Lse-2003-complexity Org Case Study

Applying Complexity Principles and the Exploration vs. Exploitation Cycle Framework to the Analysis of FSTO Organizational Dilemmas

Eduardo Castellano LSE Complexity Research Programme Workshop 18th June, 2003 London School of Economics (UK)

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ApplyingComplexity ComplexityPrinciples Principlesand andthe theExploration Explorationvs. vs. Applying ExploitationCycle CycleFramework Frameworkto tothe theAnalysis Analysisof ofFSTO FSTO Exploitation Organizational Dilemmas Dilemmas Organizational index 1) Background 2) FSTO 3 teams and Generalists vs. Specialists …Complexity view (adaptive tension, connectivity) …EvE view 3) The EvE Dilemma EvE Cycle and Complexity (adaptive tension and networks connectivity) 4) Some notes about Centralisation vs. Local autonomy EC | 18.06.03

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ApplyingComplexity ComplexityPrinciples Principlesand andthe theExploration Explorationvs. vs. Applying ExploitationCycle CycleFramework Frameworkto tothe theAnalysis Analysisof ofFSTO FSTO Exploitation Organizational Dilemmas Dilemmas Organizational index 1) Background 2) FSTO 3 teams and Generalists vs. Specialists …Complexity view (adaptive tension, connectivity) …EvE view 3) The EvE Dilemma EvE Cycle and Complexity (adaptive tension and networks connectivity) 4) Some notes about Centralisation vs. Local autonomy EC | 18.06.03

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BACKGROUND (1/6)

K-Company employs 100.000 people and 2000 Finance professionals around the globe.

K-Finance Services (KFS) work with 5 businesses and a Corporate Centre. KFS is divided on few departments and one of them is FSTO (Finance Services Treasury Operation).

Previously they have it decentralised – a Local Treasury function in each of their companies around the globe (135 countries). Each one working and reporting to their operating units. Doing all almost the same thing on a daily basis.

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BACKGROUND (2/6)

…with the globalisation of the businesses and the IT facilities there were opportunities to centralise most of the treasury activities EC | 18.06.03

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BACKGROUND (3/6) The Reorganisations Process: ƒ First centralisation activities (‘97) – A Treasure Centre (FSTO) was established for all the decentralised treasuries: optimise the flow of cash funds, foreign exchange activities as borrowing, funding, lending activities, and to avoid pockets of local borrowing. FSTO is an internal Bank of K-Company, is a service provider. Its customers are the 5 business of K-Comp, and the Corporate Centre. ƒ At the same time moving from being cash rich to being in need of some external funds due to acquisitions and market circumstances (from having a large pool of cash and investing it, to start with debt and borrowing and raising funds; set up new borrowing programmes) ƒ Need to develop new skills – Specialists (contract them in the capital markets)

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BACKGROUND (4/6)

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BACKGROUND (5/6) …The Reorganisations Process: ƒ Because of increasing activities in the last 3 years they have to change again the front office ƒ Front office splits in 3 teams: Internal customers team; to have focal points for internal customers provide internal customers with whatever Treasury service they like. Making sure that the centralisation process happens fast, and as standardised as possible, manage all the cash pockets that are lying around in the group still into a central point. (s/t-view operational unit) Market team; concentrate on market services and increase market knowledge to manage risk (m/t-view market unit) Development team; it’s like a R&D unit that think about the better type of organisation to have in order to respond to possible pressures that may come. (It thinks about the future, l/t-view unit ) EC | 18.06.03

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BACKGROUND (6/6)

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ApplyingComplexity ComplexityPrinciples Principlesand andthe theExploration Explorationvs. vs. Applying ExploitationCycle CycleFramework Frameworkto tothe theAnalysis Analysisof ofFSTO FSTO Exploitation Organizational Dilemmas Dilemmas Organizational index 1) Background 2) FSTO 3 teams and Generalists vs. Specialists …Complexity view (adaptive tension, connectivity) …EvE view 3) The EvE Dilemma EvE Cycle and Complexity (adaptive tension and networks connectivity) 4) Some notes about Centralisation vs. Local autonomy EC | 18.06.03

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FSTO 3 TEAMS AND GENERALISTS VS. SPECIALISTS (1/12) What means generalist and specialists? Quoting: “In K-Company there are not treasury specialists, only some but not many – need more specialists in order to operate more efficiently.” Specialists are new people came from the City (financial and capital markets experts) – very specific view, not as in K-Company where they try to be more generalist (K-Company career people - big picture: know little about a lot of things).

