____________________________________
• the challenge is to make better sense out of the situation than the next gal
• what frameworks do they wheel up to understand the situation
• Who's going to do well there? The people who do well are the ones who go in with a deeper sense of understanding. There's no getting it right. The challenge is a cognitive one.
It is the same challenge when it comes to strategy in high tech. We're all staring at the same game, trying to figure it out. But it's not like poker or roulette, where there's an official correct strategy. The game's ill defined. The people who do well, and here I would mention Bill Gates, are the people with better vision and cognition, who can sort of understand how things will shape up. But again, there's no correct answer.
• So the real players in these markets, the people who are very good, are those who come in and can see that suddenly the game has changed.
To repeat, then, the strategic challenge here is a cognitive one.
• Now I would say, assume there's a situation, how do players cognitively deal with it? In other words, what frameworks do they wheel up to understand the situation, like a Bosnia? Do they wheel up an inferior framework and say this is just like Palestine in the 1940's, this is just like whatever? We tend to shoehorn situations into a previous cognitive framework and we do that prematurely, and when we do we nearly always lose.
• Confusion means having no cognitive framework, and that is better than having a wrong cognitive framework, which is what happens if you prematurely close in on an understanding. There's no correct understanding, but there are very bad ones.
So the challenge in Bosnia is making sense. It's spending a lot of time figuring out what on earth is going on. The challenge is not optimizing U.N. troop placements. That has to come after you make sense.
• The challenge is similar when it comes to strategy and management in technology. My friend John Seely Brown at Xerox PARC put it this way: "In the old economy, the challenge for management is to make product. Now the challenge for management is to make sense."
· An Interview with W. Brian Arthur
by Joel Kurtzman
April 1, 1998
http://www.strategy-business.com/article/16402?gko=8af4f
http://www.strategy-business.com/article/16402?gko=8af4f
April 1, 1998 / Second Quarter 1998 / Issue 11
(originally published by Booz & Company)
•
·
An Interview with W. Brian Arthur
by Joel Kurtzman
April 1, 1998
http://www.strategy-business.com/article/16402?gko=8af4f
http://www.strategy-business.com/article/16402?gko=8af4f
April 1, 1998 / Second Quarter 1998 / Issue 11
(originally published by Booz & Company)
.... ... ....
S&B: Does this mean that high tech should be regulated more? Or that it should be treated differently?
W. BRIAN ARTHUR: To the degree that markets are winner takes most, and very many of them are, then the concern in high tech is not so much prices as it is innovation. Prices keep falling in this area. The main concern is to make sure that innovation stays alive. Does innovation ever die? You bet it does. We're still using fax machines that were wonders in the 60's but with quality still from the 60's.
So the big thing is to keep innovation going. But you can stifle innovation if you start to worry that someone locks in workstations for five years. Let them lock it in. Why not? They deserve it.
So how does all this relate to the conversation at the start? One of the realities is that as we're moving into a more high-tech economy, the economy works under increasing rather than diminishing returns a significant proportion of the time. If you start to deny that, you're going to blow it in terms of government regulation or in terms of management strategy.
But there are two other things to note. The first is that when you start to think about these unstable markets, what you're actually dealing with is process. That is, you're not dealing with equilibrium. Your main concern is what happens. Again, think of presidential primaries. The interesting thing is not who wins; the interesting thing is watching these teeter-tottering dynamics at the very start produce a bandwagon. Once there is a bandwagon, it becomes uninteresting, at least from an analytical point of view.
So this shift to a high-tech economy throws a lot of the spotlight onto dynamics. In that case, economics has to start worrying about how markets form, how instability works and so on. These are certainly new concerns. Now, you could say that economics has always dealt with dynamics. To some degree it has, but not in any essential way. So high tech forces you into positive feedbacks. Positive feedbacks force you into looking at dynamics.
The second thing I want to draw attention to is what I call the cognitive side of the economy. Meaning that in standard economics, we assume that every agent in the economy faces "Problems" to which there are "Solutions." These problems are conveniently formulated mathematically and the solutions are "rational" -- if you have a problem, you logically solve it.
That fits quite well in the bulk commodity manufacturing economy. You can assume that there are big "Problems" scheduling your fleet of oil tankers or balancing your production line. Over many years, by dint of much thinking or operations research or just experience, managers get it right. Or reasonably right. And that's fine.
