Director Harold Clurman says that theatre techniques “must be ultimately judged by their contribution to our human needs, our aspirations, moral concerns and philosophies. These questions lead to the role played by the audience in the theatre … The audience is the theatre's wellspring, its leading actor. This is not a metaphor, it is a historical fact.”22 And the audience's role is to become part of the play itself, its members thereby becoming something different from what they were before the performance began. Unless customers act differently, there is no transformation. Transformation elicitors cannot change for the customer; they can only direct the change. And customers must be willing to put themselves in the hands of a guiding director. How does a company gain the confidence of customers to earn such responsibility?
For starters, customize. No individual will entrust himself—or any part of himself—to an enterprise that has not established a one-to-one relationship with him. Mass produced, mass marketed, and mass distributed offerings send one clear message to potential buyers: we don't care enough to know you individually. Buyers inevitably respond, You cannot help change me if you do not even care enough to know me. Getting your act together by mass customizing your offerings establishes connections with customers that signal you care.
Second, stage truly engaging experiences. Make it the goal of each individual relationship to hear customers say that when the two of you work together, they discover things about themselves they did not know before. Then go further: make it your aspiration to hear them say that only when they interact with you do they gain the deepest understanding of some part of themselves. Make your customers' most memorable experiences their moments with you. These set the stage for creating a bond between you and your customers, a bond that fosters communication of their ultimate aspirations.
Third, furnish places for actors to rehearse new behaviors. Use knowledge of each customer's individuality to orchestrate the appropriate set of experiences to guide the desired transformation. Bring together buyers with similar aspirations into a community, eager to learn not only from you and the overall experience but also from one another. Create ensembles of like-minded customers, not to lump them into detached and anonymous market segments but to form a close-knit cast of characters able to strengthen and confirm the rightness of the aspirations each seeks.
Take a cue from the late Robert Lucid, emeritus professor of English at the University of Pennsylvania, who, in his role as faculty master of Penn's Hill House dormitory, understood the aspirations of matriculating students. As Lucid explained, “When people come to a university, they're interested in it almost exclusively for certain utilitarian reasons—they're looking for a job or whatever it is—but they're also interested in it as a theater, in which they're going to act out a certain part. They've been thinking about it for quite a while, and they're ready to act it out now if only the other actors are there. And it's that almost desperate search for the other players—they've got the script pretty clear in mind; it's just that they want to be sure that they're in the right place.”23 Iron sharpens iron, and most performances—especially transformational ones—demand that the stage be shared with other people, so that each character is framed by the characters of others performing the same theatre. The interchange between actors is often the vital factor that drives transformational outcomes.
Finally, direct the actors. If aspirants could do it all themselves, they wouldn't purchase a transformational offering or entrust their aspirations to an outside party. They know that they need some guidance, but they don't wish to be told what to do. Handling this delicate balance between assistance and interference is the director's responsibility. Guiding is directing! And again, a skilled director embodies two seemingly contradictory roles: collaborator and commander. Directing certainly takes on the flavor of collaboration, with shared control of outputs and dialog with actors about how best to portray their roles. But there are moments within the transformation when the director must force decisions and dictate a particular course of action, helping the actors realize their aspirations. The director guides the moment-to-moment orchestration of themes, impressions, and cues.
Everything else is only a prop supporting this guiding activity. Any good (and the commodities it comprises) must be used only to help a customer learn to act, just as acting instructors use masks and other objects to facilitate the learning of new skills. Any service must be used only to accelerate this learning. Likewise, any experience must be staged only to promote the actor's progression of personal value.
The lower-order offerings that will retain the greatest value in the forthcoming Transformation Economy will be those filled with intention, those existing in order to help individual customers become all they seek to be. The issue of how one's economic offerings affect buyers will be unavoidable and inherent to any purchasing decision. In this world, businesses succeeding in the Experience Economy must confront the reality—always present, but previously veiled in economies dominated by commodities, goods, and services—that everything they do affects the character of those for whom the work is done. The intentions of every business will be scrutinized as never before, and the outcome of the assessment will determine which enterprises prosper and which become impoverished.
Ample Waves of Gain
To enrich an enterprise with greater intention, focus on the four universal elements that together constitute how businesses ultimately create value:
Origination: Work that generates value from something new
Execution: Work that generates value from something done
Correction: Work that generates value from something improved
Application: Work that generates value from something used24
Everything eventually offered for commerce must originate from somewhere and something. Commodities, preexisting to commercial enterprise, are extracted from animal, mineral, or vegetable substances. Since the beginning of economic activity these materials have been the wellspring from which a stream of new goods and services—and now experiences and transformations—flows.
