Hi, good morn­ing. It’s nice to see you all here. So, what I want to talk about is what may seem like a rather bor­ing top­ic, insti­tu­tions. Why we not only con­tin­ue to need them, but also why I believe that each of us, with our sort of new val­ues, should be active­ly con­tribut­ing to cre­at­ing the insti­tu­tions of the future.

So, if you look at human his­to­ry all the way through, we orga­nize our­selves in dif­fer­ent ways. Tribes, reli­gions, guilds, states, more recent­ly com­pa­nies and net­works. And what these insti­tu­tions do is they sort of cod­i­fy val­ues and beliefs, and then they trans­port them across the gen­er­a­tions. So we see this phe­nom­e­non that when you cod­i­fy val­ues in insti­tu­tions, you give those val­ues longevity. 

This pic­ture is a pro­fes­sion­al guilds of glaziers, peo­ple that work with glass. And for hun­dreds of years, they’ve been sort of con­ser­v­a­tive­ly man­ag­ing their own pro­fes­sion­al val­ues about how you work with glass, and they share that with peo­ple that come after them. It’s the same with accoun­tants and lawyers. Today there’s a lot of pres­sure on pro­fes­sion­als to sort of cut cor­ners, to hide cheat­ing in com­pa­nies, to sign off accounts which are actu­al­ly quite dodgy. But these peo­ple have pro­fes­sion­al val­ues and stan­dards built into their insti­tu­tions that actu­al­ly are sup­posed to pre­vent them from doing that.

Now, some­times insti­tu­tions can actu­al­ly play a real­ly impor­tant role in pro­tect­ing val­ues dur­ing hard times. This is an arti­cle from a for­mer head of the BBC, and what he points out is that today when the BBC is real­ly under attack by a con­ser­v­a­tive gov­ern­ment and by com­mer­cial inter­ests, nobody real­ly wants, in the com­mer­cial world, to see the BBC being strong. And if it was destroyed, it would nev­er be invent­ed again. And yet the BBC is prob­a­bly the great­est cus­to­di­an of the lib­er­al sort of multi-ethnic mod­ern val­ues of the UK, much more so than even the state. So you have a great exam­ple of a very old, very con­ser­v­a­tive, quite bureau­crat­ic and old-fashioned insti­tu­tion that some­how man­ages to pro­tect a notion of pub­lic inter­est and pub­lic ser­vice broad­cast­ing that the com­mer­cial sec­tor and even the gov­ern­ment real­ly would nev­er cre­ate today.

Now, it’s inter­est­ing. You know, we can be very crit­i­cal of com­pa­nies, we can look at them and think they’re all sort of bad. But if you look at some of the old­est com­pa­nies, and there are com­pa­nies in exis­tence today that go back to the 7th cen­tu­ry and the 6th cen­tu­ry, you know. There are some very very old orga­ni­za­tions. But what the old­est ones have in com­mon is that they have nur­tured their ecosystem. 

But in America, per­haps Lloyd’s most famous moment came as a result of the San Francisco earth­quake of 1906. After the earth­quake, Lloyd’s under­writer, Cuthbert Heath said: Pay all of our pol­i­cy hold­ers in full irre­spec­tive of the terms of their poli­cies.” This mes­sage has since passed into insur­ance leg­end, because the San Francisco dis­as­ter cost Lloyd’s dear­ly — more than $50 mil­lion — a stag­ger­ing sum in those days, the equiv­a­lent to more than $1 bil­lion in today’s terms. Lloyd’s faced an enor­mous bill. But they hon­ored it, and Lloyd’s good faith was soon reward­ed.
Rachel Brown, 5 Of The World’s Oldest Companies”

This is Lloyd’s of London, formed in 1688 in a cof­fee shop, through a net­work of peo­ple that want­ed to improve ship­ping. And one of the real­ly inter­est­ing things about its his­to­ry is that in the 1906 San Francisco earth­quake, it faced ridicu­lous lev­els of claims. And actu­al­ly, if it did things by the book, it was able to not pay out on lots of those claims. But they said, You know what? Screw it. Pay every­body,” and it cost them the equiv­a­lent of like a bil­lion dol­lars today. But what it did was it built trust, and it pro­tect­ed the ecosys­tem around Lloyd’s of London that would oth­er­wise have col­lapsed in the face of those claims. And so it con­tin­ues today as a suc­cess­ful institution. 

