James Surowiecki argues that with the proper structure and characteristics, large groups of ordinary people can outperfom small groups of experts in making decisions and predictions. Through numerous examples (Iowa’s electronic prediction market, the Hollywood Stock Exchange, The Bay of Pigs decision, NASA’s Columbia disaster, football strategy, corporate decision making, and others) Surowiecki discusses the weaknesses of traditional decision making and shows how collective wisdom can be aggregated from a large, diverse group of people who don’t necessarily possess expert knowledge traditionally associated with effective problem solving. His view is contrary to popular, and corporate, assumptions that specialized experts in small deliberative groups are better able to make effective decisions. He proposes that narrow expertise is not fungible to other decision domains or contexts, and that expertise in “decision-making” is a poorly conceived notion. Indeed, large groups can be wiser than small cadres of experts even if they are not well informed or very rational. He proposes four key attributes that are necessary for effective large group collective wisdom: diversity of the group, independence of opinion and conclusions that is free of manipulative and corrupting influence, decentralization of the group, and bottom up processes that aggregate information. Surowiecki uses these attributes to show how collective decision making are effective is solving three distinct types of problems: cognitive, coordination, and cooperation.

Conditions for creating collective wisdom

1. diversity of opinion (each person should have some private information, even if it's just an eccentric interpretation of the known facts).
2. independence (people's opinions are not determined by the opinions of those around them).
3. decentralization (people are able to specialize and draw on local knowledge).
4. aggregation (some mechanism exists for turning private judgments into collective decision).

Types of problems best solved through aggregating collective wisdom

Cognitive: These are factual questions with definitive solutions in the present or in the future. Who will win the US Presidential election? How much does this hog weigh? Will an invasion of Cuba be successful or not? Which technology platform will succeed? Challenges to solving cognitive problems include group think, or herding, when members of a group receive and use undue influence on each other that prevents incorporating new, deviating, or controversial information into the decision making process. Information cascades occur when members of a group make decisions in sequence rather than simultaneously and undermines independent opinion and judgement.

Coordination: These are problems or challenges that involve structuring individual actions in way that they take a shared course of action. Individual actions are interdependent; what one person does depends and affects what everyone else will do. Coercion and authority are two ways of solving these problems but Surowiecki suggests that in liberal societies bottom up methods are more amenable to social norms. Examples include finding a common place to meet in a busy city (an example of a focal point or Schelling point), first come, first serve seating or cues, and flocking. Solutions to these problems resemble what Frederick Hayek called, “spontaneous order.”

Cooperation: These problems involve organizing individuals’ self-interested action in a way that creates mutual advantage. Examples of these problems include paying taxes and curbing pollution. A key to solving cooperation problems involves establishing and communicating trust. As Surowiecki states, to solve cooperation problems, a group or society needs to “ be able to trust those around them, because in the absence of trust the pursuit of myopic self-interest is the only strategy that makes sense.” Thus cooperation problems require groups to do more than in coordination problems.

Surowiecki concludes his book with a discussion of deliberative democracy and the role of deliberative polling to more accurately assess the views of American voters and engage them in civic life.

Internet facilitated tools and practices reached critical mass in the 2004 elections enabling ordinary people to participate in processes that had been closed to them by top-down political organizations.

Old-style political organizations had evolved, abetted by mass media like television, into groups controlled by insiders. The mass participation that peaked in the early part of the 20th century was replaced by an increasingly uninterested, disenfranchised mass and a smaller group of wealthy special interests.

TV took politics away from the grassroots; the Internet could give it back. The people receiving the intended messages could be involved in creating them.

There are varieties of emerging tools in the political ecology: large, top-down organizations like MoveOn.org co-exist with multilayered communities like DailyKos in which peer moderation and rankings lead to the emergence of trusted sources.

Established political parties are behaving like dinosaurs, viewing the new media as tools for more efficiently doing their old work: the Internet is just a new place for a more sophisticated kind of direct mail. They are missing the true significance of the emerging tools and processes. With this attitude, they are likely to become extinct.

Old style, top-down political organizations are afraid of losing control. They are threatened by the dis-intermediation (the removal of middlemen) enabled by the new tools and visible in other commercial domains on the net.

The growth of web based social networking tools and techniques similar to those used to facilitate open source development environments are leading to peer political networks with transparency and accountability.

