Concentric Waves of Creative Destruction: Why OPEN is the answer

This post is the first in a two-part series that will highlight some notable progress in business and ecosystem disruptions reported at recent Open Summits. This first part will focus on laying some groundwork and background understanding of creative destruction and some history of governance and management strategy. In the coming weeks I will follow it up with more specific recent observations on new innovations that are continuing to disrupt the past and bring forth a new future.

Once again this year Open Summits brought news of major industry inflections, new disruptions in their own right yet all an unfolding part of larger and more complex, multi-faceted disruption currently happening across the whole of internet and computer technologies. To me, the very idea that some are getting sick of the term ‘disruptive’ marks an interesting phenomenon that is now playing out before our eyes as these industries are transformed. The history behind the knowledge of how creative destruction takes place is a fascinating one that shows how simple access to knowledge has been used to completely blindside and topple some of the largest and most powerful companies in the world. And it has also been fascinating to observe years after this knowledge became well-known in some circles, many businesses were still being completely blindsided due to the slow dissemination of knowledge that used to be a critical advantage for businesses that had access to closed, elite circles where the knowledge was held.

However, in recent years as the internet has continued to grow at an amazing pace, the democratization of knowledge itself has somewhat silently, radically transformed the dissemination of advanced management strategies and research. Academics have always been fairly open about sharing advanced findings, however their reporting of these findings is often found in academic papers that few in society have the knowledge to break down and even fewer have the ability to transform into actionable strategies and practices. And so in the past the pattern by which this knowledge was disseminated was through elite consultancies who could afford the PhD’s needed to break down new findings, transform those into practices, and then sell them to the largest and wealthiest companies that could PAY. Eventually, this knowledge would trickle down in bits and pieces to middle management, employee churn trickled down the knowledge to other companies, then someone writes a book and eventually knowledge would become commonplace by the time it was stale and no longer differentiating.

This sheds light on just how drastically society’s attitudes towards sharing knowledge has changed, where not long ago secrecy was such a significant and valuable priority, and today we have moved to a polar opposite where now ‘thought leaders’ rush to share their deepest insights with the world. As leading consultants and practitioners go and apply new techniques and strategies, they report a blow-by-blow accounting of these experiences in real time to the blogosphere, making this knowledge free to the world, completely disrupting the traditional models of knowledge dissemination that have been the practice since the printing press. And correspondingly causing companies like Google to move ‘up-market’ in their knowledge gathering methodologies to drive further advancements in identifying ever faster and newer methods to understand consumers and ecosystems.

Despite this radical transformation of the dissemination of knowledge, perhaps the majority of conservative corporate execs are still riddled with paranoia over pressure to share more advanced knowledge while fighting the plague that toppled the first internet bubble: how to monetize. And while I am all about free and open stuff, monetization is important. Without it, none of the cool stuff we love gets funded. Yet the frustrating part for much of society today is that we can see clearly that newer business models and newer ways of monetizing can actually be far better for the investing company and for the whole of society at the same time.

A great example of this is iTunes and online MP3 markets, where, prior to their arrival, the record industry was settled in a paradigm. With any paradigm, those that are getting the spoils also happen to be very powerful and wealthy, and for them the idea of change only represents risk. Yet through some amazing maneuvering, Apple was able to successfully disrupt this industry and, to the surprise of some, this transition created far greater monetization than almost anyone could have imagined. This democratization of the dissemination of music created radically new ways to find new artists, which, combined with the growth of the internet, social media and communities of interest, has created a massive expansion for the entire ecosystem where we have seen hundreds if not thousands of new disruptive business models play out – and this is only the beginning. Yet, compare this transformation to the one that is still trying to happen for the dissemination of the television and movie industries and we can see clearly how political entrenchment and industry politics can slow the potential growth of massive industries to a crawl.

This latter story highlights the dangers of using government regulation to attempt to control greed – I am not anti-regulation, but this is important to understand to create new forms of governance that can better support a constantly growing and evolving society. The flip side of regulation, however, is handing the society over to the greediest of sharks that have turned the whole of society into their own spoils, ignoring fundamental principles of reality like you can’t simply plant crops in the same soil over and over again or it stops yielding crops…period. The same is true for society. You can’t fleece and fleece and fleece while letting society flush down the tubes. You can blame the problems in our populace on whatever you like, but that still doesn’t change the fact that if we as a nation and as a world don’t address our problems, we are all screwed. We cannot have sustained prosperity when 90% of its citizens are not doing well and not in a position where we can maximize their potential.

