• 14 Oct 2002
  • Research & Ideas

The Widening Rift Between Corporations and Society

Managerial capitalism is hanging on by its fingertips, say James Maxmin and HBS professor Shoshana Zuboff. In this e-mail interview with HBS Working Knowledge and in an excerpt from their new book, The Support Economy, the authors lay out the problem and offer savvy solutions for business and consumers.
by Martha Lagace

Society is evolving and it is leaving business behind, say HBS professor Shoshana Zuboff and James Maxmin. In their new book, The Support Economy: Why Corporations are Failing Individuals and the Next Episode of Capitalism, they address this very issue and offer some bold solutions. Below, they field questions from HBS Working Knowledge senior editor Martha Lagace in an e-mail interview.

Lagace: In The Support Economy, you make the case that managerial capitalism, invented a hundred years ago, desperately needs an overhaul. How and why do you believe managerial capitalism is failing people now?

Zuboff and Maxmin: A century ago mass consumption was on the rise. People wanted more things. The answer was to produce more goods at an ever-lower cost—mass production. Corporations were organized around a managerial hierarchy invented to provide a tight inward focus on the increasingly complex processes of production and distribution. This was a massive innovation over the older model of a single owner who tried to oversee everything. Under managerial capitalism, ownership became dispersed, but control remained concentrated in the management group.

The evolution from one episode of capitalism to another is a normal historical process.
—Shoshana Zuboff and James Maxmin

Management's inward focus allowed it to succeed beyond anyone's dreams. But that success further insulated managers from the society they were supposed to serve. The elite hierarchy and the self-interested male culture of management became a central focus. This organizational narcissism not only produced the Enron effect, but it cost managers a front-row seat in a changing society marked by the dramatically different yearnings and needs of its own end consumers, especially women.

It also prevented them from grasping the revolutionary potential of the new digital medium. As a result, corporations have failed to adapt to the true nature of their markets in the twenty-first century. Organizational change programs, visionary leadership, or increased regulation cannot fix this situation. The problem runs deep in the structure of managerial capitalism.

Our book addresses this growing chasm between today's people and the organizations upon which they must depend for consumption and employment. The last fifty years have seen the rise of a new society of individuals, but corporations continue to operate according to the logic of managerial capitalism, invented a century ago for different people, different markets, and different needs. The chasm that now separates individuals and organizations is marked by frustration, mistrust, disappointment, and even rage. But that chasm also harbors the possibility of a new era of wealth creation and a new episode of capitalism.

People's desires, needs and wants have radically changed, but corporations have remained distant and indifferent to the true nature of this change.
—Shoshana Zuboff and James Maxmin

The evolution from one episode of capitalism to another is a normal historical process. Just as mercantile capitalism was displaced by proprietary capitalism, and that new form was later displaced by managerial capitalism, it makes sense that managerial capitalism will be displaced by a new, more comprehensive form that better serves today's populations.

Capitalism's capacity to evolve and its incredible versatility have proven to be the single most important source of its robustness and success. In fact, capitalism has avoided devastating crises not because it is fixed, but because it changes. Each historical episode of capitalism has a limited range of adaptation, however. As markets and technologies undergo historic change, so too must the current model of capitalism.

Each new episode of capitalism emerges from the complex interplay of three forces: (1) New human yearnings that create a new approach to consumption and new kinds of markets, (2) technologies capable of addressing the demands of the new markets, and (3) a new enterprise logic that can link employees, technologies, and markets in new ways.

Today's environment holds the potential for these three forces to converge once again.

First, in the last fifty years, a new society of individuals has emerged. There has been a psychological reformation as powerful and decisive as the religious reformation of the sixteenth century. Today's individuals seek psychological self-determination. They are the origins of their own meanings, not a passive mass audience. This new phenomenon is expressed in myriad ways, from the success of the Vietnam Memorial Wall to the proliferation of laws extending human rights in every domain. The new individuals have plenty of things. They have access to plenty of services. But they now yearn for something that corporations have not perceived, let alone put on offer: the kind of support that will enable them to live the lives they choose.

People's desires, needs and wants have radically changed, but corporations have remained distant and indifferent to the true nature of this change. As a result, we have a business environment in which people are chronically disappointed and frustrated by their experiences as consumers and employees. We no longer trust large organizations to serve our needs. On every level, we are experiencing a divisive "us vs. them" mentality.

