Don't produce goods, produce betters

I finished reading Umair Haque's book The New Capitalist Manifesto: Building a Disruptively Better Business just before the holidays. Haque is a blogger for Harvard Business Review and runs a small consulting company. 

The book is a little breathless and sweeping at first. The initial impression is it is fluffy management-speak, from that strange universe of hyped- up business books, as the first chapter is a little irritating. 

But he has a great turn of phrase and the essence of what he is saying is very important. In the end I found it illuminating and useful. There is a lot of thought and substance.

Industrial-era capitalism needs reinvention, he argues. His main point is capitalism needs to focus on outcomes, not outputs.

Constructive capitalists are discovering that twenty-first century businesses don't produce goods; they produce betters: bundles of products and services that make people, communities, society, the natural world, or future generations economically better by ensuring they achieve positive, tangible outcomes.... you can think of betters as what transforms outputs - the stuff the industrial era produces - to outcomes that enhance well-being. (p150)

Companies need to ensure their customers change for the better. 

Happiness doesn't depend on more stuff, but on better well-being. ..So the most significant - and most vexing - question twentieth century business faces in the twenty-first century is: can we redraw the boundaries of happiness?.. Socio-effectiveness has to do not with the goodness of outputs, but the goodness of outcomes (p143-45)

To be economically meaningful is to be able to specify, prove and improve outcomes: "our customers get healthier";"we make people fitter";"our customers build stronger relationships";"we make communities smarter.".. Today every company is in the same business: the outcomes business. (p149)

Twenty-first century advantage demands rediscovering what's meaningful and discarding what isn't.  (p161)  

Companies should impact one or more of four categories of well-being: physical, social, economic and mental wellness. Competitiveness means adapting faster, not stifling competition.

Striving to make a difference instead of seeking differentiation upends orthodox competition. 

The new sources of advantage are applied with maximum effect when they erase the largest, most intense and longest-lasting amounts of economic harm. p175

Better measurement

That's his main point. Dialing back to the start of his argument, conventional businesses have undercounted the damage they do, he says. They shift costs to and borrow benefits from the wider community. Conventional industrial capitalism is past its prime, with declining margins and increasing competition.  

Our accounting is flawed. We undercount the costs of destruction and overcount the benefits of creation, with "an undersupply of goods that result in authentic benefits." 

Instead of looking at just the usual cost of capital for a business, one should look at what he calls the "full-spectrum cost of capital" to know if a business is producing authentic value. It is a matter of producing not "thin" value but value of greater worth. Instead of value propositions, there should be value conversations. 

Institutional Innovation

Much of the most productive new change, he says, will come from institutional innovation. He quotes a 2009 HBR article by John Hagel and John Seeley Brown: "institutional innovation will trump either product or process innovation in terms of its potential for value creation. 

Haque says:

...innovating those "deeper structures" - institutions - is, today, a better bet than churning out new products, services, strategies or business models: it's what's truly scare, rare, and hard to imitate. (p31)

Instead of value chains, there ought to be value cycles, which produce 

a new kind of scale economy for the twenty-first century: economies of cycle.  The more intensely, frequently and durably that resources can be cycled, the more average costs drop, because each cycle amortizes and offsets the fixed costs of production, like plants, property and people. (p51)

He says the future of strategy is not erecting barriers to entry and stifling competitors, as in the past, but being responsive and evolving faster.

The future of advantage is fair, not unfair. Instead of protecting yesterday's business models, products and services with more and more unfair tactics and strategies, resilient companies expose themselves to maximum free and fair exchange so they can evolve what creates thicker value. (p113)

Completing markets and meeting new needs

Haque argues we need new measures of productivity, as well. 

Mastering socio-productivity means learning to create markets and industries for those whom orthodox capitalism is unable to serve... Creative companies are able to create ultra-high-need-ultra-low-cost markets, segments and industries. (p119)

It is a matter of meeting needs that were never met before. It is a matter not of protecting markets, but completing them. 

The poor may never be able to afford a Bentley, but in a complete car marketplace, they can at least afford a [Indian small car] Nano." (p123).

 Companies should ask whether they can "simplify complexity, turn products into assets, subdivide resources or mimimize information costs." 

Takeaways

So there are three major things I take from this. 

First, the focus on outcomes is correct - and it reinforces one of the points I make most consistently. Our predominant economic and political approaches by definition have a limited or non-existent conception of outcomes, ends, telos, call it what you will. We focus on economic growth because we shy away from asking what personal growth or flourishing means. And that is a massive obstacle to getting an economy with outcomes we want.

Second, institutional innovation is another word for new social technologies to help people cooperate and adapt better, another of the most consistent themes in this blog.

And finally, his emphasis that economic opportunity will, and ought to come from improving tangible social outcomes, from meeting needs for well-being, is very interesting. It is actually inspiring in the search for new business opportunities.