Una historia sucinta de las investigaciones en la ciudad.

6.1

The  previous  chapter  on  Science  and  Technology  Studies  (STS)  was  a  clearly  defined   domain.   The   domain   I'm   now   entering   has   been   given   several   names,   such   as   organizational   studies,   innovation   studies,   etc.   To   simplify   matters,   I   use   the   term   Strategy  Management  Studies  (SMS)  as  a  reference  to  a  cluster  of  domains.  In  SMS   the   focus   is   on   added   value   and   organizations   are   created   to   capture   it.   Organizations   require   strategy.   For   example,   businesses   in   the   same   market   fabricating   a   similar   product   can   have   very   different   organizational   structures   which  makes  a  difference.    

The  first  section  investigates  the  Strategizing  model  as  a  third  novelty  model.  The   conservative  nature  that  this  third  novelty  model  overcomes  is  the  determinism  of   the  system  by  its  parts.  Where  the  Cohering  model  makes  insights  emerge  and  the   Eventuating   structures   events,   the   Strategizing   model   creates   an   organization’s   leverage.   What   the   Strategizing   model   adds   is   best   understood   by   considering   the   meta-­‐model   and   how   a   default   flow,   being   the   evolution   of   the   societal   fabric,   changes  to  the  directional  flow  and  by  organizations  developing  innovations.    

The   chapter   is   divided   into   two   sections.   This   first   section   investigates   the   Strategizing   model.   The   first   subsection   introduces   Schumpeter's   concept   of   creative   destruction   and   Porter's   concept   of   competitive   advantage.   The   second   subsection  introduces  the  bootstrapping  cascade  between  modeling  and  mastering   before  examining  the  anchors  of  the  novelty  model.  The  third  subsection  goes  into   more  detail  about  the  anchors.  The  fourth  subsection  examines  how  the  Strategizing   model  changes  the  default  flow  of  the  meta-­‐model  and  gives  us  a  deeper  insight  on   organizations  as  the  medium  for  the  Strategizing  model.    

A   novelty   model   is   able   to   create   exaptation   while   for   the   Cohering   model   it   was   knowledge   exaptation.   With   the   Eventuating   model,   an   environmental   exaptation   allows  beneficial  effects  of  events  to  be  applied  in  a  different  context.  In  this  chapter,   value  exaptation  gets  elaborated.  The  last  subsection  considers  some  contemporary   cases  to  become  more  familiar  with  the  challenges  surrounding  value  exaptation.    

2 _{For details on the ambiguity, see http://quoteinvestigator.com/2011/07/28/ford-faster-}

Section  6.2  investigates  the  phase  transition  again.  The  phase  transition  now  relates   to   different   types   of   innovation,   each   of   which   have   a   different   type   of   value   exaptation.   It   is   a   more   systematic   description   of   the   dynamics   of   the   phase   transition  introduced  in  Section  5.2  and  allows  us  to  begin  building  the  Enterprise   Architecture  about  innovation,  which  is  the  topic  of  Chapter  7.    

Porter  and  Schumpeter  on  value  creation  

6.1.1

Both   Porter   and   Schumpeter   found   inspiration   from   pioneers   like   Karl   Marx   who   studied   revenue   growth.   Interestingly,   the   same   circle   of   German   philosophers   is   coming   back   as   the   foundation   for   different   domains.   In   the   cognitive   studies,   it   revolves  around  Gestalt  studies.  In  STS  it  was  Heidegger.  For  SMS,  Sombart  is  more   fitting.  In  the  design  studies  that  are  discussed  later,  the  relation  is  made  again  (see   Section  7.1.1).  Sombart  introduces  the  term  "creative  destruction",  which  is  so  often   ascribed   to   Schumpeter.   Sombart   did   not   get   recognition   for   it   for   a   long   time.   As   STS   teaches   us,   politics   cannot   get   disconnected   from   science   and   Sombart’s   controversial  relationship  to  Nazism  buried  his  work  under  that  contextual  weight   (Reinert  &  Reinert  2006).  Consequently  the  description  of  Schumpeter  (Schumpeter   1975,  p.  73)  is  more  commonly  used:    

The   opening   up   of   new   markets,   foreign   or   domestic,   and   the   organizational   development   from  the  craft  shop  and  factory  to  such  concerns  as  U.S.  Steel  illustrate  the  same  process  of   industrial   mutation–if   I   may   use   that   biological   term–that   incessantly   revolutionizes   the   economic   structure  from   within,   incessantly   destroying   the   old   one,   incessantly   creating   a   new  one.  This  process  of  Creative  Destruction  is  the  essential  fact  about  capitalism.  It  is  what   capitalism  consists  in  and  what  every  capitalist  concern  has  got  to  live  in.  