Now, after decades of being forced to put up with the consequences of corporate indifference, individual end consumers are striking out on their own to blaze new trails in a new approach that we call the individuation of consumption. They want to be treated as individuals, not as anonymous transactions in the ledgers of mass consumption. They want to be heard and they want to matter. They no longer want to be the objects of commerce.

Instead, they want corporations to bend to their needs. They want to be freed from the time-consuming stress, rage, injustice, and personal defeat that accompany so many commercial exchanges. They seek advocacy in place of adversarialism, relationships in place of transactions. They want to take their lives in their own hands and they are willing to pay for what we call the deep support that will enable them to do so. These new markets for deep support are an important force in the shift from an industrial or service economy to a support economy.

The second of the "three forces" is represented by the new digital medium whose networked intelligence, flexibility, ubiquity, and complexity make it ideally suited to meeting the demands of the new markets for deep support. Until now, though, it has been bent to the purposes of the old consumption, according to the principles of the old capitalism. The new medium will not fulfill its historic destiny without a new enterprise logic capable of liberating its revolutionary potential.

The presence of new markets and new technologies create the urgent need for a third force: a new enterprise logic capable of marrying the new markets for deep support and the new capabilities of the digital medium.

The fire is laid. What's needed is the match. Many people already sense that there must be a better and more relevant way of doing capitalism. The search is on for a new enterprise logic that will fundamentally alter the orientation, purpose, and economics of commerce. The Support Economy is intended to contribute to that search as it invites discussion of a new enterprise logic that we call distributed capitalism. Watch the flames when these three forces finally combine. That will mark the real discontinuity between the economy of the twentieth century and that of the twenty-first.

Q: You have drawn on other fields in addition to business, such as history, science, even contemporary architecture. Why did you decide to look outside business for answers to issues of capitalism?

A: Think of a Russian doll. Business is inside capitalism, but capitalism is inside society, and society is inside history. The forms that capitalism takes in different eras reflect the social changes that ultimately shape markets.

In our chapter called "Rediscovering the End Consumer, Over and Over Again" we show how most "new" business concepts are simply self-referring. They do not move beyond the rules of a certain way of doing capitalism, and therefore they cannot possibly alter the problems they target. Instead, just the opposite occurs—the status quo overpowers new ideas and turns them into variations on the same old themes. That is why every innovation from quality circles to reengineering to customer relationships turns out to be another road to cost reduction.

The status quo overpowers new ideas and turns them into variations on the same old themes.
—Shoshana Zuboff and James Maxmin

To get outside this vicious circle, it is necessary to understand the ways in which today's capitalism grew out of the social conditions that existed more or less a century ago, and thus the ways in which a new capitalism, what we call distributed capitalism, can grow out of the social conditions that exist today.

Who are today's people? What are their dreams? What do they yearn for? The answers to these questions do not exist inside business but everywhere else. They are inscribed in our culture in thousands of ways, many of which we discuss—master bedroom suites, home schooling, the passion for genealogy, extreme sports, organic foods, alternative health, and the profound popularity of the Vietnam Memorial Wall.

Capitalism will find its renewal in these social realities, not in spite of them. To quote The Grateful Dead, "Once in a while you get shown the light in the strangest of places if you look at it right."

Q: In your book you emphasize the difference between self-support and what you call deep support. All our readers understand self-support: ATMs at the bank, automatic check-in with e-tickets at the airport. What is deep support, in a nutshell? How will concerns for privacy affect the use of deep support?

A: Deep support, as we describe in our book, is an entirely new way of thinking about commerce. In the support economy, the very purpose of commerce is redefined around the objective of supporting individuals.

Deep support is not just an enhanced version of conventional customer service. Nor can it be reduced to a flow of goods. Instead, products and services merely punctuate the ongoing relationships between individual end consumers and the new federations of enterprises that support them. Deep support is the "meta-product" under which all aspects of commerce are subsumed.

Deep support means "getting my life back." In order to provide this, deep support means that commercial entities absorb both accountability and responsibility for every aspect of the consumption experience. Deep support enables psychological self-determination. It produces time for life. It facilitates and enhances the experience of being the origin of one's life. It recognizes, responds to, and promotes individuality. It celebrates intricacy. It multiplies choice and enhances flexibility. It encourages voice and is guided by voice. Deep support listens and offers connection. It offers a collaborative relationship defined by advocacy. It is founded on trust, reciprocity, authenticity, intimacy, and absolute reliability.

