During July 2018 I visited Prague with my family. In the parks they had pianos that people could simply play on. They were tuned. And no, they were not bolted down! For us South Africans the idea that something as expensive as a piano can stand in a public space is just mind-boggling. Then the finer details, like the paving, a chair and nice roof.
For the last few years I have been playing with and actively following the developments around the Product Space methodology and logic. It is such a powerful instrument that I use often to support my clients, but also as I try to make sense of technological change around the world. I am grateful for Ricardo Hausmann and Cesar Hidalgo and their teams in responding to my many questions, and their patience when I tried to figure out how to get my own product space server going.
Here is an image of the complete Product Space map from the Atlas of Economic Complexity page (you can also download the book from here). The image below shows where different industries are on the map. I work mainly in the blues, purples and some other colors I can cannot name on the left half of this map.
Beyond the great visual interfaces and interactive tools that the Harvard CID and MIT Media Labs offer, there is a great depth of knowledge and insights about how economies change. Take a look at this quote in a summary by Hidalgo and Hartmann on the OECD Insight page (the link to the main article is at the bottom of the OECD page)
“Scholars have argued that income inequality depends on a variety of factors, from an economy’s factor endowments, geography, and institutions, to its historical trajectories, changes in technology, and returns to capital. The combination of these factors should be expressed in the mix of products that a country makes. For example, colonial economies that specialised in a narrow set of agricultural or mineral products tend to have more unequal distributions of political power, human capital, and wealth. Conversely, sophisticated products, like medical imaging devices or electronic components, are typically produced in diversified economies that require more inclusive institutions. Complex industries and complex economies thrive when workers are able to contribute their creative input to the activities of firms.”
As I mainly support developing countries, this paragraph is really important to me. Perhaps this explains why I have become increasingly cynical of much of economic development practice. I find that in developing countries the governments but also international development often concentrate on value chains or sub sector support activities or private sector development strategies that focus exactly on the wrong parts of the economic system. These sectors are at the edges of the product space, with very low skill requirements and with little technology spill overs from these sectors to other parts of the economy. This focus is largely because of a belief that jobs can be created easily in these sectors (in the shorter term), instead of focusing on areas of the economy where economic complexity can be strengthened (in the longer term). It saddens me to hear of another development project, focusing “directly” on a group of firms, farmers or beneficiaries, in order to create jobs. This will not help in the longer term, even if may help in the shorter term. Often the reason offered for bypassing local stakeholders, government programs, etc are that they are “part of the problem” or “too slow”. No wonder the inequality is rising and growth is slow.
Economic complexity is a measure of the knowledge in a society that gets translated into the products it makes. The most complex products are sophisticated chemicals and machinery, whereas the least complex products are raw materials or simple agricultural products. The economic complexity of a country depends on the complexity of the products it exports. A country is considered complex if it exports not only highly complex products but also a large number of different products. To calculate the economic complexity of a country, we measure the average ubiquity of the products it exports, then the average diversity of the countries that make those products, and so forth.
To change the productive structure of an economy will take both public and private focus on building the right kinds of institutions, both formal in the sense of organizations, policies, etc. and informal institutions, in terms of trust, cooperative capability and maybe even cultural change. On a few occasions I have been accused that my focus on knowledge intensification, innovation systems and complexity only benefits the “have’s” and excludes the “have nots”. To work with institutional or structural change you will almost certainly work with wealthier, or more powerful counterparts. Like the management of an university department, senior government officials or an entrepreneur that is trying new combinations. My argument is that this accusation confuses target groups (those that we can work with to enable a change) with beneficiaries (those that will ultimately benefit from change). Furthermore, if we have to work with academics, scientists or pioneering entrepreneurs, we must certainly set conditions that ensure that benefits are inclusive and not exclusive. It means that the focus in development needs to shift on purpose towards enabling more responsive and forward looking institutions, institutions that lowers the costs for entrepreneurs to try new combinations, institutions that equip employees to find opportunities to contribute their knowledge, skills and creativity towards more complex and valuable economic activities.
