people as source of value in entrepreneurism
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TRANSCRIPT
May 7, 2011
Doug McDavid http://www.Enterprisology.com [email protected] Second Life avatar: Doug McDavid
People as the Source of Value in Entrepreneurism
For today’s discussion
About me Background conditions
– Economic theory
– An era of services
Architectural view of enterprise– Social nature of enterprise
People as the source of value– How communities bring this forth
– Startups as communities of practice
Knowledge as property– Monetization
Survival mechanisms (reducing “infant mortality”)– Discussion of how this resonates
About me
Libraries! Various
– Tymnet
– Pacific Bell
– Fireman’s Fund
– Charles Schwab
Dave Britton! IBM
– Consulting
– IBM Research
– IBM Academy of Technology
Attempted entrepreneurism Full disclosure
– Trying to make this into a business of some kind
Key factors and trends are converging to emphasize the social nature of enterprise
Proliferation of human and ecological problems – from local to global
Ubiquitous communication networks and continuous connectivity
Increasingly fragmented enterprises are reintegrated in ecosystems of commerce
– widespread outsourcing – global supply chain networks
Financialization of everything Diverse markets for hidden assets created via Internet mash-
ups Projection of self in everyday life
– Personal branding
– Personal channels
Five historical long-waves of development
Irruption
Innovation
The Industrial Revolution
Age of Steam and Railways
Age of Steel, Electricityand Heavy Engineering
Age of Oil, Automobilesand Mass Production
Age of Information and Telecommunications
Frenzy Synergy
DeploymentMaturity
Panic1797
Depression1893
Crash1929
Dot.comCollaps
e
• Formation of Mfg. industry• Repeal of Corn Laws opening
trade
• Joint stock companies • Industry exploits economies
of scale
Current period ofInstitutional Adjustment
• Separation of savings, investment banks
• FDIC, SEC
• Build-out of Interstate highways
• IMF, World Bank, BIS
1
2
3
4
5
Source: “Technological Revolutions and Financial Capital, Carlota Perez, 2002
Panic1847
1771
1829
1875
1908
1971
1873
1920
1974
1829
Crash
30 Years32 Years
30 Years26 Years
30 Years27 Years
30 Years45 Years
The nature of the phases of the long cycles
Revolutionary new technological paradigm surges forth.
Phase / period
Technological revolution
Techno-economic paradigm
Production capital
Socio-institutional framework
Growth
Financial capital
Installation Deployment
Irruption Frenzy Synergy Maturity
Love affair with newTechnological revolution
Finance rules decoupledFrom production
Idle finance looking for opportunities
Decline and outstretching of previous surgeDeployment of next revolution
Shifts from previous paradigm to new oneConfiguration and installation of new paradigm
Decoupling of production structureModern paradigm vs. old paradigm
Mismatch of old framework with next paradigm
Diverging explosive growth of new paradigm industries vs. declining old paradigm industries
Mature production looking for markets
Full blown and maturity of emerged technologyGestation of the next revolution
Full reign and deployment of emerged paradigm
Socio-institutional framework adapted to and shaping emerged paradigm
Converging growth of most industries using emerged paradigm
Financial and productive capital recoupled – production dominates
Carlota Perez, Technological Revolutions and Financial Capital, Elgar, 2002, pp. 152-153.
“The turning point has to do with the balance between individual and social interests within capitalism. It is the swing of the pendulum from the extreme individualism of Frenzy to giving greater attention to collective well-being.”
We are in an era of services dominance
Evolving to new dominant logic – services-centered– Away from goods exchange
– Toward exchange of intangibles Skills (S) specialization
Knowledge (K)
Processes
– Customers buy offerings rendering services that create value
Service: “[the] application of specialized competences (S & K) through deeds, processes, and performances for benefit of another entity or the entity itself […]”
Stephen L. Vargo & Robert F. Lusch, “Evolving to a New Dominant Logic for Marketing”, Journal of Marketing, Vol. 68 (January 2004), 1–17
“The great economic law is this: Services are exchanged for services…. It is trivial, very commonplace; it is, nonetheless, the beginning, the middle, and the end of economic science.”
