Brian Arthur, friend and supporter of value networks, conveys two exciting bits of news. He and Princeton mathematician Yakov Sinai are both inaugural winners of the Lagrange Prize for research on the science of complexity. (First reported last May in Science). They will receive $110,000 each from Italy’s CRT Foundation.

The second piece of news is that he has a new book being released in August 2009: The Nature of Technology: What it is and How it Evolves. It is now available for preorder. It has been over ten years since The Economy as an Evolving Complex System II, with Steven Durlauf and David Lane, published in Addison-Wesley's Series in the Sciences of Complexity.

Brian is an economist credited with influencing and describing the modern theory of increasing returns. His best known book is his 1994 Increasing Returns and Path Dependence in the Economy.  He also is one of the early economic researchers in the emerging complexity field. His comments on complexity are particularly relevant to the value network perspective. From a 1999 conversation with Joe Jaworksi:

Complexity theory is really a movement of the sciences. Standard sciences tend to see the world as mechanistic. That sort of science puts things under a finer and finer microscope. In biology the investigations go from classifying organisms to functions of organisms, then organs themselves, then cells, and then organelles, right down to protein and enzymes, metabolic pathways, and DNA. This is finer and finer reductionist thinking. The movement that started complexity looks in the other direction. It’s asking, how do things assemble themselves? How do patterns emerge from these interacting elements? Complexity is looking at interacting elements and asking how they form patterns and how the patterns unfold. It’s important to point out that the patterns may never be finished. They’re open-ended.

It is good to know that Brian's excellent work continues to be appreciated and supported in the scientific community.

Thoughtful and comprehensive piece on our friend and colleague, the great Ikujiro Nonaka, The Father of KM. Jiro is WSJ ‘top twenty’ list of business thinkers (May 2008). Linked below.

Excerpts.

On methods.

“I was lucky that I didn’t go to Harvard.” [Nonaka earned an MBA and Ph.D. at Berkeley.]

“Over the last few hundred years,” says Nonaka, “the Heraclitean strain has been secondary in Western thought because it is considered nonscientific, given that individual experience cannot be tested. The scientific method and the case study method both emerged from the dominant strain. They seek to discern objective principles rather than describing subjective experience, so they overlook the value of relationship and the evolving nature of human capabilities. In a world of ideal forms, there is no becoming. That’s why the Platonic view can’t explain how knowledge is created.”

On visualization and mapping.

He suggests that companies assiduously map and diagram the distinctive sources of knowledge that enable them to create value in the marketplace. These include experiential knowledge assets such as people’s skills and relationships; process knowledge assets such as routines embedded in daily operations; conceptual knowledge assets such as product designs and brand equity; and systemic knowledge assets such as patents, licenses, intellectual property, and databases. Identifying them enables an organization to more effectively coordinate its resources in the service of bringing something new to the world.

On process management and 'best practices.'

But Nonaka’s perspective also runs counter to conventional corporate practice. Most companies assign knowledge management to their information technology departments, which focus on codifying best practices that can be captured, stored, indexed, and retrieved as efficiently as possible. Nonaka views all this data management as a minor, almost incidental aspect of the capability development that enables business success.

On value and relationships.

“Companies and leaders who treat knowledge management as just another branch of IT don’t understand how human beings learn and create,” he says. Unlike land, capital, energy, labor, and technology — the conventional “inputs” into business practice — knowledge is innately self-renewing. “It is produced and consumed simultaneously. Its value increases with use, rather than being depleted as with industrial goods or commodities. Above all, it is a resource created by humans acting in relationship with one another.”

This new book is available now in a limited, numbered and signed edition.

Doug Engelbart, inventor of the mouse and the father of modern computing, discusses his long-term vision of how technology can help solve the urgent and complex global problems facing humanity.

Engelbart's only book is co-authored by colleagues Valerie Landau and Eileen Clegg. "Evolving Collective Intelligence" is highly accessible by all. Using very readable language, "Evolving" covers both past influences as well as the future. It covers how technology can augment both our individual and collective intelligence.

Donate to the NextNow Collaboratory and receive a complimentary copy of this limited edition. Only 200 copies numbered and signed by Dr. Douglas Engelbart are available.

Value Networks Google Group

ValueNetworks.com participates in a thriving discussion group on Google Groups. There are 800 members. All are welcome to join. The Value Networks Google Group has eight volunteer moderators. It is a discussion group for the value networks method and value network analysis. There are also many related discussions that are very valuable and popular. The link is below.

Intangibles Rising

The latest mega-thread in the value networks group is on rising importance of intangibles. Some of the posts have been repurposed here on the ValueNetworks.com blog. Your comments are welcome here as well as in the Google Group.

Intangibles and Social Good

It is really fun to see that people are finally discovering that intangibles are important. Perhaps it is time to move beyond giving them lip service and dismissing them as simple goodwill.

The challenge of valuing and appreciating intangibles has been tackled by a number of really smart people. One of the questions that arises is regarding the really big intangible of contributions to society or the environment. There has been a great deal of work done in this area by those working in intellectual capital. "Intellectual Capital for Communities" by Leif Edvinsson and Ahmed Bounfour is among the best resources. The link is below.

The ValueNetworks.com work for customers in this area has focused on better understanding the linkages between innovation value networks and the formation of intellectual capital at the organizational, network and regional level. Details of the approach and the kind of findings it can produce are linked below in "EU Innovation Systems."

One Scandinavian country is exploring the value network approach to linking value network patterns to both financial and intellectual capital indicators at the regional level.

