The State of the Union: the new economic model

Chris Carfi (@ccarfi), who blogs at The Social Customer Manifesto, did a great overview of the evolution of markets in a session at the Business of Community Marketing conference in Boston last week.

In the conversation afterward, he shared with us a symbol or diagram that has been kicking around in his internal discussions at the office.

Chris also moderated the ROI & measurement panel that I participated in.

I am hoping that Chris will pop by here to explain what the original thinking is behind the symbol.

If you have read “Introducing Social Capital Value Add” or had me talk you through it, feel free to take a shot in the comments.

I will come back and attach my interpretation of the symbol after Chris sets out his thinking.

Every time I look at it, I think it is time to get rid of the dog (don’t be ridiculous, I am kidding, I love the dog!).

The new economy

UPDATE: Here is Chris’ description from the comment below …

Hi, Michael…was great to see you in Boston!

What we’re starting to get at here is that while the “balance sheet / income statement” side of the world is obviously critical, it’s not the *only* thing that we should be measuring. It’s also not the only thing that companies (or individuals) should have a universally understandable way of measuring.

The questions we’re asking — what is the balance sheet or income statement for “green-ness?” Or for the connections with family and community? Or the influence of an individual’s network?

We not only fail to currently have the ways to measure these things well, we (in many cases) don’t even have words in the language to represent the concepts.

UPDATE: April 6, 2009 …

Thank you Chris for starting this off & Jenny Ambrozek for your contribution in the comments.

Am I seeing everything through SCVA colored glasses?

The quest to measure the factors that contribute to “stable future” earnings or sustainable earnings beyond the balance sheet or income statement is at the heart of value based management methods like brand valuation, Economic Value Added and Social Capital Value Add.

In this diagram I see that people or “Human Capital is the primary source of competitive intangible earnings for today’s corporations” (p. 43, Introducing Social Capital Value Add).  Everything evolves from the bottom/base block.

New breakthroughs in productivity and innovation will come when corporations adopt network management methods that enable them to capitalize emergent possibilities.  Hence, the network (i.e. Chris’ red network graph on the left) becomes the most important factor of production. These opportunities can not be sufficiently identified & seized through traditional hierarchical corporate organization or process management methods.

In the network age, or the age of networked individualism as Barry Wellman calls it and I describe as the Individual as Medium, the corporation no longer enjoys an unfair advantage in shaping shared perceived value by dominating broadcast media.  They must earn access to social media networks powered by people by aligning themselves with shared social values.  This includes environmental values highlighted on the right hand side of Chris’ diagram, universal health & relief from poverty, etc.  Scale of access to networks is related to scale of the social value appealed to.  So for example, “how I smell” still matters but not on the scale that has been institutionalized in many CPG brands. “Do no evil” grants wider access.  Altruism matters.

At the top of the diagram is $.  There is a populist sentiment afoot at the moment that makes talking about making money a dirty topic.  It is a real shame that a few fraudsters have shaken our confidence in market systems that have lifted more people out of poverty than any other approach.  I think one of the points of Chris’ presentation is that markets matter.  They have always mattered.  They are intrinsic to human interaction.  I see the $ in this diagram as recognition that currency evolved as a method of standard measurement to improve liquidity.  It enables us to trade apples for oranges when we don’t want oranges.  Markets and corporations can drive inefficiencies out of networks.  They save us from the dark side of social capital. Lots more to elaborate here, but this post is too long already!

Since Jenny & Chris have already seen my “Introducing Social Capital Value Add” presentation they already know that I dare not underestimate the ability of a simple diagram to relate a complex concept.  In the presentation I use Leonardo Da Vinci’s simple Vitruvian Man illustration to relate how the scale of mankind or “Canon of Proportions” around which all of our institutions are designed has permanently changed since broadband connectivity overtook slower connections for the first time in 2004.  Chris may be a bit more timely with this one.  Da Vinci did not come along and draw this fairly widely recognized diagram until 1500 years after a Roman milatary engineer first wrote about it in a way that stood up to the tests of time.

IAM or “Social Media Man”

One of the central concepts of Social Capital Value Add is the Individual as Medium (IAM).  I also considered using the more anthropological “Social Media Man” but wanted readers to steer past the buzz words and/or gender concerns.

