Posts Tagged ‘interaction’

We don’t know squat about economics

Monday, July 30th, 2012

 

We think of weathermen and stockbrokers as the two “often in error, but never in doubt” professions. Let me nominate a third: economists.

If stimulus or austerity policies worked, we’d know by now.  If Friedman and Keynes were right, our governments would long have adopted their policies, and our economies would be roaring like Formula 1 cars in the Monaco grand prix. The predictability of tax cuts or stimulus spending on economic growth has the reliability of Paul the Octopus forecasting soccer game outcomes: sometimes it works, and most of the time it doesn’t. Yet politicians everywhere hang on to these disproven theories as economic gospel.

What’s wrong with economics? To paraphrase Mitt Romney in one of his awkward statements, economics is people. Instead, we think economics is policies. From government to universities, we teach economics as a massively aggregated database from which we extract insights, then policies, at the level of a state or a country. This leads to lame assertions about interest rates, monetary mass, jobs, trade deficit, and vague concepts of rational expectations reputedly anticipating economic behaviors. If we understood the true causes and effects in the economic system, our Presidents would not be sweating the job numbers every month: they would tell us beforehand what to expect.

Do you wake up in the morning thinking about interest rates, inflation and trade deficit? Do you actually decide to buy a car, a house, or go grocery shopping on the basis of interest rate and inflation? Do you look at your Turbotax statement to decide whether the rise in the marginal tax rate just passed by Congress will authorize you to go to Wholefoods and buy the fresh organic tomatoes that day, instead of going to the regular grocery store where the tomatoes are cheaper? Of course not. Yet this is the micro-level at which the economy works. Unless we can begin to comprehend decisions at this individual level, we have nothing of value.

If I were an economist, I’d start by diving deep into understanding how five or ten of my neighbors experience the economy. I’d try to build a model of their income statements and their balance sheet, and figure out how they decide to patronize five or ten local businesses (say, restaurants, grocery store, day care, etc.), or why they decide to save and for what. I’d try to understand the economics of the five or ten local businesses my neighbors buy from, why these small businesses decide to expand and hire, or why they scale or shut down. If there were one or two big businesses in my local area (corporate headquarters, big hospitals, etc.), I’d try to understand how the success of those large businesses contributes to the local economy through local taxes and jobs. I’d then try to model how the local township or municipality benefits from all this, and what impact local people and businesses have on the finances of my town (school, public funds, etc.). If we could just model this microcosm of economic interactions, we’d have data on a real, living ecosystem of actual people and entities and begin to understand how a local economy is co-created through their interactions.

Would this be representative of the economy as a whole? Of course, not. There would be massive biases linked to local industrial fabric and wealth levels. To roll up this data into a state, national, or global economy, one would have to empower people to build their own model at the local level. Providing the structure and platform that allows this local modeling would be a great role for government, instead of pretending that it owns the economy or creates jobs. The role of government in economic policy should not be to build top-down expert models of the economy as a whole, but to empower local folks to build models of their local market and learn from their interactions.

Even more importantly, if we began to understand causes and effects at the local economy level, the “economic agents” involved would be able to do something about the economy, rather than passively describe it. Individuals could change their relationship to local businesses, for example, by forming communities around them. Local businesses could mobilize those communities by setting up platforms that better connect them to their local customers (for example, I’d love to rally a few of my local friends to help a local hotel improve a few things in their menu and rooms, and we’d collectively bring them our out-of-town business). If local officials were to facilitate this dialogue, this would do more to create jobs and get them reelected than repeating hackneyed Republican or Democratic theories of austerity or stimulus.

Unfortunately, the scarcest commodity in economics is humility. Witness for example the recent Business Week article on the discussion between Paul Krugman and the President of Estonia and on the value of austerity in running a country. I will not venture an opinion about who’s right or wrong in this debate, but getting rid of the condescension conveyed in this dialogue seems to me to be job 1.

I, for one, would like to understand the economics of my village.

The bounty system of the New Orleans Saints as a perfect model of co-creation

Monday, March 5th, 2012

It has been widely reported in the last few days that some players on the New Orleans Saints football team developed a home-grown bounty system whereby players would reward each other with personal money for inflicting injuries onto opposing players. While the National Football League is investigating the New Orleans Saints specifically, there are indications that such a system might be in existence across the league, along a continuum from the clearly legal (players rewarding a punt return) to the apparently illegal variety (the NFL seems to have rules that prohibit intentionally putting a quarterback on a stretcher).

