Wanted: Ambidextrous Leaders

Wanted: Ambidextrous Leaders
Art Kleiner

Art Kleiner is editor-in-chief of strategy+business.

Back in the 1980s, the eminent quality expert W. Edwards Deming was invited by the chief executive of a major American auto company to give a luncheon talk about quality at a retreat for the company’s corporate senior staff. This was during the era when Japanese carmakers had humbled their American rivals by producing durable, small automobiles. In U.S. manufacturing centers such as Detroit, it was sinking in that the Japanese knew something important that the Americans had overlooked: a basic set of practices for continuous improvement. Dr. Deming (as just about everyone called him) was one of the key figures teaching this body of theory and practices — which later would come to be known as lean production — first in Japan and then back in the U.S.

It was tempting to think of Deming as just another execution guy. His background was in statistical process control, and he was very comfortable on the shop floor. But his subject was the nexus point between strategy and execution, and he believed that the caliber of a company’s operations should affect its leaders’ business decisions. Unless a company could combine strategy and execution in a meaningful way, it would be vulnerable to upstart competitors who did.

That message was impossible to ignore, at least for industries beset with unprecedented competition. So here Deming was onstage: an 82-year-old, 6’2”, booming-voiced, Yoda-faced oracular presence. The CEO introduced him, said he was a great man, and directed everyone to pay close attention. He promised to rejoin them after lunch, as he had done with so many guest speakers in the past. But as the CEO walked offstage, he felt Deming’s presence looming behind him. He turned and asked, “Where are you going?”

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PwC’s Strategy& and strategy+business are conducting research on the rare leaders who excel at both strategy and execution. We want to understand who these exceptional leaders are, what their background is, and what they do to help their company make its strategy work.

Please take two minutes to help us identify the companies and leaders we should include in our research study. We’ll be happy to send you our “20 Questions for Business Leaders” eBook.

“Where are you going?” Deming said. “If this isn’t important for you, it’s not important for me.” The CEO returned to the stage and cancelled his other meetings.

That, for me, is a quintessential story of strategic leadership. You can’t separate strategy and execution, not if you want a company that consistently produces great products and services. You have to have people who fully understand both perspectives, and if that’s not important enough for the CEO — if the CEO isn’t prepared to dive in to the minutiae of the enterprise — then the company is probably not going to thrive.

We’ve done a lot of research — at PwC and especially at its strategic consulting group, Strategy& — about the practice of strategy through execution. We’ve often heard about a leadership trait called ambidexterity, sometimes referred to as being bilingual or having “helicopter quality.” In their article “10 Principles of Strategy through Execution,” Ivan de Souza, Richard Kauffeld, and David van Oss describe it as the ability to “think about the technical and operational details of a project in depth and then, without missing a beat, consider its broader ramifications for the industry.” When Strategy That Works authors Paul Leinwand and Cesare Mainardi talk about “translating the strategic into the everyday,” they’re describing this ability as well.

People with this kind of ability tend to be extraordinarily capable leaders. Undoubtedly you’ve known some of them. And that’s why I’m writing this blog post: We want to interview some people who have this quality, and I’m hoping you can help us identify some candidates.

We know they’re rare — or perceived to be rare. In a survey of more than 700 executives across a variety of industries around the world, we asked respondents to rate the effectiveness of their top leaders at strategy (defined as “answering fundamental questions that would lead to long-term success”) and execution (defined as “keeping the company on track in executing the strategy”). Most top executives are perceived as being good at one or the other, but only 8 percent of leaders were deemed very effective at both.

So we need your help. strategy+business is working with a group of researchers at Strategy& and PwC who are interested in interviewing people with this ambidextrous quality. These could be executives and managers at all levels, in any company (but especially in large companies) who have demonstrated the ability to generate long-term success on both dimensions. Do you know a leader gifted at strategy through execution? Is there an enterprise you admire for having a great value proposition and excelling at delivering on it? Please do let us know by completing a brief survey. If you include your email address, we’ll send you a copy of the limited-edition strategy+business 20th anniversary e-book, a special edition of our award-winning “20 Questions for Business Leaders” management feature.

Do you know a leader gifted at strategy through execution?

With this survey, you’ll be contributing to the development of knowledge about the ever-changing nature of management. Perhaps the story of Deming and the CEO will move you the way it’s always moved me: Whenever I feel tempted to walk away from learning something outside my comfort zone, I try to remember to stop, turn around, and go back to listen.

For that CEO was Ford Motor Company president Donald E. Petersen, known still as the top executive who promoted the company’s return to quality manufacturing in the 1980s. That’s the kind of turnaround that isn’t possible unless the person leading it truly understands both strategy and execution. We’d like to know who you know, who has that quality — and ultimately, how we can learn from their examples.

Do you know a leader or a company that excels at strategy through execution? strategy+business, Strategy&, and PwC are interested in interviewing people with this ambidextrous quality, and we’re looking for examples. Take our survey at strategy-business.com/interactive/the-leadership-surveyto share your recommendations.

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The loneliness of an organization chart

The organizational structure vs what is really going on. Or the loneliness of an organization chart.

The snap short of the company as pictured in an organizational chart, is probably one of the most fictitious work of management art. Yet, it is a map of power and control that perhaps, in many cases, needs to be shown by the HR Cartography Department.

But the idea that the static display of boxes and reporting lines (solid or dotted) tells us anything about what is going on is very naïve. I don’t think many people would see it differently.

To understand what is really going on, you have to have a ‘live organizational chart’ and that can only be achieved with a live social network analysis.

For all the technological advances we have at our disposal, we have a fairly prosaic, rather boring and uninformative ‘thing’ called organization chart as a ‘representation’ of the company. For example, it tells us nothing about three vital, fundamental components of organizational life:

Unwritten rules. The organization chart may point to the written ones and only in so far as they are connected with the mechanism of power and reporting lines. For example, whom to escalate a problem to. But not even when.

The natural influencers. The organization chart is blind as to where in the organizational network a particular individual sits. There is no correlation between a hierarchical system and an influence system. Mrs Jones running the mail room may have three times more (cultural) influence and connections than Mrs Smith running the Strategic Unit.

The tribes. Any organization has tribes. Some are functional, and they may have their own organizational chart: IT, Operations, Finance etc. But many powerful tribes are not functional and they don’t have ‘their chart’: the youngest, the part-timers, the remote workers, the newly-acquired, the ‘women in leadership club’, the smokers or the runners/gym-lovers/wanting-to-die-healthy people. And if you don’t know about your tribes, or don’t know what to do with them, please note your Sabbatical has ended, come back.

The organizational chart is that lonely artifact that corporate archaeologists will find and frame, a relic from the divisional and Fordian organization, a Guide to Bosses for Dummies.

Although the reports of its death have been grossly exaggerated, the practice of management as ‘organizational chart reordering and reshuffling’, is today a rather poor state of affairs.

I despair when I see re-organizational announcements solely based around new power distribution, or that say little about the possible excitement of the new structure in favour of the new chairs showroom.

Some press releases are new furniture brochures, the new 2017 chairs and sofa collection. And a few beds.