Marcus Jenal and I have tried to contribute to this discussion with our paper about Systemic Change that was published at the end of last year. For more information, see this post on our Systemic Insight page. This is the site where we write about our thinking into how complexity thinking can be used to improve development.
In July 2017 we (mesopartner) will host the next annual Summer Academy. This year is special for me, because the theme of the event is about meso-organisations in the economy. Meso organizations are often taken for granted. And it is often assumed that leading or growing a meso organization is like managing a business or a project.
We believe these organizations, and especially their leaders, need some special attention.
For those that wonder what is meant with “meso”, it refers to a specific kind of organization or program that is created with the intent to overcome a whole range of market failures in an economy. Meso-organisations are known by their specificity, for instance to assist specific industries to modernize, or to support start-ups, or to promote investment in particular new technologies or a specific sub-national region. The reality is that while we describe their role in terms of market failure, competitiveness and growth, very often these organizations, their funders and even their clients have very little interest in theoretical concepts like market failure, systemic competitiveness, innovation systems or even modernization. They have a mandate, a limited budget, and many competing demands.
Most of my work is about helping leadership teams of meso organizations to make better sense of their context, to design better programs and services so that they can have a bigger effect on the industries they serve, or to become more resilient.
Increasingly our focus is on helping these organizations to become more innovative, not only in their product/service offerings, but in the way they unleash the creativity of their staff, their networks and how they all learn and discover what is possible in their given social and economic context. It is about stretching the capability, the influence and the adaptiveness of the meso.
To manage a meso organization takes a special kind of person.
Firstly, the leader must meet the demands of their funders or stakeholders. They must be able to handle a huge bureaucracy and lots of reporting on the often seemingly senseless of indicators and targets that funders require. Spare a thought for those that depend on several sources of funding.
Secondly, the leader must meet the demands of industries, clients, wanna-be entrepreneurs and dreamers that come knocking on their door. While we can collectively call these businesses “clients”, they are in fact a very diverse group with a mind numbing diversity of requirements, demands, capabilities and competencies. While in an industrialized country it is sufficient to work with those enterprises that shows the right kind of curiosity and willingness to pay for top notch external support, in developing countries these meso organizations are often under pressure to work with lagging enterprises that are struggling to master the basics, marginalized groups and must also contribute to all kinds of social objectives. It is not simply about being at the cutting edge and competitiveness, but also about creating pathways for others to follow. This is very hard to do when there are huge shortages of professional management in companies, poor schooling and a whole host of interconnected market failures that seems to hold everyone from reaching their full potential.
Thirdly, these leaders must contend with their organizational context. For instance, many meso organizations I work with are associated with research institutions or universities. That means there is a demand on these centers to contribute to the academic objectives of their host. This includes creating opportunities for students to gain work experience, providing post graduate support, procuring raw material and components and running a business through an administration designed for another purpose.
My list could go on. But perhaps at another time.
We’ve been developing tools, instruments and concepts targeted at meso organizations for more than 10 years. This year we will focus on these, without losing focus on promoting the healthy economies of territories and industries.
I am looking forward to the Summer Academy where we can explore these and other issues. Every year we attract a range of experts and practitioners from around the world where we learn together and get to explore issues that we face in the field with a combination of theory and practical simulations. I hope to see you there!
Klaus Schwab, the founder of the World Economic Forum, argues that the single most important challenge facing humanity today is how to understand and shape the new technology revolution. What exactly is this revolution, and why does it matter, especially for Africa?
The “fourth industrial revolution” captures the idea of the confluence of new technologies and their cumulative impact on our world.
Artificial intelligence can produce a medical diagnosis from an x-ray faster than a radiologist and with pinpoint accuracy. Robots can manufacture cars faster and with more precision than assembly line workers. They can potentially mine base metals like platinum and copper, crucial ingredients for renewable energy and carbon cleaning technologies.
3D printing will change manufacturing business models in almost inconceivable ways. Autonomous vehicles will change traffic flows by avoiding bottlenecks. Remote sensing and satellite imagery may help to locate a blocked storm water drain within minutes and avoid city flooding. Vertical farms could solve food security challenges.
The machines are still learning. But with human help they will soon be smarter than us.