Advantages and Problems with generalists Turn over… quoting: “changing jobs every 3-4 years put people outside of their comfort zone (far from equilibrium), as part of their development, what that means, you’re working with inspired amateurs a lot of the time (cross fertilization but loss of expertise).” Invention and innovation… quoting: “A lot of bottom up good ideas and knowledge sharing happened because the system keep juggling the people around (source of diversity, cross fertilization). They bring a certain amount of baggage applying ideas that worked elsewhere in a different place (exaptation). But also people tend not to be specialists and sometimes don’t necessarily think through all the implications of what it is that they’re doing.” EC | 18.06.03

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FSTO 3 TEAMS AND GENERALISTS VS. SPECIALISTS (2/12) Generalists – Specialists, and the Social Network Quoting: “The social network in K-Company is very important in career development terms, also the decisions are most of the time taken after general broad consensus with their peers (convincing your colleagues - political dimension) and not in a hierarchical way.” Specialists new entries don’t have a social network in K-Company (because they came later). New entrants don’t feel they need to create this social network maybe because they don’t intent to make a K-Company career. Quoting: “Treasury specialist have limited career progression opportunities in KCompany – they will have to exchange with outside K-Company.”

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FSTO 3 TEAMS AND GENERALISTS VS. SPECIALISTS (3/12) Generalists – Specialists, in FSTO 3 Teams Quoting: “(FSTO must have a ) Balance of specialist-efficiency vs. generalist with knowledge of the K-Company business – effectiveness Generalists understand internal customers needs but not financial instruments vs. specialists (market team) who understand financial instruments but not internal customers needs.” ¾ Internal Team (Generalists): Internal customers knowledge link. They exchange and turnover inside K-Company business. Quoting: “It’s extremely useful that they’ve had that K-Company business experience as well”. [explore and exploit IC knowledge] ¾ Market Team (Specialists): Financial and capital markets knowledge link. They exchange with outside financial and capital markets. [explore and exploit CM knowledge] ¾ Development Team (Generalists): R&D unit that think about the better type of organisation to have in order to respond to possible pressures that may come. [explore future new org. and process forms] EC | 18.06.03

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FSTO 3 TEAMS AND GENERALISTS VS. SPECIALISTS (4/12) Generalists – Specialists, in FSTO 3 Teams MT: Explore CM – knowledge creation MT: Exploit CM – knowledge exploitation

IT: Exploit IC – knowledge exploitation

DT: Explore new org and process forms

IT: Explore IC (turnover) – knowledge creation

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ApplyingComplexity ComplexityPrinciples Principlesand andthe theExploration Explorationvs. vs. Applying ExploitationCycle CycleFramework Frameworkto tothe theAnalysis Analysisof ofFSTO FSTO Exploitation Organizational Dilemmas Dilemmas Organizational index 1) Background 2) FSTO 3 teams and Generalists vs. Specialists …Complexity view (adaptive tension, connectivity) …EvE view 3) The EvE Dilemma EvE Cycle and Complexity (adaptive tension and networks connectivity) 4) Some notes about Centralisation vs. Local autonomy EC | 18.06.03

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FSTO 3 TEAMS AND GENERALISTS VS. SPECIALISTS (5/12) FSTO 3 Teams …Complexity view Complexity and adaptive tension Synthesising McKelvey’s work about adaptive tension (1999, 2001, 2002a, 20002b): Complexity theory explains how energy imported into a system, coupled with adaptive tension dynamics (tension or energy-differentials), creates emergent behaviour in the form of “far from equilibrium” dissipative structures (Nicolis and Prigogine, 1989) and “at the edge of chaos” (Kauffman, 1993). This region—in which emergent self-organisation occurs—exists between the 1st and 2nd critical values of adaptive tension. Below the 1st value there is little change; above the 2nd value the system becomes chaotic and dysfunctional. The level of adaptive tension can be used to explain how the various states of complexity come to exist (Cramer, 1993) and the conditions where enabling emergent structure apply. One Jack Welch’s, CEO of GE, favourite phrases to his division presidents is: “Be #1 or 2 in your industry in market share or you will be fixed, sold, or closed” (Tichy and Sherman, 1994; Kerr, 2000). This is a classic adaptive tension statement.