Dr Leandro Herrero is the Chief Organization Architect at The Chalfont Project and the Managing Partner of Viral Change Global LLP, both international consulting companies specializing in cutting edge Organizational Strategy and Large Scale Behavioural and Cultural Change. He can be reached via his office at uk-office@thechalfontproject.com

For more of his thoughts and ideas on organizational culture and strategy, leadership and large scale change in organizations and society, sign-up to receive his Daily Thoughts blog direct to your inbox: http://leandroherrero.com/subscribe-to-the-blog/ or follow him @LeandroEHerrero

For more information on his work visit:

www.viralchange.com

www.thechalfontproject.com

www.leandroherrero.com

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Workplace automation: Separating fiction from fact

The idea that robots could replace humans in the workplace dates back to science fiction writers a century ago, and it has been a recurring theme in political life for almost as long. Back in 1964, US President Lyndon B. Johnson created a national commission to examine the impact of automation on the economy and employment. Automation should be viewed as an ally, not an enemy, he said at the time. “If we understand it, if we plan for it, if we apply it well, automation will not be a job destroyer or a family displaced. Instead, it can remove dullness from the work of man and provide him with more than man has ever had before.”

A half century later, technology has advanced at breakneck speed—who back then could have imagined the legions of robots at work today in manufacturing, Amazon’s drone shipments, or the artificial intelligence (AI) algorithms now being used to detect cancers? Machines today increasingly match or outperform human performance in a range of work activities, including ones requiring cognitive capabilities. Yet while the technology has changed, the issues that were such fraught topics 50 years ago have not. Will robots replace humans in the workplace? And if so, how quickly?

In that context, it is important to separate fact from fiction. The McKinsey Global Institute has just published a report on automation and its potential effects on productivity and the global economy, part of ongoing research into the future of work. It is based on an analysis of more than 2,000 workplace activities across 800 occupations, and 46 countries accounting for about 80% of the global economy.

Among our findings is that almost half the activities we pay people about $15 trillion in wages to do in the global economy have the potential to be automated using currently demonstrated technology. The most automatable activities involve data collection, data processing, and physical work in predictable environments like factories, which make up 51% of employment activities and $2.7 trillion of wages in the US and are most prevalent in sectors such as manufacturing, food services, transportation and warehousing, and retail.

But here’s the twist: More jobs will change than will be automated away in the short to medium term. Only a small proportion of all occupations, about 5%, can be automated entirely using these demonstrated technologies over the coming decade, although the proportion is likely to be higher in occupations in middle-skill job categories. But we find that about 30% of the activities in 60% of all occupations could be automated, and that will affect everyone from welders to landscape gardeners, mortgage brokers–and CEOs; we estimate about 25% of their time is currently spent on activities that machines could do, such as analyzing reports and data to inform decisions.

As companies deploy automation, we thus need to think more about mass redeployment rather than unemployment, and also to think about people working alongside machines and the skills that will be needed for the workforce of today and tomorrow—skills that will include a much closer interaction between humans and machines in the workplace. They include capabilities that are inherently human, including managing and developing people, and social and emotional reasoning.

It’s quite instructive to look back at how the economy has continued to prosper—and people have continued to work—since the 1960s, even as the workplace itself has been reshaped by technology. New jobs that could not have been imagined at the time, such as app developers or MRI technicians, have replaced obsolete ones like switchboard operators. That’s a pattern we have seen since the beginning of the Industrial Revolution two centuries ago, when more than 60% of Americans worked on the land; today’s it’s less than 2%. Could things be different this time?

Like President Johnson, we see that automation could make a major contribution to productivity and prosperity. Our research suggests that future automation could raise productivity growth globally by between 0.8% and 1.4% annually—which can make a meaningful contribution to global economic growth and compensate for the demographic headwinds of aging populations, although by itself is not sufficient to meet the aspirations of faster-growing emerging economies such as India or Indonesia.

For companies around the world, automation will also offer the potential to capture substantial value—and not just from labor substitution. The technologies enable higher throughput, enhanced quality, better outcomes, greater safety, and the opportunity to scale up or adopt new business models.

Just because the technical potential to automate a workplace activity exists does not mean that it will happen anytime soon, however. The pace and extent of automation will depend on a range of factors of which technical feasibility is only one—and there are still some important barriers to overcome, including the ability of computers to generate and understand natural language. Other factors include the dynamics of labor supply and demand. If there is no shortage in the labor market of cooks, it may not make business sense to replace them with an expensive machine.

The benefits for business are relatively clear, but for policy makers the issues are more complicated. They should embrace the opportunity for their economies to benefit from the productivity growth potential and put in place policies to encourage investment and market incentives to encourage continued progress and innovation. That includes modernizing regulations to meet the speed of progress. At the same time, they must evolve and innovate policies that help workers and institutions adapt to the impact on employment. This will likely include rethinking education and training, income support and safety nets, as well as transition support for those dislocated. Above all, a focus on the skills needed to thrive in this new era will be paramount, so that automation does indeed remain an ally. Not to be forgotten is the lesson from history that innovation, investment, and growth create demand and jobs that may once have seemed like science fiction.

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HOW ADAPTABLE IS YOUR BUSINESS?

EVOLVING BUSINESS STRATEGIES FOR SUCCESS

Target Management has developed a proprietary Adaptability Index that looks at the actual, expressed “handedness” or dispositions of an organisation for action.

This is not a psychological measure but one that examines real preferences for action across the four core areas of sales and marketing, strategy, production and HR/Admin.

Whatever the business gurus may say you should do in a given situation, your best chance of success is to recognise what you are actually capable of achieving easily and what change is going to be really hard to achieve despite an intent to do so.

Target Management has a database of over 1500 surveys against which your relative adaptability may be measured, although it is your indivdual measure that really matters.

To explore your adaptability, just contact steve@targetmanagementadvisory.co.uk .

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Evolving for success

From Entrepreneur Magazine JANUARY 18, 2016

As aspiring entrepreneurs, evolution is necessary for you to succeed. There will be times when you will get lucky, and there will be natural spikes of growth and development. However, keen introspection and progressive mastery of the knowledge in your field of choice are key factors to gaining positive momentum and evolving into the entrepreneur that you know you are capable of becoming.

The economic environment will always be changing. Many of these forces are external and out of our control. However, we do control the way that we evolve to become nimbler, stronger and more adaptable to various environments. This is how those who succeed always remain ahead of the pack.

 

1. Learn from your mistakes and pay attention to trends.

Take an example from the real-estate business. When all the banks were giving away no money down loans, and mortgages were being given to anyone, this was a precursor to the market peaking and was a good indicator that the bubble, which was reaching its peak, was about to burst.

This was a time in the real-estate business where I should have been liquidating as much property as possible. I learned the hard way why it is so important to stay in close contact with people in your business and always heed advice from those whom have walked before you. Hindsight makes this easier to see now, but these are active trends that we must watch and be aware of as we enter into new areas of growth and development in our lives and in our business.

Many people are married to certain strategies and ideologies that have worked for years or even decades, but as we’ve learned with cataclysmic economic situations, changes can happen overnight.  Keeping your finger on the constant pulse of the external environments that surround your business or industry will keep you at the cutting edge of knowledge when it comes to evolving your plans or ideas.

You may need to have a completely different looking business five years from now to stay thriving but not even know it yet. This can only happen through having the necessary awareness that forces you to evolve.

2. Blame yourself when things go wrong.

Whenever you put blame on an external person, experience or event, you are in essence allowing someone else to make your choices for you. If you allow yourself to be defined by circumstances that you cannot control, you will never take the personal action needed to succeed. This attitude will never force you to look at yourself and make some kind of lasting internal change.

