Experience Economy Part Two
Know where your business is heading
The term “creative destruction”, coined by the Austrian American economist Joseph Schumpeter, refers to the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”. In other words, an innovation cycle that creates new organizations and market categories and destroys old ones.
The current trends of economic globalization, connectivity and rapid technological evolution have created an environment in which the concept of creative destruction is playing out in a very rapid and public way. This concept even has a name; Digital disruption.
In order to create or evolve your business’s product or service in a way that drives (rather than incurs)the process of creative destruction one thing is certain – you must understand the needs of your customers. As the great Peter Drucker said: “It is the customer who determines what a business is”.
This series looks at the concepts from Pine and Gilmore’s book “The Experience Economy” from a holistic business perspective in order to understand the customer’s point of view and use these insights to design new experiences. In the first article we examined how business offerings progress through stages of economic value from a customer perspective. In this article we will turn our attention to the four phases of business transformation, which will help you get a sense of where your business is heading.
The fours phases of business transformation
Businesses, and the markets they play in, are always evolving. By definition this means that if a business is not moving its offering (or its methods for delivering that offering) forward, it is moving it backwards. There is no such thing as standing still in such a dynamic environment.
The Experience Economy describes a model called “The Product-Process Matrix” which illustrates how businesses evolve and what drives each of the following four stages of transformation.
1 – Invention: In this stage a business is attempting to define its offering. There is a lot of focus on the needs of the market. It is highly dynamic in terms of process and offering change. There is a sense of chaos about this stage, as there is likely to be high levels of experimentation, failure and pivoting of direction.
To better imagine this, think of the days when cars were first being invented. The first cars ever built were weird, unreliable, expensive and seen mostly as curiosities.
2 – Mass Production: Once a business has landed on its offering, the pressure is then on to extract as much value from that offering as possible. The business needs to scale. The business needs to create stability. Processes get standardized and organizational structures get put in place.
To continue the car analogy, this is the point in time when the Model T Ford came onto the scene and created a mass produced car at a reasonable price for everyday people.
3 – Continuous Improvement: As the market in which a business operates matures and competition increases, the pressures continue to change. The business then needs to create variations of its offering at a reduced the price to remain competitive. This means implementing more dynamic processes and organizing teams to constantly improve on what they have.
Think of the impact that Toyota had on the car market with its much more agile and responsive approach to car manufacturing.
4 – Mass Customization: Once a business has effective, streamlined production processes, it can then start providing customizations on those services. This is where the business attempts to increase margins by developing the ability to customize its products to individual customer specifications while still maintaining the capacity to produce at scale.
These days, when you purchase a new car, customers can often choose from a list of customizations on their vehicle to make them feel like the car is uniquely “theirs”.
It is important to progress through these four stages sequentially. Trouble emerges when a business tries to tackle more than one stage at a time (lack of focus), or the business tries to skip a step (capability misalignment).
So what is the difference between mass customization and personalization? Personalization is the process of tailoring products and services to individual customers characteristics or preferences. Mass customization is a process for implementing personalization.
From a digital perspective personalization allows you to tailor a message to a customer more effectively, often through the use of data and profiling. Mass customization allows you to use the same tools and processes while giving the customer control, thereby creating an opportunity to further monetize that relationship. One is business as usual. The other is business evolution.
The current environment is both a threat and an opportunity to many well-established businesses. The challenge is to grab the “creative destruction” opportunity and be the disrupter.
In the last article of this three part series we will look at how you need to lead the design phase of creating an experience that can evolve your business model.