The Broken Business Model of Business

business modèleEvery day, we can see new evidences that our society is broken. More than ever, we live on the edge of an era, without knowing if the present unstable equilibrium will collapse into a dystopian future or lead us to a better world. The digital revolution grants us instant access to informational cornucopia, while slowly weaving around us an universal virtual panopticon. Technology, at the very same time it allows the rise of collective intelligence, is accelerating the dawn of many professions. The landscape of work is rapidly shifting, but are we aiming at the right target? Today, I feel more assailed by doubt than filled with confidence…

Changing the way we work is a promise supported by many interesting initiatives. The MIX (Management Innovation eXchange), ignited by Gary Hamel, has the ambition to reinvent management for the 21st century. Hacking Work, initiated by Bill Jensen and Josh Klein in their book, aim at “Business Innovation, One Hack at a Time” More recently, Stowe Boyd has launched his own effort, named Chautauqua from the eponymous adult education movement popular in the end of the 19th century, while Chris Heuer and Rawn Shah both call for a gathering of Work Hackers. Yet, as empowering and insightful these initiates are, I still feel a bit uneasy with them. Isn’t redesigning work too much of a company-centric approach? Can we keep on considering organizational reengineering without taking into account the millions of people left aside by what we call “employment” in our thinking?

Opening the doors

At the micro level, present initiatives seem stuck inside the walls of organizational strongholds.Many discussions around the future of work converge on the necessity to allow for more fluidity and freedom in the way work is done. Yet, in the meantime, outside of organizations, agriculture excepted, freelance work is declining year after year. Shouldn’t the world of work being looked at from a wider perspective?. Each worker is also a customer and a networked individual in a hyper-connected world. As work and life get more and more interwoven, considering work as a distinct activity becomes less and less sustainable. If we want to change the world of work, it is time to consider that “worker” is now getting as obsolete as “housewife”, and to consider that the power to change the game is already at work, but outside companies’ boundaries. The challenge isn’t that much about reinventing job descriptions, teamwork or outdated evaluations systems than about reconciling the way we behave inside the workplace and the one we behave at home. The outside-in force to transform business is here, if only organizations open their doors.

A broken business model

At the macro level, the real economy, the global exchange of products and services, has become a poor man’s economy, representing less than 3% of the total amount of foreign exchange transactions. In such a context, most of our attempts to transform organizations will break against the glass ceiling of shareholder value. As long as maximizing performance to deliver more profit for capital markets will be the (only) name of the game, organizations will stay the same. For instance, employee engagement is a generally accepted pillar of the needed transformation, but for which outcome? I guess that for anyone who will answer “to learn better and faster”, nine others would say “to be more productive”, with a typical industrial bias. Work is no more an asset in the production mechanism, but a commodity for which cost has to be optimized.

Some Few organizations have succeeded in developing more egalitarian and informal structures, but even fewer have avoided the present capitalist logic, geared toward wealth creation for financial markets. In The Business Model Innovation Factory, Saul Kaplan gave this definition of a business model: “the way an organization, creates, delivers and captures value.” Business, as a whole, captures much more value than it creates, wether it be for organizations themselves, for the individuals working for them, or for the society at large, and delivers it through speculative markets. As Keynes wrote:

“As the organization of investment markets improves, the risk of the predominance of speculation does however increase. Speculators do no harm as bubbles on a sea of enterprise. But the position is serious when enterprise becomes a bubble on a whirlpool of speculation. When the capital development of a country becomes the by-product of the activities of a casino, the job (of capitalism) is likely to be ill done.”

In other words, even more than work, the business model of business is broken. Fixing work, under this lighting, is no more than an attempt to redefine the way business, as a whole, delivers value. Yet, the two other aspects of a business model, how value is created and captured, remain mostly ignored.

