Harvard Business Publishing

I've been waiting for this post, Umair.

As you say, institutional decay . . . and the new DNA that will replace it. That's right on and thanks for articulating it so clearly and succinctly (the chatter most definitely dies down in the face of this insight).

I'd like to draw out the necessity of meaning more, though, because intuitively I get it and agree, but I don't think the link between meaning and next-generation businesses (and institutions . . . or as institutions) is totally clear.

What I do know is that in a connected economy people - us - own the business environment and the products and services that flow from it . . . and, increasingly, from us.

And so, what is meaningful to people and groups/communities naturally becomes the background field for what they pay attention to, interact with, buy, and so on - and that field of meaning, even if it's unconscious, is going to, particularly as more industries and institutions collapse, get richer and deeper.

In the absence or reduction of structure (. . . but above chaos), people will simply ask themselves more often: "What do I want?"

GenY and what they "expect" in the workplace is a good example of meaning exerting its influence - individually and culturally - on the less encumbered: http://snipurl.com/3tkz4

Meaning, of course, means different things to different people, and can be extremely low grade, so, obviously, we need radical new institutions, too, for helping people cultivate quality meaning, and I know a lot of educators are already working on that.

But, assuming that can be done, then, yes, I think meaning, in a connected economy/culture, must - as in no choice - be tied to business strategy, value, and success.

I also think that meaning as a business driver is going to be the hardest thing for most people to understand. It just seems so foreign to the way business has been done for a dozen decades.

But in a way, it's so simple. It just comes back to information, to connected people with zero-cost information at their disposal.

Obviously, they're going to ask themselves, in this prevalent information context, what should I do with this information in my "communities, networks, and markets"? Meaning is going to drive that to a large extent.

I would clarify this to say that 'we need to put the meaning back into BIG business'. Most small businesses have meaning and purpose. The proprietors generally know their customers and tailor the business to suit their needs. Innovation is necessary, as competition is fierce, and there is less inertia to fight with internally. The problem arises when the business becomes a massive, publicly traded, company.

So, can we radically reshape large corporations to behave like startups? Or do we need to shift our economy further towards peer production and edge strategy. This would allow economies of scale to be reached at a lower level of production by creating more value outside of the firm?

Can 1000 small insurance companies create >1000X the value of an AIG? If so, then why did AIG become so large?

This is a great post.

the concept of putting the meaning back into work isn't going to be a luxury - but a mechanism of basic survival and physiological well-being so that people can remain emotionally stable.

When you're upset, poor and atomized it makes you want to kill people. Meaningful work can help change that, simply feeling a part of something "meaningful" can change that.

One of the most enjoyable, hard-hitting and well written posts of yours all year.

Thank you!

First off, thanks Umair - I'd been waiting for this post too. An excellent bringing together of your ideas in the context of the meltdown/macropocalypse, with a clear agenda for how we develop new DNA in business.

I intend to bring these things to bear in my business and future businesses.

The massive failure of the investment banks gives the hardest evidence yet that this change is required.

@Nicholas - I think it over-romanticizes small business to say most have meaning in them. There are as many venal individuals and aspirant rip-off merchants in small business as in big. I agree you're more likely to find people making meaning in that category.

Great post Umair and more and more precise.

In your first writings, few months ago, i was wondering if your "good beats evil" concept wasn't relying on the Kant's "Categorical Imperative"
But , in your more recent works, i feel that you're more interesting by the Levinas defintion of ethics.

Am i wrong?

Sorry if i'm a little bit conceptual but it can help to understand your idea of "meaning and purpose"

How about some focus on better ways to provide for the necessities of life?

Food will be one of the major problems of the next generation.

Petroleum-intensive corporate agriculture is not sustainable.

The combinations of peak oil, climate change and economic meltdown make destroy the current food system.

I went to a conference last weekend with some of the people who are developing a next-gen food system: http://www.growingpower.org/conference.htm

They're not as techno-hip as some of the people who participate in this forum, so you might overlook these kinds of efforts. But they also might save you.

Okay, Umair. This blog post is good, but the real question is: how do you (as in: YOU) educate (or re-educate) a large number of people on this?

I've spent hundreds of hours reading Benkler, Hagel, Haque, et al, and my background predisposes me to "get it."

I don't doubt that there are millions of people in America and millions more abroad that already get it. Lego, Li & Fung, etc.

But how are you going to spread this further?

