Big Tech: Capitalism With Chinese Characteristics.

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It is perfectly possible in the post-truth era for an institution to claim one set of principles, and to be perceived as adhering to them, when practicing an opposite set of principles.

The Chinese Communist Party (CCP) captures and implements this anomaly in the officially issued propaganda phrase Socialism With Chinese Characteristics. This stance permits the CCP to violate the most fundamental propositions of socialism and communism while asserting that their sole commitment is to advancing those fundamental propositions. 

The most notable of these is private property ownership. While the first principle of socialism, and especially its communism variant, is the abolition of private ownership of the means of production, because this is deemed exploitative, Socialism With Chinese Characteristics not only permits it but embraces it with enthusiasm.

The CCP recognizes that their 100-year rule has not enabled prosperity for the Chinese population. They also consider private ownership to be non-socialist. But

according to party theorists the existence and growth of private ownership does not necessarily undermine socialism and promote capitalism in China. 

Wikipedia: https://en.wikipedia.org/wiki/Socialism_with_Chinese_characteristics

In fact, if you really want to twist yourself in knots, Robert Tsu wrote:

Individual ownership is considered consistent with socialism since Marx wrote that post-capitalist society would entail the rebuilding of “associated social individual ownership”.

Robert Hsu Economic Theories In China CUP 1991

Socialism with Chinese Characteristics might actually be capitalism. Economist Zhang Weiying has written that entrepreneurship – a purely capitalist concept – drove Chinese economic growth.

The reason for China’s miracle has no fundamental difference from that of economic developments in Western developed countries……Once market forces are introduced and right incentives are set up for people to pursue wealth, the miracle of growth will follow soon or late.

What is the market economy? A simple formula is equal to free price plus entrepreneurship….Profit-pursuit and survival pressure drive entrepreneurs to organize enterprises efficiently, and to innovate new products, new production technologies, new business models and new organizations. 

The Reallocation Of Entrepreneurial Talents and Economic Development In China, Weiying Zhang, Peking University

The Chinese Characteristics Of Big Tech

The most Chinese-like characteristic of Big Tech is, of course, social credit. Wikipedia defines China’s social credit system as a digital system for monitoring, evaluating and sanctioning citizens, and a standardized assessment of citizens’ and businesses’ economic and social reputation, or “Social Credit”, with tracking and and evaluating for trustworthiness. People face punishment for violating social protocols, including blacklisting from employment.

The term social credit scoring can just as easily be used as a descriptor of Big Tech’s methodology for deciding who and how people can use their services. And, as Wikipedia notes in making the comparison on their Social Credit System page, “Silicon Valley’s rules are getting stricter”.

Big Tech’s social credit system bears the same characteristics as China’s. A central organization collects behavioral data using new digital technologies with ever-expanding data collection and interconnection capabilities. The data is transformed into an individual “score” or profile – today these include number of followers on Twitter, 5-star ratings on Amazon.com, energy usage scores on internet-connected thermometers, the number of steps we take on our fitness apps, where we travel on GPS systems, how we sleep, all of our financial transactions, and many more.

Big Tech already decides who can and can’t be allowed to communicate on Twitter, and what we can communicate on Facebook, and what we can sell on amazon. They profess personalization – that they collect our individual data in order to provide us with individualized service. But if course, the data ownership is socialized. We don’t own our data, Google, Amazon and Facebook do. It’s no stretch to imagine their business models extending to social control. We already receive energy usage warnings on our smart thermostats; how long will it be before these devices are centrally controlled and individual violators are held up as global warming deniers?

Even Wired magazine, well-compensated cheerleaders for Silicon Valley, worries about Big Tech Merging With Big Brother.

The magazine adds social credit scoring worries to the second Chinese characteristic of Big Tech’s version of capitalism: the integration of ostensibly private capital and government capital into a merged entity. The same Wired magazine article cites projects such as Amazon Web Services (AWS) Secret Region, wherein Amazon is the sole provider of cloud services to the CIA across “the full range of data classifications, including Unclassified, Sensitive, Secret and Top Secret”. The NSA has a similar classified cloud computing environment 

Microsoft has a secure version of its Azure Government cloud service tailored for the use of 17 US intelligence agencies. Google worked with the US intelligence and defense complex to integrate its AI capacities into drones and other weapons. The spy agencies guarantee the profits of Big Tech.

