Start with Technology, End with Trust

The central economic imperative of the industrial age was to increase productivity. Every aspect of an industrial firm–from its machines to its organizational structure–was tailored to enhance the efficiency of economic production. But today productivity is a nearly meaningless byproduct in the network economy.

The central economic imperative of the network economy is to amplify relationships.

Every aspect of a networked firm–from its hardware to its distributed organization–is created to increase the quantity and quality of economic relationships.



The network is a structure…

…to generate relationships. Networks haul relations the way rivers once hauled freight. When everything is connected to everything else, relationships are rampant. Each variety of connection in a network begets a relationship. Between firms and other firms. Between firms and customers. Between customers and the government. Between customers and other customers. Between employees and other firm’s employees. Between customers and machines. Between machines and machines, objects and objects, objects and customers. There is no end to the complexity and subtlety of relationships spawned in a network economy.

Each of these types of relationship has its own specific dynamics and quirks. And each is nurtured by a particular type of technology. The technologies of jelly bean chip and boundless bandwidth are, in the end, relationship technologies. “We need to shift away from the notion of technology managing information and toward the idea of technology as a medium of relationships,” writes Michael Schrage in Shared Minds, a book about the new technologies of collaboration. Despite the billions of bits that information hardware can process in a second, the only matter of consequence silicon produces are relationships.

Of course reputation and trust have been essential in all economies of the past, so what’s new? Only two things:

  • With the decreased importance of productivity, relationships and their allies become the main economic event.
  • Telecommunications and globalism are intensifying, increasing, and transforming the ordinary state of relationships into an excited state of hyperrelations–over long distances, all the time, all places, all ways. It’s not Kansas anymore; it’s Oz.

Relationships among more than two people can be structured as hierarchies or as networks. In hierarchies, members are ranked in privilege relative to one another; in networks, members relate as peers–counterparts of similar power and opportunity. In previous ages the most intelligent way to construct a complex organization in the absence of plentiful information was to build a hierarchy. Rank is a clever and workable substitute for ubiquitous real-time information. When information is scarce, follow orders.



When information is plentiful…

…peers take over.

In fact, as reliable information becomes common, almost nothing can stop peers from taking over. As computers and communications unloose a million bits of information in every dimension, we see peerages form in every dimension. Email and voice mail have brought peerage pressure to corporations. The flattening effect of network technologies and the subsequent turmoil in the organization of business firms is well recognized. But in many ways the emerging peerlike relationship between boss and staff is probably the least interesting and least important of all the relational changes now taking place.

More consequential is the relation between customer and firm, which is yielding to the peer effect. More important still is the relation between firm and firm, which is shifting rapidly to a web of overlapping nets. Still more vital is the lateral relation between customer and customer, which is just beginning to brew. Finally, the elevated relation between customers (rather than citizens) and the rest of society, a relation that is just now being defined, may be the most important of all, as economics elbows its way into every activity. As an example of expanding relationships, consider the traditional relationship between customer and a firm, roles that have been around forever. In the network economy the separation between customers and a firm’s employees often vanishes.



When you pump your own gas at the filling station…

…are you working for the gas station or for yourself? Are all those people waiting in line behind the ATM machine more highly evolved bank customers or just nonpaid bank tellers? When you take a pregnancy test at home, are you a savvy self-helper, or part of the HMO’s plan to reduce costs? The answer, of course, is both. When everyone is linked into a web, it’s impossible to tell which side you are on.

Web sites and 800 numbers can invite customers into the internal knowledge banks of a company to almost the same degree of “inside” that employees stationed on the other side of the line enjoy. Many technical companies post the same technical information and diagnostic guidelines on their help sites that their own support professionals work from when you call their hotline. You can have someone trained to look up and then read troubleshooting answers for you, or if you are in a hurry, you can try to find it yourself. Who’s working for whom?

At the same time the complexity of an employee contract, particularly in high-tech fields, is quickly approaching the complexity of a contract with an outside vendor. Stock options, vestment periods, a thousand insurance and benefit combinations, severance clauses, noncompete agreements, performance goals–each one uniquely negotiated for each person. A highly paid technical employee becomes in essence a permanent consultant. He or she is an outsider on staff.



Outsiders act as employees,…

…employees act as outsiders. New relationships blur the roles of employees and customers to the point of unity. They reveal the customer and company as one.

This close coevolution between users and producers is more than poetry. There is a very real sense in which the owners of the phone network sell nothing at all but the opportunity for customers to have conversations among themselves–conversations which the users themselves create. You could say the phone companies cocreate phone service. This blurring between origin and end spills over into the birth of online services, such as AOL, where most of what is now sold is being created by the customers themselves in the form of postings and chat. It took years for AOL to figure this out; they initially wanted to follow industrial logic and sell downloadable information created at great expense by professionals. But once they realized that the customers acted like employees by making the goods themselves, the online companies started making money.

The net continues to break down the old relationships between producers of goods and consumers of services. Now, producers consume and consumers produce.



In the network economy, producing and consuming…

…fuse into a single verb: prosuming.