But, again, in this technically based part of the economy, that's no longer the case. Let me go back to the casino metaphor. The problem is that if you sit down at a table and there's a new game opening up, let's say digital banking, and you want to play, you might have to ante up $2 billion just to get your company in position before the game starts. You don't know who the players are, you don't know what the rules are going to be, because they will be settled as the game starts. It's not that you're sitting down to play poker and everybody understands the rules.
Instead, you're sitting down to play a game and the rules are going to be dictated in part by the technology, by the relevant government regulations and by how people proceed as they go. You don't know what technologies are going to be developed. You don't know what the government regulations are going to be. You don't know who's going to ante up what. Still, you have to decide whether to play or not to play. So this is not amenable to game theory or to any logical analysis. In fact, these issues are ill defined.
Let me switch to another metaphor. You are in the prow of a ship with Bill Gates, Scott McNealy and others. The ship is moving through a fog, the fog of technology. You can see outlines of a city not far away. That's how this game is shaping up. The outline is not very good through the fog. But it's not just trying to make sense of what you see. What you see keeps changing, with the sense that other people are making of it.
That means that formally all of this is ill defined. You're trying to give sense to a Rorschach ink blot that keeps changing with the sense that other people are giving to it.
S&B: What is driving these new markets? In the past, in the commodity era, it was shelter, food and other basic human needs. Has that changed?
W. BRIAN ARTHUR: No. The driver of the markets is the possibility of getting banking from my desk, the possibility of downloading movies at night into my television, the possibility of being in a chat room on the Net. These are still basic human needs that are intermediated by technology. It's still the same old story, a fight for love and glory. It's just that now technology provides for some of these human needs. I can talk with my kids by cellular phone if I leave the house. So the drivers of the new economy are the same human needs as before.
.... ... ....
S&B: Yet management strategy must change?
W. BRIAN ARTHUR: Yes. Because it's not just that things are uncertain in this game, but that there is simply no correct answer. So the challenge to management in this game is not so much to optimize or get things right or to lay their bets just right. Instead, the challenge is to make better sense out of the situation than the next guy.
You and I schedule rival fleets of oil tankers. You can get it right, I can get it right. If I can get it more right than you, I can make more profit than you. No problem. That's old standards.
But suppose you and I are rival factions and we're going into Bosnia. Who's going to do well there? The people who do well are the ones who go in with a deeper sense of understanding. There's no getting it right. The challenge is a cognitive one.
It is the same challenge when it comes to strategy in high tech. We're all staring at the same game, trying to figure it out. But it's not like poker or roulette, where there's an official correct strategy. The game's ill defined. The people who do well, and here I would mention Bill Gates, are the people with better vision and cognition, who can sort of understand how things will shape up. But again, there's no correct answer.
It won't serve you well, when markets shift, to confront problems with a simple cognition and say, "Oh, yeah, this is just like when I had to optimize production," and start speeding up the assembly line, laying off workers and getting costs down. That does not help. You might have to do that, but what helps is seeing how these markets are shaping up. So the real players in these markets, the people who are very good, are those who come in and can see that suddenly the game has changed.
To repeat, then, the strategic challenge here is a cognitive one. This in turn means that if economics wants to understand the new economy, it not only has to understand increasing returns and the dynamics of instability. It also has to look at cognition itself, something we have never done before in economics.
.... ... ....
S&B: Look at cognition from what perspective?
W. BRIAN ARTHUR: Every perspective. Economics has always taken a shortcut and said, assume there is a problem and assume that we can arrive at a solution. Now I would say, assume there's a situation, how do players cognitively deal with it? In other words, what frameworks do they wheel up to understand the situation, like a Bosnia? Do they wheel up an inferior framework and say this is just like Palestine in the 1940's, this is just like whatever? We tend to shoehorn situations into a previous cognitive framework and we do that prematurely, and when we do we nearly always lose.
There's a saying in Northern Ireland, where I'm from, that if you're not confused, you don't know anything. This is true. Confusion means having no cognitive framework, and that is better than having a wrong cognitive framework, which is what happens if you prematurely close in on an understanding. There's no correct understanding, but there are very bad ones.
So the challenge in Bosnia is making sense. It's spending a lot of time figuring out what on earth is going on. The challenge is not optimizing U.N. troop placements. That has to come after you make sense.
