2023: The themes I circled: shifting attention to the leading indicators of change – Post 2

Previously, I explained how I circled co-evolution this year. One outcome was the release of how we present Systemic Competitiveness as a cube where all the sides or interdependent.

The second theme interwoven through almost all my consulting and research work this year is also based on another insight from Prof Dave Snowden and the team at Cynefin co (previously known as Cognitive Edge). The theme I have been circling is about about shifting my attention from the lagging indicators of change to the leading indicators of change. My frequent returns to this topic challenged me to shift my focus from what has already happened, to what is possible now in a given context.

This a-ha! was prompted in November 2022 by the content of two black boxes filled with facilitation methods and concepts developed by Cynefin Co. The content of these kits consist of complex methods and practices that can be assembled and reorganised by people as they make sense of their specific context.

What I love about the content of these kits is that many abstract concepts (often explained eloquantly by Dave and friends) are now described on a hexagonal card the size of a beer coaster. People can arrange, pick up, turn over or wave around any of the cards. The front of the card typically contains a short sentence, while the back provides more detail. A small QR code allows people links to a wiki-page with more detailed information. I don’t want include an image of the kit here, but you can take a look by following this link.

Using these kits, my role as the facilitator is to hold the space. I have to encourage people to ponder the cards even if it demands a discussion of an issue that is not-so-obvious or maybe even a little abstract. This is valuable, because in many strategy and reflection workshops people automatically tend to want to talk about the obvious, the topics that everyone agrees are important. The method cards provide structure to guide these conversations without manipulating the discussion based on the bias or preference of the facilitator. When people use these hexi-cards, they have to huddle together around a table. They have to pay careful attention to what others say, or why they place cards in a particular order or place on a map. This is in contrast from the visual facilitation approach I have used for the last twenty years where people sit in a circle or in rows and where all the attention is glued to a facilitator and their visualisation of a topic being explored.

Since I received my Hexi-kits last year, I have not gone to a meeting or a client without some of the Hexi card packs in my bag.

There is one hexi card that stands out to me more than the others. This hexi has challenged my work this year in many different ways, and it is prominently placed on my computer stand to remind me of the following:

“Attitudes are lead indicators, compliance is a lag indicator”.

Dave Snowden, Cynefin Co hexi kit, Attitudinal Mapping hexi

I hope I wont be in trouble for sharing the photo of this hexi below.

This hexi published by Cynefin Co has really challenged me throughout this year to think differently about noticing and enabling change.

With Dave’s permission, I often paraphrase this hexi in conversations about technological change or economic development-related work as follows: “Attitudes are lead indicators, evidence/data is a lag indicator”.

Those that know me would understand why this hexi is so profound to me.

Already, this specific hexi has shaped many of the commissions that I have taken on this year. It also helped me to turn down several projects.

  • For instance, it became the refrain in designing a Sensemaker Engagement for an international development project to track emerging signals of change over 12 Eastern European and Western Balkan countries.
  • This hexi-card also inspired our Mesopartner 20th anniversary Sensemaker project, where we scanned how economic development practitioners have engaged with and used our Mesopartner instruments over 20 years and how they observed changes unfolding in the development field.

One of the projects that I am leading is the Technological Change and Innovation System Observatory project hosted by TIPS in South Africa. The challenge we face in this project is captured by this same Hexi. Many companies are experimenting with or building their competencies in frontier technologies. The challenge is that these shifts of focus and investment do not yet show up in any reliable datasets (in fact, official data suggests that more investment in the same polices that have not been working are needed). In essence, the interest and focus of our innovators are shifting to capabilities that do not yet exist in domestically. Not only does this reduce the demand or throughput that is needed to make domestic technological competencies viable in the public and the private sectors. It also threatens to drive a bigger gap between those who have (new technology, new knowledge, new opportunities) and those who have not (old technology, conventional knowledge and mature markets) in an already highly unequal country. This hexi gave me the courage to shift from trying to find better data, to paying more attention to subtle changes that signals shifts in behaviour. It demands that we interact with the people that are using new knowledge in different ways, instead of trying to make sense of data. More about this in a later post.

A final remark about the impact of these kits and this particular hexi card on my year. These kits helped me to shift from a strong reliance on developing better diagnostic instruments (what is wrong, or what already happened, as captured by data and evidence) towards an emphasis on what is possible from where we are now, which tensions or contextual nuances can be explored for opportunities to innovate, or how innovations or new capabilities that have gone unnoticed can be amplified (or dampened). Already in this year I have been able to assist my clients to not diagnose that past, but to embrace the possibilities of change offered by the contexts they are immersed in.

***

The hexi-kits published by Cynefin co have really inspired my thinking. Cynefin co has taken collaborative approach and I am delighted to be part of the community of practitioners that are developing additional method packs.

Cynefin co are currently working on version 2 of their kits and I can hardly wait to see what they contain. For the last year I have been working in different collaborations to refine or create new hexi add on packs:

  • In July, we released a prototype of our Systemic Insight search and discovery hexi kit to participants of our Summer Academy held annually in Berlin. The featured image of this post is where we showed the participants how to use the Systemic Insight hexi kit.
  • We also released our Systemic Competitiveness cube prototype as part of our complex facilitation kit.

We are currently working on several additional kits that are all in different stages of development. Currently, I am working on:

  • A hexi add-on pack focused on the diagnosis and improvement of systems of innovation and learning. This kit draws on innovation system, evolutionary economics and new institutional economics to equip stakeholders to identify opportunities to strengthen the learning and innovation practices in an industry, region or around a set of knowledge domains.
  • A hexi add-on pack focused on local economic development (with Christian Schoen) drawing on our Mesopartner experience that will equip local collaborators to assess and identify improvement and innovation opportunities in a local economy.
  • A hexi add-on pack to diagnose and improve entrepreneurial innovation ecosystems that will equip innovators and network weavers in the private and the public sector to strengthen the interdependence and connections using an ecosystems approach.

