How freedom and autonomous action in business organization bring new levels of value creation.

The new cultural shift towards freedom and away from bureaucratic control will make all our business institutions better.

The critical attributes of the modern business organization are freedom and free-flowing action. Organizational design is evolving towards unleashing a live flow system where change is implemented without barriers so that customers can experience more and more value, resulting in more and more revenue flowing to the firm, for both profit and reinvestment.

Freedom and free flow, in many ways, represent the opposite goals to those of traditional organizational design and management systems. For 150 years, management science has aimed at control rather than free flow. Initially, the goal was control over workers in the factories of the Industrial Revolution. Then came the era of bureaucratic control through rules and fixed processes, as taught in business schools under the rubric of “business administration”. The rules and processes came to be embedded in software, resulting in an even deeper, more embedded control. Subsequently, control extended to financial outcomes. Stock markets demand accurate forecasts of quarterly revenues and profits, and compliant firms and their management teams deliver them, in the form of managed earnings. And, as the very top level of control, government adds a layer of regulations that management bureaucracies embrace as a reason for tighter and tighter administration.

There are many current changes that influence a movement away from control as the rationale for management.

A New Systems Science: Systems science didn’t exist when business school curricula were first written. Systems science reveals that the behavioral patterns generated in large complex systems - such as the business outcomes for the organizational systems we call firms operating within the larger system we call the economy - are entirely unpredictable. They can’t be managed and they can’t be controlled. The term that is used in the science for such outcomes is emergent. In other words, things just happen and we can’t really explain them. We know that emergence is a result of the uncountable number of interactions of a large number of individual agents (such as company employees, supplier employees, customers and government bureaucrats) and other elements (such as pricing, marketing channels, distribution systems, generative web platforms, and technological advances). The sheer volume of these interactions, each of which leads to an unpredictable future, can’t be tracked, monitored, analyzed or even recorded. The best we can do is describe some historical emergent patterns and wonder if they’ll ever be repeated. (For example, there’s a concept of the science named strange attractors, which suggest that some patterns almost repeat but never exactly. Weather is one example.)

A new law of physics: A Forbes article from 2012 announced: “There’s A New Law in Physics and It Changes Everything”. It referred to the Constructal Law, defined by Adrian Bejan, which tells us that, while emergent patterns are not predictable, there is a law that governs how they emerge. All organizations are flow systems, and they change their configurations over time so that they flow more easily (or, if they can’t, they die). To change configurations requires the removal of barriers to free flow, just as a river, over geological time, carves its way to the ocean by overcoming, circumventing or eroding barriers. In human time, we are required to do the same in our business organizations to avoid their death and promote their free flow.

The new economics: The misguided pursuit of control of complex systems has been evident in economics for most of the twentieth century, and it persists into the twenty-first. In economics, this quixotic folly is often called central planning. It’s the mindset that focusing on just a few variables in a mathematical model can predict and control the outcomes of the trillions or quadrillions or sextillions of economic interactions of people and prices and transactions and exchange in the economy. There’s a much humbler brand of economics that aligns with systems science and the constructal law; economist Brian Arthur calls it Complexity Economics, drawing on a long history of what used to be called, especially by economist Friedrich Hayek, spontaneous order. The essence of the new economics is the recognition that economic decisions are subjective, made by individual humans via a form of economic choice that is qualitative rather than quantitative, pivoting on how they feel, not on price calculus. Subjectivism, whether applying to consumers in markets or employees in organizations, does not lend itself to control. Rather, it contributes to emergence.

The new business models: The concept of business models sounds like the kind of complex strategic thinking to be learned in business schools. The analysis-heavy approach of corporate management is directed towards quantifiable business model optimization. But as serial entrepreneur Mike Lynch observed, when talking about building brilliant businesses, “be very careful of the modern corporate culture, which is all about over-analysis”. Businesses will fail at innovation if they over-analyze, said Lynch. An example at hand is the business model that’s called “network effects” - a business that grows because the fact that many people and transactions are connected to it via the internet causes many more to see the benefits of connecting and networking and transacting, such that all other smaller networks are severely disadvantaged. Another related business model is the generative platform, that enables user generated ideas, content and innovations in many more forms and applications than were ever envisaged when the platform was first built. Users autonomously create business growth without any brilliant strategizing on the platform owner’s part. The new business models are emergent, and not the product of corporate control (even though incumbents are often accused of exactly that).