This takes me to another example – I read recently in the New York Times where, the story goes, a few years back executives at numerous major food companies attended a meeting where some called for creating some shared, cross-industry goals for improving food quality and aiding the nation’s obesity epidemic. And, as would be expected, a few execs got up and argued for support before one exec basically got up and said ‘no way, I’m going to laugh all the way to the bank,’ and things fell apart from there. Without consensus here, there was no support because we know how market’s work; without a level playing field many will continue to manipulate a desperate and weary populace living paycheck to paycheck too weary to know what actions will create a healthy society and a flourishing economy.

There is a saying, “lest not the fires of war rage so intensely the spoils of war are ruined for the victor.” And today it seems clear we have allowed and fostered a scorched-earth style of capitalism that is leaving the world economy looking like the aftermath of Sherman’s march. It is a nice fantasy to think that a completely unregulated capitalism will yield a perfectly balanced market, but how have we been fooled into thinking this could be reality? Is not one of the first things taught in every introductory economics course the world over that there is no such thing as a perfect market, that human nature will always yield many powers that will fight constantly to tip the market in their favor whatever the cost? And this brings us back to a chicken and egg scenario; without regulations we end up with scorched earth, yet the very regulations meant to address these problems end up being used as tools by incumbents to prevent innovation and protect entrenched powers.

And this brings me to the Open movement as a trailblazing case study on the evolution of the governance of consensus building. A nice thing about regulation is that it doesn’t have to be legally enforced – and as we can see with the open movements today, we can push innovation and create healthier ecosystems without waiting on a congress that will never do anything good in its current form. Healthy regulation is about creating powerful checks and balances, structuring ecosystems where each aspect of an ecosystem is properly represented and powers are pitted against each other in such a way to create a healthy balance. And, most importantly, that we approach this structuring with a rational framework of how innovation happens and how creative destruction of paradigms occurs, we must build these systems with the proper framework to support continuous innovations in society and in regulations and standards themselves.

Joseph Schumpeter, the original source inspiring the more recent theories on technology disruption, demonstrated a more thorough understanding of industry disruption than most of the leading scientists with mounds of data and powerful modeling tools can do today. He arrived at these conclusions by approaching the problem with the proper perspective, understanding that people and the whole of society operates as a complex adaptive system. Yet despite having access to Schumpeter’s insights since the early 1900’s today we still find government, regulatory and business processes established on a paradigm that seems designed to never change…or at least change effectively. And in modern business strategy, much of this can be traced to misinterpretation and misapplication of the research of Harvard’s Michael Porter.

Porters research itself when viewed holistically and with his peers work can be seen as tied to a sustainable approach to capitalism. However most research is fairly complex, and when these finding hit the business community they often like to write off the things they don’t like and focus on the things they do. Or in other words skip past the common sense and go straight into manipulating the research to make the most money as quickly as possible. This is often unintentional which highlights a problem with specialization, management strategists get to specialize and get placed into roles where often the purpose of the role is to make as much money as quickly as possible … not that the more ‘touchy feely’ stuff doesn’t matter, but that is handled by someone else’s department. And of course who do you think execs turn to and empower more, especially in a world where our financial systems print lottery tickets for execs who cash in on short term scorched-earth tactics?

Porter’s work set the bar for maximizing tactical strategies within a given paradigm, but where it fell short is at its core, Porter’s models were based on an equilibrium-based view of economics; the model did not account for disruptions. Yet if people had followed the well-rounded guidance I find in Porter’s broader approach, this should not have created much of a problem. But greed-entrenched wall-street sharks fell in love with Porter’s headline: creating sustainable competitive differentiation. Porter’s work was perhaps plagued by the analytical tools available at the time which made it difficult to analyze large data sets over extended periods of time. And correspondingly, most of Porters research fell within established industries and established paradigms where it seemed very clear that his tactical strategies created compelling returns. And this evidence was exactly what execs wanted to hear … they could make significant technology investments that would leave them permanently ahead of their competition. It was perceived that if one invested 10 years of man-hours into new business software then competitors would also have to invest the same amount of time and expense to catch-up, giving the incumbent a ’10-year advantage’.

The only problem is that Porter’s evidence in this case was flat-out wrong. As computing capabilities grew and it became possible to analyze larger mounds of data, researchers including Harvard’s Clayton Christensen discovered that Porter’s sustainable competitive advantage wasn’t actually sustainable. Evidence began to mount that over longer periods of time, high-performing companies consistently failed. And a deeper look into this evidence pointed researchers nearly 100 years into the past, to the findings of Joseph Schumpeter whose work elegantly predicts the exact course the global economy has been on, rooted in an understanding of how economics actually does work … as a complex system.