I am also collaborating with others in the Cynefin Co network to develop hexi-packs on knowledge management, trust building and technological change.

Some of these ideas are still in their infancy, while others are already quite far advanced. I will only release the next kit after Cynefin release the next versions of their hexikits in the coming months.

In closing, have you been experimenting with these same methods? Are you getting different results as well, or do you also sense that you should shift from figuring out what happened to what is possible?

Let me know how it is going, perhaps we can exchange ideas going forward.

Disclaimer. I am not an employee of Cynefin co. However, I am a paying member of the Cynefin Co premium membership network. I wrote this post because I believe it is important to celebrate and acknowledge the profound effect that Dave’s ideas and methods have had on my praxis.

2023: The themes that I circled (Post 1).

I want to share the themes I have circled during the last year. Maybe I did more reflection than usual, as we have celebrated Mesopartner’s 20th anniversary this year.

Co-evolution is the first theme I have circled back to many times over the year. In the first half of the year, I tried to work through some of these ideas in different blog posts. The importance of understanding that in a co-evolution, changes in one element enable or demand changes in another. When we say that institutions, technologies, companies and places co-evolve, it implies that a new possibility or competence (or a constraint) in one dimension will shape what changes are possible in other areas. Or the interdependencies might resist lasting change.

Yet, in economic development, there is often a tendency to want to fix through a theme focused mainly on one dimension (think of projects targeting skills development, digitalisation, green or inclusion) without paying attention to the interdependence that makes systems return to some form of stability. This is the reason I keep on circling back to co-evolution.

In our approach in Mesopartner, we pay careful attention to how firms, their supporting institutions, places and technologies co-evolve. It is hard to achieve lasting positive change without considering how these different spheres affect each other. At the same time, co-evolution happens in a context with many different histories, and changes are also affected by the inherent interest of various stakeholders to respond to implicit or maybe explicit pressure in their context.

In July, at our Annual Summer Academy event held in Berlin, we illustrated co-evolution in an economy by presenting the Systemic Competitiveness framework in the shape of a cube, with the volume of the cube representing the interdependence between six sides.

The Systemic Competitiveness framework presented as an evolutionary system in the shape of a cube

I must admit that this explanation worked better than I ever expected (I have been playing with this idea already for a while). When presenting Systemic Competitiveness in our usual way (think of the rainbow map of Systemic Competitiveness), the co-evolutionary interdependencies are not so visible (see the images at the bottom of this post). Firms are in the bottom layer, specific supporting institutions in another layer, with generic macro policies on the third layer and the meta factors on top like icing on a cake. Further, illustrating these forces on the Systemic Competitiveness framework diagram with lines and arrows makes the approach look like a messy closed system diagram.

However, when we show people this cube, they can immediately look at one side to describe a situation, and then, as they turn it, they can look at the same situation from another dimension or angle. We then have to remind people that the space in the cube represents the dynamics or the co-evolution between the different sides.

There was another motivation for developing this cube as a physical object, which is about complex facilitation. Complex facilitation methods are about removing the bias, question framing or group steering of a group of people as they navigate or explore a given issue. As often is the case, Dave Snowden deeply impacted my facilitation praxis with his methods of complex facilitation. The launch of the brilliant Cynefin Hexi kits last year made a deep impression on me. As a side note, we have developed an add-on Hexi-pack pack for our clients, but I will write about that later.

Let me explain how the Sysco cube enables complex facilitation.

When using the Systemic Competitiveness Framework (in our conventional map approach) during fieldwork or workshops, we must facilitate conversations between stakeholders about where certain actors, organisations, functions or persistent patterns are on the Systemic Competitiveness map. People are often more focused on correctly classifying issues rather than exploring how different things may be connected or affecting/reinforcing each other. With the physical cube, people can now use the six sides and the space within it to explain persistent patterns they observe from different angles. They can then offer hypotheses of how the issues are related from the different perspectives described on the sides of the cube, or what they think can be tried to shape the observed patterns. The facilitator is no longer required to interpret and classify the issues raised during the discussion; their role is to urge people to add, disagree, challenge, connect and document what is being discussed. I have found that in most meetings, people immediately understand the interconnectivity between the cube’s six sides. The conversation is no longer about where an issue should be categorised but how it relates to other factors.

I must add that now that I have thought through co-evolution in the Systemic Competitiveness framework with the cube, I have even invoked this image during meetings where I did not have the cube physically with me. Even without the cube present, people have understood the implications of what I explained.

To frame the significance of this method in another way. I have shifted Systemic Competitiveness from a taxonomy system to a typology, where we can look at the same socio-economic system from different yet related dimensions. Where the interconnections and dynamics were often an afterthought of the mapping process, it is now literally central to the conversation.

Below are the images showing the layers of Systemic Competitiveness we have been using in the past.

Working in between domains and contexts

As we celebrate the 20th anniversary of Mesopartner this year, we have been reflecting with each other and some close collaborators about our role in development. It has been a gratifying and humbling experience to hear what others think about our role (as Mesopartner) and how they reflect on their roles. Some of my friends, who were previously clients or colleagues, also reflecting on their changing roles as they shift from fieldwork to management or from one country to another.

One theme that has crystallised for me is that we often work between contexts in economic development. We connect local energy with ideas from far away, try to bridge the gap between the private and public sectors, foster feedback between interventions and beneficiaries, and connect ideas and domains that should be connected but are not. Even when we work in a large development organisation, we often work to identify and close gaps that we detect in the environments that we work in. Our focus is beyond and between organisations and not within. Building our team, our brand, or achieving our direct results is secondary to building the confidence and the capabilities of those that we call “counterparts”, “stakeholders”, or “beneficiaries”.

