Sunday 29 December 2013


13. Scripts
The notion of scripts is useful to make theories of knowledge, meaning and innovation more concrete, to connect them to practical action, and to clarify different levels of innovation.

A script is a network of connected nodes that represent component activities (in case of a practice) or notions (in case of a concept or theory), or variables (in a mathematical formula). Connections between nodes may indicate temporal order, causation, or logical inference.
The classic example is the script of a restaurant, with a sequence of nodes of entry, seating, selecting food, ordering, eating, paying and leaving. When self-service restaurants emerged, the order of nodes was changed into: entry, selection, paying, seating, eating, and leaving.

This had consequences not only for the order of nodes but also for their content. Selecting food from a menu now becomes selecting items of food from shelves and putting them on a tray.

In the brain, scripts are embodied in networks of neuronal connections and patterns of neuronal firing.

In perception, sense impressions are assimilated in one or more nodes in existing scripts, and thereby trigger the full scripts. Entering a restaurant I interpret what I see in terms of the restaurant script. If no scripts are triggered in which perceptions ‘fit’, they are ignored, or not even registered, and there fails to be perception.

Scripts can also be triggered internally, without perception, in thought. In dreams they yield an experience of seeing without looking, and they fracture in mental anarchy.

The script notion entails that perception is always already an interpretation, modelled here as assimilation into one or more scripts. When a slot is found in a script for the perception to fit in, the whole of the script is tentatively attributed to what is perceived, even when not all is perceived. In philosophy and psychology this is known as Gestalt.

This greatly helps identification and fast and coherent response to perception, which serves survival of the self. It also entails prejudice, invalid attribution. A gesture towards a pocket is falsely interpreted as the reach for a gun, and the innocent passer-by is shot. 

Scripts serve to identify an individual thing as having a place in one or more scripts. We recognize someone from a combination of features according to the script. In a restaurant I will expect a different chair from what I expect in a dentist’s clinic. What scripts are triggered depends on the context.

When a perception triggers several scripts at the same time, this can lead to tentative connections between them, in association, which may be strengthened or weakened in subsequent perception and action.

In the brain, this is embodied in changes of patterns of neuronal firing by changes of synaptic thresholds.

As a result, scripts serve to identify and make sense of perception but are also affected by it, in ‘novel combinations’ and shifts of concepts, yielding a recombination of nodes in novel scripts. How that may happen is discussed later, in an item on invention.

Scripts are nested, in scripts on different levels, with subscripts and superscripts. A restaurant script forms a node in a wider script of location, traffic, people going out, supply to the restaurant, etc. The node for payment, in the restaurant script, entails a number of alternative scripts of payment: cash, cheque, or card.

In innovation, the script notion serves to clarify different levels of innovation: novel ways of conducting actions in a node (a new subscript in the node), novel nodes (repertoires of subscripts), novel architectures (e.g. sequences) of nodes, and insertion in novel superscripts. The latter entails the use of a notion in novel contexts.

Monday 23 December 2013


12. Knowledge
Here I start a series on knowledge, learning and invention.

I adopt the constructivist view that we perceive, interpret and evaluate the world according to mental frameworks that in turn develop from interaction with the world. As a result, our ideas guide our actions but also develop from it.
Philosophically, this is related to pragmatism (going back to the ideas of e.g. John Dewey). Primarily, this is an attitude against dogma, a mentality of openness to surprise, plurality and change of ideas. It sees the knowing subject not as an autonomous, outside spectator taking an objective view of world, but as involved in it. Subject and object cannot be separated. We do not have objective knowledge of the world as it is beyond our ideas. Ideas are always preliminary and fallible, and adapt in the face of obstacles, misfits and novel opportunities.

That, I think, is also how entrepreneurs operate.
These views stand in contrast with, among other things, economic theory with its assumption that actions are based on prior, given knowledge and preferences.

This is important especially in innovation, where there is radical uncertainty: what may happen and what one may choose from are largely unknown prior to choice and arise from action after a choice is made. This yields a fundamental problem for the idea of rational choice to which economics is committed.
Another consequence is that since people develop their ideas along different paths of life, their ideas will differ to the extent that they developed in different circumstances. In other words, there is greater or lesser cognitive distance between them. I will discuss that notion in more detail later.

Now, if we cannot claim to know reality objectively, does the notion of reality still make sense? I think it does, a follows. Although we cannot know reality as it is in itself, it is reasonable to assume that there is a reality and that we develop our ideas from interaction with it. In that sense reality has a causal influence on our ideas, and our ideas ‘have something to do’ with reality. If in evolution the development of our ideas had not been adequate enough to the world for us to survive we would not be here.

