Nature, Technology and Combinatorial Creativity

How one concept from complexity informs our view of nature and technology

This post reflects some of my thinking for a new book on a framework to identify the large market opportunities that have consistently repeated themselves over the last 4000 years. Comments to rhhfla AT gmail dot com are most appreciated.

“I have gathered a posy of other men’s flowers, and nothing but the thread that binds them is mine own,” Montaigne

About 40,000 years ago through evolution humans developed the ability to use representational art. This change in ability enabled man to move from a world of physical objects to symbolism and the intellectual development of ideas. Language, mathematics, music and art also were made possible from this change in the functionality of the human brain. To “create” these ideas required pattern recognition and a combinatorial faculty of the mind. At this point in history, not by coincidence, technology became a significant factor in the social and economic development of mankind. As Schumpeter stated, “new combinations of productive means” [technology] disrupt the economic equilibrium”. Man now had the ability to combine ideas, invent technology and live a richer life filled with the arts.

Since the time of Seneca, great thinkers have studied creativity and characterized it as a combinatorial process. For example, Einstein said, “Combinatory play seems to be the essential feature in productive thought.” In his new book, How Google Works, Eric Schmidt states “we are entering … a new period of combinatorial innovation.” This happens, he says, when “there is a great availability of different component parts that can be combined or recombined to create new inventions.” A new paper in the Journal of the Royal Society Interface by Santa Fe Institute (SFI) researchers Hyejin Youn, Luis Bettencourt, Jose Lobo, and Deborah Strumsky[1] shows that most inventions are combinations of existing ideas and have been for quite awhile. As many have characterized it, including Alfred Koestler (the seminal thinker on creativity), creativity is a “slot machine” where pattern recognition enables one to see value or “a means to human purpose”.[2]

Now if we think about the Schumpeter quote above, we can show how this combinatorial facility explains large market opportunities. W. Brian Arthur, one of the founders of the field of complexity economics, describes the invention of novel technologies as a process of linking solutions “until each problem and sub-problem resolves itself into one that can be physically dealt with — until the chain is fully in place”. And Arthur defines technology very widely, to include “industrial processes, machinery, medical procedures, algorithms, and business processes”. As Arthur states, ‘we now have a system where novel elements (technologies) constantly form from existing elements, whose existence may call forth yet further elements”. So technology begets more technology…and opportunities.

There is something of a debate in academic circles about whether technology precedes a problem or whether the problem comes first and then the technology is created to solve it. I think the problems appear first, then the technology is “created” and then the innovative solution is offered in the market. The “new” technology or invention has to go to market [for public scrutiny and evaluation] to be an innovation and fulfill the opportunity. Once the technology is created to solve a particular problem, it is not uncommon that the technology be applied to a new problem. John Chisholm — MIT grad, entrepreneur and Forbes columnist — wrote an interesting article[3] that inspired this chapter in the book (and my interest in the complexity studies at SFI). He and his senior technologist each pick a collection of distinct technologies that they understand and are knowledgeable about. Then they combine a technology from each of their collections and determine whether the combinatorial result can solve a problem.

Two examples clearly illustrate combinatorial thinking. The laser printer was constructed from the existing laser, digital processor, and xerography. Motorola built the company around radio technology and the technical adaptions through combinatorial thinking that allowed them to pioneer car radios, public safety radios, WWII walkie-talkies and cellular phones. When it was sold to Google in 2011 for approximately $12.5 billion, analysts said that Google only valued Motorola’s intellectual property and not the operating business.

Simpler examples show combinatorial thinking with fewer technologies combined. Take for example the electrical motor. Vacuum cleaners, refrigerators, blenders, blow dryers, washing machines, dishwashers, water heaters[4], golf carts and now automobiles all use the simple electrical motor. Another good way to show combinatorial thinking is to consider liquids. Think about all the new products and opportunities that were made possible by a liquid being mixed with an additive — — lead added to paint to prevent growth on boat bottoms, children’s drinks enriched with every vitamin, thickener added to bleach so it does not splash, citrus flavoring added to vodka, salt mixed with water to create saline solution, engine cleaning additives in gasoline and on and on. Need a new opportunity…just find an additive for a liquid that solves the customer problem. Speaking of liquids makes me think of cooking as an example of combinatorial process. We see the combinatorial process in sauces, main dishes, adding sides and then we add to each of them, e.g. raisins in cereal or yogurt.

By now I am sure you are all experts on applying combinatorial thinking and have come up with many, many of your own examples that are better opportunities than mine. Congratulations. Now please explain why it took 6,000 years to put wheels on a suitcase. Naseem Taleb asked this question in his book, “Anti-Fragile”, and there is still no obvious answer to the question.

As much as we humans enjoy combining things to be creative and identify opportunities, that which can be put together can also be taken apart. Humans are great at decoupling things in order to solve a problem or make things better. Almost all the great thinkers cite the combinatorial process as the source of creativity, but decoupling challenges combinatorial thinking, in my opinion, for the crown. Decoupling is the simple idea that one can create value by separating or eliminating the parts of a whole. Remember the Negroponte Switch from the last chapter. The Switch is not only an example of functional fixedness but also an example of decoupling, when the cords are eliminated from the appliances (such as phones). Stephen J. Gould and Stuart Kauffman, well-known complexity scholars, refer to decoupling as “exaptation” or “a novel function for a part of an existing entity”.

