Keeping up with the shape-shifters

The Australian economy has to adapt to a rapidly changing world, one where there are plenty of clichés about what is happening and how politicians and enterprises should plan. It’s important to look through the haze and see what is really happening.

It comes down to these core developments:

Markets are changing: the growth of mass differentiation

By and large we are moving away from markets based on demographics to markets where consumers self-elect themselves to different groups or tribes. This is one change that drives a need to create much broader product and service offerings. For example Samsung now sells over 150 different mobile phone models in the US market and may times that across the world. I call this mass differentiation because it means people everywhere are differentiating themselves in the market place and companies have to respond by offering narrower products and services.

Innovation is changing: the rise of the strategic options portfolio.

That means companies need to innovate more, run more innovation projects simultaneously and be able to control a bigger options portfolio. It’s a key management skill – how do you resource more innovation and keep track of it on the road to market? Australians need to learn more about systematic innovation and innovation management.

One driving force remains the same: Human senses

We misinterpret economics because we tend to focus on the firm or the market, the technology and the machine. We think back to bridges and steam engines, mines and mills, ocean going ships, cars and telephones. Actually what moves market is the growth of human sentiment, or the human interest model of economics.

The biggest drivers in today’s markets – say over the past 100 years - have been the development of human sentiment and senses. For example the big industrial concerns of the 19th century were driven by our evolving sense of colour and our love of it. Our appreciation of colour still drives whole industries – for example the big battle in smartphones is true colour reproduction in a 5 inch screen.

The major online businesses are driven by music much more than they are by technology. And that is also a sensual context. What liberated men and women to write joyful love music was the revolution that gave us public sensual display – short skirts, lycra, nylon initially for women, and more recently sexually alluring clothing for men.

Their importance is not just as clothing. Public sensuality lies behind popular love songs – the hits we celebrate. Prior to sexual liberation we enjoyed apparel revolution and together these gave us an alternative to the blues – joyful love songs that people still listen to all day long. They drove the record industry, the events industry, TV and now Spotify and Pandora. Right now what derives us is presence, the desire to be present in many places simultaneously.

But the human interest model is also systemic. The human factor now pervades all levels of the value chain – it is possible to crowdsource an idea for a business, crowdfund the financing of it, pre-validate through online focus groups and market through advocates on Facebook. The human interest model is also boundless. This system is inherently global, without suffering any of the difficulties associated with globalisation.

This is a pretty powerful alternative way of thinking about economic opportunity – human sense and human actions.

The key for Australians is to understand what drives the most powerful consumer businesses – and to bring Australian culture to bear in a creative way around powerful human sentiments. But in addition, it’s important to see the economy as a collection of human actions that can be affected outside of the normal institutional structures. No Government to date has captured this change – though we know Latin American and Asian Governments are looking closely at it. Time to get going?

Haydn Shaughnessy is a fellow at the Centre for Digital Transformation at the University of California and co-author of the book The Elastic Enterprise. He will be speaking at the Amplify Festival of Innovation and Thought Leadership in Sydney 3-7 June.