Hack:
The future of capitalism lies in the cash valuation of process - not necessarily of outcomes

By Martin Cawthorne-Nugent - Business Consultant at Independent

March 27, 2012 at 12:01am

Moonshots

Rethink the philosophical foundations of management

Redefine the work of leadership

Stretch management timeframes and perspectives

Summary

In short

Virtuality is only capital intensive in its requirements for real-life server hosts and the infrastructure to provide access to the virtual world. The businesses that invest capital in these real-life enablers are utility providers.
Capital will increasingly gravitate toward utility providers that service the cities of the future.
Consumer spending will continue to shift towards consumption of experiences and away from large “capital item” physical goods, these will be increasingly associated with high-end consumption.
This growing market for experiences will be met by businesses with little or no capital outlay.
“Capitalists” will make sizeable capital investments in a relatively small constellation of businesses that are characterised as utilities.
Concepts of ownership and property will weaken as current business philosophies for de-capitalizing are embraced by consumers, who shift more to a value system based upon experiences rather than ownership of physical property.
The relevance of capital to many emerging businesses will diminish with continued growth in the importance of cash and liquidity.
If capitalism is to survive and prosper in this scenario then we need to “capitalize” the future cash value of experiences, and that I suggest that means valuing process independent of output.

Problem

For the past two decades we have been exhorted to squeeze every ounce of capital from the business - outsource, lease, partner, networks of service providers. Meanwhile over the past decade the global equity markets have become increasingly dominated by algorithmic trading - not only the high frequency variety that dominates the headlines but the more conservative algos of insurance companies and other financial institutions. Bottom line, most management teams in public companies need to ensure that their stock matches all the "right" criteria of algorithms running on computers at or near real time. Surely this is commoditization - a natural evolution of the marketplace but where are the new niches that must emerge if we are to continue to prosper?

Solution

"We need a new form of capitalism for the 21^st century—one dedicated to the promotion of greater well-being rather than the single-minded pursuit of growth and profits; one that doesn’t sacrifice the future for the near term; one with an appropriate regard for every stakeholder; and one that holds leaders accountable for all of the consequences of their actions. In other words, we need a capitalism that is profoundly principled, fundamentally patient, and socially accountable."

First Steps

Capitalism has been focused on cash valuation of outputs for a long, long time. It has built up an impressive armoury of tools to address this aspect of business. Long-term we need to develop tools that value process indepedent of output, we have struggled to do this with "knowledge workers" for the past two decades. Now the problem is more acute as we move to value systems amongst consumers (and businesses) that are based upon experiences rather than ownership of physical property.

I suggest that we gain more traction by focusing on valuation of consumer experiences as we move to an increasingly virtual world. If we see experience as a continuous process rather than a single outcome then many of the lessons learned can feed back into management of knowledge and experience within the business environment - hence enhancing principles, patienceand social accountability in a "capitalist" environment.

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