You must allow yourself to be molded through change and adaptation without harboring resentments towards external circumstances. Remember, if you always think that you are correct and are doing what is right, you are never going to make those changes within yourself. Even when problems are not completely your fault, point at yourself, because this always forces you to self-reflect.

This is why successful people are able to evolve in the business world, because they are always looking for improvement in themselves.

3. When you make mistakes, immediately take action to correct them, and take note not to repeat them.

We all make mistakes no matter how successful we are and no matter how much mastery we have over what we are doing. They key here is to embrace mistakes, and seek out viable solutions through personal action.

Do not be afraid to think of things that you could have done differently. You may want to think about replaying the tape of that event in your head and visualizing different endings that may have achieved the results that you were seeking. This is the key to evolution. By accepting what went wrong and being willing to admit your mistakes, eventually, through trial and error, you find what it takes to work around the problem rather than making it happen over and over again.

As entrepreneurs, we have only a limited amount of time to execute in order to receive the results that we are trying to achieve, so time is of the essence. These three simple tactics will force you to evolve and adapt faster to internal and external circumstances. If we are able to jump into these tactics quickly and efficiently, we can steadily evolve and produce much faster results in our business.

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Digital skills remain a struggle for quarter of UK

  • Digital skills remain a struggle for quarter of UK, charity warns recruiters

  •  CIPD 
  • 19 Oct 2015
  • Comments0 comments

Decline of digital know-how among older workers prompts ageing workforce concerns

Almost a quarter (23 per cent) of people, which is equivalent to 12.6 million people, in the UK lack at least one of five digital skills deemed important by digital skills charity Go ON UK.

The basic digital skills measured by the charity in their Basic Digital Skills UK report, 2015 are managing information, communicating, transacting (including buying and selling goods online), problem solving and creating basic digital content.

Older people fared poorly, with basic digital skills starting to decline in the 45 to 54 age range. Less than half (43 per cent) of those in the 65-plus age bracket demonstrated all five of the skills.

“As people are increasingly working beyond 65, it is important they have these basic digital skills if they intend to continue in the workforce,” Rachel Neaman, chief executive of Go ON UK, told People Management.

Neaman said that substandard digital skills are causing recruitment problems. “Almost all jobs are advertised online only and are applied for online. So if you don’t have the skills either to look for a job online, let alone to create a CV or apply for a job online, fill in the application form online, then you are going to disadvantaged from the off. I think that recruitment systems and HR departments need to be much more mindful that these skills are not as common as we think.”

Being employed seems to support digital skills, with 89 per cent of those in work having all five digital skills, compared to 72 per cent of unemployed people and 47 per cent of retirees. Students and those at school have the highest levels of digital skills, with 93 per cent possessing all five skills.

The report also highlights regional differences. Greater London has the highest levels of people with all five digital skills (84 per cent), followed by Scotland and East Anglia (both 81 per cent). Wales, however, has the lowest proportion of people with all the digital skills they need (62 per cent).

The report’s findings have been incorporated into the charity’s new Digital Exclusion Heatmap, which illustrates the level of digital skills across the UK.

Ellen Helsper, associate professor at the London School of Economics and Political Science, who developed the heatmap, said: “The map is a wake-up call. It shows clearly how social and digital exclusion are closely related. The lack of basic digital skills and access in already disadvantaged areas is likely to lead to an increase in inequality of opportunity around the UK”.

The report was produced on behalf of Go ON UK by Ipsos Mori and was created in association with Lloyds Banking Group.

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UK service sector growth ‘slows’

UK service sector growth ‘slows’

  • 3 September 2015
  • From the sectionBusiness
A barber cutting a young man's hairImage copyrightAFP

UK service sector growth slowed to its weakest rate for more than two years in August, a survey has indicated.

The latest Markit/CIPS service sector purchasing managers’ index (PMI) fell to 55.6 last month from 57.4 in July.

Although the figure remained above 50, indicating expansion, it was the weakest reading since May 2013.

Markit estimated the UK economy would grow by 0.5% in the third quarter of 2015, down from growth of 0.7% in the previous three months.

Earlier this week, a survey of the manufacturing sector also found growth slowing, although the construction sector recorded a slight pick-up in activity.

“Even after allowing for usual seasonal influences, August saw an unexpectedly sharp slowing in the pace of economic growth,” said Chris Williamson, chief economist at Markit.

“The services PMI came in well below even the most pessimistic of economists’ forecasts and follows disappointing news of a stagnation in the manufacturing sector earlier in the week.”

The Markit survey said the slowdown in the sector was mainly due to the slowest increase in new business since April 2013.

Shoppers on Oxford StreetImage copyrightAFP/Getty Images

Employment growth picked up from July, but it was still the second weakest reading since March 2014.

The survey found little evidence of price pressures in the sector, and Mr Williamson said this “suggests the inflation outlook is benign and is therefore likely to help tip the argument towards postponing any rate hikes until the wider global economic picture becomes clearer”.

The data comes a week before the latest meeting of the Bank of England’s Monetary Policy Committee, which sets UK interest rates.

UK CPI inflation was 0.1% in July and looks unlikely to rise in the foreseeable future, which has led some economists to push back their expectations for a rate rise to the middle of next year.

Surveys published earlier this week also indicated the weakest growth for more than two years at Chinese and US factories, as well as a softening in China’s services sector.

Funding for Lending

Separately, the Bank of England said net lending to small businesses by banks and building societies taking part in its Funding for Lending scheme reached £490m in the three months to the end of June, compared with £400m a year earlier.

Launched in 2012, the scheme is designed to provide lenders with cheap access to finance to improve lending in the wider economy. They have drawn down £61.4bn of funding from the scheme since it launched.

The biggest net lenders to small businesses during the period were Lloyds Banking Group, which lent £527m, and Aldermore, which lent £127m.

The Bank said the improvement in net lending reflected a relaxation of credit conditions and growing confidence in the economy.

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nnovation Is Vital for Your Organization’s Survival: 10 Must-Learn Lessons From Sir Ken Robinson

Innovation Is Vital for Your Organization’s Survival: 10 Must-Learn Lessons From Sir Ken Robinson

by Ann Handley  |

February 3, 2015

|  1,475 views

What’s it mean to be “innovative”?

“Innovation” is one of those words that we understand in the abstract or in retrospect—but consider hard to apply in daily life, and in real-time.

And how can you discern the difference between real innovative genius (say, the coffee-cup holder in your car console, or Disney’s Fast Pass program) and flat-out silly innovations (I’d put the selfie stick in that category).

Last week, Sir Ken Robinson presented a 90-minute video talk and Q&A at MarketingProfs on the nature of innovation in organizations.

Sir Ken is an internationally recognized authority and speaker on creativity and innovation in education and business. He is the most-viewed speaker on TED.com, with multiple talks totaling more than 40 million views. He is also the author of the bestselling books The Element: How Finding Your Passion Changes Everything and Finding Your Element: How to Discover Your Talents and Passions and Transform Your Life

Sir Ken argued that innovation is critical and imagination is the spark that fuels it.

That sounds both vague and high-minded, doesn’t it? But holy wow… it so wasn’t!

