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Tag: Social Networks

Treating the consequences, not the symptoms?

Problems and opportunities are moving very fast. Problems are often so complex and so integrated across the globe that no single person can accumulate in a lifetime the experience needed to manage effectively.  The “top-down” management structure no longer has a statistically relevant sample of prior experiences from which to make essential decisions. Actions without wisdom have unintended consequences for yet unknown victims.

The Wisdom of Management

Managers manage through experience.  After many years in an industry, they can observe a situation and compare it to prior situations that they have encountered either through experience or formal education.

An effective manager can identify an issue, determine the probability that it will become a problem, and discuss the consequences of action or inaction.  Then they make similarly calculated decisions that either solves or manages the consequences of the problem.  The depth and breadth of a manager’s experience is called wisdom.

Duplicating Wisdom

In order to duplicate wisdom in a laboratory, scientists generate statistical events.  By duplicating a scenario 20-30 times, a range of outcomes becomes statistically relevant for predicting future outcomes and identifying the way things can influence the outcomes.  The idea behind the peer reviewed journals is to display the experiment to everyone for vetting.  If it survives vetting, it becomes part of the human body of knowledge until otherwise challenged.

Managing consequences

The rate of change has become extremely high and problems too complex to manage. Vetting mechanism are breaking down like levies against the dam in industries such as Banking, Insurance, automotive, medicine, education, environment, etc.  We are in a crisis of consequences where we can no longer manage the symptoms, only the consequences – forget about curing the disease.

Social Media: The Operating System of an Innovation Economy

The business plan of the new millennium will be the art and science of making information “less imperfect”.  In a condition of perfect information, everyone associated with an issue has the same information as everyone else.  Perfect information is what makes markets efficient and decisions rational.  Agreement is perfectly mutual, supply and demand are perfectly aligned, all risks are perfectly predictable and cause and effect are perfectly transparent.

Wisdom of Crowds

No single human can accumulate enough experience in a lifetime to manage the totality of human problems.  Perhaps the wisdom of crowds could be used to simulate one person that does.   This cannot, however, be a random collection of people acting in haphazard process.  The challenge is in finding the correct group of people who collectively replicate a condition of “perfect information”.  Then we must transform the perfect information into knowledge.  Finally, we need to transform that knowledge into innovation through entrepreneurial activity.

The Social Imperative

Social Networks need to form complete and detailed inventories of resident knowledge cataloged on a ‘bell curve’.  Social Networks must codify social capital, creative capital, and intellectual capital so that scientific methods can be used to predict and assemble unique collection of knowledge assets that capture statistically relevant collections of experiences. That unique set of knowledge assets must then be deployed precisely in a market.

By all indications, this is the direction that the integration of social media is trying to go.  It is now our social imperative that it gets there.

The Balance Sheet for Knowledge Assets

Innovation economics has a way of forcing us to look at the mirror image of conventional wisdom.  This article will look at knowledge assets as they might appear on an accounting balance sheet.  You may be surprised at what happens at the bottom line.

Wall Street will often reward a company that has a large backlog of orders. This can appear in the eyes of most observers as an asset. After all, who would not want a backlog of orders?  However, in the world of social media, a huge backlog causes a serious problem – it represents commitments made that have not yet been delivered. An unfulfilled promise in a social network is a liability and not an asset.  By extension, a backlog in an innovation economy is a liability and not an asset (note: climate change).

Applying conventional wisdom to an innovation economy, we find that most companies have an excellent inventory of the “liability” but a poor inventory of the “asset” that will execute those promises. All of their plans, specifications, blueprints, job descriptions, policies and procedures, etc., are liabilities in an innovation economy because these define the promise that is unfulfilled, not the asset that will fulfill them.

Until recently, companies assumed that the right knowledge assets will always be available – an assumption that for a long time has limited the level of productivity that humans can achieve, specifically, the sustainability of natural resources. The absence of a knowledge inventory limits the complexity of problems that humans can solve much like industry was limited to custom machinery before Eli Whitney demonstrated the concept of interchangeable parts less than 200 years ago.

