Monday 24 February 2014


21. Internationalization

What drives the cycle of invention, discussed in item 18, in particular the move towards new niches (generalization)? In developmental psychology, there is a ‘principle of over-confidence’: an instinct to apply what is successful outside the context in which it was learned, as observed in child play. Having learned to hit a hammer on blocks the infant recklessly tries it out on the passing cat. One may even speculate that people have this instinct because while risky it leads to innovation, which was advantageous in evolution.

This psychological drive may also play a role in the internationalization of business. In economics, there are other considerations, such as the need for sustained growth of profits, to expand to new markets. Such may be the motives, rather than any planned effort to learn, even though in fact it leads to learning. However, I heard from a former CEO from Shell that they have caught on to the principle and now use internationalization as a deliberate strategy for innovation.

The cycle of invention throws light on the debate, in the management literature, on the conduct of multinationals, in processes of globalization. There, an important question is whether multinationals should engage in a ‘global strategy’, imposing the practices from their home country worldwide, or allow for variety, in a ‘multi-national strategy’.

There are many relevant considerations here. The choice depends on economic arguments, such as the need for a uniform practice to maintain economies of scale. That, in turn, depends on technological opportunities and competitive pressures on price, and on commercial considerations, such as demand for differentiated products as a function of different circumstances of use, technical differentiability of products, or, on the contrary, market considerations to maintain a uniform product worldwide (e.g. to reduce search costs, as in the case of McDonald’s). This is not the place to reiterate the relevant literature.

The point here is that even if multinationals have the power to impose their familiar practices, with their offer of employment, technology, capital and access to global markets, to impose their home country practices, it may in the longer term be wiser to employ adaptation to different circumstances in different host countries, as a learning strategy (for a study of these two alternatives, in multi-national ventures in China, see Child, 2002).[1] 

In the first case, the firm may just hire local labour and impose conditions on local suppliers. In the second case they would engage in collaboration or joint ventures with local firms. The latter would force them to immerse themselves in local mentalities and practices, which would provide the variety that feeds innovation. 

In more detail, the extent and form of loosening one’s home practices may follow the logic of the cycle of invention. In differentiation one may still keep practice close to the chest, with local collaboration but maintaining autonomy, further relaxing it in reciprocation, with local alliances, and for accommodation a breakaway from the parent firm in local joint venture. Perhaps, in the stage of consolidation one might re-integrate the activity into the large firm, to re-establish economies of scale.


[1] Child, J. 2002. ‘A configurational analysis of international joint ventures’, Organisation Studies, 23/5: 781-816.
 

Monday 17 February 2014


20. Entrepreneurial roles

 Along the cycle of discovery, discussed in preceding items, we can identify different forms of entrepreneurship.

Generalization entails the transfer of application to novel areas. For products this entails entry into new markets. This reflects Mangoldt’s notion of entrepreneurship, and was recognized also by Schumpeter.

In differentiation practices are adapted to differences in demand. This may connect with the arbitrage notion of entrepreneurship, ‘filling gaps in markets’. However, while it entails the realization of existing potential, it also entails learning and conceptual change, leading up to a next innovation.

Reciproca­tion is more Schumpeterian in that it explores elements for novel combi­nations. Schumpeteri­an entrepreneurs­hip comes more into its own in accommo­dation towards novel combinations in novel architectures, where existing structures of action are broken down and from the debris novel practices are experimen­tally built up, to survive, die or be improved in the subsequent stage of consolidation.

However, there are ambiguities in the attempt to fit existing notions of entrepreneurship along the cycle. How far does the arbitrage notion of entrepreneurship (Smith, Cantillon, Austrian economists) go? To what extent does it include adaptation in the form differentiation and reciprocation? Does it overlap, and where, with Schumpeterian entrepreneurship? In reciprocation, perhaps? Perhaps this matching exercise becomes too forced, and serves to show that the distinctions and boundaries between old notions of entrepreneurship are unclear. Perhaps we should go beyond them, to provide new perspectives and aspects of entrepreneurship, as follows.