I’m one of those people who gets antsy at webinars. But last week I was zero percent tempted during Sir Ken’s talk to start scrolling through my email or checking Twitter.

Part of that ability to engage was Sir Ken’s delivery: He’s hilarious—in a British dry-humor kind of way. Which makes the big concepts he talks about feel accessible and suddenly relevant to all of our lives.

I came away from his talk feeling inspired to do things differently within my own organization as well as elsewhere in the world. When’s the last time that you had that kind of reaction to a marketing webinar?

To paraphrase Eliza Doolittle—that ‘ardly hevver ‘appens.

I can’t quite capture Sir Ken’s entire talk here… but what follows are 10 highlights. If you’re wanting more, you can watch the entire seminar.

1. ‘Innovation has to become a habit…. Innovation needs to be systematic, deliberate; it is what defines you as an organization.’

Innovation is simply a habit, not an art or a gift. (That reminds me of my philosophy toward writing: It’s a habit, not an art.)

“Make innovation part of the daily conversation,” Sir Ken said.

2. ‘Tools stretch our minds in new directions. They allow us to do things, but also tools extend our minds.’

When the iPhone came out, in 2007, there were a few hundred apps for it. Now, there are a ka-frickin-zillion. (That’s not Sir Ken’s word, it’s mine.)

“You can now download an app that turns your iPhone into a blues harmonica,” Ken said. “Why? I have a blues harmonica that’s smaller than the iPhone…”

The bigger point is that tools and technologies allow us to channel creativity and innovation in new, unexpected ways.

“Innovation feeds on itself. It becomes part of a multiplier effect” in that things are launched that were unanticipated by the original design or intent, Sir Ken said.

Innovation isn’t a straight line, in other words; rather, it’s “a kind of conversation, multi-layered and multi-modal,” he said.

3. ‘Technology is one of the two big drives of change. All the innovations and changes we’re seeing now are baby steps on the road to what we will see.’

In 10-20 years, your children will be looking back at pictures of you with your iPad with a patronizing smile. Because we’re moving in a different direction: Technology will merge with human intelligence.

The notion of enhancing our intelligence by integrating tech with our brains isn’t far-fetched. It’s the future.

4. ‘Companies are living organisms; if they don’t evolve, they simply don’t make it. Innovation isn’t optional.’

Organizations are mortal: Most last only 30-40 years. And they don’t survive if they don’t evolve.

One good example is Kodak. It invented the brownie camera, which Sir Ken called “the iPad of its day.” The Brownie camera made photography accessible to everyone, and as a result Kodak went on to be the dominant force in photography.

Now the company is in receivership. Kodak didn’t fail because people stopped taking photographs: We take more photos now, not less (“an irritating number,” Sir Ken in a mock grouse). Rather, Kodak failed because it didn’t adapt to a digital culture and instead bet its future on film—”when things really went quite differently, of course,” Sir Ken said.

Kodak was created by chemists and it was run by chemists. That, Sir Ken speculated, might’ve contributed to a kind of innovation blind spot at Kodak.

“Kodak created a habit of mind, a culture that stopped them from innovating,” he said.

5. ‘The second driver of innovation is the sheer number of people on the planet.’

There are 7 ½ billion people in the world—more than any other time. By the middle of the century, there will be an estimated 9 billion. Much of the population growth is expected to come from emerging or developing economies.

That may affect the future of your own organization. But, more broadly, it’s also likely to affect our collective futures.

More people means more need for food, fuel, and water. Beyond the question of whether our planet can handle the growth is the question, “In what fashion?” Sir Ken said. If we all consumed resources as most people do in India, the earth could sustain 15 billion people, he pointed out. But if we all consume fuel, food, and water as we do in North America, the earth could sustain only a mere 1.5 billion.

“Which means that by the end of the century, we’re going to need another 4 or 5 planets to accommodate us all,” Sir Ken said.

6. ‘Creativity is the applied wing of imagination.’

Innovation is the drive to find new ideas and new ways of doing things, to launch both new products and better processes. “But you can’t go straight to it,” he said, because the foundation for innovation consists of two things: Imagination and creativity.

Imagination gives you the freedom to consider alternative views. Creativity is about applying imagination to existing systems—to challenge what we take for granted. It’s the process of figuring out if your imagined, original ideas have value.

“Creativity is the applied wing of imagination,” Sir Ken explained. And innovation comes from the application of that creativity in an organizational context.

7. ‘A myth is that you’re either creative or you’re not. I disagree.’

“Creative” does not equal “artistic.” You can be a creative team leader or a creative scientist or a creative marketer—which means only that you look for new ways of doing things.

We all have creative capacity. But most organizations don’t give people permission to be creative.

The lesson is this: If you limit options, you get a limited result. “What people need is permission,” Sir Ken said. “The way you frame a task matters.”

In an organization, he added, “Culture is about where you lay the lines of permission.”

Very often, he said, “the seeds of possibility are waiting for the right conditions to come to life.”

8. ‘Creativity is a process, not an event.’

Pixar bans no or but during company meetings. Great ideas aren’t accidental; rather, they come from a practiced point of view that encourages new ideas and innovation.

Support a “yes and…” brand of improvisation at your own organization, Sir Ken said. In comic improv, the actors accept what those around them suggest and work with it: You accept what you’ve been given and build on it, saying yes and instead of no or but.

Banning no and but might “sound trivial,” Sir Ken said. But “it’s really not.”

If you’re a creative leader, he added, it’s not your job to have all the great ideas. Instead, it’s your job to allow those you lead to contribute their own creativity.

“Take that weight off yourself,” he said.

9. ‘I thought of a weekend with spell-check and a bottle of burgundy. Turns out I rewrote the whole book. If you bought the original, I’m sorry.’

That’s how Sir Ken described his approach to the second edition of Out of Our Minds: Learning to be Creative, originally published in 2001. The second edition came out in 2011. I’m including this quote here only because it made me laugh.

10. ‘Imagination is what sets us apart as a species.’

Sir Ken ended on an even broader note, putting the notion of innovation into an expanded context. He challenged all of us to work on solving some of the very real social, international, and ecological problems of our planet.

“It’s not the cats and dogs and lemurs that are creating problems on earth—it’s us,” he said.

And so it follows that it’s up to us to also solve those problems, to sustain both our own lives and our planet’s: The problems our world faces don’t belong to other people or other businesses or other cultures; rather, they are the responsibility of us all.

“It’s up to us to not just sustain but enrich the physical environment we are part of,” Sir Ken concluded.

Read more: http://www.marketingprofs.com/articles/2015/26976/innovation-is-vital-for-your-organizations-survival-10-must-learn-lessons-from-sir-ken-robinson#ixzz3QmkYQeht

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Forget Myers-Briggs: To Build a Great Team, Focus on ‘Factor C’

Forget Myers-Briggs: To Build a Great Team, Focus on ‘Factor C’

By Cass R. Sunstein and Reid Hastie

In sports, some people are famous for “making other players better.” Magic Johnson, the great basketball player and winner of five National Basketball Association (NBA) championships, was not merely a terrific scorer, passer, and rebounder; he also transformed his teammates—some of them ordinary players—into stars. Early in his career, Michael Jordan was known to be great, maybe even the greatest of the great, but his teams just didn’t win. People wondered whether he could ever win a championship, because he “wasn’t a team player.”