According  to  Sombart,  the  origin  of  capitalism  is  related  to  the  act  of  double  entry   bookkeeping   (Yamey   1949;   Carruthers   &   Espeland   1991;   Miller   &   Napier   1993).   Records  allow  us  to  position  the  Strategizing  model  in  the  meta-­‐model.  Double  entry   bookkeeping  is  a  record  of  an  event,  which  means  an  overlap  with  the  Eventuating   model.  Records  are  also  information  entities,  which  also  indicates  an  overlap  with   the  Cohering  model.  Records  are  more  than  events  and  information  alone;  they  are   also  part  of  the  social  organization.  Companies  use  records  to  design  strategy  and   maximize  revenue.  Porter  (1980)  defines  this  strategy  by  competitive  advantage:    

Competitive   advantage   is   only   reached   when   a   company   implements   a   value   not   simultaneously  being  implemented  by  any  current  or  potential  player.  

Both   creative   destruction   and   competitive   advantage   consider   companies   as   the   medium   of   operation.   Companies   are   a   particular   kind   of   organization,   mostly   examined   with   SMS.   In   STS   the   focus   is   on   scientific   institutes,   while   the   fabric   of   society   focuses   on   governance.   All   are   specific   kinds   of   organizations.   For   the   Strategizing  model,  it  is  organizations  in  general  that  become  the  medium.  In  other   words,   the   tree   mediums   of   the   novelty   models   are:   the   organization   core,   the   organization  workspace  and  the  organizational  environment.    

The  feedback  of  organizational  strategy  

6.1.2

To   introduce   the   Strategizing   model,   consider   how   the   novelty   model   allows   exaptation   (see   Section   2.1).   Exaptation   has   been   a   focus   for   both   evolutionary   studies  and  for  studies  on  organizational  innovation.  Andriani  and  Carignani  (2014)   use  the  case  of  the  magnetron  to  argue  about  the  exaptation  of  innovation.  The  case   starts   with   Percy   Lebaron   Spencer,   who   sees   a   candy   bar   melt   in   his   pocket.     The   only  possible  explanation  is  the  nearby  radar.  This  serendipitous  event  results  in  the   construction  of  a  technological  exaptation  challenge:  how  to  use  radar  for  cooking?   Challenges  around  an  insight  set  the  change  in  motion,  as  examined  in  the  Cohering   model.   Spenser   becomes   the   main   developer,   but   he   cannot   develop   it   alone.   The   Eventuating   model   shows   how   the   challenge   becomes   easier   to   bear   by   the   successive   groups,   but   not   what   makes   the   change.   In   other   words,   with   the   knowledge  creation  (the  Cohering  model)  and  events  (the  Eventuating  model)  the   basis  is  set  for  an  organizational  challenge  that  becomes  the  focus  of  the  Strategizing   model.    

It  is  through  the  organization  that  change  becomes  possible.  The  organization  forms   a  protective  layer  around  the  group,  creating  local  enrichment.  In  other  words,  by   creating   organizations,   innovations   develop   their   own   niche.   For   the   organization,   the   value   becomes   the   driving   force.   Christensen   (2003)   makes   a   schema   (Figure   6.1)   that   expresses   the   bootstrapping   cascade   between   modeling   and   mastering   around   strategy.   It   starts   with   the   organization's   values.   They   drive   a   process   of   resource   allocation   to   invest   and   eventually   deploy   the   actual   strategy.   The   actual   strategy   can   improve   the   understanding   which   contributes   to   the   modeling   of   the   deliberate   strategy.   It   can   also   result   in   unanticipated   events   that   requires   mastering  of  the  emergent  strategy.    

Figure  6.1  How  strategy  is  implemented  and  how  it  creates  a  bootstrapping  cascade.    

In   the   Cohering   model,   the   anticipation   processes   (the   anchors)   transform   the   memory  (the  medium).  In  the  Eventuating  model,  the  roles  (the  anchors)  transform  