The key difference between Porter’s and Schumpeter’s work is in the difference between equilibrium and a disequilibrium based understanding of economics. The classical, equilibrium based approach assumes that economics is about dividing a fixed pool of scarce resources that exist within nature. With this notion comes the implication that the entire world has only so many resources, there is only one pie and we all have to fight over who gets the biggest slice of this pie. And thus wars rage on over access to oil, rocks and land. But Schumpeter viewed this differently … he observed and pointed to compelling evidence throughout history that fundamentally new innovations and occurrences happen, and these new innovations create disequilibrium in the economy. And augmenting Schumpeter’s thesis, Dr. George Kozmetsky in his landmark work, New Wealth, offers powerful insights on the implications of disequilibrium.

Dr. Kozmetsky observed that technological innovation creates net new wealth, and that we no longer have to view the world in terms of a fixed pool of scarce economic resources. Technological innovation creates net new resources (or the effect of net new resources), so that instead of fighting over fixed resources we can instead look to innovation to create a better alternative that can scale and grow and give tangible evidence that it is possible to grow the entire pie and create net improvement in quality of life for everyone, not just the hoarders of natural resources and wealth. For evidence of this we need to look no further than the number of people that are alive today, and in this view it is very apparent that the earth’s population has grown linearly with technological innovation. Technology to improve crop yield, animal husbandry, millions of innovations that have enabled people to live, sanitarily, in dense urban environments, innovations in medicine that extend human life and beyond.

Bringing it a little closer to home, apply this thinking to the music industry example above. The music industry had been settled into a paradigm where a few had control and power and picked the winners and losers in an ecosystem that was settled within a paradigm that was no longer in high-growth mode. When the internet’s capabilities were allowed to disrupt this paradigm, it fundamentally grew the entire pie, creating massive new opportunities for millions and giving birth to a fundamentally new paradigm still in its infancy, and still with massive economic potential yet to be unlocked, and this is only one facet of one industry. Today new technologies already exist that have the potential to disrupt literally every industry in the world, every facet of life … yet only a minute amount of the potential economic value of even just the innovations that already exist today could create has been unlocked. The answer to solving the world’s economic dilemma is already here, the greater question is if we as a society choose to unlock this value.

Do we choose to be like a worker ant and live out the roles that have been laid before us, queue up the old song ’16 tons’ and start planning out the labor camps for our grandchildren to dig us out from our war and greed imposed debts; or rather do we choose to innovate? It takes no more than a look at just a portion of the projects the Gates foundation is currently working on to realize we are on the verge of fundamentally significant innovations that no amount of money could ever buy. Innovations that yield such inherent value they can fundamentally turn the tables on all of our current economic challenges. And if you believe as I do, that innovation is the answer, the question then becomes one of how we can awaken society, how can we create the fertile ground to empower the masses to go out and capitalize on the massive value that the dissemination and adaptation of new technologies can bring to every industry and every facet of life … how?

Schumpeter drew a distinction between incremental innovations and disruptive innovations comparing them by analogy to biological evolution where incremental innovations would be analogous to adaptation within a single biological species and disruptive innovations analogous to evolution between species. And it was this observation I find to be the most important implication of Schumpeter’s work. You can leverage Porter to find the best in short-term tactics, and you can leverage Christensen to understand how an industry may be disrupted. But neither of these approaches has resulted in sustainability as neither alone paints a complete picture of the real world that we are trying to manage. And for Schumpeter, this was more than an analogy as he viewed economics as ‘the origin of all concepts”, and that economic scarcity was as applicable an explanation of biological evolution as it is to finance.

And it is in this insight that I find hope for an improvement to our current economic circumstances. Governance is about applying a management approach to our sociological systems that ideally brings the greatest benefit to the most people. Yet without proper knowledge, we have built our current systems on misguided frameworks that completely lacked an understanding of how reality actually works and thus our systems were never built for any reality let alone the one in which we all live and share.

