The Open Enterprise: Building Business
Architectures for Openness and Sustainable Innovation

By

Joseph M. Firestone, Ph.D. and Mark W. McElroy

Published By:

KMCI Online Press, Hartland Four Corners, VT, 2003    

© 2003 Executive Information Systems, Inc. and Mark W. McElroy

Overview of Book

KMCI Online Press, Executive Information Systems, Inc. and Macroinovation Associates, LLC are proud to release Excerpt no. I of The Open Enterprise: Building Business Architetures for Openness and Sustainable Innovation. The goal of this serialized on-line book is to provide an organizational solution to problems of adaptation and corporate corruption. The book introduces a prescriptive model called The Open Enterprise. The Open Enterprise is a "social architecture for openness", as well as an engine for sustainable innovation. It is prescriptive in that it specifies a specific end-state vision for Knowledge Management strategy. It is a type of organization optimized for open and distributed knowledge processing and problem-solving, sustainable innovation and adaptation, and for internal organizational transparency and inclusiveness in knowledge processing, heightening both employee participation and stockholder democracy. Knowledge Management sorely needs a prescriptive model of this sort, and in providing it the book addresses the issues just mentioned, and also provides an entirely novel framework for Knowledge Management strategy. Moreover, the book shows that Knowledge Management is uniquely qualified to address issues related to business innovation and corporate corruption, using the control and management of Knowledge Processing rules as a lever for doing so. And all this, the book argues, can be achieved without undermining or compromising the authority of managers to organize and direct the affairs of the enterprise as they see fit.

Thus, the objective of KM strategy according to The New Knowledge Management (TNKM) now becomes the attainment and maintenance of The Open Enterprise. And the goals of KM – enhancing innovation, adaptation, knowledge sharing, transparency, competitive advantage, performance and effectiveness – flow from fulfillment of this objective. So, the Open Enterprise orientation being developed in this book has the potential to redirect all of KM and to enhance its value propositions far beyond the constraints of first-generation knowledge-sharing and the IT applications aimed at supporting it.

Any organization must cope with the twin problems of integration and adaptation. Integration involves coordinating an organization's activities to maintain the identity of the organization and its unity in pursuing its primary goals and objectives. Integration also presupposes the existence of knowledge about coordinating activities and configuring and operating the firm in productive, effective ways.

Despite the effectiveness of a particular organizational arrangement, all firms exist in environments in which they very often encounter conditions (if not problems) to which they must adapt. Adaptation involves coordinating an organization's activities to cope with change in its environment. Our focus here is on the problem of adaptation and the manner in which a firm’s capacity to adapt can be managed and enhanced. Adaptation presupposes the existence of knowledge about how to adjust to changes in the environment, be they anticipated ones or not. Or, at the very least, it requires the production of such knowledge. It also presupposes the existence of knowledge about how to solve problems and how to learn when the need to do so presents itself. Thus, adaptation requires learning, problem-solving, and the production and integration of relevant new knowledge (that is, innovation) in response to business problems. In business, competitive advantage over time requires adaptation. In politics the same is true, and among nations as well.

Is there a type of organization that is optimized for adaptation and innovation, in the sense that innovation and organizational learning is sustained and sustainable in it over time? In this book we develop the theory that a type of organizational system called The Open Enterprise (OE) is just this type of organization. And we will do this on the basis of the view that a firm’s capacity to adapt and to solve its problems is critically dependent upon its ability to successfully and sustainably recognize its problems, develop new tentative solutions about them, and eliminate the errors in these solutions. We will do this, further, by demonstrating that the kinds of confined and exclusionary conditions that attend Knowledge Production and Integration in most firms today are dysfunctional and unsustainable. The tragedies seen in such firms as Enron, Worldcom, Tyco and many others go much deeper than bad managers making bad decisions. Indeed, the causes of such failures are systemically rooted in the ways modern corporations go about the business of making their knowledge, and it is there that we will find better and longer lasting solutions to the corporate ills of our time.

