Chapter 9: Part 1 – Reshaping value systems

Now we know that in traditional organizations it is those “left-brain factors” such as firm “strategy” clear “market share” and “profit” goals and rigorous “scoring models” that hinder “disruptive innovation.” Behind these “aloof” management methods are numbers especially financial data. In traditional organizations the reasons behind various tasks in enterprises are usually financial contributions.

This is not entirely wrong to some extent. Management guru Peter Drucker believes that the purpose of an enterprise is to create customers. Customers cannot be created of course – enterprises create products or services and only good products or services can attract customers. So Drucker is essentially saying that enterprises should create value that customers need. Our society is a value exchange system. In this system enterprises are responsible for value creation and provide products and services to consumers through value exchange venues i.e. markets. Products and services carry value they are value carriers. Consumers realize value by purchasing and using products.

But there is a core issue here which is: “What is value?” In short value is something important to customers or users. But importance itself is quite subjective and difficult to measure. Getting my child into a good school is very important to me. But it has almost nothing to do with you or it’s not important at all. And even if it’s important to me how important is it? This is also difficult to say directly. So we need to make comparisons. Is it more important than buying a house? Or more important than getting promoted? This way we can weigh the pros and cons.

Those ancient social guardians were very smart they found that in order to maintain society a universal intermediary was needed to measure value and this intermediary was “money.” With “money” people can easily exchange goods. This invention was great but not perfect. “Money” became a ruler helping people measure value. But it’s still a subjective measure.

Economist Professor Zhang Weiying said: “We often say that under the market economy there is ‘equivalent exchange’ but this understanding is wrong. If an item has the same value for you and me then the likelihood of an exchange occurring is very small.” Zhang Weiying believes: “Only when there are differences in our evaluation of an item will free trade occur and once trade occurs it creates value for both parties. In this sense voluntary exchange is generally not equivalent but accompanied by the creation of value i.e. the creation of wealth.”

But since society is a system of value exchange it needs rules. And “fairness and justice” are game rules that participants can generally accept. So “money” was packaged as an “equivalent” and became the carrier of “fair and just” “equivalent exchange.” But we know in our hearts that this is actually a lie.

In human history “money” has existed for a long time and we all carefully guard this lie of “equivalent exchange.” Because it’s useful. At least in many cases it’s still useful. Maintaining this lie makes sense for maintaining social order. Although we also know that it’s not always very useful.

Great values always transcend time and space. Confucius’ theory was accepted by kings after his death and was widely spread and guarded the Chinese nation for more than two thousand years. Beethoven’s music also spread all over the world after his death and still touches people’s hearts today. Therefore it’s difficult to use “money” to judge people’s contributions to society. Marx relied on Engels’ relief to complete Das Kapital. Mozart lived in poverty all his life. Nikola Tesla was financially strapped for years while Du Fu was often displaced and destitute. Even if they’re both entrepreneurs you can’t really judge who’s higher or lower between Ren Zhengfei and Liu Qiangdong based on their assets.

Therefore in ancient times people often didn’t use “money” to measure value especially those values that were important for maintaining society. Kings would award “titles” or “medals” to contributors of value. Scholars could also sacrifice their lives for their names even if they were executed ten times over. Religious believers can take three steps one kowtow to go on pilgrimage to holy places. These are all far more important than money.

It’s just that entering industrial society technological development has made goods more abundant. When measuring industrialized goods money does have more advantages. Industrialization actually represented by technology allows enterprises as a new organizational structure to form and develop rapidly. In this process financial management gradually became the core part of enterprise management so money gradually evolved into the protagonist of society People began to use money to replace those previously far more important than money value assessment systems.

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