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By Michael D. McMaster
Author of The Intelligence Advantage: Organizing for Complexity

Business is, fundamentally, a cognitive activity. That is, it is an activity of interpreting, understanding and making sense.

PREVIEW

The author co-sponsored two conferences, one in Phoenix and one in London, “Complexity and Technology: Organising for Innovation”. These conferences explored the four themes of the title with presenters from the Santa Fe Institute, executives involved in innovation and consultants developing applications of approaches of complex adaptive systems to business concerns. This is a review of the central ideas proposed at the conference from the perspective of one of the organisers, Mike McMaster. The central idea that integrates the four themes is that of the organisation as a cognitive or intelligent entity in its own right.

BUSINESS AS A COGNITIVE ACTIVITY

Business is, fundamentally, a cognitive activity. That is, it is an activity of interpreting, understanding and making sense. Each corporation makes sense of the world in unique ways which are provided by the perspective of it's particular identity. It is this nature that is the challenge executives continually face. The executive job is to provide a structure of interpretation that is consistent with the corporate identity and is a match for the external world - present and future. Both the identity and the external world are in a constant process of becoming and therefore both are subject to interpretation and are mutually influencing each other.

A recent conference explored this cognitive approach under the related topics of complexity, technology, organisation and innovation. These four themes are being treated as interactive, co-emergent, and mutually influencing. By shifting focus between the four themes, without losing sight of this mutual influence, a clarity begins to develop which provides design principles and guides action. We begin to see a variety of ways that we can influence direction and velocity.

Unilever has recognised this by creating a single board position for research, information technology and strategy. By locating responsibility for all of those areas in a single board member, they are ensuring that the various elements remain in constant connection and that they will inform each other and evolve together.

This article will focus on each of the four areas and attempt, with your active participation, to keep the mutual relationship present.

ORGANISATIONAL INTELLIGENCE

But first, it would behooves us to consider a bit more deeply this idea of business as a cognitive activity. A corporation is intelligent in ways which are analogous to individuals. We could say that life is a cognitive activity. Cognitive is being used here in the largest interpretation possible. It includes sensing and emotion, for instance, as well as calculation, comparison, interpretation and choice. This capacity for cognition that is our unique method of survival is distributed throughout the brain and nervous system. It is the organisation of the cells and systems which provide the capacity of intelligence. Our cognitive capacity is a function of the connections, both internal and external, of this system.

The same can be said about a corporation. A corporation's intelligence is a function of the organisation of the independent and distributed intelligence of the individuals within it and of the connections between these and the systems they are part of. It is not sufficient for just the CEO or a “brain trust” to be intelligent for a corporation to prosper. The cognitive capability of the whole system is the crucial factor. This is a matter of organisation more than anything else.

Now we'll consider the four areas in distinct sections. (Remembering that they are interdependent and mutually influencing.)

COMPLEXITY

The Santa Fe Institute (represented by Mike Simmons, John Holland, Stuart Kauffman, Brian Arthur and Murray Gell-Mann at the conferences) provides models based in research into the nature and functioning of complex adaptive systems. These models include seeing the living world as co-evolving, co-emerging, mutually interdependent elements and forces that operate at different levels. Each element that we choose to focus on is influenced dynamically by higher levels and by constituent lower levels. Key distinctions for understanding this nature are that the elements are largely autonomous, are connected or organised in particular ways, and that each autonomous agent has various schemas or strategies. These are all seen as having information processing entities as their key basis of organisation.

This group also says that the world is constantly getting more complex. As Stu Kauffman says, there are increasingly numerous ways to “get lunch”. Each increase in complexity creates the opportunity for even more complexity in spirals of innovation. By increasing complexity in the world, we mean the number of relationships of interdependence is expanding.

TECHNOLOGY

From the point of view of complexity and of the cognitive nature of business, the continued dramatic expansion of information processing technology is changing the competitive landscape more dramatically and rapidly than ever before. This technology increase is what makes the current research into complex adaptive systems possible as well as new approaches to organisation and processes of doing business. At the conferences, business challenges were represented by Colin Crook of CitiBank, John Chambers of Cisco, Hatim Tyabji of Veriphone and John Seely Brown of Xerox. The focus of each was not on the technology itself but on how technology was affecting the way that they organised to do business. Large and historically successful businesses are not organised to deal with the rapid change and new models demanded by the changes in technology. Technology demands these changes - more accurately, competitors' adaptation to new technology demands it - but the shift in thinking that is required to use the technology is not provided by the technology itself.

Organisations which are leading the introduction of technology are organised in very different ways than organisations which have been historically organised to deliver products, provide services or engage in business activities. These organisations recognise that cognition is the key. Veriphone uses metaphor, various recently produced artefacts and unique practices to maintain a large and fast growing company distributed widely throughout the world. To illustrate one of their differences, they have no head office location. This is a quantum leap from “reduced head office staff”. They have realised that technology not only alters the ways that it is possible to work, but enables ways of working that are fully distributed and honour the “autonomous agent” nature of independent intelligence.

Specific uses of technology to create possibilities for increasing organisational cognitive competence were presented (by Don Lavoie of George Mason University's Program on Social and Organizational Learning, Bill Roger of Synergistic Solutions, George Por of Community Intelligence Labs). Don showed that new kinds of dialogue have become possible using technology such as the web, Lotus Notes and FolioViews. Not only can dialogue be distributed over time and space but there are unique features possible due to saving and navigation of conversations as well as those made possible by constructed demands on time delay and memory. Face-to-face is most suitable to expressive conversation. Text (memos, documents) is best suited to high memory requirement. Each tends to favour different uses and different people. By building in reflection time and access to previous conversational content without being unduly limited by that content, a new kind of conversation more suited to depth and development of thinking by a community becomes possible. John Seely Brown shared some of the research being done by Xerox PARC in this area in both theory and practice. His focus on community as the source of learning and knowledge development becomes practical for dispersed organisations through the application of technology.

