What Value Creation Will Look Like in the Future – HBR
Originally posted in the Harvard Business Review on May 17, 2013 by Jack Hughes.
Organizations have nearly perfected implementing the industrial model of managing work — the effort applied toward completing a task. For individuals, this model ensures that we know what we’re supposed to do each day. For organizations, it guarantees predictability and efficiency. The problem with the model is that work is becoming commoditized at an increasing rate, extending beyond manual tasks into knowledge work, as data entry, purchasing, billing, payroll, and similar responsibilities become automated. If your organization draws value from optimizing repetitive work, you’ll find that it will be increasingly difficult to extract that value.
The value of products and services today is based more and more on creativity — the innovative ways that they take advantage of new materials, technologies, and processes. Value creation in the past was a function of economies of industrial scale: mass production and the high efficiency of repeatable tasks. Value creation in the future will be based on economies of creativity: mass customization and the high value of bringing a new product or service improvement to market; the ability to find a solution to a vexing customer problem; or, the way a new product or service is sold and delivered.
We already have a word for creative output applied on a consistent basis to improve products and services: innovation. We need to bring it out of the R&D lab and mainstream it — define it, measure it, increase, and optimize it. We need to understand how to manage creativity as well as we do managing effort today. Productivity means we’ve wrung cost out of our operations. Creativity means we created more value: we sold X units of something that didn’t exist before; we increased the sales of Y not because we made it cheaper, but because we made it better or we increased our value to customers by servicing needs we hadn’t serviced before. Think of how the iPhone redefined the mobile market, and how cable redefined how we consume entertainment and paved the way for entire new companies like ESPN. Taking cost out will always be important, but the equation is changing: individuals, management, strategy, and operations will have to learn how to put value in.
Organizational structure will have to change to meet the new reality of creativity as a core component of value and continuous innovation as the mechanism to sustain it. The new organization will include structures that support innovation 24/7/365 and at increasing scale. They will be more like organisms than machines. They’ll be structurally fluid — bringing individuals together in creative networks designed to adapt to an ever changing landscape of customer needs and desires, often at a moment’s notice. Management will be the job of those who oversee creative economies, ecosystems, and communities; it will be the job of managing innovation on a continuous basis where scale is used to create differentiated products and services to solve problems and meet needs on a customer by customer basis — all in real or near real time.
The value chain will supplant the supply chain. Supply chain management is about taking out cost and making process efficient, but, as we’ve said, this won’t be enough; value chain management is about how to create value; how to coordinate the continuous innovations of creative contributors and how to make that process efficient for the consumer and the contributor. And creative networks will bring the same scale to creativity that social networks do to our to our circles of friends. The network doesn’t just have value in the social sphere. What social networks do for our ability to stay in touch and satisfy our need to interact with others, creative networks will do for work, management, product and service innovation and, ultimately, value creation beyond anything we have ever seen.
What you can do:
Master the machines. It doesn’t take a programmer, math whiz or rocket scientist to know that machines are taking over every form of routine work (whether physical or intellectual). Understanding how this happens and how to apply it to whatever you are doing will free you up to start thinking about how you add creative value.That creative value may well be organizing the machines to manifest a creative product or service.
Get obsessed with value. How do you define it? Measure it? How do the changes you are thinking about create value? What new capability, product, or service will your organization bring your customers that they will value? How will this make their life better? How will it amaze them? Start getting your people together regularly to think about how to add value to your customers and to your organization. Make this time sacrosanct.
Make creativity real. This isn’t an R&D effort or something to be done outside of your normal role. The skunk works is the organization. If you’re in senior management, make it clear that your organization is beginning a long term process of embedding innovation into your DNA; that creativity is the new effort and innovation on a continuous basis is the process to make it real: this is what the organization is about and does, and will be the primary responsibility of everyone in it.
Nothing happens overnight. This will take time and it is painful. For as much talk as there is about how change is good, people hate it. Recognize that we’re looking to improve the apple cart we have over time, not to overturn it. This is a process, not an event.