The Internet currently offers an ecology of interacting and competing groups on both the left and right. These currently range from the traditional party based groups through newer, still top-down groups like MoveOn.org through multilayered communities with peer evaluation and the emergence of trusted users. An example of the latter, DailyKos, has become a very efficient collaboration engine for pooling money for candidates and for rapid fact-checking, news dissemination, and brainstorming.

This evolution is generational. As younger people accustomed to life on the net and the use of social networking tools reach maturity, the replacement of the old ways of doing things will become easier.

Open-source politics is a long way off because of the resistance of the political establishment. In “open source” software development communities, any participant can see, critique, and improve the underlying code. Peer review permits steady improvement. In open-source political groups, planning and implementation of policies would be transparent and open to critique and improvement, an inherent threat to entrenched ego-centric, top-down organizations. However, the old order may have no choice in the matter.

Because of the “digital divide” and the amount of time spent online, Internet facilitated political participation is still largely a white middle- and upper-class phenomenon. Messages tend to circulate through existing social networks. However, this may be generational: younger people are growing up with the tools and shaping them to their needs and desires.

There are basic facts related to decision making and the idea of "free choice" that everybody should know. Experiments have proven that we are victims of ourselves, and therefore we can fall victims of others. This book presents the mechanisms that guide our behaviors and the techniques that can help influence it, so that the reader can be aware of the traps that awaits him in his day-to-day life.

How the brain works - resilience of decisions

Our choices are influenced by prior decisions, whether they were conscious or unconscious decisions. And these individual behaviors impact group decisions as well, and points to the fact that in a group, the analysis of the impact of a decision should always be done by people other than the ones involved in the decision.

Examples of such self manipulation can be seen in 3 types of behaviors:

• Escalating Commitment
• Sunk Cost
• Escalating Conflict

Escalating Commitment

When people agree to a small request, they feel committed, and will make sure that they do the right thing even if it costs them more than they originally expected or intended. For example if someone is asked to look after a bag, chances are that he/she will run after a robber trying to get away with this bag. Under the same circumstances but without a prior request from the owner of the bag, the same person may not have done it. An example of such a mechanism can be found in a study by Staw published in 1976 "knee deep in the big muddy: a study of escalating commitment to a chosen course of action".

Sunk cost

When people make a choice, they tend to choose based on what did cost them more instead of what would be the best for them. For example if people make a reservation (and pay) for two events that turn out to be on the same day, they will tend to choose to go to the one that did cost more rather than the one they would most interested in, even though the money was spent and the overall cost is the same regardless of the choice made. An example of such a mechanism can be found in a study by Arkes and Blumer published in 1985 "the psychology of sunk cost"

Escalating Conflict

When a person has to take a additional decision to get out of a situation in which he is trapped, it is very hard to make such decision. If the opportunity to re-evaluate the original choice is not given, people will tend to stick to their original choice way beyond the point when this choice starts costing them more than they would ever have committed. An example of such a mechanism can be found in a study by Brockner, Shaw, and Rubin published in 1979 "factors affecting withdrawals from an escalating conflict: quitting before it's too late"

How manipulation works: from Self-manipulation to Manipulation

Preparatory steps

All the behaviors presented earlier are the result of self manipulation, but they open the door for actual manipulation by others. Somebody can easily exploits these type of behaviors, and introduce preliminary steps in an interaction so as to condition a person to fall later into one of the response mechanism described earlier. The initial preparatory decision should be the result of free choice, which can be induced:

• through a plain lie, for example offering a product that is not available or promising a deal that does not exist
• by controlling how the information is released, for example ask the subject to make a decision first, then provide him with more details that include changes to the original deal (low ball technique)
• by using a teaser, for example offering a sale on a pair of shoes with only large sizes left

It has been shown that in addition to decision being resilient, people also tend to stick to this original decision even after they have been informed of a change to the original deal. An example of this mechanism can be found in a study by Cialdini published in 1978 "low ball procedure for producing complaince: commitment then cost"

Engagement

What makes all these processes work is the effect of "engagement", which precedes the "resilience of decision", as demonstrated in a study by Kiesler published in 1971 "The psychology of commitment - Experiments linking behavior to belief"

Engagement can be reinforced, and there can be several levels of engagement:

• signing a petition is a low entry level, and providing name/address/profession is another level
• how public is the engagement or how often the engagement is requested also impacts the level of engagement.