You might wonder why I think this is even worth sharing. This is such an obvious statement about development. Well, I think this is important to ponder because so many of the management instruments used in development originate in the corporate sector, where in theory, everyone is working in the same organisation towards the same goals. Just think of measurement instruments, planning methods or knowledge management. These concepts often assume that everyone is in the same boat heading towards the same shore.

But this is not true in economic development. When we try to get the private and the public sector to cooperate, they might now temporarily share a boat, but this is not likely their preferred means of getting to a destination. One might prefer a windsurf or a sailboat, while the other might prefer a cargo ship. We work between these domains and preferences, so our methods, logic and management approaches should reflect this “in-betweenness”. Suppose we want anything to stick or be taken up by anybody we work with. In that case, our methods must add value to their organisation’s goals and complement the kind of natural skills, resources and internal systems they have in place. Whenever we ask them to take up something that is not aligned or natural to how they usually work, we should not be surprised if, in the longer run, our ideas are not taken further.

As I have been reflecting on this for a few months, I have evaluated which of our instruments are temporary or specific and which ideas and concepts can be taken up and used in many different contexts. (I will shortly write about the Sensemaker survey that we used to collect narrative fragments of how our work in development matters and is changing). The way we facilitate conversations between stakeholders seems to have more value than the actual constructs we use to gather information or support decision-making. Perhaps the fact that we actively strive to get people together that usually move in different orbits also stands out. Some other ideas that stand out are the importance of creating moments in teams or even in temporary collaborations for people to stand back (from action) to reflect on where they are going, and whether whatever they are doing is having the desired effects.

Often the principles and the heuristics that we use have more value in the long run and different contexts than the methods or approaches we use. However, principles and heuristics are only transferred to the people we work with when used or applied in a specific context. Going forward, I will be paying more attention to the heuristics and principles that are valuable in the in-between contexts. I will also pay more attention to making it explicit how the ideas we work with can be adapted for different contexts and applications so that what works “in-between” can also be used to improve how things work within organisations.

Mesopartner’s 20th anniversary celebration in Berlin

On Friday the 7th, we celebrated Mesopartner’s 20th anniversary in Berlin.

Finally, the day we had planned for months had arrived. We were joined by many friends and collaborators who could travel to Berlin to join us, and well-wishes streamed in from all over. The venue was our favorite Hotel Grenzfall, where we hosted our Summer Academy in the preceding days.

Thankfully, Ulli had something to say when Natasha surprised us with “Say something”

Natasha Walker moderated our programme with her usual energy and grace. This meant we could all participate in the programme with our guests.

Annelien shared a video she and Britta (our resident photographer) had prepared using our favourite photos collected over 20 years. You should watch it if you have not already seen it.

You should watch the video! Click on it!

Die Gorillas, an improvisation theatre group, collected sentences and words from the audience about what it is like to work with Mesopartner. They then used these words and lines as impulses in their theatre performance. We were all in stitches! Seeing how they twisted and interpreted the jargon and phrases we use all the time was so funny.

Saying any of the following phrases would get any of our guests giggling: “competetitititiveness!”, “collaborate, collaborate, collaborate“, “bottom-up” and “we are pirates saving the world“.

During our celebrations, we also took an hour to reflect on “What matters now?” using a warm data lab format. This was an excellent way for us to reflect in more intimate groups about essential issues confronting all of us. I participated in discussions about spirituality, science, ecology and art. We held this in the lovely garden of the Hotel Grenzfall.

The warm data lab in the garden of the Hotel Grenzfall

The formal programme ended with more improvisation theatre, where we shifted our attention to food, drink and laughter until the early hours of Saturday morning.

This was a special event for me. Whoever thought that a guy from the Freestate Province in South Africa could one day be part of such a remarkable company and network? Who thought our small multinational microenterprise would have such an amazing network of friends, and collaborators all working to improve how economic development is done around the world?

For me, it is all the grace of God.

Thank you to everyone that joined, sent their wishes, or toasted our 20th anniversary with us!

To everybody who could not join us, but wanted to, we say “Cheers!”

Thank you Zdravko for traveling all the way to join our celebrations. You are a mentor and inspiration to us all.

How institutions, technologies and companies co-evolve

This is the fourth post in this series about economic evolution. In this post, I will look at the co-evolution between companies and the broader institutional environment they form part of.

Towards the end of the 2nd blog, I mentioned that the design spaces within firms (and organisations) interact with different design spaces beyond their boundaries. The available “technology” modules within any organisation, private or public, interact with and are shaped by technology the modules available in the institutional landscape. The technology in the preceding sentence should be understood as “knowing how to do or achieve something specific consistently”. For example, think of the trust system needed for two companies to transact with each other. Perhaps they rely on the social institution of social relations. This worked for most economies for a long time. But with increasingly sophisticated products and services and also the more impersonal nature of many transactions, contracts and their enforcement through a legal system is increasingly important. To further make impersonal transactions smoother, standards, performance criteria and branding are all social institutions that have evolved to enable transactions.

These institutions, including the norms and the organisations that provide related goods and services, evolve with the economic transactions they enable. In some cases, the institutions lead the evolution by providing the economy with new knowledge modules or services. In other cases, unmet demand might lead to an institutional response. Yet in another case, policymakers might design policies to shape the institutional offerings or the demand patterns.

The broader institutions and economic activity co-evolve.

I want to take this further by focusing on the meso space and how this space co-evolves with industries, locations or communities.

The meso space is a design space where interventions are designed to address the persistent patterns in the economy. Most microeconomic transactions occur via markets, hierarchies or networks, and each of these forms of allocation have strengths and weaknesses. All three can fail. When a particular kind of failure persists, this can be called a market failure, management failure (for hierarchies), government failure (in the case of public services failing), coordination failures or systemic failures. The meso space is where stakeholders intentionally intervene to address or respond to persistent failures.

