Often, when I'm invited to speak to boardrooms, I start by gently saying: "Listen up folks. Business is brain-dead. Right now, even as we speak, your business is probably undergoing a slow, barely perceptible, but wholly pernicious brain death." I might take a custom-made, baby-soft $2000 loafer to the head and get muscled out of the room, but as I'm ushered through the cubefarm hinterlands I try to explain: "No, really. I don't say this for effect, it is literally true: business has a serious cognitive malfunction--an inability to process reality".
Here's a question to test yourself: is your economic design based on real costs--or fake, inauthentic, perhaps entirely fictional ones? In my experience, the vast majority of organizations fall squarely in the latter camp.
This article was originally posted on the Management Innovation eXchange (MIX), an open innovation project aimed at reinventing management for the 21st century.
Consider, for a moment, the "costs" that make up the bulk of "business models." The telco industry depends on "roaming costs." The banking industry depends on "overdraft charges" and credit card surcharges. The software industry, on "per-processor (or per-seat) licenses." The music and film industries, on dubious "expenses" of all kinds. The healthcare industry, on spiraling therapeutic costs--often unwanted, unnecessary, or downright ineffectual. The auto industry, more and more on "financing," "leasing," and "service" costs.
Here's the problem. The costs above aren't just sneaky, cynical, slightly evil, and often deceitful. They're downright fake--entirely imaginary. They might exist as "financial" creations, but there's little or no economic basis for them. They might exist in the pointy heads of bean counters--but they don't exist in reality. It's faith-based business, at its worst.
Consider the real costs in those industries:
The real cost in telco is the mistrust and apathy that drives relentless "churn," the euphemism telco execs use for "our customers hate us with a passion that borders on a Sicilian vendetta."
The real marginal cost in banking isn't overdrafts (fractional reserve banks can create credit on demand), it's the cost of counter-party risk--that the equally untrustworthy shark on the other side of the table might not be willing (or able) to make good on his side of the giant derivative contract you're both grinningly signing.
The real costs in music and film aren't the expenses that studios and labels invent--as a beginning, they're the royalties that artists (apart from megastars) seem rarely to earn, and more deeply, they're the costs of taking risks on groundbreaking, not immediately crowd-pleasing stuff, that creative industries of all stripes stopped having the moxie to do long ago.
The most significant cost in autos isn't that your car breaks down (cars, for example, are abundant, relatively cheap, and homogeneous), it's the cost of the oil that industrial-age engines slurp up, and then carbon-burp into the sky.
I submit: Business is brain-dead because it has an Economic Reality Dysfunction. It has turned into a game of inventing fake costs, passing them on to "consumers" (read: people, communities, society, nature, and the future), and then gleefully drooling over the so-called "profit" that is "earned" (or, at any rate, extracted).
Michelangelo lavished attention on the Sistine Chapel. Sir Christopher Wren, on London's St Paul's Cathedral. Beethoven, on the 9th Symphony. When you think of human achievement in the 21st century, the kind of soaring ambition and deep, world-shaking creativity that produces art, cathedrals and symphonies--stuff of enduring, elevating value--is in tragically short supply. Instead, the vast bulk of human effort is lavished on voluminous PowerPoint decks--filigreeing and shadowing the details into faker cost after faker cost.
Perhaps that's why "work" as we know it is so dull, drab, and meaningless. Perhaps that's why life inside the gilded cage is as joyless as the dark side of Pluto. Perhaps that's why most people probably wouldn't care if your "brand" disappeared tomorrow. Perhaps you can't get the best out of your people because you're only asking for the smallest, the cheapest, the worst. Perhaps that's why real profitability for most companies is shrinking, while their average lifetime shrinks to vanishing point.
The point of an economy must be bigger than that. If the sum total of billions of person-hours of brow-mopping effort, vast amounts of human energy, is expended on a game of musical chairs, all we're doing is passing real costs around. The macroeconomic result is the Great Stagnation--in which we keep paying one another fake costs, but fail to do much to eliminate or reduce the real ones (and that list goes on: pollution, obesity, underemployment, under-education, mistrust, disconnection, anger, polarization, apathy, lack of fulfillment). And because we don't pay those costs when we should, the result is systemic crisis after crisis.
Here's what I'm beginning to suspect: no amount of brain-dead business as usual can reboot the economy, create jobs, income, real value, trust, a sense of meaning (not to mention 9th Symphonies, Sistine Chapels, or St Paul's Cathedrals)--because the mutt-ugly truth might just be that it's not a sufficient condition for prosperity.
If--like the vast majority of the shuffling pack--the extent of your ambition, the breadth of your vision, the calling in your mission is merely to book a "profit" for as long as you can get away with it, then maybe you should grab your crash helmet, and hunker down in ready position. I'd suggest that in a world where the truth about what you really stand for can be revealed with a mouse click (and broadcast to billions with another ten mouse clicks), where yesterday's cheap, abundant resources are fast running out, fakery is, at best, a recipe for mediocrity. And at worst, it's a recipe for punishment and pain, doled out from increasingly empowered, dissatisfied, and fed-up folks. Hence, the window for merely "getting away with it" might just be on the verge of shrinking radically--while the costs of being found out might be rising explosively. (Is that Hosni Mubarak in the next barcalounger?)
But if your burning ambition is bigger than merely "getting away with it"--if it's to be adored by your customers, envied by your rivals, treasured by towns and cities, and maybe even loved by entire societies--well, then, maybe, just maybe, it's time to get real. Maybe it's time to get a tiny iota of a clue, wake up--and craft a business that's not founded on fakery, but grounded in the harsh realities of 21st century economics. One that's not fighting against the future of prosperity--but fighting for it. One that endures because it has the wisdom to matter--instead of one that vanishes into the dustbin of economic history, because it was too brain-dead ever to want to.
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