As a result of this engagement process the reality is that "free choice" is actually "free will submission". The perception from the decision maker is that he is making a free choice, but the reality is that he can be influenced by a simple request.

The consequences of engagement

It has been shown that the preparatory steps work better when engagement is reinforced by action. More specifically, experimentation has shown the following:

• When there is engagement into an action that is in tune with what the person thinks, it reinforces the conviction of this person.
• When there is engagement into an action that conflicts with what the person thinks, it results in an adaptation of the convictions

Engagement into a non-conflictual decision, followed by an action makes the choice more resilient. This can go as far as creating boomerang reactions to opinions that go against the original choice. For example it has been shown that people asked to sign a petition for a cause that they are supporting will become stronger supporters of that cause after they have signed than they were before.

The interesting part is that the effect of engagement being reinforced by actions applies someone regardless of the original point of view of the person. This can regarded as a good thing or as a bad thing depending on how one wants to look at it:

• when engagement is for a good cause, it is usually considered to be leadership - the person engages in an action
• when engagement is for a "bad" cause, it is usually called being brain washed, or manipulated - the person has been engaged into an action

But the mechanism behind remains the same.

Techniques of manipulation

Several techniques can help prepare the context for a better compliance to a later request:

• The "Foot-in-the-door" technique
• The "Door-in-the-face" technique
• Touch
• The "Foot-in-the-mouth" technique
• The "Fear-then-relief" technique
• The "But you are free of" technique
• The "A little is better than nothing" technique

The "Foot-in-the-door" technique

In this technique, the preparatory step consist in getting the person engaged into a low cost action as a way to prepare for a much more costly one. For example asking for the time of the day before asking for some money to pay for a phone call - such examples can be found in a study by Freedman and Frazer published in 1966 "compliance without pressure: the foot-in-the-door technique", and by Pliner Host Kohl and Saari published in 1974 "compliance without pressure: some further data on the foot-in-the-door technique".

This technique works even better if you follow up with an "attribution", by commenting on the person's action and by making them feel good about such action (Attribution technique - see below)

The "Door-in-the-face" technique

This technique consist in asking for something totally unrealistic as a way prepare for a much more resonable request. For example asking for a large sum beyond the means of a person before asking for $100. Such examples can be found in studies by Cialdini, Vincent, Lewis, Catalan, Wheeler and Darby published in 1975 "a reciprocal concessions procedure for inducing complaince: the door-in-the-face technique"

Touch

This technique consist in touching the person for a few second as a preparatory step for a later request. As strange as it may seem it does make real difference. Examples of results from such a technique can be found in a study by Kleinke published in 1973 "compliance to requests made by gazing and touching experimentaters in field settings"

The "Foot-in-the-mouth" technique

This technique consist in inquiring about the person and showing interest in the answer as a preparatory step for a later request. Examples of results from such a technique can be found in a study by Howard published in 1990 "the influence of verbal responses to common greetings on compliance behavior: the foot-in-the-mouth effect"

The "Fear-then-relief" technique

This technique consist in creating stress before providing relief as a preparatory step for a later request. However unpopular it might be, examples of this technique can be found in police questioning procedures.

The Attribution technique

This technique consist in commenting on the person's action to give them a good image of themselves. Examples of results from such a technique can be found in a study by Millet, Brickman and Bolen published in 1975 "attribution versus persuasion as a means for modifying behavior"

The "But you are free of" technique

This technique consist in clarifying after a request that the person should feel free to not comply to this request. Examples of results from such a technique can be found in a study by Guegen and Pascual published in 2002 "evocation of freedom and compliance: the but ou are free of... technique".
This technique also works on the web (for example by changing the wording of a button to "feel free to click here" instead of just "click here"). In one experiment from Guegen, LeGouvello, Pascual and Morineau published in 2002 "request solicitation and semantic evocation of freedom: an evaluation in a computer mediated communication context", it was shown to move the success rate from 65% to 82%.

The "A little is better than nothing" technique

This technique consist in adding to the request that a little will be better than nothing, thus removing the excuse of cost from the possible answers. Example of results from such a technique can be found in a study from Cialdini and Shroeder published in 1976 "increasing compliance by legitimazing paltry contributions"

"This is not all" technique

This technique consist in offering additional items that were not requested originally to justify the high cost of the request. This is a classic, and we are exposed to in our everyday shopping.

