions of transaction costs in organizing collaboration have allowed for amazing advances in collective value production (think Wikipedia, Linux, or Ushahidi) and will transform our lifeworlds.

Open government introduces new logics of collective action that move beyond the “modern” core ideas of governance, which are based on institutional legitimation of processes and very restrictive information sharing (arcana imperii/state secrets, administrative secrets, business secrets, complex intellectual property rights regimes). This conceptualization of collective action as open value chains implies three important perspectives:

Open Data

The technological perspective represented by the Open Data Movement. Open data is a philosophy and practice requiring that certain data be freely available to everyone, without restrictions from copyright, patents or other mechanisms of control.

E-Participation

E-Participation is the use of information and communication technologies to broaden and deepen political participation by enabling citizens to connect with one another and with their elected representatives.

Open Statecraft

I propose the term open statecraft to introduce the managerial and strategic perspective, to open value creation. The term statecraft refers to the art of conducting state affairs, sometimes with sinister implication, as used by Macaulay (1855) in his Hist. Eng. xviii. IV. 163 A double treason, such as would have been thought a masterpiece of statecraft by the great Italian politicians of the fifteenth century. So open statecraft openly states the ambition of actors to utilize the logic of openness to achieve objectives. Anything else, would be insincere.

The core technologies of open value creation from a managerial perspective are the wiki (principle-based, user-generated platforms, with flexible moderation capacity), the forum (question driven user-generated knowledge platform), blogging (core message with feedback/discourse loop), social networks (such as Ning-communities or Facebook groups) and work flow management and visualization tools (Government resource planning, government process mapping tools, think SAP, Oracle, SugarCRM, etc.). Together they allow us to structure policy and administrative public value creation processes, by enhancing ideation (idea-generation), deliberation (commenting and discussion), collaboration (generating public values), and accountability (parsing data to hold government accountable).

In the discourse on open government the main focus has been on open data and new modes of participation, often without considering the political ramifications of these ideas. It sometimes even seems that the idea of thinking through the strategic, managerial, and political consequences of opening value chains is considered as untrue to the original idea of the concept or even “Machiavellian.” However, without the buy-in of political entrepreneurs that are able to structure open value creation processes, we will not get there. Utopianism without strategy spells disaster.

Therefore, we need to augment the technocratic ideas of open data and the democratic ideas of e-participation with the strategic, manegerial, or political perspective of open statecraft. Only if we offer a perspective that involves the power politics taking place in any institutional setting, can we realistically discuss and implement Open Government as a new form of collective action.

By foregrounding their solutions (to yesteryears problems) and placing them in their historical context, maybe, we can make room for new logics of collective action.

In 1937, Coase published the Nature of the Firm, defining the idea of transaction costs in order to address a puzzle that mainstream economics had ignored at the time: the question of why firms exist in a world, where markets were assumed to be the most efficient allocators of resources. The analytically powerful tool of transaction costs allowed him to ask situation-specific questions on when a firm might be more efficient then market-based transactions. He clearly operationalized his framework, by stating that other things being equal, “a firm will tend to be larger, the less the costs of organizing and the slower these costs rise with an increase in the transactions organized.” (Coase 1937)

He is wrong, at least in some situations: a new form of (non)organization emerges when transaction costs fall so dramatically that neither a market nor a firm is necessary to integrate global supply chains, as we can observe in the case of Wikipedia or Linux.

In 1947, Horkheimer and Adorno published their Dialectics of Enlightenment, a small book of essays that they conceptualized as a “message in a bottle” to a future audience. Their chapter on the culture industry is a scathing attack on art in mass society. They describe the complex environment of capture where industry plays to a mass audiences taste that itself becomes streamlined by industry. Art looses its relevance as an outside critique of existing power asymmetries.

Their media critique hinged on one technological factor, namely that 1-to-N media outperform N-to-N media. They do not imagine a world of a thousand blossoming blogs and youtube-publishing grandmothers. Most media critics have been raised on their scenario, therefore are not good at imagining a world that is neither elitist nor captured.

Mancur Olson’s Theory of Collective Action (1964) is based on the simple recognition of the category mistake that the common collective interest of a group does not automatically lead to harmonious collective action by its members (I agree). His words “rational, self-interested individuals will not act to achieve their common or group interest” have been seared into our unconsciousness. The elegance of his argument has led us to assume free-riding wherever and whenever at least two people get together. We tend to forget that his argument relies on several contingent assumptions concerning transaction costs of collective action (that they are fairly high) and on how we understand human agency (ignoring that most of what we value is inter-subjectively derived).

