Why companies need to revolutionise how they create value
Erich Joachimsthaler, the founder and chief executive of business and brand transformation firm Vivaldi, has launched a new book: ‘The Interaction Field’. In the management book he explains why companies need to revolutionise how they create value to remain relevant in today’s world.
For decades companies have focused on competitive advantage, differentiation, and growth. This was usually evaluated in terms of tangible assets, revenue, and profit. According to Joachimsthaler, “in today’s digital world, where everything is interconnected, we have to think differently about how businesses create value.”
The digital age is characterised not only by networks but by data-driven technologies, including artificial intelligence (AI), machine learning, and, soon, quantum computing. In this new ‘world of webs’, “companies have to focus on building new interactions outside of their narrow category in order to succeed. This will enable them to develop explosive and smart growth.”
In ‘The Interaction Field’, the expert describes this emerging phenomenon that is being exploited by a few hugely successful companies, including Alibaba, Apple, Netflix, Google, and Amazon. However it is also being developed by some traditional businesses from farming to fashion.
From competitive advantage to collaborative advantage
The pandemic has thrown into sharp relief the increasingly interdependent world we live in. Joachimsthaler: “We are moving from an age of competitive advantage to collaborative advantage, with companies cooperating for shared benefit. Today’s leading companies welcome the value creation participation by a host of different players.”
While this process of value creation includes the company itself, its customers, suppliers, partners, and other stakeholders, “this is something you would normally expect. Nowadays, it also includes competitors, along with other players in the wider ecosystem from observers to government agencies.”
Through participation in these interconnected groups, companies can achieve a kind of unstoppable momentum and expansion that Joachimsthaler labels as ‘velocity’.
Why companies must strive for velocity
Velocity is multidimensional, constantly accelerating, explosive and smart growth. “This is what all companies must strive for today. It doesn’t matter whether the company is a start-up or an incumbent, a leading firm in an existing industry or part of a new and emerging category.”
The key to this velocity is its interactions – “these are touchpoints a company can create among its participants,” explains Joachimsthaler. The higher the quality or value of those interactions, the greater the velocity. As velocity increases, three things happen.:
Network effect
First, network effects kick in, which means that the product or service on offer becomes more valuable as more people contribute to it. Airbnb is a great example of this. The more Londoners offer their spare rooms or stately homes or canal barges to travelers through Airbnb, the more valuable the service becomes. They are intimately involved in the value creation. There is a greater selection and increased availability. This leads to more variety and choices.
Virality
As people find value in a business offering, they voluntarily become advocates for it and encourage others to join. For example, two teenagers started the LEGO YouTube channel ‘Beyond the Brick’, featuring builders from around the world and their amazing LEGO creations. Today, the channel has over 530,000 subscribers and over 200 million views. This was on the back of the people wanting to join up, contribute, share videos, and talk about what they’ve experienced.
Learning effect
Third, as the company applies human knowledge and artificial intelligence to the large amounts of data being collected in the interactions, a learning effect emerges. That is, the more information the product gathers and synthesizes, the more valuable it becomes.
Tesla for example collects more data through sensors and cameras than other manufacturers, which enables machine learning in its autopilot software, which increases driver safety. Teslas basically get smarter as drivers drive them, and the more Tesla drivers there are, the smarter the cars become.
When a company takes advantage of these three effects, velocity intensifies, the effects build on each other and reinforce one another, and a virtuous cycle is created. This fuels growth and ensures sustainability. As the cycle grows stronger and stronger, the value created can explode, highlights the author of ‘The Interaction Field’.
“So much so that the company is able to create shared value for everyone in the interaction field, well above and beyond the benefits it brings to its direct users. Indeed a properly designed interaction field can solve much larger challenges such as the spreading coronavirus that causes the Covid-19 disease today. Given the fragility of the planet and our global interdependence, interaction fields are the future, not only of business, but of the world.”
