PII New tools for ecosystems' design presented at ISPI St Louis Conference

PII's presentation of new tools for designing ecosystem at ISPI St. Louis Conference was a success.
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Participants from US, India and the EU tested a new set of tools PII developed for improving our ecosystem design adn made enthusiastic comments inquiring for our program.

The session started discussing a new. outside-in paradigm to improve organizational performance:
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Considering organizational performance as a function of the ecosystem where the organization operates helps overcome the conventional -and distorting- "MBA" and "engineering" paradigms that -by focusing only in internal organizational processes- fail to address the true "value creation engine": the client experience and to realize that the value creation chain starts and ends outside single organizations.

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Once we define the client experience, we might find that our organization can only deliver a part, a fraction of what is required by the client.

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PII's new methodology allows to identify those processes and products that will be "farmed out" or provided by third parties and design and organize an efective value chain coordinating multiple organizations in a single, cross-organizational process required to deliver the client experience:

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This model is, actually, not a "new" approach: its has been always the way reality works: multiple organizations provide a common, shared result, that Milton Friedman used to describe eloquenlty with the analysis of how a simple pencil gets in our hands:

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The "novelty" in our approach is that it overcomes the distortion and oversimplification of conventional MBA and engineering models that start and end their performance analysis inside a single organization -usually a shop floor or a "single bottom line" business case-, failing to explain where the value comes from and promoting a myopic -and often self-destructive- approach to business.

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Below you will find the reference materials we will discus and use at our coming PII Conference.

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Questions? Comments?

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References

• PII (2009) PI during economic downturns:The power of Ecosystems. ISPI St Louis session
• Bernardez, M. (2009) Surviving economic downturns: the power of ecosystems. Societal & Organizational Performance Review, Year 1, Vol 2.
• Second PII-ISPI Mexico Performance Conference at ITSON (October 1-2, 2009)

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From social capital to social performance: lessons from Facebook and Groupon

The disappointing stock performance of Facebook and Groupon illustrates the differences between "social capital" and value-adding social performance.

Both companies base their business models in social capital as a resource: Facebook focuses on using relational capital (the interpersonal networks) for recreational and marketing purposes. Groupon's business model uses relational capital as well by grouping buyers for heavy discount purchases.

As a resource, social capital can be an asset or a liability, depending of its application and theresults achieved. These results, in turn, can add or subtract value to different stakeholders. In the case of Facebook, loss of privacy, identity theft and unauthorized use and/or sale of users' information have been proven ways in which the "social network" actually subtracts value to its customers.

As for Groupon, its business model is an example of "antisocial" capital, extracting value from merchants -forced to sell at a loss in order to increase customer turnover- in favor of rebates-seeking buyers. The rebates and sales tactics are usually short-lived and frequently counterproductive -as money-losing carmakers and retailers see their margins erode or become negative, losing pricing power-.

Both stocks were priced on estimates of social capital value rather than in reliable results and value creation data, generating unrealistic IPO valuations that ended in large loses for stockholders -including the companies own employees-

The only way to value intangibles such as social or intellectual capital is to apply metrics based on actual value delivered to customers and society (Mega) and shareholders (Macro). Those indicators can be build in a double bottom line business case that reflects both value added -increased sales, profitability or brand recognition, for example-, value captured -revenue for each stakeholder- and value lost -costs, risks-, providing a sound valuation of the business model and the stock.

Figure 1 shows the three dimensions of social capital and its relation with social performance: relational capital involves interpersonal networking, organizational capital involves the quality and effectivenes of organizations and ecosystems to deliver value and institutional capital refers to the rules of the game -rule of law, protection of contracts, customers and markets-. As organizational capital, both Groupon and Facebook have serious shortcomings that customers and now stockholders are starting to recognize -and price-. As institutions, both have dangerously loose rules and regulations.

Figure 1: The three dimensions of social capital

Chile embraces the PII ecosystems approach: how to create "Chilecon Valley"

A recent article in The Economist underlines the successful efforts in Chile for establishing social ecosystems that support incubation and acceleration of new startups inviting investors and entrepreneurs from all over the world with the Startup Chile program.

And creating "Chilecon Valley", where all new ideas are encouraged and supported by angel investors, government and PII-oriented universities




Creating more than 1,000 new companies with 40 million dollars in grants and financil backing



From public and private funding, including public startups like Groupon that share their experiences with the new entrepreneurs




And legendary "angel capitalisyts" from Silicon Valley like Steve Wozniak, one of Apple's founders




Like the PII, the program graduates business every year in cohorts



And governments support the program accross political parties



Chile has still a longo road of change ahead -such as modernizing excessive regulation and breaking stiffling monopolies- but is going ahead at a pace that helped it become in 2009 the first Latin American country in joining the OCDE.

Brasil brings in its huge domestic market, operating as the China of the region, whereas Chile has taken advantage of its more modern and open economy and its highly educated entrepreneurs and rule of law, playing the role of the Singapore of Latin America.

Food for thought, and examples to follow

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Referencias

• The Economist 2012) The lure of Chilecon valley
• Startup Chile Web page

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Whole Foods goes Mega: a new contribution from John Mackey

In a recent book aptly titled "Conscious capitalism", Whole Foods founder and CEO John Mackey and Bentley University business professor (and author of the related 2007 book Firms of Endearment: How World-Class Companies Profit from Passion and Purpose) Raj Sisoda  show the evolution of Whol,e Foods towards a full Mega concept.

The authors emphasize that entrepreneurial capitalism is not contradictory with adding social value, but a requirement for it. For as Mackey sustains, remembering his beginnings as a progressive idealistic entrepreneur distrustful of what he considered "exploitative" nature of capitalism, profits are essential for keeping adding value to stakeholders (investors,  customers, employees, suppliers and communities) but only means toward value creation as an end.

Mackey quotes pioneer stakeholder theorist Ed Freeman concept that " business is not about making as much money as possible. It is about creating value for stakeholders" adding that to that end, profits and good management are critical but not enough.

Mackey and Sisoda criticize the "conventional wisdom" of business schools and short-term thinking business leaders that place exclusive focus on maximizing profits at the expense of value, ending in catastrophic failure such as Enron or the recent housing bust. The authors point out to an oversimplifcation of Milton Friedman's famous article and dictum about "maximizing profit as the only social responsibility of business" explaining that Friedman himself agreed with Mackey shortly before his death in 2005, underlying the importance of creating value and considering business as mre than a "zero-sum game".

The book describes the cases of several companies following the concept nd how to create value for and with different stakeholders.

It still falls short, however, of being able to monetize and reflect value added (or subtracted) to stakeholders in the P&L statements as PII does with the double bottom line business case.

But it is a significant move from business leaders towards the Mega concept



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References

• Mackey, J. & Sisodia, R. (2013) Conscious Capitalism: Liberating teh heoric spirit of business. Harvard Business Review Press
• Sisodia, R. (2007) Firms of Endearment: How World-Class Companies Profit from Passion and Purpose. New Yok, NY: Pearson Prentice-Hall
• Conscious Capitalism. org

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