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Complexity, Competitive Advantage and Embracing the Intangible

In 2014 Business Will Embrace the IntangibleIn 2014, business will embrace the intangible.

The first step is to measure whatever can be easily measured. This is OK as far as it goes. The second step is to disregard that which can't be easily measured or to give it an arbitrary quantitative value. This is artificial and misleading. The third step is to presume that what can't be measured easily really isn't important. This is blindness. The fourth step is to say that what can't be easily measured really doesn't exist. This is suicide. ~ Robert McNamara as attributed by Thomas Handy in The Empty Raincoat.

In the 20th century, business success sprang from the combination of property rights (intellectual or physical), process and efficiencies of scale.

But in the 21st century we are rapidly accumulating data that suggests that the new competitive advantages are both much simpler and more complex. (Not that value chains and differentiation don’t still matter, but scale is now definitely a matter of debate).

The new, primary source of competitive advantage is customer satisfaction and innovation. Studies suggest that the most effective way to ensure customer satisfaction is to have employees who give a darn and are empowered to act.

There’s another 20th century reality as well: complexity. Complexity is (a lot of things, some of them very precise, but for the purposes of this discussion …) the state of being which is either intrinsically impossible to understand by traditional rationalist methods, or where the cost or time involved in such analysis makes it impractical for the time being.

It is these two big truths — the shift in competitive advantage, and the paradigm-shifting complexity that now defines our world — that are the real motivators behind the shift in business toward new humanistic models.

There are a few unacknowledged side effects of the shift, but perhaps the weirdest is the fact that business is now highly dependent on intangibles. We must accept things we do not understand, act in environments where cause and effect are nearly impossible to discern, and deal with the paradox of needing to think holistically and intuitively while existing in a constant state of data saturation.

So — what kind of intangibles, and what do we do about it?

My prediction is that in 2014, you’ll see these words at the center of important conversations, along with research and experimentation that leads to deeper, more actionable understanding of each (Send in the philosophers for some of this).

1. Intention

In 2013 I wrote about the importance of intention, how it colors our perspective and nuances every decision and every act. Moreover, intention is a uniquely human (or at least organic) capability to both set and discern. This is why authenticity rapidly became so important. Authenticity is a very specific intention and people are viscerally capable of detecting it, like we can symmetry.

2. Narrative

How do we understand wickedly complex situations? Through narrative.

People are exceptionally good at inferring patterns and meaning. Narrative can frame a wicked problem in a way that we can share it, discuss it, make inferences and create a vision of the future. The trick of course is that narrative takes some intangible skills to build, and is not absolute. There is no one narrative, there can be many. But the way a certain narrative frames the problem (is light a wave or a particle, is data a privacy or a property issue?) can profoundly affect what we are able and willing to do with those ideas.

3. Culture

The overused and very poorly understood emergent behavior of a human community — it matters. You know why? Because customer satisfaction and innovation depend heavily on it. But we are incapable of talking about it intelligently — yet.

A recent Harvard Business Review blog suggests a not terribly unique, but inarguably correct list of things many good cultures have, but makes no suggestion as to how we achieve those things. There are some theories. I have some myself, but we’re going to get serious on this issue. We have to.

4. Leadership

Seriously. Leadership of the advanced seeker mentality. Leadership that asks questions; inculcates values and intention; narrates intention, mission and purpose; that constantly balances confidence and humility. The Charlene Li 2.0 leadership will begin to emerge from myth and legend and the "Yeah, but what about Steve" shadows, and start to get serious. How do we build it, recognize it, and most importantly install and sustain it? Other forms of leadership will be failing at a pace that becomes noticeable.

 

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