Rethinking how value is created and captured

To redefine business in a sustainable way, organizations should now consider how, and for who they create value. Considering individuals, not only as workers, but as the main resources they have to take care of, is less part of work redefinition than of a larger global evolution of business toward what I have called Thin Organizations. Under many aspects, Keynes’ era is now bygone, and with it the notion of stable nation-states. Businesses should now begin to understand that the power they have is not only economic, and give back to the society which seeds their growth. The regain of interest in public-private partnerships for the development of civil infrastructures, and the rise of the newer public-private-community partnerships, which take a more holistic approach to societal problem solving such as education or water management, are by no mean a coincidence.

The nexus of business, of course, is profit. The real economy needs capital beyond the simple transaction of goods and services, in order to ensure stability and growth beyond its financial signification. Problem is, this capital is now drowned into the speculative game. The financial crisis we are living for five years now has opened the eyes of many governments, which recognize that too intense speculation puts the whole system at risk. From Paul Volcker’s proposal to European pressure on EU states to separate banking activities, and to Swiss present SVP lawmakers effort, most Occidental countries are today blowing their whistle.

Yet, this would only protect the economy to be biased by the use of the most sophisticated financial tools, such as high-frequency trading and hedges funds, but wouldn’t keep organizations away from being instrumented at shareholders’ will, and sometimes even to exhibit some sort of Stockholm syndrome toward them. The world would be quite different if, as Jon Husband told me during an interview for the Future of [Collaborative] Enterprise project,

“instead of going private on to the capital markets through an IPO, if Facebook had decided to create itself as some sort of not-for-profit collective, still of the same size providing a platform that a billion people can use, but without trying to enrich its founders and its shareholders in the same way. Now that would have been something really innovative for our society. It would have been a platform for some kind of evolution of humans on the planet.”

Is there a cure for the curse? It is way too soon to know, but on the optimistic side, some initiative, such as the B Corp movement, are giving us a glimpse of a different, more sustainable, economy. Alternative currencies, too, might provide a framework for a purposeful economy. In this field, everything is still to be invented. Would this lead to separate currencies for the speculative economy, as I suggested in an exchange on this blog with Susan Scrupski and Joachim Stroh, who invited me to join Change Agents Worldwide? Who knows… Fact is, if we really want change the world of work, we will have to tackle the full business model of business.

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The Stopcock and the New Economy

A new local sharing economyFor once, I would like to tell you a little story. When, my wife and me, we arrived the other day at our country house, we found a little letter from our water supply company in the letterbox. It merely said that, having been unable to read the meter for several years, they had cut water supply. The water meter, which is located inside the garden, thus behind a closed gate, is usually read once a year. Before we met, my wife lived there for several years, but we now occupy the house only for weekends and some holidays. Needless to say, we keep on consciously paying the monthly bill based on the last meter reading, and, frankly, as our water consumption seriously decreased, I guess that the water company owes us a bunch of money back.

The problem is the company’s representatives never work on Saturday, and there is no way to communicate the index remotely or by whatever other method conceivable: online, by phone, by mail or by carrier pigeon. Furthermore, meter reading is usually done in July, when many people are away from home. Access to water being an inalienable right, French law provides the obligation to provide people who don’t pay their bill with a limited access; yet, there is no such a law for the inability to read the meter for two consecutive years, so they just cut the water supply.

July was really hot here, and since we had no way to wash dishes or take a shower, we decided to live the place. The house is located in a small village, where everyone more or less knows each other, and my wife was also member of the City Council while she lived there all year round. On our way back, we passed by the village hall, in front of which stood the mayor and some other people. We stopped to say hello, and told them our stupid story. “So you paid the bill?”, said the mayor, “it’s crazy that they cut the water supply. Don’t worry, we have the wrench to open the stopcock. Wait for me, I’ll open it for you.” A few minutes later, he was back with a huge T-shaped wrench, and water was soon able to flow again…