This book is the first full-length work on the Open Enterprise, the normative model of The New Knowledge Management (McElroy, 2003; Firestone and McElroy, 2003), the thoroughgoing reformulation of the field of knowledge management being developed by the Knowledge Management Consortium International (KMCI) and its allies. It is an important book for those interested in organizational intelligence because it proposes an emergent "pattern," or what complexity theorists call an "attractor basin," for Knowledge Processing that is aimed at achieving sustainable continuous learning, problem-solving, and adaptation, the very definition of organizational intelligence. Thus, creating the Open Enterprise is all about creating the underlying conditions of organizational intelligence, and this book is about learning how to do that. The book includes:

• An introduction to the background and essential ideas behind the Open Enterprise

• An examination of ideas about Knowledge Processing and Knowledge Management that are foundational to the Open Enterprise

• A detailed examination of the knowledge operating system pattern called the Open Enterprise, followed by KM strategies for changing from other operating and political patterns governing Knowledge Processing to the Open Enterprise

• Application of the previous analysis to consider the OE's relationship to:

  • Sustainable innovation

  • Transparency, corporate malfeasance, organizational democracy, and employee participation in Knowledge Production

  • Deep Ecology and Deep KM

  • Benefits and Costs of the Open Enterprise.

• The book ends with conclusions on (a) The OE and its enemies, (b) KM Strategy, (c) the normative side of the shift to The New Knowledge Management, (d) the place of values in KM, and (e) creating organizational intelligence.

Table of Contents of Excerpt # 1

Purpose xvii

The Open Enterprise and the Twin Problems of Integration and Adaptation xviii

The Interrelated Problems of Corporate Corruption, Organizational Democracy, &  Employee Participation xxi

The Problem of Organizational Intelligence xxiv

A Prescriptive Model xxiv

The Book's "Roadmap" xxv

Who This Book Is For          xxx

How To Use This Book xxxi

References   xxxii

Popper's Open Society 1

The Epistemological Background of Popper’s Open Society 6

Fallibilism 6

Anti-justificationism and Anti-foundationalism 10

Falsificationism and Error Elimination: "killing our bad ideas before they kill us"    11

Fallibilism, Anti-justificationism, Anti-foundationalism, Falsificationism, Critical Rationalism, and Open Society 13

Essential Ideas of the Open Enterprise 15

The OE, Organizational Intelligence, and Adaptation 17

Corporate Corruption, Transparency, and the Open Enterprise 17

Conclusion 18

References 18

End Notes 19

Introduction 22

Complex Adaptive Systems 22

CAS Features 24

Organizations are Complex Adaptive Systems     27

Social and Psychological Foundations 30

The Organizational Learning Cycle (OLC)/Decision Execution Cycle (DEC) 30

New Problems, Double-loop Learning, and Popper’s Tetradic Schema 33

Learning and Knowledge Production: Combining Argyris/Schön and Popper 35

A Transactional CAS Model of Agent Interaction          36

The Motivational Hierarchy and Incentive System     36

Aspects of Motivational Behavior in the Transactional System 39

Sensemaking in the Transactional System 42

Culture 43

Alternative Definitions of Culture 43

Culture or Something Else?    45

What is Culture and How Does It Fit With Other Factors Influencing
Behavior?        46

Do Global Cultural Properties Exist?      51

The Unified Theory of Knowledge    52

The Theory   52

Types of Mental Models   57

Knowledge Interactions and Conversions 59

The Context of Knowledge Production and Use 64

The Knowledge Life Cycle and its Origins 65

Summary and Conclusions 73

References 76

End Notes 82

For Whom?

Communities that would be interested in the book include:

• The KM community
• The Organizational Learning community
• The Innovation Management community
• The IT and portal communities
• The R&D community
• The HR and OD communities
• The Intellectual Capital Management Community
• The `complexity theory as applied to business' Community
• The Systems Thinking Community
• The `system dynamics as applied to business' Community

The following management communities will also be interested:

• Board members (interested in mitigating management errors, malfeasance and corruption, and who are also interested in enhancing their own fiduciary performance)
• CEO/Executive (interested in ANY approach that results in increased rates and
  relevance/quality of innovation outcomes as a source of competitive advantage)
• OD practitioners (interested in anything that relates to strategies for improving organizational performance)
• HR Directors (interested in business methods that lead to improvements in the value of `human capital' and enhanced learning strategies)
• CIOs (interested in tracking developments in KM)
• CFOs (rapidly rising interest in growing and `valuing' intellectual capital, or
  `intangibles,' and reporting on same via the Finance function)
  

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