In business, some people are thought to be like the young Michael Jordan—individual superstars who, apart from their own skills, don’t add much to team efforts. But there are others, like Magic Johnson, who are widely thought to make others better. Is it possible to say something about what kind of person does that? Not something impressionistic, intuitive, and anecdotal, but something that is actually based on evidence? Intriguing answers are starting to emerge, and they involve something called Factor C.

Team Players

Social scientists have uncovered a statistical factor that reflects how people do on a large number of cognitive tasks; this factor is sometimes referred to as general intelligence. An obvious conclusion is that groups should seek people who have something like general intelligence. Indeed, that seems to be true. With respect to various measures of cognitive ability, there is a consistent finding across studies of many different small groups: groups with a higher average IQ tend to perform better.

Interestingly, studies of actual work groups find a somewhat looser relationship than do studies of laboratory groups. But the evidence unequivocally shows that groups with smarter members perform at higher levels. This is not exactly a remarkable observation. But it is a good point to keep in mind when you’re putting together a group of people.

There’s an important qualification to this finding, and to identify it, we have to return to basketball. In 2010, the Miami Heat basketball team created a kind of dream team, with three genuine superstars: LeBron James, Dwayne Wade, and Chris Bosh. James and Wade rank among the best basketball players of all time, and Bosh has been an All-Star. When the team was initially assembled, Sunstein had the good fortune to meet the Boston Celtics’ Hall-of-Famer Bill Russell, who is the greatest winner, and the greatest team player, in the history of professional sports. In his thirteen years in the NBA, Russell won the championship eleven times—an astounding championship rate of 85 percent. By the way, Russell was an anxious leader. He was famous for vomiting before big games, and when he was in the bathroom (vomiting), his teammates knew that they could expect to win.

Excited and a bit terrified (what can one say to Bill Russell?), Sunstein asked Russell whether the Miami Heat would win the championship that year. Sunstein was confident that Russell would say yes; who could possibly beat a team with James, Wade, and Bosh? Instead Russell offered a definite “No!” When asked for an explanation, Russell gave a quiet but firm response: “One ball.” And in fact, the Heat lost in the finals that year to the Dallas Mavericks, a far less skilled team—but a team.

Which brings us back to Michael Jordan. By the time he retired, Jordan had become one of the greatest all-time winners, besting Johnson (but not Russell) with six championships to his credit. What happened?

Here’s a clue. Late in Game 5 of the 1991 NBA Finals at the Forum in Los Angeles, the Chicago Bulls were ahead 3 to 1 in the series, and they were clinging to a fragile lead. Though double-teamed, Jordan was still shooting a lot—and missing. During a crucial timeout, Phil Jackson, the Bulls’ coach, looked Jordan right in the eyes and said, “Michael, who’s open?” Michael didn’t answer. Jackson asked again. “Michael, who’s open?” Jordan responded: “Pax.”

“Pax” was John Paxson, an unheralded guard who was a deadly shooter, at least when no one was covering him. Jordan got the ball to Paxson, who nailed a series of open shots. The Bulls claimed the first of their NBA championships. And by the way, the Miami Heat eventually became a team as well, winning two championships after its initial defeat, arguably because of improved teamwork.

Enough basketball. We have referred to Nancy-Ann DeParle and Jeff Zients, the anxious leaders in the Obama administration. They’re very different, but they know there’s just one ball, and they know who’s open. Although they’re worriers, they don’t just admire problems; they see around the bend and hunt for solutions. DeParle and Zients know the importance of assembling teams, not simply on the basis of skill, but also on the basis of teamwork and the capacity to add what the group most needs.

Good players mesh. This observation may be a cliché, but it’s nevertheless important to keep in mind: personalities—not merely abilities—matter. In this regard, most people’s intuition, at least in Western cultures, would lead us to two conclusions. First, some personality types are far better than others (Bill Russell and Magic Johnson, as opposed to the early Michael Jordan). Second, successful groups have a good mixture of personality types.

Those observations are not exactly wrong, but they do not take us very far toward specifying the right mixture of personality types for a particular task. What kinds of personalities would be best able to figure out an investment strategy for next year? To decide how to market a cell phone? To conduct a negotiation to acquire a company? To invent a new pharmaceutical drug or execute an emergency evacuation? To figure out how to get a start-up off the ground? To plan a litigation strategy for a copyright case?

A Popular, Bad Answer

To answer such questions, by far the most popular choice in American companies has been the Myers-Briggs Type Indicator, a test that separates individuals into sixteen basic “types” based on their self-reports of life preferences. A lot of companies take the test seriously.

Before we explain why pigeonholing people into personality types is not a good idea in business, let’s look at the general disadvantages of using personality assessments to predict behavior. Unlike members of more collectivist cultures (think Asia), Westerners seem obsessed with people’s personality traits as a means of understanding and predicting future conduct. If we want to know what employee Smith will do under conditions of time pressure, we tend to ask ourselves, What kind of person is Smith? That isn’t a crazy question, but in practice, even the most valid personality tests have only modest predictive power. Nonetheless, many people quite confidently rely on impressions of personality to explain the actions of their friends and colleagues. Their confidence is often misplaced.

The problem is that we exaggerate how consistent people are across both situations and time. If someone is lazy around the house, we might conclude that he is also likely to be lazy at work or in the gym. If someone was easily distracted in class, he will also be easily distracted at work. But in many cases, this kind of cross-situational behavioral consistency does not exist. Most of us are a lot less consistent in how we behave in different situations than we think we are. This goes in spades for our beliefs about the consistency of other people. Relying on these mostly false beliefs about behavioral consistency and hence predictability, we are overconfident about how accurately we understand and can predict others.

Social psychologists call this tendency to rely excessively on personality descriptors, and to be overconfident in our capacities to predict behavior, the fundamental attribution error. Attribution refers to everyday explanations that claim that other people’s behavior is a product of a trait (e.g., extroversion, laziness) possessed by the actor. If even weakly valid traits, like extroversion and conscientiousness, have low predictive value, an unscientific trait categorization like the Myers-Briggs score is going to be totally useless for purposes of prediction or for designing a team or another collective.

Consider, for example, this question from the Myers-Briggs test: “Would you rather work under a boss (a) who is good-natured, but often inconsistent or (b) who is sharp-tongued, but always logical?” Your answer to this question is aimed to assign you to a “feeling” or a “thinking” category. Or consider this question: “Is it true (a) that facts ‘speak for themselves’ or (b) that facts ‘illustrate principles’?” Your answer indicates whether you belong in the “perception” or “judging” category. Or this: “Are you the kind of person (a) who is external and communicative and likes to express yourself or (b) who is internal and reticent and keeps to yourself?” Your answer types you as extroverted or introverted. The sixteen Myers-Briggs types are defined by four dimensions: extroversion-introversion, sensing-intuition, thinking-feeling, and judging-perception.

Careful studies have shown the Myers-Briggs test does not accurately predict behavior. (Photo: GordSpence/Flickr, used under a Creative Commons license)

By some reports, almost 90 percent of the major US companies use the Myers-Briggs test for employee selection, placement, or counseling. But careful studies show that the test does not predict behavior of any kind with much validity. One problem is that the test has what statisticians call low test-retest reliability. If you retake the test after a one-month gap, there’s a 50 percent chance that you will fall into a different personality category from your original category. With such low reliability, the test is unlikely to have much predictive validity in companies that are deciding whether to assign an employee to a team for a three-month project.