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FSTO 3 TEAMS AND GENERALISTS VS. SPECIALISTS (6/12) FSTO 3 Teams …Complexity view FSTO and adaptive tension Some of the identified FSTO tensions: Career development tension – social network IT technology – centralisation process New products, new skills required – Splitting front office in the 3 teams …

But: No external pressure… quoting: “K-Treasury is not exposed to sharp competition. In the end there’s no real external pressure in this environment. I guess that’s because we’re part of the same organisation. K-Company is a very rich company, it breeds complacency.” (INHIBITOR) Risk aversion…quoting: “K-Company culture is conservative and the expression of that is that they do not want to take any risk in finances”. (INHIBITOR)

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FSTO 3 TEAMS AND GENERALISTS VS. SPECIALISTS (7/12) FSTO 3 Teams …Complexity view Complexity and connectivity Connections among the agents is a cornerstone of complexity, order creation, and novelty production via self-organization (Kauffman 1993). But, if all the agents are the same, there is no advantage to having them connected. Efficacious emergence is also a function of agent diversity (McKelvey, 1999, 2001, 2002a, 2002b). Presuming that the adaptive tension (energy-differentials) become imposed on the agent system, the pool of weak ties (Granovetter, 1973) among agents and weak-tie “bridges” across structural holes (Burt, 1992), create the conditions of novelty production, and satisfies Ashby’s (1956) “requisite variety” required for efficacious emergence to occur. Uzzi (1999) shows that that best advantage, the more effective networks within or across groups, comes from an optimal mixing of weak (novelty) and strong ties (efficiency). Agents in general may be defined as behaving in a threshold-gate manner - Cohen and Levinthal’s (1990) absorptive capacity acts as a threshold gate. High threshold gates turn weak-tie fields into no longer working connections. Nooteboom (2000) relates the concept of absorptive capacity to the “cognitive distance” in the context of effective communication and knowledge diffusion between weak ties: Outside sources of complementary cognition require a “cognitive distance” which is sufficiently small to allow for understanding but sufficiently large to yield non-redundant, novel knowledge.

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FSTO 3 TEAMS AND GENERALISTS VS. SPECIALISTS (8/12) FSTO 3 Teams …Complexity view FSTO connectivity and knowledge sharing (1/2) Inhibitors Social network… quoting: “Specialists new entries don’t have a social network in KCompany. The social network in K-Company is very important because the decisions are most of the times taken after general broad consensus” Risk of separating teams (market and internal customer teams)… quoting: “people will concentrate on ‘their’ end of things and not take any notice of the rest”

Enablers Co-location…quoting:; “The three units are physically co-located what facilitates communication, a critical mass of people who talk to each other and exchange ideas.” Manager meetings… quoting: “there are management team meetings and one by one meetings with the 3 managers every week. Also the 3 managers talk frequently to each other about the interaction between the 3 teams”.

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FSTO 3 TEAMS AND GENERALISTS VS. SPECIALISTS (9/12) FSTO 3 Teams …Complexity view FSTO connectivity and knowledge sharing (2/2) In general terms, FSTO has a good balance of agent diversity (IT, generalists – MT, specialists). It also has a good balance between weak ties (specialist – generalists) and strong ties (generalists – generalists, social network) The knowledge threshold, absorption capacity and correct degree of cognitive distance, is solved by Co-location of he IT and MT and by the continuous Managers meetings. What facilitates the knowledge sharing and the trade off between knowledge novelty and understanding between both teams.

[Nooteboom, 2000] EC | 18.06.03

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FSTO 3 TEAMS AND GENERALISTS VS. SPECIALISTS (10/12) FSTO 3 Teams …Complexity view Complexity, adaptive tension and connectivity The two underlying generative processes, mixed pool of ties (weak and strong) and adaptive tension (energy-differential) are both required to co-produce efficacious emergence (McKelvey, 1999, 2001, 2002a, 2002b): (1) Without the adaptive tension process in operation, there is no reason to expect emergent structures; and (2) Without a mixed pool of ties in organizations (requisite of variety), there is little prospect for expecting adaptively efficacious emergent structures to appear. How managers might best create the conditions for efficaciously emergent macrostructures in organizations: (1) Making sure that mixed pools of ties are constantly being renewed by bringing in employees with diverse backgrounds, mixing people from different departments (turnover)… (2) Creating the correct level of adaptive tension. For instance, GE simple-rules, or parallels to them… EC | 18.06.03

