How can one manage a sustainable and resilient business, respectful of our planet and our economy? According to Simone Cicero, companies that intend to survive into the 21st century need to rethink the way they create value and start with giving up their competitive advantage! Here's why. These days, no one can pretend not to see how the mechanisms by which we produce and consume our wealth are showing some growing signs of dysfunction such as the numerous speculative bubbles, the negative impacts on our environment, and the growing social inequalities, to name just a few. These phenomena are already act as warnings, pushing our society towards change. We are begining to question the “market” (which is an abstract and poorly understood entity) as the best system to organise the economy. We are looking for new ways of producing and exchanging value. Ways that are more open and efficient, less competitive, and inevitably based more on common visions and shared paradigms. We could debate endlessly about the reasons why this revolution at hand is so disruptive—and promising at the same time—regarding the new possibilities for communities to create value and build businesses... But I suggest we should focus on just a few key points. I recently read this piece on Mashable, and here’s a critical passage:
Whether collaborative consumption is truly a shift in consumer behavior or just a glitch on the radar, at the very least, it has shifted the mindsets of a small subset of our population… people have been sharing for ages now, but online peer-to-peer marketplaces are making it dead simple.
Peer-to-Peer. These three words point out the fundamental paradigm shift that our market-based society is about to go through. In fact, P2P means fewer intermediaries, less constraints, direct relationships... These relationships —being from person to person— inevitably lead to a humanization of exchanges, rather than solely commercial-based relationships. In this regard, it is worth citing this Campbell Mithun research, where emotional benefits are ranked among the most valuable by sharing economy participants:
- Generosity—I can help myself and others
- Community—I’m valued and belong
- Lifestyle—I’m smart
- Lifestyle—I’m more responsible
- Cultural—I’m part of a movement
Four out of five reasons are related to the empathic and community sphere, with inherently social implications. While the so-called sharing economy is sometimes awaited by some as the next big business thing and depicted by others as the final affirmation of access over ownership, this radical change can also be described as a pursuit of efficiency and innovation at all costs. John Winsor recently wrote an illuminating piece about the real reasons that are transforming today’s economy:
Fundamentally, economic value is created from economic inefficiencies … While this all started slowly, today (thanks to digital revolution) every sector of the global economy is being affected by the relentless drive for efficiencies…
Let’s set aside the discussion on the causes and the unstoppable process that—if we ever make it—is our last hope of transforming consumer society into something more significant and sustainable in the long-run. If we assume therefore that society will change faster and faster (essentially for its preservation), what do we need to consider if we are to create resilient and long-enduring businesses, and to contribute to a healthy economy as a whole? In this context it is crucial, for anyone involved in generating wealth, to understand how the market will change in the future basically melting with society, mixing together the actors, reversing values, breaking down traditional barriers. In fact, if there is a second key to understanding what is happening, in addition to seeking efficiencies, there is democratization. Internet pervasiveness, the “cloud” revolution, the commons-ification of knowledge, easier access to advanced technologies (until recently exclusively available to manufacturing giants), and crowdfunding all facilitate the entry of new players. Today’s opportunities are for new informal players, which consider labor relationships and even jobs themselves in a new way. In many fields we see (or at least can imagine) small and innovative startups —perhaps financed with crowdfunding— as well as non-profits or voluntary-based projects, that are confronted to mega-corporations. In such a context tending towards competition and commoditization, with a multiplication of different productive actors, every one of them should be aiming for a difficult mission: to become unique, inimitable, essential. Rather than thinking in terms of patents and mass-advertising, this can also be achieved by harvesting a community, by creating a tribe of supporters and fans around one's services and products. The “future-proof enterprise” needs to be one that thrives in the world as it should and inexorably will be: socially sustainable, cooperative, inclusive, p2p, local, decentralized and more equitable in terms of profits. There is no viable alternative. Old models based on control, large scale, and protection are failing. Companies can no longer act as monolithic, centralized, revenue-generating machines. Instead, they must become inclusive, create shared value, and thrive amidst radical change.
Commoditize Your Advantage
We come from a world where it was relatively simple to hamper innovation by exploiting competitive advantages: proprietary and obscure technologies, patents, customer lock in and more. If we reflect on today’s meaning of innovation, we can see how it is indeed much more about breaking down barriers and advantages, circumventing constraints and cutting inefficiencies by creating cooperative systems that favor the entry of new players, even small ones, that are closer to communities, and capable of creating genuine innovation and driving real change.