Frederic Bastiat, 1860
Some might say it has always been the era of services
% of U.S. employment
agriculture
services
manufacture
Enterprise is fundamentally social by nature
Enterprise has been defined as: “a purposeful or industrious undertaking”– http://www.onelook.com
The root of enterprise is human desire The purpose of enterprise is to foster well-being
– It’s about making a living, not making a “killing”
“There is a fundamental insight underlying all management sciences. It is that the business enterprise is a system of the highest order: a system whose parts are human beings, contributing voluntarily of their knowledge, skill and dedication to a joint venture.”
– Peter Drucker (2004)
One view of the architecture of enterprise derives from the notion of autopoietic systems
– Interplay of closure and openness
– Ongoing co-creation between the parts and the whole, within self-created boundaries
– It’s not necessarily “life” as we know it, but there is a lot of commonality Biological Social Technological
Living systems highlight the nature of business
Identity maintained over time
Boundary of the system and system embedded in an environment
Closed systems within open systems
A level of stability maintained within a flux of material, energy, and information.
Independence and interdependence
Cooperation and competition
Parts inter-relating to form the whole
Life cycle (emerge, sustain, disintegrate)
Sustainment of life requires the abilities to:
Ludwig von Bertalanffy Lynn Margulis James Grier Miller Humberto Maturana and
Francisco Varela Stafford Beer Niklas Luhmann
–spontaneously emerge from a
codified design–self-regulate–manage variety–self-regenerate–maintain relationship among elements–grow–metabolize
–adapt–respond to stimuli–learn–form a purpose–decide–communicate–produce–reproduce
KPKey Partners
KAKey Assets
VPValue Propositions
CRCustomer Relationships
CSCustomer Segments
CHChannels
KRKey Resources
C$Cost
R$Revenue
The business model generation canvas
KP KA VP CR CS
CHKR
C$ R$
The asset of the future is the embrace of a tribe, not a cheaper widget.
Build in virality. Consider: Groupon.
Don't sell a product that can be purchased cheaper at Amazon.
Subscriptions beat one-off sales.
Treat different customers differently.
Generate joy, don't just satisfy a need for a commodity.
Try to create an environment where your customers are happier when there are other customers doing business with you
Rely on unique individuals, not an easily copyable system.
Plan on remarkable experiences, not remarkable ads.
Don't build a fortress of secrets, bet on open.
Match expenses to cash flow--don't run out of money, because it's no longer 1999.
Unless there's a differentiating business reason, use off the shelf software and cheap cloud storage
Plan on obsolescence (of your products, not your customers).
Create scarcity but act with abundance. Free samples create demand for the valuable (but not unlimited) tier you offer.
Tell a story, erect a mythology, walk the walk.
