The Battle Of Two Business Systems: Value Creation Versus Management.
Life-enhancing versus life-draining.
The revered architect Christopher Alexander wrote about the battle between two world systems of design. His starting point was the purpose of architecture as he saw it: to create configurations and social situations that provide encouragement and support for life-giving comfort and profound satisfaction so that one experiences life as worth living. He assessed architecture from 1900-2010 as becoming less and less successful in building environments that embody these human qualities.
He identified the battle as a practical way of attaining a life-giving architectural process that can be the foundation of joyous daily life and turn the tide against the deadening impact of mechanistic, mass-produced conformity. His battle was between two systems, System-A and System-B.
System-A is concerned with the well-being of both people and the natural environment. It aims at harmony. Creation and production are governed by human judgments. There is emphasis on subtlety, finesse and adaptation so that each tiny part fits in to the larger context.
System-B is concerned with efficiency, with money, with power and control. There is emphasis on the more gross aspects of size, speed, profit, efficiency and numerical productivity. The process is mechanistic. What matters in System-B are blueprints, regulations, procedures, categories, and efficiency. The process is rarely context-sensitive.
The dimensions of the battle run from more life-giving (System-A) to less life-giving (System-B).
At the Value Creators, we think in a similar vein in regard to business systems. Let’s adopt Alexander’s nomenclature of System-A and System-B.
System-A is entrepreneurial value creation. The concept of value in this system evokes the same sense of humanity as that depicted in Alexander’s System-A: it is life-enhancing. It’s the feeling that things are better, of moving to a better place, that leaves unease behind and replaces it with satisfaction. The energy of entrepreneurship is to improve people’s feelings about their own lives. Entrepreneurship is empathy for people’s needs followed by the creative design of new propositions to meet them. It’s entirely humanistic: people helping people.
As with Alexander’s System-A, the process is the opposite of mechanical. It’s imaginative and creative. Empathy is the key skill for the system, the ability to get inside the mind of the customer and try to understand how they feel about their current life experience and what enhancements to that experience might be attractive (valuable) in the future. Entrepreneurial imagination is a future-oriented mindset, the capability to see a tomorrow where the customer feels their life is enhanced. It’s counter-factual, and can only result from empathy: how can I help this person in their quest for betterment? It’s not an outcome that can be reached with a mechanistic approach.
System-A in business is founded on a deep understanding of human values and what people prize most highly. It requires an attempt to understand their context, whether that’s a household or an industry, and, within that, to find the pinnacle, the highest values that people strive for their whole lives. Then, a business operating in System-A advances to the point of proposing to the people it feels it understands that there is a new way to better integrate their highest values into their lived experience. The business makes a promise to design the new experience, facilitated in the form of a product or service, to conform with customer preferences, and to do this before receiving any payment. The customer’s willingness to pay confirms the value of the new proposition and provides the resources for the business to continue making and keeping the promise to as many customers as are eager to feel the benefit.
System-A is humble, tuned to listen, and sensitive to feedback. System-A businesses seek to fit in and contribute to life for others. There’s a deep and intimate connection between the value creators of System-A and their customers.
Business’s System-B is management, as it’s practiced in traditional firms. A better term might be managerialism: the attempt to apply scientific methods and quantification to make business precise and predictable. Like Alexander’s System-B, it’s focused on methods and procedures, and on quantitative analysis and numerical targets.
While customers are important and recognized as a source of revenue, “the most valuable firms” are generally assessed as those that create the highest market capitalization on stock markets. Market capitalization is typically seen as a function of earnings and the net present valuation of future profit streams. System-B firms emphasize cost control and efficiency, and these functions are viewed as underpinning profitability. Control is important in System-B because these firms strive for predictability - to grow smoothly and to meet the revenue, cost and earnings targets to which they commit in order to gain the approval of the financial sector. There’s a tangible sense of arrogance in those firms that achieve this apparent control. System-B is a system of selling goods and services rather than seeking to create human well-being. It is value-destroying, even though that may not be its intention.
There is a great distance between System-A and System-B. There is a conflict in their understanding of value and its human origins and of how humans interact to co-create value. There’s a difference in the role of human feelings. There is a difference in the roles of creativity and experimentation and the happy embrace of learning (which, in System-B, is considered failure). There is difference in trust and respect. System-B contributes to the perception of the corporation, from both inside and outside, as cold, cynical, inflexible, and abrasive with regard to human values. In fact, System B has been quite damaging for society in this last regard. It has opened up the capitalist system of value creation in free markets to the attacks of its critics. This criticism, in turn, paves the way for regulation and government control.
One of the places where we observe the gap between System-A and System-B is in our field of business education, between the resource and skill needs of modern businesses and the traditional approach of higher education. Business schools tend to focus on processes and methods, analytics and quantification and the general goal of control over business variables. Contemporary businesses are becoming increasingly aware that the end-users are the determinant of business success, and they take the role of co-creators of value. End users provide the market forces that select winners in the contest for business revenue. What’s needed are tools of understanding how end-users choose, and those tools include imagination, empathy, psychology, sociology and nurturing relationships. They are the tools of System-A and are not easily accommodated into System-B schools.
Our online Value Creators course provides a complete introduction to System-A for business.