Wired Magazine’s conclusion:

It doesn’t take a particularly paranoid mind to imagine what future big-ticket collaborations between big-data companies and government surveillance agencies might look like, or to be frightened of where they might lead. “Our own information—from the everyday to the deeply personal—is being weaponized against us with military efficiency,” warned Apple chairman Tim Cook

https://www.wired.com/story/is-big-tech-merging-with-big-brother-kinda-looks-like-it/

Nike goes even further in the direction of Chinese characteristics; the CEO described Nike as a brand that is of China and for China.

Capitalism with American characteristics has raised the well-being of Americans and the citizens of the world to unprecedentedly high levels. We might not fare as well under capitalism with Chinese characteristics.

The Future Of Work? Individuals Mimicking Firms, With Appropriate Access To Capital, Technology And Favored Contractual Relationships.

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There’s been a lot of discussion about “The Future Of Work” that worries about technology replacing workers and leaving them beached – unable to earn a wage or a salary because their job has been automated or replaced.

That’s very old-fashioned and out-of-date thinking. It’s so old, it’s what economists call neo-classical. It portrays the firm as a production function that assembles capital goods (technology) and labor and combines them to produce an output. In this equation, labor (jobs) can be substituted by technology.

But today, the neo-classical production function does not exist in many industries, where there are hybrids of digital and physical assets or fully digital industries that exist purely via the exchange and manipulation of data and information flows (think AirBnB and Uber).

Old fashioned economic thinking extends to what the neo-classicists call “the theory of the firm” – what is a firm and why does it exist. This thinking sees the firm as an actor in a market where it operates to maximize profits.

In reality, the firm itself is a market, a tangle of contracts with owners of labor, who might be employees or contractors or suppliers or even customers. The firm can also contract for technology – owning it, renting it, or consuming it in the form of services (utilizing the cloud technology of AWS, for example, or the services of a trucking company for delivery).

Why assume that the AI and bots and productive technologies of the future are a resource only for firms? Inside the firm or outside the firm, technology resources could be owned or controlled by individuals. In fact, it is often the case today that workers in firms own their own technologies in the form of smartphones and tablets. Why couldn’t they own a bot and bring it to work?

There is a tendency – left over from neo-classical times and neo-classical thinking – to privilege the firm as the owner of capital. But there is no need to maintain that privilege today. The boundary between firms as capital owners and workers as capital users is dissolving.

Professor Irene Ng points to the new pathway as workers mimicking firms. They might be set up as an owner-operated contractor, or an independent consulting firm or a start-up, often using digital platforms and benefitting from the lower co-ordination costs they bring.

Mimicking a firm gives a worker new privileges:

the ability to solicit capital, acquire technology and contract further labor or assistance – all resources that are set within a legal framework and an institutional structure that accord a multitude of benefits, but also encompass risks.

Mimicking Firms: Future Of Work And Theory Of The Firm In A Digital Age; Irene Ng; Journal Of Creating Value.

Workers can be entrepreneurs and contractors, with business contracts as well as contracts in wages, and should be able to choose the contract that best suits their preferences. They should be able to acquire capital, debt and technology as they improve and enhance their human capital and social capital. This “hybrid actor”, as Professor Ng terms it, can be both firm-like and labor-like, especially in acquiring the resources generated by technology. Corporations can contract with both the individuals and their technology.

Call it the gig economy, or call it new entrepreneurialism; in any case it is the opening for individuals to acquire the resources necessary to position themselves to benefit from technology, rather than be displaced by it in the pessimistic fear mongering of the neo-classical interpreters of the future of work.

The future focus is more on the ownership structure of the firm and the nested relationships of internal and external markets for labor and technology. The innovative thinking will emanate from individuals – the workers who transform themselves into technology owners and capitalists-for-hire – and not from economists.

Entrepreneurial Economics Explained.

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There is a body of economic science that has identified entrepreneurship as the driving force of economic growth. 

The purpose of economic science is to discover and verify methods to achieve increased well-being for individuals, families and any groups they form or choose to belong to, such as communities and firms or collaborative networks and associations. Scientific process and results must be realistic, i.e. relate to the real world rather than to mathematical equations and models.

Economic science uses the language of means and ends: the science aims to identify the best and most appropriate means for achieving chosen ends. In the economics of individual well-being, the ends are not represented by so-called aggregate measures such as Gross Domestic Product (GDP – a measure of the total monetary value of finished goods and services produced within a country’s borders) or total employment. 