One group of researchers, for example, studied the actual value of the Myers-Briggs test in teamwork applications and concluded that it “does not account for behavioral differences nor does it exactly clarify which characteristics of a particular function an individual may exhibit.” More generally, careful scientific reviews, including statistical meta-analyses, find little value in personality test scores, including scales that are more valid predictors of behavior than the Myers-Briggs. It follows that the Myers-Briggs is not likely to provide guidance for managers trying to staff a team to perform a novel task.

At the same time, and the weakness of the Myers-Briggs notwithstanding, team performance does seem to depend on whether people are sociable in the relevant sense (a point for Bill Russell). More technically, research suggests that measures of preferences for social working conditions have provided fruitful clues for a successful team. Groups composed of people who prefer to work in teams do end up working better. While the relationship between social preference and work success appears to be modest, it is real, and wise groups take it into account.

An Intriguing Finding

We need a lot more work on whether certain types are helpful to groups. But one especially thought-provoking development in recent research has been reported in studies from a group associated with the Center for Collective Intelligence at MIT. These researchers wondered if there could be some general method to assess the problem-solving capacity of a team across many types of intellectual and social problems. They conducted two large-scale tests of two- to five-member groups, solving problems such as brainstorming, answering IQ test questions, solving moral dilemmas, and even playing checkers.

Their central finding is that three individual-member measures combined into a useful measure of collective IQ, which the researchers called Factor C. First, the average of the members’ scores on a test of social perception (the Reading the Mind in the Eyes Test) predicted performance: the higher the average, the higher the group’s performance. This test was originally invented by the psychologist Simon Baron-Cohen (brother of the actor and comic Sacha Baron-Cohen) to diagnose autism in children. The person taking the test is shown a series of photos of just the eyes of another person and asked to judge what emotion the person in the photo is experiencing (e.g., playful, irritated, bored).

The second measure, unevenness of participation, or the tendency of a few members to dominate a discussion, was negatively related to group performance. Intriguingly, the third measure, the number of women on the team, positively predicted performance.

Perhaps the most striking conclusion is that the Factor C measure predicted team performance better than conventional measures of intelligence did. (Compare the 2010 Dallas Mavericks, consisting of team players, to the star-studded 2010 Miami Heat.) Average IQ and highest IQ were not correlated with team performance nearly as highly as Factor C. More technically, IQ measures were correlated in the +.10 to +.20 range; Factor C was correlated at the high level of +.50 (+1.00 is the highest possible correlation).

The other noteworthy result was the simple, direct relationship between the percentage of women members and performance. This correlation was not simply a diversity factor; rather, the more women, the better the performance. Other research supports this basic finding. But we should be pretty careful here, because the finding may be explained by the observation that women are also consistently better than men at a variety of social perception and social judgment tests (like the Reading the Mind in the Eyes Test used in these studies).

With respect to Factor C, Nancy-Ann DeParle and Jeff Zients are superstars. DeParle can size up a room, and a person, in an instant. She can take its emotional temperature, see behind the happy talk, and supply exactly what’s needed. And within Sunstein’s first month at the White House, a (female) friend of his said, with a combination of incredulity and admiration, that Jeff Zients “has the most emotional intelligence of any man I’ve ever met.” At the time, Zients was a newcomer to government, and he had a ton to learn. But he had already mastered something very much like Factor C.

To be sure, we should be careful to avoid extravagant conclusions here. At this stage, it is difficult to identify exactly what underlies the high correlation between Factor C and performance on the problem-solving tasks. What seems to be the most important is the capacity of the individual members to cooperate with one another and to coordinate their performance. Unfortunately, it is always difficult to define the true causal factor in correlations of this type.

Nonetheless, the finding does suggest an important direction for research on whether particular individuals are especially good (other things being equal) at contributing to group performance.

Take that possibility seriously and, by analogy with research on individual performance, see if a general, quantifiable measure of Factor C can be defined. Such a measure would be extremely valuable in allowing us to design groups that are more effective. It would also stimulate further research on the nature of the effective ingredient captured at least partly by Factor C.

Beyond the institutional recommendations made here, wise groups should devote real attention to social abilities, including the capacities both to participate and to listen, in selecting personnel and in devising social norms. A person’s preference to work on teams, especially when the preference is linked to social skills, is a good predictor—as is the ability to read other people’s emotional states.

Face-to-Face versus Online

But when, exactly, will Factor C really matter? Some groups have a lot of members who operate independently. Some of these members have little emotional intelligence, and in the usual respects, you wouldn’t consider them team players. Maybe they’re a bit autistic. But they’re sensational at their individual jobs, and the groups are a lot better because of them. Most groups have members and even leaders like that. (Steve Jobs was not exactly famous for his emotional intelligence.) Why aren’t they a problem?

It is important to make a distinction that cuts across many types of collectives (teams, committees, electronic crowds, and so forth). Some team members act wholly or somewhat independently to complete the task. Other team members have to coordinate, perhaps even at the lowest levels of work, on that task. In terms of evaluating the importance of personality, the difference greatly matters.

Many tasks can be “crowdsourced,” in the sense that individuals can work on their contributions independently until the ultimate stage in the task requires integrating or selecting a contribution. This is true in many forecasting tasks (“take an average”), tournaments (everyone suggests his or her individual best solutions and anyone can see which solution is the best), elections (each voter seeks out some information, perhaps with social deliberation, and then submits a vote or conclusion independently). In other cases, ingenious aggregation devices (prediction markets) integrate individual, independent solutions into a collective answer.

By contrast, many collective endeavors require coordination from the beginning to the end. The most obvious example is the classic face-to-face, physically connected team that must combine interdependent pieces and adjust them repeatedly to make them fit together into a functioning whole. (By the way, there is a lot of interest these days in the idea of telecommuting, which can make work a lot better for a lot of people, especially if they have young children. And if coordination is not required, telecommuting should be just fine. But when face-to-face interaction is needed—and it often is—telecommuting comes with a real cost. For overall productivity, the record of telecommuting is mixed.)

Consider a team constructing a physical product—say, a bridge, a ship, or an entrée. The members must interact frequently and with quick, coordinated responses, or the product risks falling apart. Many less tangible “products” also require more coordination and real-time interaction. For example, the development of a litigating position within a law firm may well require continuing discussions, and if people are trying to create a new tablet or computer, it is probably best if they work with one another.

What is remarkable about the rise of electronic networks is how many tasks that seemed to require face-to-face, real-time collaboration can be performed with much less coordination over networks. The game-changing example is software coding, which seemed to demand face-to-face teamwork until landmark projects like the open-source operating system Linux were developed.

Before 1992, there were many efforts to create distributed software systems to support the collaborative development of computer programs. Many commercial programs were written online, with loosely synchronized team processes. But in 1991, Linus Torvalds took this method to the next level when he invited thousands of programmers to contribute to his operating system and shifted the coordination to a late-stage selection and editing process, instead of an early-stage guidance role. Obviously, Wikipedia is another example of a new method of collaborating, where identification occurs mostly in a wide-open, early stage and where coordination and integration only occur very late in the process in a selection and editing stage.

