Digital Transformation

To enable change within complex systems requires learning how to work with the system’s innate propensity for change. If we want to enable real large-scale systems to change we are going to have to tap into and work with deep structural transformations that are taking place in our world today. Probably the deepest and most profound of these transformations is the move into the so-called information age. The advent of information technology some sixty to seventy years ago marked a long process of change taking us into an age of information. This information revolution is a major systemic transformation in the economy, similar to that of the rise of agriculture or industrialization, with similar all-encompassing implications.

Today an extraordinary technological revolution is underway at high speed. Society and economies are being drawn along by constant changes in information technology that are having an ever-larger impact on the socio-economic fabric. While most organizations are still trying to catch up with innovations that happened ten years ago, even more powerful technologies are still yet to be unleashed as tech-driven disruption has become the new norm. Although for most people information technology is the driver of change in our world, as systems innovators it is more constructive to see information technology as simply a tool for implementing a new design paradigm.

Organization

Historically the development of systems theory and computer technology happened in tandem and are in many ways two sides of the same coin. Both systems thinking and computer technology are about organization. Whereas one deals with it on a conceptual level the other deals with it on the level of information. Information on a very fundamental level is about organization, and information technology is really a technology of organization; it enables us to fundamentally create new structures and forms of organization that were previously not possible due to physical constraints.

The information revolution works to change our systems of organization from being based around physical constraints to being based upon information. Traditionally we have organized our world around the constraints of physicality; culture is based upon our geography, political organization is based around the limitations of space and territoriality, work happens in offices and factories, education is done within the walls of schools etc. Shifting these systems from being based around their physical constraints to being based around information offers huge potential for systems-level innovation and structural redesign.

Digital Technology

As a person once famously said, “In the future, every company will be a technology company.” Every organization will go through a process of reconceptualizing itself as being fundamentally not about its physical form but instead start to understand itself in terms of information. For example, the most physical of Industrial Age companies like General Electric now call themselves a digital industrial company, making digital twins for each of there products that go into production. Or take for example baseball, baseball you would think is certainly a very physical activity, how could we ever understand it as being about information.

But listen to Houston Astros general manager Jeff Luhnow when he says1 “Big data combined with artificial intelligence is the next big wave in baseball, we are making a big investment in this area, I think other clubs are also, we know what every person is doing on the field at all times we know what the bat and ball are doing on the field at all times. We now have information we didn’t dream we would have a few years back, developing models from all that information is going to be critical to the success of teams going forward”

Organization

Information is all about organization. The shift from the physical world to the information world marks a shift in our understanding of systems, technology and enterprises from thinking of them in terms of their physical attributes to thinking of them in terms of organization. It used to be all about the building blocks now it is about how you put those building blocks together, how your organize parts into systems. The making of building blocks becomes a commodity and the value shifts to information which is used for the coordination and organization of those components. The largest taxi company owns no cars, the largest media companies produce no media content, the largest temporary accommodation service owns no rooms; what they do do is organize things through information. To make this transition to a sustainable world we have to radically dematerialize our economies and that starts with shifting our mentality to thinking information and ideas first and matter as simply the means with which to implement that. We create generic solutions on the information level – where it can be easily and costlessly designed, prototyped, exchanged and duplicated – then when necessary we create a concrete instantiation of that.

Information Systems

Systems are not things they are the invisible connections and interactions between those things, thus if you want to change systems you are designing organizations and that is done via information networks. If you are doing systems innovation you have to forget about the things, what we are trying to do is reorganize the system and that reorganization takes the form of information. Donella Meadows gives the example2 of how in 1986 new federal legislation in the USA required companies to report all chemical emissions from each of their plants. Through the Freedom of Information Act, this information became a matter of public record. In July 1988 the first data on chemical emissions became available. The reported emissions were not illegal, but they didn’t look very good when they were published in local papers by enterprising reporters, who had a tendency to make lists of “the top ten local polluters.” That’s all that happened. There were no lawsuits, no required reductions, no fines, no penalties. But within two years chemical emissions nationwide were reported to have decreased by 40 percent. Some companies were launching policies to bring their emissions down by 90 percent, just because of the release of previously stored information.