If we were to divide the approaches businesses have taken in their strategies in recent years I see 3 clear epochs: 1st, Porter’s sustainable competitive advantage approach characterized the first epoch; 2nd, Christensen’s disruptive technology theory has fueled the paradigm within which most leading companies operate today; and finally, society is on the verge of realizing the 3rd epoch of modern management science: complexity theory (for more see Schumpeterian Leadership: A Complex Systems Perspective). For more insight on this one of my favorite presentations on the impact that complexity science will have on society is the exceptional TED talk from Dr. Geoffrey West which can be viewed here: https://www.ted.com/talks/geoffrey_west_the_surprising_math_of_cities_and_corporations.html

Today society and our major corporations are currently (whether they know it or not) moving towards using increasing levels of complexity science in their strategic decision making. As with all innovations, this is neither inherently good or bad, the advanced predictive insights that new systems can yield could be used to create the greatest good across society the world has yet seen, or it could create the exact opposite, and this is where OPEN comes in. The story behind this article is one about how in the modern world it is advanced knowledge that has made kings and superpowers rise and fall, and keeping advanced knowledge in closed corners has been the primary culprit of the abuse and subjugation of people the world over. The Open movement is knocking down old entrenched powers as we speak and replacing them with newer and hopefully better systems that can start to unlock the massive potential energy that is stuck in the hearts and minds of the billions that cannot reach their true potential … yet. And it is by keeping knowledge out in the open with full access that we can fight for a better future and better resolutions to the challenges that are plaguing the world today.

While reflecting on my favorite of Schumpeter’s works, Development (1927), I observed “innovation results in the opposite effect of entropy; when an innovation occurs, the amount of output from the exchange of energy creates a slightly positive byproduct that becomes amplified through a network effect … realizing the profound impact of Schumpeter we find the fundamental truth that disequilibrium/equilibrium=innovation”. In other words, without innovation there is truly only one pie of natural resources to divide between the global populace and within this paradigm we could only hope to expect war after war to divide the limited natural resources as entropy continues its hard toll leaving less and less until population eventually dies out. But, this is fortunately not the reality in which we live, the laws of thermodynamics have shown us the harsh realities of entropy but what that does not show us is the miracle that lives inside the hearts and minds of all mankind: the ability to create.

I will close with a selection from my essay “The Spirit of Innovation”:

Many people look at the youth of today and see rebellion, narcissism and ego, but I see something deeper. What greater ego could there have been than Rosa Parks, telling an entire nation with her actions that they were all wrong. But this was not ego, it was intelligence and pride, knowing that she knew a better way. Ego is our unfortunate response that arises when we are told that others are better, and more capable, and deserve more than we do. We have been taught to believe this our whole lives, but inside we know this is not true, there is no one greater than the least of us – we were all born with the same gifts – to have our own will and with the ability to create our own future.

The spirit of innovation calls to all of us, to believe in ourselves, to never stop fighting. No man has ever invented anything alone, every wonderful thing we have was already here, on this planet, just waiting to be discovered. These gifts belong to no man, they belong to us all.

So let us innovate, and bring real meaningful progress, taking back the world for the people whom it was meant for. We no longer need to simply protest, we have been given the tools that enable us all to share our ideas, and passions – social media tools that help us all to find others with common interests and ideas so we can band together and bring sustainable, meaningful change to create a better world.

I used to sit in school in pure amazement of the idea that Edison, Plato and others just came up with their brilliant ideas seemingly out of thin air, and I wondered how anyone could be so smart … but I have come to realize that Plato and others were solving the challenge meant for them, in their day, and that we have new challenges, new problems that have not yet been solved. Each of us has the knowledge and the ability to find new, better ways to improve all aspects of our lives. We can no longer allow ourselves to be told that we must accept old ways of doing things when we know there is a better way. It is up to each of us to believe in ourselves, and work together to create a better tomorrow.

The Innovators credo:

I am Plato, I am Thomas Edison, I am Rosa Parks, I am (Fill in the name of those who inspire you) … I will not be told how to think, how to act or what my values should be. I will not be told to simply accept the bad of the present … I have the courage, strength and conviction to fight for a better future for myself, for my children, and for all of humanity. I am the spirit of innovation, I will not, and cannot be stopped, and I will create a better future for our world.

“I would like to be remembered as a person who wanted to be free… so other people would be also free.” Rosa Parks

“We will make electricity so cheap that only the rich will burn candles.” Thomas Edison

“The reasonable man adapts himself to the world. The unreasonable man persists in trying to adapt the world to himself. Therefore all progress depends upon the unreasonable man.” G.B. Shaw

About the Blogger: Art Fewell grew up in a trailer park, and never thought much of his own capabilities … but he was given the greatest gift: people who believed in him. And because of this, he has accomplished far more than he ever thought he could. Art has worked for tech giants SBC Communications, Nortel, Cisco and is currently working at Dell, where he spends his time trying to bring meaningful innovation to the world. Outside of work Art enjoys spending time with his wife Dez and his sons Benjamin and Ryan.

Disclaimer: I am a Dell employee but the views and opinions expressed in this blog are my own and not necessarily those of my employer.