The fact that different people view the world differently does not imply relativism in the sense that any idea is as good as any other and rational debate is impossible. On the contrary, precisely because we have no rock-bottom objective knowledge, the only chance we have for correcting our mistakes is debate with people who have learned to see the world differently. 

We cannot achieve truth in the old sense of some correspondence between basic ideas with items in reality, from which we construct knowledge. As a result, facts become problematic. They are always constructed. However, in debates between competing theoretical perspectives, one can often reasonably agree on what facts to accept, since the facts are more stable and reliable than theoretical speculation, even if they are not rock-bottom objective.
This yields the notion of truth as warranted assertability, which is a coherence theory of truth. We argue on the basis of everything we can muster that may be relevant: whatever facts we can agree on, even if only temporarily, alternative views and explanations, arguments of relevance, arguments of logic, and arguments of efficiency in reasoning. This yields no guarantee of agreement. There will remain rival views. But debate helps to reduce disagreement and to raise doubt.

Sunday 15 December 2013


11. Combinations of large and small

In view of opposite strengths and weaknesses of large and small firms, one should not choose between them but seek fruitful combinations of the two.

As I noted in the preceding item in this blog, when a new enterprise is successful and grows, more managerial control is needed, in the specification and delegation of tasks, in an increasingly complex division of labour, and some formal reporting and control. Then the need for the advantages of a larger firm size emerges. Leadership of the firm may need to be replaced, or the firm is taken over by a large firm.

However, large firms sometimes aim to revitalize themselves by taking over a small, more entrepreneurial company, and often that fails. Instead of vitalizing the large firm, the small firm is smothered in the inertia of the large one.

This reflects the fundamental difficulty to combine exploitation and exploration in a single organization. I will discuss that more extensively, and show how the two can build upon each other, later in this blog, when I discuss processes of learning, invention and innovation. Here I note that experience in exploitation can yield a useful basis for successful exploration based on relevant experience and knowledge, provided that it can wrench itself loose from the conservatism of what is established.

An avenue for this is the phenomenon of the spin-off. There, an employee with an original idea that is uncertain and is not seen to fit well in established perspectives, structures and procedures, steps out to develop the idea as an independent entrepreneur. This may be seen as a ‘betrayal’ by the parent firm, but that is a mistake. It is much better to see it as an opportunity, as follows.

Encourage the wayward employee to make the step, help him/her to compensate for weaknesses of the small firm, in providing specialist support or advice, provide venture capital, and promise the possibility of return to the company if the venture fails, as is by far the most likely outcome. In this way one creates several options.

In case of failure a daring and original worker is recovered for the firm: it is often not the worst employee who has the vision and courage to spin off, and after failure he/she has renewed motivation to make the best of the work inside the parent firm.

If the venture succeeds but the result turns out not to fit well in the portfolio of products and markets of the firm, or in its strategic vision of expansion, then its share in the spin-off can be sold at a profit.

If the venture succeeds and the result is attractive to the parent firm, and the small firm runs into its limitations to exploitation and expansion, and the need to make to transition to management, the innovator can be invited back into the parent company to lead or guide the further development of the innovation inside it. The risk of getting smothered in the large company is still there but is limited by the returning employees knowledge and experience with the company.  

This theoretical merit of spin-offs is amply confirmed in a large number of empirical studies that show that indeed spin-offs form a major motor of innovation.  

Sunday 8 December 2013


10. Dilemmas of small enterprise

The preceding items in this blog, plus further analysis, yield a number of dilemmas for small enterprise.

Especially small enterprises need to collaborate with outside partners, in view of the limited availability of inside specialities and support, which due to diseconomies of small scale could not be efficiently employed. On the other hand, many entrepreneurs have become self-employed because they wanted to be independent, and are often stubborn in their views and convictions, and indeed need to be, in order to persevere under the hardships and uncertainties of entrepreneurship. However, this is not conducive to collaboration. This problem may be mitigated by the use of judicious, skilful intermediaries or advisors.

Small enterprises need to collaborate but transaction costs are relatively high for them and for their partners, due to diseconomies of small scale there also. The latter may be mitigated by adequate documentation for outsiders to judge the enterprise.

There are a large variety of motives and ways of doing things in small enterprises, which requires custom made, tailored government regulations and schemes (e.g. in legal duties and restrictions, tax and subsidy schemes). On the other hand, due to diseconomies of scale in transaction costs that is too expensive. It may help to employ intermediaries (bookkeepers, banks) to add some differentiation. 

