"Capital vs. Talent: The Battle That's Reshaping Business", Shoshana Zuboff -- Rotman School -- Lifelong Learning, May 30, 2003, 2:15 p.m.

Shoshana Zuboff, Charles Edward Wilson Professor of Business Administration, Harvard Business School

These participant's notes were created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. These should not be viewed as official transcripts of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. These notes have been contributed by David Ing (daviding@systemicbusiness.org) at the IBM Advanced Business Institute ( http://www.ibm.com/abi).

Introduction

• Ph.D. in social psychology
• 1988, wrote "The Age of the Smart Machine"
• New book -- "The Support Economy "
• [Shoshana will be speaking via teleconference from a studio in Portland, Maine]

[Shoshana Zuboff]

The challenges we all face, not only to get the economy back on track in the short term, but to create the long-term growth

• Not just dependent on a financial budget.
• Support economy -- a new wave for the 21 century.

Provocative premise:  Business as we are practicing it today is broken, and it can't be fixed with the tools that we have.

• Have been a Harvard Business School professor for almost a quarter century.
  • The tools today are almost the same as those 25 years ago, and maybe 35 years ago.
  • Drunk man under the lamp post.  Looking for keys.  Keys were lost in the darkness.  Looking for keys where the light is.
• This is the problem with business today.
  • We're looking under lampposts, inside our companies.
  • The new solutions are the places out in the darkness, where we don't have mapped.

The thesis:  a whole new way of thinking about our economy, and capitalism

Why are things broken?

• Look at society, how we've changed over the last 50 years.
• We, as a society have changed more than employers.
• Have become educated, informed people.
  • Exceed previous generations
• For all of our heterogeneity and diversity of educated people:  have on thing in common
• A desired for psychological self-determination.
  • Life in our own hands; control; choice in the way we live our lives
  • No longer anonymous members of a society, but instead psychologically unique.

This is new in human history

• We take this for granted.
• Look at grandparents and great grandparents:  who are you?
  • I am my mother's daughter, I am my father's son
  • It's where were born, religion, race, predetermined variables.
• Today, we not only feel it's our right, but our burdent to create our own destinies.
• Don't have to look far:  look at families.
• Before, used to judge families by how each individual contributed to the family.
• Now it's reversed:  instead of individuals being surpressed in service of the family, each family is judged by the individuality of the family members.
  • Lives as parents:  nurturing and discovering
  • Finding best schools, musical activities, drama activities, sports, ... to bring out the individuality of our child.
• Families are no long one solid configuration.
• 1996 U.S. Census Bureau:  annual discussion of the family:  the typical household -- single head households, extended household, different unrelated people living together ... every express of individuals fitting themselves.
• e.g. British Royal family has had to accept individuals, divorce

Once we have a society bent on self-determination, what does this mean for business people?

• What's it mean for consumers, as compared to 100 years ago.
• 100 years ago, what was new was mass consumption:  railroads, telegraph, access to goods
  • Had little, wanted more
• Challenge:  how to serve these mass consumers -- mass production
  • Great volumes, much more cheaply and efficiently
• Invented an entirely new approach to capitalism that allowed us to manage mass production most efficiently.
• Called managerial capitalism:  it depends on a new professional cadre of managers, to oversee this new production
• Required discipline, command-and-control, cost-down to create volumes and low unit costs.

Fast forward to 2000

• No longer willing to be mass consumers or bend to the rules of commerce.
  • We're asking for commerce to bend to us.
• We all have a lot of stuff
  • We look for something more than just goods and services.
• We're looking for support to live new complex lives, in the way that we want to.
  • Instead of fighting for interests, looking for advocacy and support, people we can trust, commitment and relationship
• These are things that help us attain the self-determination.

Problem:  what happens

• We bring the new needs of support, but businesses are insulated by managerial capitalism, with a tight inward focus.
  • Efficiency, low cost.
• Consumers come to the door with new, different and subtle needs
• Met with a wall of indifference, adversarialism.
  • Business treating me like an anonymous transaction, no past and future.
• Looking for a relationship, someone who understands my life.

This is a chasm between the individual and the company that the individual must depend upon for consumption and employment

• This also arises in individual investors, subordinated to interests of management
• An underlying prejudice:  consumption as something trivial or frivilous
  • Consumption versus production in Roget's Thesaurus
  • Production is everything good
  • Consumption: negative, greedy, bad
• We live in economies driven by consumption
  • They depend on the cash of our consumers
• It's about our education, our health care, insurance, how to take care of families
  • Consumption today is like hunter and gathering was in Paleolithic times
  • We must be consumers
• Distance is different, intimacy.

U.S. survey:  how much do people trust companies?

• Only 5% of Americans support their HMO.
• 7% insurance company
• 12% trust telecom company
• No industry trusts more than 40%:  the supermarket
  • The supermarket has pressed the least intimate part of lives

We're alone and adrift.  What do we do?

• Airlines:  an industry in need of a wholely new business model.
  • It's not just about security.
  • These seeds were planted years ago, when revenues were high.
  • We dreaded going to the airport, because will be treated by what is good for airlines, not by us.
• Employee discontent
  • Layoffs
  • Those left behind under stress
• Debacles of Enron
• Sky-high CEO paychecks.
• Lots of smart people trying to paste band-aids on separate issues, as if they were unrelated.
  • They're not unrelated

The support economy sees that all of this issues all stem from the way we are practicising capitalism, has become out of touch with the societies it should be serving

• There's no way back, unless we find a completely new paradigm.

Some good news:

• Capitalism is the only economic system left standing on the planet, for a good reason.
• Over 400 years, capitalism has proven to be the most robust, plastic and adaptive economic system.
• It's a law book with many chapters.
  • Managerial capitalism is only the most recent chapter.
• Capitalism lends itself to reinvention, every hundred years, as people find new ways to respond
• In this chasm, pain, frustration, rage, humiliation that individuals are feeling, is the seed of the new great wave of wealth creation
  • It's a call to action for venture capitalists, consultants, visionary executives, and to consumers, citizens
• All of these groups have to find a new way through.

Managerial capitalism was invented by man, to deal with human populations of new and unmet needs.

• Need the same type of invention, now.

Distributed capitalism -- argued in the book as the next stage of capitalism.

• Very often, it's the outsiders, the mavericks, the visionaries, people rejected by the old establishment, have a new connection into the new people with new needs

Henry Ford was an example.

• A nasty man, with some special qualities.
• Automobiles were made by rich men for rich men.
• Companies liked to see the price increase, because it would be more luxurious.
• Henry Ford said that there's a world out there of ordinary folks who want automobiles, at a price they could afford.
• He discovered the economics of mass production.
• A whole new approach to commerce.

In the book, now faced with a new challenge:  distributed capitalism

• It's essential that the new capitalism leverage the technology and infrastructure today.
• Today, not oriented towards hierarchies, command-and-control.
• The entire nature of economic value shifts
• 100 years ago, could justify the inward focus:  economic value is created inside our organizations, with our products and our services.
• Once we move beyond products and service -- not saying that they don't exist, but they're bundling in support and advocacy -- economic value is created in relationship, and advocacy of individuals.
• This value has to be created in the space of the individual.

Back to the airline example.

• Today, everything is what works for the airline.
  • We see airlines facing horrible downturns in profits, and expect to see creativity and innovation.
  • Uncertainty turns out to be the greatest indicator of predictable behaviour:  a systems does what they know to do, but more vigourously
  • Airlines want to charge us for frequent flyer miles, food, ticket surcharges
  • These are the same old game.
• Suppose the airline industry thought of its business in a different way.
  • Business begins from the moment the customer gets the idea that it needs to make a trip, to arrival.
  • Everything in between.
  • All travel, hospitality.
  • If something is postponed, rebooking.
  • Communicating every step of the way.
  • People could opt into different levels of support:
  • Just get me from home at the right price, or deeper support with room as I want it, things unpacked, and everything at home is being taken care of -- all taken care of.
• This is a shift.
• Needs of the individual may cut across a dozen industrial categories, different enterprises
• Federated support network:  instead of a single organization, a large number of enterprises who will opt in for support.
• All aligned together that allows us to collaborate across old industrial boundaries.

Highlights of distributed capitalism:

• Economic value migrates from the enterprise to individuals
  • Individuals are distributed, so economic value is distributed.
  • Authority, control, informatoin, employment systems have to be distributed:  This is the distributed imperative.
• Concentration to decentralization
• Federated support networks.
• A Copernican revolution:  the periphery becomes the center
• Infrastructure convergence:  there's no way that I can afford this, and there's no way that a business can provide it.
• Technology has an important role to play.

Three conditions:

• Presence of new markets
• Presence of new technologies that can fill new markets:  digital media

Infrastructure convergence:

• Will take replicated ability out of companies, into digital pipes, e.g. accounting, human resources
• Availability like business utilities
• As much of 30% to 40% of cost can be pulled out -- could be 60% to 80%.
• Leaves the core capabilities and competences
• Free up cash and working capital, to support people at a cost they can afford.

Will wrap up for questions

This is an economic revolution

• It's also completely consistent with the natural history of capitalism
  • Capitalism renews
  • It's not always been one thing, it's changed.
• This is about a new conversation to invent a new opportunity for capital
• Will make lives prosperous.

[Questions]

Airline example extended through to a consumer's travel life -- means more businesses where we're extended to everything so we don't know what business we're in.

• This illustrates starting under the lamp post.
  • A huge vertically-integrated holding company
• Outside the lamp post, we're talking about federated support networks
• Ownership working in different ways
• Enterprises working in different ways, enterprises can be members of more networks, getting paid.
• e.g. automobile assembler could converge with 3 or 4 different support networks.
  • Taking core competence in automobile assembly, collaborating with different networks
  • Able to bundle
• Federations are owned by shareholders, whole new way.
• This goes deeper into collaboration
• Not creating new behemoths

Chasm between the consumer and the company; similar chasm between the employee and the employer

• Suppose:  I'm an individual, for 8 hours thinking of myself as an employee, and then other time think of myself as a consumer.
  • This is crazy.
• The rules and norms of careers of structuring employment have origins in the practices invented 100 years ago.
• Surveys show so many people want alternative work arrangements:  flex hours, away from office.
  • However so many people who want it can't get it -- so few organizations are offering it.
  • Particularly true for women and dual career families
• Arrangements were invented by the men who invented managerial capitalism
  • They had a view of life cycle:  work you way up, retire.
  • They had wives at home, so they could be at work all day, every week, most of the year
• Suppose instead of thinking of careers are hierarchical structures, think of them as starbursts, or episodic.
• Problem:  we all want something that serves our career lives.
• Career taxidermy:  taking something dead, and making it appear live.
  • This is what is happened to career structures.
  • All of this stress creates markets for support.
• So little support as employees, we want support as consumers
  • Distributed employment systems:  instead of rights lodged with an enterprise, rights shift to individuals.
• Individuals own their own careers as intellectual property.

Anonymous transactions:  those between shareholders and companies.  Changes in capital markets?

• Distributed models are integrated systems that support transparency through an entire network
  • New valuation procedures, and metrics.
  • Accrued trust, commitment
  • Cash flow -- no cash gets released into the confederation until the end consumer pays
  • Quality of the balance sheet, not just quantity.
  • Measurements transparent to everyone, individual shareholders
• This empowers everyone and informs everyone.
• Investment bankers and venture capitalists have a role:  to innovate and invest in infrastructure that get this.

Customer ownership as an enterprise.  Who is my customer?  Who manages the customer relationship?  A cookie-cutter approach?

• Idea is the Copernican revolution that puts the individual at the center of the solar system.
  • Everyone is aligned with the end consumer.
• Last 1/3 of the book has meta-principles of distributed capital.
  • No universal template, or we all would commoditized.
  • We have principles
  • Markets will be self-authoring
  • People will opt in, depending on the level of support desired.
  • e.g. a day in the life of a family in a support economy
• Example:  buying a car, want a Socially Responsible Vehicle, minerals from where there isn't child labour, certain amount of recycled material
  • An exploding e-mail that goes out to enterprises.
  • Enterprises will opt in
  • If the federation can't get its own enterprises to supply pieces, they'll go outside.
  • Very quickly, on the network, will get a quotation, the order goes out
  • Work out delivery, etc.
  • When the family is satisfied, the enterprise gets paid.
• This isn't a supply chain, where people are subordinate, people getting advantage from each other -- a cost chain.
• No one has the interests of the end consumer first.
• Challenge:  how you align everyone to the end consumer.

Support economy requires an enterprise with a intimate knowledge of consumers.  Privacy concerns?

• Looking under the lamp post.
• We went onto the Internet to get rid of hassles
• By 2000, e-commerce people were under pressure for revenue
  • They sold lists, put cookies on the computer, they're invading my privacy
  • Amazon and Real took it on the chin for violating trust
  • Even the Internet stuck us the same way.
• Shift from transaction economics to relationship economics
• Is a there a way to create a new model of commerce?  Advocacy and support, not adverserialism.