Accelerated speed of innovation: Innovation is the application of new knowledge in new ways, producing change. While change has always been with us, the generation and processing of new knowledge is accelerating. There is an increase in computing capacity, and a similar increase in computing power, as well as faster and more widely distributed networks for knowledge exchange. Whether we consider artificial intelligence, or machine learning, or bio-medical and neuroscience advances, or simply food science and transportation, it’s easy to recognize accelerated speed of change as our normal environment.

Innovation in business organization: KFSOs.

It is in the context of all these changes that a new way of thinking about business organization is required. That form is the Kinetic Flow State Organization or KFSO. It represents a revolutionary break from traditional organization design.

Kinetic: A modern business organization must be designed for movement, for continuous change resulting from internal innovation initiatives to keep ahead of external market changes. Traditional business organizations have been designed for structural strength, with a hierarchy of authority, divisionalized functionality, tight rules for business processes, a compliance bureaucracy to enforce the rules, and top-down planning for the allocation of resources.

A kinetic organization rejects such structure because it slows down movement and innovation. Kinetic organizations recognize that unbridled individual innovation actions bring the benefits of movement and change to the whole organization. As a business organization develops in this way, it moves more, produces more and generates more value for customers and wealth for shareholders when individuals are endowed with freedom, free inquiry and questioning, freedom to experiment, and freedom to self-correct via feedback from the marketplace. It is evolution with freedom that generates easier flow, as Professor Bejan would put it, and better business performance. Free individuals assemble and reassemble themselves into a better flow architecture. In kinetic organizations, creative individuals recognize the calling and the opportunity to generate new ideas and carry them into the market.

Flow state: Movement is transferred from individual to individual and diffused throughout the organization, in teams, in projects, or in movements of internal improvement. One of the most important elements of Bejan’s constructal law is the removal of obstacles in flow design - and once removed, the obstacles are forgotten. The new design, without obstacles, flows better, and therefore becomes broadly adopted and persists over time. Innovation events spread throughout the whole firm, as individuals open flow channels. All local innovations open the gate for a new liberated channel into which more innovators flow. More value and more wealth are produced, attracting more resources and more investment. Locally then globally is how flow spreads and accelerates. This is the opposite mindset from top-down planning, pyramids of authority, and resource allocation through planning. Flow is action.

Flow is also a better mindset and experience for everyone who works in such an organization. Here, we turn to another sense of flow, the psychic sense. Mihaly Csikszentmihalyi, a researcher in psychology, documented this state of flow as a deep state of focus and immersion in an activity, where individuals experience a high degree of satisfaction. In business, when there is freedom, autonomy, meaning and commitment, individuals can become more fully absorbed in their work, leading to heightened innovation and stronger connection to a shared intent. Traditional organizational models tend to produce the opposite mindset: disengagement and alienation. Gallup has reported that around 77% of employees are not engaged today: apathetic towards both their jobs and their companies. The major cause is bad management. KFSOs can solve this problem.

Organization: The fear that management scientists express, and which they try to instill into the rest of us, is that individual freedom to act will result in business anarchy and chaos. There will be no organization if it is not imposed from above. The opposite is true: better organization emerges when it is free to evolve based on individual actions. In systems science, this phenomenon is known as self-organizing. Free individuals engaged in flow activities show a universal tendency to coalesce, to join each other and to cohere in teams and groups and associations to create easier flow. Organization is the manifestation of freedom, as individuals make configuration choices that enhance their shared productivity. Actionable knowledge flows from those who have it to those who seek it, providing them with the resources to become freer and more productive. A firm is a complex of live flow systems with self-organizing properties. These firms attract the special individuals who seek to make change through new thinking and free exploration and the removal of obstacles to progress. Everyone coalesces around these special individuals. Shared intent binds the freely morphing configuration.

In contrast to conventional management wisdom, the firm can produce more and create more value and more wealth, and last longer, when it is endowed with the greatest possible degree of individual freedom to act in the pursuit of a shared intent. This is the promise of the KFSO.