Thanks to Mancur Olson, we have lost the ability to explain why people act collectively beyond their narrowly defined individual self-interest. So when confronted with the phenomenon, we have been denying its existence. And even after being confronted with lots of empirical evidence (think Linux, Wikipedia, or Mother Teresa) we are struggling to develop the vocabulary to talk about open value chains, commons-based peer production, and massive collaboration. The poverty of our economics (in the original sense of good husbandry) has forced us to rely on a fairly undeveloped metaphorical language of Marcel Maus’ gift economy, the communal cooking pot, or the North American Potlatch system to make sense of something as intuitive as intersubjective coproduction.

Thomas Schelling took the idea of rational interest to the extreme. By postulating a situation of an absolute threat to individual and collective survival (the anarchy of the international system under the threat of nuclear annihilation), he could get rid of all inter-subjectivity. Assuming a world without language (or a world where language had no value, because it would not carry weight), he was able to concentrate on signaling, the thinnest form of co-action. The beauty of signaling is that it is self-explanatory and clear, no messy inter-subjective understanding needed.

However, he purposely ignores all aspects of social life that depend on humans working together to find out something that neither of them knows ex ante. As good acolytes of Thomas Schelling we assume that “talk is cheap” and facebook is suspect. Never mind that anything human that is of value is inter-subjectively created.

Nietzsche said, you must have chaos within you to give birth to a dancing star, but definitely, we should not rely to much on C-H-A-O-S, when constructing the political theories of tomorrow.

Keep an open mind, relearn to speak inter-subjective philosophy, ignore contract thinking in political theory and economics, learn from what you see around you, develop an appreciation for new logics of collective action, and start building open value chains and communities of practice. Imagine what Machiavelli would write about, if he would would write today.

It is a historical moment analogous to the new logic shaping societies when we moved from transcendental to immanent explanations of collective action in the 15th century. And just as Machiavelli tried to uncover the systematic aspects of these logics, we need to focus on new statecraft and new strategy. Below is a  screenshot and link to an interview I did along these lines with an Austrian Monthly, you might enjoy it (if you read German).

I started out by showing a knight, probably the most elaborate (and expensive) personal fighting machine ever developed in the history of humanity and made the analogy to our modern businesses with their corporate headquarters, huge man counts, sophisticated policies, etc.

Well, in 1368, at the battle of Sempbach, a group of Swiss peasants with long poles developed the approach of pushing the knights of their horses and then killing them as they were lying on their back in their heavy armors. Is there anything we can learn for today’s business?

I continued to show how macro-historically, the interplay of technologies and ideas have transformed modes of production and consumption dramatically in the history of humanity and I outlined the logic of “really simple group forming” and how it needs new leaders (what Sofia Elizondo and I call anti-leadership) and new forms of organization (open value chains). Here is the presentation – hope you enjoy it!

I took up that thread and connected it to the idea of statecraft, a concept you can only talk about with a straight face, when speaking in the halls where Metternich, von Stein, Kelsen, and co. voiced their ideas and created the modern state. In this situation, we were able to start an important conversation on how the idea of collaboration in open value chains and social media technologies are transforming public value production.

It was amazing to learn from the top German government officials concerning the topic. There is clearly a very sophisticated, but distributed community out there in government that is starting to make change happen. Expect great changes in the next year.

Anyway, if you want to read the talk, I posted it here. I would love to get your feedback on the text and continue the conversation.
(in German)

This year in our leadership course students came up with new questions that we had not heard before: why do you teach us leadership, if value is created through the collaborative efforts of open source communities? And how does your class help us to foster such collaboration?

While meandering through the Alte Pinakotek in Munich, one of the world’s greatest collections of old masters, where societal transformations of the 15^th Century are painted onto canvas (stark reminders of the power of ideas on our worlds), Sofia Elizondo from the BCG strategy institute and I mulled over this question.

Here’s our raw thinking that will form the basis of an article on anti-leadership. Do join us in this effort!

Moving from Strategy to Second Order Strategy

The world has seriously changed.  Not just the financial crisis, but a systemic profound shift.  We can see this broadly across many different “categories” from politics to our lifeworlds. For example, interconnectedness has changed our societal behaviors and expectations; Technology has changed the way organizations relate to each other and generate value.

In the business world, we used to want to be industry leaders because industry leadership granted security in the # 1 spot.  NOT ANYMORE!   While industry leadership used to last 10 years, it is now common to find industries where the #1 spot is held by a handful of companies during any given year. We also assume that industry leadership is desirable, that market share increases profitability.  That relationship has also disappeared and in some industries even inversed.  So why do many companies’ mission statements still say: “we want to be the number 1 provider of toothpaste?”

To explain this marketplace turbulence, some academics push the “hypercompetition” theory.  We see all of this turbulence in industries because the world is approaching a more perfect marketplace, competition in fiercer so more value is transferred to the consumer..  However, the data show the contrary.  The difference between the top performers and bottom performers within industries is actually increasing, not decreasing.  So SOMETHING must be driving that change.