The "Foot-in-the-memory" technique

This technique consist in asking the person to remember when they did not comply in the past with something that they approve of in general, or try to ask them to visualise situations that would not be conform with a given policy. An example of results from such a technique can be found in a study by Dickerson, Thibodeau, Aronson and Miller published in 1992 "using cognitive dissonance to encourage water conservation"

Once all these techniques have been identified, it is then possible to mix and match to try to optimise results. An example of such mix and match and the results that it yielded can be found in a study by Joule published in 1989 "Tobacco deprivation: the foot in the door technique versus the low ball technique". In this experiment, the goal was to have students agree to stop smoking for 18 hours. In the control group, 12% of the students selected agreed to the request, and only 4% actually complied. But after two "foot-in-the-door" steps followed by 2 engagements 95% of the students selected agreed to the request, and 90% complied.

Possible Applications

An obvious application of all these techniques is Marketing.
Management and Child Education are the other areas where they can be useful.

Management

Organizations of all kinds all require that a group of individuals work towards a common goal. And even when the culture inside the organization is very open (what the authors call industrial democracy), we are still in a configuration were people are being asked to do, or maybe they are being influenced into doing, something that makes sense for the organization as the best way to reach the goal.

Research by Kurt Lewin (1947 "group decision and social change") gave birth after the war to the practice of group decision making in industrial organizations. But what remains today from this orginal theory has been dilluted into two main versions that were further advertised, one with a "management" bias, and the other one with a "democratic" bias.

To understand how these versions differ (or not), one has to look at two important parameters within the entreprise:

• the internal social weight - impact on employees
• the organizational efficiency weight - impact on production

The "management" version of the original theory has been presented by Norman Maier who was studying group decision for better management. According to him:

• If a change has no internal social weight and no organizational efficiency weight (for example the color of the paint on the walls), then who makes the decision does not matter, and coin tossing is a good method
• If a change has no internal social weight but has organizational efficiency weight, then the decision should be taken by experts
• If a change has internal social weight but no organizational efficiency weight, then the decision should be taken as a group decision
• If a change has internal social weight and organizational efficiency weight, then there is potential conflict, and the situation requires a "moderator" to drive the group towards the decision that makes most sense for the organization, while it is taken with buy-in from the group. This means using techniques to guide the free choice, to gain engagement, and therefore through manipulation.

The "democracy" version of the original theory favors "listening to the group", by analysing the organization constraints and the personal conflicts within the group. And from this analysis it is expected that a solution will emerge at some point in time.

But while it seem to be a friendlier approach, this also can be seen as another form of manipulation: even if the intent is sincere, the fact that the indivudual agrees to get into the process means he has been "engaged". And from that point, he can be guided as well (and the organization needs it if we do not want the process to take forever), which is again manipulation, but using a psychologist instead of a moderator.

Education

In Education, well intended parents want their child to have choice. But it should not be choice betwen many options, but rather the choice to do or not to do: when somebody makes a choice, they internalize this choice and then rationalize it. This mechanism makes them more apt at making similar choices in the future. So in the case of a child, asking him/her to do the right thing (rather than giving them a real choice or trying to impose an action) and then doing an Attribution, will condition them to make similar decision in the future. During the internalization process, they will associate the behavior to the fact that they were doing the right thing because this is who they are rather than because they were doing what they are told.

Conclusion

Manipulation and propaganda are everywhere, and people usually feel unconfortable with the concept of manipulation. But Marketing propaganda is forcing commercials into a consumer brain without regard for his/her own interest while well intended manipulation can be seen as just another act of selling. Architecting behaviors should not be consider as bad as manipulating people by lying on the virtues of a product or trying to brain wash them through force fed commercials. In fine, and despite the unpopularity of the word "manipulation", using technologies of comportment is probably a more ethical choice, as long as the preliminary steps to engage the person are not based on lies or abuse.

Regardless of what one would like to think, it is clear that we are subject in our everyday life to manipulation. So people making decisions should always keep in mind of the following:

• be aware of the mechanism behind various behaviors
• do not hesitate to re-consider a decision
• learn to consider each decision individually (and not take into account previous decision)
• do not overestimate your freedom of choice

Freedom does not prevent us from doing things that are costly to us personnally and that are the result of somebody else expectation. From a political point of view, it means that one should not confuse living in a liberal society and living in a true democracy.