The first industrial revolution spanned 1760 to 1840, epitomised by the steam engine. The second started in the late 19th century and made mass production possible. The third began in the 1960s with mainframe computing and semi-conductors.
The argument for a new category – a fourth industrial revolution – is compelling. New technologies are developing with exponential velocity, breadth and depth. Their systemic impact is likely to be profound. Policymakers, academics and companies must understand why all these advances matter and what to do about them.
So why does the fourth industrial revolution matter so much – specifically for Africa? And how should the continent approach the risks and opportunities?
The revolution’s most exciting dimension is its ability to address negative externalities – hidden environmental and social costs. As Schwab has written:
Rapid technological advances in renewable energy, fuel efficiency and energy storage not only make investments in these fields increasingly profitable, boosting GDP growth, but they also contribute to mitigating climate change, one of the major global challenges of our time.
Some countries’ growth trajectories may follow the hypothesised Environmental Kuznets Curve, where income growth generates environmental degradation. This is partly because natural capital is treated as free, and carbon emission as costless, in our global national accounting systems.
New technologies make it possible to truncate this curve. It becomes possible to transition to a “circular economy”, which decouples production from natural resource constraints. Nothing that is made in a circular economy becomes waste. The “Internet of Things” allows us to track material and energy flows to achieve new efficiencies along product value chains. Even the way energy itself is generated and distributed will change radically, relying less and less on fossil fuels.
Perhaps most importantly for African countries, then, renewable energy offers the possibility of devolved, deep and broad access to electricity. Many have still not enjoyed the benefits of the second industrial revolution. The fourth may finally deliver electricity because it no longer relies on centralised grid infrastructure. A smart grid can distribute power efficiently across a number of homes in very remote locations. Children will be able to study at night. Meals can be cooked on safe stoves. Indoor air pollution can basically be eradicated.
Beyond renewable energy, the Internet of Things and blockchain technology cast a vision for financial inclusion that has long been elusive or subject to exploitative practices.
No revolution comes without risks. One in this case is rising joblessness.
Developing countries have moved away from manufacturing into services long before their more developed counterparts did, and at fractions of the income per capita. Dani Rodrik calls this process “premature deindustrialisation”.
The employment shares of manufacturing, along with its value addition to the economy, has long been declining in industrialised nations. But it’s also been declining in developing countries. This is unexpected, because manufacturing is still the primary channel through which to modernise, create employment (especially by absorbing unskilled labour) and alleviate poverty. Manufacturing industries that were built up under a wall of post-independence protectionism are starting to decompose.
The social effects of joblessness are devastating. Demographic modelling indicates that Africa’s population is growing rapidly. For optimists this means a “dividend” of young producers and consumers. For pessimists, it means a growing problem of youth unemployment colliding with poor governance and weak institutions.
New technologies threaten to amplify current inequalities, both within and between countries. Mining – typically a large employer – may become more characterised by keyhole than open heart surgery, to borrow a medical metaphor. That means driverless trucks and robots, all fully digitised, conducting non-invasive mining. A large proportion of the nearly 500 000 people employed in South African mining alone may stand to lose their jobs.
Rising inequality and income stagnation are also socially problematic. Unequal societies tend to be more violent, have higher incarceration rates, and have lower levels of life expectancy than their more equal counterparts.
New technologies may further concentrate benefits and value in the hands of the already wealthy. Those who didn’t benefit from earlier industrialisation risk being left even further behind.
So how can African countries ensure that they harness this revolution while mitigating its risks?
African countries should avoid a proclivity back towards the import substitution industrialisation programmes of early independence. The answer to premature deindustrialisation is not to protect infant industries and manufacture expensively at home. Industrialisation in the 21st century has a totally different ambience. In policy terms, governments need to employ systems thinking, operating in concert rather than in silos.
Rapidly improving access to electricity should be a key policy priority. Governments should view energy security as a function of investment in renewables and the foundation for future growth.
More generically, African governments should be proactive in adopting new technologies. To do so they must stand firm against potential political losers who form barriers to economic development. It pays – in the long-run – to craft inclusive institutions that promote widespread innovation.