I'll offer one idea: fully bake this as some kind of "certification" thing, and then "franchise" it/open-source it. Have a global community of educators and entrepreneurs that share info with each other as the new mode of institutional organization comes to pass.

Peer-produce the next "Theory of the Firm"

Quite the thought provoking post, Umair; I always enjoy reading your work.

I am left thinking mostly about step 3: "understanding that next-generation businesses are built on new DNA, or new ways to organize and manage economic activities"

The examples given (Apache, Wikipedia, MySpace, pictures of people and Legos) don't strike me as profitable next-generation businesses. I agree that they offer high utility to consumers and change the way we see the world, but how much value are they creating for the economy?

Wikipedia feels more like a next-generation charity than a business to me. How many full time people does the Apache Software Foundation employ? Difficulties monetizing social networks have been covered many times. I even struggle with this thought in my own business at times.

I am totally on board with co-creation and new DNA for businesses, and am excited for businesses to make economic sense of it all.

Thx Umair. Nice bit of balancing and tempering. Very nice indeed. Allows the import of the content to come to the fore. I look forward to the dialogue that follows. A primary thought to reverberates in my head is that we must return to the practice of taking responsibility for not just the short-term impact of our individual decisions, but for the 2nd, 3rd, 4th, and, if possible, final impact. Making a profit off the sale of a single loan is one thing. ACCEPTING responsibility for what becomes of that collateralized loan after it gets repackaged and levered up is another. And, yes, ultimately, we are responsible for our actions, even if they are but one link in a chain. Be aware. Be kind.

We're simply seeing the extinction of bureaucratic organization - profit and not for profit - as we know it. Looking ahead, I like the concept of The Support Economy: Why Corporations Are Failing Individuals And The Next Episode Of Capitalism by Shoshana Zuboff and James Maxmin. We've looked to too big, too few, too fast for too long. Small is everything, down to generating enterprise activity in small teams driving projects people are passionate about. And who better to invent the future than creative artistic talent, so skillfully trained to craft what's at hand and to share the important stories about now? I invite you to learn about our work at I-Open, new practices and tools in Open Source Economic Development - new approaches in organization, technologies, and process. And, thank you Umair, for your insightful posts!

Education is unlikely to be effective, or at least efficient, in making the changes necessary. Human instinct will demand that greed will rule the day - people will always jump on the latest fad gravy-train for fear of losing out.

Best to accept these constraints and create the system/process/regulation to work with or around them..

Short-term holders of equity demand the maximal rise in their holdings on a quarterly basis: management not following the financial fashion are quickly removed - Strategic management have short tenures, rapidly vesting stock, and safety-net bonuses whatever the outcome of their decisions - all of which gear the system to maximise short-term value (usually) at the expense of long-term gain.

A stick and carrot is required:

* hold institutions accountable for their actions
* restrict strategic management's compensation to cash-salary and stock that vests slowly and weighted towards the end of the period - no safety nets
* encourage longer-term holdings (reduce tax on stock sales based on length of holding)

Try and reduce the churn and increase the length of the cycle..

@James: I have to admit, I'm with you. I'm having difficulty believing that we can change the business without changing human incentives.

Fundamental human nature is a difficult thing to change; but restructring systems of incentives (i.e. the stick and the carrot) can realign how we apply our human nature.

The push for "meaning": unfortunately, some people derive meaning from sould-crushing competitiveness: but if we as a society can re-structure the system so that soul-crushing is not longer the way to succeed, I'm pretty confident people would shift tactics.

I hope I'm overly-cynical and wrong...

Umair's leading point is spot on: we're seeing something more than strategy decay or specific business model decay. I would opine that it's not a shift, but a break: not just a crack but a complete tear in an over-optimised system that is leading to systemic failures throughout business and culture.

As part of the cult, we get it; but spreading it to a larger audience is the hardest part, and will take more than just you. Planting the seed, educating people, and helping people figure out how to implement and succeed to create the models, the blueprints and the case studies of new-DNA institutions.

People follow success, for better and worse (as we are seeing right now). We DO without academically understanding WHY.

Perhaps the key to changing the DNA is to make it impossible to succeed without understanding why.

@Taylor

Based on recent business experience (and this loops into the 'carrot and stick'), the only way to create systemic change is to show examples of success. Success of contrarian strategy/tactics.

I think that's why Umair flogs Google so much. The success of that company and others (that are real gamechangers) will be the only thing that ignites enough fear of failure/loss of competitiveness for the system to change.

