Coevolving Innovations

On more than one occasion, I've heard IBM executives assert:

The nature of innovation has changed. In the 21st century, innovation is open, collaborative, multidisciplinary and global.

The ideas of open, collaborative, multidisciplinary and global appeared in the Global Innovation Outlook 2.0 report that was published in mid-2006. These words appeared on IBM-internal slides presented by Nick Donofrio at an Consulting Leadership Exchange in September 2005, and at the external-facing conference on Education for the 21st Century in October 2006 ... with lots of other occasions in between. But what do these four words mean?

To make some sense for myself, I've extended these words into phrases and contrasted their contexts in a table .

I've been listening to audio recordings of Donofrio in conversation, as well as following Irving Wladawsky-Berger's blog. While I believe that my reasoning is consistent with theirs, this is not something they've endorsed. When I present the right column to audiences, I generally see nods in agreement. At the same time, the implications of a contrasting left column on current business practices provokes some deeper reflections. Let me unpack each of the four points.

I normally focus on industrial and service businesses, but recently headlines on rising food prices have me looking into agricultural businesses. Here some statistics to ponder: the world's top 4 crops -- wheat, corn, rice and barley -- weigh more than the next 26 crops combined.

The world's top 30 food crops (estimated edible dry matter) [following Cordain (1999) Table 1]

Our diet really is quite limited in scope, according to Cordain (1999):

In the interest of furthering a science of service systems, the language-action perspective may be relevant. Business-oriented researchers have an appreciation of the gap between what people say and what they do, but may not be familiar with the development of this framework coming from computer science. Two decades of the language-action perspective were recently marked since the publication of Understanding Computers and Cognition in 1986 by Terry Winograd and Fernando Flores. It's been almost three decades since "Doing and Speaking in the Office" by Fernando Flores and Juan Ludlow first appeared in an IIASA conference proceedings in 1980. This approach was foundational to the Commitment Management Protocol, as described in Adaptive Enterprise: Creating and Leading Sense-and-Respond Organizations by Steve Haeckel in 1999. The language-action perspective can provide some clarity in describing coordination within a service system.

Let's trace the development of ideas, following milestones in three major sections:

• 1. What's the linkage between language and action at work? Doing and speaking in the office
• 2. How do computers fit into collaborative work? Understanding computers and cognition
• 3. How can empowered workers coordinate outcomes and roles? Commitment management protocol

These works were published in 1980, 1986 and 1999. The viewpoints are all complementary, with each oriented towards slightly different issues.

In the pursuit of gaining a stronger understanding of a science of service systems through systems science, I've been working my way through the works of Richard Normann, Rafael Ramirez and Johan Wallin. There's a long evolution of thought there, with a depth that may not be obvious to readers who aren't systems scientists. Thus, phrases such as coproduction, interactive value, offering and value constellation have a specific meaning within the systems science community that the layman may not appreciate. Let me try to bring together some of the ideas, across the references.

• 1. A service system includes a supplier with a customer (and possibly subcontractors) as coproducers of outcomes
• 2. Interactive value is actualized not in coproduction of the supplier with customer, but in coproduction of the customer with his/her customer / counterparts
• 3. Offerings are interactions that provide benefits in the form of (a) physical product, (b) service and infrastructure and (c) interpersonal relationship
• 4. An offering can be either an output of coproduction, or input into coproduction
• 5. A value constellation includes the supplier, customer and subcontractors as coproducers

The systems flavour comes out not only in recognizing parts within the service system, but in emphasizing the interactions between parts. It's worth re-examining these writings in the context of a new science of service systems.

I had previously written that "the (new) service economy is not the same as the service sector". There's an deep problem in trying to define and measure something new, when we have to rely on government statistics that have an anchor point of 1980, 1971, or even 1945. Using old definitions doesn't necessary invalidate the measurements, but is problem if we're dealing with a paradigm shift in a scientific revolution.

In quantifying economic systems, many of the approaches take an output-oriented (i.e. GDP or value-added) approach. Another alternative is to take an input-oriented approach (i.e. labour). Looking into labour has brought me back to Richard Florida's research. In The Rise of the Creative Class (2002) appears a breakdown of U.S. statistics that contrast to the three-sector view.

Appendix Table 1 Counting the Classes, 1999 [p. 330]¹

Share		Employees (OES data)	Percent Share	Employees (Emp. & Earnings data)	Percent Share
Creative Class		38,278,110	30.0%	38,453,000	28.8%
	Super-Creative Core	14.932,420	11.7%	14,133,000	10.6%
	Other Creative Class	23.345,690	18.3%	24,320,000	18.2%
Working Class		33,238,810	26.1%	32.760,000	24.5%
Service Class		55,293,720	43.4%	58,837,000	44.1%
Agriculture		463,360	0.4%	3,426,000	2.6%
	Total	127,274,000		133,488,000

Why does the view of occupations as super-creative core and other creative class matter? From The Flight of the Creative Class in 2004, creative class occupations are shown to drive disproportionate amounts of wealth generation in the U.S. (Their creative sector I'll frame as "new" service economy occupations, to contrast from their service sector as traditional service economy occupations).

As Service Science, Management and Engineering (SSME) has been developing, I've noticed a refinement of language. Rather than just abbreviating the long clause to service science, I'm now careful to use the phrase of a science of service systems, following Spohrer, Maglio et. al (2007). There's a clear definition of service system in the final April 2008 revision of the report by the University of Cambridge Institute for Manufacturing.