“Prosumer” is a term coined by Alvin Toffler in 1970 in his still-prescient book Future Shock. (Toffler first found his insights as a futurist while working for the telephone networks.) Today prosumers are everywhere, from restaurants where you assemble your own dinner, to medical self-care arenas, where you serve as doctor and patient.

The future of prosumerism can be seen most clearly online, where some of the very best stuff is produced by the people who consume it. In a multiplayer game like Ultima Online, you get a world with a view and some tools and then you’re on your own to make it exciting. You invent your own character, develop his or her clothing or uniform, acquire unique powers, and build the surrounding history. All the other thousands of characters you interact with have to be sculpted by other prosumers. The adventures that unfurl are cocreated entirely by the participants. Like a real small town, the joint experience–which is all that is being sold–is produced by those who experience it.

These eager world makers could be viewed as nonpaid content makers; in fact, they will pay you to let them make things. But the same world could also be viewed as full of customers who have been given tools with which they can complete a product to their own picky specifications. They are rolling their own, just as they like. In the new economy-speak, this is known as mass customization.



The premise of mass customization is simple.

Technology allows us to target the specifications of a product to a smaller and smaller group of people. First we can make Barbie dolls in the millions. Then with more flexible machinery and computer-generated target marketing we can make ethnic Barbies, in the hundreds of thousands. Then with improved market research and advanced communications we can make subculture Barbies, biker and grunge Barbies in the thousands. Eventually, with the right network technology, we can make the personal Barbie, the Barbie of you. In fact there is a company in Littleton, Colorado, that currently makes the “My Twinn” baby doll to look like the doll’s owner. The doll’s eye and hair color and hair style are matched to a photo of the child who will own it.

The most interesting aspect of prosuming and mass customization–of this new relationship between the customer and the firm–is that because customers have a hand in the creation of the product they are more likely to be satisfied with the final result. They have taught the firm how to please them, and the firm now has a customer with a much fuller relationship with them than before.

But creating a product for “a niche of one” is only a small part of the transformation of the customer relationship. (Detroit car makers learned long ago to create customized cars, but that was all they learned.) Network technologies such as data mining, smart cards, and recommendation engines are escalating the levels of relationships available to customers.



The drive to relate to the consumer intimately,…

…to the point of encouraging prosuming, can be articulated as a series of progressive goals:

1) to create what the customer wants
2) to remember what the customer wants
3) to anticipate what the customer wants
4) finally, to change what the customer wants

Each of the missions elevates the firm’s commitment to the customer and raises the customer’s involvement with the firm.



To create what the customer wants.

Sometimes this will mean simple customization: You want a vacation experience unlike anyone else’s. Sometimes this will mean mass customization: You want a pair of jeans that fit your unusual leg shape at the same price as a regular pair of jeans. Sometimes mass customization is not what you want. The huge fashion industry makes its fortune on people’s dependable desire for wearing what everyone else is wearing. Sometimes what you want is semicustomized: You read the New York Times because everyone else is reading it, but you don’t read the sports section or the obits. You want not the Daily Me, but the Daily You and Me, the publication your 12 closest friends read.

A huge tide of information and trust must flow between users and creators in order to create exactly what the customer wants. The interface technology must be clear and simple for people to convey their desires. The nightmarish logistics of delivery and production must be managed with exactness. The most difficult aspect of this mission may not be the order form but the manufacturing; anything that involves atoms is much harder to customize than first thought. But any solutions surely involve networked technologies.



To remember what a customer wants.

A majority of the things we do, we do repetitively. We engage in the same tasks every day, or once a week, or every now and then. Things done iteratively have different dynamics from things done once. Little events become important. We bristle at having to remember our password again, or having to recite how we like our coffee one more time, or having to explain again what we don’t like about bathing suits. Humans who learn our quirks (and they must be learned) earn our favor. Firms who learn our quirks will also earn our favor.

The technology of tracking and interpreting our whims heightens the relationships between firm and consumer. The firm must expend great effort to remember your preferences, but you also expend effort in teaching them so they can remember. And the remembering must be intelligent. You order the same espresso every day, except when it’s cold out, and then you order a latte. The relationship tech has to be robust enough to be taught these distinctions.

Don Peppers and Martha Rogers, authors of the amazingly insightful Enterprise One to One, state: “A Learning Relationship between a customer and an enterprise gets smarter and smarter with every individual interaction, defining in ever more detail the customer’s own individual needs and tastes. Every time a customer orders her groceries by calling up last week’s list and updating it, for instance, she is in effect ‘teaching’ the service more about the products she buys and the rate at which she consumes them.” In reward for the firm’s effort at being taught, the firm and the customer develop a committed relationship. Peppers and Rogers continue: “The shopping service will develop a knowledge of this particular customer that is virtually impossible for a competitive shopping service to duplicate, providing an impregnable lock on the customer’s loyalty.” At the same time, the customer has invested so much in the relationship that the cost of switching to another vendor gets steeper by the day. Peppers and Rogers: “When the florist sends a note reminding you of your mother’s birthday, and offers to deliver flowers again this year to the same address and charged against the same credit card you used with the florist last year, what are the chances that you will pick up the phone and try to find a cheaper florist?”


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-- KK

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