Moving toward a new conception of business economy

As cognitive social systems, companies are entities that are capable of autonomously producing the knowledge they need for their very survival, exactly like the human mind. This knowledge accrues in the company’s most precious resources: people - the people who work there, as well as customers, suppliers and shareholders. And with knowledge, companies can constantly and autonomously generate new knowledge. So, knowledge is both the input and the output of the organization’s operations. This is the central idea of my 1991 book: L’impresa vivente. Itinerario in una diversa concezione. The aim was to rethink business economy, which at that time was still overly fixated on the idea that organizations were nothing more than profit-making machines.

The theory I presented in the book is based on two fundamental assumptions: first, as an autonomous and independent organism, a company is a cognitive entity that has the capacity to create knowledge by itself and for itself; second, which is closely correlated to the first, the company is capable of opening up to the outside world (customers, suppliers, shareholders, society at large, etc.), whose characteristic traits become embedded in the company itself, which in turn incarnates the values of its people and its environment in a profound way. This vision, in other words, sees the company and the context in which it functions as highly interdependent: a community among communities that becomes a creator of value only when it performs its economic-social function to the fullest. And this value does not stop with realizing profits for shareholders and managers, but instead ripples out into the environment and the society.

This theory (which in part presaged some of the principles of Corporate Social Responsibility) allows us to shine a new light on various aspects of the life and behavior of a company, an organization which is not just a machine that serves to satisfy the interests of stakeholders. Instead, first and foremost it is a social system, a community, a set of social and cognitive relationships among people who decide to pursue individual objectives and share their knowledge, exchange their ideas, planning for the future, bringing different cultures together and helping one another to strive together toward common good.

The implications here are not solely theoretical; this concept of company changes the prospects for managerial action. In the current context, which is characterized by enormous complexity and systemic change that is happening at a speed and scope never seen before, managerial practices have to let go of the reassuring notion of prediction and control. They have to switch over to an experimental approach, in which managers need the courage to make mistakes. Managerial action becomes a continual learning process in which error, sought out through systematic experimentation, becomes the essential raw material, the input for good managerial practices.