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FSTO 3 TEAMS AND GENERALISTS VS. SPECIALISTS (11/12) FSTO 3 Teams …Complexity view FSTO adaptive tension and connectivity In FSTO although they have a good connectivity pool (weak and strong ties), there is a LACK OF GENERAL ADAPTIVE TENSION (no external pressure, risk aversion): Consequence: External pressure is needed to translate inventions into exploitative innovations - Invention and innovation… “A lot of bottom up good ideas and knowledge sharing happened because the system keep juggling the people around (source of diversity, cross fertilization, exaptation). But also people don’t necessarily think through all the implications of what it is that they’re doing.” Also, the mixed pool of ties (weak and strong) should match in requisite variety of the various tensions or energy-differentials imposed upon a firm. Maybe the rate of turnover is too high (is more a result of the career development tension than the environment pressure in FSTO): Turn over… “changing jobs every 3-4 years put people outside of their comfort zone (far from equilibrium), as part of their development, what that means, you’re working with inspired amateurs a lot of the time (cross fertilization but loss of expertise).” And the culture of consensus derived from the social network acts too as an inhibitor of selforganisation. EC | 18.06.03

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ApplyingComplexity ComplexityPrinciples Principlesand andthe theExploration Explorationvs. vs. Applying ExploitationCycle CycleFramework Frameworkto tothe theAnalysis Analysisof ofFSTO FSTO Exploitation Organizational Dilemmas Dilemmas Organizational index 1) Background 2) FSTO 3 teams and Generalists vs. Specialists …Complexity view (adaptive tension, connectivity) …EvE view 3) The EvE Dilemma EvE Cycle and Complexity (adaptive tension and networks connectivity) 4) Some notes about Centralisation vs. Local autonomy EC | 18.06.03

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FSTO 3 TEAMS AND GENERALISTS VS. SPECIALISTS (12/12) FSTO 3 Teams …EvE view

Exploitation vs. Exploration FSTO dilemmas in… Balance of specialist (efficiency, market team) vs. generalist with knowledge of MF-IC (effectiveness, internal team and development team) [specialists and generalists] The need to develop and retain core skills vs. the need to move people around (turnover, cross fertilization) [knowledge expertise and career in MF] Time spent efficiently doing current job vs. Time spent managing career [social network] Culture of consensus and risk aversion vs. self-organisation

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ApplyingComplexity ComplexityPrinciples Principlesand andthe theExploration Explorationvs. vs. Applying ExploitationCycle CycleFramework Frameworkto tothe theAnalysis Analysisof ofFSTO FSTO Exploitation Organizational Dilemmas Dilemmas Organizational index 1) Background 2) FSTO 3 teams and Generalists vs. Specialists …Complexity view (adaptive tension, connectivity) …EvE view 3) The EvE Dilemma EvE Cycle and Complexity (adaptive tension and networks connectivity) 4) Some notes about Centralisation vs. Local autonomy EC | 18.06.03

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THE EvE DILEMMA AND EvE CYCLE (1/8) What is the Exploration vs. Exploitation Dilemma Exploitation

• The efficient use of available resources, competencies, capabilities • The short-term improvement, refinement, routinization, and elaboration of existing ideas, paradigms, technologies, strategies, and knowledge (efficiency and standarisation) • Emphasizes improving existing capability • Tightening organizational couplings (centralised integrated structures) • Returns from exploitation: short term • Too much => trapped in sub-optimal stable equilibrium - INERTIA

[Holland, 1975; March, 1991; March & Levinthal, 1993; Nooteboom, 2000] EC | 18.06.03

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THE EvE DILEMMA AND EvE CYCLE (2/8) What is the Exploration vs. Exploitation Dilemma Exploration

• The development of novel resources/competencies/capabilities • Experimentation with new ideas , paradigms, technologies, and knowledge • Thrives on risk taking, novelty, free association • Search, variation, risk-taking, discovery, innovation • Returns from exploration: less certain, more remote in time • Too much => too many underdeveloped new ideas - CHAOS