The end of this body of economic science is individual satisfaction, often identified via the concept of subjective value – subjective in the sense that the individual decides what is valuable and what they value. In this way, customers run the economy. Whatever they feel satisfies their needs and wants, i.e. what they decide is valuable, is what is ultimately produced. In this sense, customers create value – it isn’t valuable if they don’t say so. Economic growth means more of what customers feel is valuable.

Customers get help in value creation from the entrepreneur. It is the entrepreneur who studies customers, ascertains what they think is valuable, and undertakes a production process to deliver that value. Logically, they are producing for a future value experience, because production takes time. 

This is why the role of the entrepreneur is so pivotal in the creation of new economic value. Entrepreneurs take all the responsibility and all the risk in value generation. They bet on being able to identify customer preferences pretty accurately (they can never be exactly right) and then they bet on being able to assemble resources in the form of a firm to produce for that preference, and they bet that the preferences won’t have changed before they get to market, and they bet that they can get not only the product or service right but also the price, and they bet they can beat competitors who are rivalrously eyeing up the same set of possibilities. 

Economic science observes and recognizes this role of the entrepreneur. It’s not a matter of personality – anyone can be an entrepreneur. There is definitely a method to entrepreneurship, in spite of (in fact, because of) the uncertainty of betting on customers’ future preferences. The economics of entrepreneurship is not fueled by sources of finance like debt or equity, but by imagination. Entrepreneurial projects are built on the choice of which customers to serve and how to serve them, imagining a future world in which customers’ formerly unmet needs are now satisfied. Imagination is turned into the design of a business model, which is the mechanics of actually delivering imagined value to customers. Revenue is the feedback loop that tells entrepreneurs that they have offered something valuable, and profit is the feedback loop that tells them that they chose the right costs.

To embark upon and stay on the path of successful production for profit, entrepreneurs must embrace and overcome uncertainty. How do they do this? They act. They make a commitment. They get started on the project or business initiative. Having once moved into action, they begin to learn. They can never be 100% right, so some parts of what they do will go wrong, and be unsuccessful. 

The entrepreneurial firm learns what doesn’t work and what does, discards the former and does more of the latter. Business strategy is experimentation and learning, not multi-slide presentations and extensive spreadsheets. Agility – fast learning, fast adjustment – beats business school training.

Because of entrepreneurial exploration and experimentation to identify what works, the world advances – people enjoy more satisfaction and a higher standard of living, services and technology improve, and civilization advances. The world we live in is shaped by entrepreneurial economics.

One clear implication of this body of economic science is that there is no place for – and no need for – government economic policy. It can only get in the way of entrepreneurial exploration and experimentation. Governments extract value from the economy through their taxes and regulation, and then sometimes claim to redistribute it via subsidies and rebates. They claim to design policies such as what level of wages to pay, or the cost of imports, or the amount of market share any firm can have before an anti-trust suit. It’s all futile and, worse, damaging. In entrepreneurial economics, the role of government is to stand back, get out of the way, and marvel at the living standard enhancements entrepreneurship brings.

Academics call this body of science Austrian economics, because its early thought leaders came from Austria when Vienna was the commercial and cultural capital of the globe. Thinking in the Austrian way is helpful to entrepreneurial success, but, for economic growth, we don’t need to adopt the name, just the method.

Can Capitalism Survive Beyond 2021? Yes! A New Generation Of Entrepreneurs Will Keep It Refreshed.

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Economist Joseph Schumpeter famously asked, “Can capitalism survive?” 

His next sentence: “No, I do not think it can.”

This was back in 1942, and socialism was in the ascendancy. It feels somewhat similar in 2021, given the economic policies of the Biden administration, and the money-printing activities of the Federal Reserve, the ECB and Central Banks worldwide. 

Yet the problem Schumpeter identified was not one of economics, but one of people. He thought that capitalism depends on broad popular support, but saw that it would breed its own enemies, and that its beneficiaries would fail miserably in defending the system that brought them wealth and comfort.

The most visible enemies of capitalism, in Schumpeter’s analysis, are intellectuals. Although he was an intellectual himself – employed as a university professor – he took an extremely dim view of the intellectual class. Intellectuals are a nuisance for capitalism. In Schumpeter’s phraseology, they lack the “firsthand knowledge” that only “actual experience” can bring, and so they are envious onlookers, purveyors of uninformed criticism.

