Contact Information

Organizations see themselves as legal entities whose influence is limited by the constitution of the organization and the offers (services/products) they provide. Their survival depends heavily on being efficient (perfecting their offers) and on efforts to control the future, so they can beat the competition. This belief becomes the foundation on how organizations structure themselves and how they strategize. Their governance system responds mainly to decisions that affect efficiency and/or how to stabilize the future. It has goals and controls (checks and balances) to keep the organization on this path.

What are organizations going to do when they achieve a high level of efficiency? What is the line of action when additional efforts to improve efficiency are not financially viable or customer value changes and their offers are not aligned with their values anymore? Are the efforts to stabilize the future being successful? Are they being cost effective? Are checks and balances successful? Are goals meaningful?

This type of approach froze organizations, by creating a rigid governance system whose only goals are to reduce the use of resources to produce the same output (or increase) and shield the organization from variability. This approach became the main reason why organizations cease to exist. A new approach to organizations is required and our goal is to pave the path for this new approach. Our first step is to share with you the type of environment organizations are within and main concepts so we can transform the way they must see themselves.

Moving Away from The Commodification of Offers

The world economy functions, for the most part, under the market system. Perhaps, a more accurate statement would be that the world economy functions under a mixed economy system, with characteristics that are predominantly aligned with the market system. Of course, this system varies from country to country. Some countries lean heavier on policies associated with a planned system, whereas others rely very little on such policies. Nonetheless, the main driver of this mixed economy system, with characteristics that are predominantly of a market system, is competition. Competition, in turn, leads to innovation and efficiency – the hallmarks of sustainable growth.

Competition is not without its issues. Political economist Karl Polanyi has argued that competition being the main driver of the current economic system has caused a shift in the economic social norms. These norms were based upon their personal relationships, where reciprocity and redistribution were the drivers of economic transactions. With the rise of the industrial revolution and state intervention through laws, such as the Enclosures and the New Poor Laws of 1834, a new economic system emerged, which was driven primarily through competition. A market driven by competition eroded the social norms of reciprocity and redistribution, and thus a self-regulating market was born. Polanyi stated that “a man’s economy is rooted in his social interactions, not in the free market.” Therefore, this shift in the economic social norms was unnatural, according to Polanyi.

The first person ever to successfully challenge the modern idea of competition in the market system was Nobel Laureate David Nash. Nash introduced the concept of Game Theory. Game Theory is, in essence, a science which studies the decision-making process among competing players in a competitive setting. The problem with Game Theory is that often times the setting only allows as the best decision the decision which leads the player to not lose, instead of winning. This is because Game Theory assumes all players are rational, and assuming a two-player game, whoever makes the first move must do so thinking on how the player making the second move will react. Basically, your actions are bounded by your competition.

Over the years, the antagonistic relationship between competitors has driven organizations into a state of commodification of their products/services. The reason for that is the lack of reciprocity among them. Although there is still some collaboration among organizations, the lack of reciprocity greatly hinders the share of knowledge. Without an environment where knowledge is shared, innovation and coevolution are not possible. Companies strive for efficiency and innovation, but without the reciprocity factor, innovation becomes increasingly difficult. Therefore, they focus on efficiency, and at the end, their differentiation factor becomes their price. When price is the only differentiation factor, your product/service has become a commodity. The problem with commodities is that, for better or worse, there is always someone out there willing to charge less for it. We see that with emerging markets, such as India and China.

The other problem with the commodification of products/services is that it creates a severe disadvantage towards smaller organizations that have less access to capital. When they try to compete against the already established players that have plenty of access to capital, these big players perform what it’s called “dumping,” thus driving these organizations out of business. Ironically, this very method is prejudicial to the big players in the long run, for many reasons. Firstly, it’s a business model that is heavily depended upon them having a high level of market share; secondly, it’s a business model with potential negative impacts on their revenue; and thirdly, it puts them on a comfort zone, where they don’t invest in innovation thus providing a long-term risk when an innovative competitor will emerge disrupting the market – think Blockbuster vs Netflix.

What we can observe is that this approach to the market economy has, essentially, destroyed our social fabric. We have become strangers to each other. Only the big players get a piece of the pie, whilst the little guys fight for the crumbles on the floor. Therefore, we find ourselves in a conundrum. The market economy, which has catalyzed the greatest economic growth in human history, all the while lifting an unprecedented amount of people from poverty, is the same system that is rupturing what is perhaps what makes us human, which is the way we interact with our counterparts. So, the question that remains is, how do we fix this problem?

Historically speaking, the issues pertaining to the market system have been thoroughly analyzed, and the proposed solution has always been somewhat the same, which is to change the system. The problem is that the cure is worse than the disease, and instead of focusing on what is the main driver of all the problems within the market system – which Polanyi brilliantly identified – people have turned this issue into a political battle. Our proposal is, firstly, to leave all political and economic biases aside, and secondly, to focus on the issue: the current approach to competition has destroyed our social fabric. Our solution is directly related to what Polanyi identified, regarding how unnatural our economic social norms have become. We want to humanize the current system through changes to the approach towards competition by reintroducing reciprocity into the man’s economy. Moreover, although Game Theory is a fundamental aspect of economics and business management, our proposed solution will offer a set of opportunities that enables organizations not only to get a piece of the pie, but also to make decisions despite the other players involved.

The way to achieve this is through helping organizations rethinking themselves and by identifying, nurturing, and expanding their Business Ecosystem. A Business Ecosystem is the network of organizations – including suppliers, distributors, customers, competitors, government agencies and so on – involved in the delivery of a specific product or service. Most organizations are completely unaware of the richness within their ecosystem.

Once they start writing down the names of all organizations they interact with, they start to realize the potential within their ecosystem. The problem is, they become overwhelmed by the amount of information, and do not really know what to do with it. We have a process for how to map, nurture and expand their ecosystem through trust and knowledge share/generation. The combination of sharing/generating knowledge with trust creates a bond between these organizations that inevitably generates opportunities. The idea is to eventually move away from the conventional way of finding opportunities (i.e.: bidding) towards a market where opportunities are a result of reciprocity. Ultimately, the goal of identifying, nurturing, and expanding the Business Ecosystem is to allow all the participants to benefit from opportunities generated by expanding the customer experience through reciprocity, innovation, and coevolution.

add one

Paulo Napolitano is an expert in Lean Management Systems (LMS) and Integrated Lean Project Delivery (ILPD). Paulo has been applying Lean Principles in projects and organizations in North America, Europe, and South America since 1999. His main focus is on people and how they structure their decision making. He helps them build their leadership based on collective trust and not on position. Paulo’s customized trainings and consulting services have helped Allele Network’s clients to create unique offers that differentiate them from their competitors and also unfolds a successful future for individuals and organizations.