Category Institutional

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Incrementalism, exploration, exploitation

Apr 10, ’12 2:17 PM

A friend/colleague/friend tweeted this from an IBM ‘innovation discovery client briefing’, from IBM research in Switzerland: “Incrementalism is the enemy of innovation.” -Nick Negraponte

Which, ok, part of Negraponte’s gig is to go to things like an IBM innovation discovery client briefing. Sounds nice. But the other part of this is the actual assertion. Is incrementalism, in fact, the enemy of innovation?

At the level of what Negraponte is saying, his assertion is pure pap. Why? Because sometimes incrementalism is the enemy of innovation, and sometimes it isn’t. You don’t get to the bottom of the Mariana Trench by ignoring every innovation that came before you; sometimes you build on existing designs, and sometimes you think about new designs. His point is possibly closest to being something real if by incrementalism he means that any existing solution to a problem gains stakeholders who are tied to that solution; and then innovative solutions that dislodge those stakeholders are more difficult. It just depends so much more on what you’re talking about. To just be an evangelist for innovation is awesome for IBM meetings, but unhelpful for the rest of us.

I’m intensely interested in questions like these, and they dot (and sometimes define) the fields of organizations, political science, sociology, social movements, social studies of science and technology.

If we are talking about institutional change, then the answer to the innovation/incrementalism solution is a combination of: 1) Lis Clemens’ insight that institutional changes work best when they are wrapped in the language and form of existing institutions (that is, they are transformed, sometimes radically, via creep); and 2) Steve Barley’s insight that external shocks (‘technologies’ for him, in the broadest meaning of the term) disrupt existing patterns of behavior and meaning, and then those patterns are potentially and really reconstituted. That’s my answer, at least.

If we are talking about socio-technical change, I think the SCOT studies folks basically have it right, that a given technology creates relevant social groups, which rally around particular meanings and structures for that technology; which makes for interpretive flexibility; which creates theoretical closure around a particular solution that technology solves (what could have been many possible solutions is transformed into one solution and a bunch of solutions that ‘don’t work’). Depending on whether this is an open field, or a field with a dominant solution and some alternatives, or a couple/few/many dominant solutions, the dynamics will play out somewhat differently. But the underlying structure is the same.

In the marketplace for consumer products, the problem is a tricky one. Some have argued that Apple’s giant innovations are often innovations built on a surprisingly large amount of incremental improvement that only looks massively innovative in retrospect. This is where the best source for your money is James March’s argument about exploration vs. exploitation (seemingly ungated .pdf is here).

His argument is that organizations trade off between exploring new opportunities and exploiting existing ones. Via a simulation experiment, he argues that organizations ‘learn’ through their members (via creation of capabilities, routines, culture, knowledge management); and members learn through their organization (via socialization). But the more people just accept the organization’s way of doing things, the less likely the organization will see the world for what it is – endless exploitation means you are eventually in trouble.

What’s worse is that the payoff of exploration is highly uncertain and off into the future, so organizations tend to instead focus on reliability and exploitation, which is more proximate. Ultimately, in typically-quixotic fashion, March concludes that “the development of knowledge may depend on maintaining an influx of the naive and ignorant, and that competitive victory does not reliably go to the properly educated” (March 1991: 85). So ok, if this is what we mean in saying that incrementalism is the enemy of innovation, then perhaps I’m on board.

There’s an old talk by Paul Depodesta at a CSFB ‘thought leader’ conference which is also on the subject of disruption, innovation, and incrementalism – through the Moneyball-type transformation of the A’s. Totally worth looking at, if you are at all interested in these things.

And finally, a clip from the Moneyball film, which puts it so nicely.

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Supreme Court rules for Wal-Mart

Jun 20, ’11 11:31 AM

The case, to consolidate and ratify a class of women who claimed discrimination at the hands of Wal-Mart, was rejected by the Supreme Court today. I’ve nothing much to say about the case or the role of sociologists that has become something of a flashpoint this summer.