[Holland, 1975; March, 1991; March & Levinthal, 1993; Nooteboom, 2000]

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THE EvE DILEMMA AND EvE CYCLE (3/8) What is the Exploration vs. Exploitation Dilemma …some examples EXPLOITATION

EXPLORATION

Processes

Current competencies, productivity, efficiency, standardization, optimization, best practices, TQM, economies of scale, specialists…

Develop new capabilities, flexibility, ability to change and innovate, generalists…

Learning and Knowledge

First order learning, single-loop learning (negative feedback – reduce variation) Explicit (codified) knowledge

Second order learning, doubleloop learning (change schema – create diversity) Tacit knowledge

Innovation

Incremental innovation

Radical innovation

Org couplings

Tight couplings (strong ties) within network that facilitate diffusion and exploitation of knowledge

Loose couplings (weak ties) within network that facilitate diversity, turnover…

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THE EvE DILEMMA AND EvE CYCLE (4/8) What is the Exploration vs. Exploitation Dilemma Exploitation vs. Exploration • Exploitation alone leads to an org. becoming better and better at an increasingly obsolescent technology. It is required to survive in the short term • Exploration alone leads to an org. that never realizes the advantages of its discoveries. It is required to survive in the long term

Exploitation requires the maintenance of existing identity, knowledge and practices, with a certain amount of control and coordination, and exploration requires their change, with a loosening of control and coordination. How can one resolve this paradox of stability and change?

[Holland, 1975; March, 1991; March & Levinthal, 1993; Nooteboom, 2000] EC | 18.06.03

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ApplyingComplexity ComplexityPrinciples Principlesand andthe theExploration Explorationvs. vs. Applying ExploitationCycle CycleFramework Frameworkto tothe theAnalysis Analysisof ofFSTO FSTO Exploitation Organizational Dilemmas Dilemmas Organizational index 1) Background 2) FSTO 3 teams and Generalists vs. Specialists …Complexity view (adaptive tension, connectivity) …EvE view 3) The EvE Dilemma EvE Cycle and Complexity (adaptive tension and networks connectivity) 4) Some notes about Centralisation vs. Local autonomy EC | 18.06.03

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THE EvE DILEMMA AND EvE CYCLE (5/8) The EvE Cycle and Environment Adaptive Tension How to go from an existing working modus operandi to a new one that in the future will turn out to be better but which now is unknown? The first requirement for survival is ongoing production during adaptation, the second requirement is co-evolution with novel opportunities and threats – How to do both? How to reconcile continuity and change? (Nooteboom, 2000):

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THE EvE DILEMMA AND EvE CYCLE (6/8) The EvE Cycle and Environment Adaptive Tension Consolidation is a process of narrowing and efficiency exploitation (convergent) by eliminating redundancies. In Generalization, successful practices from the Consolidation stage are placed in novel but adjacent context, where it is likely to succeed, satisfying the requirement of ongoing production (ADJACENT POSSIBILITIES). It is a process of widening and increasing variety. As the practice runs into its limitations, it should be adapted to the local context to solve them. This is the principle and stage of Differentiation. Typically such adaptations are inspired by comparisons with similar “adjacent” practices which, in the given context, are more successful. This exchange of elements from different parallel practices, in a given context, is the principle of reciprocation. The Reciprocation is akin to metaphor: transferring an element from one practice to another; seeing something in the light of something else (EXAPTATION). As the area of application is expanded, and the practice becomes more and more differentiated among contexts, efficiency looses appear. Novel inserted elements from outside often do not fit well in the structure of current practice, and for the full utilization of their potential require a more fundamental restructuring of the practice. This yields a pressure toward novel integration of elements from different practices in a novel practice (EMERGENCE AND CREATION OF NEW ORDER). This is the Stage of Novel Combinations. Much experimentation is needed to find its best form and become standardized as a “dominant design”, where the stage of Consolidation comes again. [Nooteboom, 2000; “Ten principles of complexity” - Mitleton-Kelly, 2003]

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THE EvE DILEMMA AND EvE CYCLE (7/8) The EvE Cycle and Environment Networks Connectivity Associated with the different stages of the discovery process there are different entrepreneurial modes: aimed at consolidation, generalization, differentiation, reciprocation, novel combinations. How does one combine them in one organization? The ambidextrous organization (Tushman, M. L. and O’Reilly, C.A., 1996) The Flexible Firm (Volberda, H. W., 1998) The Modular Firm (Sanchez, R. & Mahoney, J., 1996)

Network Forms of Organization (Powell, Walter W., 1990; Nohria, Nitin, and Robert Eccles.,1992).