To avoid pressures of economies of scale, small enterprise can often best focus on niche markets with specialized products, but this increases their vulnerability due to limited diversification of risk. Some differentiation of products will help.

Due to personal involvement in the enterprise, in income, allocation of time, and sometimes housing, self-employed are highly motivation and willing to absorb setbacks, which is good, given the uncertainties of innovation, but this also makes many self-employed unwilling to take much risk, which hampers innovation. Hence few self-employed are innovative, but when they are they are very motivated and efficient in it.

As a ‘lone wolf’, an entrepreneur can make decisions fast, but this carries the danger of myopic, badly informed decisions. Listening more to the shop floor, engaging a trusted partner or employing an advisory board can mitigate this.

Due to direct contact between entrepreneur and shop floor, with direct supervision and involvement, there can be limited formal procedures of reporting and control. This saves costs and furthers flexibility. However, it entails much tacit knowledge, in the mind of the entrepreneur, which further increases transaction costs for outside partners and government, and makes the enterprise vulnerable to exit of the entrepreneur. This yields an additional argument for some documentation of knowledge, and an argument for timely involvement of a successor.

When a new enterprise is successful and grows, more management is needed, in the specification and delegation of tasks, in an increasingly complex division of labour, and some formal reporting and control, when the distance between the leadership and the shop floor increases. However, many entrepreneurs like to undertake new ventures better than managing going concerns. They can then sell the enterprise, in a management buy-out, and move elsewhere, in serial entrepreneurship.  When they do stay, and they have no aptitude for operational management, they should muster the wisdom to recognize their weaknesses and step down from leading the enterprise to adopt an advisory or inspirational role. Often this does not sit well in the psychology of the entrepreneur.

Monday 2 December 2013


9. Strengths and weaknesses of small Enterprise
 
As I indicated in an earlier item in this blog (item 4), small and large firms have opposite strengths and weaknesses. The strength of large business lies more in resources and their efficient use, and the strength of small business is more behavioural.

An obvious weakness of small business lies in (dis)economies of (small) scale. Those arise in all dimensions of enterprise: R&D, patenting, production facilities, purchasing, marketing and distribution, organization, transaction costs, risk diversification, and political influence.

In patenting there are fixed costs of the procedure, which are relatively high at small potential volumes of business. Also, the first time around the entrepreneur has to find his way through procedures.

In marketing and distribution there are economies of scale in the set-up or access of distribution systems, advertising and brand name.

In organization there is a staff lack due to the fact that full time specialized staff (e.g. for technical specialities, support, legal affairs, and marketing) are not sufficiently occupied at low volumes of business, so that those services have to be sourced outside.

In the preceding item in this blog I discussed effects of scale in transaction costs.

To the extent that the level of education of entrepreneur and enterprise is low, their capacity to absorb innovations developed elsewhere is limited. That sets back the diffusion of innovation that is in the interest of the firm, in order to keep up, and in the public interest, to achieve the diffusion of innovations that yields economic growth. 

An advantage of small firms lies in low costs of informal systems of supervision and control, because the entrepreneur often has direct visual control of the shop floor.

A related advantage lies in their potential for flexibility and specialty products. This is partly due also to direct contact between entrepreneur and customers. Flexibility is enhanced by speed of action, in the absence of a long chain of evaluation and decision making that arises in the deep hierarchies of large firms.

The isolated decision making of the entrepreneur also has the disadvantage of not seeing risks, but this may be covered by the use of an advisory board. As discussed in the preceding item, the fact that most knowledge, undocumented, is locked up as tacit knowledge in the mind of the entrepreneur increases transaction costs for outside partners. It also makes the enterprise vulnerable to the entrepreneur dropping out in accident, illness or sale of the venture.

The flexibility of operations and closeness to customers yields a competitive opportunity to focus on novelties or specialty products in niche markets. The small volumes of the latter yield less pressure to achieve economies of scale. However, concentration on few products in small markets limit the diversification of risk, enhancing the risk of default. Some differentiation of products, while maintaining coherence in a focus of specialized competence, may help here.

As noted in the previous item, the mix of the personal and the commercial yields a high commitment and willingness to absorb setbacks, needed especially under the uncertainties and vicissitudes of innovation. However, it may have an opposite, negative effect of discouraging risky ventures. 

The strong and weak points for innovation show up in empirical work. On the one hand small firms are less likely to engage in innovation, but when they do, they do so more effectively, faster and efficiently.