The New Orleans Saints have developed a perfect system of co-creation we should write up in Harvard Business Review, not decry in the New York Times. The system developed by the players has all five ingredients of co-creation:

  • A community. The players who decided they were going to build a kitty to reward injury-causing hits on opposing players set themselves up as a community. Had the NFL not intervened in ill-advised fashion, the player community might have expanded into allowing investment from fans into the bounty scheme. A “Knock Tom Brady cold” Super PAC could not have been far behind, supported by Libyan or Syrian capital.
  • An engagement platform. The platform was an organized spreadsheet where players kept tabs on bets and rewards. The spreadsheet was further institutionalized when an assistant coach started keeping score on behalf of the players. The next expansion would have included an idea generation web site open to the public (myinjuryideas.com), with an injury pricing site and rotisserie league to follow.
  • Continuously expanding interactions. The platform was originally developed as an incentive system to reward legal plays (e.g., causing a fumble), but started sprouting injury-causing moves over time. The community and platform in place could have been further expanded into player gambling on football games, sponsoring dog fights, or financing armed robbery by young deserving football players.
  • New win-win experiences for all parties. We’re told the bounties helped young players round off their modest paycheck, allowing them “to buy shoes” with the proceeds. I understand Zappos and Nike were eager to become involved in the Saints co-creative ecosystem. Elder players enjoyed the developmental experience of providing nurturing advice to their younger colleagues, supported by the team’s Human Resources function. The assistant coach was clearly on the short list for Coaching Innovation of the Year. And the New Orleans Saints fans got a winning football team after years of futility, allowing the entire city to regain its pride after Katrina (well, sort of).
  • New value for the club owner. The bounty system produced a highly motivated work force that fully dedicated itself to the task at hand, ultimately winning the Super Bowl.  Absenteeism was at an all-time low. Career progression was rapid. The bounty system had no cost to the owner since everything was financed by the players.  The system did have a tremendous revenue impact in terms of gate attendance and media revenue. What else could one wish for as an owner?

The bounty system was such a perfect example of co-creation and produced an ever-expanding win for all parties (except for a few injured parties along the way, but doesn’t there have to be some Schumpeterian creative destruction?). The Saints bounty system could have become the new Facebook, the new Google or the new Groupon. Will regulators ever learn?

Elton John and Leon Russell co-create on HBO

Tuesday, February 14th, 2012

I have a new teaching aid for co-creation: the HBO documentary by Cameron Crowe showing how Elton John and Leon Russell came together to produce a new CD called The Union (this is also the name of the documentary). On the analytical side, it shows how two people coming together initiated the development of a global community of fans (the record opened up at number 1 on Amazon in 2010 and rose to number 3 on the Billboard charts). On the experiential side, the story provides a window on the beautiful mind of Elton John and bears witness to the second birth of Leon Russell (“I was in a ditch and he treated me like a king”). The words of Elton John describing the transformative power of the experience on himself offer a better motivation for co-creation than any of us “experts” will ever provide.

The documentary starts with Elton John in a middle-aged funk, wondering how to avoid having to record a Christmas album for his label. He suddenly remembers the early influence on his piano playing of the American song writer and performer Leon Russell, once a pioneering rock star in the late 60s-early 70s, now a marginal musician in Nashville, Tennessee. He approaches Russell, a grouchy, tired 67 year old with this unlikely proposition: “Let’s make a record together, full 50-50 partnership, I’m renting a studio, let’s get on with it, what do you say?”

The early collaboration is awkward. Russell does not really understand what Elton John wants from him and why he’s there, complete with a camera crew filming a documentary on the creative process (“what are we going to do together for two days?”). Elton John’s approach is to pick a few standards and get Leon jamming. Early on, Russell suffers a major setback in the form of a brain incident requiring hospitalization, from which he comes back quite diminished. Elton John hangs around, relentless and passionate. He puts songs in front of him, patiently drawing him out.

As trust starts growing from the early timid sessions, Leon Russell comes alive. The perceptive camera of Cameron Crowe catches the early twinkle in his eye, particularly when a group of female singers comes in to provide back-up vocals on one of the songs. The rewiring of Leon Russell has started, giving him access to the talent of a broader cast of characters than he’s had in a long time. (As he touchingly confesses, he’s grown used to doing everything himself, playing the keyboards, the guitar, the drums and doing the singing). At some point, he begins to realize the opportunity he’s been offered. One morning, he shows up frantically looking for a piano to compose the music to some lyrics he’s developed overnight. The song, entitled In the Hands of Angels, is too well-meaning to be effective musically, but shows a man transformed.

