We are at the beginning of a new economic era.
Every economy – every society – has to address two fundamental economic challenges:
1) how best to allocate existing resources
2) how best to use or deploy these resources once allocated them
For the last century, we have focused most of our attention on how to deploy resources better. Using science, technology, new economic resources such as oil and new ‘inventions’ such as instantly available electricity, and new approaches to production such as the mass production moving assembly line, we have explored a vast territory of economic opportunity: how to provide ever more, better quality products and services at ever lower cost.
The entity best capable of delivering this cornucopia was the corporation, and we ended up building our economic system around the activities of corporations: how to help corporations work their magic ever better?
We evolved a producer-centric, seller-centric economy organised around the logic of production – ‘supply chains’ – and the question ‘how best to allocate existing resources?’ was answered more or less simply: ‘market forces’; the hidden hand (often with a little help from the state).
Today, however, we are witnessing a massive, accumulating and accelerating transformation. Modern economies are being progressively reorganised and restructured around signals of demand rather than the logic of efficient supply. The focus is shifting from Question 2 to Question 1: ‘how best to allocate resources?’.
Yesterday, the answer to this question was simple. The best way to allocate resources was to hand them over to those who were deploying them most efficiently and effectively: producing, selling corporations. Then let ‘market forces’ do the rest.
But today, thanks to advances in technology, it is becoming possible to elicit finely detailed signals of demands from individuals, in real time. It is becoming possible for individuals to put their hands up and say ‘here I am, this is what I want’. And in the process they are unleashing the ‘holy grail’ of improved resource allocation: information about who wants what, when.
‘Market forces’ are still at work here – arguably more powerfully than ever. But how they do their work is morphing. Our economy is being reorganised around signals of demand rather than the imperatives of supply. The acid test of success is changing. It’s no longer ‘how successful was the corporation in making stuff and selling it?’ but ‘how fully have the individuals needs/requirements been met, at what cost?’. We are moving from a corporation-centric environment towards a person-centric one; from a seller-centric commercial system towards a buyer-centric one. The golden age of the corporation is over. Human beings are moving back to the centre once again.
This is good news, because in the end the human being is the real measure of wealth creation. Not profits or even material goods but sustainably improving human welfare and ‘happiness’.
Underestimate this shift at your peril. It turns out, for example, that a corporation-centric environment generates all sorts of costs as well as benefits. Corporations that focus on improving their own metrics of success have a habit of, indeed, an incentive to, dump costs on third parties whose costs do not appear in the corporation’s accounts. This is the huge problem of ‘externalities’.
Corporations’ push model of marketing – the quest for improved results by always making and selling more – catapults them into hugely expensive (and mostly futile) attempts to organise markets (the attitudes and behaviours of customers) around their needs as sellers, rather than organise their own activities around the needs of their customers.
And looking at wealth creation from the perspective of the individual adds a vast array of new resources to the resource allocation equation: personal, human, resources of time, attention, energy, personal information and emotional commitment, as well as money. Looking back, we will gasp in astonishment at the narrowness and blindness of our old approach to understanding the nature and uses of economic resources: we simply failed to consider about 80 per cent of the whole. We focused only on the resources used by corporations (mainly the value and potential of their machines and other tangible, physical resources) and ignored all the resources that humans use routinely to ‘produce’ their individual lives.
This is the arena of person-centric or buyer-centric, and is the first pillar of ‘reinventing wealth creation’. But person-centricity creates a knock-on need for change within organisations too.
- Lean – which is built on the principles that value is defined by the customer, and that efficiency is defined by aligning supply to demand (rather than trying to align demand to supply) – is the new production principle of this emerging environment. Only organisations that ‘go lean’ will be able to cope – indeed flourish – with the demands of this new environment.
- Mapping is a new methodology for setting corporate goals and priorities – a new methodology that recognises and accepts that the job of the corporation is to ‘add value’ to society as opposed to the current assumption: that it is the job of society (workers, consumers, governments, the natural environment etc) to add value to the corporation. Mapping turns this rather vague and woolly principle into a detailed, practical programme of action – rather like the vote which turned the vague and woolly principles of democracy into a practical, graspable tool.
To those immersed in the old corporate mindset these three pillars of wealth creation – person-centricity, lean provision, and mapping as the guide to decision making – are terrifying. Yet, happily and perhaps surprisingly, the learning so far is that organisations that move in this direction end up being more successful, not less.
We are talking win-wins here. Not the same win-wins as yesterday. New, and sometimes very different win-wins. But win-wins nevertheless.
And that, ultimately, is what wealth creation is all about.
For more on Person-centric commerce, visit www.rightsideup.net
For more on Lean, visit www.leanuk.org
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