All forms of economic output, however, require that the supplier execute some key activity to create the offering. And any activity, no matter how well it is done, remains prone to error (we are, after all, only human). The company must then correct any flaws or failures that affect the offering. As Henry Petroski points out, “It is not that form follows function but, rather, that the form of one thing follows from the failure of another thing to function as we would like it.”25 The offering is improved—by adding, subtracting, or modifying aspects of the offering—until it is applied to a specific person or enterprise. At that point, the offering is exchanged for monetary payment, and the act of putting an offering to use connects with the original request to fulfill an individual want or need.
Every business needs a strategy to manage these four dimensions of value generation (which reflect the four forms of theatre as illustrated in figure 7-1, which in turn mirror the four business models described in figure N-1 in endnote 24 of chapter 7). As figure 10-4 then illustrates, companies must define their economic offerings (commodities, goods, services, experiences, and transformations) in terms of the type of work performed (originating, executing, correcting, and applying) for specific kinds of buyers (markets, users, clients, guests, or aspirants). Systematically examining this new competitive landscape and filling it with company-unique intention, each business must define its own offerings, core activities, corrective triggers, and buyer relationships to first explore and then exploit for persistent advantage.
Figure 10-4: The new competitive landscape
The performance of commodity suppliers like Archer Daniels Midland and Cargill demonstrates that companies can compete successfully at the lowest level and that sometimes focusing on the supply of commodities represents the right strategy for a business. Drawing from the four universal elements of work just discussed, any company doing so must excel at the primary value-generating work required of com
modity-based companies:
Discovering new substances
Extracting materials efficiently
Exploring alternative sites
Trading in markets
Only a remnant of agricultural and mining companies has survived the competitive attrition of previous eras. Most materials have traded for ages through firmly established markets, but whenever someone discovers a new substance, the processes of extracting, exploring, and trading form new markets. Access to these true marketplaces remains critical to success, and poor selection of sourcing and destination market sites can spell disaster for these commodity extractors.
Location theory and practice, however, no longer play as vital a role as they once did in the success of goods-based businesses. Companies still make efforts to optimize plant, warehouse, and distribution sites, but these facilities do not provide the primary source of sustained strategic advantage. Instead, value must be generated from the following:
Developing new inventions
Making products efficiently
Fixing mistakes
Transacting with users
These elements of success differ significantly from the activities of commodity businesses. Research and development efforts must constantly invent new solutions to old problems as product life cycles continue to decrease. Efficiency—and quality—in manufacturing, whether based on craft production or more modern techniques, is critical to success. And transactions with customers must satisfactorily meet the needs of customers.
The increased importance of high-quality processes to create these goods has led to wholly new economic enterprises supporting manufacturers and, eventually, to entirely new service industries. These service providers found ways to perform highly valued activities that manufacturers otherwise left for the customer to do. Their tasks involve the following:
Devising new procedures
Delivering operations efficiently
Providing responses
Interacting with clients
Innovation in services does not come via the isolation of the R&D lab but in face-to-face interactions with individual clients. Two-way communication—genuine dialog—becomes critical to ensure the routine delivery of outstanding service operations.
Similarly, mere service operations do not suffice in the staging of experiences. Work needs to be orchestrated, converting routine interactions into memorable performances by means of the following:
Depicting new scripts
Staging events efficiently
Preserving memories
Encountering guests
Any business, from repair firm to parking lot, can advance from delivering services to staging experiences if it declares experiences to be the business in which it competes, exploits the inherent sacrifice gaps of traditional service offerings in its industry, and designs an event enriching enough to charge admission.
Recognizing experiences as a distinct economic offering provides the key to future economic growth. Jeremy Rifkin was right to suggest that fewer workers will be needed to deliver services in the future, just as past innovations have greatly reduced the need for factory workers to produce goods and, before that, for farm workers to harvest agricultural commodities. But Rifkin, neo-Luddite Kirkpatrick Sale, political pundit Pat Buchanan, anchor Lou Dobbs, and others like them who bemoan the automation and offshoring of jobs are wrong in stating that the overall demand for labor will decrease. The future waves of economic growth will present ample opportunities to generate more wealth and create new jobs. Indeed, the masses will be employed by those businesses that recognize and create experiential output as a distinct economic offering—and learn to do it well.