Because it is sometimes not helpful to use labels like market or government or systemic failures, we often describe these patterns as “patterns of underperformance”. These are the patterns we often see when we look closely at an industry, value chain, location or national economy.

Some meso interventions may be targeted at a particular industry, a technology, a region or a specific pattern. In contrast, others may target whole policy areas like industrial, technology, trade or locational policies. While most meso interventions are supposedly intended to deal with negative or problematic patterns, there is no reason that meso interventions can also be designed to leverage positive characteristics. That is exactly what many tourism or investment promotion strategies aim to do.

Meso interventions might be a policy, project, programme, service, or organisation. Sometimes an existing organisation might launch a new service or provide additional functions to address a particular pattern of underperformance in the economy. This, in turn, might result from a particular ministry deciding to create a policy to address a particular issue, like deciding to invest in an incubator to develop particular solutions the company might be interested in. I know this might sound unclear, but when a policy or strategy is specific in its focus, we describe it as a meso instrument. In contrast, macro policies and strategies are more generic and are not specific to an industry, technology or location.

The public sector is a dominant actor in the meso space. However, in most countries, the public sector does not act like one stakeholder. There are different government departments and publicly funded agencies, at different levels, all with different jurisdictions or mandates. Just like coordination failures can occur in the private sector, coordination failures within different public functions can paralyse a country, industry or location.

However, not all meso policies and interventions are about the public sector trying to be the benevolent private sector supporter. Companies can also design policies that shape the economy around them. For instance, a large manufacturer might have policies to develop their supplier networks, to make the location where they are based more attractive, or to support particular public interests. Not-for-profit or non-governmental organisations can also have development policies to address particular economic patterns. So meso policies and programmes can be designed or implemented by the public, private or civil sectors.

While some economic development practitioners are often biased in favour of addressing market failures, the meso space must often also address government and other systemic issues. For instance, the meso space is often critical to designing or implementing programmes to reduce inequality, provide more effective public goods, reduce coordination problems, maintain and expand critical physical and digital infrastructure and address other social priorities.

Suppose a persistent pattern of decline plays out in a location or an industry over time. For instance, let us imagine that the city centre and its key economic activities are in decline. It is unlikely that this pattern of decline can be addressed by only the public sector implementing a few projects. Most likely, the pattern can only be arrested by mobilising many different public, private and civil organisations and then pursuing projects together for extended periods. Interventions aimed only at the private sector are unlikely to work by themselves, as renewal and investment in public organisations, civil and social infrastructure would mostly likely also be required. The location will change as the economic activities of enterprises and the supporting institutions co-evolve. In most cases, this is a process that takes time.

This example illustrates how industries and institutions co-evolve. As the city centre declines, social institutions and networks might also decline. At the same time, new informal economic activities might arise in the place, but this might lead to an acceleration in the decline of formal economic activities. Renewal in public, private and civil organisations might be needed to reverse this trend. At the same time, investments in public infrastructure and attracting private investment are needed. These kinds of initiatives will shape the incentive landscape for investors, individuals and entrepreneurs, just as the kinds of investors, individuals and entrepreneurs might play a role in deciding where to start or what to do.

It is impossible to fix persistent patterns of underperformance in the private sector through the private sector alone. This is at the heart of systemic change: the recognition that firms and their meso landscape of interventions, programmes and organisations co-evolve. Sometimes we start with the firms and then try to invigorate the meso landscape. At other times, we may start with the meso landscape and try to make it more resilient, innovative or valuable to the private sector, the community or the location. But we also have to think both of the micro level where transactions take place via markets, networks and hierarchies, as well as the meso landscape where incentives, investments and coordination takes place. Any systemic intervention would typically involve coordinating the development efforts of the public, private and civil sectors over extended periods.

The challenge is that co-evolutions are not designed ex-ante, although it is possible to catalyse changes in the public and the private sector if there is enough willpower and incentives for change. Every small change creates further opportunities for change by making knowledge or technology modules available. Any idea or modules that become available in the economy, even if it was meant for a specific purpose, becomes part of the substrate of ideas that others can use in new combinations to innovate or transact. This may lead to a further changes in public policies, or to further changes in the institutional landscape, which in turn may lead to additional services or technologies becoming available to the economy.

This is how industries, institutions (both norms and organisations), technologies and locations co-evolve. They contribute knowledge modules or functions to the economy, that others can combine with to create value. And so it goes on.

If you think of the context where you are working, can you see examples where changes in the private sector (performance) lead to changes in the meso landscape or the other way around? Where did new or adapted services from the public meso programmes shape a location, industry or technology? Can you think of any unintended consequences or benefits, in other words, that was not designed intentionally but happened because of preceding changes?

Alternatively, where did changes in the private sector result in adaptation or changes in the public sector?

Lastly, can you think of examples where a civil or not-for-profit organisation’s behaviour (or interventions) resulted in public and private sector changes? How did the system co-evolve as a result?

You are welcome to share your thoughts in the comments below. Or just continue sending your comments to me by email or social media. I value your comments and suggestions.

Image credit: Image created by DALLE on 22 February 2023. The prompt was to create a drawing showing the relationship between urban planning and universities.

The modules that evolve

This is the third post in this series about economic evolution. In this post, I want to focus more on the modules that the evolutionary algorithm act upon that I mentioned in the previous post.

Ideas are the most fluffy evolutionary material that spreads between people and organisations. These ideas spread via formal means (like education, formal communications, management decisions or regulations) but also via less formal means like the media, stories, people moving between places and social networks. We pick up ideas as we move around in society, and often we combine these ideas with our own to create completely new idea combinations. I always ask people I interview where they got their ideas for innovations from, and I have heard the most amazing stories of how they took an idea developed in a completely different context and made it work in their own situation.