Further, if the product line is expected to have a life cycle of more than a few years, the knowledge inventory must extend beyond the doors of the company and into the surrounding community.  Therefore, the knowledge inventory must take on the taxonomy of the community, not the taxonomy of the corporation such as skill codes, levels, titles, etc. The requirement is now clearly in the domain of social networks.  Yet, I still hear grumblings in the blog sphere that social networks cannot be monetized – nothing should be further from the truth.

So, let’s talk about the bottom line.  For example, Boeing announced today that their greatest future challenge would be the availability of engineers. Boeing has a market capitalization of $34B and a $300B backlog.  Money has a 10:1 multiplier as it travels through and economy.  For a balanced accounting statement, what would be the real value of a social network that can capture the correct knowledge inventory to support Boeing; 34B, 300B, or 3T?

In general, valid estimates of the bottom line can vary by 2 orders of magnitude depending on the point of view of Wall Street, corporate management, or the social network community.  Who would be the better steward?

INGENESIST PROJECT: Submission to the 10^100

INGENESIST PROJECT: Submission to the 10^100 Innovation Contest; www.project10tothe100.com

Single sentence:
The Ingenesist Project is an open source economic development program to induce the Innovation Economy utilizing Social Networks.

Tell us more (300 words)
The current financial system has reached the limits of its effectiveness. Interest on debt has exceeded the system’s ability to pay it off. But debt is simply a promissory note on future productivity – any caveman can tell us that the only way to increase productivity today is to innovate yesterday, not tomorrow.

In modern times, this means that the only way to sustainably create more money tomorrow is to innovate today. This is the flaw on Wall Street that Innovation Economics will correct.

Ingenesist has specified three simple web applications when applied to Social Networks, will allow Knowledge to become tangible outside of the organizational construct of a corporation, government, or academia. To develop these applications would unleash substantial innovation and wealth in society.

*The Knowledge Inventory
*The Percentile Search engine
*The Innovation Bank

Knowledge is an excellent tangible asset upon which to peg a currency – better than Gold, Silver, or Debt.

The factors of production for an Innovation Economy are Social Capital, Creative Capital, and Intellectual Capital. The knowledge Inventory classifies knowledge assets in social networks. The Percentile Search Engine assembles unique knowledge asset combinations and returns their probability of executing a given business objective. The Innovation Bank matches most worthy knowledge surplus to most worthy knowledge deficit. Finally, entrepreneurs elevate knowledge assets from lower states to higher states of productivity thereby creating wealth in communities.

By analogy; in the early 1800’s Eli Whitney performed a demonstration for members of Congress by disassembling 10 working muskets, scrambling the pieces and reassembled 10 working muskets. It may seem trivial to us today, but that simple feat astonished the world; it led to the industrial revolution, and unlocked a vast amount of innovation and wealth creation. Innovation Economics is the modern day equivalent.
What Problem does it solve (150 words)?

Technological change must always precede economy growth. We are going about the process of globalization as if economic growth can precede technological change. This simple reversal is the cause for much of what is unsustainable in the world today. Innovation Economics corrects this flaw.

To make knowledge assets tangible is the Holy Grail of financial accounting. The Ingenesist Project asserts that knowledge assets are not intangible, they are simply invisible – this is a much easier problem to solve. Innovation economics solves this problem.

True valuation of knowledge assets allows for direct capitalization of people and their social, creative, and intellectual capital. Networks of knowledge assets form a new type of corporation that is fault tolerant, self regulating, risk diversified, and responsive to social priorities. Wall Street becomes the steward instead of the master. The whole game changes.

If it becomes a reality, what happens (150 words)?
If Innovation Economics becomes a reality, Social Networks will become the driving force of economic growth because human knowledge (as social capital, creative capital, and intellectual capital) can be capitalized directly. Creative knowledge workers would benefit most initially.

Eventually, publically traded Innovation Bonds backed by productivity gains will replace venture capital at vastly reduced risk and cost thereby unleashing an extraordinary amount of primary and tangential innovation creating a virtuous circle.