Intangibles and Sustainable Investment

There is a lot of good relevant work in sustainable investment around indicators as well. Friend of ValueNetworks.com Hazel Henderson is very well known in this domain and author of books on alternatives views of economics. Hazel is founder of the Calvert-Henderson Fund for socially and environmentally responsible investing. Hazel was also the first to strongly advocate and develop quality of life indicators that could be included as additional measures to constrast with GDP. There is has a television series  Ethical Markets (See  for a rich library of broadcasts)  and has a recent book Ethical Markets: Growing the Green Economy. See her recommended book list linked below.

ValueNetworks.com is working with with Global Action Network Network to better understand policy making in the Global Finance System. (GAN-Net website is gan-net.net but their website is in major overhaul for relaunch in January.) There is an emerging ecosystem of investors and institutions that are defining new roles and relationships in global finance. Ford Foundation has funded this project.

Intangibles Looking to the Future 

ValueNetworks.com is also planning to launch a large global project (2-3 year) to evaluate emerging value networks in the green economy, focusing in particular on energy.

 
Value networks address two basic types of deliverables: Tangible and Intangible. The way the terms are used here is a bit different than the way they might be used in other methodologies. It is easy to confuse “tangible” with “physical” — and “intangible” with non- physical. As noted earlier, however, the distinction between physical and non-physical forms of capital, products, and services is becoming irrelevant. Therefore we define these two types of deliverables in the following way:

Tangible deliverables are all those that directly support production and delivery of Goods, Services, and Revenue or Funding. Another way to think of this is that Tangible Deliverables and exchanges are Transactions that are contractual or mandated. In other words if you don’t deliver these things, you don’t get paid or someone is going to want their money back. Tangibles include all Transactions involving contracts and invoices, return receipt of orders, request for proposals, confirmations, or payment. Tangibles would also include the business transactions required to deliver or execute core goods and services. Knowledge products or services that generate revenue or are expected as part of service (such as reports or package inserts) are part of the Tangible value flow of goods, services, and revenue. A simple way to think of Tangible value is that it is contractual — it is part of the service or good that is paid for and normally expected.

Intangible deliverables are all the little “extras” such as certain kinds of knowledge exchanges, favors, and benefits that build relationships and keep things running smoothly. No one pays for these Intangibles directly and they are almost never contractual, but they are still critical to support the business transactions and processes.

Knowledge exchanges include strategic information, planning knowledge, process knowledge, technical know-how, collaborative design, policy development, etc., which flow around and support the core product and service offerings. They are very specific, and occur or begin at identifiable points in time in the course of a typical scenario.

Benefits are advantages or favors that can be extended from one person to another. Examples might be offering to provide political support to someone. Or a research organization might ask someone to volunteer time and expertise for a project in exchange for an Intangible benefit of prestige by affiliation. These are Intangible “products” or “deliverables” or “benefits” that can be exchanged, as indeed people can and do “trade favors” to build relationships.

Contributing to the fundamental transformation from a tangible to an intangible economy vis-à-vis value networks and VNA can be an emotional roller-coaster. Just when you begin to see that first glimmer of hope that people are beginning to comprehend the intangible world they inhabit, panic drives them back to the last century's economic principles of tangibles and scarcities.

In the last 16 weeks we have all experienced the birthing pains of the inexorable intangible revolution. It is time for everyone to sit up and take notice of the overriding economic importance of intangibles. Business people have an over-trained, deeply-engrained and often clinical preoccupation with tangibles - thanks to our Western mindset and overly traditional economic education.

Confidence is one ordinary word, and one extraordinary intangible. Confidence drives the success and failure of economies, nations, businesses, markets, populations and individuals worldwide.

Confidence is not dug out of a mountain or mine. Confidence does not sail the oceans in great tankers. Confidence is not the product of the gleaming new German automobile plant in western Alabama, USA. Yet, confidence accounts for more wealth creation than all the minerals, oil, gas, energy, and new Mercedes, combined -- by many orders of magnitude!

Don’t believe it? Hmmmn. Walk out to the mail box or check online the value of your 401k, Roth and stock portfolio. Wow! Gee-whiz, didn’t think intangibles could do that! Try and explain to junior why his college fund is gone and why you need to retire in a trailer by the river. Intangibles are real in the most obvious sense.     

Toyota started looking at intangibles years ago. Most notable was fun. Yep, f-u-n. Fast forward. The Prius is fun. Pontiacs aren’t. Go figure. Toyota’s earnings are more than GM’s market cap. Yet, Detroit still uses cartoonish terms from kung-fu and Greek like black-belt and 6-sigma to describe product development and manufacturing. As Charlie Brown would say, “good grief!”

Yes, it is time to sound the alarm! The majority of the economy is intangible. Has been for decades. It is more urgent than ever that we understand these principles, and begin to master them, or we will sink under the burden of trying to meet the future with the old mindset. Failure is NOT an option.

In a one hour Webinar on December 4, 2008, Verna Allee, a pioneer in value networks, will describe four powerful value network patterns to speed innovation and time to market. Innovation is not a linear process but a complex adaptive network that "activates" differently at different stages of innovation. Understanding the specific roles, relationships and interactions for four important phases of an innovation value network is critical for success. In this webinar Verna will:

• Demonstrate how to visualize and optimise value flows to accelerate innovation in every area of the business, not just product development
• Reveal new insights and research into how value networks foster innovation in regions, in industries and in companies
• Share how how companies like Boeing and Cisco are using value network perspectives to quickly apply new ideas and realize sharp business improvements
• Show how you can use four value network patterns to more effectively evolve ideas into innovative product and service offerings 

You may learn more and register below.