The man who has gone through a college or university easily becomes psychically unemployable in manual occupations without necessarily acquiring employability in, say, professional work.… All those who are unemployed or unsatisfactorily employed or unsatisfactorily unemployable drift into the vocations in which standards are least definite or in which aptitudes and acquirements of a different order count. They swell the host of intellectuals … whose numbers increase disproportionately. They enter it in a thoroughly discontented frame of mind. Discontent breeds resentment. And it often rationalizes itself into … social criticism … [and] moral disapproval of the capitalist order. 

Capitalism, Socialism and Democracy, Joseph A Schumpeter

Capitalism creates sufficient wealth for the economy to support positions for intellectuals who do not produce, merely comment, and, as a result, the system comes under attack from those whose very occupations are made possible by the efforts of the entrepreneurs and capitalists who drive the economy in a ceaseless process of innovation, improvement and wealth creation.

But Schumpeter’s analysis goes beyond the commonplace observation that intellectuals are anti-capitalist. His argument is more complex: that capitalism’s success undermines the social institutions that protect it, creating “conditions in which it will not be able to live”.

Capitalism operates not primarily for the wealthy, but in the interests of the average person. Capitalism shortens their workweek, delivers leisure, excellent affordable and fashionable clothing, appliances of every kind, entertainment and education. This progress, in Schumpeter’s analysis, is the work of a minority: creative entrepreneurs who convert scientific discovery into items of pleasurable experience and valued benefits for customers. Capitalism enlists these entrepreneurial individuals of unusual talent and energy.

But these bold spirits become submerged. As capitalist corporations become bigger due to their success, they add layers of salaried employees – the “organization men” of capitalism – and the spirit of capitalism withers because these employees do not have the entrepreneurial spirit of founders and owners. These are the individuals who benefit from the system but fail to defend it from the intellectuals’ attack. These are the middle managers and bureaucrats within firms, accountants, engineers, systems wizards, marketing analysts, media manipulators, laboratory, technicians and associated technical experts who are paid and rewarded directly with the fruits of capitalism, yet don’t think sufficiently deeply about the system to develop an appreciation for the benefits it provides them.

Built-in Self-Destruction?

The self-destruction is built-in to capitalism in Schumpeter’s view. The system depends on general popular approval, which you’d think it would receive, given that capitalism improves the life of everyone who participates. However, there is a transitional element to the progress that capitalism brings, and it’s one with a detrimental effect. As the large corporations grow, they hire more and more administrators, drawing from a pool of individuals who, in the past, would have been entrepreneurial proprietors of smaller capitalist enterprises, what today we disparagingly call small business. Capitalism is, in this way, making progress that is self-destructive. Capitalism declines into administrative routine.

The perfectly bureaucratized giant industrial unit not only ousts the small or medium-sized firm and “expropriates” its owners, but in the end, it also ousts the entrepreneur and “expropriates” the bourgeoisie as a class which in the process stands to lose not only its income, but also what is infinitely more important, its function.

Ibid

And what about the leaders of the large corporations who perpetrate this “expropriation”? They come to believe that, in the era of big government, the best way to protect their interests is cronyism, a sort of business-controlled socialism in which the profits of the big companies are preserved, while the risks are socialized via legislative and regulatory “protections” enacted by the state.

A New Entrepreneurial Resurgence.

Schumpeter’s pessimism can be quite persuasive as one observes the decline of capitalism today into bureaucratic corporations integrated with an even more bureaucratic welfare state that promotes dependency over initiative, creativity and hard work. 

But his analysis is too one-directional and does not accommodate feedback loops. The corporate administrators and technocrats will become unfulfilled, bored and alienated. They will not accept that all they can expect is the wage that is paid to them for their labor hours. They will observe that the entrepreneur can obtain market rewards from many other sources, including capital from investors or loans from banks, and eventually returns on equity and on creativity. Entrepreneurship also opens up new streams of psychic and life rewards, from a sense of achievement to purpose and meaning, and the comradeship of working in highly motivated entrepreneurial teams. Life is better for entrepreneurs.

Capitalism has recently made new advances that reverse the trends that Schumpeter observed – what he called “automatizing progress”, i.e. taking the vibrantly creative entrepreneur out of the process of economic progress and substituting routinized work methods. Now, new forms of productive capital enable more individuals to choose the entrepreneurial route, by harnessing the tools of the internet, including open source and low cost software, networking systems to organize decentralized innovation, and newly capable ecosystems such as IoT. Entrepreneurs can become designers of new consumer experiences and of new markets. They can innovate by connecting things rather than building or inventing them. They can connect devices and sensors and software and data streams to personalize experiences for customers. It does not require the resources of a giant corporation, and it often does not even require a lot of financial capital (and, when it does, there are a myriad of new sources).