I would, however, suggest that we are living in an era when you don’t have to know a single thing about the law to know how the Supreme Court will rule on a case. Occam’s razor suggests that you simply ask yourself if it benefits business over workers, the powerful over the powerless, or Republicans over Democrats. If the answer is ‘yes’, that is how the Supreme Court will rule. I don’t know if this was always the case. Lawyers I know adamantly suggest that there was once upon a time a less ideological, more ‘law-focused’ Supreme Court. But it’s long past time we think of the Supreme Court as a ‘court’ in its proper, legitimating meaning of ‘arbitrating and interpreting the law of the land’, and instead just consider them one of many political players/institutions in the US landscape of other political players/institutions.

In other words, the ‘decisions’, ‘opinions’, ‘reasoning’, ‘precedence’, or ‘interpretation’ are all meaningless. If you refer to these things, I think that makes you something of a sucker. Instead, just draw a straight line between who benefits and how the court will decide.

I’m not bitter about this, genuinely, but I think legal commentary is essentially worthless here.

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Lateral thinking and business intelligence, pt. 1

Jan 4, ’11 9:36 PM

If you have a couple of hours to spare, there are far worse things you can do than to watch the 10-part D&D extravaganza, Acquisitions Incorporated (pt one is here. First, it will raise your nerd cred so high you won’t ever be forgiven by your spouse/students/friends who ever thought that maybe, just maybe, you might be a little cool. Second, there is extra Will Wheaton awesomeness, including the line “Wheaton’s vicious cod-punch of furious anger.”

And third, you will see at least one fantasti-magical example of lateral thinking (in part 7.

The setup: the adventurers have found themselves on a nether plane. They discovered a semi-docile hell-cow, wandering about, chewing on some volcanic rock. The hell-cow delivered them to the mouth of a castle, where they spend their time attacking the baddies. One of the characters (Mike Krahulik, who does the art behind Penny Arcade), sees a minion running away with a chest of jewels. He initially thinks about trying to cast a spell to control the beast. But then he does something very different. Instead of casting a control spell on the beast, he decides to cast a prestidigitation spell on the minion running away, making him appear to be volcanic rock, hell-cow’s favorite food.

The description doesn’t do it justice. Take a watch from about 7:44 to about 11:38.

I’ve been thinking a lot about the prestidigitation play, it connects with some of my interests in automated trading, algorithms, and data mining. With regard to financial markets, as Felix Salmon reports, we are living in an computer-driven, algorithm world (“We may be able to slow it down, but we can never contain, control, or comprehend it. It’s the machines’ market now; we just trade in it”). But it is more than this, I think. Data-driven analysis, the strategy manifestation of quantification, is a force to be reckoned with.

But data-driven analysis can also be stupid. That is to say, data-driven analysis – what Hans Peter Luhn dubbed “business intelligence” in 1958 – has become more intelligence in the ‘fact gathering’ sense than intelligence in the lateral thinking sense.

This sets the context for speaking about this post on business intelligence and human-centric analysis, but as my brain power is working at 35% nowadays, I’m separating this into a couple/few posts before I can make a point.

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Comparables, value, housing

Jan 1, ’11 9:40 PM

Interesting article from the Washington Post (although the fact that it was written by an attorney and a history professor on the opinion pages make me wonder how they know what the decision-making process was behind the scenes). The crux of the story is that a couple had trouble purchasing a round house, because the qualities that make the house unique are also qualities that make the house difficult to make comparable:

We were pre-qualified for a loan; with two professional incomes, good credit and enough cash for a 20 percent down payment, that would not be our problem. Yet two mortgage companies turned us down. The first did so after its investors – big banks with household names – rejected our application. The second mortgage company’s internal underwriters also rejected us. Their reasons were the same: The home, a customized modular house of internationally acclaimed design, built in 1989, is . . . round.

Being “unusual” or “unique,” it was deemed “not marketable.” Despite its evident worth and multiple independent appraisals, the lenders said they could not assign a value to the house because there were no comparable properties. And, with no “value,” there was insufficient collateral for a loan.

