Manager or "Emerger"

By Pascal Baudry , Ph.D., MBA © 2002, Berkeley.

The Santa Fe Institute in New Mexico was born out of the demise of the Los Alamos nuclear laboratories and the determination of eccentric Nobel Prize winner in physics Murray Gell-Mann, who fully appreciated the implications of the narrow band between the standard order of calculable phenomena and the chaos of nuclear turbulence. In that band lie various phenomena of everyday life - thought, economics, self-organization (notably biological) - that do not lend themselves to any necessarily reductive model. Until then, insistence on looking for solutions within the universe of the calculable, and not the universe of the possible, had excluded from the field of our reasoning attention most of what nature offers.

The profound implications of this work did not escape John Reed, president of Citicorp who,  beyond his obviously genuine personal interest, probably recognized that it held clues to a better understanding of economic mechanisms, in particular the stock market. At the Faculté d'Orsay, one of France's centers of mathematical excellence, mathematician René Thom established Catastrophe Theory, later refined by the French-American Mandelbrot and a team at the University of California at Santa Cruz where the concepts of fractals were deepened and key invariants of complex phenomena were discovered. Then Brian Arthur-a Complexity thinker who dares to ask questions like "Why do clocks run clockwise?"-raised a eponymous question that earned him the ridicule of his fellow economists at the time (1960): "And what if, in economics, there were a place for phenomena of increasing returns?"

Any normal economist knew very well that the only prevailing and immutable law was that of diminishing returns, which states that the marginal price of a good or service on a non-monopoly market tends toward the marginal cost, and that the margin of return therefore tends toward zero. The alluring profits reaped by an innovator attract new players. The resulting competition causes all players to lower their prices until the initially attractive differentiation gives way to a commoditization and to a calculable order quite reassuring to advocates of the invisible hand.  In the copasetic company of economists, Brian Arthur was a troublemaker . . . that is, until the information economy, with its externalized networks, gave credence to his conjecture.

Today, everyone can see that the usefulness of a telephone (or fax machine) grows as the square of the number of people using one, and that Windows is a logical choice of operating systems because it is the most widely used. Now, a contemporary Winner-Take-All economy has come to co-exist with the traditional economy of diminishing returns. The richer a nation, the wider the gap automatically becomes between it and other countries; the quicker a company snaps up market share in a new internet niche, the more futile the prospects become for latecomers.

In this new economy, time is the key resource.  Talent (defined as the combined capacity to comprehend and then act faster than one's competitors) and the ecological wealth of the supporting environment (cultural and institutional openness to the creation of wealth; variety and availability of the resources required for innovation and for rapid growth) are more important than financial resources, which are becoming more of a consequence than a cause.  The situation is not necessarily hopeless for those who find themselves sidelined with (relatively) meager resources (but have not fallen into poverty-that magnet, that black hole, from which no one escapes without external assistance).  Such hopefuls can still attack a niche market.  To take advantage of the upward spiral of positive reinforcement, they can even create a niche, a new business sufficiently innovative and focused to trigger the divergent spiral effect of interest here (e.g. Apple Computer's desktop publishing).

In this context of two coexisting, contradictory models, one well known and relatively mastered, the other still misunderstood by many economists and simple mortals like yours truly, John Holland entered the picture. At one of the Santa Fe Institute's annual symposia he proposed the following experiment: suppose we have a relatively significant number of agents (molecules, individuals, companies, countries or galaxies). Imagine that we begin connecting them by bars (links, relations) two at a time, at random, and from time to time stop and lift out one of these bars, also at random, to see what comes with it. Not much at first: disparate points have been connected and the corresponding links are scattered. But as we continue connecting points and the density of connections approaches 1/2, suddenly we get something very different when we lift out a bar: because of the many interconnections, we now hold an increasingly rich structure. (Physicists and chemists will recognize this as a phenomenon of phase transition.)

