Imagine a time machine brought you a few hundred years back in time to a feudal principality in the agricultural age. Upon your arrival, you’re randomly assigned to join one of three traditional social groups: farmers, clerics or warriors. You have to perform the duties associated with your newly assigned role. If you’re lucky, you feel a natural connection with your class, and perform well in your new role. But what if not? Today and in two weeks time, we’re going to explore the societal classes that preserve the traditional order and those that drive change — and how this struggle between stasis and progress perpetually drives the cycles of change in society and business.
Introducing the traditional fabrics of society
For centuries, the three social groups described in our imaginative scenario could be found in most countries:
- The nobility was the first class. They owned and ruled the land. They paid for a standing force of loyal warriors who defended the lands against external enemies, kept the social order and collected taxes.
- The noblemen also sponsored the second class: the clergy and scholars, who provided the nobles with knowledge and counsel, and also gave spiritual consolation to commoners to keep them docile.
- Finally, commoners with many duties and hardly any rights formed the third class. These farmers and craftsmen did all of the menial work and paid taxes to the nobility in lieu of getting security.
Together, these three groups formed a stable, traditional societal system. In every era, we can find similar social groups — for example, had you traveled back only a hundred years to the industrial age, you would see three similar groups: workers, academics, and policemen or soldiers.
Fortunately, the feudal days are long gone, and the industrial age has ended, too. We have passed through the information age and are now entering the innovation economy. This raises an interesting question: What forces have led to the demise of each of the traditional societal models that dominated past centuries? Let’s answer that with the help of TIPS, Thinkergy’s innovation people profiling method.
Introducing the four TIPS bases
Most established personality profiling instruments exclusively use constructs to profile differences in people’s preferred cognitive styles. TIPS adds a new layer on top of these purely cognitive dimensions: the TIPS bases, which can capture both the dynamic, cyclical nature of business and social change, and people’s responses to these changes.
TIPS distinguishes four bases: Theories, Ideas, People and Systems. We are all attracted to one or more of these fundamental base orientations. For example, the entrepreneur and inventor Elon Musk plays exclusively on the ideas base with his bold new ventures, while investment legend Warren Buffet’s success rests equally on two bases: theories and systems.
The three traditional social classes mentioned above relate to the three TIPS bases systems (the nobilities and their warrior class), theories (the clergy and scholars), and people (common farmers and workers). But what if you were forced to work in a role that does not align with your natural base?
Introducing the driving force of change
Let’s expand on our introductory scenario: Imagine you didn’t go back in time alone, but in a group that included Elon Musk and Warren Buffet, both of whom were randomly assigned to work as farmers. What a waste of talent, you may think. Now, while Warren Buffet may accept his fate, Elon Musk will be a troublemaker. Why is that?
There is a fourth social group that complements the three traditional ones. Depending on the historical context, we may call this fourth group merchants, voyagers, capitalists, entrepreneurs, creators, inventors, or pioneers. Elon Musk is one of them. The rebellious people belonging to this fourth group love to shake up the traditional way of doing things. In TIPS, these progressives associate with the fourth base, ideas.
Ideas people have high energy levels, as if change and progress were programmed into their DNA:
- They take up new research and technological progress created at the theories base, and use it to create bold ideas and progressive change in the form of new social ideas or new products and ventures.
- They know how to convince some people from the traditional bases to provide funds for their new ventures, or even better, they have already succeeded before with an earlier venture so that they can fund themselves.
- Finally, they know how to enchant the people base to join their work force and consume their buy their products, earning them with their labour.
In short, people aligned to the ideas base recognize opportunities to transform emerging new technologies into innovative products that they then introduce to the markets. They drive the cycles of change.
Interim conclusion and outlook: In our TIPS Innovation Profiling Workshop, we bring the introductory scenario to life by enacting a game that allows people to experience what it means being assigned one’s right social role — or being stuck in the wrong one.
So how about you? Do you play on a base that feels home for you? Do you see yourself as more of a smart intellectual, progressive entrepreneur, collegial worker, or rule-enforcing cop? Are you someone who stimulates, creates, enjoys or resists change?
Riding the Cycles of Change
Now, allow me give you more insights into how to ride the cycles of change in society and business by looking at the four TIPS bases through another lens: the concepts of evolutionary economics and long cycles of Joseph Schumpeter and Nikolai Kondratiev.
