Rules For A Networked Society: Re-Invention Means Co-Evolution

As the aftermath of the Japanese earthquake unfolds, people are contemplating the challenges they face in work - and in life - in the context of what reinvention must mean in Miyagi prefecture today versus one in Malmo, Buenos Aires or Boston. Thierry de Baillon offers an assessment in his blog of the meaning of reinvention in a networked society and how the rules had changed even before the natural cataclysm:

"Our world is changing, so is the way we are thinking about it. The rise of online networks has not only modified our possibilities to connect and exchange knowledge with other people, but also has it given anyone with internet access a new, almost (not yet totally, but for how long?) unalienable, power. From charities to tyrannies, from companies to markets, a lot of this power is shifting to citizens and customers. Paradoxically, the more people gain access to it, the less we can think in terms of mass. Individuals, their diversity, their relationships, their interactions, matter more than the standardized bulk dynamics prevailing in the industrial logic.

To adapt to this change, organizations have to reinvent most of the ways they operate. Customers are no more passive buyers to target. Companies are no more fierce industrial strongholds aimed at infinite growth and bracing their back against long-term competitive advantages. Work is no more a clearly designed set of tasks, defined by roles and rewarded by career paths. Trees grow no more to the sky. Previous equilibrium between production, sales and profit is broken, and a new one is required, which embraces the evolving complexity of relationships between customers, companies and workers.

SD-logic and co-creation of value

Service-dominant logic draws a framework in the quest for such an equilibrium. By switching from a transaction-based model of organizational justification (I sell therefore I am) to an interactive model of value creation, it provides us with critical insights on the necessary mutation economic actors must undergo to survive in an ever more challenging environment. I already wrote about service-dominant logic (and you can learn a lot more here -and on the SD-logic website if operational again-), but, at the risk to oversimplify the works of Steve Vargo and Robert Lusch, let me recall some basic principles of their theory: companies do not market products for customers to buy; they make proposals (of products, of services) which customers hire (thus on a momentary, but not instantaneous, basis) to help them get their job (the real-world activity they want to use the product or service for) done. Value is co-created by company and customers during the whole length of time the customer uses the product / service.

For companies, beyond profit and other measurable benefits (reputation and loyalty for instance), value means knowledge about their customers’ needs, expectations and uses, which drives further development of better products and services, and better engagement. For customers, value also means knowledge about how to better fit their needs. Through value co-creation, both parts evolve.

Furthermore, value is neither created in the void, nor in a simple dual firm-customers relationship. People talk, compare, their own networks influence the overall value creation. Companies, too, are part of networked ecosystems composed of suppliers, subcontractors and many other stakeholders. As more and more people share knowledge through their online networks, as more and more companies get in the use to listen and engage with them, they will get more and more involved into customer-driven innovation, and will co-evolve.

The dynamics of co-evolution: competition

Co-evolution dynamics are originally related to natural ecosystems and living species, but are more and more considered in organizational and societal theories, as an inherent part of complex systems behavior. Co-evolution happens when a system and its environment, or different subsystems, are influencing each other to change.

The first kind of co-evolution is competitive: a system evolves to gain advantage onto another, in a typical predator/prey relationship. As more companies turn to customers and other parts of their ecosystem for added value, they will compete for what best serves their needs in a particular category, which involves several risks.

The first risk of a purely competitive co-evolution is relativism: competition involves getting advantage, but a subcontractor may work for several competitors (as Vargo and Lusch acknowledged), or customers may give insight in reference to competing products (imagine I own both a Kindle and an iPad). Companies may end up trapped in a kind of Zeno’s paradox, a zero-value sum, driving just enough innovation to get closer to their competitors’ best proposal.

The second risk is called the Red Queen’s dynamics, and is a hypothesis formulated by the American biologist Van Valen in 1973, stating that co-evolution in tightly related species doesn’t preclude any of them from extinction, whatever the number of precedent evolutions might be, and more and more considered in economic research. In our business context, it means that companies might be obliged to dedicate more and more resources to value co-creation, thus to evolve, not to thrive, but just to stay in the competition. Following the Red Queen’s hypothesis, engaging in that sort of arms race would equal, for companies which aren’t deeply involved in design-driven innovation, an overwhelming takeover by customers.

The dynamics of co-evolution: cooperation

While a truly cooperative economy might be seen as a mere utopia, cooperation, whether between firms or with customers, is a business reality. Whereas collaboration’s dynamics, requiring aligned goals, resources and outcomes, are mostly endogenous and pertain to a shared system’s level, cooperation takes its power from diversity, empowering each actor through shared information and behaviors. Meaningful sustainability initiatives assume active cooperation between whole business ecosystems and customers. Coopetition, which combines cooperation and competition, is gaining acceptance as a powerful business strategy in our networked economy.

Still an emergent domain of research, cooperative co-evolution doesn’t suffer from the same flaws as its competitive counterpart. Furthermore, it provides to value co-creation an interesting analogy with the cognitive learning process; all actors gain and create knowledge from information available, according to his own needs, expectations and personal background. Could we therefore use the different types of cognitive learning to provide a practical frame to the promises of the service-dominant logic? That’s a great perspective I would love to discuss with you. Online networks are transforming the way we behave, chances are good they will transform the way business is done. For better