what would machiavelli do?

In philosophical terms, we are missing a realist perspective on the fundamental transformation we are experiencing. In keynotes and seminars, I have expressed this need with the question, „what would Machiavelli suggest in the 21st Century?“

Machiavelli was the earliest thinker that was able to see the new modern paradigm and translate it into strategic advice. He understood the perpetual governance crisis of modernity that developed when authority was not anymore legitimated by a transcendent source, i.e. God. Where until the 16th Century an allusion to god or nature was sufficient to explain human governance, he unearthed the relevance of immanent legitimation and formulated it as strategy advice to the prince. We are living through a similar time, the shift is just as profound. We are moving away from the idea of hierarchical organizations in business, government and civil society into a world of networked and project-centered open value chains. However, our conceptual vocabulary and our culture is still stuck in the 20th Century and, therefore, we do not yet fully realize their potential. What is missing is a strategy guide to this brave new world. Machiavelli took up the challenge of trying to make sense of a world that was moving from understanding itself as deterministically following the transcendent will to a world of freedom and choice. In an analogous fashion, we have to try to understand the underlying principles of many-to-many society to outline strategies for successful collective action.

There are two major drivers of many-to-many society: the ease to connect (technology) and the willingness to connect (culture). The ease to connect stems from technologies that allow us to ignore territorial space and linear time. We can post an answer to a question in a forum that was asked several years ago on a different continent. The person that has asked the question might have moved on, but the answer might be relevant to someone in the future that is not even born today. However, without a willingness to interact, without a network culture, the ability does not lead to a changed world. It is not technological determinism, but the interplay between new social practices and enabling technologies that have transformative potential.

living in a low transaction cost society

With the radical reduction of the transaction costs of collective action through many-to-many technologies new form of organization becomes possible. Commons-based peer production is a term coined by Harvard Law School professor Yochai Benkler to describe a new model of economic production in which the creative energy of large numbers of people is coordinated (usually with the aid of the internet) into large, meaningful projects, mostly without traditional hierarchical organization or financial compensation. He distinguishes commons-based peer production from (a) firm production where a centralized decision process decides what has to be done and by whom and (b) market-based production where tagging different prices to different jobs serves as an attractor to anyone interested in doing the job. If this mode of collective action is viable, we need to ask how to structure such interactions and how to lead such processes.

Over the last 30 years, we have been observing a move from black box production, with a focus on optimizing the value chain, to co-production and its focus on supply chain management, to open production on user-generated work-flow-platforms such as Wikipedia and Ubuntu, but also facebook and twitter. This means that strategy changes from competitive strategy (positioning) to communicative meta-strategies (persuading and community creation).

openness as strategy

Open value creation consists of open policy making and the management of the open value chain. The distinction is slightly arbitrary but useful. It allows us to differentiate between coming up with a value generating process (policy) and repeatedly creating the value (value chain). Open value creation is possible because of new technologies that allow us to structure idea generation and information aggregation in digital form. The core technologies of open value creation are the wiki, a principle-based, user-generated platforms, with flexible moderation capacity, the forum, a question driven user-generated knowledge platform, blogging, a core message with feedback/discourse loop, and work flow management and visualization tools such as enterprise resource planning, process mapping tools, think SAP, Oracle, SugarCRM, etc. Together they allow us to structure policy and value creation processes, by enhancing ideation, deliberation, i.e. commenting and discussion, collaboration, generating values, and accountability, i.e. through the parsing of data to control processes. Therefore, the architecture of our value creation processes is of utmost concern. How do we design such processes? The simple answer is Larry Lessig’s “code is law” (1998), which says governance can be encoded into software, as in the first rule of twittering: “thou shalt not write more than 140 characters” where enforcement is automatic, technically, you cannot send a tweet of more than 140 characters. So in our simplest many-to-many society, code, law, strategy, and enforcement are one.

However, in order to fully utilize open value creation strategic transparency is necessary. Strategic transparency is a management approach in which most decision making is carried out publicly and the work flow has open application interfaces. It is a radical departure from existing processes, where (a) decision making was closed, to ensure security and the discretion of the decision makers and (b) the work flow was a black box, where outside intervention would be looked upon as outside meddling. In decision making strategic transparency ensures access to draft documents, allow commenting, and include the public in final decisions. For the work flow, you need to design application interfaces that allow the public to access the work flow in real time, participate in a granular and modular fashion. In a many-to-many society we need to rethink most of our conceptual frames.