A tidal wave called life

This little story, I guess, perfectly illustrates today’s world and the environment we all live in. On one side, organizations, crippled with rigid operational procedures and abstract business processes, are losing grasp of their customers’ behaviors, needs and expectations. On the other side, we are more and more organizing into informal local networks, overcoming the structural deficiency of the organizations supposed to provide us with the basic services we rely on (think of banks, energy supply, telcos, real estate, transportation; think of governments, public agencies; think of the latest customer service hell you experienced). We connect, interact, borrow, share, help each other according to our capabilities and goodwill. Local communities are the new black, as Jon Husband just commented on Facebook. They are our answer to the uncertainty and complexity of the world we live in. In fact, they always were. From immemorial ages, people have gathered into tribes to survive into hostile environments. While social media adds a new, global and instantaneous, dimension to our need of belonging, it yet only represents the foam of a deep and seething phenomena: a tidal wave called life.

Many organizations have grown in a world of certainty and regularity which doesn’t fit ours any more. Most business behaviors are still built for an era of standardized consumption and predictable growth. Productivity, competitiveness, profitability, all these words which govern the corporate realm, have a strong flavor of linearity which is no more relevant in our tomorrow-is-really-another-day age. Blindfolded by their own survival, many organizations have lost contact with the real world, and the gap is widening between the way they operate and the way their customers live. Not only is this behavior a structural fallacy, but it is also an economical suicide. Millions, if not billions, are wasted everyday on useless and nonsensical procedures; in my little story, we were charged for the intervention of the representative who closed the stopcock, but the fine hardly covered the time spent (he surely had to look for the stopcock, hidden into vegetation, for a while), the gas burnt and the depreciation of the car, it was clearly a lose-lose situation.

Local communities, not customers

Customer experience and big data are becoming hot topics, meaning that organizations are beginning to realize that things are getting wrong. Alas, they are still trying to feed new insights into old mechanisms: behavioral targeting is much less about behaviors than it is about targeting, and social media is merely a new fancy route to customer service hell. For sure, businesses know their customers better and better, as we are leaving more and more footprints online, and as the technology required to correlate all this data is at our disposal. But is knowing the same as… understanding? Definitely not.

One doesn’t learn cabinetmaking in a book. Like with any craft, you have to watch a cabinetmaker working, to talk with him, to try by yourself under his supervision, to fully understand what he does and why he does that. The same holds true with customers. To understand them, organizations will have to walk with them to learn what jobs they are trying to get done. Most businesses have to redesign the way they conceive and think of service, to connect back to the real world and provide their customers with meaningful products and services. As recently wrote Helen Clarkson, Director of the Forum for the Future:

“But overall we know that our current economic paradigm is not sustainable. That’s why at Forum we talk about creating #theBIGshift – a change to a new paradigm. This means finding ways for the washing machine manufacturer to find a sustainable business model (leasing the machines and being the recipient of my quarters, for example) rather than panic and send out the salesmen.”

But, albeit necessary, this alone isn’t sufficient. Our present view of the rise of a new sharing economy is still tainted with precepts from the past. Instead of thinking about customers, we should start to think about the local communities which form to compensate for businesses’ inability to adapt to their customers’ expectations. Instead of selling, renting, or whatever-business-modeling TO them (old marketers’ reflex die hard), businesses should reshape themselves into thin organizations, in order to build business WITH them. What if, instead of wasting money because of obsolete procedures, our water providing company had delegated to local governments the power to turn supply on and off? What if, instead of considering local communities as customers, organizations begin to support them actively, considering them as active stakeholders of a more sustainable economy?

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The Thin Organization, Part III: From Social to Social

thin organizationCo-evolution of organizations, technology and people is even more a fact we have to assess and embrace than a necessity. Yet, most of present social business anthems focus more on the adoption of emerging technologies, to cope with the change happening in our life, as consumers or as employees, than with core organizational change, implying that adaptation will follow adoption, diving into causal illusion.

Structural or anecdotal change?