Today, it is far easier to seize the emotionally fulfilling high ground of entrepreneurship, and to reject the stultifying bureaucracy of corporate process and routine and hierarchy. People can substitute the joy of creativity and initiative for the alienation and insecurity of the cubicle and the spirit-draining scheduled meeting on Microsoft Teams. 

A new generation of entrepreneurs and their firms is arising and will defy the decay of the capitalist spirit that Schumpeter anticipated. 

Value Mapping: New Thinking About Business Model Innovation.

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Only recently have business thinkers come to identify business models as a locus of innovation. In past eras, a business model was synonymous with monetization: how businesses generated revenue from customers. The concept of a business model came from the logic of goods and services: design and sell what the customer wants to buy.

Today, such a direct route to revenue is less assured. Famously, Google offers the world a search engine which is much used and generates no direct revenue. Revenue comes from advertising, which is an indirect property of search, and wasn’t even included in Google’s original proposition..

Today, as entirely new fields of business begin to open up, such as the unprecedented scope of service systems enabled by the connected devices and information streams of the Internet Of Things, a new breed of business models is about to emerge. How will businesses think about designing them?

The breakthrough paper by Professors Per Bylund and Mark Packard, Subjective Value In Entrepreneurship, gives the answer: business models will be designed through a subjectivist lens.

What exactly is entailed in subjectivist design? First comes the understanding and deep internalization of the concept of subjective value. Value is a feeling that comes from experience. For the consumer or customer, value is a learning process with clearly identifiable stages. Customers first encounter a value proposition from a potential provider of service, and must decide whether or not the proposition suggests a possibility of a valuable experience. If not, they’ll ignore it. If yes, they’ll go on to make a relative assessment of the potential value compared to available alternatives. Those alternatives may be similar services with a different mix of attributes, including price. Or the alternative might be an offering in an entirely different commercial space, in the case where the customer feels that, from a total expenditure perspective, they can only make one purchase and not two. Or the alternative might be doing nothing, and keeping money in the wallet for some future buying occasion.

If the purchase does take place, the value process is still nowhere near complete. It continues for several more stages. The buyer consumes the product or service (perhaps once or perhaps on several occasions or over time), noticing a usage experience as they do so. After the fact, they evaluate the experience, compared to what they anticipated and compared to what they perceive may be an alternative future or replacement experience. The customer now has new experiential knowledge to use the next time a value proposition is made to them.

The important mindset change for business model designers is to fully understand that all value is subjective. They are designing an experience for another mind, that of the customer. The method to use is Value Mapping.

Value mapping is the route to sound business models because it reflects the customer’s value learning process. There are 4 phases of value mapping for business model innovation, and together they compose the design of a desirable experience for the customer.

Value Conceptualization

Value Facilitation

Value Experience Monitoring

Value Agility and Adaptiveness

Value Conceptualization

What new experiences are possible for the customer? Which of them are more desirable? How can we know, given that customers have never experienced them before? Value conceptualization is the empathic phase of business model design. The customer, at every point in time, is in a mindset that can be described in the phrase, “Things could be better if…..” They are not necessarily precise in this expression of dissatisfaction. And they can’t tell the business model designer exactly what new and better experience they are seeking. They’ll know it when they feel it. Therefore, the first lines drawn on the value map are imaginary lines. The business model designer uses imagination – tries to imagine what positive emotions of satisfaction the customer might feel in the future if their wishful thinking for things to be better were fulfilled. Designers must place themselves inside the mental model of the customer, see things and feel experiences as customers might see and feel them, and then run a new experience “script” through that mental model, and project what the resultant feeling might be. That takes a lot of imagination.

The imagination may even be expanded further, to begin framing new experiences for employees who might work on the new initiative, and for partners who might join a future value network. Perhaps there is potential new value for the community in which a new venture is to be embedded, and perhaps also for the environment. The aim at this first stage is to map as big a value pool as possible.

Since it’s unlikely that the designer will get it exactly right, it’s necessary to develop many imagined experiences and find ways for customers to give input as to whether the design is going in the right direction and nearing some kind of level of evaluation where the customer gives a “Yes” to the question of whether they perceive any value potential at all. At this point, the designer has made it to the first threshold.

