On "Better than Free" and other similar West Coast economic concepts
Kevin Kelly
http://www.kk.org/thetechnium/archives/2008/01/better_than_fre.php
and Chris Anderson
http://itc.conversationsnetwork.org/shows/detail3328.html
have taken Stewart Brand's old maxim "information wants to be free*" and updated it for the specfics of our time. Now it's technology that wants to be free, in the form of ever-cheapening of goods, tools, manufactured items, etc. They want us to consider how to treat economic realities whereby what once you could get paid appreciably for something, now the value potential of that same thing erodes toward zero. Particularly, they want us to see this change as liberating rather than terrifying.
There is of course a consumer side to this picture and a producer side. The consumer side is the promise of the new economy "thanks to outsourcing Americans can enjoy low low prices" and "music is free, why should I pay for it?". Questions about the morality of participation in the world as it is are a different discussion. The mechanism must be understood before any well-informed moral decisions can be made.
On the consumer side, the main question is "how do I get stuff free?" Where it gets interesting is "with lots of free or cheap stuff out there, what is valuable to me?" This question is even more
interesting to marketers and producers.
The general position of Kelly and Anderson, after Benkler (http://www.benkler.org/), is that producers must learn what to give away free that will generate attention, interest, and ultimately cash flow.
With music this can be understood (from a consumer perspective maybe easier than from a creator's view) easily: you make some digital content, you put it up on your web site or MyFace page, people download it, and if you have a gig coming up in their town, they know to show up and start kicking down. The key is not the cost of production of the free content, but that the distribution cost is the same for one or one million copies. With washing machines, cars or other manufactured items with high per-copy costs the idea is less easy to grasp.
The shift in thinking that needs to occur comes straight from the manufacturing world. Womack and Jones' "Lean Thinking" (http://books.google.com/books?id=LMI9w2i9WyYC&dq=lean+thinking&pg=PP1&ots=Y9nn5cUWwG&sig=kRXSJOXjX4kpj4ywlsuKkqAZWzE&hl=en&prev=http://www.google.com/search?q=lean+thinking&ie=utf-8&oe=utf-8&rls=org.mozilla:en-US:official&client=firefox-a&sa=X&oi=print&ct=title&cad=one-book-with-thumbnail#PPA2,M1)
details how cost-cutting is the wrong focus for saving money, rather the solution is to eliminate the wastes that make old "economies of scale" rationales appear attractive, favoring instead a new diversified competitive networked economy. The difference between cost and waste seems trivial at first, but it is not. To see this, consider that you are a car builder. The primary cost in manufacturing is labor. So, reasons the cost-cutter, cut back on labor. Bust the unions, outsource the skilled trades, outsource all the labor for that matter. We've heard this familiar story before. What happens? Cost-cutting General Motors loses market share to waste-reducing Toyota, who views their labor force as integral to what they do, partners in the elimination of waste from manufacturing processes.
The problem with the cost-cutting mentality is not that it tries to save money but that it fails to see deeply enough into the operations it governs, and by equating "cost" with "bad" lumps all expenditures in the "bad" bucket (excepting those thought essential to doing business, such as executive salaries) and despite the amount of time wasted conjecturing possible returns on investment always comes to the conclusion that "if cost then bad", from assumptions "production equals cost" and "cost accounting is free"
Where cost is always a function of financial measurement, waste can occur in many forms, and is sometimes not measurable. Overproduction to compensate for anticipated shortages is one type of waste, understaffing of vital operations is another. It is not so important to define what is and is not waste, except to understand that what delivers value (i.e. desired product or benefit) to a consumer is not waste. If a washing machine maker produces the washing machine I want, that cleans my clothes, works reliably for years, and uses power and water efficiently (my personal value aesthetic), and that washing machine is available for me at a price I can afford, that's value.
What the manufacturer does to get me the washing machine I want at a reasonable price produces value, because I buy the washing machine. If their company is losing money and gives their executives bonuses for closing a plant, that's waste, because I get no washing machine from that.
The prescription instead for turning around a wasteful operation is different everywhere, but it comes down to a few common principles:
1. Reduce specialization, increase generalization. Make your workers and work centers able to do more different things. Reduce the time required to change from one operation to another. Do not rely on big expensive solutions that do only one thing. Pursue flexibility.
2. Everyone is involved. Treat suppliers, workers and customers as partners in the shared collective activity of delivering value to customers. Antagonism and secrecy may produce security for the individual, but produces no value for the next person down the line.
3. Do not try to implement an ultimate solution for everything. Instead, work with what you have, and make improvements from the inside out.
This is how to make products that approach free. But it's only the first part of the whole discussion. The nagging question about "free" is "how do you get paid?"
The worst part of the question is that if all manufacturers were to attack waste and become more efficient you'd start to have huge overcapacity problems. Even if money-losing operations were to become sustainable without overproducing, you'd ultimately have lots of untapped ability that some cost-cutting type would think could be done without, and without new markets developing macro-demand would be flat. In some areas, like power generation, redundancy provides insurance against capacity loss in other parts of the system. In durable goods production, probably not. And there's the problem with the "free-for-all" posited by the new economists.
