Chapter 9: Part 2 – Reshaping value systems

However those familiar with “systems thinking” know that things must be reversed and the forces that drive development will eventually often become forces that hinder development. As this book has been emphasizing the accelerated development of technology has also led the value assessment system centered on “money” to collapse step by step.

This problem not only occurs in the social environment but also in the enterprise environment. There are two direct reasons why the traditional financial management system is challenged in enterprises.

We already know that “money” cannot be equated with “value.” It’s just a manifestation of “value” an indicator of “value.” We use “money” as a ruler to measure value. But the problem is that money is a lagging indicator. How much value does a product or project create for our company? At the end of the project financial data is very convincing. We have how much revenue how much profit this can be calculated very clearly.

But experienced product developers all know that when evaluating a new product project financial means often fail. Especially for highly innovative projects for users if they have never seen or used this product before how can they judge its value? Since value cannot be judged how can it be determined how much money will be spent to buy it? Or how many will be bought? Therefore enterprises cannot judge how many customers will buy this product. Therefore in traditional enterprises that rely on financial indicators to make decisions innovative products face many obstacles in the early stages of the product development process. Because financial data is unclear or even unable to enter the research and development stage. Even if it can be established it often fails due to unattractive financial data and does not receive enough support. In Christensen’s theory the most important feature of “disruptive innovation” is low price. Christensen attributed it to technical performance. But low prices are not entirely due to technical performance to some extent. In many cases low prices are caused by value recognition barriers. It’s the result of blocked minds. That is at this time the value that users can recognize is not the value that the product will really create for them in the future. Therefore using financial data to evaluate the value of new products is neither possible nor correct.

This problem was not prominent in previous business environments because when technology development was not fast we had remedies. For the automotive industry it took several hundred years from the start of the first product to maturity. In such an environment we can try to make one generation of products put it on the market if consumers accept it they buy it and there will be financial data. This shows that product value has been recognized. We can develop generation after generation.

But the problem is now technology has accelerated and the old “script” can’t be used anymore. Enterprises can no longer wait until products are retired before making judgments like they used to. The market no longer gives enterprises many opportunities to make mistakes. For smartphones from the appearance of iPhone to market maturity there are only ten years. If you take a wrong step at first you may lose your first chance your market share and your mental positioning. As powerful as Microsoft once it makes a mistake it can only admit defeat in front of market rules (actually human “mental models”) and withdraw from the smartphone market.

As a lagging indicator “money” this ruler is now out of order so innovative practice tells us that we need a new ruler a leading indicator that can evaluate value in the early stages of innovation.

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