Value Facilitation

To reach the next threshold, the business model designer must identify all the resources, functions and capabilities necessary to bring the potential value experience to the point at which the customer can purchase. This is a reverse design process. The designer imagines the experience the customer will have in great detail, then works backward to identify every detail of what it will take to deliver it. This requires systems thinking. What is the system, in all its detail, that is required for perfect experience delivery? Not just the final product or final service, but the assembly of all components and elements, a supply chain, a network of partners, a back room, a service capability, a sales and marketing capacity. Every item at every stage must be designed and assembled so that the value proposition can be delivered without fault on every occasion.

It’s a kind of value engineering. All the necessary parts must be in place, connected in the right way, all fully functioning and enabling all other parts, sub-systems and the system as a whole to function perfectly to bring potential value to the customer without any barriers or undue work required on their part.

Value Exchange

At this point, the customer buys or does not buy. The act of exchange – the customer exchanging money and other resources such as time – is often seen as the moment of value creation. If the revenue flows, it’s an indication of value realized. But this is wrong. Think back to the Google search service example. The exchange takes place when the customer types into the search bar, expressing the belief that a knowledge gap they feel can be filled by the service. When they receive a response and feel that their expectation was fulfilled, that is when value is created. No money changes hands. Nor is it merely a time-shifting of a revenue commitment, such as when a customer visits a doctor for a health consultation, knowing that there will be a bill for somebody to pay in the future as part of the health care payment system.

The exchange, whether accompanied by payment or not, is the pivot from the first half of the value map, conceptualization and facilitation, to the second half of the map.

Value Experience and Value Monitoring

The customer now has ownership or control of the value proposition – the product, service or relationship from which they feel they will gain a valuable experience. The actual value comes in consumption, but it’s not value-in-use but value-in-experience. It’s a 2-step process on the customer’s part: consume then evaluate. Use the product or service, note the real-time experience and then stand back and appraise that experience. Did it feel as satisfying as expected, or as desired? How did it measure up to other comparable experiences? How does it stack up against future experiences promised by competitors?

The service provider’s role at this stage is monitoring, and, if possible, measuring. In the value facilitation phase, the provider did everything possible to get to the point of exchange, and put the service in the customer’s hands. Now it is time to observe. In some cases, there might be the opportunity to interact, if the customer calls a service center or uses a service chatbot, but these interactions are more accurately part of the customer’s consumption than their value experience. They become part of the experience later.

The provider’s business model design should include the capacity for experience monitoring. This could be ethnographic observation. It could be real-time analysis of web usage patterns from which judgments of experiential feelings can be made (an abandoned shopping cart, for example, might be indicative of frustration with the checkout process). We are promised sentiment analysis in the future: real-time measurement of how the customer feels during consumption, via mood sensors or other devices. This will be a great development for business model designers, making the value monitoring phase speedier and better informed.

And if the Phase 1 value map identified potential new value for employers, partners, communities and the environment, the business model must also build-in monitoring and measurement for these value holders, so that the keeping of any value promises made to them can be ratified.

Value Agility

The complete value cycle takes time to unfold, and the world is changing as it does. The customer is acquiring new knowledge, both from the current exchange and experience, and from multiple other experiences occurring in the same time frame, both of their own and those of others whom they can observe. Prices are changing, the competition is changing, and service options and possibilities are changing. The service system is in continuous flux and change.

That’s why this phase of the business model is referred to as value agility. The service provider is receiving feedback from customers, new information from the marketplace and competitors, suggestions from employees, and new environmental data. In response, they are developing new ideas for improved value propositions, and news of these improvements needs to reach customers before they defect or identify better alternatives. The business model designer must build in this agility and flexibility. Nothing in the capital stack or the corporate procedures or systems or in business model execution can be so fixed as to prevent agility or even slow it down.

How does a business model designer build-in agility? It requires an appreciation of capital flexibility, of capital as a process rather than as a balance sheet entry. It requires organizational empowerment, so that the first receivers of input from customers are empowered to put it to work in those parts of the organizational structure that can make most use of it. It requires an embrace of change as the operating norm rather than as a complication to be resisted.

The Value Cycle

The four stages of the value cycle – conceptualizing, facilitating, monitoring experience and agility in response to feedback – are brought together in contemporary business model design. Revenue and profit emerge for the participants and partners in the value network, but they are not measures of business model effectiveness. That role belongs to value.