*the rest of the statement is "and it also wants to be very expensive - SB"
Kevin Kelly
http://www.kk.org/thetechnium/archives/2008/01/better_than_fre.php
and Chris Anderson
http://itc.conversationsnetwork.org/shows/detail3328.html
have taken Stewart Brand's old maxim "information wants to be free*" and updated it for the specfics of our time. Now it's technology that wants to be free, in the form of ever-cheapening of goods, tools, manufactured items, etc. They want us to consider how to treat economic realities whereby what once you could get paid appreciably for something, now the value potential of that same thing erodes toward zero. Particularly, they want us to see this change as liberating rather than terrifying.
There is of course a consumer side to this picture and a producer side. The consumer side is the promise of the new economy "thanks to outsourcing Americans can enjoy low low prices" and "music is free, why should I pay for it?". Questions about the morality of participation in the world as it is are a different discussion. The mechanism must be understood before any well-informed moral decisions can be made.
On the consumer side, the main question is "how do I get stuff free?" Where it gets interesting is "with lots of free or cheap stuff out there, what is valuable to me?" This question is even more
interesting to marketers and producers.
The general position of Kelly and Anderson, after Benkler (http://www.benkler.org/), is that producers must learn what to give away free that will generate attention, interest, and ultimately cash flow.
With music this can be understood (from a consumer perspective maybe easier than from a creator's view) easily: you make some digital content, you put it up on your web site or MyFace page, people download it, and if you have a gig coming up in their town, they know to show up and start kicking down. The key is not the cost of production of the free content, but that the distribution cost is the same for one or one million copies. With washing machines, cars or other manufactured items with high per-copy costs the idea is less easy to grasp.
The shift in thinking that needs to occur comes straight from the manufacturing world. Womack and Jones' "Lean Thinking" (http://books.google.com/books?id=LMI9w2i9WyYC&dq=lean+thinking&pg=PP1&ots=Y9nn5cUWwG&sig=kRXSJOXjX4kpj4ywlsuKkqAZWzE&hl=en&prev=http://www.google.com/search?q=lean+thinking&ie=utf-8&oe=utf-8&rls=org.mozilla:en-US:official&client=firefox-a&sa=X&oi=print&ct=title&cad=one-book-with-thumbnail#PPA2,M1)
details how cost-cutting is the wrong focus for saving money, rather the solution is to eliminate the wastes that make old "economies of scale" rationales appear attractive, favoring instead a new diversified competitive networked economy. The difference between cost and waste seems trivial at first, but it is not. To see this, consider that you are a car builder. The primary cost in manufacturing is labor. So, reasons the cost-cutter, cut back on labor. Bust the unions, outsource the skilled trades, outsource all the labor for that matter. We've heard this familiar story before. What happens? Cost-cutting General Motors loses market share to waste-reducing Toyota, who views their labor force as integral to what they do, partners in the elimination of waste from manufacturing processes.
The problem with the cost-cutting mentality is not that it tries to save money but that it fails to see deeply enough into the operations it governs, and by equating "cost" with "bad" lumps all expenditures in the "bad" bucket (excepting those thought essential to doing business, such as executive salaries) and despite the amount of time wasted conjecturing possible returns on investment always comes to the conclusion that "if cost then bad", from assumptions "production equals cost" and "cost accounting is free"
Where cost is always a function of financial measurement, waste can occur in many forms, and is sometimes not measurable. Overproduction to compensate for anticipated shortages is one type of waste, understaffing of vital operations is another. It is not so important to define what is and is not waste, except to understand that what delivers value (i.e. desired product or benefit) to a consumer is not waste. If a washing machine maker produces the washing machine I want, that cleans my clothes, works reliably for years, and uses power and water efficiently (my personal value aesthetic), and that washing machine is available for me at a price I can afford, that's value.
What the manufacturer does to get me the washing machine I want at a reasonable price produces value, because I buy the washing machine. If their company is losing money and gives their executives bonuses for closing a plant, that's waste, because I get no washing machine from that.
The prescription instead for turning around a wasteful operation is different everywhere, but it comes down to a few common principles:
1. Reduce specialization, increase generalization. Make your workers and work centers able to do more different things. Reduce the time required to change from one operation to another. Do not rely on big expensive solutions that do only one thing. Pursue flexibility.
2. Everyone is involved. Treat suppliers, workers and customers as partners in the shared collective activity of delivering value to customers. Antagonism and secrecy may produce security for the individual, but produces no value for the next person down the line.
3. Do not try to implement an ultimate solution for everything. Instead, work with what you have, and make improvements from the inside out.
This is how to make products that approach free. But it's only the first part of the whole discussion. The nagging question about "free" is "how do you get paid?"
The worst part of the question is that if all manufacturers were to attack waste and become more efficient you'd start to have huge overcapacity problems. Even if money-losing operations were to become sustainable without overproducing, you'd ultimately have lots of untapped ability that some cost-cutting type would think could be done without, and without new markets developing macro-demand would be flat. In some areas, like power generation, redundancy provides insurance against capacity loss in other parts of the system. In durable goods production, probably not. And there's the problem with the "free-for-all" posited by the new economists.
*the rest of the statement is "and it also wants to be very expensive - SB"
posted by rich solomon at 9:17 AM
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