The co-creative process is gently managed by T Bone Burnett, the record producer. He’s the ego-less voice of the public, subtly guiding both artists through gentle nudging. Bernie Taupin, Elton John’s lyricist, is never far behind in the ecosystem, at least in spirit (Elton John states in the movie that in thirty years of collaboration, Taupin has never witnessed the development of the music by Elton John in a studio, thereby showing that co-creative interactions can be remote, yet powerful). We feel privileged to watch just that, particularly when Elton John puts together the introduction to the haunting “Gone to Shiloh” and Elton and Leon start harmonizing. There again, something in the eyes of Elton John suddenly illuminates, and one cannot help but feel the power of creative voices coming together.

Perhaps the more remarkable part in the collaboration of the two artists is the fact that Elton John, the artist with the most powerful “bargaining power” of the two, never uses it to push Leon to do what he wants. Our entire business model is predicated on the notion that success comes from creating a competitive advantage and exploiting it. For Elton John, value derives less from exerting his clout than from connecting with a disadvantaged human being in a creative new way. Connecting human experiences is the new source of competitive advantage. May Michael Porter forgive me!

What the heck is co-creation?

Saturday, March 27th, 2010

A few years back, trying to explain co-creation was like describing an oasis in a desert. You had to get the other party to envision water, palm trees and the restful experience that might come with it. Today, establishing what co-creation is involves hacking at luxuriating vegetation with a machete. The jungle of co-creation has become so dense it’s hard to tell what’s what. So let me attempt to play jungle cartographer.

The word “co-creation” is everywhere:

Sony just announced a co-creation platform.

Michael Dell says that “co-creation is a big opportunity” for his company.

A.G. Lafley, former CEO of Procter & Gamble says “you have to innovate with the customer, (…) and keep her involved, co-creating and co-designing with you throughout”.

The City of London is inviting its citizens to “co-create London.”

Copenhagen just hosted a Copenhagen “co-creation summit” on design.

If you’re into spiritual healing, you’re invited to “co-create your life and be in charge of your own reality.”

So what the heck is co-creation? The glib answer, of course, is “all of the above”, since one should have the right to co-create everything, including the definition of the word co-creation.

But since you insist on a more scholarly definition, co-creation is a theory of interactions. It involves changing the way the organization interacts with individuals, including employees, customers or any stakeholder. More specifically, co-creation involves setting up new modes of engagement for these individuals – platforms, in the jargon – that allow these individuals to insert themselves in the value chain of the organization. These platforms can be physical things such as a meeting or a store, or virtual things such as a web site. The idea of co-creation is to unleash the creative energy of many people, such that it transforms both their individual experience and the economics of the organization that enabled it.

Defined in this fashion, you can co-create anything involving an interaction, and there are all kinds of interactions. You can co-create a process. In that sense, co-creation is making a bid as the new reengineering. For example, Dell started its co-creation journey by redefining its customer service process – admittedly under pressure from Jeff Jarvis and other bloggers – by making it two-way.

Opening up the product development process to co-creation will lead you to co-create products. This is what A.G. Lafley did when he put in place the so-called Connect & Develop co-creation platform at Procter & Gamble, or what Sony is doing by inviting software developers to develop new applications for its Sony platform.

A city administration can co-create with citizens and invite them to imagine how they’d like to experience the city, as London does. And ultimately, you can attempt to co-create the entire world order, and Copenhagen is as good a place to start from, since the Vikings did it once before already.

Now, that’s co-creation from the organization’s standpoint. From the individual’s standpoint, co-creation suggests each of us can engage differently with businesses and organizations, as employee, customer or citizen. If each of us is a co-creator, this may even lead to a redefinition of our interaction with God, but I’ll leave spiritual healing for another blog entry. This organizational co-creation thing is hard enough as it is.

Top Ten list of excuses not to engage in co-creation

Saturday, October 17th, 2009

1. We’ve always done focus groups. We’ve done user-testing, customer-centricity, collaboration, customization, and personalization. Somewhere in there, I’m sure we ‘ve also done co-creation.

I’m sorry you suffer from methodology fatigue. But have you ever invited your customers to insert themselves into your value chain and do some of the work for you? I’m not talking about YOU adding endless variations to your product line, guessing at what they will buy from you. Put THEM to work. Give THEM tools that allow them to do some of the work instead of you. Get THEM to hold the pen. This is what defines co-creation. Maybe you’ll feel less tired after that.

