The Empty Whitecoat

Incrementally reducing: Zuboff on innovation

I loved this answer given by Shosana Zuboff to an interview question on lessons in business innovaton from history and science:

Q: You have drawn on other fields in addition to business, such as history, science, even contemporary architecture. Why did you decide to look outside business for answers to issues of capitalism?

A: Think of a Russian doll. Business is inside capitalism, but capitalism is inside society, and society is inside history. The forms that capitalism takes in different eras reflect the social changes that ultimately shape markets.

Most "new" business concepts are simply self-referring. They do not move beyond the rules of a certain way of doing capitalism, and therefore they cannot possibly alter the problems they target. Instead, just the opposite occurs — the status quo overpowers new ideas and turns them into variations on the same old themes. That is why every innovation from quality circles to reengineering to customer relationships turns out to be another road to cost reduction.

To get outside this vicious circle, it is necessary to understand the ways in which today's capitalism grew out of the social conditions that existed more or less a century ago, and thus the ways in which a new capitalism, what we call distributed capitalism, can grow out of the social conditions that exist today.

Who are today's people? What are their dreams? What do they yearn for? The answers to these questions do not exist inside business but everywhere else. They are inscribed in our culture in thousands of ways, many of which we discuss—master bedroom suites, home schooling, the passion for genealogy, extreme sports, organic foods, alternative health, and the profound popularity of the Vietnam Memorial Wall.

Capitalism will find its renewal in these social realities, not in spite of them. To quote The Grateful Dead, "Once in a while you get shown the light in the strangest of places if you look at it right."

Zuboff perfectly articulates what seems to be the great paradox of most forms of continuous business innovation, e.g. Kaizen. That is, they are seemingly incremental yet at the same time are limiting progress. As I have mentioned many times, I am especially intrigued by the lack of innovation in marketing. It seems that most marketers are conditioned into a dominant, Kuhnian "normal science" obsessed with taking little, low-risk bets rather than exploring fundamental, even paradigmatic change. They may pay lip-service to changing social conditions and the needs and dreams of individuals yet most struggle to shake-off the dominant consensus.  Sometimes, I wonder what role marketing education is performing in maintaining the status quo.... but that is another subject altogether...

Buyer-Centricity and Co-Creation

I finally caught up with Alan Mitchell a little while before Christmas. Alan, author of Right Side Up and The New Bottom Line, is highly active in the buyer-centric marketing space and - like myself - is a member of the Steering Group of the UK Buyer-Centric Commerce Forum - a not for profit set-up to promote and encourage discourse around the buyer-centric vs seller-centric debate.

Alan and I had a long discussion about CK Prahalad and Venkat Ramaswamy's co-creation concepts and their connection with the buyer-centric logic.  We discussed their relative merits and debated which has greater immediate potential to address the disconnect between the dominant marketing and commercial logic and empowered active, individual customer behaviour. Anyway, the next day, I was surprised to receive a lengthy email from Alan stating his position.  It makes great reading and with his kind permission, I reprint it here....

There are some parts of the Prahalad book that I really liked - especially at the beginning where he said (for example) that 'the market begins to resemble a forum around individuals and their co-creation experiences, rather than around passive pockets of demand for the firm's offerings'.

His healthcare example - the guy with the heart condition - rams home the power of the concept. It also underlines the point I tried to make last night: the seller-centric instinct is to see co-creation as a means to 'own' a relationship with a customer in order to pursue all the classic seller-centric goals: increased life time value, cross-sell, retention, margin boost etc. Whereas, what comes across really strongly in Prahalad's heart example is that the next layer of value is added by the integration and coordination of existing products and services around the particular needs of the individual. This 'meta-role' of integration and coordination doesn't fit easily within any one of the specialist ingredient suppliers' roles: it's arguably best tackled by an independent party effectively working as the consumer's agent.

In other words, to my mind Prahalad's thinking implies the need for 'buyer-centricity' (whatever we want to call it). But through the rest of the book he slides away from that conclusion (because, I suspect, it represents a bridge too far for lucrative consulting contracts!). Instead, he increasingly implies that it can be done by individual firms. This is the big debating/testing issue.

Stepping back a bit to the big picture, the way I see it is this. Historically, in knowledge management terms, value creation was driven by those who acquired and extended knowledge about the nature of raw materials and the processes needed to transform them. It was basically product- or production-focused knowledge. We started with the application of this knowledge, and then looked for markets for the stuff that it created.

At the time, it sparked an explosion in value creation. If Carnegie hadn't reduced the cost of steel by 90% and Rockefeller the cost of oil by 70%, Henry Ford would never have got a look in. Then Henry Ford did the same: using special product/production process knowledge to drive down the cost and improve the quality of the motor car. And so on. And so on. Our entire wealth creation system - its structures, processes, mindsets etc - is built around this legacy of product knowledge, and our focus on the firm as the source of value creation is one of its effects.

This is never going to go away. Breakthroughs in product knowledge will continue to create breakthroughs in value. Think of the mobile phone on our table last night. Now, however, the epicentre of the next productivity explosion is shifting to a different place: to information processing itself. And, (amongst a myriad of other effects) it is opening up a new avenue of potential value creation.

This avenue does not start with knowledge about things and production processes, it starts with the knowledge about people: each individual's particular circumstances, preferences, priorities, needs and wants, likes and dislikes, etc. Given this foundation of personal knowledge, the value creation challenge is how best to source, coordinate, organise and configure products, services and experiences around these circumstances, preferences and priorities.

This is economically significant because the biggest block to increased productivity and efficiency is modern economies generally no longer lies in our ability to make stuff well, but our ability to match (supply to demand) and connect (buyers to sellers) well. Matching and connecting now accounts for over a half of all modern economies' total activities, and its relative importance grows by the year. It's where the biggest opportunity for productivity improvement lies.

But precisely because it needs to be driven by information from the individual rather than from the firm, this next-gen productivity revolution cannot be delivered by 'better' marketing, CRM etc, which are all firm-centric activities.

Instead, it is another layer of wealth creation, built on top of our existing layer of productive operations, just as the factory system was another layer built on top of farming. Co-creation lies at the heart of this next-gen layer of commerce: but it happens through and in this layer and not as a mere extension of individual firms' make-and-sell processes (as Prahalad's heart example demonstrated).

The really exciting - and difficult - bit is that the skills and processes needed to gather, process, clarify and articulate information from and about individuals' are still in their infancy. To 'grow up' they need to overcome many barriers. Some are technical (e.g. easy to use info gathering, storing and analysis systems). But some relate to trust and benefit: why should I co-operate in this process? This is where the agency concept is crucial. Unless the entity undertaking this task is working 'for' me, why should I invest my time, trust and information in it? Because, after all, my information is now the 'oil' that drives every subsequent commercial decision.

Personal knowledge banks, Conciera-style request-for-offer systems, and Google-based search and compare mechanisms are all potential building blocks of this new value creation engine, whose real, long term benefit won't come from sweeping the market for better prices of existing products, but in the creation of new, more personalised, relevant offerings - or what Prahalad calls 'experiences'.

To this degree, I see co-creation and 'buyer-centricity' as necessarily being two sides of the same coin. Do you agree, or am I missing something?

Anyway, the point of this ramble is to explain why, from my perspective, your thoughts about co-creation are central to the development of BC thinking, and not separate or tangential to it. It's really important we develop and integrate them.

I shall post some thoughts on Alan's comments in the next day or so. Happy New Year to all readers and fellow bloggers.