Is ‘Authority’ Enough to Create Cultural Change?


Perez Six Elements

Although we are seeing a Renaissance in the products arena—wearable technology, 3D printers, all kinds of sustainable materials, ways of building, modes of transport like bicycles, etc.—we are squarely in a service economy.  From software to transportation as a Service.

I call it the promise economy. The level of confidence in what you offer comes from a combination of addressing the five dimensions of risk your customers face, and the type of experience you offer through service. 

Delivering on current promises enables you to make a better promise in the future. For companies and businesses, the promise relies on the collective.

 

Culture has weight

Our thinking is often the product of mainstream culture. Culture and cultural signals or norms influence us greatly. Cultures are designed to both embrace and resist change, based on compatibility, readiness, and speed.

When the rate of cultural change is non existent, the tribe provides the cultural context. In this environment, individual thinking is not seen as useful. Organizations used to be very homogeneous. Even with the broad adoption of social media, there's little variance, except across departments. But silos block serendipity. This happens both inside and outside an organization.

 

Individual thinking is not prized on the other end of the spectrum,

when the rate of change is maximum.

In an increasingly complex and changing world, we go with the flow to fit in and manage uncertainty as if it were risk. You've probably seen a version of this diagram in my presentations on culture and change. 

Cultural change

But what happens when an influential firm declares a new course? Does the rest of the market stay its previous course? This is not just an exercise in branding, it's a cultural question.

 

Technological revolution to business evolution

Carlota Perez works on Techno-Economic Paradigm Shifts and the theory of great surges. She's identified six elements that undergo transformation. The word she uses is: revolution. Ben Thompson noted how the culmination of the current technological paradigm is mobile + cloud.

I've noted how this paradigm has brought about the storeless store and saleless sale.” Translating into we connect and buy from anywhere, from people like us. Hence the everything as a service in technology terms turning into everything is a promise in human terms.

There's a third dimension: monetary capital. Perez notes how development and installation phases of technology require a different focus for capital allocation. Technological Revolutions and Financial Capital:

Financial capital is mobile by nature while production capital is basically tied to concrete products, both by installed equipment with specific operational capabilities and by linkages in networks of suppliers, customers or distributors in particular geographic locations.

Financial capital can successfully invest in a firm or a project without much knowledge of what it does or how it does it. Its main question is potential profitability (sometimes even just the perception others may have about it).

For production capital, knowledge about product, process and markets is the very foundation of potential success. The knowledge can be scientific and technical expertise or managerial experience, it can be innovative talent or entrepreneurial drive, but it will always be about specific areas and only partly mobile…

All these distinctions lead to a fundamental difference in level of commitment.

Financial capital is footloose by nature; production capital has roots in an area of competence and even in a geographic region.

Financial capital will flee danger; production capital has to face every storm by holding fast, ducking down or innovating its way forward or sideways.

Yet, though the notion of progress and innovation is associated with production capital – and rightly so – ironically when it comes to radical change, incumbent production capital can become conservative and then it is the role of financial capital (whether from family, banks or ‘angels’) to enable the rise of the new entrepreneurs.

The shift from financial capital to production capital supports the installation period, says Thompson. I'm making a note of the distinction to refer back to it. Commitment levels impact strategy in business.

But I also want to note the relationship between the use of one or the other with culture. At a macro level, the U.S. has been all about mobility and potential. Unicorns! Venture funding has been all about that.

By contrast, Italy has been more focused on production—with roots in specific geographies and competences. The entire Emilia-Romagna region is a perfect example of targeted investments within a territorial ecosystem of small to mid-sized companies with specialized clusters.

I'm seeing some signs that the European investment market is shifting more to innovation. Steps in a more optimistic direction for countries that have been building businesses for a few hundred years.

 

Is 'authority' enough to create cultural change?

I do wonder if the U.S. will be shifting more toward building enduring companies. Better as an ecosystem of mid-sized businesses to temper scale-at-all-costs. Because the human costs should be part of the equation.

Sequoia is a prestigious U.S. investment firm. The company recently announced a shift in focus: from financial to production capital. Partner Roelof Botha said that, Moving forward, our LPs will invest into The Sequoia Fund, an open-ended liquid portfolio made up of public positions in a selection of our enduring companies.

It fits with the firm's name. Sequoias are extraordinary trees. You can find giant Sequoias in the Pacific Northwest. But you can also find them in Northern Italy. It's easy to see them as enduring and strong. They do stand out.

Sequoias

These creatures have been part of a private, protected park behind my elementary school. Just to give you a sense of how big they are, I asked my mother to walk to them.

Could these types of funds also bring about a shift in thinking about human capital?

 

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