Information and ideas are powerful tools if you are not using them then you will not be able to move whole systems, you will just be pushing parts around. So in systems innovation when it comes to actually building something, that starts with building an information system first. This is important because our traditional reasoning and assumptions will lead us in the opposite direction, that food systems are about farms, tractors, and vegetables; that healthcare is about doctors and hospitals; that transport is about cars, roads, and fuel. If you are doing systems innovation it is not really about any of those things. Healthcare, food, transport, finance etc. it is all first and foremost about organization and information, the form that organization takes and your job as a systems innovator is to change the system’s structured by changing the flow of information, the required physical changes will follow from that.

We all get attached to things and that is fine if you just want to do normal old innovation with incremental change, but if you want to do systems innovation, if you want to change the paradigm, you are only going to be able to do that by letting go of all those things and looking at the organization as a whole; reshaping it through building new information systems, new ways that information is recorded, what is recorded, how it is represented, how it flows, who gets what information etc. these are the things that change how systems behave.

Networks

Whereas organizations based around physicality create boundaries and centralized systems, organizations based on information are about connections and thus take a networked structure. With the rise of information technology, the proliferation of connectivity and networks has been rapid and pervasive as it increasingly affects all areas of the economy. This revolution in information has many profound consequences but possibly the most important is the shift that it enables from closed centralized systems of organization to open networked organizations. As the American management expert Gary Hamel puts it3 “For thousands of years, markets and hierarchies were the only alternatives when it came to aggregating human effort. Now there’s a third option: real-time, distributed networks.”

Industrial age systems of organization selectively favored the concentration of resources, capabilities, and intelligence within closed centralized systems where economies of scale could be leveraged to achieve high productivity, efficiencies in throughput, and profitable returns on investment. This involved the development of large, formal, relatively static and often resource demanding systems of organization with well-defined boundaries that then pushed out products to relatively passive end users. This is the model we inherit today for virtually all forms of production and service provisioning; from governance to education to manufacturing to energy and agriculture.  

But heightened connectivity is breaking down these boundaries to our organizations, connecting people directly peer-to-peer as power shifts fundamentally from the formal, closed, centralized organizations that form the backbone to our industrial economy, to new forms of networked organizations enabled by information technology, as a whole new mode of production is emerging within society. Organizations are shifting from being defined by a set of formal fixed positions and fixed assets to becoming defined by connectivity; networks of connections that are enabled by online platforms.  

Information technology puts powerful tools of collaboration in the hands of many which is enabling a radical reduction in transaction cost with people now able to set up their own networks of collaboration as informal self-organizing systems have come to present an alternative to our traditional top-down model. This is working to enable the emergence of new forms of organization where previously there was none; it is enabling a much higher level of coordination between people and technologies as they become networked into larger systems of organization.

On the level of design and implementation to do system innovation and change today means to take an organization that is currently closed and centralized and convert it into a distributed network. We can call these distributed networks platforms. To innovate in finance is to build a financial platform that connects people directly via an information network and automates the basic management of the network. To do system change in energy is to build a smart grid platform; an information network that connects end users directly peer to peer and automates that exchange. To do system change in healthcare means building a health platform, a food network, a logistics network, an education network etc.  

Systems change today means restructuring the basics of our organizations by building information-based networks that tap into the new potential of this global telecommunications network and analytical computational capacities of digital computers to coordinate human activities in new ways. This technology gives us the capacity to do re-design on a whole systems level, across whole enterprises, industries, and sectors of the economy, to realize systems change.

  1. YouTube. (2018). A view from the front lines of baseball’s data-analytics revolution. [online] Available at: https://www.youtube.com/watch?v=vn7j1-9DBuQ [Accessed 28 Jul. 2018].

  2. The Systems Thinker. (2015). Dancing with Systems – The Systems Thinker. [online] Available at: https://thesystemsthinker.com/dancing-with-systems/ [Accessed 28 Jul. 2018].

  3. Google Books. (2018). The Future of Management. [online] Available at: http://bit.ly/2AiFDJF[Accessed 28 Jul. 2018].

2018-07-28T18:55:47+00:00