In many places – with just a touch of caricature -, business transformation is reduced to setting back the customer and the employee side by side in the front passenger seat, after having let them in the back seat for many years, while driving a car powered by the same four-stroke internal combustion engine. In its recent paper, Social Business Patterns, IBM states that:

“A social business is an organization whose culture and systems encourage networks of people to create business value. Social businesses connect individuals, so they can rapidly share information, knowledge and ideas by having conversations and publishing informal content. They analyze social content from multiple channels and sources, in addition to structured data, to gain insights from both external and internal stake- holders.”

Similarly, in its The Evolution of Social Business study, the Altimeter Group writes:

“Organizations moving into this stage [the Converged state, defined as ‘Business is Social’] are driven by a vision that articulates how social media and digital overall improves customer and employee relationships and experiences.”

But we live in an era which sees many business models doomed with obsolescence, customers swiftly changing their consumption patterns, economic structures collapsing, employees disengaged at an alarming rate. In such a situation, isn’t then transforming processes into, or enhancing them with, conversations a rather lame objective for organizational evolution ? Business has always been done with people for people; and setting people back in the driver seat is the real and only way to go. Focusing, as we do, on “social” as an enabler, is putting emphasis on anecdotal, rather than structural, change.

In reality, a deeper transformation is already at work. Organizations transform themselves, following either an evolutionary or revolutionary path. They always did, in fact, and “the trajectory toward Smart/Social Business/Enterprise 2.0 began decades ago with the shift towards ‘the learning factory’ model“, as Anne Marie McEwan put it in her book Smart Working – Creating the Next Wave. Looking at past, and present, experiments and initiatives from a people-centric (employees as well as customers) view, can help us in envisioning successive stages in organizational future.

The connected organization

“Connected companies are not hierarchies, fractured into unthinking, functional parts, but holarchies: complex systems in which each part is also a fully-functional whole in its own right. A holarchy is a different kind of template than the modern, multidivisional organization. It’s podular.”

This epigraph from Dave Gray’s book, The Connected Company, says it all. To be able to adapt both to customers’ changing needs and to competitive pressure, organizations should adopt a decentralized cooperative model, and develop the ability to build strategic as well as operational ad hoc “alliances”. This model isn’t new, far from that. The Italian industry, for instance, has been dominated by small (70% of Italian workers work for firms having fewer than 100 employees), family-owned businesses, able to cluster on opportunistic opportunities. This structural agility, combined with a high focus on informal and continuous learning, has proved itself to be highly successful since the beginning of the Industrial Revolution.

More recent examples abound. Tom Peters has extensively written about companies like Union Pacific Railroad, which reinvented itself during the 80s by breaking up into small inter-related units. Kyocera Corp., a US$ 13 billion revenue Japanese ceramics and electronics manufacturer, has structured itself as a multitude of small customer-focused business units.

The porous organization

As responsive and adaptive as it can be, the connected organization lacks the capability to understand its customers “from the inside”, to meaningfully cope with abrupt and always faster shifts in markets’ orientations and customers’ needs. To understand customers’ job-to-be-done, companies will need to evolve further, and to directly integrate them into their processes, to make them integral part of the business ecosystem. Co-design, service design, are some of of the fields of practice which aim at setting the final user at the center of the stage. But this trend toward building multi-sided ecosystems, toward nurturing a symbiosis beneficial to all stakeholders, outside as well as inside the organization, is even more acute in the B2B world, where such evolution already exist.

Consider for instance the Suppliers Team Volvo Cars Human Resources Management Forum, which brings together HR representatives from the Volvo Cars Belgian assembly plant and some twenty suppliers, allowing them to openly share human resources issues and opportunities. Greg Lloyd, President and co-founder of Traction Software, gave me another example when, for the Future of [Collaborative] Enterprise project, he described the way Boeing was used to exchange entire teams with its suppliers for a limited time, to better understand each other needs and operational practices.

