The first time this became clear to me was when I overheard my father -who was a sales director at the time- have a heated telephone discussion with the CFO he worked with. Although I was still a young boy I have never forgotten one particular argument he made: "In your world one plus one may always equal two, but in my world one plus one is anywhere between one point eight and two point two."
However ridiculous my father’s observation may seem at first glance, it has in fact some growing validity in our current socio-economic reality.
In economics there has been a long standing tradition to attempt to systematically analyse and predict events with the same mathematical precision as in physics. Despite the best efforts and intentions of many economists over the years to explain everyday economic phenomena deductively, a true equivalent to the methodology of physics seems further away than ever with the growing popularity of Behavioural and Experimental Economics.
Meteorology:Even Max Planck, founder of quantum theory and probably one of the most brilliant mathematical minds of all time, supposedly dropped economics because the calculations would just be too difficult for him. He understood that in real life situations we simply cannot oversee all the variables and possible outcomes of events, and that the dynamics of economic reality are too unpredictable and insubordinate to be captured in mathematical equations. The very moment we move beyond the theoretical realm of traditional economics, reality changes everything and business actually bears more resemblance to meteorology than mathematics or physics.
And for those of you that think this is a vague semantic discussion that has very little to do with everyday business, think again; we are nearing a point where adding more functionality or features to products, or squeezing more efficiency out of organisations won’t bring much more competitive differentiation. Not only do our competitors understand our processes just as well as we understand theirs, but the interconnected global nature of the environment we have to conduct our business in has also fundamentally changed.
The harsh reality that this "age of abundance" has bestowed upon most business organisations is that customers have an almost endless choice of similar and interchangeable options, while at the same time they have been empowered by unlimited access to information. Under these circumstances the traditional competitive differentiators easily become marginalized or break down altogether.
Perception and conception:It seems the answer to sustaining profit margins in the future does not have so much to do with solving "problems of reality" - like a car that is better at getting us from A to B, but with addressing perceptual problems like enjoying the ride more, or conceptual problems like signalling aspired identity to a socially relevant group of peers.
Although this may seem incredibly trite to most of us, this level ambiguity might very well prove to be an almost insurmountable problem for those with a strict analytic view on business. How to quantify a viable unit of economic analyses like perceptual value, when it has no objective foundation? If there is no numeric for subjective experiences like beauty or enjoyment, how can we capture the emotional value of a great customer experience in an equation or spreadsheet?
Maybe dad was right all along......
This article war written by Richard Stoop
Send an email to richard.stoop(at)reaktionvalue.com