When the Italian government created regional governments in 1970, a multi-decade study of levels of citizen satisfaction with these new institutions revealed that regions with norms of trust and reciprocity derived from centuries of horizontal voluntary association were both economically and politically more successful than regions that lacked dense networks of civic association and relied on patron-client relationships rather than horizontal citizen associations: "Some regions of Italy, we discover, are blessed with vibrant networks and norms of civic engagement, while others are cursed with vertically structured politics, a social life of fragmentation and isolation, and a culture of distrust. These differences in civic life turn out to play a key role in explaining institutional success."

Machiavelli, writing in 16th century Florence, concluded that the success of free institutions depends on the "civic virtue" of citizens. This republican school of civic humanists was countered successfully by the liberal emphasis of Hobbes and Locke on individualism and individual rights. The U.S. constitution was designed to make democracy work with a factionalized, unvirtuous citizenry. More recently, American political philosophy has rediscovered civic humanism, harking back to John Winthrop's "city set upon a hill" sermon.

Civic communities are bound by horizontal relationships of reciprocity among citizens, not vertical relations of authority and dependency. "Fabrics of trust enable the civic community more easily to surmount what economists call 'opportunism,' in which shared interests are unrealized because each individual, acting in wary isolation, has an incentive to defect from collective action." Participation in civic organizations trains people in cooperation skills and strengthens a sense of shared responsibility. Citizens who belong to many different groups tend to moderate their attitudes as a result of their exposure to group interactions. These groups don't have to be political: choral societies and soccer clubs knit people together socially and culturally, but the bonds of trust and social networks serve as effective vectors for economic and political activity.

In regions that lack networks of civic engagement and widespread norms of trust and reciprocity, citizens have to resort to hierarchy and force to resolve conflict, but even hierarchical law enforcement organizations prove less effective with a mistrustful citizenry. "Light-touch" government in more civic regions works better because it is aided by willing cooperation and self-enforcement among citizens.

The Northern Italian cities – Genoa, Pisa, Venice, and later Florence – took off in the 11th and 12th centrues in part because the contract and extension of credit were new legal strategies for creating partnerships and raising capital: "In the new practices and organization of business activity, risks were minimized, whereas opportunities for cooperation and profit were enhanced."

As Europe emerged from feudalism, the bonds of personal dependence (lord-vassal) grew weaker in the northern regions, but in the south of Italy they became stronger. Northern populations learned to be citizens, southern populations remained subjects. "In the cities, a horizontal arrangement emerged, characterized by cooperation among equals." The guild, confraternity, university, and the commune – a guild of guilds – reflected the new ideals in new institutions.

Mutual aid societies flourished in pre-unification Italy (circa 1850),-- pragmatic institutions in which cooperation conveyed benefits upon contributing individuals in a changing society. Italian cooperatives grew out of the mutual aid societies.

"Networks facilitate flows of information about technological developments, about the creditworthiness of would-be entrepreneurs…. Innovation depends on 'continual informal interaction in cafes and bars and on the street.'"

Social networks allow trust to spread transitively. Trust increases through use and becomes depleted if not used. Social capital, unlike conventional capital, is a public good, not the property of any of the individuals who benefit from it, and must often be produced as a by-product of other social activities.

"Norms are inculcated by modeling and socialization (including civic education) and by sanctions." Norms that support social trust evolve because they lower transaction costs and facilitate cooperation, conferring benefits upon cooperators. Reciprocity is the most important norm, and can be balanced (or specific – the quid-pro-quo) or generalized (diffuse). Communities in which the norm of diffuse reciprocity is high can more efficiently restrain free-riding and more easily resolve collective action problems. Networks of civic engagement increase the potential cost to defectors who risk benefits from future transaction. The same networks foster norms of reciprocity that are reinforced by the networks of relationships in which reputation is both valued and discussed. The same social networks facilitate the flow of reputational information.

"The civic traditions of Northern Italy provide a historical repertoire of forms of collaboration that, having proved their worth in the past, are available to citizens for addressing new problems of collective acdtion. Mutual aid societies were built on the razed foundations of the old guilds, and cooperatives and mass political parties then drew on the experience of the mutual aid societies."