This is a kind of obvious example of how different qualities matter to different constituencies, but also that some interests are able to assert themselves a little bit more than others. If they can be believed, it was investors in two mortgage companies “big banks with household names” who turned their application down.

There is something banal here, of course. The models require data, and a small number of like houses make the risk too volatile. And when they say things like “The mortgage industry apparently only wants us to buy what everyone else has (or had),” it makes me think these two authors are kind of assholes who are deliberately taking potshots at what is an obviously more complicated issue than what “the mortgage industry” wants. Institutions are desperately seeking ways to manage their risks; in the face of massive criticisms over decades of old-fashioned, face-to-face treatment of clients, the industry moved to more formal risk models; the quantitative and data turn in finance meant that these models have more than a skosh of seemingly inflexible, rules-based tint to them.

What is interesting, however, is the inability for individual discretion to intervene. Though of course, I suspect that within hours/days/weeks of this article being written, the poor professionals were able to purchase their dream house, because of – what? – individual discretion. In the mortgage industry, for good and bad (and bad), evaluating individual level risk is hard, and in absence of the ability to sort through a client’s biography, instead the client is reduced to a case. And then the circular house becomes a problem.

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just words – Iranian election

Jun 16, ’09 8:18 AM

Interesting to note that once you claim to be holding an ‘election’, or that your country is a ‘democracy’, it makes it possible to put you on the hook for things you wouldn’t normally want to be on the hook for.

So, Iran is now making ‘reluctant concessions’ with regard to the farce of election they just held.

I wouldn’t push too hard on this point, but it’s the reason why neo-insitutional folks push back against the myth-versus-real construction. Here, the myth actually makes changes to the real more viable.

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Something New – Markets and Art

Aug 20, ’08 8:48 AM

As an experiment in sociology and blogging, Jenn (from whatisthewhat.wordpress.com) and I have put together a brief video on culture and markets, the beginning of what we hope will be a conversation at the intersection of culture, sociology, and economics. We’ll work on the lighting and switch off the big-head/small-head, but we hope you like it.

If you have thoughts, we’d love to hear them, but we hope you’ll be at least a little kind – this is one of those situations where your self-identity as brutally honest should not trump your self-identity as gracious.

And the links to the videos we reference: Fashion File: Making an Hermes Bag, and Contemporary Art Preview


Art and Markets 1: Selling Crafts and Art from Peter Levin on Vimeo.

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Unhelpful institutional theory, real world

Jul 21, ’08 10:41 AM

Let’s say that the CEO of an organization publicly announces during a board meeting that if the org misses its (ambitious) numbers over the coming year, she will eliminate X employees. We know that often, public announcements of impossible goals get met not by actually meeting those goals, but by shifting the goalposts down the line – (i.e., that the $10 million gap somehow gets filled at the last moment, or that fuzzy ‘productivity’ numbers come into line somehow). But just as often, those publicly-stated goalposts force company’s do make real changes, despite their often-symbolic nature (i.e., that Exxon commits itself publicly but symbolically to ‘green technologies,’ which then gives employee activists ammunition to start up a costly recycling program which otherwise the company would reject).

But when are ambitious, symbolic statements going to be decoupled from on-the-ground changes, and when are ambitious, symbolic statements going to be the impetus for on-the-ground changes? Absent a wave to ‘well-situated activists’ or somesuch, do we really have an answer here?

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Setting a Meeting, Academia-style

Feb 19, ’08 12:59 PM

Having trouble finding a common time to set a meeting? Problem solved! Pass this handy-dandy sheet along to all the member of the committee, and let the matchy-matchy begin! I guarantee that, unless someone is out of town, you will be able to nail down a time within an absolute maximum two-week window.

Make-a-meeting

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What is XBRL, and Who does XBRL help?