All this is to say that social skills and an appetite for working on teams may not be essential in every kind of successful collective, especially those that do not require a face-to-face, real-time process. Extreme independence may even be a plus. But if the team process requires coordination in early stages or throughout the process, then Factor C and other aspects of sociability will matter a great deal. There may be only one ball, but whether that’s a problem depends on the nature of the task that the group is asked to complete.

Cass R. Sunstein, the former administrator of the White House Office of Information and Regulatory Affairs, is the Robert Walmsley university professor at Harvard Law School and a Bloomberg View columnist.

Reid Hastie is the Ralph and Dorothy Keller Distinguished Service Professor of Behavioral Science at the University of Chicago’s Booth School of Business.

Reprinted by permission of Harvard Business Review Press. Excerpted fromWiser: Getting Beyond Groupthink to Make Groups Smarter by Cass R. Sunstein and Reid Hastie. Copyright 2015. All rights reserved.

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What is evolutionary economics?

Evolutionary economics

From Wikipedia, the free encyclopedia

 

Evolutionary economics is part of mainstream economics[1] as well as a heterodox school of economic thought that is inspired by evolutionary biology. Much like mainstream economics, it stresses complex interdependencies, competition, growth, structural change, and resource constraints but differs in the approaches which are used to analyze these phenomena.[2]

Evolutionary economics deals with the study of processes that transform economy for firms, institutions, industries, employment, production, trade and growth within, through the actions of diverse agents from experience and interactions, using evolutionary methodology. Evolutionary economics analyses the unleashing of a process of technological and institutional innovation by generating and testing a diversity of ideas which discover and accumulate more survival value for the costs incurred than competing alternatives. The evidence suggests that it could be adaptive efficiency that defines economic efficiency. Mainstream economic reasoning begins with the postulates of scarcity and rational agents (that is, agents modeled as maximizing their individual welfare), with the “rational choice” for any agent being a straightforward exercise in mathematical optimization. There has been renewed interest in treating economic systems as evolutionary systems in the developing field of Complexity economics.[citation needed]

Evolutionary economics does not take the characteristics of either the objects of choice or of the decision-maker as fixed. Rather its focus is on the non-equilibrium processes that transform the economy from within and their implications. The processes in turn emerge from actions of diverse agents with bounded rationality who may learn from experience and interactions and whose differences contribute to the change. The subject draws more recently on evolutionary game theory[3] and on the evolutionary methodology of Charles Darwin and the non-equilibrium economics principle of circular and cumulative causation. It is naturalistic in purging earlier notions of economic change as teleological or necessarily improving the human condition.[4]

A different approach is to apply evolutionary psychology principles to economics which is argued to explain problems such as inconsistencies and biases in rational choice theory. Basic economic concepts such as utility may be better viewed as due to preferences that maximized evolutionary fitness in the ancestral environment but not necessarily in the current one.[5]

 

Contents  [hide]

  • 1 Predecessors
    • 1 Veblen (1898)
  • 2 Present state of discussion
  • 3 Evolutionary psychology
  • 4 See also
  • 5 References
  • 6 Further reading
    • 1 Journals
  • 7 External links

 

Predecessors[edit]

In the mid-19th century was presented[by whom?] a schema of stages of historical development, by introducing the notion that human nature was not constant and was not determinative of the nature of the social system; on the contrary, he made it a principle that human behavior was a function of the social and economic system in which it occurred.

Karl Marx based his theory of economic development on the premise of evolving economic systems; specifically, over the course of history superior economic systems would replace inferior ones. Inferior systems were beset by internal contradictions and inefficiencies that make them impossible to survive over the long term. In Marx’s scheme, feudalism was replaced by capitalism, which would eventually be superseded by socialism.[6]

At approximately the same time, Charles Darwin developed a general framework for comprehending any process whereby small, random variations could accumulate and predominate over time into large-scale changes that resulted in the emergence of wholly novel forms (“speciation“).

This was followed shortly after by the work of the American pragmatic philosophers (Peirce, James, Dewey) and the founding of two new disciplines, psychology and anthropology, both of which were oriented toward cataloging and developing explanatory frameworks for the variety of behavior patterns (both individual and collective) that were becoming increasingly obvious to all systematic observers. The state of the world converged with the state of the evidence to make almost inevitable the development of a more “modern” framework for the analysis of substantive economic issues.

Veblen (1898)[edit]

Thorstein Veblen (1898) coined the term “evolutionary economics” in English. He began his career in the midst of this period of intellectual ferment, and as a young scholar came into direct contact with some of the leading figures of the various movements that were to shape the style and substance of social sciences into the next century and beyond. Veblen saw the need for taking account of cultural variation in his approach; no universal “human nature” could possibly be invoked to explain the variety of norms and behaviors that the new science of anthropology showed to be the rule, rather than the exception. He emphasised the conflict between “industrial” and “pecuniary” or ceremonial values and this Veblenian dichotomy was interpreted in the hands of later writers as the “ceremonial / instrumental dichotomy” (Hodgson 2004);

Veblen saw that every culture is materially based and dependent on tools and skills to support the “life process”, while at the same time, every culture appeared to have a stratified structure of status (“invidious distinctions”) that ran entirely contrary to the imperatives of the “instrumental” (read: “technological”) aspects of group life. The “ceremonial” was related to the past, and conformed to and supported the tribal legends; “instrumental” was oriented toward the technological imperative to judge value by the ability to control future consequences. The “Veblenian dichotomy” was a specialized variant of the “instrumental theory of value” due to John Dewey, with whom Veblen was to make contact briefly at the University of Chicago.

Arguably the most important works by Veblen include, but are not restricted to, his most famous works (The Theory of the Leisure Class; The Theory of Business Enterprise), but his monograph Imperial Germany and the Industrial Revolution and the 1898 essay entitled Why is Economics not an Evolutionary Science have both been influential in shaping the research agenda for following generations of social scientists. TOLC and TOBE together constitute an alternative construction on the neoclassical marginalist theories of consumption and production, respectively.

Both are founded on his dichotomy, which is at its core a valuational principle. The ceremonial patterns of activity are not bound to any past, but to one that generated a specific set of advantages and prejudices that underlie the current institutions. “Instrumental” judgments create benefits according to a new criterion, and therefore are inherently subversive. This line of analysis was more fully and explicitly developed by Clarence E. Ayres of the University of Texas at Austin from the 1920s.

A seminal article by Armen Alchian (1950) argued for adaptive success of firms faced with uncertainty and incomplete information replacing profit maximization as an appropriate modeling assumption.[7] Kenneth Boulding was one of the advocates of the evolutionary methods in social science, as is evident from Kenneth Boulding’s Evolutionary Perspective. Kenneth Arrow, Ronald Coase and Douglass North are some of the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel winners who are known for their sympathy to the field.

More narrowly the works Jack Downie[8] and Edith Penrose[9] offer many insights for those thinking about evolution at the level of the firm in an industry.

Joseph Schumpeter, who lived in the first half of 20th century, was the author of the book The Theory of Economic Development (1911, transl. 1934). It is important to note that for the word development he used in his native language, the German word “Entwicklung”, which can be translated as development or evolution. The translators of the day used the word “development” from the French “développement”, as opposed to “evolution” as this was used by Darwin. (Schumpeter, in his later writings in English as a professor at Harvard, used the word “evolution”.) The current term in common use is economic development.