Which one do you like better?  I don’t care what you call it, as long as the dog brings back the bone.

I am realizing that the IAM concept may not come across very strongly in the e-book.  I dripped references to IAM throughout the e-book.  Let me try to draw them together in this post.

Perception is reality.

Shared perception requires some form of media.  I.e., thoughts must be communicated through some form of artifact whether fleeting or more resilient.  Examples include gestures, words, text, audio and visual … anything that can be sensed among parties.

For most of history, our ability to communicate was relatively geo-spatially limited.  We could communicate as far as our voices could be heard (town criers) or our eyes could see (smoke signals). Perception was very locally oriented.

Then along came technologies that Marshall McLuhan taught us to understand as Extensions of Man.  The printing press, radio and television are a few of the biggies.  These are essentially one way, broadcast forms of media. The telephone is another biggie, it is interactive & reaches far, but does not scale well to large audiences and requires synchronous connection.

McLuhan explained to us that “the medium is the message. This is merely to say that the personal and social consequences of any medium – that is, of any extension of ourselves – result from the new scale that is introduced into our affairs by each extension of ourselves, or by any new technology.”

He also said, “Our conventional response to all media, namely that it is how they are used that counts, is the numb stance of the technological idiot. For the ‘content’ of a medium is like the juicy piece of meat carried by the burglar to distract the watchdog of the mind. The effect of the medium is made strong and intense just because it is given another medium as ‘content’. The content of a movie is a novel or a play or an opera. The effect of the movie form is not related to its program content. The ‘content’ of writing or print is speech, but the reader is almost entirely unaware either of print or speech.”

When digital media started to really emerge with the introduction of the browser in the mid-1990s, it naturally incorporated many previous forms media.  But bandwidth, computing power and storage were still scarce and expensive.  A lot has changed since Netscape came along.

We have arrived at a point in history where the effect of IAM has been made the strongest and most intense form of media we experience because it has been given all other media as its content. The movie, the play, the opera, the newspaper, the television, the radio, commercial music, print and photographs, even the brand (a broadcast concept), have all been given over to the Individual to be reincarnated as the YouTube video, the prosumer indie, the blog, the blog comment, the forum, the Tweet, the IM chat, rating & review, the Flickr album, the podcast, the viral email and the mashup.

Real world social networks (and social network applications like email and MySpace that facilitate) are the infrastructure of these new forms of media that emit from the Individual.

SCVA argues that the effect is a new scale of social capital that marks a point of inflection for business and it is this new scaled-up version of social capital that SCVA is determined to highlight the value of.

Whereas, the network infrastructure to shape shared perception could be rented with great flexibility in the broadcast era (i.e. the 30 second spot), access to social networks is a function of social capital.

This new scale social capital is a critical corporate asset.

I spent the first half of the e-book illustrating how these entirely new scales of social capital are evidenced by new scales of the intrinsic elements of social capital which are individual assets (remember, the corporation is a form of individual).  These include: information flow, exertion of influence, certifications of social credentials and reinforcement of identity and recognition.  These are observations that are consistent with Nan Lin’s network theory of social capital, whose approach enables us to link the thinking to social network analysis and economics.

Technologies have evolved and mapped so tightly to the way humans transact, form relationships and create self-identity that it is time for business management to adopt the thinking of leaders in social network theory, such as the University of Chicago’s Ronald Burt.

Like it or not, the shift from broadcast media to IAM has implications throughout the corporate ecosystem.

Almost all of the changes highlighted in the illustration above have occurred exponentially, which is why we experience them as a sudden shift.  The “more of the same”, “everything that changes, stays the same” mentality will not derive competitive advantage from change like this.  It may not even survive change like this.

Does it not seem natural? Project and scale up the power of the individual, and that value of human connection of which we are all so instinctively aware, emerges in amplified forms as well.

In addition to the new scales of intrinsic social capital elements examined in the e-book, I would like to study further the extrinsic variables of social capital that aggregate into collective assets such as trust and network structure.  I am sure that there is similar evidence of new scale that would shed more light on social capital formation, access and use.