Feb 7, ’08 10:02 AM

Put it on your radar screens, the next big thing is going to be XBRL. It stands for extensible business reporting language, and it is meant to commensurate business reporting via standardization. So instead of entering text into an annual report, companies, governments, NGOs, anyone who would like to comply with governmental mandate will be using XBRL. You can think of XBRL as a set of metatags for financial and company data, so that instead of bracket-tags for header, title, links, etc. you would have bracket-tags for earnings, time periods, definitions of costs, etc.

From CoreFiling’s insight blog: “It won’t be very long before it is those documents – the bar-coded financial disclosures – that will be the primary materials consumed by financial market systems to help analysts and investors make decisions about the best way to invest. This is vastly more sophisticated than today’s processes that rely on slow and inaccurate re-keying of a subset of the financial information published by companies.”

This is commensuration more than just standardization, since the tags are designed to be specific to a particular business enough so that everyone is not required to give the same information, yet the tags are standardized enough that everyone is required to give information that can be made comparable. The pitch for companies (other than, because otherwise we’ll fine you and take away your business license) is that XBRL will make their financial reporting less costly, less prone to error, and ultimately more efficient.

Personally, I think this is a flat out misrepresentation of what’s going on here. XBRL helps one group of people orders of magnitude more than anyone else: investors. And the trade-off between increased government efficiency and business streamlining of compliance data on the one hand, and increased ability for data-gatherers for banks, hedge funds, and the investor class is totally totally off the charts. What this will end up doing is: 1) creating a standard way for companies to report financials; 2) creating some increased efficiency for government entities to keep tabs on the finances of these organizations; and 3) create a massive additional datastream for financial services and investment firms to work with. If you think it is a challenge for public firms to resist making short-term decisions based on financial analysts’ quarterly reports of earnings now, wait until this information is directly readable by quant trading models.

This would be an amazing dissertation topic. I would track: a) the creation of the standard; b) the adoption of the standard around the world; c) how XBRL is being incorporated into financial modeling; d) the before-and-after effects of XBRL on market prices for firms; and e) qualitatively, what gets excised from XBRL, or rather, what remains incommensurable about firms, governments, etc.

UBMatrix
XBRL’s main site
US SEC’s ‘Interactive Data Viewers’
Microsoft uses XBRL
US GAAP XBRL Taxonomy (GAAP is the accounting standard in the US)
CoreFiling

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Black Swans, Risk Management, and Undersea Cables

Feb 6, ’08 11:16 PM

I’ve taken issue before with Nassim Nicholas Taleb’s black swan thesis, that high-impact, low-probability events are responsible for market crises and accidents. The more general implication is, as Taleb and Pilpel note:

What matters in life is the equation probability × consequence. This point might appear to be simple, but its consequences are not.

Suppose that you are deriving probabilities of future occurrences from the data, assuming that the past is representative of the future. An event can be an earthquake, a market crash, a spurt in inflation, hurricane damage in an area, a flood, crops destroyed by a disease, people affected in an epidemic, destruction caused by terrorism, etc. Note the following: the severity of the event, will be in almost all cases inversely proportional to its frequency: the ten-year flood will be more frequent than the 100 year flood – and the 100 year flood will be more devastating.

Now comes word that some number (actually up to 5 now) of undersea cables have been cut, knocking a wide area of the Middle East off the internet, particularly the route between Europe and Egypt, and from there to the rest of the Middle East.

But where is the 100 year flood? What appears to have happened is a connected series of accidents and snafus, including possibly the weather, an anchor dragging along the sea floor, or who knows what. Mysterious. What I would contend, drawing from org theory, is that what is more dangerous than a 100 year flood is a sequence of preventable, unforeseen errors. That is, it is the disruption of the routine more than a freakish activity that is most likely to create accidents and crises. The routine fire in a particularly bad location, a minor earthquake in an unexpected place, a sequence of coupled organizational routines that lead one-to-another into disaster. It’s not that you shouldn’t be looking for the next giant storm that’s inevitably coming down the pike, but more problematic are the breaks in the caulk around the tub that floods the electrical box, that shorts the grid. Or a failure in the bathrooms at the airport.

Read your Saul Alinsky, and get in the game.

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