Now Is A Good Time To Discard The Concepts Of Strategy, Planning And Strategic Planning.

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Business schools have been peddling strategic planning for 60 years or more. (Harvard Business School was founded in 1908, so the concept may even go back to that time.) A good deal of the conceptual ideas are said to have been borrowed from military planning. This origin story is illustrated in terminology such as “the battle for dominance” in markets or industries, or “defending market share”, or in language concerning “missions”, and ideas about a company’s strategic weapons or strategic arsenal.

More significantly, the concepts of strategic planning reflect the old-fashioned economics of equilibrium, of market structure and industry boundaries. It’s an approach based on statics and balance. Firms are advised to position themselves within a market map or industry map, often depicted as a box, and to mark out territory for which to fight over with similarly equipped rivals. They are advised how to fend off attacking forces.

It’s all sounds very World War One: massed armies facing off across a flat battlefield, guns drawn and cannons loaded and at the ready. Generals at the apex of the pyramidal hierarchy of command issuing orders to the lower-level officers and the troops.

Business is nothing like this, of course. Economists, led by those of the Austrian school, now recognize that the economy and the economic environment in which businesses operate is ever-changing, roiling and swirling in dynamic re-orientation and re-adjustment. The economy is an ecosystem of entrepreneurial projects, and, as a result of the trillions upon trillions of exchanges and interactions, adaptations and adjustments that take place at increasing speed across an expanding geographic playing field, there is no predictability to the outcomes and no possibility of control of the ongoing processes.

Strategy and planning are misguided attempts at prediction and control. There is great hubris involved: that accomplished strategists deploying advanced mathematics and sophisticated intellectual tools can overcome the uncertainties that baffle and defy lesser minds. Business schools that promise to coach managers in this alchemy can charge very high fees for the chimera of certainty. But their promise is empty. It can’t be kept.

What’s the alternative to strategic planning?

What’s the alternative? As always, there is a combination answer from the identification of the applicable theory, and its implementation in practice.

First, business practitioners must clear their minds of the memes of prediction and control over future outcomes. To do so, they can study and master complexity theory. This body of analysis has established that the outcomes of economic systems are emergent – unpredictable, even random. Or, as the mathematicians and computational modelers put it, non-linear. They are not the result of the interplay of variables in an equation. The key to understanding complex systems is to analyze them at the level of the individual – such as a single consumer – and their interactions with other individuals. The smallest geographies, most local neighborhoods and individual units provide the relevant measurements and data. This is the opposite approach to the grand sweep of global or market strategies and resource planning.

The second step in the escape from the tyranny of planning is to adopt the mindset of ignorance: to be open to the reality of not knowing and not being able to predict. The management method to employ is “explore and expand”. Because the most successful initiatives can not be identified in advance in the ever-changing marketplace, businesses act to ensure they have a sufficient number of exploratory initiatives to search for routes to growth and customer satisfaction. Those explorations that demonstrate promise can be expanded via more investment to more geography, wider reach, and greater impact. Agile businesses keep a continuously updated portfolio of initiatives that are exploratory and capable of expansion, and the composition of the portfolio represents the business’s health. A business is an ecosystem of experiments and initiatives and projects, all at different stages of maturity and development. The capacity to add new projects while growing or maintaining those that have proven their worth in the marketplace is the indicator of a vibrant business model.

Jeff Bezos calls it “wandering”:

 wandering in business is not efficient … but it’s also not random. It’s guided — by hunch, gut, intuition, curiosity, and powered by a deep conviction that the prize for customers is big enough that it’s worth being a little messy and tangential to find our way there. Wandering is an essential counterbalance to efficiency. You need to employ both. The outsized discoveries — the “non-linear” ones — are highly likely to require wandering.

https://www.fool.com/investing/2019/04/11/jeff-bezos-explains-why-wandering-is-key-to-amazon.aspx

Historically, strategy has been a time-consuming act of comparative statics based on data, trying to identify a future state of a business and how to attain it from a starting point in the past or present. Planning has been a static act of resource allocation, in which business units and divisions compete for budgets and then defend them aggressively against change.

Both of these activities are detrimental to business success, which requires adaptiveness to continually changing market feedback and changing circumstances. Adopting the explore-and-expand mindset can be both freeing in the creation of more options for business action, and accelerating in bringing new growth pathways to the fore.