The example of 3D printing—one of the major promises of today’s micro manufacturing industry—speaks for itself. Since certain patents have expired we have seen an explosion of new use cases. If we look at a larger, global scale, is interesting to notice that even sovereign states are—starting with public health and medicine—beginning to reject the very same concept of patent (the emblem of competitive advantage), in order to be able to suppress it when it is in the social interest. In a world that tolerates less and less protectionism and limits to change, a good way to generate innovation and become key players in any industry is, literally, to systematically give up competitive advantage. This will benefit the community and will help you—as a company or other productive actor—to focus more on innovation and value. If you give up competitive advantage first, you can control the process and not just depend on external factors that innovate without your permission. I’m sure this is quite radical change in perspective, but there’s an example that can help clarify my take. I was reminded about this recently while talking to my friend Benjamin on Twitter: The mobile phone world has been recently disrupted by the introduction of Android on the market (a royalty-free, open source operating system) that has generated the most massive wave of innovation ever in this industry. Nokia, the most illustrious of the incumbents and a century-old company, has been virtually erased from the market in just four years because of its inability to adapt their business model to this new innovation challenge. In 2009 Nokia tried to opensource Symbian—which for years had been one of its main differentiating factors—to spur innovation. Now Nokia sells its patents, thereby giving up its last competitive advantage, and is significantly lagging behind. In addition to Nokia we could also mention the history of Kodak (again from John Winsor’s post, which really gets to the point):
Currently, innovation is happening so fast that we have a difficult time adjusting. A great example is Kodak … they invented digital photography but couldn’t change their business model fast enough to make the transition.
Why resting on its competitive advantage is risky
Competitive advantage can be risky, but in what ways? Consider the market situation in the following picture:
With the player on the left, things are fine as long as the competitive advantage on which its value proposition is based still stands. When that advantage breaks down (a patent expires, a new alternative technology matures, a new process emerges—and this is happening faster and faster!) its value on the market is suddenly less than its competitors’ which, also because of the gap, was pushed to innovate more in the meantime. Even more interesting—and far more complicated to handle for an incumbent player that bases its business on competitive advantage—is to consider that, by virtue of the radical democratization of production and maturation of collaborative technologies, its competitive advantage can be replaced by a “commons,” a shared value system that is expected to grow over time, with various players that can work in coopetition around it.
In short, if you base your business model on a competitive advantage nowadays, you are taking a great risk: the pace of change can quickly push you from being in a leader's position to a follower's position.
How to do it—Going forward, going deeper
In a world that needs change, where communities matter and commons-based peer production is often a viable alternative for creating innovation (as open source software and hardware taught us), companies should thave a major role to play, leading this change, focusing on meaning and not only think about maximizing short-term profits. The focus of the future-proof company should switch from protection to creation, from enclosure to inclusion. Companies should be facilitators of meaningful change whose inspiration comes directly from society at large, an entity for which the future-proof enterprise shall necessarily provide a role. What, then, does it mean to be the market-leading company of tomorrow? First we must set new goals, such as seeking innovation and valuing “socialization” (humanization) rather than inequitable profit maximization, since the world itself is evolving towards a new landscape that simply will prevent this from happening by virtue of protectionist strategies. The company of tomorrow will have to create a unique and un-commodifiable value built around trustful relationships with the community that will outlast any competitive advantage. The future proof enterprise must become a platform of value creation and exchange, by looking at co-production mechanisms—to involve the community—in addition to more traditional employment relationships. If we were to summarize the ten commandments for the future-proof enterprise they would be:
- Give up competitive advantage
- Embrace change, don’t fear it
- Create an empathic relationship with the community
- Create hackable products and services
- Focus on existing gaps, don’t create new artificial ones
- Seek sustainability, not profitability
- Become a platform of value creation and exchange among peers
- Co-design yourself to become the company that the community wants
- Don’t seek customers, instead seek supporters and ambassadors
- Stand by the right side
Being a resource for the community will make your business unique and able to face the future. Eventually, it will turn you into a resilient enterprise with the hope of make a lasting contribution to humanity. Post previously published on Meedabyte.com - with slides available here Credit picture: