Technology is changing the rules of value creation

Øystein D. Fjeldstad, professor at the Department for Strategy and Entrepreneurship at BI, has been thinking about the future for a long time. Lately, the world of business has caught up with him.

"The speed at which technology is making us re-think the way we do things, is staggering," he says.

"Consider that the Internet, the way we know it, didn't arrive until the late 1980s – or rather in the mid-90s for most people. Google and Facebook came along in the first half of the 2000s. The iPhone landed in 2007. 10 years later, the smartphone is the major element in an incredible amount of interactions and transactions – social and commercial. This is only the beginning."

Our thinking about how to organise human endeavors is changing fast, Fjeldstad believes. Traditional managers may become redundant as the hierarchy gives way to collaborative models of working and interacting. Humans and digital agents will work alongside each other, learning from each other as they go along.

When did you start to think seriously about a paradigm shift in organisational design?
"I met with professor Charles Snow at a strategy conference in San Diego. We started to talk about the kinds of activities that facilitate networks: the value network model. He told me that he was involved with a collaborative community, initiated by several large technology companies, like IBM and Intel. It was called Blade.org. Now this was obviously an organisation of some sort. But it was clearly different from what we usually think about when we use the term «organisation». It was organised for sure, but it didn't fit with the ideas we had about what a designed organization looked like.  When Charles B. Stabell and myself wrote a paper on different models for value creation in 1998, one of the models we pinpointed were companies that facilitated their customers' networks. I had been working extensively with the idea of facilitation networks as a model, but not as a means of organising."

But now something was happening.
"My colleagues and I started a discussion based on what we learnedfrom the Blade.org project. We wanted to find potential generalisations: Are there any design principles here that are recognisable? This is where my early academic background came in. My doctorate is in information systems. I was well versed in the object-oriented programming paradigm, which was developed at The University of Oslo by Ole-Johan Dahl and Kristen Nygaard in the latter half of the 1960s. I'd been programming extensively in Smalltalk and C++, and it hit me that what we were seeing was describable according to that architectural paradigm."

Can you elaborate?
"When I started programming, as a systems developer for Arthur Andersen & Co., now Accenture, the system architectures were almost all hierarchical. Then there came a shift. Today, almost all programming is object-oriented. I had a moment of realisation: maybe what we're seeing now, in organisational design, are these principles – applied to the organisation of people. There was another realisation as well: These object-oriented principles have a lot in common with the principles behind the architecture of the Internet. With the Internet, and all the networking services built upon it, we get organisational designs that not only use the Internet, but also borrow its principles. With this in mind we started working on our paper about architectural collaboration, which was published in 2012."

What are the weaknesses of hierarchical organization?
"General Carl von Clausewitz probably said it best: 'the challenges of warfare is the fog of battle and the friction of command'. The disadvantage is that problems must rise up to the top in order to be dealt with. There's a lot of fog on the way up, and a lot of friction on the way down. That's one of the weaknesses. Another is that short cycles of sensing and acting become difficult. The hierarchy is great at tackling extensive complexity. But when it comes to agility, it leaves a lot to be desired." 

Change becomes cumbersome?
"Yes. That's another major reason why the object-oriented paradigm won out in digital systems. If you want to change the design in systems organised by hierarchical relations, you must explicitly reorganise it. In other words: If the world outside keeps changing fast, you won't have time for anything but constant reorganising. The hierarchy lacks built-in adjustment mechanisms." 

Where can we observe the paradigm shift in action today?
"In businesses like Google, where a lot of projects are initiated on the 'ground floor', so to speak, and where employees can choose whether they'd like to spend their time on a project. Also in large global technology companies like Accenture, where there's a premium placed on being able to effectively mobilise resources for new projects. An area where these ideas have been formally put into practice is modern defense, in what we call network-centric operations. That has happened during the last 18 years, a time of great turbulence. Modern military operations require agility. There is a need to sense, interpret, and act upon situations, quickly."

Can we deduce from this that future organizations and workplaces will be more meritocratic?
"Well, yes. Authority and influence will, to a greater extent, be based on actual merit and actual competence. They will to a lesser extent be pre-defined by someone who has been put in a position to lead the structure." 

Sounds kind of like Wikipedia.
"Yes. Wikipedia is a good example of this kind of architecture."