But the prob­lem is that in the 20th cen­tu­ry, we’ve built these sort of cas­tles, these cor­po­rate cas­tles, with thick walls, bar­ri­ers to entry, pre­vent­ing oth­er peo­ple from com­pet­ing with them through the sheer size, and scale. And then what we did, with­in those orga­ni­za­tions, is we built rigid man­age­ment struc­tures, rigid bureau­crat­ic hier­ar­chies. And so these com­pa­ny then opti­mized in these ver­ti­cal silos to deliv­er some­thing that would­n’t change. And as a result, by the end of the 20th cen­tu­ry many of them are real­ly strug­gling because things are chang­ing, and things are chang­ing a lot more quick­ly than they’re able to cope with.

So I think an inter­est­ing ques­tion is if bureau­cra­cy was the plat­form for the Protestant work eth­ic peri­od of bureau­crat­ic man­age­ment, then what is the plat­form for the future? And this is where I think you guys have a real­ly impor­tant role to play. 

So first ques­tion, why do I even need insti­tu­tions? Surely we’re all hip­sters now, in cof­fee shops with our star­tups and our devices and all sort of craft cof­fees. Well, I think we do. And I think the first rea­son why we need them is that actu­al­ly, the world of star­tups is not as rosy as it might seem. We’re build­ing star­tups whose goal is to die. They want to flip, they want to be destroyed by big­ger cor­po­rate inter­ests or by investors. And effec­tive­ly these star­tups are sort of a finan­cial prod­uct. They’re being trad­ed, bought and sold. 

This is a fly­er that was put up around Palo Alto, aimed at Palantir work­ers. Palantir is a mas­sive, absolute mega sort of mod­ern cor­po­ra­tion that’s devel­op­ing there. They rent half the city’s office space, I think. People are say­ing, Look, you guys have been fooled. Actually your com­mon stock is worth­less. All of the val­ue is accru­ing to the own­ers of that com­pa­ny, not to you the work­ers or those involved.”

And I think anoth­er chal­lenge is that if you look at where we’re going now, it’s not all apps. You know, we can’t live by apps alone. We also need hard­ware, we need phys­i­cal goods. And so we’re see­ing a shift from the vir­tu­al world back to the real phys­i­cal world. And what that needs is the engi­neer­ing skills of Finland, and Germany, and Italy, and the sort of European tra­di­tion of how to make things real­ly successfully.

But con­nect­ed prod­ucts need con­nect­ed orga­ni­za­tions. And this is why I think we real­ly are in need of a fair­ly rad­i­cal rework­ing of of the insti­tu­tions that we oper­ate in today. Bosch is a superb com­pa­ny. They make bil­lions of sen­sors. Their sen­sors are prob­a­bly all around this room today. They are superb engi­neer­ing. But they’re so opti­mized into these indi­vid­ual prod­uct lines that they find it chal­leng­ing to build lat­er­al con­nec­tions across them, which is what you need for the con­nect­ed car, the con­nect­ed fac­to­ry, and the con­nect­ed home.

Now, we do have some emerg­ing cor­po­rate insti­tu­tions of the 21st cen­tu­ry, what Bruce Sterling calls The Stacks,” Amazon, Facebook, Apple, Google, and so on. But these are not the droids that we’re look­ing for. They are suc­cess­ful. They have cre­at­ed in some cas­es very suc­cess­ful ecosys­tems. But they are real­ly not a mod­el for the 21st cen­tu­ry institution.

So, the ques­tion is what might the char­ac­ter­is­tics of a 21st cen­tu­ry insti­tu­tion be? And I’m just going to real­ly race through a few of these. Obviously it’s net­worked. Networks are the new val­ue chains. They’re the new pro­tec­tion. Not the sort of cas­tle walls that we looked at before. But I think they’re also lat­er­al and layered. 