Tracking how ideas spread in society is tricky, partially because we cannot always remember where we heard or saw something that triggered a thought.

In the first post, I explained that Nelson and Winter (1982:14) preferred to use “routines” instead of “ideas” in their theory as the material that the evolutionary algorithm act upon. Routines are relatively stable ways of arranging physical and social technologies to perform certain functions. Even if they can come about in an arbitrary form, organisations tend to replicate routines internally, and other organisations also copy and adapt routines that appear to work well.

Eric Beinhocker (see the 2nd post) argues for using “modules” as the primary material on which the evolutionary algorithm acts. He agrees with the co-evolution between physical and social technologies but adds that there is a third design space, namely business plans.

“A module is a component of a business plan that has provided in the past, or could provide in the future, a basis for differential selection between business in a competitive environment.” A module is made up of configurations of routines from the physical, social and business plan design spaces.

Beinhocker, 2007:283

Continuous decisions about the composition of these modules must be made in any organisation or company. These routines and modules can be pretty unstructured, but the theory holds that the better-performing modules will be replicated within and beyond the organisation. In contrast, the less-efficient modules or routines will become obsolete when replicated less. However, even inefficient or unproductive modules can persist due to stubbornness, sunk costs, pride or ignorance.

A challenge we face is that the many internal marketplaces (within organisations) where different concepts or module formulations are pitched against each other do not work effectively. In addition, companies relying on inefficient module configurations can still thrive in uncompetitive marketplaces because the markets cannot select better-performing alternatives.

Over the years, I responded to this issue through the instigating innovation series and my teaching at various business schools.

Those organisations that constantly develop or search for new modules or tinker with their existing modules because of anticipated changes in the broader environment can be described as having dynamic capabilities. Dynamic capabilities cannot be bought, it is built through the intentional behaviour of entrepreneurs, managers and employees. David Teece is one of my favourite scholars studying dynamic capabilities, and here is his definition:

Dynamic Capabilities are the firm’s ability to integrate, build, and reconfigure internal and external resources/competences to address and shape rapidly changing business environments. 

Teece et al., 1997, 1990

Teece must often repeat building dynamic capabilities is about achieving abnormal results over the long term. The capabilities part is about the investments in abilities, skills, routines and relationships that are enduring AND that are distinct from what competitors may be doing. The dynamic part refers to the ability to adapt and proactively create market conditions that favour the company. It is about an internal culture of change, experimentation and recognising what works (and what does not work). Why I took this detour is that we need to find ways to foster dynamic capabilities in developing countries in both the public and the private sectors. We have too few organisations actively trying to create new modules that are then adapted based on how they perform in the marketplace.

Back to the main thread. Investments in modules create path dependency, especially when all the investments are along a certain trajectory. In the software and services sectors, companies can change direction faster than in the manufacturing or public sectors. This is mainly due to the way fixed capital is invested in plant, equipment and infrastructure. Once committed to a specific configuration of modules, it may cost a lot of money to change direction.

Whereas routines can often be observed and replicated between companies or contexts, modules are often harder to observe and copy. For example, we can visit a factory and see some physical and social technologies arranged in routines. We can observe how raw material, processes, people and workflows are organised on the factory floor. However, the modular knowledge units combining physical, social and business plans are harder to observe or measure. The hidden parts include the internal incentive structure to innovate and resolve problems, the past learning about what did not work and should never be attempted again, etc., how the factory is connected to suppliers, clients and headquarters, and so on. Some parts of the modules are harder to observe because they weave together past decisions, strategies, funding mechanisms, and future expectations using combinations of physical and social technologies. The machine standing there or how people work together is just the visible tip of the module (or configuration of modules).

The irony is that even management may not realise how much tacit knowledge is involved in the logic that weaves the many different modules combined in a single unit of an enterprise in the modern economy.

From an innovation perspective, there is something else to note about how these modules are created, adapted and disseminated in economic system. The ability to identify, absorb, create and deploy these modules is cumulative. Think of lego bricks. The more modules a specific company has access to or has tried before, the more variations it can create, and the more creative solutions it can select to try in the marketplace.

When this happens over many companies in the economy, markets and users can select from more variety, and better ideas are replicated and amplified in the economy. We know from the research by Cesar Hidalgo, Ricardo Hausmann and the Centre for International Development at Harvard, that these winning knowledge modules can be mapped in the Productspace. (I have a hidden section on my blog site where I have documented some of my experiments and visualisations with this approach – you can access it here).

The experience of selecting combinations or transferring modules to other business areas is cumulative. Companies building modules drawing on different or technological knowledge are better positioned to create entirely new innovative architectures because they can draw on modules from divergent knowledge domains. In contrast, companies that can only manage knowledge modules drawing on narrow knowledge domains are more likely to become specialists. The narrower the range of modules, the higher the risk of being disrupted by other competitors that can build modules on a wider front.

It is not only companies and public organisations that build up these modules. Industries can build modules. Universities play a key role in introducing recent or reliable modules into society. Some modules are described in sufficient detail that can spread via blueprints, technical documentation or software code. Members of online communities can together develop knowledge modules in a distributed way. Just think of the power of Linux or other forms of open-source software that is developed in a distributed way.

Modules can also be accumulated in a society, like the knowledge of how to organise a certain kind of festival, or the modules accumulated through dealing with certain phenomena from the environment. When people change jobs or move from a workplace, they carry with them some understanding of the modules and their sub-routines with them. However, turning some of these modules into a business unit, product or process might require investment in developing the missing business plan areas.

In some locations, office parks or regions, knowledge about certain modules may be developed or may flow more easily over organisational boundaries. Of course, this process may be fostered by developing unique public (or private) infrastructure and through social networks.