From: Seth Godin’s blog -- http://sethgodin.typepad.com/seths_blog/2010/08/foundation-elements-for-modern-businesses.html
Seth Godin’s fundamental pieces successful businesses mapped to the Canvas
12
An architectural framework for business
An EnterpriseEnterprise
Enterprise
Enterprise
Enterprise
Enterprise
Enterprise
Intelligence gathering
Direction setting
Chain of command
Cu
lture
Operations
Recursive organizationResources
Technology
Talent
Knowledge
Information
Data
Energy
Locations
IT
Finances
Products
Transactions
IT architectureBusiness
architecture
Business situation
Imag
e
Investment
Enviro
nmen
tal f
acto
rs
Services
Regula
tions
Various role-players interact in the marketplace
Employee
Investor
Customer
Society
Regulator
EnterpriseSupplier
Evaluator
Debtor
Complementor
VictimPartner
Competitor
Some architectural views of business
http://www.enterprisology.com/node/97
Communities of interest/practice are asset-rich
People, with their talent, knowledge, skills, and experience constitute the ultimate source of value
The highest form of capital is developed via problem-solving services– These highest-value types of capital are developed through intellect and insight– Much of the wealth of communities literally exists in their own minds
Value creation through community emerges from an abundance of problems and problem-solvers rather than scarcity of resources
Through communities of interest and practice individuals are able to identify and hone their value capturing abilities
Every knowable thing (once known) is a form of capital– Each of these forms of capital is a potential seed for a community
Ownership avoids the moral hazards implicit in knowledge management systems
Knowledge is fundamental to the value created by individuals in communities
Different kinds of knowledge are required :– Tacit vs. Explicit– Local vs. Open– Technical vs. Social– Formal vs. Informal
Economic value within communities relies and builds on the reputation of knowers
Reputation of a knower is based on: – how many people know that they know what they know, – who knows whom, how well they know them, and what and whom those people
know – a network of increasing returns
Some knowledge is transferred by direct and indirect communication with persons - both living and dead
Some valuable knowledge is based on the experience of living Unfortunately people are often treated as factors of cost, not value-
creators, and are therefore underestimated and undercapitalized
Any source of wealth can be recognized as property
Not all wealth is tied to physical assets and commodities
If you’re him …
… this is what happens.
Money and value – interchangeable?
In reciprocal barter, things buy things
In modern commerce, the normal operation is that money buys goods and services (things)
In a currency exchange, like FOREX, money buys money
In a community of practice, the skills, talents, knowledge and experience (things) of individuals buy local currency (money)
This is essentially a wave/particle theory of value: everything in the market is both thing and money
People-oriented and social architectures are needed by start-ups
Large enterprises worry about things like enterprise architecture– The Fortune 1000 are all worried about enterprise architecture
– EA mandated by the Federal government, and many states have followed suit
Most large companies are terribly overcomplicated after years of development of systems that are not well-architected
– This provides good business for big consultancies like IBM, who compete for $millions and 10’s of millions
We think that fledgling enterprises need to worry about the same things
Addressing these issues when they are young, small, and simple, help avoid problems down the road.
– Conscious evolution of common culture
– Strategy as structure
– Critical factor recognition
– Flexible IT for flexible business
– Clarity for implementers
– Governance from “Day 1”
– Reconciliation of human business needs with technology
Dangers of allowing the enterprise to develop without good architectural thinking
How does an enterprise get in trouble?– “We need this”
– “This is cheap (free)”
– “Here is something to help”
– “We need these connected”
– This last point is when you on your way to a chaotic mess – like IBM with 16,000 applications – reduced to 6,000 at great expense and effort
Each application is surrounded by hungry mouths, screaming for their only sustenance: money
– Maintenance
– Upgrades
– Data capture, quality
– Interfaces
Ideas for people-oriented services for startups
A lightweight architected viewpoint could save start-up companies untold grief and cost downstream
Advantages arise from the following factors– Complication cost and inflexibility
– A startup business is as simple now as it will ever be
– Decisions made in the early stage create a de facto architecture
– Start simple and stay as simple as possible
– Ability to learn from the mistakes of big companies
– It’s expensive to repeat them
Optimizations can be made more cheaply when implemented sooner rather than later
– provide efficiencies from the start
– make them more valuable acquisition targets down the road
Audiences for this include – investors, because they will be prime beneficiaries for improved value
– Entrepreneurs with a long view
– experienced CEOs who have experienced unarchitected chaos
Example resources for supporting the human side of entrepreneurism (1 of 7)
Envisioning the enterprise– Business model generation
– Business Model Generation is a practical, inspiring handbook for anyone striving to improve a business model — or craft a new one. Business Model Generation offers you powerful, simple, tested tools for understanding, designing, reworking, and implementing business models.
– http://bit.ly/fWqXZ8 http://www.businessmodelgeneration.com/ – Alexander Osterwalder
Executives as architects of their businesses– Sense and Respond– A post-industrial managerial framework for designing and leading adaptive
enterprises. In environments of unpredictable change transformations of business strategy, structure and governance are called for, and new core competences are required. These include: knowing earlier the meaning of what is happening now, managing by wire, expressing strategies as business architecture designs, commitment management based governance, and customer-back operations.