A brief introduction to Schumpeter
Roughly a hundred years ago, the Austrian economist Joseph A. Schumpeter proposed a radically new theory of macroeconomics. Inspired by Darwin’s theory of evolution, evolutionary economics focuses on the non-equilibrium processes —especially technological and institutional innovations— that transform an economy from within and drive the cycles of change:
- Most established industries are in a state of balance and relative stasis — the macroeconomic equilibrium that Schumpeter acknowledged as “the normal mode of economic affairs”, in which a few market leaders dominate the industry. According to Pareto theory (80/20 thinking), around 20% of companies in any industry make around 80% of revenues generated in that industry. Typically, two or three command the highest market shares, two or three follow at a distance, and a myriad of smaller players vie for the balance.
- Over time, new research and new technologies surface. Progressive entrepreneurs and agile ventures operating at the fringes of an established market space recognize these as a business opportunity and pick them up. While the incumbents are preoccupied with “milking the cow”, making incremental improvements and fighting tactical battles for market share, entrepreneurs enter the market space with a truly innovative technology. As Schumpeter emphasized: “Innovations are changes which cannot be decomposed into infinitesimal steps.”
- If the entrepreneurs succeed, their “disruptive technology” upsets the established order of economic life. They become the dominant players of a new market, and the incumbents fall behind.
- Eventually, a once mighty outdated corporation or its flagship business gets acquired or is closed. Schumpeter called this process “creative destruction”, describing it as follows: “The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U. S. Steel illustrate the same process of industrial mutation — if I may use that biological term — that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.”
- Radical shifts in lead technologies disrupt the traditional order of markets and societies, and instigate major social changes. As Schumpeter observed: “Capitalism inevitably and by virtue of the very logic of its civilization creates, educates and subsidizes a vested interest in social unrest.”
- How does the story continue? Over time, a new equilibrium establishes itself in the new industry. The leaders of the now dominating new market eventually become part of the economic establishment and comfortably enjoy the returns of their disruptive innovation — until a new disruptive technology comes along. A new macroeconomic cycle has begun, giving birth to a new industry and a new round of creative destruction of the old.
The long waves of economic change
Schumpeter and the Russian economist Nikolai Kondratiev both observed that major shifts in lead technologies happen in long cycles that flow in waves (known as Schumpeter-waves or Kondratiev-waves). What long cycles and related lead technologies can we distinguish?
Water power, textiles and iron led the first wave (ca. 1785-1845), followed by steam, railway and steel (1845-1900). Electricity, chemicals and automobiles powered the third wave (1900-1950), followed by petrochemicals, aviation, and electronics in the fourth wave (1950-1990). The current fifth wave is driven by digital networks, software, and new media (1990-2020).
What industries will dominate the next wave (2020-2045)? In his book The Sixth Wave, John Moody predicts that resources efficiency and clean technologies will be major drivers.
By the way, have you noticed that the duration of the long waves seems to shorten? And so does the life span of corporations. The cycles of change are accelerating — or to put it in the words of Schumpeter: the incessant process of creative destruction is speeding up.
Evolutionary economics, long cycles and TIPS
Our innovation people profiling method TIPS distinguishes four bases that drive the behavior of individuals and organizations, industries or economies alike: Theories, Ideas, People and Systems. How do the evolutionary economic processes that drive the cycles of change relate to the four bases of TIPS?
- An established industry resting in a macroeconomic equilibrium is Systems-driven. A few mighty corporations dominate the industry and focus on keeping control and defending their commanding market shares. Typically, they are too busy with themselves and their established peers to notice emerging trends on the horizon, thus facing the threat of creative destruction by a new disruptive technology.
- Over time, the Theories base produces new base and applied research that crystallizes in new technologies, the catalyst of transformative change.
- Entrepreneurs and agile ventures at the Ideas base are the first to recognize the market potential of an emerging technology. Thanks to their appetite for both progress and profit, they are willing to undertake both the risks related to investing in the new technology and the efforts to turn it into marketable products.
- Finally, the People base is needed to make a new technology and a related products a market success. People become the consumers of the new technology, paying for it with money earned in an old industry or by switching to work in the new industry.
Over time, the successful entrepreneurial venture grows through the People base and solidifies into a large corporation at the Systems base. A new macroeconomic equilibrium sets in that years later will be unsettled by the start of a new long cycle. And so flow the cycles of change, the incessant economic cycles of creation and creative destruction.
Wanna learn more about our new innovation people profiling method TIPS? Take a look at this video — and contact us if you want to be informed of the launch of our new online profiling platform in a few weeks.
© Dr. Detlef Reis 2016.