In his seminal book Emergence, Steven Johnson talks about how people learn to “control” events in an emergent environment.

An open economy is a perfect example of an emergent environment. In a free market economy, independent agents work according to simple rules. People aim to maximize their personal utility. They bump into each other first in a random way, learn how they can trade with each other, and quickly start to produce discernable patterns. The patterns exist in supply and demand, in prices, in the production and movement of goods, and because of competition and the profit motive, a constant stream of innovation.

But, the general economy is not the only system where patterns emerge out of what appears to be chaos of random behavior from lower level actors within the system. The field of study is called “emergence”.

For example, blogs on the open internet are a chaotic system powered by individual actors. In this environment, discernable patterns emerge.

Emergence and intelligence

One of the ideas Johnson discusses is the observation that the higher-level patterns in these systems can start to become intelligent.

For example, not one of the cells in your brain is individually aware of who you are. But collectively, the cells produce discernable patterns that result in both your identity and your intelligence. The patterns begin with chemical signals that result internal electrical storms. The storms represent cascades of information. Low-level exchanges between individual neurons transform into coherent patterns, such as brain waves, which in turn are components of thought. The compellations of these pieces of thoughts become things like ideas, emotions and memories. And, these, in turn, collectively become self-awareness and human intelligence. That intelligence emerges from individual pieces that are unaware of the whole, just as they are unaware of the intelligence they help to build.

The “invisible hand” of a free market economy exhibits the same thing by efficiently allocating resources in an eerily intelligent way. Again, individual agents are not necessarily aware of their role in the broader system. If you buy a cup of coffee on the campus of Queen’s University in Kingston, Ontario, there is no economic over lord who coordinated all the things that had to happen to correctly deliver the coffee into your hand. No one coordinated and controlled the roles of the paper company that made the cup, or the lumber company that cut the tree, or the farmer who grew the beans, or the long chain of middle-men and buyers, shippers, marketing teams, to say nothing of the actors and writers and directors who created the entertainment that was the advertising vehicle used by the creative agency hired by the coffee company’s marketing team to subliminally convince you to buy the cup of coffee. Yet, the system still works.

Emergence and the intelligent company

Just as high-level patterns of intelligence emerge from separate brain cells or individual agents within a free market economy, groups can be motivated to create intelligent decisions in other circumstances.

Specifically, CEOs can turn their entire companies into engines of emergent intelligence, where the company’s employees are capable of collectively producing brilliant decisions for the company.

This approach may not be useful in all aspects of any one company’s activities, but it certainly has applicability when it comes to fostering innovation.

Emergent intelligence only evolves when agents have the freedom to act independently. The traditional command and control structures employed by most large firms do not lend themselves to fostering this kind of independence.

In the past, I have discussed some of the steps that senior management can take to foster emergent intelligence and constant innovation. See Turning Knowledge Workers into Innovation Creators.

All of these steps require senior management to surrender direct control over the process of innovation.

However, that does not mean that there isn’t still a roll of management to play. Their task now is to cultivate an environment that encourages innovation.

Learning to cultivate emergent intelligence

Learning how to cultivate emergent intelligence is not necessarily trivial. However, in Emergence, Johnson provides a great description of the process.

Think about the ten-year-olds who willingly immerse themselves in [the video game] Zelda’s World. For them, the struggle for mastery over the system doesn’t feel like a struggle. They’ve been decoding the landscape on the screen – guessing at casual relationships between actions and results, building working hypothese about the system’s underlying rules – since before they learned how to read. The conventional wisdom about these kids is that they are more nimble at puzzle solving and more manually dexterous than the TV generation, and while there’s certainly some truth to that, I think we lose something important in stressing how talented with their joysticks. I think they have developed another skill, one that almost looks like patience: they are more tolerant of being out of control, more tolerant of that exploratory phase where then rules don’t all make sense, and where few goals have been clearly defined. In other words, they are uniquely equipped to embrace the more oblique control system of emergent software.

I think Johnson is right. But, I think those skills also apply to succeeding in an emergent environment, and not just playing an emergent video game.

For example, those crazy young hipster bloggers can only get themselves up to the top of the technorati charts using oblique means of control. The recipes are complicated. To achieve that kind of success requires posting at a certain pace, posting about successful memes, commenting often on other people’s sites, and then establishing a viral dialog with the people who comment on your posts. But, following the recipe is no guarantee. And, because you can’t force people to visit, you have little direct means of control. But, that doesn’t stop new bloggers from succeeding.

Examples of Oblique Control

OK, so how does an executive obliquely manage towards a desired goal?

Oblique Control - The Fed: A great example of oblique control is the Federal Reserve, which only controls an over night interest rate charged to banks. And even then, the Fed Funds window is rarely used. So, the Fed Funds rate is only very occasionally charged to banks that end up borrowing from the Fed once or twice a year. How does the Fed control the economy? It certainly doesn’t do it directly.

But, the odd rate hike by the Fed, or pronouncements from the Fed Chairman, send markets moving quickly in one direction or another.

Ask any economist why, and they won’t be able to give you an honest answer. They might talk about the money supply. But once you get down to the exact mechanics, the truth is no one really knows.

Oblique Control - Irish Education: This is a simple story with an amazing outcome. Before 1980, Ireland was one of the poorest nations in Europe. It is now one of the wealthiest.

The Irish Government has taken many steps to achieve the Irish Economic Miracle, and to turn Ireland into the Celtic Tiger. Reducing corporate tax rates and encouraging foreign direct investment were important steps, but none of those was as important as improving the quality of the Irish work force.