Like anything, the economic/financial system will have to change from the ground (i.e. "grassroots") up.

a nice read. thank you.

a 'meaning economy'.

i've been thinking A lOT about this recently.

firstly, along the dimension you discussed above (purpose/authenticity/dna etc)

and secondly relating this to...

'meaning' at a 'network level' - w/ each successive layer that is added (weaved) on the interweb is a new layer of 'meaning' w/ HEAPS of value un-locked. apache/wiki/etc as you showed above are all layers of authentic 'meaning'.

Initially I was fascinated by this blog as umair touches upon the new industrial revolution. But I have become more and more dismayed by its tech focus and constant touting of companies like Google and Wikipedia. It is easy for these companies to have such radical business models because the amount of physical energy that goes in to making their products is very small, usually just a couple of engineers and some ramen noodles.
How does the edge economy plan on restructuring companies that produce actual physical goods? Most importantly the physical goods that are needed for the basic survival of humans. How does the edge economy fix the General Mills, Monsanto, PG&E, and General Electric of the world? It is fine to praise the information industry as moving towards a more open and less evil one, but we really need to address the food, energy, and basic material industries. No economy can run without food, water, housing, and energy and if the industries controlling these have the same rotten DNA as Lehman and AIG then we may be heading for a much bigger crises than this financial one.

@Jack: actually, Umair merely uses Google et. al. as examples for people to understand, and in fact Ethan alludes to that in the comments.

Umair is tireless in explaining the fundamental concepts and pushing people to use the concepts to address other industries, issues and fundamental flaws in economic organizations and systems.

Google is an easy example for us all to talk about, a living, breathing case study where we all see (and use) Google's tactics on a daily basis. But what we don't understand is their strategy behind those tactics, and Umair uses our public obsession over Google's tactics as a way to get our minds working about what's really going on.

What we have right now is collusion between politicians and high level investment bankers. They weren't ignorant of the risks they were taking. They arrogantly thought they could finesse the economy, and they crashed and burned. When they had opportunities to pass legislation that would have established safeguards, they passed. It doesn't really matter why. The effect is still the same.

Yes, there is a need for a restructuring of corporate DNA, but that must coincide with a change in the moral climate in Washington and on Wall Street. It isn't as simple as getting rid of greed. It is something deeper. It is the naked hubris that they can do whatever they want without impunity, and that once the system crashes, that they can walk away, financially set for life, as if they have no responsibility for the mess they have helped create.

I must agree with James. Structure drives behavior and human nature does not have revolutions. If you want to bring about change in business you address the complex structural components; compensation, incentives, accountability, principal-agent alignment, surfacing true-cost of goods etc.

I love the idea of meaning-based work but I am not sure it is viable as a meta model for 6 billion people. I do believe restructuring has a better chance of aiding our survival on this planet. Restructuring comes AFTER crisis if history is any judge. Perhaps this is just such a moment.

Lastly - and a bit off the point of this post - I have long felt your use of "Evil" in reference to the business strategies of fairly milk-toast corporations peddling social software (Facebook) or consumer goods is an irresponsible use of language. Shell providing arms to quell dissent in Nigeria... then I would get your point. The only other active people using "Evil" right now is the Bush administration. They use it to stop discussion and deep thinking. Your promotion of that term - and I see it now in your reader's comments - is, IMHO, unfortunate.

I think Vendor Relationship Management is one of the "tools" to help to change the DNA in (at least) the (e)-commerce.

Cheers

I keep seeing these assertions that human nature is basically greedy, without any evidence.

I think anybody who studies the relevant research will find that human nature includes both selfish and unselfish (cooperative, reciprocal) behavior trends, and one or the other (greed or cooperation) will dominate in a given individual, situation or organization.

See for example http://www.umass.edu/preferen/gintis/Human%20Nature%20and%20Social%20Cooperation.pdf

Or http://www.nature.com/nature/journal/v425/n6960/abs/nature02043.html

That last whole article hides behind a pay wall, but here's the abstract:

"Some of the most fundamental questions concerning our evolutionary origins, our social relations, and the organization of society are centred around issues of altruism and selfishness. Experimental evidence indicates that human altruism is a powerful force and is unique in the animal world. However, there is much individual heterogeneity and the interaction between altruists and selfish individuals is vital to human cooperation. Depending on the environment, a minority of altruists can force a majority of selfish individuals to cooperate or, conversely, a few egoists can induce a large number of altruists to defect. Current gene-based evolutionary theories cannot explain important patterns of human altruism, pointing towards the importance of both theories of cultural evolution as well as gene–culture co-evolution."