I’ll go ahead and conclude. Entrepreneurs, managers, investors and public officials have to intentionally decide where to build modules in their organisations. These modules will typically combine elements from physical and social technology design spaces with business plans. Modules will evolve as they are selected by the organisation (management) and by the market. These modules are cumulative, those that have access to more can also create more variations. Those who draw their modules together from more divergent knowledge domains may have a long-term advantage over those who specialise in building capabilities in a narrower field. Dynamic capabilities are about intentionally investing in capabilities, and continuously evaluating, adjusting and refining existing modules with new ideas from beyond the organisation. Not all the modules originate in a firm, some are present in a community, or a network or are drawn from other companies or contexts. This is easier in some places than in others.

Some questions to explore in your own context:

  • In the industries or domains that you work in, what are the modules that you can identify?
  • How are they changing?
  • Who are the pioneers that are accumulating modules from divergent knowledge domains?
  • How do they compare to those mainly focused on developing modules in a narrower field?
  • Which public and private organisations have built up dynamic capabilities? In other words, they are constantly reflecting on their performance, and constantly working on building capabilities based on their understanding of their own situation in relation to changes in the broader context. How are these organisations managed, and how does their performance compare to more conventional organisations?
  • How are the accumulation and adaptation of modules fostered or promoted in certain areas, knowledge domains or industries?

Please share your thoughts in the comments, or drop me an email.

Image credit

The image at the top of this blog post was created by DALL-E of OpenAI. asked DALLE to create a picture of a topographical landscape with valleys and peaks.

PS.

Here in South Africa, we are all developing modules of how to cope with electricity blackouts (Our government calls it “load-shedding”, which is an excellent way of describing institutionalised incompetence).

Sources:

Beinhocker, E.D. 2007.  The origin of wealth. Evolution, complexity, and radical remaking of economics`. London: Random House.

Teece, D.J., Pisano, G. and Shuen, A. 1997.  Dynamic capabilities and strategic management. Strategic Management Journal,  pp. 509-533.

Teece, D.J. 2019.  A capability theory of the firm: An economics and (strategic) management perspective. New Zealand Economic Papers, 53.

Further reading:

If you have access to journal databases, you should also look up the fantastic work of Giovani Dosi, and also Richard R Nelson and B.A Lundvall.

Updated on 5 March 2023 with minor corrections

Mesopartner Engagement event on Meso Resilience

On Thursday, 23 February, Mesopartner will host an event to discuss our research and exploration on the theme of Improving Meso Resilience.

The Mesopartner Engagement series is about sharing progress on our research with practitioners also innovating in a specific topic. This will not be a training event but about research, method development, practice and searching for opportunities to collaborate or learn together. 

We will briefly explain the topic to set the scene, but we will quickly move to recent developments, challenges faced, or potential ideas we can explore together.

Background to the Meso Resilience event

Our research on Meso resilience is all about helping people working within networks of organisations to improve innovation and resilience within and beyond the organisations they work for or with. In our vocabulary, a meso organisation or programme was created to address a particular “failure” or pattern of underperformance in the economy. In our experience, we know that these organisations often struggle to adjust to changes in the production structure and the broader market conditions or are challenged increasingly by changes in the use of knowledge and technology. 

When doing economic development, we often work at two levels: 

  • the level of the meso space where there are many different organisations or programmes, or
  • the level of a particular meso organisation or programme. 

Mesopartner has published extensively on the topic of meso resilience, so here are some links to publications that will help you catch up with where we are:

The Meso Resilience research area was launched to look at the relations and dynamism between different organisations in the Meso Space. For this engagement meeting, two papers are most relevant for background reading. The first is  “A resilient meso space to enable an adaptive Systemic Competitiveness landscape” and a “case study about improving the resolution of the meso layer“. 

Some of you also know about our work on The Meso Assessment Framework (before COVID). This framework was developed to assess a specific meso organisation’s ability to innovate in relation to the changing technology & market requirements of the economy or a given sector. In the last few months, there has been an increased interest in the Meso Assessment Framework, so if time permits, we can discuss that. The article that goes with this framework can be found here. An example of the framework itself can be downloaded here. 

Event Details:

Topic: Mesopartner Engagement: Meso Resilience

Time: Feb 23, 2023 09:30 AM Amsterdam, Berlin, Rome, Stockholm, Vienna

You can still register to participate here.

How technologies evolve

In my previous post, I introduced the general evolutionary algorithm of variety creation, selection and amplification.

I intentionally remained vague about what the evolutionary algorithm act upon by referring to “ideas”. In this post I will be more specific about what kind of ideas evolution acts on.

Nelson and Winter (1982) argued that the material that evolution acts upon are formal and informal routines:

“ We use this term to include characteristics of firms that range from well-specified technical routines for producing things, through procedures for hiring and firing, ordering new inventory, or stepping up production of items in high demand, to policies regarding investment, research and development, advertising, business strategy about product diversification and overseas investment. In our evolutionary theory, these routines play the role that genes play in biological evolutionary theory

(Nelson and Winter, 1982:14)

These routines could emerge through serendipity or they could be the result of the creative efforts of individuals or teams. They could originate in isolation, but very often they are combinations of old and new, or combinations of internal and external ideas tried in a local context. These routines could be arranged around particular equipment or processes, or they could be norms about how people in a workplace treat each other.

These routines become part of the technology available to the firm. Good ideas that seem to work better than alternative arrangements typically spread between organisations and teams through imitation, social networks or the movement of people. Sometimes ideas are spread by word of mouth, other times through text or the media, and in some cases through mimicking or copying (or reverse engineering). Sometimes a confluence of factors makes the same ideas or routines emerge in many different organisations at the same time. Think back to how we all had to figure out how to get our work done during the Covid lockdowns.