"Stocks of social capital (trust, norms, networks), tend to be self-reinforcing and cumulative. Virtuous circles result in social equilibria with high levels of cooperation, trust, reciprocity, civic engagement, and collective well being. These traits define the civic community. Conversely, the absence of these traits in the uncivic community is also self-reinforcing. Defection, distrust, shirking, exploitation, isolation, disorder, and stagnation intensify one another in a suffocating miasma of vicious circles. This argument suggests that there may be at least two broad equilibria toward which all societies that face problems of collective action (that is, all societies) tend to evolve and which, once attained, tend to be self-reinforcing."

Analytical results from modeling the fitness consequences of two decision-making mechanisms, despotism and democracy, shows that generally despotic models leads to higher costs than democratic models because despotism produces more extreme decisions than democracy. "Even when the despot is the most experienced group member, it only pays other members to accept its decision when group size is small and the despot's average error is lower than the average median error of all other group members."

Research has largely assumed despotism because social structures among animals are commonly hierarchical and the ability to vote and to count votes is not obvious. However, there is mounting empirical evidence of voting in the animal world by body postures, ritualized movements, and vocalizations, as well as vote counting in the form of summing up votes, integration of votes up to an intensity threshold, and averaging of votes.

An important context in which social animals have to make group decisions is activity synchronization, e.g. red deer herds have to decide when to end rumination and move on. The model assumes that (1) synchronization costs increase linearly with the difference between when an individual would have preferred to stop and when the group actually stops, and (2) costs of stopping to early or too late are symmetrical. Even when relaxing assumption (1) costs are still higher for despotic than for demographic groups in most cases. When relaxing assumption (2) a democratic majority rule different from simple majority that reflects the asymmetry between "too early" and "too late" costs is least costly.

These results are fairly robust with respect to group heterogeneity, energy needed for enforcement, and individuals having incomplete information about their own optimal activity duration. The model predicts that democracy gives groups a competitive advantage and due to natural selection should be quite common in social groups of animals.

Background:

The story starts at a banker's conference where Xavier was doing a presentation on e-Banking. The room suddenly woke up at the last slide when he offered a model to explain how banks could move forward. The impact was stunning, all of a sudden everybody wanted to jump into the discussion.

The model was the result of observations from Swissquote Inc, where intermediaries had become agents of change within the company and had help transform it into a hyperproductive company.

The model has since then been refined, with the definition of the "transformActors" and "ConsumActors", and the classification of knowledge (inspired from Mathematics) and interactivity along the 2 axis of a matrix.

The model has also been validated against 3 real cases with 3 Swiss companies: Swissquote, Largeur.com and Cla-Val.

The Model

1. The problem:
   
   low cost offshoring, baby boomers reaching retirement age, etc… create tension in the economy. And the answer is not in lowering costs, but rather in achieving high productivity.
2. The solution:
   
   changing Consumers into ConsumActors. We have heard of crowdsourcing, but the real underlying change is that the customers are getting more involved into the value chain.
3. Technologies of Cooperation
   
   While technology helps improve processes, the real value behind these technologies is the shift in the interactivity between the producers and the consumers: consumers are getting used to getting more and more involved into the process (self service, product configuration and customization, etc...)
4. Levels of interactivity

   The level of interactivity that is possible with ConsumActors can be classified as follows:

   • 4.1 Passive consumption:
     
     The consumer is getting products or services with no real interaction and no real choice. He has to take whatever is available.
   • 4.2 Self Service
     
     The consumer is now given the ability to choose between various products or services. This first step is already a huge step forward, as the consumer can go around the vendor to pick and choose what he wants.
   • 4.3 DIY: Do It Yourself
     
     At this level, the consumer starts getting involved in the value chain. This is what IKEA offers, where you are not just buying a product, you are actually also delivering it to your home and building it yourself. This case is an example of the first disruption from the standard retail value chain.
   • 4.4 Co-design
     
     At this level, the consumer starts adding value by customizing the product and therefore defining his needs himself (as opposed to buying a product defined by the product management team). This is what Dell is asking from customers when they have to pick and choose options to build a computer.
   • 4.5 Co-creation
     
     This is the ultimate level of involvement, where the consumer is actually involved in the design of the product or service itself. This is what Open Source does for developers, and what Wikipedia does for knowledge consumers. Similarly Procter and Gamble has a "Connect and Develop" program that lets innovators define products.
5. Levels of knowledge

   Being able to interact at the various level listed above requires various levels of access to knowledge. For example co-designing a computer on the Dell website implies that the consumer has a good understanding of the various components and their importance within the system. A slow processor with lots of memory, or a fast processor with very little RAM are not going to be good options.
   