– http://www.senseandrespond.com/
– Steve Haeckel
Example resources for supporting the human side of entrepreneurism (2 of 7)
R&D Management– Robin Williams, R&D Consulting– Consultant in Research & Development (R&D), innovation and transformation,
especially in R&D management, research models, and processes.– http://robinwilliams-randd.com/home – Robin Williams
Getting unstuck – Beyond the Fridge (BtF)– Being stuck is a common human condition. We bet you’ve been there. BtF
braids stories of remarkable people into remarkable dexterities that power individuals and teams through their stuckness.
– http://www.themanagementcrowd.com/ – Ian Kendrick
Example resources for supporting the human side of entrepreneurism (3 of 7)
Branding– Content Evolution – Content Evolution is a collaborative ecosystem with a
focus on intention and brand experience strategy – http://www.contentevolution.net/– Kevin Clark
Ontology– TopQuadrant– TopQuadrant’s mission is to enable enterprises to be agile through practical
application of Semantic Web technologies. We believe the global economy requires enterprises to become more agile in order to survive and thrive. Applications built using traditional approaches don’t adapt well to changes and are not sustainable over time.
– http://www.topquadrant.com/company/company_overview.html– Ralph Hodgson
Example resources for supporting the human side of entrepreneurism (4 of 7)
Intellectual capital valuation – Intellectual Capital Knowledge Center (ICKC)– A global, open community of people who believe that IC management helps build
better organizations and economies– http://www.icknowledgecenter.com/ – Mary Adams
Collaboration and currencies – Galtmidas– Software modules for collaboration within communities of practice, based on
alternative local currencies– http://galtmidascom.easycgi.com/gmb – Mike McClintock
Example resources for supporting the human side of entrepreneurism (5 of 7)
Optimizing knowledge professionals– VeraSage Institute– VeraSage Institute is the most revolutionary think tank for professional
knowledge firms—we challenge the professions to break free of practice methods that hurt the professions, undermine their purposes, and fail their clients
– http://www.verasage.com/ – Ron Baker
Immersive learning– WTRI– The FutureView™ (FV) product suite provides immersive learning, modeling and
profiling tools to help you leverage your company’s core expertise– http://www.wtri.com – Lia DiBello
Example resources for supporting the human side of entrepreneurism (6 of 7)
Standardized business processes and benchmarks – APQC – As a member-based nonprofit specializing in benchmarking, knowledge
management, measurement, and process improvement, APQC has spent the last 33 years working with leading organizations to assess and improve their performance.
– http://www.apqc.org/
–Process standard– MIT Process Handbook – The goal of the MIT Process Handbook Project is to develop rich online libraries for
sharing and managing many kinds of knowledge about business. For example, these libraries can help find interesting case examples, generate innovative ideas about new business possibilities, and develop new computer programs. Starting in 1991, we have developed one such library. We call it the Process Handbook--an extensive online knowledge base including entries for over 5000 business activities and a set of software tools for managing this knowledge.
– http://ccs.mit.edu/ph/ – Tom Malone
Example resources for supporting the human side of entrepreneurism (7 of 7)
Enterprise architecture– SanjTech Solutions– We specialize in helping an organization streamline its EA effort in order to
maximize IT investment's benefit to the organization. We help reduce cost by looking for consolidation and reuse. We model the enterprise using various viewpoints and classifying its assets using FEA and other EA frameworks. http://www.sanjtechsolutions.com/
– Sandeep Sheth
Business architecture– TSG Consulting– We specialize in Business / IT Alignment, Business Architecture and
Architecture-Driven Modernization. Typical clients include Fortune 1000 companies, government agencies at the federal, state and local level, financial institutions and investors, software vendors, start-up companies, and companies that require expert assistance and analysis.
– http://www.tsgconsultinginc.com/tsgconsultinginc/Welcome.html– William Ulrich