the   social   fabric   (the   medium).   For   the   Strategizing   model,   the   capabilities   (the   anchors)   transform   the   organization   (the   medium).   Capabilities   become   more   outspoken  in  the  literature  extensions  of  Porter’s  competitive  advantage.  The  first   extension  is  the  resource-­‐based  view  (Wernerfelt  1984;  Mahoney  &  Pandian  1992;   Peteraf  1993).  Resources  may  relate  to  several  capabilities  for  an  organization.  By   considering   how   resources   can   be   combined,   bundles   arise,   which   are   considered   the  internalizing  capability  showing  the  intrinsic  value  of  a  company.  The  bundles  of   resources   are   tangible   (e.g.   the   building)   and   intangible   (e.g.   the   brand).   For   example  in  section  6.1.5  Apple  and  Google,  while  both  are  IT  companies  they  have   very   different   resource   bundles,   what   allows   them   to   pursuit   very   different   opportunities.   Resources   are   assets   of   an   organization,   such   as   technological,   reputational,  structural,  financial  and  the  brand,  etc.  Assets  can  be  tangible  (e.g.  the   building)   and   intangible   (e.g.   the   brand)     values,   which   makes   them   the   externalizing   capabilities.   With   the   intrinsic   value   and   tangible   value,   the   default   value  of  an  organization  can  be  recognized.  Like  in  other  novelty  models,  a  tension   produces  change.  The  tension  for  organizations  comes  from  the  difference  between   the  default  values  and  the  values  that  the  stakeholders  hold.  Strategy  is  required  to   direct  change,  which  creates  the  bootstrapping  cascade  described  in  Figure  6.1.  

The  dynamic  capability  framework    

6.1.3

The  resource-­‐based  view  allowed  some  insights  on  competitive  advantage.  Teece  et   al.   (1997)   create   an   extension   of   the   resource-­‐based   view   to   dynamic   capabilities   that   can   cope   with   complex   adaptive   environments.   Their   framework   describes   three  capabilities:  processes,  positions  and  paths.  The  relation  to  the  novelty  model   can   be   constructed   from   it.   Organizational   processes   are   needed   in   order   to   coordinate   and   learn.   It   is   what   develops   the   organization   and   so   they   are   the   evolving  capabilities.  Positions  are  determined  by  the  assets  of  an  organization  and   so   it   relates   to   the   externalizing   anchor.   The   paths   are   about   the   momentum   and   orientation   that   an   organization   has.   They   show   in   what   direction   the   company   is   capable  of  developing.  As  such,  the  path  describes  the  directing  capability.  Together   the  four  anchors  of  the  Strategizing  model  are:  

• Internalizing capability: bundles make particular values tangible • Externalizing capability: positions connect the values to actual assets • Directing capability: paths shows the momentum of an organization • Evolving capability: processes allow organizational development

It  is  not  my  position  to  argue  if  the  dynamic  capabilities  framework  is  the  correct   way  to  articulate  the  capabilities  of  an  organization.  The  framework  aligns  best  with   the  four  anchors  of  the  novelty  research,  but  it  does  not  do  well  in  articulating  other   dynamics.   To   argue   about   the   enrichment   that   the   organizations   create,   let   me   consider  different  descriptions  of  capabilities.  Hamel  and  Prahalad  (1992)  describe   blindness  for  competing  in  future  markets  and  describe  organizational  capabilities   like  "stretch"  and  "leverage".  A  company  with  ambition  (stretch)  but  no  resources   (leverage)   is   a   dreamer.   A   company   with   resources,   but   without   ambition   is   a  

sleeper.   Both   dreamers   and   sleepers   are   unlikely   to   win   the   future.   Only   when   an   organization  has  both  stretch  and  leverage  does  it  show  the  ability  to  win  the  future.   Environmental   enrichment   can   solve   some   of   the   organizational   shortages.   For   example,  most  start-­‐ups  are  dreamers  that  gain  leverage  by  venture  capital.    

While  the  proper  articulation  of  the  capabilities  can  be  disputed,  it  seems  that  my   general   approach   with   the   Strategizing   model   is   independent   of   the   dispute.   The   benefit  of  the  Strategizing  model  is  to  overcome  paradoxes  around  values.  In  SMS,   this   relates   to   the   joining   of   conflicting   cultures   in   a   single   organization.   Such   organizations  are  called  ambidextrous  (O'Reilly  &  Tushman  2004).  Recent  research   on   ambidextrous   organizations   tries   to   support   the   organization   by   creating   monitoring   and   measuring   of   the   dynamic   capabilities   (Teece   2007;   Schreyögg   &   Kliesch-­‐Eberl   2007;   Barreto   2010).   This   makes   the   workspace   of   the   Strategizing   model   become   much   more   aligned   with   our   definition   of   workspace   (sensory-­‐ motoric  coupling).    The  research  on  monitoring  and  measuring  is  in  an  early  phase   and  not  yet  developed  enough  to  be  useful  for  the  novelty  research.  It  is  a  research   development  that  is  being  watched  for  future  research.    

Strategizing  and  the  meta-­‐model  directional  flow  

6.1.4

Organizations  should  be  considered  invariant  patterns  arising  in  the  workspace  of   the  meta-­‐model,  comparable  to  knowledge  in  the  Cohering  model.  It  also  starts  for   the  meta-­‐model  with  a  default  flow,  which  is  the  evolution  of  the  social  fabric.  In  the   Cohering  model,  challenges  change  the  default  flow  and  create  a  tension  that  allows   novelty  to  form.  They  then  strengthen  existing  knowledge  or  create  new  knowledge   by   abstractions   (see   Section   2.4).   Something   similar   happens   to   organizations,   where   values   now   create   the   tension   and   abstractions   become   the   modular   hierarchies  of  an  organization.    

Simon  (1969)  shows  how  clustering  parts  into  modular  hierarchies  can  improve  the   system's   resistance   to   perturbations.   He   demonstrates   this   with   a   case   of   two   watchmakers,   where   one   creates   an   integral   system   and   the   other   has   split   the   development   into   modular   parts.   Without   perturbations   the   former   would   only   require   to   recreate   the   module,   while   the   later   requires   the   entire   system   to   get   recreated.  So  as  perturbations  increase  the  former  becomes  fitter  then  the  later.  In   other  words,  for  complex  adaptive  environments  modularity  is  fitter  than  integrated   systems.    

The  modular  hierarchies  show  self-­‐similarity,  like  studied  by  fractals  in  Section  3.2.1.   McKelvey  et  al.  (2012)  describe  it  as  "the  law  of  requisite  factuality",  as  an  extension   of   the   law   of   requisite   variety   (see   Section   4.1.1).   They   show   how   modular   hierarchies   are   needed   both   internal   to   the   organizations   and   external   to   have   creative  destruction  in  the  ecosystem.  Andriani  and  Carignani  (2014)  show  how  the   modularity   can   result   in   internal   and   external   exaptation.   Internal   exaptation   is   when  the  architecture  of  the  artifact  undergoes  exaptation  and  the  function  of  the   artifact   does   not.   External   exaptation   is   the   opposite.   Radical   exaptation   is   when   both   architecture   and   function   show   exaptation.   By   taking   a   more   holistic   view,   it  

becomes   clear   how   radical   exaptation   happens   by   meta-­‐systems,   where   a   phase   transition  allows  many  parts  to  change  simultaneously.    

Each  novelty  model  overcomes  a  law  of  conservation:  Cohering  overcomes  the  bias   of   knowledge,   Eventuating   overcomes   the   rarity   of   event   and   Strategizing   overcomes  limitations  by  organizations.  The  study  of  the  phase  transition  in  Section   6.2  will  elaborate  how  decomposability  of  systems  can  be  caused  by  different  types   of  innovation  during  different  stages  of  the  phase  transition.  Most  of  the  cases  that   are   examined   describe   one   type   of   innovation   as   the   radical   change   during   one   phase.  It  becomes  harder  to  recognize  whether  each  phase  adds  a  bit  to  the  radical   change.    

Development  ecosystems   6.1.4.1

Moore  (1996)  describes  the  nature  of  development  ecosystems.  He  uses  a  metaphor   of  how  a  gardener  maintains  a  garden  and  claims  that  this  is  how  businesses  should   create   their   own   niches.   His   definition   of   business   ecosystems   includes   a   bootstrapping  relation:  

An   economic   community   supported   by   a   foundation   of   interacting   organizations   and   individuals—the  organisms  of  the  business  world.  The  economic  community  produces  goods   and   services   of   value   to   customers,   who   are   themselves   members   of   the   ecosystem.   The   member   organisms   also   include   suppliers,   lead   producers,   competitors,   and   other   stakeholders.   Over   time,   they   coevolve   their   capabilities   and   roles,   and   tend   to   align   themselves   with   the   directions   set   by   one   or   more   central   companies.   Those   companies   holding  leadership  roles  may  change  over  time,  but  the  function  of  the  ecosystem  leader  is   valued   by   the   community   because   it   enables   members   to   move   toward   shared   visions   to   align  their  investments,  and  to  find  mutually  supportive  roles.  

While   Moore   in   his   initial   work   is   comparing   business   ecosystems   much   more   to   their   biological   equivalent,   the   concept   itself   was   interpreted   as   markets   and   production   chains.   Today,   with   more   development   that   involves   the   public,   the   concept   can   return   to   its   original   interpretation.   The   public   has   an   effect   on   globalization,   leading   to   a   new   system   of   interaction   (Friedman   2006).   The   globalization   and     recognition   of   recent   radical   change   allowed   Prahalad   and   Hammond   (2002)   to   re-­‐introduce   the   concept   of   development   ecosystems,   now   articulated  as  "  the  Bottom  of  the  Pyramid"  (BoP).  