Areas of low productivity, such as poor communities and under-privileged populations will become targets for highest returns on innovation applications. Millions of new-to-the-world businesses will emerge and nearly all existing businesses will become more efficient where human knowledge is tangible and free to assemble itself in infinite, diverse, and strategic combinations.

If done correctly, eventually most people on Earth would benefit by freedom from the shackles of debt economics.

What are the initial steps to make it happen (150 words)?

Phase 1: The initial steps are: publish our research to a wider audience, prosecute our patent application (USPTO: 20070226361), release it to public property, and begin receiving public input.

Phase 2: Publish several animated videos which describe step-by-step the role that Social Networks must play to induce the Innovation Economy. Collect more input.

Phase 3: Create an open source development platform where ideas can be collected from the global community on how to develop the three web applications specified herein.

Phase 4: Develop and release common architecture web applications for The Knowledge Inventory, The Percentile Search Engine, and The Innovation Bank.

Phase 5: Exist indefinitely as an NGO to keep the game fair and build out emerging opportunities as needed.

What is the optimal Outcome and how is it measured (150 words)?
The intended outcome is for the innovation economy to arise from the knowledge economy as the next level of economic development. The optimal result would be an improved wider distribution of wealth and the transfer of corporate prioritization to communities regarding what gets innovated and what does not. Or likewise, which existing markets dynamics are disrupted and which are not. The optimal outcome would be the emergence of sustainable enterprise over forest-to-dump consumerism.

Metrics are inherent to the algorithm of the Percentile Search Engine as follows: innovation is proportional to the rate of change of knowledge with respect to time and knowledge is proportional to the rate of change of information with respect to time. Differential Calculus is the mathematical tool used to monitor all performance indicators of this system. In fact, all of the analytical methods of finance similarly apply to knowledge assets, by design.

Intellectual Property in the Innovation Economy

Today there is a big scare that bad people will run off with your intellectual property and make a ton of money with it. Another problem is that the Patent system is so slow and so expensive that the vast majority of innovators simply do not have access to patent protection – many people just keep their ideas secret. This happens in corporations where your ideas are used to advance the careers other people. Often the dominant strategy is to not innovate or keep your ideas secret.

The trend toward open sourcing and crowd sourcing is a real option in the Innovation Economy where Social Network are self regulating. In fact, these articles reference Wikipedia – a community source of definitions.

In practice, If I do dirty deals of Craig’s List, for example; people know where I live….or I get flagged. EBay, for example, produces relatively little to earn their 30B market cap except protect their social accountability system – the EBay feedback mechanism rewards high integrity and punished low integrity. The hallmark of the Web 2.0 is the user generated content as well as the user generated vetting of the content.

This is significant. The efficiency of any market is directly related to the efficiency of the vetting mechanism by rewarding high integrity and punishing low integrity; the FAA vets the airline industry, checks and balances vets democratic government, and the FICO score vets the consumer credit markets. Likewise, things go horribly wrong when the vetting mechanism fails; the accounting profession after Enron, and the sub prime mortgage crisis after loose lending practices, etc. The battlefields of business are littered with similar examples.

In an Innovation Economy, the secret sauce for the production of innovation is far more valuable than any single innovation itself.  The secret sauce provides a monopoly on dynamic repeatability rather than some static device. As such, patents can be open-sourced and innovation crowd sourced across a much wider domain of user applications.  Such conditions will change the type of innovations that are favored to reflect the broad and sweeping social priorities rather than innovations that are easy to patent, protect, and monopolize – and fear for one’s IP being stolen.    Bad people cannot steal your intellectual capital, your social capital, or your creative capital – it is yours, you own it and you have the social network to prove it.

Ownership is the key ingredient of entrepreneurship – everyone owns the innovation economy.

In fact, the objective of innovation economics is for people to take your ideas and make money with them – then give you some of it. Your income arises from collecting royalty payments on your ideas and participation of many ventures. If someone does not play fair, their access to intellectual property and the Percentile Search Engine can be curtailed just like access to credit can be curtailed in modern finance. Therefore, it is in everyone’s best interest to play fair; you may cheat, but only once.

Social Networks are largely self-regulating; no government, Industry, or management is needed. This is efficiency, scaleability, and multiplicity all in one!

