May 7, 2011

Doug McDavid http://www.Enterprisology.com dougmcdavid@gmail.com 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