Deep support can be scaled and configured in infinite ways to suit each individual's style, predilections, tastes, and choices. People will determine what qualities of deep support and self-support they desire at any given moment. They can opt into federations that provide what they seek, and their choices can change as they themselves change. Right now, self-support is the best option we have to avoid the adversarialism of what we call the transaction crisis. But self-support takes a lot of time. In a commercial world based on advocacy instead of adversarialism, our choices will change.

In a networked world, privacy concerns can never be completely overturned. In today's world, we are each on our own. We must each be vigilant to protect our right to privacy. We have to worry about protecting ourselves from the people who sell us things as well as those who employ us.

But in the world of distributed capitalism that we describe, federations are advocates who utilize technology to ensure individual privacy. In this world, the system works in favor of privacy, not against it. The distributed imperative we describe recognizes that all value is located in individual end consumers and all cash flows from their needs.

These principles are operationalized in the practical dictate that no cash is released into the federation until the individual end consumer pays. A consequence of this kind of practice is that violations of trust and advocacy are likely to result in non-payment. Enterprises that violate such relationship requirements would simply be dropped from profitable federations.

Q: You have written that e-commerce in the recent boom years failed "not because it wasn't revolutionary, but because it wasn't revolutionary enough." In your view, there is "truly explosive economic potential" awaiting businesses that can marry new digital technologies with a new logic of capitalism. What kinds of businesses and services do you think could be first in line?

A: Exactly how distributed capitalism will emerge and develop will be an adventure in society—wide experimentation, innovation, creativity, risk-taking and execution not experienced since the early part of the 20th century. It will not happen overnight but rather over decades, as in the case of the evolution and refinement of managerial capitalism.

In the early stages of this new movement, we anticipate major efforts to reduce fragmentation, bundle goods, services and information, and reconfigure activities and industries that today are separated by artificial boundaries.

We have already seen entrepreneurs explore some of this territory with ventures aimed at home delivery, portals, concierge services, and the integration of business processes, as in the case of Internet banking. We expect these efforts to be further refined and developed. We also anticipate that anything that can be automated will be automated. Systems and process that once could not "talk" with one another will be integrated.

The automation and integration of these functions and processes are likely to lead the merger of such activities as logistics and financial services. This can provide large-scale platforms with common protocols (the precursors of digital platforms and what we call infrastructure convergence) that will begin to unite the physical and digital world. (UPS has already made significant strategic moves in this direction.)

Other early moves are likely to involve the reconfiguration of fragmented and mutually adversarial businesses that dramatically suboptimize wealth creation. The classic examples are in the broken business models of transportation and health care. For example, all aspects of travel (e.g. airports, flights, hotels, car hire, rebooking, monitoring payments, etc.) can be integrated into a single stream of activity that not only centers on individual support, but that can finally make money.

With health care, the fragmented and adversarial activities of insurers, practitioners, hospitals, etc. can be integrated in new ways that actually support individuals seeking care, while wringing out the massive replication of administrative effort across these enterprises.

Exactly how distributed capitalism will emerge and develop will be an adventure in society —wide experimentation, innovation, creativity, risk-taking and execution not experienced since the early part of the 20th century.
—Shoshana Zuboff and James Maxmin

Both of these examples are illustrated and expanded in our book in the case of the Acero family.

Q: Professor Zuboff, in your previous book, In the Age of the Smart Machine: The Future of Work and Power, you wrote eloquently about the advent of computers in the workplace for individuals, organizations, and society. In 1988 you wrote, "Choices that appear to be merely technical will redefine our lives together at work." As you and James Maxmin researched and wrote The Support Economy, how did you feel about the way in which technology has entered the workplace, and about the ways in which organizations have been using it both for customers and employees?

A: In my last book I described the difference between using new information technologies to automate and to informate. Automation strategies stress labor substitution and cost reduction. Informating strategies stress information diffusion for effectiveness and added value.

There is little doubt that companies have invested far more in automating than in informating. Consumers have been forced to conform to the rigors of automation as they track their own packages, make their way through infinite branches in automated telephone systems, waste their time waiting for call center operators, and so on. We write about this state of affairs in our chapter in The Support Economy called "The Transaction Crisis."

Cost reduction has continued to be the dominant strategy under managerial capitalism because new sources of wealth creation are increasingly elusive. That very problem is the target of The Support Economy. It illustrates the exhaustion of the current model, but also identifies the unmet needs of today's individuals as the epicenter of a new wave of wealth creation.

About the Author

Martha Lagace is senior editor of Working Knowledge.