What is a service system?
A service system can be defined as a dynamic configuration of resources (people, technology, organisations and shared information) that creates and delivers value between the provider and the customer through service. In many cases, a service system is a complex system in that configurations of resources interact in a non-linear way. Primary interactions take place at the interface between the provider and the customer. However, with the advent of ICT, customer-to-customer and supplier-to-supplier interactions have also become prevalent. These complex interactions create a system whose behaviour is difficult to explain and predict. [p. 6]

I've been sorting through the significance of this service system orientation, and have reached the following personal points-of-view.

• 1. The definition of a service system as a system is earnest
• 2. A service system creating and delivering value emphasizes a value constellation perspective over a value chain perspective
• 3. Research into service systems is muddled in the ideas of coproduction and (value) cocreation
• 4. A service system creates value with an offering as a platform for co-production
• 5. The constraints on service systems are changed with advances in technology
• 6. The (new) service economy is not the same as the service sector

Each of these points-of-view require some elaboration. (If the content that follow isn't detailed enough, there are footnotes, too!)

In November 2007, Research Perspectives in Service Engineering and Management, Volume 1 was published. I've now posted a copy of my chapter on "Service Engineering and Management, Value Coproduction, and Situated Practices" online.

The paper was the result of participation in the Service Engineering and Management Summer School at the Helsinki University of Technology, in August 2006. Prior to attending, I had submitted a completely different presentation -- on "Innovation in Service Business Ecosystems" -- and spoke on that at the seminar. When it came time to write the paper, however, I had to get over a reflection that my viewpoint was completely different from the other attendees. I essentially threw out the content I had presented, and started over again. I'm grateful to the multiple reviews on my paper from the editor, Saara Brax, as we wrestled through content to make it understandable.

I have a copy of the book in hardcopy form. Here's the table of contents.

I happened to be looking at the 2007 OECD Science, Technology and Industry Scorecard, and noticed a chart on "Growth Accounts for OECD Countries". I've never thought of a breakdown this way, so I was intrigued by the legend.

We naturally think of labour inputs, and capital inputs, but I didn't realize that there were statistics that break out ICT capital (in blue) from non-ICT capital (in orange). Information and Communications Technologies (ICT) isn't something that Karl Marx specifically thought about. The OECD reports acknowledges that breaking economic growth down into factors of production is tricky thing.

Economic growth can be increased by increasing the amount and types of labour and capital used in production, and by attaining greater overall efficiency in how these factors of production are used together, i.e. higher multifactor productivity. Growth accounting involves breaking down growth of GDP into the contribution of labour input, capital input and MFP. The growth accounting model is based on the microeconomic theory of production and rests on a number of assumptions ....¹

Assuming that we really can break down factors contributing to growth by labour, ICT capital, and non-ICT capital -- as well as some multi-factor productivity that can't be broken down -- what does it look like? Look at the blue bar in the view of the G7 countries ...

Contributions to GDP growth, G7 countries, 1995-2000 and 2000-05
(percentage points)

With the primaries in the United States making headlines, Americans have been making noises about revisiting NAFTA. Michael Hart and William Dymond provided a Canadian perspective¹, with a global perspective on the larger trends.

If our neighbours elect a Democratic president, Senate and House on Nov. 4, things could get ugly, as a falling U.S. dollar, the credit crunch and serious troubles in the housing market add to recession anxieties.

The target for much of that ugliness will be China and other low-cost suppliers to the U.S. consumer market. Most Americans do not have much understanding of the role of these suppliers in maintaining U.S. economic activity. Both politicians and the public fail to realize the benefit of Chinese manufacturing goods produced to U.S. design and using U.S. technology. A recent University of California study found that, of an Apple iPod sold in the U.S. for $299, $160 goes to American companies that design, transport and retail iPods. Only $4 stays in China with the firms that assemble the devices.

I was curious about that $4, and tracked down the report to the Personal Computer Industry Center (PCIC), part of the Alfred P. Sloan Foundation. The paper by Dedrick, Kramer and Linden² has some interesting tables. Here's a breakdown from the $299 retail price of the iPod.

Table 5. Derivation of Apple's Gross Margin on 30GB Video iPod

Retail Price	$299
Distributor Discount (10%)	($30)
Retailer Discount (15%)	($45)
Sub-Total (estimated wholesale price)		$224
Factory Cost	($148)
Remaining Balance (estimated Apple gross margin)		$76

Source: Authors' calculations; see text

The word coevolving as the domain name for this blog is based mostly on the idea that business organizations and information technologies continually develop in inter-related ways. From a systems perspective, it's worth checking the how the term is used more formally. To check on alignment, I obtained a copy of News That Stayed News 1974-1984: Ten Year of Coevolution Quarterly¹. In the introduction to the first article of the volume, Stewart Brand wrote:

CoEvolution got its title and its bent partly because I was bit early on by a series of biologists -- Ed Rickerrs (via John Steinbeck's Monterey books), Aldous Huxley (in print and in person), Paul Ehrlich, and last and deepest, Gregory Bateson. Assistant Professor Ehrlich supervised my tarantula "research" at Stanford in 1959, when the Stanford Biology Department was still mostly molecular biology and an ecologist was hard to find. (In truth, they're still hard to find, amid the proliferation of "ecologists.") [....]

This latest paper of Ehrlich's* is still one of the best scans of coevolution as idea and as natural history that I've seen, and it sounds like Paul talking, that is, like Walter Winchell. How better to start this book than with its founding metaphor, from Issue 1 (Spring 1974) ²