Building Society for the 21st Century*
Economic models that succeed tend to take advantage of the abundances as well as the shortages that characterise a particular economic era. Traditionally, the primary factors of production used to be land, labour and capital; much of this was in “institutional” rather than individual hands, and as a result, attempts to create efficiencies in the use of these factors tended to create institutional models as a basis for reducing transaction costs.
Land ownership has changed; while governments, churches and firms still own land, there is far more individual ownership of land than ever before. Labour is no longer bonded, and the ability to migrate between firms and even countries has never been greater. Capital is also more mobile, with deregulated markets and dematerialised securities and electronic cash; when many individuals have better credit ratings than the institutions they bank with, the definition of what a bank does changes.
The nature of asset creation has also changed, with intangibles forming a growing proportion of GDP worldwide; we now impute monetary value on talent and skill and knowledge and network and brand and reputation.
The Agricultural Revolution transformed our ability to produce food cheaply; the Industrial Revolution helped us reduce plant and equipment production costs, as well as those of core infrastructure providing heating, lighting and transportation. There were also major demographic and societal changes: barriers based on race and sex began to erode, infant mortality was lowered and people began to live longer.
The Information Age heralded the dawn of a true Services Revolution as human capital grew in importance and communications costs reduced sharply. Technological advances a la Moore, Metcalfe and Gilder continued their relentless march, as price-performance improved, network effects were realised and everybody started getting connected.
Despite major technological advances over the past fifty years or so, one thing has not changed as appreciably: man’s longevity. And, since assets were increasingly based on intangibles, this created, and continues to create, a war for talent. Institutions have found it increasingly difficult to attract, retain and develop talent.
Every institution had to take steps to value and protect human time. Simplicity and convenience became important, “dial-tone” services became important, design and usability mattered. Technology adoption curves became inverted: historically, adoption was driven by those with the largest R&D budgets – defence, aerospace, high-end manufacturing and automobiles, sophisticated capital markets. Products trialled in these sectors slowly drifted towards mainstream commerce and much later towards consumers.
What inverted? The age of the early adopter changed, which moved startlingly from 35-40 years old towards 12-21 years old. When you look at mobile phones, texting, instant messaging, downloads, Skype, the iPod and iTunes phenomena, multifunction devices, the standards for these are all set by youth. And this trend is now moving towards changing the functionality of “established” web firms such as Google and Amazon, eBay and Yahoo.
It was this shift, when youth became the early adopters, which signalled a real change from institutional to individual capitalism; not having been exposed to how organisations worked and not caring about how governments operated, youth began to set the agenda.
Peer respect became more important than the power of hierarchical authority; relationships and trust returned to prominence after a long time in the wilderness; there were no longer any taboos about asking why things were the way they were, and challenging the status quo.
Today is their Sixties. And, in a vicarious way, ours too; The Age of the Individual.
Empowered and free from hierarchy, jealous about personal time, keen on relationships and trust, inquisitive about values and ethics, with the power of the web to change their perceptions of time and distance and organisations and government.
What does this mean for firms and governments? Another inversion. Now, as such institutions fight to hold on to their piece of the talent pool, they realise that historical carrots and sticks have no meaning to the new generation. People migrate to institutions that reflect the values they hold and make it possible for individuals to make a difference. “Ask not what your country can do for you, ask what you can do for your country” has subtly shifted. Do ask what your country/company will allow you to do for them, before choosing.
This is not as shocking as it sounds. We already have odd critical masses developed over the years, such as shipping registration in Panama or company incorporation in Delaware or high-net-worth individuals domiciled in tax havens. It has been suggested that European IPOs grew as a result of Sarbanes-Oxley, as new entrants railed against increased regulation.
Human beings can now withhold their talent, their time, and their taxes, in ways that could not have been imagined before. Flash mobbing and IM and texting and blogs and wikis and video allow people to communicate in ways we could not have foreseen. The assembly-line approach that characterised our schools, hospitals, companies and governments is failing, as people choose to be different. Any colour you like, so long as it’s black, does not rule any more.
Assembly line approaches focus on consolidating volume and ensuring homogeneity, low standard deviation and uniformity. All citizens the same. All students the same. All the same.
The web is about diversity, individuality, personal-ness. People want to be connected, not channelled, to choose their experiences and to co-create them with peers they respect and trust.
As innovation democratises, and open-source ideas get shared and enriched and mutated, people behave differently. Diversity is no longer suppressed but celebrated.
We used to hate looking at someone else’s holiday movies and snapshots, but now we love Flickr. Why? Because we choose the time and place. Connected, not channelled.
Alumnus gatherings didn’t always work and were often lifeless, now they’re Friends Reunited. Why? Because we have transparency of information, simpler ways to discover the who and the where, and choice as to the relationships we grow. Connected, not channelled.
We choose the schools we go to, the courses we take at university, the firms we work for, the countries where we live, what we do with our time. When we work and when we sleep. We choose our relationships and who we spend time with. Connected, not channelled.
As the Cluetrain guys said, markets are conversations. They do not happen hierarchically. Even our Assembly Line software applications have disaggregated. All we have left is subscriptions to syndicated content, heuristically enhanced non-deterministic search, support for fulfilment and a framework to enable trust and collaboration.
Governments and firms are left feeling helpless, as central control diminishes and the power of the individual rises, and they need to recognise that bell curves now have very long tails.
As these changes come about, with individual capitalism and the subversion of institutions, we need new business models. What should these models do?
One, make a clear stance on values and ethics.
Two, allow relationships and collaboration to take place, rather than control the relationships.
Three, intermediate to enable trust and fulfilment rather than channel towards lock-in.
Four, recognise that the customer wants to create and co-create value rather than just receive.
Use what you stand for to attract the customer. Use what you do to retain the customer’s trust. Ensure that the customer is always free to leave, and paradoxically he or she will stay. Who is this customer? Your family. Your friend. Your employee. Your business partner. Your client. Your citizen.
In a world of empowered individuals, everyone’s a customer.
There are barriers in the way, and serious ones at that. There is a need to overhaul everything to do with Intellectual Property Rights, be they patents or trademarks or copyright or DRM or whatever. There is a need to avoid over-regulation, the creation of bad law driven by institutional values. This is particularly true for every form of communication, affecting big media, telcos, “content producers”, and the publishing industry in general.
This is going to be difficult, and often humorous, since these are tremendous changes. Witness what happened to Sony’s DRM or Hollywood’s attempts to send copies of Munich to the BAFTA judges. Witness what happened to Skype.
Connected, not channelled.
*originally written on the occasion of Ariadne Capital’s 5th Anniversary celebrations, at the behest of Julie Meyer