The Credit Score Analogy; Part 2

Now we look for a similar situation for Knowledge Markets.

In the cuurent times, the hiring manager is the person to know if you want to get a job. The manager would read your resume and compare it with “bell curve” in their brain about what has worked or not worked in their past. This was a great system for the industrial economy, but it falls far short in the innovation economy.

The world is evolving so fast with new technology, new disciplines, and global cultures that what worked in the past may not work in the future. Innovation favors different combinations of knowledge where the Industrial economy favored similar knowledge. A hiring manager may not accumulate sufficient experience in a lifetime to make a proper assessment in the complexities of a diverse, global, and technical future market.

If we look in society, there are many vetting mechanism in place. Social networks are by far among the most exciting and important new technology that can serve this purpose. Social networks must now evolve to become a local vetting mechanism for knowledge assets.

Just like the reporting agencies in the credit system, Social Networks can serve an extremely valuable function in permitting human knowledge to emulate a financial instrument by acting as the “Recording Agencies” who have verified the asset in terms of quality and quantity. The knolwedge Inventory acts as the independent variables that are used to calculate the probability of market success. The difference is that the credit score measures mostly negative events while the new system will seek only positive events and can be designed to give the participants much greater influence on how they appear to the market.

One thing is missing. The credit score uses the FICO equation; Innovation Economics will use something called the Percentile Search Engine.

The Credit Score Analogy; Part 1

We have defined the currency, the factors of production, and the inventory of the Innovation Economy; we destroyed the old resume system and turned it into a computer language that makes knowledge appear like money in the eyes of the entrepreneur.

Now, we need a system that keeps the game free and fair. For example; EBay does little more than protect the feedback system, Craigslist uses community flagging, Linkedin keeps track of comments and contacts, etc. All markets must have a vetting mechanism in order to operate efficiently. Entrepreneurs do not invest in places without a good legal system and where property rights are not protected. When vetting fails, investors leave – It is that important.

In the Innovation Economy, the knowledge market is analogous to the credit market.

In the old days, the banker was the person to know if you wanted to be successful in town. If you needed to borrow money to start a business or buy a house, the banker would review your work history and financial records as well as your reputation in the community where you both live. If you were deemed an acceptable risk, the banker would lend you money from the deposits of local companies and individuals.

Then an engineer named Bill Fair and mathematician Earl Isaac created the first behavior scoring system to predict credit risk. They formed the Fair Isaac Corporation FICO and their invention came to be known as the FICO credit score. With the credit score, the local banker is almost irrelevant; now a Saudi Billionaire can lend money to a young couple in Boise to buy their first home – and neither of them are aware of the other. The credit score is responsible for the creation of a lot of wealth because it made many more entrepreneurs who invested borrowed money in business. The credit score even allows you to recover if you hit hard times – you just pay more a little interest until you prove yourself solvent again.

The credit score isolates about 22 or so measurements of financial activity and puts them on a bell curve relative to everyone else. These include how much debt you have, how much your assets are worth, your income, etc. These ratings are run through the FICO Equation and out pops your credit score. Anyone can now predict the likelihood that you will default on your obligation.

All of the data that feed FICO are collected from public records, your employer, and the people who you borrow money from – all of these organizations have a vested interest in a system of correct credit scores.

It is interesting that you and I do not compete for our credit score because it is not a ranking system. The old saying “No credit is worse than bad credit”, although inaccurate, is cited often because with bad credit, you are visible to the system and it can adjust to find a suitable interest rate. With no credit, you are simply invisible.

We lose some privacy with FICO, but we accept these terms well because they provides us with tremendous benefit to finance a business, automobile, or a home without needing to save cash. Likewise, we lose some privacy engaging each other on the Internet and in our community, however, the benefit of Social Networks far exceed many perceived privacy issues.

My personal complaint with credit scores is that they track largely negative events and seem to predict failure. What if we had a system that tracks success and used that data topredict varying degrees of success.

In the next section, we will identify the institutions that exist in society and how Social Networks can act to duplicate the benefits of the credit score without the downsides….watch

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