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Umair Haque thinks that Silicon Valley is in a competency trap. “The things that made it successful yesterday are exactly the things that prevent it from becoming successful tomorrow”.
Haque is the Director of the Havas Media Lab, blogs in the Harvard Business Review and just published a book called the “The New Capitalist Manifesto: Driving a Disruptively Better Business” (Harvard Business Press, 2011). In the book, he sets out his ideas on how capitalism, and companies, need to change in order to create true prosperity in the 21st century. I talked to him about the book and how it applies to the tech industry.
According to Haque, the tech industry has a “thin value problem”. He defines “thick value” as value which is authentic, in that it is not created at someone else’s expense but creates value for others, meaningful in that it matters in human terms and sustainable by not being bubble-driven or built on the destruction of resources. Think Etsy rather than Gap or Innocent Drinks rather than Coca-Cola.
Thin value transfers economic value from one party to another rather than genuinely creating it. If you sell a widget that costs $8 to a customer for $10, then you have made a profit of $2. But if the losses to others, like society or the environment, are worth more than $2, then you have failed to create any authentic value. Haque wants companies to have “a philosophy, a way to express how you will create value for people, as opposed to extract value from them” rather than just a strategy for grabbing market share.
Haque is convinced that companies can only succeed in the 21st century if they create thick value. “Yesterday’s institutions are not good enough. We have to innovate” he says. We don’t create new software on 1980s computers so why does every new startup still use business practices created for the industrial age? The book claims to be a sort of manual on how companies can innovate as institutions in order to create thick value. He also gives examples of companies already starting to do this, including behemoths like Walmart, Nike, Apple and Google. Walmart, for example, has spent 5 years developing a sustainability index that will be used by its 100,000 suppliers. The data will be stored in an open database available to other companies. Haque calls this a big institutional innovation.
The book argues that companies need to create value cycles where everything is re-used rather than traditional linear value chains that are destructive and wasteful. This can also lower business costs since by renewing resources you make them cheaper. Think of the way we replace our mobile phones every year or two using up limited supplies of rare metals in the process. Another aspect of the value cycle is only using resources when customers request them, e.g. by making goods on demand like Threadless does as opposed to Gap selling off piles of unwanted clothes in the January sales.
Haque told me that tech companies are “doing very badly in terms of value cycles, doing very badly in terms of philosophies that create enduring value and shifting from goods to betters (products that make us lastingly better off). What is startling to me is that more tech companies don’t use technology for meaningful purposes.” According to him, many of Silicon’s Valley’s most talked-about companies like Groupon are “industrial age companies in disguise”. While it’s easy to see how a company like Groupon is successful in a recession, he contends that ultimately it gives people “the same old stuff cheaper” and that’s not good enough to be considered authentic value.
Another idea in the book is that of completing markets, rather than merely competing in existing ones, by serving needs that were never or barely met before. Haque gives the example of the Nintendo Wii, which instantly made gaming attractive to girls and grandparents. In Haque’s opinion the venture capital industry focuses too much on competing in the same markets rather than completing markets. Often this doesn’t involve cutting-edge technology, as was demonstrated by the Wii or Tata’s low cost car for emerging markets, the Nano.
I suggested to Haque that one reason more tech companies don’t create thick value is that it’s much more difficult to measure than mere profit and loss. In the book, he says that a product is only really making a difference if it’s tangibly improving people’s physical, mental or social well-being or improving their lives economically in an enduring way. Haque thinks that part of the innovation required is to define ways of measuring whether you are making a difference. Social enterprise is already coming up with new metrics for this. India just announced a new green GDP measure, while the UK is establishing a quality of life index.
I asked Haque what advice he would give to a tech entrepreneur who wants to make a difference. He says that entrepreneurs need to stop looking at themselves as technologists rather than institutional innovators. “Strive for a bigger purpose. Take on society’s big problems in the knowledge that is where the greatest returns are likely to be in the future. Have a global focus as opposed to US focus. Look at opportunities coming from the least fortunate people in the world.”
Maybe one problem with all of this is that the companies Haque holds up as succeeding in some aspects of his prescription, e.g. Apple for creating a new market via apps, fail badly in others. Look at the built-in obsolescence of Apple’s gadgets or the working conditions of the people who make all those iPhones. But maybe it’s better to be virtuous in one way rather than none at all.
For Haque, business as usual is no longer an option. “One choice you have is to refuel the engine. The other choice you have is to rebuild the engine. What the state of the global economy suggests is that refueling the engine is not working”.