The challenge is similar when it comes to strategy and management in technology. My friend John Seely Brown at Xerox PARC put it this way: "In the old economy, the challenge for management is to make product. Now the challenge for management is to make sense."
To take the challenge back to economics, we're being forced into a different world. There will be plenty of commodity production that works the same as it has always worked. But as high tech takes over -- through the Net, cheap computing, low-cost telecommunications and highly complicated products like missiles, biotech and custom-made pharmaceuticals -- the economy will be driven more and more by increasing rather than diminishing returns. It has become a place where we have to look more to the dynamics than the statics, at how things teeter and shift. We also have to look at games that are not well defined and how human beings make sense of them.
If you keep looking through the prism of diminishing returns, equilibrium markets and rational problem-solution economics, you won't be able to understand this new economy at all.
Reprint No. 98209
Authors
Joel Kurtzman,
Joel Kurtzman is editor-in-chief of Strategy+Business.
©2016 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. Mentions of Strategy& refer to the global team of practical strategists that is integrated within the PwC network of firms. For more about Strategy&, see www.strategyand.pwc.com. No reproduction is permitted in whole or part without written permission of PwC. “strategy+business” is a trademark of PwC.
Contact Webmaster Powered by Raven Creative, Inc. Designed by Opto Design
AN INTERVIEW WITH W. BRIAN ARTHUR
____________________________________
James C. Morgan, J. Jeffrey Morgan., Cracking the Japanese market, 1991
p.121
The Japanese have an old proverb that goes, “If you understand everything, you must be misinformed.” That is precisely true of doing business in Japan. It is a moving target: in order to succeed, you must be ever diligent in learning, adapting, and evolving, and never for a moment assume you have mastered the marketplace.
(Cracking the Japanese market: strategies for success in the new global economy / James C. Morgan, J. Jeffrey Morgan., 1. marketing ―― Japan., 2. industrial management ―― Japan., 3. corporate culture ―― Japan., 4. corporations, American ―― Japan., 5. competition ―― Japan., 6. competition ―― United States., 7. Japan ―― economic conditions ―― 1989- , 8. Japan ―― economic policy ―― 1989-, HF5415.12.J3M66 1991, 658.8'0952――dc20, 1991, )
____________________________________
• the challenge is to make better sense out of the situation than the next gal
• what frameworks do they wheel up to understand the situation
• Who's going to do well there? The people who do well are the ones who go in with a deeper sense of understanding. There's no getting it right. The challenge is a cognitive one.
It is the same challenge when it comes to strategy in high tech. We're all staring at the same game, trying to figure it out. But it's not like poker or roulette, where there's an official correct strategy. The game's ill defined. The people who do well, and here I would mention Bill Gates, are the people with better vision and cognition, who can sort of understand how things will shape up. But again, there's no correct answer.
• So the real players in these markets, the people who are very good, are those who come in and can see that suddenly the game has changed.
To repeat, then, the strategic challenge here is a cognitive one.
• Now I would say, assume there's a situation, how do players cognitively deal with it? In other words, what frameworks do they wheel up to understand the situation, like a Bosnia? Do they wheel up an inferior framework and say this is just like Palestine in the 1940's, this is just like whatever? We tend to shoehorn situations into a previous cognitive framework and we do that prematurely, and when we do we nearly always lose.
• Confusion means having no cognitive framework, and that is better than having a wrong cognitive framework, which is what happens if you prematurely close in on an understanding. There's no correct understanding, but there are very bad ones.
So the challenge in Bosnia is making sense. It's spending a lot of time figuring out what on earth is going on. The challenge is not optimizing U.N. troop placements. That has to come after you make sense.
• The challenge is similar when it comes to strategy and management in technology. My friend John Seely Brown at Xerox PARC put it this way: "In the old economy, the challenge for management is to make product. Now the challenge for management is to make sense."
· An Interview with W. Brian Arthur
by Joel Kurtzman
April 1, 1998
http://www.strategy-business.com/article/16402?gko=8af4f
http://www.strategy-business.com/article/16402?gko=8af4f
April 1, 1998 / Second Quarter 1998 / Issue 11
(originally published by Booz & Company)
•
·
An Interview with W. Brian Arthur
by Joel Kurtzman
April 1, 1998
http://www.strategy-business.com/article/16402?gko=8af4f
http://www.strategy-business.com/article/16402?gko=8af4f
April 1, 1998 / Second Quarter 1998 / Issue 11
(originally published by Booz & Company)
.... ... ....