Within organisations, the ideas and the routines that are selected are chosen by how they contribute to the objectives of the organisation. For most companies, the contribution of these routines to profitability is important, but that is not the only criteria. External and internal incentives will shape what is deemed the selection and retention criteria. I have visited enough companies to know that profitability is not the only criteria. Within companies, there are marketplaces for ideas. If somebody makes an suggestion about an improvement or adjustment management and peers might select those ideas, or they may be rejected. But let me not digress.

Ultimately, all the routines and ideas that a company create, adapt and combine (through its internal idea markets) result in products, services and offerings that are either selected or rejected by external markets.

But we know that organisations cannot only achieve their objectives with routines. I again turn to Nelson and Winter (1982) who argued that there is a co-evolution between two different kinds of technological spaces:

  • Physical technologies are what we often think of as technology. It is the artefacts, equipment, infrastructure and even code that are used to perform a function or to harness natural phenomena to achieve a specific outcome. These technologies are methods and processes for transforming matter, energy and information from one state into another in pursuit of a particular outcome. A physical technology is not only an artefact, it also includes the designs, instructions and code needed to make it, maintain and use it. Physical technologies are typically modular and often interdependent on other physical technologies. For instance, my smartphone depends on other technologies to function like a mobile network and the electricity distribution system.
  • Social technologies are methods, designs and arrangements for organising people in pursuit of a goal or objective. Social technologies smooth the way for information to be exchanged, priorities to be set, or unexpected situations to be dealt with. Social technologies enable (or disable) learning and adapting to changes in the environment. Organising people into a hierarchy, creating and enforcing regulations or arranging marketplaces are all social technologies. Like physical technologies, social technologies are modular and cumulative. Each new knowledge module or routine that is created opens up new further opportunities for a variety of new creations.

This co-evolution within an organisation also co-evolves with the physical and social technology spaces beyond the organisation. For instance, the social technologies beyond the firm like the regulatory frameworks, the incentives in the economy to innovate, or the tolerance of failure or uncertainty will influence the physical and social technologies available within the firm.

In the same way, the physical technologies beyond the firm, like the infrastructure, access to scarce equipment or expertise or access to required inputs will also shape the choices of physical and social technologies available to the leadership.

The point is that the social and physical technologies harnessed in any organisation is not isolated from the social and physical technologies in the environment around the firm. Ideas cross over the permeable boundaries of the organisation.

Of course, we expect innovative leaders to create internal environments that are much more conducive than external environments around their firms. However, we know how hard it is to get this right. In many developing countries, leaders of companies (but also government departments) have to contend with a wide range of challenges that make the deployment of more recent physical and social technologies very hard – largely because of a lack of diversity and depth in the social and physical technologies beyond their organisation. I will come back to this in a moment.

In 2006, Eric Beinhocker published The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics. It is one of the books that have influenced my thinking the most. In his book, Beinhocker reframes the social and physical spaces introduced by Nelson and Winter as “design spaces” within which entrepreneurs and leaders have to make choices based on their resources, their capabilities, the external environment and the markets they are in.

Beinhocker also introduces a third design space that he calls the Business Plan design space. This is where entrepreneurs, leaders and innovators have to meld physical and social technologies together under a strategy, and then create routines that express the resulting design into the economic world. This strategy must include ways to raise finance, attract talent, set priorities, allocate resources and create an internal environment that is typically distinct from the external environment. From my experience of working with innovative teams, I know that this business plan space could also be described as an “entrepreneurial technology” because. Just like the other two design spaces, entrepreneurial technologies are created by combining knowledge modules, insights, talent, networks and competencies into new configurations.

So now we have three design spaces that co-evolve in a given organisation. There are physical technologies, social technologies and business plans/entrepreneurial technologies. At the same time, this co-evolution in the organisation also co-evolves with the design spaces beyond the firm. The inside of the organisation exchanges genetic material with the design spaces in the immediate and even more distant design spaces.

To tie this back to the evolutionary algorithm, within each of these three design spaces, variety is created, selections are made, and “good” ideas are amplified. A “good” idea meets the requirements of the internal idea markets within organisations and eventually must also meet the fitness criteria in the marketplace.

Innovation is not only about designing better physical technologies, we also need to foster innovation in the other design spaces within and beyond firms. It is very hard (I would go as far as claiming it is impossible) to successfully innovate in one design space without affecting the innovation potential in the other design spaces.

At the same time, development practitioners must pay attention to how the design spaces within organisations affect or interact with the design spaces beyond firms. This is where the co-evolution of companies, public organisations, universities and other social organisations and the physical infrastructure co-evolve.

Sources:

Beinhocker, E.D. 2007.  The origin of wealth. Evolution, complexity, and the radical remaking of economics. London: Random House.

Nelson, R.R. and Winter, S.G. 1982.  An Evolutionary Theory of Economic Change. Cambridge, MA: Belknap Press of Harvard University Press.

Evolution in the economy

Economic evolution is often a topic in conversations with the teams I am coaching and the leaders I advise. It is a simple idea to explain, yet it allows for a much deeper exploration of why and how economies and organisations change. Even leaders without a background in economics or innovation can see the role they play in promoting innovation and economic development.

Evolution is a general-purpose and potent algorithm for finding innovative solutions to complex problems. It describes a naturally unfolding process in the economy that plays out at different levels as people, individually and collectively, search for and try new ideas or modifications of what they already know. At its core, evolution is an iterative process of creating variety and selecting designs that are fit for purpose and then amplifying these by adapting resource flows. While in nature, fitness is determined by the environment, in economies, fitness can be intentionally influenced by human actors.

The idea that economies evolve continuously is not new. The term “evolutionary economics” was coined by Thorstein Veblen (1857-1929) already in 1898. Earlier, Karl Marx and Adam Smith raised issues that are now seen as part of the evolutionary economics school. Joseph Schumpeter’s theories of economic development had a strong evolutionary perspective. Possibly the Schumpetarian idea that is best known beyond economics is his suggestion that entrepreneurs introduce innovations that creatively destroy the equilibrium created by the predominant arrangements. Much later, Richard R Nelson and Sidney G Winter’s book An Evolutionary Theory of Economic Change (1982) was a seminal work that marked a renaissance of evolutionary economics.