What about building complex objects that seem to require large corporations to be built efficiently...like computers for instance.

Aren't large corporations still necessary in order to produce complex objects due to economies of scale??

Second I dont think its just meaninglessness we need to fight against. A lot of this stuff is way worse than just "without meaning"

Thanks for the post

I think this talk:
http://vimeo.com/1321131

Open innovation and Nokia Philosophy, Dr. Bob Iannucci, CTO of Nokia and Head of Nokia Research Center is an example of what Umair is pointing towards.

Umair,

Great post. I think you are dead right that we are dealing with rot and that it goes to the core. The road that leads from Worldcom though the S & L crash and now the Sub-Prime crisis (which after all is the fuse, not the powder keg) is not one strewn with isolated incidents.

I think the DNA metaphor is of limited value, however, and though I agree with the spirit of your case for meaning, I think it has more teeth to simply say that these businesses/institutions can no longer succeed at profitability or growth even on their own craven terms.

I certainly agree that we need next-gen businesses and that they need to challenge the existing institutions of business to their core.

I also think that Larry Lessig's new project on corruption is germane to these issues. In his "Corruption, alpha version" lecture (http://video.google.com/videoplay?docid=-2171306322262202538), Lessig draws the connection between institutional failure and corruption, in BOTH business and government.

I think that your diagnosis and Lessig's have this in common: at bottom, they charge our institutions with corruption. I think that your strongest point here mirrors another that Lessig makes, that WE are the answer. Equally important, however, is that this WE is not merely one side of an uUS and THEM. As Lessig maintains, the people at the heart of these corrupt institutions are not BAD people: THEY are US. WE must ALL remake our institutions, not spend our time with finger-waving at OTHERS.

Time to get to WORK!

Umair - What businesses out there now fit this bill in your eyes?

Money needs to be backed by something - money is currently backed by debt which is a promissory note based on future productivity. Any caveman can tell you that the only sustainable way to increase productivity today is to innovation yesterday - not tomorrow.

One example of a new DNA economy that you seek is well described at www.ingenesist.com; Innovation Economics. In short; Where knowledge is formatted like a financial instrument, innovation can be predicted as the integral of knowledge. The new DNA economy will peg the dollar to human productivity in the present resulting from innovation in the past. This will be sustainable.

There are a few simple web application - not yet developed - that can make human knowledge tangible as a financial instrument;

A knowledge Inventory
A Percentile Search Engine
An Innovation Banking System

These are described at ingenesist.com. Whoever develops these applications will generate a great deal of wealth in society - our brilliant entrepreneurs make short work of it.

The result is that human knowledge will become tangible outside the construct of the corporations; in social networks. The question is whether we are ready, politically, to let the people have control over the priorities of what gets invented and what does not, what gets disrupted and what does not.

Be it Value at Risk or any other mathematical module, there shall always be a gap between the real and quatitative applied. This is intensified through confilict between the democratic Govt and autocratic corporations in US.

I just see three simple methods to avoid such turmoil leading to bankruptcies.

1) Clear business conceince not driven by greed or gamble

2) Regular transparent audit both of business and market

3) Regulatory to act firmly without corporate influence

Umair,

This is a great post. Thank you for sharing this thought with us. I very much agree to what you have predicted.

Moreover, I have a few thoughts of how the new DNA in your painted picture might be.

In short, I think with the evolution of World Wide Web, mind may eventually replace capital becoming the driving power of postmodern economy. If such a change occurs, it might be the true DNA you mentioned and it may finally the fundamental reason behind this financial crisis, which is based on the fundamental of capitalism, unfortunately.

cheers,

same old umair stuff, the preacher who says the flock should stop sinning, and not a clue about how to make that happen.

There is another type of business that isn't new - that has been around for a long time - that seems to me to be appropriate in building social and economic advantage to last: co-operative businesses.

By giving each worker in a company a stake and voice in their organisation, you also generate pride and loyalty, as well as giving them something to work together for.

While I agree that the new generation of businesses are also an exciting prospect, it seems to me that not all industries can proceed through viral marketing and peer-production. Many things will continue to have to be made, and company infrastructures built. We need to look to the neglected old models as well as develop the new.