“The lifecycle theory of innovation proposes that disintegrated forms of organization (decentralized forms) perform best in the turbulent stage in which novelty arises, while more integrated forms (centralized forms) are best in the stage of consolidation” (Nooteboom, 2000):

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THE EvE DILEMMA AND EvE CYCLE (8/8) The EvE Cycle and Networks Connectivity Novel combinations are promoted by a constellation of separate, small, weakly connected, spatially proximate units in complementary activities (autonomous units in large firms). In such constellations, sufficient cognitive proximity is satisfied (be able to understand each other) and trust is achieved on the basis of shared norms and values, and the "shadow of the future" from expected dealings with each other in the future. These requirements are needed for the transfer of tacit, procedural knowledge, which is characteristic of the early stages of innovation. In the stage of Consolidation, with the search for a dominant design, it is important that there is flexibility to try out various combinations and forms. In the stage of Generalization, after consolidation, integrated structures are better at large volume production. A dominant design has emerged. Tacit, procedural knowledge has been developed into declarative, documented knowledge, which allows for transfer across larger distances. Competition has shifted from novelty to price (from product innovation to process innovation). This favours a larger, more international and more integrated firm. As generalization turns into Differentiation and Reciprocation, comparative advantage shifts again to a greater variety of organizational forms, in more autonomous divisions, to give room for the generation of variety… in preparation of the next round of more fundamental innovation. (Nooteboom, 2000) EC | 18.06.03

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ApplyingComplexity ComplexityPrinciples Principlesand andthe theExploration Explorationvs. vs. Applying ExploitationCycle CycleFramework Frameworkto tothe theAnalysis Analysisof ofFSTO FSTO Exploitation Organizational Dilemmas Dilemmas Organizational index 1) Background 2) FSTO 3 teams and Generalists vs. Specialists …Complexity view (adaptive tension, connectivity) …EvE view 3) The EvE Dilemma EvE Cycle and Complexity (adaptive tension and networks connectivity) 4) Some notes about Centralisation vs. Local autonomy EC | 18.06.03

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SOME NOTES ABOUT CENTRALISATION VS. LOCAL AUTONOMY (1/3) FSTO and the Degree of Centralisation Quoting: “What is the right degree of (de)centralisation? Is there a "right"/ optimum balance between centralisation and local autonomy?” EvE Dilemma: Efficiency of Centralisation (exploitation) vs. Local autonomy responsiveness, (diversity and exploration) ƒ The Integration – Disintegration EvE Cycle shows that there are some stages in the heuristic of learning and development that require integration of activities, with strong ties, and others require disintegration in loose ties between a variety of autonomous units. (it depends on the environment situation) ƒ New Organisational Forms (The ambidextrous organization, The flexible firm, The modular firm, The Networked Organisation) shows that large, integrated firms can create the discontinuities of novel combinations by means of decentralization of autonomous divisions with suffiently weak ties. And to benefit from their advantages of integration, large firms must also maintain a capability for systemic alignment, with strong ties, in the later stages of consolidation and in the stage of generalization. In this way it is conceivable that a large firm combines the best of two worlds (3M, Intel, Benetton – Nooteboom 2000, GE – Kerr 2000; Tichy, N. M. and S. Sherman. 1994).

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SOME NOTES ABOUT CENTRALISATION VS. LOCAL AUTONOMY (2/3) FSTO and the Degree of Centralisation ƒ Type of Processes: The position of the optimal connectivity zone depends on the nature of the processes we want to approach: Linear processes need a great degree of connectivity and alignment because that is the way to learn the ‘one best way’ very fast. The position of the optimal connectivity zone of complex processes is more on the left side of the continuum, lower connectivity (Roose, 2003):

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SOME NOTES ABOUT CENTRALISATION VS. LOCAL AUTONOMY (3/3) FSTO and the Degree of Centralisation Internally FSTO has solved the paradox of exploitation and exploration by the separation of the front office in 3 semi-autonomous teams: market team (specialists, exploitation), internal customer team (generalists – exploration), development team (generalists, exploration). They have solved the problem of alignment and interface governance through continuous managers meetings and the problem of “cognitive distance” through co-location, what facilitates knowledge innovation and sharing.