The order of civ­i­liza­tion. The fast lay­ers inno­vate; the slow lay­ers sta­bi­lize. The whole com­bines learn­ing with continuity.”
Stewart Brand, The Clock of the Long Now

You may have seen this guy Stewart Brand, a real­ly great thinker in California. And he talks about the fact that all civ­i­liza­tion is built of these lay­ers that move at dif­fer­ent speeds. So, at the bot­tom of the stack, nature changes very slow­ly, our cul­ture and our gov­ern­ments change a lit­tle bit more quick­ly. But if you look at the top of stack, areas like fash­ion and tech­nol­o­gy and con­tent and so on, that changes very rapid­ly. And we need to reflect this in our orga­ni­za­tions. Just as soft­ware used to be very ver­ti­cal­ly inte­grat­ed from top to bot­tom, now soft­ware is a col­lec­tion of microser­vices and ser­vices and data lay­ers and APIs. And they all move and change at dif­fer­ent speeds. And that I think is a real­ly good archi­tec­tur­al mod­el for the orga­ni­za­tions that we’d like to see.

We need also to be service-oriented. If we have loads of teams who are devel­op­ing dif­fer­ent things, or peo­ple doing dif­fer­ent func­tions, instead of man­ag­ing them through a sort of bureau­cra­cy going up and down hier­ar­chies to get things done, we need pier-to-pier, service-oriented rela­tion­ships. So, you know that this team makes X, and this team makes Y, and they can work it out between them­selves. This is a draw­ing [not shown] by a friend of mine Dave Gray, whose book The Connected Company is a real­ly good study of how this stuff works in the real world.

We also need to be platform-based. And that does­n’t mean Uber and Airbnb, nec­es­sar­i­ly, where all the val­ue is cap­tured at the cen­ter. Amazon is a bril­liant exam­ple of a plat­form busi­ness that also devel­ops ecosys­tems based on its own needs. But actu­al­ly the prob­a­bly the most inter­est­ing ones are in China. So things like Alibaba, and this com­pa­ny called Haier. Haier used to be a state enter­prise. It pro­duced real­ly poor-quality goods. And this this guy, Zhang Ruimin, sort of changed all of that, first of all by invert­ing their hier­ar­chy. So he said, Okay, if you are more than three steps away from a cus­tomer, you’re just sort of sup­port staff. You’re like an admin per­son.” And so sud­den­ly all of the man­age­ment tal­ent sort of runs to the edges of the orga­ni­za­tion and works with cus­tomers and markets. 

But his next and more rad­i­cal trans­for­ma­tion was to turn the com­pa­ny itself into a plat­form. So each indi­vid­ual depart­ment of this com­pa­ny is now a micro-enterprise, and they work on a com­mon plat­form that Haier has cre­at­ed. And the next log­i­cal step beyond that is obvi­ous­ly that they can open that up to oth­er com­pa­nies to oper­ate on their plat­form. So that’s a true plat­form ecosys­tem play, and I think a very inter­est­ing one of to study.

We need dis­trib­uted orga­ni­za­tions. Small teams, eight to twen­ty peo­ple focused on a sin­gle thing, join­ing togeth­er in much more imag­i­na­tive struc­tures, rather than just hier­ar­chies. We need them to be self-managed. We used to think that automa­tion and tech­nol­o­gy would threat­en the lowest-level jobs. But actu­al­ly I think the biggest threat from automa­tion is mid­dle man­age­ment. It’s peo­ple whose job is to oper­ate the bureau­cra­cy, to move infor­ma­tion from one place to anoth­er, and to tell peo­ple what to do. Well, you know, that’s some­thing that com­put­ers are actu­al­ly pret­ty good at. So I think we will see a replace­ment of lots of man­age­ment by sort of algo­rith­mic man­age­ment and real-time data flow­ing around organizations. 

I don’t know if this word exists, but I sort of feel it should. We need cyberor­ga­ni­za­tions. We need sort of cyborgs. In oth­er words, a hap­py rela­tion­ship between machines and peo­ple. We used to think arti­fi­cial intel­li­gence was all about replac­ing human intel­li­gence, but now we real­ize it’s about aug­ment­ing human intel­li­gence. It’s about cre­at­ing envi­ron­ments where the skills, the val­ues, the sort of instinct of humans can oper­ate more freely.