"We need no less than better corporate governance, a working shareholder democracy, a recognition of what capital really is (and isn't), radically more enduring incentives - aligned with outcomes that actually matter to people - the capacity to trust and be trusted, more accurate and timely reporting, strategy that creates authentic value instead of just shifts numbers around, and business models that can yield sustainable growth."

Kudos to Harvard for letting you post this considering that these are all of the things they have been teaching to several generations of MBAs.

I completely agree with your thesis that strategy has to mean something to everyone involved in the company and that we have to have a structure that rewards the meaningful. Thank you for this insightful post.

The previous posts regarding incentives and carrot-and-stick policies took the words right out of my mouth.

As a computer scientist and software engineer deeply interested in complex systems, I've been exposed to just how certain frameworks can, once instantiated, almost predestine a system to evolve along certain constrained pathways. If you look at the current political and economic policies/institutions as the field of play, and each individual human as a self-interested agent that is not necessarily greedy, but looks out for themselves first and foremost, then the current crisis comes as no surprise and is actually predictable as the agents act within a system that is unfortunately set up to result in such black swans creating crippling systemic shocks.

But this knowledge of looking upon policies as 'human operating systems' that provide generative models of how systems of agents create certain emergent dynamics, along with a robust, end-to-end global internetworked communications infrastructure, offers us an unprecidented opportunity to create a system-of-systems that will finally be aligned with true human desires and potentials.

Now, enough talking, what the hell do we do now? Umair has been doing a valiant job along the lines of "See google, etsy, threadless, and all the rest? Go do that!" Well, that's harder than it looks. What I want to work on is not the golden eggs, but the goose that lays them. It's not really educating the new entrepreneurs and activists so much as creating a metasystem in which they follow and be guided into creating the future googles in the rest of the sectors. That does sound vague I know, but one concrete example is something like Paul Graham's Ycombinator on steroids. A 'platform' for entrepreneurs that facilitates the creation and successful management of open, edge competent companies aligned with profitable meaning-making instead of rote profit making devoid of meaning or at best faux-meaning.

Think that sounds like science fiction? Think again. Here are just a few of the most radical new organizational and management techniques today's revolutionaries are already utilizing: open-source production, peer production, viral distribution, radical experimentation, connected consumption, and co-creation.

The need for new DNA is the most visceral lesson of the macro crisis - and it's why we've been discussing many of the radical innovators above in painstaking detail over the last few months.

These points ... interestingly, all of them directly related to (or enabled by) being interconnected on a digital infrastructure ... are I believe support for the move away from Hierarchical organizational structure and decision-making towards the need for and use of a new organizing principle I have been calling "wirearchy" (a dynamic two-way flow etc.).

Your points also touch on some of the key points of S. Zuboff's The Support Economy, an over-long call to helping the next episode of capitalism emerge. That book predates some of your ideas, but your knowledge and understanding of the impacts of the Web on economics, business models, and strategy is (in my opinion) deeper and more comprehensive than hers.

Good stuff there Umair!

I think we will see a hybrid move backwards towards localization and moves away from globalization in general. I don't think there will be a collapse of any infrastructure per say, but I think people will be reluctant to invest in wall street shenanigans at any level, for many years.

I think people will distrust money market funds and distrust the space between their cash and their ability to obtain it (easily). This is often seen in behavioral economics, where as with Enron there is a greater impulse by corporations to steal investor money which has been moved further and further away from the safety nets of strict financial regulations. Corporations that depend on globalized structure have depended on being able to abuse shareholders with CEO/insider boardroom derivative games that have enriched them beyond measure with option grants, but those gains may be the last straw for capitalism as we know it, on a global basis.

I think we will see more local investment from people who want to be able to share in local prosperity, even if that means supporting and investing in monopoly-like entities like a wal-mart or costco, which they shop at. This is somewhat like the old Peter Lynch investment spin, but it has validity and it will also force banks to look at their local financial footing, versus speculating on the risks of the new horizon. This is a lot like an investor being an absentee landlord and letting the property go to hell, while being distracted elsewhere; it's a signal to noise ratio problem. The romance of foreign investing will fade IMHO.

Interesting times indeed!

I'm sorry, does "DNA" actually stand for a real business term or are you trying to talk about a strategy for new businesses to florish using a flashy "in" jargon word that has very limited applicability from biology to your particular topic?