MAKING A BUSINESS OF EMOTIONS

Back in 1983, the UK Cabinet Office Information Technology Advisory Panel called for increased attention to the possibilities of ‘Making a Business of Information’. Since then we have witnessed the rapid developments of the information economy. Although the process is continuing, the market is becoming increasingly more competitive and any innovations become commoditised very quickly. In many sectors, future growth will depend critically on an organisation’s ability to use internet and related technologies to enable the co-creation of unique experience by appealing to the emotions of their customers. Some leading organisations are already successfully exploiting such new opportunities, and perhaps it is time to re-orient our focus to the possibilities of ‘Making a Business of Emotions’.

The Secret of Management

A successful senior business executive once told me after a few drinks that there are only two things one can do to beat competition. One is through product innovation, that is, to come up with new products or services that nobody else can, or are allowed to provide. However, such opportunities are rare, so for most of us during most of the time, we compete with similar products or services, but with better features in some aspects than competitors – be they higher quality, lower cost, faster delivery or better customer service. The latter will require us to innovate in the way we do things – through new structures, new processes, new work organisation, and new inter-organisational relations. In fact, even for companies focusing on product innovations, implementing organisational innovations can significantly improve their margins. Therefore, organisational innovations are essential to the competitiveness and long term survival of all organisations.

Organisational Innovations through Internet Related Technologies

For several decades, we have been talking about the knowledge-based, information economy. On the one hand, the nature of the economy has changed as measured by the informational elements of our products, services and production processes; and the proportion of the workforce whose primary activities are informational rather than physical (often known as information workers or knowledge workers). Information (or knowledge if you prefer) has become the most critical resource upon which the efficiency and competitiveness of all organisations depend.

On the other hand, the so-called ‘Information and Communication Technologies (ICTs) Revolution’ continues to gather pace, providing us with increasingly more powerful, versatile, affordable, accessible and convenient tools in the forms of technologies, infrastructure and services. From the users’ perspective, the only purpose of ICTs is to capture, store, retrieve, manipulate, transmit and present information.

This is a profound combination, because we have increasingly more powerful yet affordable tools and techniques to deal with the most important resource of the economy, often in ways impossible, or not even conceivable, in the past. As such, organisational innovations that exploit Internet related technologies should become an explicit focus for senior executive attention.

Strategic Re-orientations: From Organisational Innovations to Customer Experience

Organisational innovations through internet related technologies are important in improving the competitiveness of organisations, but it is insufficient to take an organisation to the next level, mainly because everyone is doing them, and we are getting much better at getting them right. As Jonas Ridderstrale and Kjelle Norstrom vividly pointed out in their best seller Funky Busines’, ‘[t]he world is alive with knowledge, with products and services, with information. But more often simply means more of the same. The surplus society has a surplus of similar companies, employing similar people, with similar educational backgrounds, working in similar jobs, coming up with similar ideas, producing similar things, with similar prices, warranties, and qualities.’ This frustration was echoed by many others such as Jesper Kunde that ‘[c]ompanies have defined so much best practice that they are now more or less identical’; or as Paul Goldberger put it: ‘while everything may be better, it is also increasingly the same.’

What does this mean? For one thing, perhaps the age of the knowledge workers has come to maturity, and a new age is emerging. Daniel Pink called it the ‘conceptual age’, characterised by ‘high concept and high touch’. Joseph Pine and James Gilmore called it the ‘experience economy’, because increasingly work is theatre and every business is a stage. C K Prahalad and Venkat Ramaswamy further developed this concept and called it the experience innovation, because the future of competition depends on co-creating unique value with customers. Shoshana Zuboff called it the ‘support economy’, because neither goods nor services can adequately fulfil the needs of today’s market. Underlying all these ideas is a fundamental change that is rapidly taking hold in our society and economy: we are increasingly leaving the material and information age behind and entering a new, emotional age.

Back in 1973, Peter Drucker famously pointed out that ‘[w]hat the customer buys and considers value is never a product. It is always utility – that is, what a product does for him.’ When a woman buys a lipstick, she is not buying a lump of coloured fat. Rather she is buying something that will make her feel more attractive. Think about the movie Calendar Girls. A group of middle aged women managed to achieve fame and financial success beyond their wildest dream, by evoking emotional responses from the public. Selling high quality products are important, but if you can evoke emotional responses from customers, the potential rewards will expand exponentially.

Looking back in history, management innovations have led to profound changes in the way business is conducted. MLab have identified many such management innovations, and valuable lessons have been drawn from them. From a slightly different angle, we have witnessed the strategic re-orientations in leading organisations from product and service innovations, to organisational innovations, and in the last decade or so, to providing effective solutions to customers. All such innovations remain important today, but in a new age where ‘consumers have more choices that deliver less satisfaction, and management have more strategic options that create less value’, organisations need to shift their focus from functional efficiency and product and service excellence to the extended experience of their customers. In other words, organisations increasingly need find ways to appeal to the feelings and fantasies of their customers, and there is a lot of money to be made in doing so.

Making a Business of Emotions

The notion of ‘Making a Business of Emotions’ is not entirely new. Harley-Davison (and Nike), for example, have for a long time promoted the image of being in the ‘lifestyle’ business rather than manufacturing. This not only added billions of dollars to their market capitalisation, it also means that Harley-Davison does not need to compete with Honda or BMW for the technical performance of their motorbikes. To a large extent, the success of Starbucks can be attributed to its focus on being the ‘third place’ which is neither home nor office, instead of a Cafe. The shifting focus towards experiences and emotions can often create exponential expansion of business value for all stakeholders.

The transition to the emotional age requires organisations to re-assess the way they are organised and managed. Internet related technologies have a key role to play in enabling organisational innovations, information sharing and service delivery, in particular, in linking together the communities of users and suppliers cheaply, conveniently and globally. As new opportunities being opened up by new technologies and applications through web 2.0, open innovations, collective intelligence, user generated contents, MMORPGs and simulated virtual worlds, business leaders have to develop new skills and adopt new mindsets. The rational, analytical, logical and linear will need to be combined with the emotional, empathic, holistic and artistic. Those who can make the shift quickly will reap the greatest rewards in the new age, and those who can’t will be left behind.