   And then knowledge includes a notion of context that should also be taken into account: knowing that something is small is only useful relative to a context: is Jean small because he is only 4 years old, or is he small because most people his age are typically 5" tall?

   Following these concepts, knowledge can be classified as follows:

   • 5.1 Basic Knowledge
     • 5.1.1 Raw Data
       
       Data, typically from measurements, or attributes (small, big, expensive, etc...)
     • 5.1.2 Information
       
       Information is data that I can make sense of. Data within a referential or data that can be tied to a process, so that I can establish a first level of knowledge. If I can measure, and if I can compare, I will be able to develop a sense of understanding: Jean is 4 feet, and I can measure his classmates to decide whether Jean is small or not. From information I can develop basic knowledge.
   • 5.2 Formal knowledge
     • 5.2.1 Classification, categorization
       
       This second level of knowledge is when I can better define the context. In the example of Jean, I can place the information into categories to reach another level of understanding: boy/girl, small/tall. By defining categories and sub-categories, I can refine the level of knowledge I have.
     • 5.2.2 Process/Time
       
       The third level of knowledge is when you start introducing the concept of time, and evolution over time. This introduces another level of complexity and another level of understanding beyond what can be known now.
     • 5.2.3 Logic
       
       The final level of knowledge is when you understand enough of a thing that you can capture this understanding into a logical model. From this comes automation. This is how we started building calculators, encapsulating logic into a machine, and now expanding to building transistors into microchips to build computers for example. It all seems as if mathematic algorithms were slowly but irreversibly being materialized into automated processes. And we are only at the very beginning of an exponential curve in this area.
   • 5.3. Informal Knowledge
     
     Another type of knowledge that will not be considered in this document, but should be mentioned, is informal knowledge.
     • 5.3.1 Informal Experience
       
       This is knowledge learned from accumulated experience. This is how people learn how to drive for example
     • 5.3.2 Informal Thinking
       
       This is the knowledge from "soft" fields, for example philosophical, cultural, religious, moral or ethical knowledge. They should not be ignored since they are at the forefront of the political, social and cultural scene. An expression of this type of knowledge is on display in blogs or reality TV shows for example.

     The management of Knowledge is what has led to major changes in the way we work today:

     • It all started with the concept of “Community of practice” presented by Etienne Wenger on 9/18/88
     • It evolved towards becoming a core engine of the enterprise, with Knowledge Management, to manage both static (as in encyclopedias) and dynamic knowledge (as in knowledge facilitated by groupware, starting with email).
     • It has also now been opened and shared to allow for collective intelligence, benefiting both from internal and external input.
6. The matrix

   Using the 2 axis that were defined, it is possible to create a matrix that can be used to resolve the issue of transferring production from the producer to the consumer.

   On the vertical axis:
   
   Data - info - classification/categories - time process - model

   On the horizontal axis:
   
   Receive - Self Service - Do It Yourself - Co-design - Co-creation

   To use the matrix you need to start from the bottom left (data/Receive), to then evolve towards the right to include the consumer into the value chain and define the level of knowledge that needs to be transferred to the consumer to enable his involvement.

7. The matrix can be used for several analytical purposes:
   • 7.1 Historical analysis - the matrix can be used to compare the result of 2 strategies used at different times, to analyze why one worked better than the other:
     
     Nestle had tried to sell Nespresso through the regular channels without much success. Then they decided to change strategy (break with history) and created the Club Nespresso, where customers are educated and provided with a tool to order directly online, which completely change the buying and consuming experience
   • 7.2. Market analysis - the matrix can be used to compare the strategy of two different companies on the same market:
     
     Napster introduced technology that allowed users to download songs for free. The technology also allowed mixing and matching of songs so that users could create their own CDs. The same concept was then used by Apple to create iTune and the iPod, while Sony decided to simply extend its existing model to make room for this new technology, but trying to keep as-is the control of the IP.
     