The  BoP  is  an  example  of  value  exaptation,  based  on  disruptive  insights.  The  poorest   countries   are   the   best   development   workspace   since   they   have   a   less   negative   response   to   the   drawback   of   new   products.   Moore   (1996)   demonstrates   a   case   of   financial   transactions   using   mobile   devices.   Let   me   use   this   to   argue   about   the   drawbacks.  Imagine  that  with  the  current  prototype,  the  transaction  would  fail  1%   of  the  time.  In  the  developed  world  the  loss  of  1%  of  your  financial  transaction  is   unacceptable,   because   our   current   transactions   have   zero   tolerance   factor.   In   undeveloped  countries,  the  loss  of  1%  would  be  preferred  over  having  no  ability  for   any   transactions.   The   same   dynamic   was   described   with   disruptive   innovation  

where  cases  demonstrate  that  a  new  market  having  a  prototype  with  drawbacks  is   preferred   over   having   nothing   at   all.   What   BoP   adds   is   that   SMS   should   focus   on   finding  the  proper  workspace  for  a  particular  prototype.  Let  me  extend  the  study  of   value  exaptation  with  more  contemporary  cases.    

Contemporary  cases  of  value  exaptation  

6.1.5

Value  exaptation  is  the  ability  to  recombine  the  values  from  different  domains  and   use  it  for  the  creation  of  new  organizations.  For  example,  social  entrepreneurship  is   the   creation   of   organizations   using   values   that   are   know   from   commercial   entrepreneurship  and  applying  it  to  non-­‐commercial  domains.  Value  exaptation  is,   in  fact,  a  very  common  principle  that  can  be  recognized  in  contemporary  SMS,  but  it   has   not   yet   been   described.   Because   value   exaptation   is   the   essence   of   the   Strategizing   model   I   use   two   contemporary   cases   to   introduce   the   concept.   Historical   cases   hide   the   difficulties   of   radical   change   in   value,   because   the   good   innovations   have   become   absorbed   in   our   society.   By   investigating   the   contemporary  cases,  the  wickedness  of  value  exaptation  can  be  examined.  The  two   cases   relate   to   Internet   innovation.   The   first   is   already   more   established   than   the   second   case,   allowing   more   support   for   the   claims.   It   should   show   how   much   the   value  perspective  challenges  our  understanding  of  competitive  advantage  and  how   it  can  only  be  radical  if  an  ecosystem  emerges.      

Internet  Innovation  case  1:  iTunes     6.1.5.1

The   music   industry   could   not   value   the   rise   of   digital   products,   because   it   was   incompatible  with  the  value  of  the  copyright  mechanism  that  was  the  cornerstone  of   the   music   industry.   The   copyright   mechanism   is   an   issue   showing   disagreement   between  the  public  interest  and  the  owner  interest,  which  makes  it  interesting  for   novelty   research.   A   good   way   to   understand   the   current   state   is   to   follow   the   historical   path.   Until   the   1950s,   music   was   directed   to   the   working   class,   with   innovation   around   transistors   as   a   shift   that   occurred.   Pocket   radios   and   later   compact  cassettes  targeted  a  much  younger  audience.  The  music  industry  favored   the   shift   since   it   increased   the   market,   but   with   it   they   opened   the   doors   to   new   social   contracts   since   young   people   have   limited   budgets   and   are   by   nature   more   rebellious.   Without   the   Internet,   the   emerging   digital   rebellion   was   relatively   harmless   to   the   music   industry,   creating   an   extralegal   state   of   cassette   sharing   in   local  networks.  With  Internet  peer-­‐to-­‐peer  file  sharing  services,  like  Napster,  there   was   a   change   from   the   prior   local   networks   to   a   global   network   which   created   a   breakdown  of  the  industry.    

The   blindness   of   the   media   industry   to   the   changed   social   contract   was   partly   because   they   listened   to   a   small   group   of   high-­‐demanding   costumers   who   made   their   voice   heard.   The   large   mass   of   low-­‐demanding   customers   is   a   much   more   challenging   group   to   comprehend.   Once   the   change   was   perceived,   the   incumbent   did  not  try  to  understand  the  new  values  but  tried  to  fight  them.  Such  value  battles  

are   common   in   historical   cases   of   innovation   and   in   some   cases   conservative   measures   can   stop   the   change.   Mokyr   (2002)   reasons   about   the   innovativeness   of   conservative   solutions.   Today,   the   media   industry   has   been   trying   to   establish