In consolidation we find:

  -         Recognition of success and failure. This requires sense of realism, in the judgement of technical and commercial viability.

 -          Adapting or innovating systems of application to allow the innovation to achieve its fullest potential. This requires managerial innovation and corresponding capabilities, for utilization of economies of scale and scope, in division of labour, and corresponding standardization of practices, and development of organizational structure for coordination.

In generalization:

 -          Risk taking and vision for expansion into new applications and markets, and design of corresponding systems of coordination.

In differentiation:

-                      Incremental innovation by adaptation of practices to new conditions of demand and production, while maintaining the basic elements and architecture of existing practi­ce. This requires ‘intrapreneurship’.

-                      On the level of top management it requires the ability to combine the maintenance of efficient exploitation with an allowance for local deviations, in appropriate forms of decentralization.

In reciprocation:

-                      Importation of elements from ‘adjacent’ practices that in novel contexts appear to be better in some respect of product or production, while maintaining the architecture of the practice at hand. The requirements from the previous stage apply to a higher degree: imagina­tion to produce ideas for novel combinations. The intrapreneur requires an ability of diplomacy to obtain scope for experimentation while still adhering to demands for coherence with existing practices.  

-                      On the level of top management, the problem of combining efficient exploitation and local deviations, for the sake of exploration, becomes more problematic. Patterns of collaboration are required with outside firms, typically in joint ventures. This requires the ability to ‘let go’, and skills of cross-cultural management.

In radical novel combinations:

-                      Trials of new combinations of elements from diverse practices in a new architecture. This requires a high degree of risk acceptance, courage, determination, perseve­rance and charisma and leadership to bring other people along, including internal or external suppliers of capital.

-                      This stage requires a large degree of organizational autonomy. If the origin of ideas lay inside a large, integra­ted organization, this will often require a spin-off, particularly when the existing system of exploitation is highly systemic. Top management may then need to be entrepreneurial in the sense of facilitating external corporate venturing.

Clearly, along the cycle, the requirements of entrepreneurship vary greatly, and require different people with different competencies. For example, while radical innovation requires courage, independence, boldness and determination to tenaciously pursue an idea, consolidation requires a sense of realism, in the recognition of failure, and the ability to step back and design structures of coordination and seek compromise between conflicting interests. Few people will be able to combine such competencies.

Monday 10 February 2014


19. Levels of Invention

 The notion of scripts, discussed in item 13 of this blog, can be used to elaborate on the theory of invention discussed in the previous item, in an analysis of levels of invention. 

When self-service restaurants emerged, compared to service restaurants the order of nodes, and details of their functioning, were changed into: entry, food selection, paying, seating, eating, and leaving. If one does not know the new script, and assumes that of a service restaurant, one enters and sits, and will not get food. The altered sequence of activities has implications for the nodes. For example: Selection is no longer done from a menu but by picking up items on display.

In the item on invention I employed a cycle of generalization, differentiation, reciprocation, accommodation and consolidation. They can each be clarified in terms of scripts.

In generalization, i.e. application in a novel environment, an existing script is fed into a new superscript. Think of an existing product in a new user environment. A bicycle, for example, introduced to rough terrain, or to beaches. 

In differentiation, script structure and nodes are preserved but in one or more nodes a different selection of subscripts is made from existing repertoires. Bicycle tires need to be wide not to sink into soft soil. 

In reciprocation one borrows subscripts or entire nodes from other, outside scripts observed in the novel environment. Bamboo bicycles have recently been developed in Africa, to deal with local conditions. In Africa, bamboo is in ample supply, bamboo bicycles are very light, and can hence easily be carried across obstacles, in the heat, and due to easy speed there is less need for gears.