     The matrix shows that the game was about adding a level of freedom in the consumption of songs, rather than just extending technology.
   • 7.3 Strategic analysis - the matrix can be used to define where to direct future developments:
     
     Telcos are being threatened by VOIP, which allows near free communication anywhere around the world. Several options are available for them to react: bundle services, or offer new services for mobile, where VOIP is not a player today. Docomo is now offering payments through mobile phones, thus starting to compete with banks. The matrix can help figure out which players they should work with to make this strategy successful
   • 7.4 Positioning analysis - the matrix can help position a product on a market. A computer is a complex thing and I can decide to buy through an expert who will help me design the computer I need, or I can go to Dell to build online my own. The 2 market segments can co-exist today, but the matrix can help understand which market will survive in the long term
8. Case studies
   • 8.1 Swissquote (a Swiss equivalent of eTrade)
     
     From the CEO prospective, the success of Swissquote is due to:
     • Empowerment: providing the right information and tools to customers to allow them to trade online
     • Monitoring: performing statistical analysis to evaluate risk, as a tool for both the bank and the users
     • E-wealth management: tools to help users optimize their investments

     One challenge was and still is the education of customers. 2 types of classes are offered: first step (free), and paying classes on specific topics. This is a very costly undertaking, a risk taken to help the transformation

     The other challenge is to provide the right tools, allowing to perform complex operations while remaining user friendly. This challenge still needs to be addressed today.

     Looking at the banking industry, there are 2 major trends that can be identified:

     • Communities of practice are taking over the education of consumers and improved interactions
     • Models need to be improved to help provide more sophisticated tools

     The matrix can help clarify these trends and challenges

   • 8.2 Largeur.com - citizen journalism
     
     After several experiments, Largeur.com has settled for a model where they produce high quality journalism but getting the content from freelancers and offering aggressive prices. Once the customer base was established, they looked into opening the platform to students and other members of the civil society (teachers, thought leaders but also unemployed people), which are representative of the audience they are addressing already.

     The media industry is organized around 3 major poles:

     • Convergence (synergy between traditional media and the Internet) - Financial Times, Wall Street Journal
     • Divergence (break from the traditional model to go towards a crowdsourcing approach) - OhMyNews
     • Complementarities (compromise between the other two) - TSR.ch

     The matrix can help rationalize the various content production and content delivery tools (blogs, RSS, Web, SMS/MMS, and Newspapers) to better understand the media industry

   • 8.3 Cla-Val - pumps to regulate pressure
     
     They have evolved around 4 major poles:
     • Commoditization: they have accumulated over the years more than 100 standard products
     • Customization: their customers cannot get an end to end solution from just the standard products
     • Geographical expansion: the experience gained in the implementation of custom solutions opens new geographical markets and allows rapid expansion
     • Customer innovation: customization has also introduced flexibility into the system, and combined with remote management capabilities has enabled co-innovation

   The matrix clearly shows how this evolution was possible.

9. Conclusion

   Direct economy is the result of 5 major factors:

   • Introduction of the consumer into the value chain
   • Death of the old intermediaries, to leave room for new types of interactions
   • Empowerment of ordinary people to include them in the innovation process, which creates the issue of Intellectual Property and how to handle it
   • Emergence of new business models that threaten the existing monopolies
   • Emergence of new pricing models: donations (OhMyNews) or Bidding (EBay).

   IKEA, Easyjet, Dell, Nokia, L'Oreal, Procter&Gamble, Swissquote are examples of the transformations that can be implemented. Companies have to move towards hypergrowth to survive.
   
   What is interesting is that new sub-categories of products are being created in the process (song vs. album), that banks and credit cards were not setup to handle originally. Hel looks and The Satorialist are examples of what is happening in the fashion industry. Istockphoto, Innocentive or Marketocracy are example of consumer involvement in the value chain.

   In conclusion, isn't it that the changes we are witnessing in the economy are similar to what happened with Direct Democracy in Switzerland?
   
   The consumers have been empowered, and are we not slowly evolving towards a Direct Economy, completely changing the underlying principles of the Global Economy as we know it today?

10. Epilogue

    While Switzerland introduced Direct Democracy, they are now lagging in their e-government implementation effort. The matrix can help understand what is happening and what needs to be done. It can help compare what is available today against what others in Europe are doing. The key is to enable the transformation towards the ultimate e-government, which is not a strategic option but rather an implementation issue to be resolved.