The thin organization

Restructured for nimbleness, tied to customers’ satisfaction and suppliers’ prosperity, organizations will have to deal, not only with dissolving boundaries, having to orchestrate resources they won’t own anymore, but also with the influence this evolution will exert on people. Remember, we are in a coevolutionary world, and while porous organizations will conform to the organizational structure observed and described by Ranjay Gulati and David Kletter in Shrinking Core, Expanding Periphery: The Relational Architecture of High Performing Organizations, they might have to aim at even deeper transformation to thrive, or even to survive, in the era of “worksumers”, of individuals who more and more are considering work, as well as products and services consumption, as activities less and less differentiated, fully integrated into an hyper-connected life.

When such dilution occurs, and it WILL occur, the very notion of organization will have to evolve. Responsive and adaptive customer-centricity in the worksumption era will morph into symbiosis, an ultimate form of win-win co-evolutionary relationship.

Social, in our not-so-private life, is teaching us that getting is giving, and new partnerships, which already begin to take place, will have to form between the entities which structure our lives: public/private, economic/political, leisure/professional. Successful companies will depart from the present view of profit as a private, financial only asset in the hands of shareholders, by enforcing its socially cohesive dimension, in a model somehow close to German capitalism. They will have to assume their role in non-directly-professional domains, whether it be in education, urban development, or preservation of environment. They will become social, in the original sense of it.

We can already see a few example of companies this ultimate stage of transformation, like Zappos and its Downtown Las Vegas project, or Compuware and Detroit’s Edible Gardens. “Social media will be like air“, once said Charlene Li, founder of Altimeter Group. Yet, the “social” she was talking about were the technologies supporting the evolving lattice of our relationships. The successful companies of tomorrow will, in turn, become thin organizations, weaving with worksumers the kind of relationships supported by a Wirearchy, as defined by Jon Husband:

“a dynamic two-way flow of power and authority based on trust, knowledge, credibility and a focus on results enabled by interconnected people and technology.”

Hierarchies won’t disappear. They will maintain the core structure of organizations, like the engine powering a car, whoever the driver is. This comes at a risk: power and authority flows can be gamed, and hijacked at the benefit of few. Whether it becomes enabler of a better life, or Big Brother of a dull future, the becoming of the thin organization definitely belongs to us.

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The Thin Organization, Part II: Trapped into Causal Opacity?

causal_opacityOur world is changing. Fast. Radically. To cope with this pace of evolution, or to simply avoid disruption, organizations must evolve. The Glorious Thirties, these years which embodied the Golden Age of mass production and standardized consumption, are definitely behind us, and let place to what Nilofer Merchant calls the Social Era, an age both of hyper connectivity and extreme individuality, characterized by versatility of markets and uncertainty of consumers’ behaviors. In this context, evolution is no more a choice.

In reality, evolution has always taken place, within and outside of organizations. Yet, many attempts to drive it have ended up in dead-ends. Innovative organizational principles, such as Lean or the Total Quality Management system, were led astray from their original customer-centricity (doing better to better serve customers) to enforce the bureaucratic and mechanized shortcomings of Taylorist organizations. Why?

One of our biggest mistake might have been to consider the three main poles of this evolution, people, technology and organizations, as separate factors linked by causal chains. We claimed, and believed, that novel technology would change business, which in turn would change customers, by creating more demand. Or, similarly, that new business principles would change workers’ performance, for which we will need new technology to better manage this performance. And so on. But what works in a mechanistic realm doesn’t apply in a complex world. Causes and consequences are blurred, and evolution is the result of many non-linear interdependencies which cannot be insulated. Transforming a term of the equation doesn’t ensure the propagation of this change to other components, and many organizational innovations fell short from their expected results, being trapped in causal opacity. At the light of complexity, transformation is co-evolution, which happens through the connections existing between the systems. The Taylorist organization failed and rendered itself unable to evolve, not by lack of will, but because it lost contact with employees’ creativity and customers’ expectations. Companies need to reconnect with their customers, circling back to the definition Peter Drucker gave of business: “There is only one valid definition of a business purpose: to create a customer.”

