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January 16, 2006

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Tim K

OK, I don't understand all of that. But nonetheless, I can't resist.

You're right. It is the dynamic and evolutionary nature of the global economy that explains the links.

The nature of these more complex forms of value is that they are eternally contested, rather than transacted. The transaction 'context' is both volatile, and critical to derived value.

My thinking on this builds candidly on the strategic agenda of 'AccountAbility' - and Simon Zadek, in particular, but is grounded in the dynamic visualisation of brand learning.

Collaboration lies at the heart of modern economics as all social institutions gradually disaggregate. So much is clear.

In this networked environment, competitiveness can and will increasingly embrace the ability to connect new sources of value - those current conceived of as externalities or I would add) as 'internalities' - emotional, time and knowledge-based assets.

Similarlys, stakeholder engagement is increasingly about innovating new ways to hold people to account - not just for their behaviours - but for their implications, intentions and motivations.

In short, the alignment of common interest, cogniscent of broader systemic goals.

The accountability systems of the future are not just transactional, or even relationship-based, but also embrace the meta-standards of HOW we interact and also the necessary architecture of WHY we interact.

This is what I mean when I sometimes talk about context management. Context management embeds externalities into relationship-based decision-making through the creation of new accountability principles.

Accountability; mutual governance systems; 'mapping'; context management. Call it what you will.

It's the metasystem of network engagement that governs socio-economic outcomes in a network age.

To succeed in this environment, organisations to three things:

They must enables the creation of unique forms of network value.

They must catalyse the balancing of
'private gain and public good'.

They must makes the quality of their offering in its richest possible sense, transparent.

Accountability is the means by which person-centricity becomes systemically stable - or, to pick up on your point about dynamism, perhaps becomes capable of punctuated equilibrium.

PS. You make a very important point about the diffuse nature of modern institutions; and the value-making (including relationship-making) potential of their different stakeholder structures. We need to come back to that sometime.

The evolution of 'civil society' institutions is a dramatic, but only 1/4 told story. They are increasingly integrated into the commercial and political landscape in exciting and disruptive ways.

AlanMitchell

Tim, you have opened up a Pandora’s Box here. Here are three comments.

First, all sustainable wealth creation is the product of mutually beneficial, cooperative, coordinated work. The seller-centric, command and control, shareholder value maximising capitalist corporation is just one highly specialised form of this general principle. When it works well – particularly in new areas of supply requiring significant up-front investment to achieve economies of scale – it works amazingly well, creating huge benefits for customers, employees and shareholders alike.

But it is not a universal panacea. There are many wealth creating scenarios that do not fit the ideal conditions for this type of entity. The ideal conditions are fast growing markets for relatively simple items that can be easily exchanged for cash, where supply has not yet caught up with demand. The real world is full of other scenarios: where the desired value does not take the form that can be made in factories and sold in shops (i.e. move through clearly defined supply chains) i.e. personal, experienced value; where the nature of the value exchange is more complex and subtle than the simple exchange of money for goods or services; where demand is not recognised in the form of ‘a market’ (i.e. where the sources of demand are so poor they cannot afford to buy the product); where supply outstrips demand (where the economics of the seller-centric firm begin to fall apart), and so on. In all these cases the traditional capitalist corporation struggles. It is not a universal panacea.

Also, it has some terrible flaws. For example, its central operating philosophy is instrumentalist. No, that isn’t a type of musician. It’s an ideology which seeks to treat everything the organisation comes into contact with (including employees and customers) as a means to its own particular ends – i.e. to maximise shareholder value. As well as being a superbly efficient wealth creation engine (in some circumstances), the traditional capitalist corporation is also a superbly effective conflict creation engine.

This Achilles Heel is daily demonstrated by its behaviours. For example, it is both indifferent and blind to the difference between what customer loyalty guru Fred Reichheld calls ‘bad profits’ versus ‘good profits’. ‘Bad’ profits are made by extracting value from another entity. ‘Good’ profits are made by creating value for another entity. Both its purposes (e.g. maximising shareholder value) and its main metrics (financial, accounting measures) cannot and do not distinguish between the two, which both appear simply as ‘revenue streams’ or ‘cost cutting opportunities’.

We can see the resulting behaviours in the way that corporations treat customers: on the one hand wooing them, seeking to understand them and ‘delight them’ (in order to close more sales); on the other hand, forcing them to stand in queues, cynically manipulating them, providing them with poor and misleading information, and generally treating them like dirt. Companies do both, because both forms of behaviour can generate revenue streams or lead to lower costs. To the measurement system, they are identical. The eternal confusion of the capitalist corporation on these issues – its schizophrenic attitudes and behaviours – are manifestations of this ‘inner’ nature.

That is why one of the positive contributions of person- and buyer-centric services is that they help seller-centric corporations wean themselves off their addiction to ‘bad’ profits – if only because the new environment makes bad profit-making harder to get away with! This ‘forces’ supplying companies to focus on genuine value creation. Thus, buyer-centric business models are not ‘enemies’ of sellers. They are friends. Real friends that is: willing and capable of telling them how it really is.

[By the way, closely correlated (in time) with the rise of the seller-centric capitalist corporation was the rising dominance of ‘economics’. Economics allows for only two forms of behaviour: ‘rational’ behaviour, which is instrumental and selfish; and ‘irrational’ behaviour, which is ‘altrusitic’, i.e. unselfish.

Economics is a misleading and vicious ideology on two counts. First, it smuggles in damaging value judgements under the banner of ‘science’ and rationality. By equating ‘rational’ with ‘selfish’ and unselfish with irrational, it justifies and encourages the capitalist corporation’s addiction to bad as well as good profits.