Below is a simple illustration of the evolutionary algorithm.

The evolutionary algorithm works as follows:

  • An innovator or a team creates some variation based on existing ideas. The new idea is often created by recombining what is already known (knowledge and technology is cumulative) with some new insights. Or perhaps they figure out the idea based on their understanding of a given situation (experience is also cumulative). It may even be that the variation is created through serendipity. The critical point is that the variety of possible solutions or stock of ideas increases, irrespective of whether there is currently demand for any of these ideas. For the variation stage to be complete, the idea must either be recognised by the innovator as worthy of further pursuit or knowledge of the variation must spread to others.
  • A few pioneering buyers, managers, investors, or other innovators then select an idea because it can address a need, or solve a problem, or plugs a gap in a given context. Selection implies that resources, attention or access to complimentary knowledge or networks are made available, leading to the concept’s further development. Choosing an idea that is different and unproven is a risk, but the people making the selection somehow recognise the idea’s potential or the limitations of existing alternatives. Innovative ideas are often further developed because they are selected. My late business partner Jorg Meyer-Stamer constantly reminded me “that technologies become efficient because they are chosen; technologies are hardly chosen because they are already efficient”. As the idea attracts more resources, funds, interest, talent and pioneering buyers, it becomes easier for others to select it as the concept is refined. At this point, other innovators may enter and create more complimentary variety, which makes selection even more likely as the ecosystem of related and complimentary solutions becomes more established.
  • At a certain point, the idea becomes amplified in the economy or the system beyond the ideas or designs of the original innovators. Where those doing the selection in the previous phase were taking a risk, in the amplification stage the risks are much lower as the innovative idea is understood better, is more credible and has more support.

This evolutionary algorithm plays out in the marketplace and is fuelled by incentives that shapes each stage. It also plays out within organisations where different ideas compete for resources.

There are ways that we can shape the incentives in all three phases of the algorithm.

  • We can figure out what incentives dampen variety creation or which incentives can be amplified to encourage learning about and exploring possible alternative arrangements.
  • We can explore how we can tilt selection incentives away from innovations that are less desirable towards more desirable solutions.
  • We can explore how good ideas that have already been selected (and thus developed) can be amplified.

I know that the incentives are often understood to be financial. But remember that recognition, being able to contribute, using one’s talent or simply solving a puzzle are also important social incentives. In the same way, fear of failure or ridicule, not having the resources needed, or not having the time or the permission to solve a problem are incentives that hamper innovation.

I want to end this post with just a provocative question. The institutions in our economies and the rules/cultures in our organisations are already shaping the algorithm. What innovations and alternatives are the algorithms in your system incentivising, selecting and amplifying? I would love to hear your reflection on this question.

If you do not want to post it in the comments, then send me an email or reach me on twitter.

Credits: The ideas in this post are inspired by many conversations with Marcus Jenal over the last ten years. In 2015, we had the privilege of deep diving into evolutionary thinking and its applications to economic development in a project funded by the BEAM Exchange. The ideas we have explored together have shaped my view of organisations, markets and how societies evolve.

Exploring the gaps between universities and industries

When working on technological change and the improvement of innovation systems, the topic of the different gaps between universities and industries often comes up. This is true for South Africa, but also for my work in Europe and Asia. The gaps are described differently by development projects, academics and business people, and my job is to usually figure out where the opportunity to close these gaps lies.

In my experience of trying to close some of these gaps, it is important to be as specific as possible about nature and maybe even the effects of these gaps. It is important to go to businesses and to find out what they expect from universities, while also going to academics and researchers and finding out what they expect from the industry. Often, the expectations expressed by these two groups are unreasonable and hard to reconcile. Sometimes people are simply wrong about what they think is needed or should be done.

However, these different expectations are not the biggest obstacle to closing the gap. Often the bigger obstacle is a lack of imagination of what is even possible in terms of cooperation, interaction and information flow. This is made worse by low levels of trust by one side of the other side. Also, stakeholders often have little insight into how others value certain interactions and information flows.

Over the last 14 years I have worked occasionally with a Faculty of Engineering at a University of Technology. In the image below, I share some of the different interaction patterns that we have observed over the years of closing gaps between selected departments or technology centres and industries. I am grateful to Dr SJ Jacobs who agreed that I can share this illustration.

The possible different relations between universities and industries

Of course, some relationships are more important than others. Also, not everybody agrees with the direction of the arrows that I have used in the diagram. I also know that some academics find it hard to believe that they can learn from industry. At the same time, many business people are surprised when they realise that their own companies have learned through the personal relations of their employees with their alma mater.

Even if a certain relationship adds little value in the bigger scheme of things, for the people directly involved it could mean a lot. For instance, for an engineering student to find an industry project that they could work on as a research project is a big deal, even if this may not be so important for a company or even for the academic department involved. In many post-graduate degrees, students are required to work on a real-life project, which often requires a company to give a student access to their facilities, data, senior management or other resources.

To reflect on the relations between a university and a community or a region would require another picture, but I will do that in a next project.

To be transparent, for many years I have used a simpler version of this map that was developed by the late Jorg Meyer-Stamer in the early 2000s. I include the original map below. I think many of my readers might have seen this map in RALIS (Rapid Appraisal of Local Innovation Systems) training course material or RALIS diagnostic processes.

The original map developed by Jorg Meyer-Stamer

While this original map is still useful to explain the different kinds of interactions between the private sector and a university, I found that we need a more detailed diagram if we want to improve relationships, design new services or improve the performance of programmes.

What do you use to map the relations?

What are some of the common myths or gaps that you come across often when you work on this topic?

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