The Irish Government improved the quality of the Irish work force by improving the quality of the Irish Education system, making it one of the best in the world.

The International Institute for Management Development (IMD), which is a business school located in Lausanne, Switzerland, releases an annual World Competitiveness Report. In 2006, IMD Ireland ranked at the top for Educational System and Higher Educational Achievement. From the IDA Ireland site, I got these details on Ireland’s education system:

The Educational System in Ireland meets the needs of a competitive
economy (country score)

Source - IMD World Competitiveness Yearbook, 2006

Higher Educational Achievement
% of population that has attained at least tertiary education

Source - IMD World Competitiveness Yearbook, 2006

Ireland is a successful free market economy. Central planners didn’t say “grow” or order innovation. Instead, the Irish Government exercised oblique control, using the levers they had access to, such as increased educational spending, to produce a workforce that attracted companies the world over to Ireland.

Oblique Control – Amy Sutherland’s NY Times article “What Shamu Taught Me About a Happy Marriage”

While researching a book on exotic animal trainers, Amy Sutherland started spending time watching those trainers.

I listened, rapt, as professional trainers explained how they taught dolphins to flip and elephants to paint. Eventually it hit me that the same techniques might work on that stubborn but lovable species, the American husband.

The central lesson I learned from exotic animal trainers is that I should reward behavior I like and ignore behavior I don’t. After all, you don’t get a sea lion to balance a ball on the end of its nose by nagging. The same goes for the American husband.

Amy Sutherland talks about a second lesson:

a dolphin trainer introduced me to least reinforcing syndrome (L. R. S.). When a dolphin does something wrong, the trainer doesn’t respond in any way. He stands still for a few beats, careful not to look at the dolphin, and then returns to work. The idea is that any response, positive or negative, fuels a behavior. If a behavior provokes no response, it typically dies away.

And the process seems to work on humans as well as animals:

After two years of exotic animal training, my marriage is far smoother, my husband much easier to love. I used to take his faults personally; his dirty clothes on the floor were an affront, a symbol of how he didn’t care enough about me. But thinking of my husband as an exotic species gave me the distance I needed to consider our differences more objectively.

I adopted the trainers’ motto: “It’s never the animal’s fault.” When my training attempts failed, I didn’t blame Scott. Rather, I brainstormed new strategies, thought up more incompatible behaviors and used smaller approximations.

The same can and should apply to managing a large organization, and especially when your goal is to manage towards encouraging innovation. To guide emergent intelligence in an organization, you need to think about management techniques that foster innovation, and encouraging dialog and the exchange of ideas.

Imposing rules and taxonomies isn’t going to achieve the goal. Nagging people to add to the “knowledge repository” isn’t going the right answer either.

Instead, you have to use the carrot; not the stick. Reward people in socially relevant ways for great contributions.

Oblique Control – Freakenomics:

Can small cheap rewards, such as public praise, actually change people’s behavior?

In their real interesting book, Freakenomics, Steven D. Levitt and Stephen J. Duner prove their thesis again and again. Thesis is:

Small changes in incentives can radically change behavior.

They begin the book with a great example. Some economists were looking at the impact of incentives upon the behavior of parents as they picked up their kids from day-care. Specifically, the economists were interested in how often the parents were late. To test the power of incentives, they introduced a fine of $3 every time a parent was late.

It was announced that any parent arriving more than ten minutes late would pay $3 per child for each incident. The fee would be added to the parent’s monthly bill, which was roughly $380.

After the fine was enacted, the number of late pick-ups promptly went… up. Before long, there were twenty late pick-ups per week, more than double the original average. The incentive had backfired.

Is this proof that incentives don’t work? No. Instead, they work very well. These incentives acted as a “sin-tax”. Parents were able to buy off their guilt at being late with a small $3 payment.

Before the fine was enacted, another set of incentives was compelling them to show up on time. It was a social incentive. An incentive to been respectful of the day-care workers, an incentive to be seen as a good parent.

If you flip this around, in a work environment, compensation can be used to compel your employees to show up every day. But it isn’t the only incentive that is available.

Positive social incentives can encourage people to share knowledge, collaborate, innovate, and thus produce emergent intelligence.

How to use Oblique Control to Foster Constant Innovation

If you are a senior executive, here is what you need to do:

You have to begin by creating an environment that supports emergence. That means setting up a system for more efficient direct communication between employees. That means enterprise blogs, Wikis and social book marking tools.

Then, let the system evolve. Let users evolve their own tags. Let group evolve towards a common set of categories by letting individuals use anything they like. They will eventually start to use common categories just as people quickly adopt trends and fashions.

Impose only the minimal amount of structure. For enterprise blogging, for example, let super users define Blog Types, such as People Pages or Project Pages. It makes sense to seed the system with likely candidates, but recognize that needs change and people come up with great ideas. People are smart. They will work out ways to improve the system. The secret to managing an emergent environment is to let them do their thing.

Meetings, centrally planned taxonomies and rigid dictated workflows will not achieve innovation.

Finally, get involved. If you are using blogs, make sure that you praise good work. Make sure you notice when someone uses a project blog to write an article that is useful to the whole company. Use old-fashioned email to draw people’s attention to the best post of the week.

The resulting positive social pressure with drive everyone in the organization to struggle to receive that same kind of recognition.

Finally, react to comments. React to feedback. Emergent intelligence only occurs when there is dialog within the system. You have to make sure that dialog takes place.