…BUT AS STATED BEFORE, THERE IS IN GENERAL A LACK OF “CREATIVE TENSION” TO TRANSFORM IDEAS INTO PRACTICAL INNOVATIONS

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REFERENCES (1/2) Ashby, W. R. (1956). An Introduction to Cybernetics. London: Chapman & Hall. Burns, T., G. M. Stalker. 1961. The Management of Innovation. Tavistock Burt, R.S. 1992. Structural Holes: The Social Structure of Competition.Harvard University Press, Cambridge, MA. Cohen, W. M. and D. A. Levinthal (1990). “Absorptive Capacity: A New Perspective on Learning and Innovation,” Administrative Science Quarterly, 35, 128–152. Cramer, F. 1993. Chaos and Order: The Complex Structure of Living Things. D. L. Loewus, trans. VCH, New York. Granovetter, M. (1973). The Strength of Weak Ties. American Journal of Sociology 78, 1360–1380. Holland, J. H. (1975) “Adaptation in Natural and Artificial Systems”. The MIT Press, Cambridge, MA Kerr, S. (2000). The development and diffusion of knowledge at GE. Presentation at the Organization Science Winter Conference, February, Keystone, CO Kauffman, S. A. (1993). The Origins of Order: Self-Organization and Selection in Evolution. New York: Oxford University Press. March, J. (1991). “Exploration and exploitation in organizational learning”. Organization Science, 2: 71-87. March, J.G & Levinthal, D. (1993). “The myopia of learning”. Strategic Management Journal, 14: 95-112 McKelvey, B. (2002) “Emergent Order In Firms: Complexity Science Vs. The Entanglement Trap”. To be published in Complex Systems and Evolutionary Perspectives of Organizations: Applications of Complexity Theory to Organizations, Eve MitletonKelly (ed.), Elsevier, 2003. McKelvey, B. (2002) “Managing Coevolutionary Dynamics”. Presented at the 18th EGOS Conference, Barcelona, Spain, July 4– 6, 2002. Submitted to Nonlinear Dynamics, Psychology, and Life Science, January 2003 McKelvey, B. (2001). “Energising Order-Creating Networks Of Distributed Intelligence: Improving The Corporate Brain”. International Journal of Innovation Management, 5 (2) (June) EC | 18.06.03

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REFERENCES (2/2) McKelvey, B. (1999). “Avoiding Complexity Catastrophe in Coevolutionary Pockets: Strategies for Rugged Landscapes,” Organization Science 10, 294–321. Mitleton-Kelly, E. (2003) “Ten Principles of Complexity & Enabling Infrastructures”. In Complex Systems and Evolutionary Perspectives of Organizations: Applications of Complexity Theory to Organizations, Eve Mitleton-Kelly (ed.), Elsevier, 2003. Nicolis, G., I. Prigogine. 1989. Exploring Complexity: An Introduction. Freeman, New York. Nohria, Nitin, and Robert Eccles. (1992). “Networks and Organizations: Structure, Form, and Action”. Harvard: Harvard Business School Press. Nooteboom, B., (2000), “Learning and Innovation in Organizations and Economies”, London, Pinter Powell, W. W. 1990. "Neither Market Nor Hierarchy: Network Forms of Organization." Research in Organizational Behavior, Vol. 12, pages 295-336. Roose, H. (2003) “Management of a networkorganisation”. Garant Publishers Ltd Sanchez, R. & Mahoney, J. (1996). “Modularity flexibility, and knowledge management in product and organization design”. Strategic Management Journal, 17:63-76. Tichy, N. M. and S. Sherman. (1994). Control Your Destiny or Someone Else Will. New York: HarperCollins. Tushman, M. L. and O’Reilly, C.A. (1996). “The ambidextrous organization”. California Management Review, 38 (4): 8-30. Uzzi, B. (1999). Embeddedness in the Making of Financial Capital: How Social Relations and Networks Benefit Firms Seeking Financing. American Sociological Review 64, 481–505. Volberda, H. W. (1998). “Building the Flexible Firm”. Oxford: Oxford University Press

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