The interesting point of this hypothetical experiment is that what is lifted together from the point of inflection is of a different nature than the individual elements at the outset. Likewise, where initially only a smattering of individual companies were of interest, a sufficient density of relationships causes phenomena beyond particular players, ideas, financial resources, institutions, and sub-cultures to capture our attention. We now behold an entity so complex (and so effective) that it has become known far and wide as the "Silicon Valley." The process of interconnection gave rise to an entity on an order of complexity superior to that of its constituent parts, which it subsumes and governs. Beyond the initial elements and the relationships among them, this resulting entity has new functional capabilities and a stable-or at least perennial-structure. A new species has appeared. In a word, we have witnessed an emergence.

How, then, can favorable emergences be created at will?  This is more than a theoretical question. The breakdown of post-modern society, the meaninglessness increasingly experienced in so-called developed societies, the failure of political policies, and the search for new global economic models are just some of the phenomena that beg such a question. Businesses, meanwhile, need to mobilize everyone's brain power, not just that of their executives; they seek innovations that truly resonate with their market and thus require efforts more evenly spread across both marketing and R&D; they are looking not just for new products, but for new business models.

John Holland and other complexity theorists have identified five conditions that increase the possibility of an emergence.  (Let it be clear that one cannot, per the old Command and Control model, order an emergence to appear; the best one can do is increase its chances of happening.)

1. A large number of agents.
   
2. A high density of agents.
   
3. A measure of diversity.
   
4. A great many connections.
   
5. A state of heightened intensity.

Interestingly, the Silicon Valley meets these five criteria, and not just anecdotally. Annalee Saxenian, U.C. Berkeley professor, effectively demonstrated as much (without explicitly saying so) in her book Regional Advantage: Culture and Competition in Silicon Valley and Route 128, (Harvard University Press, 1996).  She explains the success of the Silicon Valley by its early adoption of a so-called open model, in contrast to the closed model of Boston's Route 128.  The recent appearance of Silicon Alley-where some 150,000 jobs have been created in two years-on the East Coast of the United States, and the Hsinchu-Taipei region (Taiwan), show that the model is transposable to other environments.

1. Large number of agents. The large number of agents in the Silicon Valley is partly due to the fact that, in California, innovative companies prefer to establish partnerships with the "best of breed" rather than try to do everything themselves.  This enables them to focus on their core competencies and not waste time reinventing the wheel.  This preference for calling on a host of outside contractors has led to a proliferation of small companies, each attempting to be the best in its own very narrow market, thus helping to satisfy the first condition for emergence.
   
   American legal practices make such contract relationships both reliable and quick to establish. Conversely, the French traditionally launch in-house projects that are as ambitious as possible and that extend over a longer period of time (years rather than months). They are loath to call on outside assistance, as if doing so were an admission of incompetence.  This more monolithic approach, in line with Colbertian  tradition and the projection-oriented culture of the grandes écoles , requires fewer agents in the surrounding economy and is thus less conducive to emergence.
   
   
2. High density of agents. The high density of agents in the Silicon Valley results from the geographically limited space defined by the Pacific Ocean, the City of San Francisco, San Francisco Bay, and the mountains south of San Jose.  Similar space restrictions can be observed on smaller scales, such as offices of cubicles and research centers like that of Steelcase in Michigan, where the pyramidal architecture is designed to accommodate the maximum number of researchers in the minimum amount of space, thus also satisfying the fourth condition for emergence (a great many connections).  Rows of closed-door offices along austere corridors obviously do not facilitate emergence.
   
   
3. Measure of diversity. Diversity can be achieved with several comparably-sized categories of agents or, in the parlance of chemistry and electronics, with one dominant category enriched by a few "impurities."
   
   Ethnic diversity, clearly valued in Silicon Valley culture as an enriching factor, enables the system to draw on a wider range of perspectives and potential solutions than available in a more monochrome system.
   
   Yesterday's stable environments selected "species" that thrived on stability, which they in turn reinforced. It is worth noting that an all-male upper management, as still exists in many companies, is absurd from the standpoint of emergence. What business, what country can afford to not to avail itself of half the available intelligence? Furthermore, given the diversity of problems encountered, who would decline the advantage of a corresponding diversity from within? The politically correct reactions one inevitably hears to any call for more women in upper management (or in R&D) are but a smoke screen veiling the enormous resistance of traditional males to the emergence of new behaviors less predictable than the Old Boy network.
   
