The experience economy: grabbing the ‘creative destruction’ opportunity
Businesses are always evolving, and if a business is not moving forward, then it must be moving backwards, writes Mark Cameron in part two of his series.
In part one, Cameron outlines the importance of understanding customer wants and needs in the experience economy. In part three, he discusses the five stages of customer-focused change.
The term ‘creative destruction’, coined by the Austrian-American economist Joseph Schumpeter, refers to the ‘process of industrial mutation that incessantly revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one’.
In other words, an innovation cycle that creates new organisations and market categories and destroys old ones.
The current trends of economic globalisation, connectivity and rapid technological evolution have created an environment in which the concept of creative destruction is playing out in a very rapid and public way. This concept even has a name: digital disruption.
In order to create or evolve your business’s product or service in a way that drives (rather than incurs)the process of creative destruction one thing is certain – you must understand the needs of your customers. As the great Peter Drucker said: ‘It is the customer who determines what a business is’.
This series looks at the concepts from Pine and Gilmore’s book The Experience Economy from a holistic business perspective in order to understand the customer’s point of view and use these insights to design new experiences. In the first article we examined how business offerings progress through stages of economic value from a customer perspective.
In this article we will turn our attention to the four phases of business transformation, which will help you get a sense of where your business is heading.
The fours phases of business transformation
Businesses, and the markets they play in, are always evolving. By definition this means that if a business is not moving its offering (or its methods for delivering that offering) forward, it is moving it backwards. There is no such thing as standing still in such a dynamic environment.
The Experience Economy describes a model called ‘the Product-Process Matrix’ which illustrates how businesses evolve and what drives each of the following four stages of transformation.
In this stage a business is attempting to define its offering. There is a lot of focus on the needs of the market. It is highly dynamic in terms of process and offering change. There is a sense of chaos about this stage, as there is likely to be high levels of experimentation, failure and pivoting of direction.
To better imagine this, think of the days when cars were first being invented. The first cars ever built were weird, unreliable, expensive and seen mostly as curiosities.
2. Mass production
Once a business has landed on its offering, the pressure is then on to extract as much value from that offering as possible. The business needs to scale. The business needs to create stability. Processes get standardised and organisational structures get put in place.
To continue the car analogy, this is the point in time when the Model T Ford came onto the scene and created a mass produced car at a reasonable price for everyday people.
3. Continuous improvement
As the market in which a business operates matures and competition increases, the pressures continue to change. The business then needs to create variations of its offering at a reduced the price to remain competitive. This means implementing more dynamic processes and organising teams to constantly improve on what they have.
Think of the impact that Toyota had on the car market with its much more agile and responsive approach to car manufacturing.
4. Mass customisation
Once a business has effective, streamlined production processes, it can then start providing customisations on those services. This is where the business attempts to increase margins by developing the ability to customise its products to individual customer specifications while still maintaining the capacity to produce at scale.
These days, when you purchase a new car, customers can often choose from a list of customisations on their vehicle to make them feel like the car is uniquely ‘theirs’.
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It is important to progress through these four stages sequentially. Trouble emerges when a business tries to tackle more than one stage at a time (lack of focus), or the business tries to skip a step (capability misalignment).
So what is the difference between mass customisation and personalisation? Personalisation is the process of tailoring products and services to individual customers characteristics or preferences.
Mass customisation is a process for implementing personalisation. From a digital perspective personalisation allows you to tailor a message to a customer more effectively, often through the use of data and profiling. Mass customisation allows you to use the same tools and processes while giving the customer control, thereby creating an opportunity to further monetise that relationship.
One is business as usual. The other is business evolution.
The current environment is both a threat and an opportunity to many well-established businesses.
The challenge is to grab the ‘creative destruction’ opportunity and be the disruptor.
In next week’s final article of this three part series we will look at how you need to lead the design phase of creating an experience that can evolve your business model.
- Part one of Mark Cameron’s series on understanding the experience economy »
- Part three of Mark Cameron’s series on understanding the experience economy »
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