In Schumpeter’s book he proposed an idea radical for its time: the evolutionary perspective. He based his theory on the assumption of usual macroeconomic equilibrium, which is something like “the normal mode of economic affairs”. This equilibrium is being perpetually destroyed by entrepreneurs who try to introduce innovations. A successful introduction of an innovation (i.e. a disruptive technology) disturbs the normal flow of economic life, because it forces some of the already existing technologies and means of production to lose their positions within the economy.[citation needed]

Present state of discussion[edit]

One of the major contributions to the emerging field of evolutionary economics has been the publication of An Evolutionary Theory of Economic Change by Richard Nelson and Sidney G. Winter. These authors have focused mostly on the issue of changes in technology and routines, suggesting a framework for their analysis. If the change occurs constantly in the economy, then some kind of evolutionary process must be in act, and there has been a proposal that this process is Darwinian in nature.

Then, mechanisms that provide selection, generate variation and establish self-replication, must be identified. The authors introduced the term ‘steady change‘ to highlight the evolutionary aspect of economic processes and contrast it with the concept of ‘steady state‘ popular in classical economics.[10] Their approach can be compared and contrasted with the population ecology or organizational ecology approach in sociology: see Douma & Schreuder (2013, chapter 11).

Milton Friedman proposed that markets act as major selection vehicles. As firms compete, unsuccessful rivals fail to capture an appropriate market share, go bankrupt and have to exit.[11] The variety of competing firms is both in their products and practices, that are matched against markets. Both products and practices are determined by routines that firms use: standardized patterns of actions implemented constantly. By imitating these routines, firms propagate them and thus establish inheritance of successful practices.[12][13] A general theory of this process has been proposed by Kurt Dopfer and Jason Potts as the micro meso macro framework.[citation needed]

Evolutionary psychology[edit]

See also: Behavioral economics and Neuroeconomics

A different approach is to apply evolutionary psychology principles to economics which is argued to explain problems such as inconsistencies and biases in rational choice theory. A basic economic concept such as utility may be better viewed as due to preferences that maximized evolutionary fitness in the ancestral environment but not necessarily in the current one. Loss aversion may be explained as being rational when living at subsistence level where a reduction of resources may have meant death and it thus may have been rational to place a greater value on losses than on gains.[5]

People are sometimes more cooperative and altruistic than predicted by economic theory which may be explained by mechanisms such as reciprocal altruism and group selection for cooperative behavior. An evolutionary approach may also explain differences between groups such as males being less risk-averse than females since males have more variable reproductive success than females. While unsuccessful risk-seeking may limit reproductive success for both sexes, males may potentially increase their reproductive success much more than females from successful risk-seeking. Frequency-dependent selection may explain why people differ in characteristics such as cooperative behavior with cheating becoming an increasingly less successful strategy as the numbers of cheaters increase.[5]

Another argument is that humans have a poor intuitive grasp of the economics of the current environment which is very different from the ancestral environment. The ancestral environment likely had relatively little trade, division of labor, and capital goods. Technological change was very slow, wealth differences were much smaller, and possession of many available resources were likely zero-sum games where large inequalities were caused by various forms of exploitation. Humans therefore may have poor intuitive understanding the benefits of free trade (causing calls for protectionism), the value of capital goods (making the labor theory of value appealing), and may intuitively undervalue the benefits of technological development.[5]

There may be a tendency to see the number of available jobs as a zero-sum game with the total number of jobs being fixed which causes people to not realize that minimum wage laws reduce the number of jobs or to believe that an increased number of jobs in other nations necessarily decreases the number of jobs in their own nation. Large income inequality may easily be viewed as due to exploitation rather than as due to individual differences in productivity. This may easily cause poor economic policies, especially since individual voters have few incentives to make the effort of studying societal economics instead of relying on their intuitions since an individual’s vote count for so little and since politicians may be reluctant to take a stand against intuitive views that are incorrect but widely held.[5]

See also[edit]

Business and economics portal

References[edit]

  1. Jump up 
^ Friedman, D. (1998). Evolutionary economics goes mainstream: A review of the theory of learning in games. Journal of Evolutionary Economics, 8(4), 423-432.
  2. Jump up 
^ Geoffrey M. Hodgson (1993) Economics and Evolution: Bringing Life Back Into Economics, Cambridge and University of Michigan Press. Description and chapter-link preview.
  3. Jump up 
^ Daniel Friedman (1998). “On Economic Applications of Evolutionary Game Theory,” Journal of Evolutionary Economics, 8(1), pp. 15-43.
  4. Jump up 
^ Ulrich Witt (2008). “evolutionary economics.” The New Palgrave Dictionary of Economics, 2nd Edition, v. 3, pp. 67-68
  5. ^ Jump up to: 
a b c d e Paul H. Rubin and C. Monica Capra. The evolutionary psychology of economics. In Roberts, S. C. (2011). Roberts, S. Craig, ed. “Applied Evolutionary Psychology”. Oxford University Press. doi:1093/acprof:oso/9780199586073.001.0001. ISBN9780199586073. edit
  6. Jump up 
^ Gregory and Stuart. (2005) Comparing Economic Systems in the Twenty-First Century, Seventh Edition, South-Western College Publishing, ISBN 0-618-26181-8
  7. Jump up 
^ Armen A. Alchian 1950, “Uncertainty, Evolution and Economic Theory,” Journal of Political Economy, 58(3), pp. 211-21.
  8. Jump up 
^ Jack Downie (1958) The Competitive Process
  9. Jump up 
^ Penrose (1959) The Theory of the Growth of the Firm
  10. Jump up 
^ Steady change
  11. Jump up 
^ Mazzucato, M. (2000), Firm Size, Innovation and Market Structure: The Evolution of Market Concentration and Instability, Edward Elgar, Northampton, MA, ISBN 1-84064-346-3, 138 pages.
  12. Jump up 
^ Friedman, Milton (1953). Essays in Positive Economics, University of Chicago Press. Chapter preview links.
  13. Jump up 
^ Page 251: Jon Elster, Explaining Technical Change : a Case Study in the Philosophy of Science, Second ed.

Further reading[edit]

  • Aldrich, Howard E., Geoffrey M. Hodgson, David L. Hull, Thorbjørn Knudsen, Joel Mokyr and Viktor J. Vanberg (2008) ‘In Defence of Generalized Darwinism’, Journal of Evolutionary Economics, 18(5), October, pp. 577–96.
  • Douma, Sytse & Hein Schreuder (2013). “Economic Approaches to Organizations”. 5th edition. London: Pearson. ISBN 0273735292 ISBN 9780273735298
  • Hodgson, Geoffrey M. (2004) The Evolution of Institutional Economics: Agency, Structure and Darwinism in American Institutionalism (London and New York: Routledge).
  • Richard R. Nelson and Sidney G. Winter. (1982). An Evolutionary Theory of Economic Change. Harvard University Press.
  • Shiozawa, Yoshinori (2004) Evolutionary Economics in the 21st Century: A Manifext, Evolutionary and Institutional Economics Review 1(1), November, pp. 5–47.
  • Sidney G. Winter (1987). “natural selection and evolution,” The New Palgrave Dictionary of Economics, v. 3, pp. 614–17.
  • ¨¨Veblen, Thorstein B.** (1898) ‘Why Is Economics Not an Evolutionary Science?’, Quarterly Journal of Economics, 12(3), July, pp. 373–97.

Journals[edit]

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