Now, if we look at classical strategy – the strategy derived from 19^th Century Prussian military thinking, we realize that Clausewitz’ian strategists basically do the following: analyze their market, forecast the future, and optimize the company accordingly through a first order strategy plan.

This might have worked very well for the stable business world of the 60s, but it assumes we can KNOW all of the relevant variables, and that we can FORECAST them.  These assumptions unfortunately do not work very well today.

Now, is classical strategic planning irrelevant in all industries?  Not really.  If we plot all industry groups across a “turbulence chart” measuring rank volatility across the x axis, unpredictability on the y and the difference between bottom and top performers on a 3rd axis, we see that there are particular places where it is much more relevant, and other industries that are hopeless. Unfortunately, it is hopeless in the fields that we care about, such as telecoms, software, internet retail, media (which is not surprising).

So now what?

Let’s replace the Prussian military battle analogy with a metaphor of organizations successfully thriving in unpredictable environments: genetic systems in biology (populations of species, for example) The trick of biological systems is their second order “planning” capability: they adapt flexibly to changing environments without asking their CEO for permission. Naturally, populations randomly generate enough genetic variation to survive environmental changes, such as food shortages, climate changes or new predatory patterns. In that sense, the population is not optimized for lean six-sigma performance, but carries some “genetic slack” that can be very useful for the survival of the species if an Ice Age comes along (or if their food source dies out, a meteor strikes or any other unpredictable event occurs).

Adaptive Strategy’s aim is to set the context for strategies to emerge, NOT to specify The Strategic Plan for the organization. Now as with any metaphor, let us not take the biological approach to an extreme. We can still assume some type of coordinating function, or what we could refer to consciousness or an organization that defines the second order strategies, designs the organization fit to carry these out and intervenes in extreme situations, where adaptation would fail. And this is where anti-leadership comes in.

The Leader of the past

In the past the leader was an authority figure.The term “leader” begs the question: Of what? The immediate answer is: of followers. Notice that it is content agnostic. (Leading towards good or evil is still leading). The leader would focus on the crowds it leads: big, small, fully committed, yet-to-be-convinced, etc. The leader “knows more,” therefore had more authority, therefore, was legitimized.

Anti-leadership / second-order leadership / “designers” begs a different question: not “who and how do I lead?” but “what should be achieved?” which is where the focus should be: the target, aim, direction in front. Not the crowd behind. The anti-leader knows that she does not know, that the emperor has no clothes. In that sense, she relies on the organization’s tentacles to gather, interpret, and act on information.

Implementing Adaptive Strategies through Anti-Leadership

With the advent of constructivist thinking in academia, professors have been slowly moving from taking the role of “the sage on the stage, to the guide by the side.” With adaptive strategizing, CEOs will have to learn this lesson. And it will not be easy to move away from the idea of leading, where essentially all others are blind followers, willing to internalize the messages of the leader.

The core principle of anti-leadership is fairly easy. When you cannot analyze, forecast, and plan anymore, you need to empower your organization to be able to modulate it to turbulent contexts, by allowing for variation (think Google’s 20% rule), define meta-principles of selection through mechanisms such as simulation, scorecards, or actual performance in the market place (think Google’s testing of any interface changes), and amplify what works, through scaling-up mechanisms.

The PILS Framework of Anti-Leadership

This type of modulation can be done by designing your organizations around processes in the following way:

Process: Design a beta-process, deliberately, expose it to the real world before it is finished, so that feedback and selection mechanisms can help it adapt.

Interface: Design as many interfaces to the process as possible, these can be internal or external, they can be to experts or to the unwashed masses. Interface design is a second order strategy guided by the question, who should be allowed to contribute to the process and it is a third order strategy, when you ask who should be allowed to make changes to the process.

Legitimacy: Do not stop in defining interfaces, which can be seen as a technical issue (what APIs to use, what standards, etc.), but imagine communities around them (and again these can be contractually bound to you or not. They might be experts, carriers of local knowledge, or crowds).

Scale: The issue of scaling processes is not trivial. Just as different forces of nature work differently at different scales, think about how gravity does not really affect an an ant – it will survive a fall from a 10 story house, however, wind does. An elephant on the other hand will not be swayed by wind, but could not survive the drop. So the challenge for the anti-leader is to think about processes at different levels of scale and how to get from one to the other.

Skills of the Anti-Leader

Anti-leaders are not loud, they listen. The do not command, but empower. They do not choose, but design decision mechanisms. They do not aim to be smarter than the crowd, or the outsiders, or the locals. But they guide and shape and LEARN. Is this what we teach in leadership class? Is this how you see yourself as a leader? It might be time to rethink our higher education curricula….