The Support Economy

The Support Economy

THE SUFFOLK SMALL BUSINESS PROJECT

INTRODUCTION

The main thesis of the Support Economy, as outlined by Professor Shoshana Zuboff of Harvard Business School and James Maxmin, is that our patterns of consumption help to determine the logic of the business enterprise. In turn, the nature of society helps to determine our patterns of consumption. This is the key factor that establishes the link between the nature of society, the economy, and the logic of the business enterprise. Over the past fifty years, the nature of society has undergone a number of profound changes, the economy has changed a great deal, but the logic of the business enterprise hasn’t changed that much.

If so, then we can predict that the nature of the business enterprise is due to change in a fundamental way, that the changes are likely to occur sooner rather than later, and that the changes are well overdue. For example, most people in modern Western economies have experience of the de-humanising treatment meted out, in the name of customer service, by call centre operations. This one symbol of the failure of managerial capitalism is enough to demonstrate that there is a wide gap between the service that customers expect and the service that companies deliver. The theory of the Support Economy seeks to explain this disconnect.

THE NEW SOCIETY OF INDIVIDUALS

Over the past fifty years, there has been a substantial change in the way in which individuals interact with each other and society at large. In a “Post Modern” society, autonomy, and diversity have come to replace the authority, conformity, and hierarchy of society under Managerial Capitalism. People have come to judge themselves on their own terms and not the terms of others. This means that they act more as individuals and see others as individuals. This phenomenon is “The New Society Of Individuals”.

The new society of individuals is giving rise to a new model of consumption. The new approaches reveal new modalities in the expression of needs: the claim for sanctuary, the demand for voice, and the quest for connection – new interdependencies.

Sanctuary is a place where we can own our choices, control our time, and shape the quality of our experiences. What does rising self-employment mean? Is it an act of emancipation? Or is it forcing individuals to the economic margins? In middle class professions, self employment acts to allow self determination in a place of sanctuary. Self employment leads to more satisfaction, but at a cost of insecurity of careers & income prospects. Self employment is a lifestyle choice related to the need for self-determination. The self employed can act from their individuality to cater for the individuation of consumption of the new individual.

The growth of people working from home allows people to trade time for money. Time is bought by delegating domestic activities. Trust is a central theme to the service – the client must trust the provider. The expression of voice is the means by which individuals create and encounter their own identities. Voice is the mechanism by which we can influence others. It is linked to the quest for connection. The old enterprise logic rarely satisfies the craving for voice through formal channels.

Capitalism follows the line of least resistance – it re-invents itself to fit the current realities. The new consumption is that which allows us to live an ever more individuated life. We are willing to buy our self-determination. However, this does not mean selling to an ever more differentiated market. Something new is needed. What is needed is a market for Deep Support. This is support in the invention and sustenance of a unique life.

These approaches manifest themselves in expressions of independence, self-control, and self-definition. They are transforming the market from being one in which goods and services are bought and sold (the transfer of transaction value) to being one in which relationship value is being released. Relationship value is released through a process of the Individuation of Consumption.

The rise of the individual based organisation will eventually lead to the demise of the hierarchical organisation of leaders and followers. The Post Modern organisation must allow all participants to express their voice – to become a networked organisation. This has brought a new meaning to social life – what is meant by “social life” has changed. New individuals seek direct participation and unmediated influence to use their own experience in making judgements. However, the new individuals are still dealing with the old enterprise logic of Managerial Capitalism.

THE NEED FOR A NEW ENTERPRISE LOGIC

Consumers seek deep support but producers can only provide the standard enterprise logic of Managerial Capitalism. The standard enterprise logic presumes and rewards an adversarial relationship with the customer. The customer generally loses out, giving rise to a Transaction Crisis of disaffection. Global competition is intensifying the need for a greater adversarial relationship, but the new society of individuals intensifies the need for deep support. This is worsening the transaction crisis.

The transaction crisis has 4 aspects:

1. Starvation – resources at the point of delivery are so reduced that the service offering cannot deliver service.

2. Inflation – the strategy to squeeze as much revenue out of the customer as possible.

3. Tyranny – the situation where the provider dictates exactly what will be provided, irrespective of the needs of the end consumer.

4. Mimicry – relationship mimicry is the situation where “relationship marketing” is designed to sell product and not to create relationships.

The exclusive focus on the product results in an inward focus on the standard enterprise logic. A growing inward focus could cause a disconnect with the customer. Marketing was devised to manage that disconnect.

The Internet and price transparency have led to the commoditisation of goods and services at a faster rate. The financial assumptions of the standard enterprise logic form a paradigm called “transaction economics”. Transactions are the building blocks of market activity. Shareholder wealth is enhanced by maximising transaction value. The end consumer is an inconvenience necessary in the production of transaction value. Transaction value is managed by yielding the highest possible accounting profit.

One consequence of transaction economics is to ignore the end consumer’s interests. Value creation is often at the expense of the end consumer. The possibility of interdependence of consumption provides an opportunity for deep support. It is possible to capture value through “relationship value”. This is latent and can only be captured in individual space by helping the individual to fulfil their needs. Transaction value creation often translates into relationship value destruction (they are mutually exclusive).