There are serious advantages to being a first mover in technology. Governments should be building clear strategies that entail all the benefits of a fourth industrial revolution. If not, they risk being left behind.
My original name of this post was “What can leaders do to embrace tacit knowledge more to enable innovative organisational cultures?”, but this is too long!
This is the third post in the series. It is about some of the “how” questions that leaders should consider if they want to create more innovative organisational cultures. This is not an exhaustive list, but it covers some of the ideas tried by some of the leaders and organisations I work with.
How can leaders embrace the tacit knowledge in their teams?
Firstly, leaders must recognise the value of dissenters, namely those people who are expressing their opinions based on their different experiences and perspectives. Space must be created for those who think differently to make their contributions. In a learning organisation, different perspectives and views are valued above title and qualifications. Furthermore, people must be encouraged to express their enthusiasm or concerns without the need for “facts”. Intuitive remarks should be treated as hypotheses and leaders should encourage people to investigate these hunches so that plans and activities can be adapted to address them.
Secondly, leadersmust create space for people to learn. This learning must not be limited to the core functions that people are responsible for. A learning mind set requires constant and wide-ranging learning, not only at the level of individuals but also at the level of teams. Furthermore, employees should be encouraged to read, explore and discover during work time. This means that managers must also create space for people to think individually and collectively. One way to encourage stronger social networks in organisations is to encourage people from different work areas to cooperate on solving a problem or developing an idea.
In my opinion, leaders must also ensure that their workers are balanced in how they work. For instance, workers who take loads of work home will not be able to be creative, playful or serendipitous during work time. This means that leaders must also lead by example, and not send long e-mails filled with detailed instructions after hours.
Thirdly, leaders must promote this learning culture by allowing for serendipity. This means that leaders can lead by example and allow workers to explore by themselves how things can be improved, changed or tweaked. Simple ways in which this can be encouraged are to provide teams with a small budget to try things, model things, explore ideas, jointly participate in online courses or invite a speaker to address staff. This kind of exploration cannot always be planned, but it must be encouraged within certain boundaries. Leaders must encourage teams to stretch their thinking or challenge their beliefs. This increases the stock of creative and imaginative ideas that people can generate in their daily work. While some exploration can be related to official plans, much exploration is about forming new social ties, self-expression, curiosity and even personal fulfilment.
Fourthly, great leaders can sense tacit knowledge in their people, but only if they are close enough to them. Teams and co-workers can figure out when somebody uses tacit knowledge to solve a problem or propose an idea, and can draw in people with different perspectives. Great team leaders know that tacit knowledge is an asset when people are encouraged to disagree or think out loud, when the voices of dissenters are taken seriously, and when diversity is openly embraced. Sensible leaders know when to trust their people and when to use explicit knowledge to shape the behaviour of their people.
Fifthly, the stories that people tell are important. Instead of trying to suppress gossip, leaders should listen and reflect on their own values and how these are perceived by their teams. Office gossip is a powerful form of tacit knowledge transfer, and it is not all negative. When people are talking about somebody’s misfortune, hurt or distress, leaders can step in with empathy and encourage teams to support people who are experiencing problems in their lives. This might even be an opportune moment to reflect on how organisations function within a broader societal context. Workers are extremely sensitive to the gap between what managers say they value and how they behave. When people talk about office relations, or breaches in values by any rank, leaders should step in and make sure that rules and regulations are adhered to, regardless of the seniority of the people involved. These are the moments where real organisational values are refined.
When co-workers start to influence each other negatively, leaders should step in and separate people or re-arrange them to break up negative cells. All of this is only possible when leaders listen to what their people are talking about, and then being trustworthy and responsible in dealing with what they hear.
Lastly, leaders should take care not to over-formalise. Formal rules often communicate mistrust and reduce the ability of people to exercise judgement. When everything is fixed in a rule, regulation or process, organisations’ ability to respond to sudden change is reduced.