Therefore, counter-intuitively, if he were alive today, Machiavelli, the hard-nosed realist, would advice the princess to create open value chains with interfaces to outside stakeholders both in policy and implementation, from research and development to after-sales.

Consider Apps for Democracy, which yielded 47 iPhone, Facebook and Web apps in 30 days – a $2.3 million value that only cost the city $50,000. It’s hard to dismiss an estimated 4,000 percent return on investment in one month’s time. The contest’s success, powered by iStrategyLabs, spurred Apps for Democracy “Community Edition” and spinoffs in other cities.

This approach of utilizing the ROI framework to defend 2.0-strategies, however, has several flaws, (a) it might have been a lucky shot, (b) it might not be sustainable, (c) contests might not focus on what citizens need (d) any impact below a certain threshold, let’s say $ 1 billion does not carry weight in big governmental or corporate organizations, but (e) most importantly, ROI is the wrong tool to evaluate success of enterprise/government 2.0 projects, because most of the value is accrued with the consumer not the producer of the value.

If we look at the most successful 2.0 projects of the last years, we see a pattern, where the ROI is not a relevant indicator to evaluate the project. One of the first big 2.0 projects, Wikipedia, destroyed the encyclopedia industry, but is not generating major revenues.  Couchsurfing and sites like http://airbnb.com/ or http://www.crashpadder.com/ are taking big bites out of the Hotel industry without generating equivalent returns. Open Street Map is having a huge impact on the mapping industry, one of the most profitable industries of the last years. Dynamic ridesharing is creating a secondary mobility infrastructure in most countries, basically competing with our complex integrated public transport systems such as the German Railway, with revenues of more than 10 billion euro in passenger transport per year or shorthaul flights. The combined revenues of the 5 major German ride sharing companies is way less than $ 10 million, but the impact on the lifeworld of their users is dramatic.

There are three lessons to be gleamed from this:

• the impact of 2.0 project are not to be evaluated in ROI, but in consumer-focused metrics (shadow prices, counterfactuals, reduction in average cost, rate of demonetarization, etc.). Ideally, not in monetary terms, because 2.0-strategies aim to de-monetarize.
• for corporations, 2.0 strategies go way beyond “normal” cannibalization strategies. They focus on the de-monetarization of industries. Therefore, as strategists, we need to ask, how can we generate a revenue flow that does not inhibit adoption, but sustains the effort.There is no choice, either we do it, or someone else will do it.
• For public value strategists that are not entrenched in existing practices this is a dream-come-true. You can now recreate a multi-billion-dollar infrastructure (the German railway system) with a web-page.

If this does not sound like a fun scenario from the perspective of an existing organization (be that governmental or private), be assured that there is nothing you can do against it. The two mega-trends driving the development are the dematerialization of the economy which has been going on for over one hundred years (the weight of the US economy per dollar of GDP has been decreasing more than 100-fold in the last century) and the implosion of transaction costs of organization through digitization and the rise of n-to-n (peer-to-peer) media are leading to new forms of organization (open value chains) and new products and services that can be digitally provided at basically zero marginal costs.

An analogy of what is happening today can be seen, when we look at the historical institution of medieval knighthood, probably the most expensive and sophisticated approach to individualized fighting and organization of social and cultural life in the history of humanity. In 1386, at the battle of Sempach, a “web-startup” consisting of Swiss peasants defeated the Austrian knights, by pushing them down from their high horses by using long poles. Not very sophisticated, but sufficient to get the job done. Expect more of that today.

When in Berlin, I also had breakfast with Peter Scheufen, the CEO of Skobbler, a smartphone navigation company that was globally the first to utilize Open Street Map in its core navigation product and that is making the navigation industry very nervous.  Peter sees his role as a negotiator between the world of the voluntary mappers, software developers that might want to build applications on top of his server offering, and consumers that expect a working navigation product for as close to free as possible, and believes he can build a business model where he can generate a non-intrusive revenue stream for his company. Navigating these waters is not easy, but it can be very rewarding for all of us, who believe we can have a positive impact on this planet and generate revenues, by figuring out how to generate revenue streams that do not disturb the value chain. So, ignore the ROI-issue and focus on the big picture of (public) value creation!

It is a historical moment analogous to the new logic shaping societies when we moved from transcendental to immanent explanations of collective action in the 15th century. And just as Machiavelli tried to uncover the systematic aspects of these logics, we need to focus on new statecraft and new strategy. Below is a  screenshot and link to an interview I did along these lines with an Austrian Monthly, you might enjoy it (if you read German).