The standard enterprise logic was developed to deliver productive efficiency. Customer satisfaction is not central to this process. In the mainstream economy, firms attempt to constrain resource use and to enhance revenues to create transaction value. Customer service initiatives aim at revenue enhancement within the existing framework. By alienating employees & customers, resource constraint (cost cutting exercises) destroys relationship value. A new model of wealth creation is needed to deliver relationship value.

WHAT DOES THE NEW PARADIGM LOOK LIKE?

The new enterprise logic is what Zuboff and Maxmin call Distributed Capitalism. They hold that the internal logic of Distributed Capitalism is in the process of evolving. It needs to capture the imagination of the public and to become a social movement. The new way of doing things has yet to evolve into a business form, so we can only be descriptive at this stage.

There are eleven meta-principles of Distributed Capitalism:

1. All value resides in individuals. Distributed capitalism starts with the view that the individual is the source of all cash flows through the enterprise. Value is lodged in individual space and expressed in markets for deep support.

2. Distributed value implies that distributed structures throughout the whole of the enterprise will predominate. The new enterprise logic derives from the distributed nature of relationship value. Relationship value is created in the intangible assets of organisations.

3. Relationship economics is the framework for wealth creation. Relationship value is the value lodged in individuals. It is realised, or not, through the experience of the relationship. The purpose of commercial activity is to realise this relationship value. Federations tend to do this better than hierarchies. This will be advantageous to those areas with rural and small-town cultures.

4. Markets are self authoring. Individual space is the point at which an individual gives meaning to good and services. Relationship value can only be assigned from individual space. Individual space is where choice is exercised. Constituencies are groupings that arise in individual space. Individuals define constituencies by opting in and out of them. Deep support is addressed to individuals, and the constituencies develop through the aggregation of individual choices. Constituencies tend to be fluid, temporary, and porous.

5. Deep support is the new meta-product. In the support economy, the federation assumes responsibility and accountability for the consumption experience. This is deep support. Relationship value realisation depends upon providing individuals with deep support. Deep support is a meta-product that is embodied in goods and services.

6. Federated support networks are the new competitors. In the new enterprise logic, supply & demand is replaced by need & support. The federated support network replaces the supply chain and the value chain.

7. All commercial practices are aligned with the individual.

8. Infrastructure convergence re-defines cost, and frees resources. Infrastructure convergence arises from the elimination of the cost of replicated activities. These activities will merge as they migrate to a ubiquitous digital platform. Infrastructure convergence creates an environment of transparency. Interdependencies are made visible in real time.

9. Federations are infinitely configurable. Mass production provides efficiency to mass consumers. There is no template for the successful federation – if there was, it would be commoditised. Therefore, federations will vary in scale, scope, & size according to the needs of the individuals within them. The principle of infinite configuration reflects the market structure of individuated consumption.

10. New valuation methods reflect the primacy of individual space. The core value of companies will be their intangible assets. Current accounting cannot measure relationship value (the asset base) or deep support (the driver of turnover). Therefore, new valuation methodologies are needed. The effectiveness of a federation will depend upon its ability to leverage its intangibles. Products and services are the delivery vehicles for deep support. Competitive advantage will arise from the intelligence & creativity that is used in running the federation. The value of the network will be determined by the number of connections, the frequency of use, and the embedded value of each node.

Under distributed capitalism, the challenge of distributed value will affect every employee. As we head towards the support economy, the management of intangibles will assume even greater importance. The standard enterprise logic has problems with the management of intangibles because of its assumptions about property rights.

In the support economy, the “employee” is critical in wealth creation. Value is created by the employee’s own personal resources (intelligence, feeling, creativity, etc.). The role of the federation is to facilitate the staff to create wealth. Staff become more like members of enterprises. The traditional property rights don’t quite describe this relationship. Members need to be more responsible in the delivery of deep support.

The enterprise logic of distributed capitalism is the catalyst to change the nature of the economy. The transaction crisis has provided the seed bed into which distributed capitalism can be sown.

HOW WOULD SUFFOLK FIT INTO THE MODEL?

It is not readily seen how Suffolk would fit into this model. On the one hand, Suffolk lacks a core Creative Class – which is essential to leverage the full benefits of the paradigm shift – to drive the transformation of the economy. The continued predominance of the Country Dweller lifestyle tribe acts as a social drag that ensures that Suffolk is a laggard rather than a leader of social and economic change.

However, this is changing, and there are reasons to expect that it might change significantly out to 2020. The impending development of the University Campus, the migration of the Creative Class from London and the South East, and the development of Suffolk – particularly Ipswich – as a creative centre could be sufficient to kick-start the transformation necessary for the development of the Support Economy.

In this respect, Suffolk has a number of plus points. The work-force tends to have a relatively high degree of technical education, broadband connections are being rolled out as a matter of priority throughout the county – particularly to the more remote rural areas, and there is a general willingness in the SME sector to embrace technological change. If the transformation were to start in Suffolk, it is quite likely to progress at a rapid rate.

Suffolk is ready for the transformation should it reach a critical mass to become established. The problem is that there are relatively few early adopters of new lifestyles. It may suffocate the transformation before it takes hold. This is the critical uncertainty facing Suffolk over the Support Economy – would enough people adopt it to give it the critical mass necessary for the new paradigms to take hold?

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