Second, it excludes 99% of real human interaction (and organisational and institutional behaviour) from serious and enlightening consideration – because they actually work not on the basis of instrumentalism but reciprocity. Once you look at how real human beings behave, you quickly discover that reciprocity (which, by the way, embraces both ‘you scratch my back and I’ll scratch yours’ and ‘an eye for an eye’) is far more ‘rational’ than instrumental selfishness which is actually irrational in the extreme.

Once you accept that reciprocity – and not instrumentalism – is the central fact of human beings’ social and economic behaviour, you have intellectual ‘permission’ to explore all manner of exciting organisational and institutional innovations. A whole new world of possibility opens up. Buyer-centricity is one such possibility.]

So my own suspicion is that the rise of person- and buyer-centric services will be accompanied by an exciting wave of such organisational and institutional innovation. Bearing in mind that the basic principles apply to all the main social roles of individuals – as consumers, shoppers, employees and citizens for example – the possibilities for such innovation are breathtakingly massive.

Yesterday, to put it crudely, the economic landscape was divided into two:
• ‘the mainstream’, the stomping ground of the profit-seeking seller-centric capitalist corporation
• ‘the rest’, public services, voluntary services, charities and so on that don’t fit this formula

Increasingly, I suspect, we will see an institutional and mental re-patterning which creates:
• a new mainstream: effective forms of reciprocal wealth creation, including for-profit capitalist corporations, public services, voluntary services, communities of interest etc. etc.
• ‘the rest’, those forms and situations were the reciprocal model does not work well


I think this is already happening. It’s interesting to note, for example, that less than 50% of Fortune magazine’s Top 100 companies to work for are traditional publicly quoted companies. Many are private. Many are employee owned. And so on.

But within this, I think it would be dangerous to assume that there is, or should be, a one-to-one correspondence between shareholder capitalism and seller-centricity, or between person-centricity and cooperative forms of organisation. There will be many shareholder funded buyer-centric enterprises and many co-operative seller-centric enterprises, for example. And that is probably how it should be.

So that is my first comment, which boils down to this. Yes, there is an issue concerning person- and buyer-centric services and ownership structures. But the way forward is probably not to seek to ‘subvert’ existing ownership structures but to evolve a new, richer and much more varied organisational eco-system where different types of entity can work together in more productive ways.

. . . . .

My second comment is spurred by your comment “the fact is that no else can be self-interested on your behalf”.

Leaving aside the above comments about rational economic man and reciprocity, the fact is that the seller centric corporation is surrounded by armies of specialists – the professions, consultants, agencies and so on – all of whom earn their keep by helping it improve its economics.

The simple insight of buyer-centricity is that it is now becoming increasingly economically viable for individuals to ‘employ’ their own professionals, consultants and agents whose job it is to help them improve their own personal economics.

Now, that doesn’t contradict your comment about who can be self-interested on your behalf, because ‘agent relationships’ are notoriously hard to manage. Just look at the ongoing rows and conflicts between corporate managers and shareholders; or between consultants and their clients (often it seems that the real beneficiary of consultancy work is the consultancy, not the client).

Unfortunately, there is good reason to believe that agent relationships applied to helping individuals improve their own economics will also be fraught. There is room for endless controversy, mistrust, bad feeling and so on even between two economic actors who are agreed on the same objective: after all, how many consultants and agencies sell their wares without promising to improve their clients’ profits or performance in some way? Reciprocity – mutual interest and mutual benefit – is not the same as eternal perfect harmony. It has to be negotiated, policed and so on.

So that is why your comments about accountability (and transparency, and the need for explicitly and openly aligned incentives) are all crucial to the success of buyer-centric business models.

. . . . .

My third point is this. Yes. We are back to that perplexing and fascinating world of ‘mutual governance systems’ as you call them – or Mapping as Chris Macrae calls them.

That is why I am continuing my research into Mapping with Chris and William Gordon (co-author of Brand Manners, which explores the notion of reciprocity in customer relationships). I think buyer-centricity and Mapping are complementary to each other. They are both part of a broader, deeper evolution.

(There is a third pillar of this evolution (to mix metaphors horribly), which I’m also exploring. But let’s keep that for another day!)

Tim K

Alan...

What follows is 'thiking out loud' rather than a considered response to your excellent post...

"When you put it this starkly Alan, my emotional reaction is that the only way to replace the seller-centric system is to subvert the ownership structure.

i.e. for groups of individuals with similar needs to get together in buying co-operatives to buy services and also form 'sales co-operatives' to benefit from the value own personal assets.

The fact is that no-one else can be self-interested on your behalf.

This would be the mutualist, or co-operative solution.

But even co-operatives only create 'value in my life' if they can help me acquire 'personal value-added' (PVA) services - not just cheaper commodities.

Actually, this 'old mutualism' approach pitches headlong into a deep abyss, of common-sense.

We have, for the last century, been suckered by the common sense principle that 'ownership', is the central principle of common resource-configuration and control.

Even capitalism's would-be nemesis, communism, has the same a priori assumption of ownership. Ownership-based resource allocation is assumed, by common sense to be the most effective way to create wealth and reduce 'economic' friction.

Actually, 'accountability' is fast becoming the central organising principle for resource management. Control is much less important than the ability to co-ordinate. And co-ordination demands both transactional and relationship accountability.

Accountability reduces socio-economic friction.
Accountability dramatically increases individual wealth.

The creation of truly novel value-exchanges does not rely upon assertion of ownership, but on the demonstration of accountability.

It depends upon connecting my personal asset management system (aka 'my life') to asset management systems of my supply-chain (aka 'the world').

Developing the infrastructure around person-centric commerce - which can be a more globally productive and sustainable model - is going to require a new architecture of accountability.

Transparent Brands and EBay style network trust systems will be key levers of value.

We're back into deep dark world of mutual governance systems, I'm afraid...pace Mr Macrae...

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