S&B: Does this mean that high tech should be regulated more? Or that it should be treated differently?
W. BRIAN ARTHUR: To the degree that markets are winner takes most, and very many of them are, then the concern in high tech is not so much prices as it is innovation. Prices keep falling in this area. The main concern is to make sure that innovation stays alive. Does innovation ever die? You bet it does. We're still using fax machines that were wonders in the 60's but with quality still from the 60's.
So the big thing is to keep innovation going. But you can stifle innovation if you start to worry that someone locks in workstations for five years. Let them lock it in. Why not? They deserve it.
So how does all this relate to the conversation at the start? One of the realities is that as we're moving into a more high-tech economy, the economy works under increasing rather than diminishing returns a significant proportion of the time. If you start to deny that, you're going to blow it in terms of government regulation or in terms of management strategy.
But there are two other things to note. The first is that when you start to think about these unstable markets, what you're actually dealing with is process. That is, you're not dealing with equilibrium. Your main concern is what happens. Again, think of presidential primaries. The interesting thing is not who wins; the interesting thing is watching these teeter-tottering dynamics at the very start produce a bandwagon. Once there is a bandwagon, it becomes uninteresting, at least from an analytical point of view.
So this shift to a high-tech economy throws a lot of the spotlight onto dynamics. In that case, economics has to start worrying about how markets form, how instability works and so on. These are certainly new concerns. Now, you could say that economics has always dealt with dynamics. To some degree it has, but not in any essential way. So high tech forces you into positive feedbacks. Positive feedbacks force you into looking at dynamics.
The second thing I want to draw attention to is what I call the cognitive side of the economy. Meaning that in standard economics, we assume that every agent in the economy faces "Problems" to which there are "Solutions." These problems are conveniently formulated mathematically and the solutions are "rational" -- if you have a problem, you logically solve it.
That fits quite well in the bulk commodity manufacturing economy. You can assume that there are big "Problems" scheduling your fleet of oil tankers or balancing your production line. Over many years, by dint of much thinking or operations research or just experience, managers get it right. Or reasonably right. And that's fine.
But, again, in this technically based part of the economy, that's no longer the case. Let me go back to the casino metaphor. The problem is that if you sit down at a table and there's a new game opening up, let's say digital banking, and you want to play, you might have to ante up $2 billion just to get your company in position before the game starts. You don't know who the players are, you don't know what the rules are going to be, because they will be settled as the game starts. It's not that you're sitting down to play poker and everybody understands the rules.
Instead, you're sitting down to play a game and the rules are going to be dictated in part by the technology, by the relevant government regulations and by how people proceed as they go. You don't know what technologies are going to be developed. You don't know what the government regulations are going to be. You don't know who's going to ante up what. Still, you have to decide whether to play or not to play. So this is not amenable to game theory or to any logical analysis. In fact, these issues are ill defined.
Let me switch to another metaphor. You are in the prow of a ship with Bill Gates, Scott McNealy and others. The ship is moving through a fog, the fog of technology. You can see outlines of a city not far away. That's how this game is shaping up. The outline is not very good through the fog. But it's not just trying to make sense of what you see. What you see keeps changing, with the sense that other people are making of it.
That means that formally all of this is ill defined. You're trying to give sense to a Rorschach ink blot that keeps changing with the sense that other people are giving to it.
S&B: What is driving these new markets? In the past, in the commodity era, it was shelter, food and other basic human needs. Has that changed?
W. BRIAN ARTHUR: No. The driver of the markets is the possibility of getting banking from my desk, the possibility of downloading movies at night into my television, the possibility of being in a chat room on the Net. These are still basic human needs that are intermediated by technology. It's still the same old story, a fight for love and glory. It's just that now technology provides for some of these human needs. I can talk with my kids by cellular phone if I leave the house. So the drivers of the new economy are the same human needs as before.
.... ... ....
S&B: Yet management strategy must change?
W. BRIAN ARTHUR: Yes. Because it's not just that things are uncertain in this game, but that there is simply no correct answer. So the challenge to management in this game is not so much to optimize or get things right or to lay their bets just right. Instead, the challenge is to make better sense out of the situation than the next guy.
You and I schedule rival fleets of oil tankers. You can get it right, I can get it right. If I can get it more right than you, I can make more profit than you. No problem. That's old standards.