2. We’re in a boring industry. We ain’t exactly Nike or Apple, you see.

You will find successful co-creators in industries such as post office systems, local community banks, manufacturers of coated film, pulp and paper, chemical companies, utilities, technology services companies and hospitals. Can your industry really be more boring than these?

3. Customers want simple, affordable products and services that are ready to use. Co-creation makes things uselessly complicated.

I see. You don’t want to engage, do you? Well, a nice thing about co-creation is that you can turn it off. If you want a standard, off-the-shelf product offering no co-creative interaction, don’t use any of the interactive capabilities. Feel free to use your iPod as a boon box.

4. If customers come up with the innovative ideas, what’s our role? Don’t customers pay us for our expertise? I don’t see what we’re here for in co-creation.

You do ask deeply existential questions, my son. Søren Kierkegaard and Friedrich Nietzsche would be proud of you. But not to worry. There is corporate life after co-creation. You role just needs to move from “doing yourself” to enabling interaction with others. You’re now a double-barreled expert. Still an expert in whatever content you were good at before, plus now you’re learned to engage others in connecting with you. Congratulations. You’re now a content platform, rather than a content vessel. Are you now reassured about your purpose in life?

5.  We’re a science-driven industry. What could possibly be the role of co-creation there?

I understand, Herr Doktor Professor. Now we want you to not only be brilliant in your lab, but we want you to start teaching the customers what you know. Of course, they’ll never discover new molecules or create new composites for your fuselage.  But draw them into your kitchen, show them all the cool ingredients you’ve got, and get them to bake a casserole with you. You’ll both have a lot of fun, and the casserole will be cheaper.

6. It would cost too much money to co-create our products with customers. We’d lose our shirt.

Darn right, you are. As long as you’re geared for production of standard products, any co-creation attempt will represent an engineering “special” and be prohibitively expensive. But dear Henry Ford, please let go of mass production and think in terms of mass interaction. If your design and production system is geared toward allowing personalized interactions on a large-scale, you’ll create another type of economies of scale. Think eBay. Interactions between buyer and seller are both co-created and extraordinarily cost-effective because of the volume handled.

7. There’s no wisdom of crowds. Blogs and chat rooms generate only junk.

Crowds, like people, are both wise and stupid. Co-creation is a bit like advertising. You know one half is wasted, but never know which half. Accept a certain messiness, tolerate some mediocrity. The valuable stuff will emerge from the swamp. And then, you’ll not only have valuable content. You’ll have the people who develop and carry that content for you. Then, it won’t matter that this valuable stuff emerged from a lot of garbage.

8. If you open to co-creation, you’ll lose control of your brand.

Yes, this has happened. For example, GM offered for people to co-create some ads and contributors made fun of the Hummer – now in Chinese hands – as a huge gas-guzzler that destroys the environment. But these things occur anyway, whether you sanction them though an official platform, or whether these ads are placed on YouTube. Most large companies are skewered in a largecompanysucks.com site. Whether you recognize it or not, your brand is already co-created. It’s like when your spouse cheats on you. You’re often the only one not to know it. You might as well socialize the nasty input on your site. In the end, your fans will weed out the bad on your behalf, if your brand is worth its salt.

9. Many of your co-creation examples are about technology. It’s an IT thing, isn’t it? IT has other priorities at the present time.

Technology is often required in co-creation, but there are other ways to implement co-creation. Stores can be co-creative. People can be co-creative. There’s a wall on a chart at the French post office where employees co-create their schedule. But in many cases, the sheer volume of interactions requires some electronic intermediation, and IT is needed. If your IT is busy implementing infrastructure programs, tell them this is a good thing to do to catch up. But if they don’t learn to engage customers and other parties rapidly, they’ll soon be looking for a job.

10. You can’t defend your intellectual property if you do co-creation.

O yes, the “co-creation breeds socialism” argument. If I co-create with someone, does this someone de facto own a part of the idea, and have I diluted my intellectual property from the start, such that I cannot make money off the idea? The trick is to define a priori the terms of the IP that will be created. Some co-creation sites like Innocentive or Procter and Gamble’s Connect and Develop state what they’re willing to pay for solving a given problem. Other organizations get their lawyers to co-create the arrangement as part of the process – that’s a novel idea, isn’t it? Believe or now, even lawyers can learn to co-create.