The Quality of Relationships Defines Business Success
What business textbooks are silent about
Most of what you’ve heard about business strategy is a Big Strategy Lie. They use it to confuse you. Strategy as a concept is much simpler than many think.
Cell phones vs. blockchain
On 3 April 1973, Motorola engineer Marty Cooper was standing on the corner of Sixth Avenue in New York City. He was holding what would later become the first cell phone in history – the Motorola DynaTac 8000X.
He rang a rival at Bell Laboratories. Cooper triumphantly told him he was calling from “a personal, handheld, portable cell phone.”
It took technology at least 20 years to enter our life. But today, even my 85-year-old father has a mobile phone.
In 2008, a person known as Satoshi Nakamoto introduced blockchain.
Seven years later, the world seemed to have gone wild for blockchain. Business prophets and visionaries promised us we would live in a different world soon.
The banks would disappear, they exclaimed, as would real estate agencies.
Supply chains worldwide would improve, they prophesied.
Nothing of that has happened so far. And even tech nerds don’t believe it’ll occur shortly.
Why do we use mobile phones or the Internet yet barely remember what 3D printing, augmented reality, and blockchain are all about?
It is not about technology. It is about its ability to fit into the Value Ecosystem – or change it.
Value Ecosystems
Imagine any large company – Walmart, for example.
What is Walmart?
You can choose various ways to answer this question. But let’s look at it as a Value Ecosystem embedded in two higher-tier Value Ecosystems.
First-order Value Ecosystem
2.1 million employees and shareholders of Walmart found a way to work cooperatively and benefit from it. This is a first-order Value Ecosystem. It creates value for individuals within it in exchange for the value they deliver to it.
Employees benefit from working for Walmart. Walmart benefits from their labor.
Second-order Value Ecosystem
The existence of Walmart wouldn’t make sense if it couldn’t create value for stakeholders outside the organization.
It is nothing without its customers, suppliers, and other business partners – from truck owners to internet providers. Walmart delivers value for them. They yield value for Walmart.
This is the second-order Value Ecosystem, which we usually call a market.
Third-order Value Ecosystem
The first-order Value Ecosystem (Walmart) and the second-order Value Ecosystem (retail market) are both embedded in the third-order ecosystem – society.
People of the countries where Walmart operates, regulators, and watchdogs represent society. They have different requirements, and Walmart can’t ignore them.
Walmart builds value for people even if they don’t work for it or shop there. For instance, it pays taxes. The society and regulators, in return, have no objection to the company’s operation.
Any company – from a small cafe to giants like Google, Walmart, or Tesla- is successful as long as it can deliver value to every element of all three Value Ecosystems and get enough value from them.
Big strategy lie
Economists like to depict the world as a battlefield where powerful “market forces” collide, much like mighty natural elements.
These forces affect the world, they say – from the capital movement principles, economic laws, and seemingly random “trends,” to governments and powerful companies reshaping the world to suit themselves.
A CEO facing ‘market forces’ feels as powerless as our ancient ancestors confronted with lightning and thunder.
AI, ESG, EVs, social trends, fluctuating customer expectations, hybrid work formats, economic downturn, high bank rates, inflation, and breaking supply chains – these are just a few things a CEO should consider.
How can the CEO navigate their business through this endless storm where everything affects everything else, and no law works in any situation?
Don’t you worry, say economists and strategists. We have a perfect tool for you called ‘strategy.’
We don’t have a commonly accepted definition for that. We’ve created a million theories and written thousands of books on strategy – your whole life won’t be enough to read them all.
We offer you deceptively simple frameworks – SWOT, PESTLE, 7S, Porter matrix, VRIO, 5 Forces, BSC, BCG matrix, generic strategies, and the ‘blue ocean’ concept – to name a few.
You’ll never figure out how, when, and why you should use them. But we’ll help you – for a six-figure sum.
We know that up to 70% of strategies fail.
But we are still confident that it works!
No, it doesn’t.
The world as a Value ecosystem
The whole world is a Value Ecosystem. And people inhabit it.
These people have their needs and create value, which they then exchange within the ecosystem for the value they require to satisfy those needs.
For instance, every morning, millions of people go to work. They create value for their employers in exchange for money, which they use to fulfill their needs.
It looks like a huge marketplace where people exchange values.
They often gather in groups, we call them ‘organizations.’ But organizations don’t have their needs, they don’t produce value – people do.
Apple doesn’t want to dominate the smartphone market, but Tim Cook does.
A ‘government’ doesn’t adopt a law, but ministers do.
The same goes for ‘trends.’
If the ESG concept becomes essential, it happens because a group of people wants to change something in the world. If users switch from Facebook to TikTok, they believe the latter can meet their needs better.
It’s all about people, their needs, and the value they want to get and can offer to others.
Every business is an ecosystem of relationships based on needs and values. And people within it interact with those outside it in the higher-tier ecosystems.
To do business means to manage these relationships and interactions. The better these relationships are (so, the more value people deliver and receive), the more successful the business is.
Strategy is a set of measures to improve and develop these relationships.
It’s as simple as that. Of course, it’s easier said than done.
Such technologies as cell phones and the Internet proved their ability to fit the Value Ecosystem. They helped a lot of people fulfill their needs and create value for others.
But too many people, for some reason, couldn’t use blockchain to satisfy their needs. That’s why it isn’t around.
Pro Tips
We have already discussed how you can use this knowledge for your business here and here.
Just to recap:
Every company must deliver value for six groups of stakeholders:
Customers
Employees
Shareholders
Business partners
Regulators or watchdogs
Society
To do so, it modifies and improves its Value Waves (aka business processes) that affect the value.
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In the following article, we’ll dive deeply into the concept of needs and value. And all the subscribers will soon receive the first mini-book on the Value Ecosystem Concept for free. So stay tuned!
Good way of looking at it. No value, no adoption.
I believe there are three basic strategies: influence, align, and avoid. Influence what you can, align with what you can’t, or avoid by making the issue irrelevant.
Thanks for the article.