Perhaps leaders can ask their teams “Is there something we must do less of to be more innovative?”. This question often targets excessive rules, policies and guidelines. I always encourage the leaders I work with to openly state when they have to make a decision for which a precedent or rule does not exist. We then encourage their teams to generate well-thought-out portfolios of options, or a portfolio of small experiments that can be tried. These portfolios must leverage the formal and informal capabilities of the organisation and individuals. This is one way that tacit knowledge becomes more explicit. One benefit is that by building the adaptive capability of their teams by not always taking the lead, their workers are encouraged to come up with ideas, solutions or options. When people understand that they have a role to play in formulating options, they are also better able to reflect on why some things works and others do not. This makes the organisation more agile, as people learn to work together to solve novel problems, and they become better at detecting when things are not going according to plan. Because they are co-designers, they are also better able to generate and evaluate alternatives, which means that the organisation has a greater stock of options that it can combine and execute. If too much formality is enforced this ability will not emerge.
In my view many leadership teams are too focused on explicit knowledge, and that tacit knowledge deserves more attention. For organisations to innovate now and in the future, the development of tacit knowledge formation must be encouraged and embraced. This means that opportunities must be created for people to self-organise around ideas, projects and topics. This builds trust, even if it does not always add directly to the bottom line. It also makes it easier for the finance people to team up with the technical people, and for people to get better at drawing on the experiences and perspectives of others.
In the previous post, I argued that tacit knowledge gets absorbed into the environment of the organisation (and society), but only if the right conditions prevail. It is futile to ask people to record their experiences or report on lessons learnt. Tacit knowledge is highly contextual, and it is nearly impossible to describe all the factors that an individual has to consider in an instant when deciding on a course of action. Obstacles to identifying or sharing tacit knowledge include, for example, language (not knowing the appropriate words or not being able to explain something adequately), lack of self-confidence, fear of being ridiculed and a multitude of other factors.
Even when leadership is willing to listen to the concerns, ideas and anecdotal explanations of employees, many errors occur in this absorption process. Errors are caused both by the difficulty of the sender to explain or share what works and why, and because the recipient, in other words the broader organisation, might not be able to absorb this knowledge due to technical difficulty, the inability to appreciate the value of what is communicated, or often the inability to understand the relevance of the knowledge being shared. In South Africa this absorption process is often exacerbated by race, gender, hierarchy and various social factors.
Leadership of organisations, in pursuit of different kinds of innovation, must purposefully set out to create a learning environment. This does not mean that people only learn in the context of official projects, but that everyone is given the opportunity to experience the self-fulfilment of exploring ideas, trying new combinations, engaging with others, working together to improve productivity, and playing together to increase creativity. Practically this means that leadership must allow people to learn about topics where the value of the learning is not immediately clear to the organisation. Leaders must understand that people who are frequently learning new concepts, even if these are unrelated to their core functions, are better able to connect the disconnected, to reframe problems as solutions, and are more willing to embark on a process of discovery with uncertain outcomes.
When the innovation strategy of the organisation is too narrowly focused on project plans, milestones, etc., tacit knowledge usually suffers. Those who are more senior or more articulate crowd out the voices of people who may have great insight but no safe way of expressing their thoughts. The result is that although a successful product or process may have been completed, employees do not feel self-fulfilled or that they have learned anything of value. They may even feel neglected or isolated. This often happens when organisations strive to become leaner. Then all the connectors and generalists are replaced with specialists who have a direct contribution to make in key processes. This may result in organisations losing their agility to respond to changes in their context.
Due to the formality of the planning process, codified knowledge is valued above instinct; accuracy of information and planning metrics are more important than the views of people who express doubt, but who cannot explain why something does not seem right. The practice of learning, reflecting, arguing, rough prototyping and then adapting the process is often neglected, or allowed only in brainstorming sessions that are vulnerable to manipulation or group thinking. It takes sensitive leaders to recognise that some experienced people are holding back their thoughts, or that somebody from a different background could perhaps share a valuable insight or alternative perspective. Individuals may feel that their ideas are not valued, or perhaps because they struggle to express what is in their minds articulate people lose patience and just disregard the less articulate people. Or perhaps people with great ideas are simply worried that because time and resources are finite, they may derail the process or decelerate the momentum or change the direction of a certain train of thought.