2013 Executive Summit Summary

The Consortium for Service Innovation’s 2013 Executive Summit convened to explore “the next big thing.”  As with many of our conversations, this was meant to be a “diverging” exercise.  Our goal was to brainstorm possibilities from a specific point of view, without converging too much on the “how.”

Thanks to the generosity of Cisco, HP, Oracle, and Sage, author and former Harvard Business School professor Shoshana Zuboff was able to join us to set the stage. Shoshana has spent years studying the evolution of capitalism and proposes a required re-formation of the way we operate in the commercial world and institutional spheres.

With so much that is disruptive, Shoshana asks, why is it that so little is actually disrupted?

Shoshana proposes that capitalism succeeds because it continues to evolve.

We have moved from the proprietary capitalism of the 1800’s, where you had to own the business to create value, to managerial capitalism in the 1900s, where you have to manage the business to create value: where top business executives reap the benefits of the value created by employees.

We are moving away from the last hundred years of managerial capitalism to distributed capitalism, shifting away from business models based on central control, mass production, and economies of scale.  In distributed capitalism, the focus is on the individual.  Those individuals who create value receive financial benefit from the individuals who realize the value.

Henry Ford’s introduction of the assembly line created the disruption that moved us from proprietary capitalism to managerial capitalism.  It changed the economic logic as well as created new levels of wealth for our society.

An example of this next major disruption is the way iTunes and Apple have dramatically changed the economics of the music industry. iTunes does for distributed capitalism what Henry Ford and mass production did for managerial capitalism; it introduces a whole new, disruptive, method of providing value to individuals.

Each of these chapters of capitalism reflects social changes and introduces new business logic.  Shoshana makes the observation that managerial capitalism is no longer serving the needs of society and that we are in the transition period or ”chasm” between the old model and the new. We can tell we are in transition because of the declining, aggregate return on assets and return on sales. While executive salaries are exorbitant, the economic logic of managerial capitalism is not creating wealth for our society as a whole.

In three generations, individual conditions of existence have changed drastically in the western hemisphere.

Our great grandparents were defined by the family into which they were born.  Families were tied to their social class and the nature of their work. If you were born into a family that served aristocrats it was highly unlikely that you would be anything but a servant.

While our grandparents and parents began to have some freedom around the careers they chose, they were often defined by that career or company.

Managerial capitalism created opportunity: if you got a good education and hired on with a major corporation, it was often a job for life. While our parents enjoyed an unprecedented improvement in the standard of living thanks to the benefits of mass production, it required a fair amount of conformity. They were happy to follow the rules so that everyone could benefit, to be anonymous members of society able to become mass workers and mass consumers.

Our generation, and the generation entering the workforce today, is faced with a new kind of struggle: our lives are ours to create as we choose. We are in the age of the individual and personalization.  As individuals, we are not living with a pre-defined road map, and so are faced with new challenges: we must invent worthwhile, fulfilling lives for ourselves, and we have almost endless options as to what our lives might look like.

The new purpose of commerce is to provide the tools, platforms, and relationships (digital and human) that enable individuals to live their lives effectively as they choose.

How do we tap into this new economic logic?  Shoshana proposes six key facets or elements that she calls the genome of the new economy.

The first and core element is: Invert.  The old logic of wealth creation worked from the perspective of the organization and its requirements – it was completely organization or vendor-centric. The new logic starts with the individual. Unlike managerial capitalism, which asks the question, “how can we sell more of what we have?” the questions in distributed capitalism are “Who are you?” “What do you need?” and “How can we help?” This inverted thinking makes it possible to identify the assets that represent real value for the individual. Cash flow and profitability are the result of understanding and satisfying individual needs on the individual’s terms.

The second is Bypass.  Just as a coronary bypass ignores a damaged blood vessel and takes blood to its destination another way, so do new delivery systems like iTunes or distance learning. They bypass much of the unnecessary “overhead” associated with the traditional music business and educational institutions. In both these cases the bypass is accomplished by moving from atoms to bits: that is, the assets (the music and the course materials) are digitized, which enables them to be distributed in a dramatically more efficient manner. They remove the unnecessary costs, outdated assumptions, and value-destroying practices of the legacy business logic.  Bypass means connecting individuals directly to the assets they seek in a cost effective and convenient way.

Once valuable assets have been identified, they must be Rescued from old, costly industry structures. Assets—such as knowledge, music, books, medical diagnoses and treatments, teaching, information, skills, and people—have been concentrated inside organizations, where they can be managed and controlled to fulfill corporate goals.  Rescuing assets means increasing access or use of these assets often by digitizing them whenever possible for easy and affordable distribution to individual. However, we should not overlook the role eBay plays in efficiently connecting sellers with buyers.  They are, in many cases, enabling the rescue of tangible assets.

Distribute means those individuals who create value are compensated by those individuals who realize the value. Here again, eBay is a great example of this, as is Amazon.  eBay and Amazon connect people who want specific things with the people who are selling those things.  The individuals who create the value (sellers) are compensated by those realizing the value (buyers). eBay and Amazon get a small percentage of the transaction.  Another great example of this emerging economic logic are the smart phone app stores.  Apple and Google created platforms that make it easy for people to create apps, and they help distribute those apps to buyers. The app store is the conduit between those who are creating value (the app developer) and the individuals who realize the value (the consumer). A support economy is about the network that enables the flow of value and cash between individuals.

Once individuals have the assets they want, they must be able to Reconfigure those assets according to their own values, interests, convenience, and pleasure. Smart phones are a good example of this concept.  No one in the world has a smart phone like mine.  It has the music I like, and only the music I like, organized in playlists that reflect my personal preference.  It has the apps I want, and only the apps want, organized in the way that is most convenient for me.

And finally, Support.  Successful companies in this new economic space offer individuals the digital tools, platforms, and social relationships that support them living their lives as they choose. The new sources of economic value can be discovered and realized only when it creates value for the individual and strengthens their sense of personal control, delivers opportunities for voicing ideas, and enables freely chosen and personally managed social connections.

Shoshanna’s deep research, astute observations, and compelling vision for the next phase of capitalism and the characteristics of the support economy provides us helpful guidance and a framework for many of the projects we have underway, including the Adaptive Organization, the framework for service excellence, customer experience  and value mapping, and intelligent swarming.

Both Shoshana’s work and the growing interest in better understanding the customer experience are causing us to assess the work we are doing in a broader context. Many of the models and initiatives we have been working on for the past five years may have value to other disciplines within our companies; in particular, marketing and product management groups.

Explore this new landscape with us by registering for upcoming events.  (As a reminder, full Executive Summit notes are available to members on the wiki.)

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