A couple of months ago, I had the good fortune to have lunch with Napier Collyns. Mr. Collyns is one of the founders of the Global Business Network and a man with a deep feeling for the rhythms and complexities of capitalism.
I came home and banged out this little essay. It’s an effort to think about the possibility that “value” goes from the material to the immaterial. A company might begin by making hammers but sometimes it ends up making value that is less literal and more broad.
Does capitalism have thermals?
A bigger picture may be called for when we think about capitalism. In his famous essay, Marketing Myopia, Theodore Levitt encouraged people to ask, “What business are you in?” The question had a strategic purpose: to rescue managers from their literalism.
In the early days of the railroads, managers were preoccupied with laying thousands of miles of track. The next generation devoted itself to making a magnificent delivery system for industrial America. With the rise of the automobile, the truck and the plane, things changed. But the conceptual shoe didn’t fall for management until Levitt gave them a big picture. “You’re not in railroads, you’re in transportation.”
There is perhaps an inevitable developmental pressure. As the world becomes more complicated (and capitalism routinely makes the world more complicated), the ideas with which it is understood must become more sophisticated. One minute we’re laying track. The next, we’re wondering how to compete with things that fly.
The only way to grasp the intellectual challenge is to generalize. This helps break the grip of literalism, the one that says, trains are trains and planes are planes. No, says Professor Levitt, trains and plains are the same thing but only if we move to a higher vantage point.
A second thermal comes in the shape of commodity pressure. In every market, incumbents eventually draw imitations (aka “knock offs”) into play. The incumbent is faced with two choices. It can engage in a “race to the bottom” that occurs as incumbent and imitator sacrifice margins until everyone finds themselves mere pennies above cost. (Thus does the innovation has become a commodity.)
Or, the innovator can climb the value hierarchy, moving from simple functional benefits that the imitators can imitate to “value adds” they cannot. Thus did IBM find itself challenged by off-shore competitors who offered bundles of software and hardware at 40% of what IBM was charging.
Customers snapped up these cheaper alternatives, only to discover that the commodity player was not supplying the strategic advice and intelligence that came with the IBM version of the bundle. Now IBM had to learn to talk about this value, and to make more of it. They were obliged to cultivate a bigger picture.
Here’s another “thermal.” Premium players traditionally defend themselves from commodity attack by creating higher order value that almost always comes in the form of idea and outlook. Thus Herman Miller, the furniture maker, confronted by an off-shore competitor that was prepared to make chairs for much less, redoubled it’s effort to sell not just chairs but new ideas for what an office could be. This thermal intensified as new commodity players have emerged from China, India, and Brazil.
We could argue that capitalism has thermals from almost the very beginning. In this beginning, enterprise were inclined to be structurally simple, a single cell mostly oblivious to the world outside itself. Call this “Paramecium Inc.” or Level 1. The enterprise makes hammers. It assumes someone out there wants hammers but the focus of attention is on the hammer.
Eventually someone comes along and says, “actually, what the company makes matters less than what the consumer wants.” Thus spoke Charles Coolidge Parlin in 1912 when he asserted that the “consumer was king.” Closing the gap between company and consumer has been a work in progress. New methods, theories, and resolve have come from the likes of Peter Drucker and A.G. Lafley, and somehow the gap persists. But at least the Paramecium is evolving, reckoning with things outside itself. This is Level 2.
In time someone says, “we need to think more systematically about our competitors.” This is the long standing focus of Economics, but in the late 1970s, Michael Porter offered a new approach and strategy proved influential. Here too the organization is sensing and responding to the world outside itself. It is scaling not so much up as out. We are now at Level 3.
With each new Level, we “dolly back” to see more of the world. Our “paramecium” is increasing aware of itself and the world outside itself. This is a movement from the narrow to the broader view, from the local to the global, from the provincial to the cosmopolitan.
Level 4, collaboration, has several moments. The enterprise, once less solipsistic, can entertain partnerships. The organization that once insisted on a crisp, carefully monitored border now consents to something that looks more porous. The Japanese influence helps here. So did the “outsourcing” movement. Most recently, with the advent of new media and digital connections, collaboration expands to include still more, and more diverse, parties.
In Level 5, we are encouraged to see that the enterprise must reckon with the meanings, stories, identities, subcultures, and trends with which people and groups construct their world. Noisy and rich in its own right, culture supplies some of the “blue oceans” of external opportunity and the “black swans” of external threat. A great profusion of consultancies and aggregators springs up to cover culture.
Level 6, context, was once merely a field or container for all the other levels. But now the field has come alive, no mere ground but now a source of dynamism all its own. In this bigger picture, the enterprise can feel itself a tiny cork in a veritable North Sea. Disruptive change comes from all directions. Strategy and planning become more difficult, and some enterprises descend into a simple adhocery. The world roils with deliberate change and its unintended consequences.
There is an intellectual challenge at Level 6. Making sense of a world that is so turbulent, hard to read, and inclined to change is difficult. Indeed identifying the unit of analysis is vexing. Are we looking at “trends,” “stories,” “scenarios,” or “complex adaptive system?” Should the enterprise do this work by hiring x, y or z?
“Context” is a wind driven sea. The horizon keeps disappearing, navigational equipment is dodgy, the world increasingly unfamiliar, inscrutable and new. We are to use the language of T.S. Kuhn, post –paradigmatic.
The movement of levels 2 through 4 has been conducted under expert supervision. But Levels 5 and 6 are vexing partly because there is no obvious intellectual leadership. Even the “experts” are challenged. The problem created by Levels 5 and 6 are simply unclear and we continue to disagree on even simple matters.
Reading this through, a couple of hours after publications, it occurs to me that there is for some corporations a Level 7. This is where the corporation embraces its externalities and takes an interest in the larger social good that can come when the corporation thinks about what value it can create for creatures other than itself.
I was in a strategy session a couple of years ago when a guy from Pepsi, I believe he was actually the CMO (let me check my notes), actually said, “I am committing my organization to solving every environmental problem it has in its purview and can get its mitts on.” Wow, I thought, this is capitalism writ large.