"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
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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]
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.
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.
Presence of new markets
Presence of new technologies that can fill new markets: digital media
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
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.
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.
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