But suppose you and I are rival factions and we're going into Bosnia. Who's going to do well there? The people who do well are the ones who go in with a deeper sense of understanding. There's no getting it right. The challenge is a cognitive one.
It is the same challenge when it comes to strategy in high tech. We're all staring at the same game, trying to figure it out. But it's not like poker or roulette, where there's an official correct strategy. The game's ill defined. The people who do well, and here I would mention Bill Gates, are the people with better vision and cognition, who can sort of understand how things will shape up. But again, there's no correct answer.
It won't serve you well, when markets shift, to confront problems with a simple cognition and say, "Oh, yeah, this is just like when I had to optimize production," and start speeding up the assembly line, laying off workers and getting costs down. That does not help. You might have to do that, but what helps is seeing how these markets are shaping up. So the real players in these markets, the people who are very good, are those who come in and can see that suddenly the game has changed.
To repeat, then, the strategic challenge here is a cognitive one. This in turn means that if economics wants to understand the new economy, it not only has to understand increasing returns and the dynamics of instability. It also has to look at cognition itself, something we have never done before in economics.
.... ... ....
S&B: Look at cognition from what perspective?
W. BRIAN ARTHUR: Every perspective. Economics has always taken a shortcut and said, assume there is a problem and assume that we can arrive at a solution. Now I would say, assume there's a situation, how do players cognitively deal with it? In other words, what frameworks do they wheel up to understand the situation, like a Bosnia? Do they wheel up an inferior framework and say this is just like Palestine in the 1940's, this is just like whatever? We tend to shoehorn situations into a previous cognitive framework and we do that prematurely, and when we do we nearly always lose.
There's a saying in Northern Ireland, where I'm from, that if you're not confused, you don't know anything. This is true. Confusion means having no cognitive framework, and that is better than having a wrong cognitive framework, which is what happens if you prematurely close in on an understanding. There's no correct understanding, but there are very bad ones.
So the challenge in Bosnia is making sense. It's spending a lot of time figuring out what on earth is going on. The challenge is not optimizing U.N. troop placements. That has to come after you make sense.
The challenge is similar when it comes to strategy and management in technology. My friend John Seely Brown at Xerox PARC put it this way: "In the old economy, the challenge for management is to make product. Now the challenge for management is to make sense."
To take the challenge back to economics, we're being forced into a different world. There will be plenty of commodity production that works the same as it has always worked. But as high tech takes over -- through the Net, cheap computing, low-cost telecommunications and highly complicated products like missiles, biotech and custom-made pharmaceuticals -- the economy will be driven more and more by increasing rather than diminishing returns. It has become a place where we have to look more to the dynamics than the statics, at how things teeter and shift. We also have to look at games that are not well defined and how human beings make sense of them.
If you keep looking through the prism of diminishing returns, equilibrium markets and rational problem-solution economics, you won't be able to understand this new economy at all.
Reprint No. 98209
Authors
Joel Kurtzman,
Joel Kurtzman is editor-in-chief of Strategy+Business.
©2016 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. Mentions of Strategy& refer to the global team of practical strategists that is integrated within the PwC network of firms. For more about Strategy&, see www.strategyand.pwc.com. No reproduction is permitted in whole or part without written permission of PwC. “strategy+business” is a trademark of PwC.
Contact Webmaster Powered by Raven Creative, Inc. Designed by Opto Design
AN INTERVIEW WITH W. BRIAN ARTHUR
____________________________________
James C. Morgan, J. Jeffrey Morgan., Cracking the Japanese market, 1991
p.121
The Japanese have an old proverb that goes, “If you understand everything, you must be misinformed.” That is precisely true of doing business in Japan. It is a moving target: in order to succeed, you must be ever diligent in learning, adapting, and evolving, and never for a moment assume you have mastered the marketplace.
(Cracking the Japanese market: strategies for success in the new global economy / James C. Morgan, J. Jeffrey Morgan., 1. marketing ―― Japan., 2. industrial management ―― Japan., 3. corporate culture ―― Japan., 4. corporations, American ―― Japan., 5. competition ―― Japan., 6. competition ―― United States., 7. Japan ―― economic conditions ―― 1989- , 8. Japan ―― economic policy ―― 1989-, HF5415.12.J3M66 1991, 658.8'0952――dc20, 1991, )
____________________________________
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