In accommodation, one tries to eliminate obstacles in existing script structure for realizing the potential or efficient use of new nodes, by changing the order of nodes or the nature of their connections. Bamboo frames cannot like steel frames be welded together, and require a novel technology for connecting and fixing parts of the frame.  

The logic also indicates hat there are different levels of novelty: a new selection of subscripts from an existing repertoire, or addition to the repertoire, or a whole new node with its repertoire, or architectural change of script structure. In invention one should also look at the superscript of the user into which the invention has to fit. What changes of that script would the user have to make to adopt the innovation? The more radical that change, the more difficult it will be to have the innovation accepted.

Cognitively, scripts are embodied in neural networks. Gerald Edelman’s ‘neural Darwinism’ seems a viable view of how embodied cognition could work, in terms of neural networks. They arise more or less by chance, in diverse, parallel and sometimes rival networks that compete (hence ‘Darwinism’) for reinforcement, according to the frequency, speed and continuity with which they are triggered, yielding easier passage of the thresholds (synapses) between neurons and a greater density of connections with other neuronal groups. New groups can arise from combinations between existing ones. The simultaneous ‘firing’ of neurons can lead to novel connections: ‘firing yields wiring’.

Monday 3 February 2014


18. Invention

In the preceding item I claimed that exploration should feed on experience from exploitation. The wider question, beyond the present scope of innovation, is:

How does pragmatism work? How do ideas arise and change, from action? In an earlier work Learning and innovation in organizations and economies (2000), I proposed a ‘cycle of discovery’. The basic idea, which accords perfectly with pragmatism, is that knowledge develops by applying existing knowledge to new areas. That yields challenges and insights for change.

In a nutshell, the cycle is as follows. In generalization an existing mental scheme or practice is applied to novel contexts. Generalization is needed for four reasons. First, to escape from the existing order in the present area of practice, which presses for conformity. Think of existing ways of thought, technical and legal standards, distribution channels, consumer practices, worker skills, and forms of organization.

Second, generalization is needed to obtain fresh insights into the limitations of existing practice, which has been moulded to what is required in present conditions, or has itself moulded those conditions.

Third, generalization is needed to create pressure for change for the sake of survival. Often novelty does not arise unless needed for survival. Fourth, it is needed to obtain insight into alternatives, encountered in novel contexts of application.

Generalization can be real, as in a new market for an existing product, a new field of application of a technology, or virtual, as in a computer simulation, laboratory experiment, or a thought experiment.

To survive in the new conditions the scheme is differentiated in an attempt to deal with them. For this one taps from existing repertoires of possibilities and capabilities learned from previous experience. If that does not yield survival, one tries to adopt elements of local practices that appear to be successful where one’s own practice fails, in reciprocation.

This yields hybrids that allow experimentation with novel elements to explore their potential, while maintaining the basic logic or design principles of the old practice. One next obtains insight into the obstacles from the old architecture that prevent the full utilization of the potential that novel elements have now shown. This yields indications for more fundamental changes in the architecture, in accommodation.

Next, the new architecture, with old and new elements, is still tentative, requiring much experimentation and subsidiary changes, and elimination of redundancies and inappropriate leftovers from old practice, in a process of consolidation. There is often competition between alternative designs, which mostly results in a dominant design. And next, to get away from that one again needs generalization, and the circle is closed.

One illustration is the following. Before in the car direction indicators with flashing lights were invented, waving a hand indicated direction, as on a bike. From signs at railways one learned that it could be done better with a mechanical hand, without needing an open top or window. In fact, those indicators at first did have the stylised shape of a little hand. The mechanical hand has all the disadvantages of moving parts: in getting stuck, breakage, stalling, rusting, and maintenance. But when also electrical light was inserted the leap was made to using a flashing light instead of moving parts. To distinguish it from basic lighting it had to flash.

Another illustration is that when in the construction of bridges the move was made from wood to iron, use was at first still made of ‘swallow tail’ connections that make sense for wood but not for iron, which can be welded.