I think in my lifetime that money will no longer be physical paper and will just be bits and bytes of code somewhere. From its earliest days money has been a store of value, whether it be gold coins, bills, bank accounts or bitcoins. However, every time someone overcame their cognitive bias the store of value changed its “form” through decoupling. Users accepted these changes because they satisfied an economic and emotional need. Another store of value is debt or a promissory note. However, why should we consider the obligation in the note to repay principal and interest to be linked. If we separate the note into two separate obligations for principal and interest we create derivatives. We could further strip out the currency that the obligation is denominated in. With some idle time on our hands we could further break up the principal repayment obligation into multiple tenors. Now totally bored we could link the amount of principal to be repaid to the obligor’s stock price. Decouplings creates equity, commodity and foreign exchange derivatives from many financial instruments. The Bank for International Settlements estimates that at December 2012 the notional value of derivatives was $635 trillion, which has to be the largest dollar denominated example of an opportunity from decoupling. As soon as one holder hedges their derivative risk, we, of course, create a new derivative. As future holders of a derivative hedge their position, we start to see autocatalysis, which explains in part why the derivative market is so large. Note: autocatalysis is a characteristic of several very large market opportunities and is discussed in several places in this book.

Music has gone through almost the same decoupling as derivatives, first albums to songs, then from vinyl to tape to CDs to iTunes. We now have specialists who mix new lyrics with existing musical scores. It is not hard to see that books have gone through the same changes both in form and in forum. Originally books were only owned by the rich, then found their way to libraries and now are ubiquitous through Kindle and similar technology, all different locations.

Skype is an easy way to demonstrate decoupling. Take away the landline (decouple) and complete the telephone call or data exchange over the Internet. Other well-known examples of decoupling are Google’s driverless car, MOOC’s (massive open online courses) where we separate classes from schools, home entertainment where we separate the show from the theatre and outsourcing where we separate certain requirements such as manufacturing from the business. Retailing decoupled from the store with the first online shopping at Comp-U-Card in about 1980.

Computing offers countless examples of decoupling. First we might mention the cell phone where the entire computing function moved to another device or the iWatch or Google glasses. The combination of hardware and software, which might be a simple definition of the computer, changed when we move the apps to the web as “software as a service” or through Google Chromebooks that have no apps resident on the device. Cisco has been queried countless times about whether it would sell its software as a standalone product, separate from its network hardware. The cloud first decoupled data storage, then processing and the Bitcoin Blockchain is perhaps an example of decoupling where the distributed processing is organized for the first time voluntarily. We have even reached the point where we are decoupling the software stack, the combination of operating system and applications (screen management, browser, etc.), so companies develop only the particular app or suite of apps that creates the most value for the customer and all the other software is licensed or open source. GitHub claims 25 million code projects available for use, which perhaps proves the point that more and more people are using other people’s code to complete the stack.

If we look at general themes from these examples of decoupling, we see locations and content separating (e.g. libraries, stores, theatres). We see information in all forms, including music, decoupling. Money is constantly being decoupled, now through derivatives. We see human operators separated from their machinery (driverless cars and many other machines) and we see computing constantly decoupling down now to the code level.

If we try to look ahead, we will see AI added to everything from cars to planes to lawn mowers. Barney Pell, a well-known former NASA researcher and entrepreneur in residence at the Silicon Valley venture capital firm Mayfield, has coined the Pell Law that basically states that the first company to successfully introduce AI into a product changes the industry’s product development strategy to focus first and foremost on AI. (Pell also believes that as applications and APIs become more sophisticated and specific, AI has the advantage over humans in realizing the benefits.) This combinatorial process will also lead to a higher frequency of decoupling with, for example, humans being the “component” separated or no longer needed.

There will be interesting opportunities to re-purpose real estate such as schools and libraries and theatres as we become increasingly comfortable with digital content, virtual presenters and no live performers. I think we will see an increasing combination of features built into buildings as we look to reduce the carbon footprint, increase sustainability and look to manage better the ever-larger cities. For example, why is the roof of every office and apartment building basically empty? This space is perfect for solar panels or vegetable gardens or composting pits.

Another big opportunity involves new private sector providers for government services. I believe that cheaper computing power combined with big data and AI will lead to a transformation in society similar to that at the time of the first automobile. These technologies will lead to people being able to takeover more of the current role of government, wherein lies the decoupling. A reduction in the scale of government is a decoupling. One way that the government might survive at its current scale and scope is if it became a better provider of information. If the government could become a low cost provider of publicly available big data information, we might see a new value in government. Building products and services on top of this publicly available data may be a large combinatorial opportunity. I think the government may become such a big data provider, but the government may become jealous of the private sector companies making large profits or eventually want to charge for the data. Probably easier to just reduce the federal government to the military, the Justice Department, a small executive branch and maybe an organization that funds scientific research. An automated national sales tax, with certain people exempted, would fund these programs.

Note: the combinatorial process looks very similar to a property found in biology. An emergent property in biology is a property in a complex system that the individual agents do not have. For example, proteins beget cells that beget tissue that beget organs, a natural example of the emergent and the combinatorial. If all of biology and the natural world follow this concept of emergent properties, it is perhaps no surprise that combinatorial processes are such a source of market opportunity. If we look at mankind’s “development” as a collision between nature and technology, the force behind the collision on both sides is a combinatorial process that we call creative when we talk about technology and evolution when we talk about biology.

[1] https://www.santafe.edu/news-center/news/youn-language-patents

[2] Arthur, W.B., The Nature of Technology: What it is and How it Evolves (Free Press 2009)

[3] http://www.forbes.com/sites/johnchisholm/2013/09/10/as-entrepreneurs-keep-reminding-us-they-lied-to-us-in-econ-101/#2eded21d1872

[4] Hidalgo, C., Why Information Grows (Basic Books 2015)