Sadly, it often seems like we don’t learn from the past. Enterprise 2.0 was primarily defined as business transformation through the use of technology. “Social” is for IBM “changing the way people connect and the way organizations succeed”, while Oracle claims that social media transforms businesses and the way they interact with customers. The present credo in «social enables the change» looks so much like another causal illusion. In a coevolutionary world, change is driven by influence, and by companies’ fitness to the global ecosystem. In other words, companies should focus on their own, intrinsic transformation to cope with today’s global mutation of business. As Ghandi once said: “If we could change ourselves, the tendencies in the world would also change.”

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The Thin Organization Part I: Enacting Social Business

enacting-social-businessI was recently invited to participate to a session during the Enterprise 2.0 Summit in Paris, along with Jon Husband and Richard Collin, on the theme of “frameworks for the networked organization”. I won’t give here my thoughts about the Summit, as you can already find some insightful articles around the web, but will instead try to explore and develop further the ideas from my short talk.


A matter of terminology

Transforming organizations starts with transforming the language used to describe them. While we used many terms borrowed (with more or less precision and relevance) from the military realm: command-and-control, operations, reporting, campaigns, targets… to describe organizations in the Industrial Age, the social business jargon has a strong technological flavor, “framework” being a typical example. Despite a shared emphasis on the cultural and human dimensions of the change at stake, technology vendors and analysts have a strong hold on “social in enterprise”, this explaining that.

Yet, as Karl Weick and others have strongly evidenced, organizations are built up and maintained through language, through enactment. It is thus quite paradoxical to notice that we keep on using and abusing this terminology, while even the most technology inclined agree on the fact that technology is only a, not even major, part of the equation. Can we then seriously herald the need for organizations to empower their workforce, while at the same time our language enforces the idea that technology will drive the shift, in the same way it drove the change toward automatization?

At a deeper level, this paradox is in reality a Gordian Knot, and as so must be cut through in order to be untied. In our uncertain and fast-moving environment, our understanding of organizations has to shift from a Newtonian view, in which we see them as productive machines, to a Darwinian one, and consider them as ever evolving complex adaptive systems. Under this angle, the very idea of frameworks is definitely irrelevant, as no framework will ever be able to anticipate, or even summarize, the evolution of a complex system. Complexity obliges us to think differently; one of the remarkable properties of CASs is that, to be able to predict their evolution further than discrete and for a very short term (think about the inaccuracy of long-term weather prediction, for example), one has to precisely know the initial state and value of EVERY variable involved. A small imprecision in evaluating a single variable might lead to a huge divergence in the evolution of the system. In that sense, each organization is unique, and will become “social” in its own, unique and unpredictable, way, without regard to technology or methodology used to seed and accompany the change.

Social business as a purpose

Being unable to predict, and rationalize, evolution, doesn’t mean we are not able to foresee global trends of change. In fact, most of these changes have already begun to unfold under our eyes, beginning from the rise of the Industrial Revolution, without us formally noticing. What I can witness, and deduce from observations and experience, is a slow but steady evolution toward a new organizational paradigm and purpose. This evolution, which is now accelerating in a quasi exponential way with the help of technology available, will lead to what I might call true social business.

As a term, “social business” embeds much ambiguity, thus is largely subject to controversy. Terminology mist, again. It encompasses both the definition given by Peter Kim and Dion Hinchcliffe in their book Social Business by Design, of businesses internally and externally empowered by the use of social technologies, and the one from Muhammad Yunus, which has itself a dual meaning; the one of non-profit organizations acting for social good, and the one of profit organizations owned by the poor for their own benefit.

In the future, successful organizations will, to some extent, embody both significations, to be able to keep on satisfying customers who are also employees somewhere. This evolution toward what I call the thin organization, the rediscovery of a purpose for which profit is a mean and not an end, in line with what Henry Ford stated in 1903: “A business that makes nothing but money is a poor business”, I will develop in the next parts of this post.

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