Are you excited about these changes?
"Absolutely. What we as researchers try to do, is not to design what is going to happen, but to understand what is happening. But if what we do has practical consequences – if someone picks up on it, or if a tendency we have described gathers force – that's a great perk, I think. Hierarchy will not disappear entirely. Providing people with the necessary authority to allocate and use resources may still require formal hierarchical relationships. I expect that hierarchy will be used primarily for control rather than coordination."

Tell us a little about yourself.
"I lived the first 10 years of my life at a primary school at Nesbru in Asker, where my father was the custodian. I did well in school, but I don't know if I was especially 'nerdy'. I had my own key to the library, but I also played ice hockey. I was severely bored during the first two years of my education at the Norwegian School of Economics and Business Administration. I considered quitting to try to get an education in engineering instead. Then I took some courses in data processing, which was the nearest to engineering that someone who studied business and economics could get. That was fun. I like creating things. It led to my first job as a programmer and systems developer at Arthur Andersen & Co., in the management information consulting division. That was 1981. I was given a leave of absence to do my Master of Science in management information systems and my PhD in business administration at the University of Arizona. Following that, I returned to Arthur Andersen, which by that time had become Anderson Consulting. I arrived at BI in 1988."

To do what?
"Information technology was a hot topic when I got here. While at the University of Arizona I was part of a team that had developed the world's first commercial, large-scale collaborative software system. We were working with IBM, AT&T and the US Army. This was a system with which we could organise digital brainstorming, stakeholder analysis and a host of other strategic processes with large numbers of participants. When I came to BI in 1988, I brought the software with me as the first installation outside the US. I also taught decision support and a course in object-oriented design and programming. BI eventually decided that this was outside the sphere of topics appropriate for a business school, and I had to find something else to do! So, I accidentally ended up in the field of strategy. I guess it's no big surprise that my prior experience led me to working on value creation, in many ways an engineering approach to strategy."

And then you become involved with Telenor?
"Yes. In 1992, shortly after arriving at BI, I was fortunate to become involved in the reorganisation of Televerket into Telenor. I held the Telenor Professorship of International Strategy and Management from 2001-2017. This relationship was very important to my research. It provided resources for the research and it gave me the chance to observe a rapidly developing network business up close. I also got to work with a lot of very talented people, who transformed a domestic government bureaucracy into one of the world's largest global mobile operators. What they did was a major accomplishment."

You're interested in artificial intelligence?
"My thesis at the University of Arizona had the title 'On the reapportionment on cognitive responsibilities in information systems'. I couldn't just go out and buy the technology, I had to build my own inference engine in order to programme it. I built a frame and rule-based system to handle the interaction between man and machine. It was, in some respects, a digital agent."

Quite a lot has happened since then.
"The ability to process data, to predict and to recognise patterns has increased enormously. Large amounts of data are now available to semi-autonomous digital agents that become actors in these new organisations, alongside humans. What we call 'cobots': collaborative robots. The concept of digital shared situational awareness is key here. It's easier to share awareness of a situation with a robot, than to instruct the robot, starting from scratch. A digital shared awareness is also key to large-scale human selforganisation."

Developments in AI seem to be happening pretty fast.
"Yes, because computers can be used to improve their own performance. 'Bootstrapping' is one of the oldest principles in computer science: You get to one level, and then you use what you have to build new, higher levels. Each time you do this, the pace of change will increase. A benefit of network-based organisational models is that when you mobilise more knowledge, from a broader range of sources, the knowledge development and accumulation accelerates."

Man imitates machine?
"We are now being inspired by the machines that we created, and getting ready to collaborate with them using their principles, so to speak."

Finally: We usually ask professors how they feel about their research/teaching ratio. 
"I love teaching. At the end of the day, teaching is the reason I do what I do. There's nothing that excites me more than the feeling that someone in class gets what I'm talking about, that I'm able to convey knowledge that the students find meaningful and inspire them in some way. I'm excited when they do a good paper. I'm even more excited when they get good jobs and do well in their careers. On the other hand: If I didn't do research – if I didn't immerse myself in the stream of new knowledge right at the heart of the subject – why should the students listen to me?" 

Reference: Advantage #1/2018 – The magazine for members of BI Alumni