   
4. Great number of connections. In the Silicon Valley, a great number of connections are fostered by a culture that encourages strangers to communicate with one another. The fact that these relations are often ephemeral (and hence seen by the French as "hypocritical") is irrelevant. What matters is achieving the fastest possible cross-fertilization. The French (and the Japanese) prefer fewer, more lasting relationships, which result in fewer surprises and less emergence. Interpersonal distance, observed by Polly Platt in her (hilarious) chapter about Smiling (and not smiling) in French or Foe?: Getting the Most Out of Visiting, Living and Working in France (Cultural Crossings, Ltd., May 1995) is an impediment to communication, and therefore to emergence.
   
   Risk tolerance (notoriously higher in the American culture), transparency, and the belief in abundance that manifests itself in a "win-win" mentality, lead Americans to view strangers as sources of potential enrichment, not as predators. Operating in a deregulated economy also facilitates emergence.
   
   
5. State of heightened intensity. The heightened intensity of players in the Silicon Valley is expressed in the passion they have for their work (successfully completing a project) and in financial drivers (across-the-board stock options for all start-up employees). According to conventional reasoning, it makes perfect sense to limit the income of employees in the dot-com business unit of a company or to castrate stock-option legislation with heavy taxation. But it makes no sense whatsoever in the new economy. (This observation does not in itself solve any of the problems that stem from the coexistence of two different mindsets. Some companies attempt to resolve the situation by outsourcing their Internet activities-a disassociation that will make overall unifying emergences all the more imperative).
   
   In 1997, unemployed workers in France held "strikes," staging sit-ins at the offices of the French National Employment Agency (ANPE). This action embodied the five conditions necessary for emergence (in this case, passive-dejection-turned-anger satisfied the fifth condition of heightened intensity). The government and the General Confederation of Labor (CGT), having clearly understood the situation, injected calming "boron rods" into this "social reactor" to avoid a critical divergence that could potentially lead to the emergence of a new type of union activity which existing mechanisms would be unable to control.

All emergences come as a relative surprise (otherwise, we would be back in the realm of mechanistic prediction) and can be either favorable or unfavorable. We must therefore identify the necessary conditions for favorable emergences, or the mechanisms of selection by which we retain only those that are desirable. The point is to tip the playing field, to create a force field, a tropism that will foster welcome emergences while hampering the rest, just as in biology there are factors that either facilitate or impede the emergence of a species. Social ethics, understood as a set of values shared by a community, can fulfill this function. One of the responsibilities of a leader will be to ensure, by philosophy and by personal example, that such ethics are upheld.

Albert Einstein declared that it takes a higher level of intelligence to solve problems than the level which prevailed when they were created. What could be a more clear call for emergence? What if the role of a CEO (or political leader) were, above all, to stimulate emergence? What philosophies, cultures, policies, structures, behaviors, and what means should be established to increase the chances of enriching emergences? But how can we even begin to consider such questions when most leaders feel like their back is to the wall, like they have no option but to operate defensively, particularly in the face of accelerating change, increasingly intense competition, and given their belief that the attitude of control which got them to where they are today is the only viable approach to solving to the problems now confronting them, confronting "their" organizations and confronting society at large? To the contrary, a certain "letting go" is needed to be receptive to the surprise of emergences, just as children can become fulfilled adults only if they are afforded sufficient freedom to experience their own emergences, not relive those of their parents.

Will our societies allow leaders of this new type to emerge, or will they entrench themselves in mechanistic schemata that are reassuring because familiar, but ill suited to solving problems caused by the increasing complexity of our world?

Pascal Baudry , WDHB Consulting Group, Berkeley

Pascal R. Baudry , Ph.D., MBA, is Professor at the ENPC School of International Management (ENPC MBA) at the Ecole Nationale des Ponts et Chaussées in Paris where he teaches face-to-face and via the Internet. He lives and works in Berkeley, where he is Founder of WDHB Consulting Group which has organized over 300 Learning Expeditions and Strategic Expeditions® in the United States for European executive teams. On the WDHB website www.wdhb.com he is interactively publishing a webbook entitled "The Other Side: Understanding Americans to Understand the French."

Translated by students in the Graduate School of Translation and Interpretation at the Monterey Institute of International Studies ( www.miis.edu ) under the direction of Assistant Professor Julie E. Johnson.