This is an exam­ple [not shown] of a fac­to­ry where you have the sort of friend­ly co-bots oper­at­ing along­side peo­ple, not tak­ing away the skilled work, but doing all the basic stuff that peo­ple don’t real­ly want to do.

We need a lev­el of sen­tience in orga­ni­za­tions. Because we are con­nect­ed with our social net­works, we have this human sense in that work. It’s the basis of what could be a sort of demo­c­ra­t­ic sys­tem with­in orga­ni­za­tions, where peo­ple can tell you what needs to hap­pen. They can give you feed­back, they can tell you what’s bro­ken, what needs fix­ing, what’s not work­ing so well. And we need to use that, and we’re not using that today.

And I think we also need self-aware orga­ni­za­tions. Before com­ing on stage, I look at my Apple watch to see how ridicu­lous­ly high my heart rate is because I’m ner­vous. And I can actu­al­ly get my heart rate down by look­ing at this this data. We also need quan­ti­fied orga­ni­za­tions. We need to under­stand what makes up a healthy orga­ni­za­tion. And we need to grab the data and the feed­back to mon­i­tor that, so that orga­ni­za­tions can have a degree of self-awareness that can lead them to trans­form in new and inter­est­ing ways.

They prob­a­bly also need to be agile. We used to think that the way you man­age an orga­ni­za­tion is that you pre­dict and then man­age. So you sort of pre­dict the future, and then you man­age each step towards that future. Well, the future is more or less unknow­able at this point. We can’t real­ly plan more than two or three years out. So what we need is to sense and respond. We need this sort of sen­si­tiv­i­ty to changes, and an abil­i­ty to flex and to adapt to meet those changes head on, and always be chang­ing rather than just have fixed orga­ni­za­tions that go through occa­sion­al, painful top-down reorganizations.

And I think final­ly anoth­er char­ac­ter­is­tic that I think is real­ly impor­tant based on the his­to­ry of com­pa­nies, is we need glo­cal­iza­tion. We need to be both local local and global. 

This is a map of com­pa­nies, most­ly cor­po­ra­tions in Southern Germany. And if you look at a map of towns like Gütersloh, where Bertelsmann and Miele are based, or Stuttgart, where Bosch is based, or Munich, where Siemens is based, you will see that these are physically-located com­pa­nies that actu­al­ly try and work in a way with local com­mu­ni­ties, because they need a flow of labor, they need ecosys­tems, they need sup­pli­ers and so on. But if you do the same map for a hedge fund, or a sort of pure­ly vir­tu­al finan­cial orga­ni­za­tion, they real­ly have no loca­tion. Maybe it’s on a yacht, maybe it’s off-shore some­where. And so that means that they’re much more prone to throw neg­a­tive exter­nal­i­ties out there into the community.

And I think these don’t need to be local, phys­i­cal com­mu­ni­ties. They can be a vir­tu­al net­worked com­mu­ni­ties as well. But we need to think about the sort of cen­ter of grav­i­ty of orga­ni­za­tions, and make them ground­ed in the peo­ple that they work with. So if we look at all these won­der­ful new mod­els that we have to explore, then if we’re going to do this, if we’re going to explore all these mod­els, then I real­ly do think that we need to be con­scious of the sort of oper­at­ing sys­tem of the orga­ni­za­tions and insti­tu­tions that are going to pur­sue that future for us. We can’t just imag­ine that this belongs to some­one else and we can just work on prod­ucts or star­tups or these cool new ideas. 

We sort of need to get involved in defin­ing the future of insti­tu­tions, because we don’t want big grand muse­ums like this, which are not very human-scale and don’t change. What we real­ly want is liv­ing sys­tems that peo­ple can con­tribute to. And I think those are the kind of insti­tu­tions that I believe all of you guys with your love­ly val­ues can help build, and I would love to see you get involved in. Thank you. 

Further Reference

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