Even higher-paying jobs will accompany experiences that richly understand, articulate, and ensure transformations (beginning perhaps with experts in transforming enterprises into experience stagers!). The processes required for transforming an aspirant prove more exacting and elusive than those needed for the buyer of any other economic offering. They involve the following:
Determining new aims
Guiding individuals efficiently
Strengthening resolve
Persevering with the aspirant
Companies certainly find transformations the most difficult offering to supply, for elicitors must be intentional about their own processes while also helping their customers learn to act with intention. Customers, however, value these offerings most highly, for they address the ultimate source of all other needs: the reason the buyer wants what he wants.
So What Do You Intend to Do?
The capabilities required to transform a customer are not unlike those needed to transform an entire industry: one must first aspire to bring about a desired change. Not change for the sake of change, which too often results in aimless wandering and constant doubting of one's direction, but something more. One must apply the principle of intention to strategy.
Premier strategists Gary Hamel and the late C.K. Prahalad popularized the notion of strategic intent, observing that “too many mission statements fail entirely to impart any sense of mission. For this reason we prefer goals that are focused on making a real difference in the lives of customers.” Exactly. Hamel and Prahalad encourage organizations to embrace passion and pathos, and they point out that strategic intent is “as much about the creation of meaning for employees as it is about the establishment of direction.” They even commend Jesus Christ's imperative, “Go into all the world and preach the gospel” as “[p]erhaps one of the most ambitious, and emotionally compelling strategic intents ever articulated.”26
We believe that Hamel and Prahalad assert something profound: strategic intent is the foundation of any organization's energy and ambitions. It supplies purpose and meaning to otherwise humdrum activities. Recognizing the importance of strategic intent alone, however, is not sufficient to set the direction or establish the meaning of an enterprise. There remains the question of what one means by intention.
The intention of any company's mission statements, strategic plans, and action steps must be grounded in it's uniqueness, and not in a fixation on the activity of competitors. This does not mean that the company is striving to be differentiated but rather that it is seeking to discover the unexamined dimensions of self, with competitive differentiation resulting as a natural by-product. This corporate self-examination provides the wellspring of renewal ( just as examining the uniqueness of customers opens the wellspring of unarticulated needs often pointed out by Hamel and Prahalad). The strategy of a business confers meaning only if those called on to execute it understand—ideally, viscerally—how the company plans to alter the very structure of the world through its industry. Every activity of the company must be performed in order to advance external change. The firm can then fulfill its specific strategic intention not by competing for the future but by actively attaining that future.27 And that can only be accomplished through rigorous thinking about what business the company truly is in.
We do not wish to see executives use the frameworks presented here just to argue over whether they today deliver services, stage experiences, or guide transformations. That is not our intent. Any such debate should serve only as a means to discover new ways of generating value. The Progression of Economic Value simply articulates a new competitive reality for the strategic options facing any enterprise today. The opportunities are vast, but so are the challenges. As the Experience Economy continues to unfold, manufacturers and service providers will increasingly see their offerings commoditized as more and more businesses charge explicitly for the memorable encounters they stage. And as the Experience Economy naturally progresses into the Transformation Economy, even experience stagers will find their offerings commoditized as more and more businesses charge explicitly for the demonstrated outcomes they elicit.
You must find your own role in the world. What business are you really in? Five economic offerings—commodities, goods, services, experiences, and transformations—yield five very distinct possi
bilities, with tremendous ramifications for your business, your employees, and your customers.
* ENCORE *
Exit, Stage Right
CUSTOMERS AND COLLEAGUES OFTEN ASK US, “What's next after transformations?” The question comes up particularly when people begin wondering whether transformations, like the other economic offerings before them, will be commoditized. The healthcare industry, after all, continues to undergo, as it has for the past two decades, tremendous pressure to cut costs via uniform coverage, resulting in fewer procedures and routine treatment. That same pressure is beginning to be applied on tuition costs, just as Internet-based learning programs increase access to and slash the costs of college education. Management consulting firms find themselves competing against business schools that hire out their MBAs at remarkably reduced billing rates.1 At the same time, they also face new competition from India and increased web-based delivery of advice to small- and medium-sized enterprises—at a fraction of traditional consultancy costs. Are these signs of commoditized transformations? Perhaps.
Remember, in the nascent Transformation Economy, the customer is the product and the transformation is an aid in changing the traits of the individual who buys it. Transformations that effect this kind of change automatically ward off commoditization, because there can be no greater differentiation than a transformed person or company; every individual is unique. Certainly, competitors can duplicate specific diagnoses, experiences, and follow-through devices. But no one can commoditize the most important aspect of a transformation: the unique relationship formed between the guided and the guide. It is the tie that binds.
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