Another demonstration showed the development and use of a “knowledge ecology” specifically for increasing organisational intelligence using the web. A third demonstration showed how technology, using ISM, can support the executive processes of dealing with complex issues using the experience, knowledge and interests of those affected and involved. The primary focus of both of these strategies is that important knowledge exists within the communities affected by the intended outcomes.

ORGANISATION

The meaning of “organisation” has changed in the information age. An organisation used to be primarily formal and physical. Now it is primarily informal and non-material. The organisation of the corporation, like the organisation of all living things, is primarily a matter of relationship, communication, connections and responsiveness. Our individual intelligence is a function of the connections of the cells - and their elements and the larger systems that they are part of. These connections are iterative and mutually influencing at all times.

In corporate organisation we have some important unique features. One is that, unlike other living systems, we have an influence on our particular organisation structure. The other is that the primary element being organised is linguistic or language based. It is the flow of words and their meaning that is important in corporate organisation. Hence we have a great deal to say about our own design.

To be effective in this area, as well as the larger cognitive area, we need to understand the nature of emergent phenomena. The particular feature of emergence is that the entity which emerges is independent of that from which it emerged and also has different characteristics than its constituent parts.

Individual level intelligence can be said to be determined by cells of brains and nerves. But the characteristics and operation of the individual level intelligence has little similarity to the characteristics and operation of the cells. This can be said about a corporation. Its intelligence is independent of, and different in operation from, the intelligence of the individuals who are its elements. To understand how to organise for something on a corporate scale, we need to realise that it is not a simple matter of extrapolating how a few individuals would do something.

The basic nature of this approach is demonstrated clearly by comparing different games as John Holland did during the conference. There are ancient games that humans play, such as GO, which have been played for thousands of years. These games have few rules and few elements of operation. And yet they are still of interest, still being studied, still developing after all this time. A modern chess or GO master could beat any from another previous era for this reason. The games are endlessly fascinating and endlessly variable. They may represent the maximum in cognitive challenge.

These can be contrasted to technically complex games with many elements. These types of games usually are like puzzles: Difficult to solve but capable of only one (or a limited set) solution. These too interest us for their cognitive challenge but, unlike the simpler games, they come and go with fashion and have very short life spans. Once solved, they become uninteresting.

These can be related to how we think about organising for business. If we want to produce a complex machine that continues to provide a single answer to a stable environment, then we would organise with details and rules. If we want to produce a viable, robust, adapting organism that continues to survive and prosper in an unknowable variety of future environments, then we will organise with cognitive elements - a few simple principles and values - that demand constant cognitive activity and endless variations. We seek flexibility, learning and development of new knowledge instead of specific solutions.

This was demonstrated by Howard Sherman using franchising as a model for a way of doing business that is similar to the games metaphor of John Holland. The key requirement is to develop a model that is new and that demands continual re-creation rather than the mere repetition of a previously successful formula. We can see that many franchise systems start with the new but soon revert to the more normal business model of attempting to maximise the output of the existing machinery.

INNOVATION

Innovation can be viewed from the perspective of complex adaptive systems (represented by John Holland and Stu Kauffman) and from the organisational perspective (represented by John Chambers and Hatim Tyabji) in complementary ways. Holland showed how innovation is the result of constructing strategies with a few simple but key elements which can constantly experiment and yet which produce results of a predictable kind in a predictable direction. That is not to say that they are predictable in their specific - and that is an important distinction. Stu provided a model of the formation of life and related that to the formation of business opportunities. The term of art that he suggests is “the adjacent possible”. That implies that the next move in a strategic landscape will be where there is a new combination of existing elements possible that takes only one new piece to realise. That is, we might be able to invent a future that is far from the “adjacent possible” but it will take so many moves of an economic and intellectual nature that it will not be realised. These suggest strategies for growth for organisations.

John Chambers and Hatim Tyabji showed how the design and practice of organisation can be accomplished to provide a base for constant innovation. These are created from the cognitive step of realising that innovation is a matter of organisation and then designing so that the requirements are met by the operation of the system itself rather than by special effort “against” the system.

The requirements of organisational design for innovation and cognitive effectiveness (presented by Howard Sherman and the author) is that a few basic design principles be made explicit and then various models created from which endless variations can be created to match intentions with the environment. A candidate set of principles that have been working with clients and other organisations are:

Distribute accountability

Increase connections

Generate understanding

Engage and enrol

A model which provides context for the expression of these principles probably needs to include values, organisational principles, business or marketplace strategy and developing people.

SUMMARY

Business is a cognitive activity of the enterprise. It is not sufficient to have brilliant people designing great strategies. We must enhance the ability of the organisation as a whole to sense, interpret and choose processes which are generative. What we need to develop is the organisational intelligence. As in all living things, intelligence is a function of the organisation of the cells or agents which constitute that entity. Specifically, the organisation is of communication and relationships that enhance the information processing, it its broadest sense, of the whole. The ideas being developed at the Santa Fe Institute provide some concepts and a language to assist in design of our future organisations for intelligence.

Copyright ©1997 by Michael D. McMaster.