Systems create capital – examples

Productive Thinking

Systems create capital – examples

Managers have two main ways of learning:

  • Applying generalised business models to their situation such as the virtuous systems interaction model introduced in the previous issue of Productive Thinking.
  • Adapting examples of the application of a framework to a specific situation.

Key thoughts

  • Alternating between a generalised model and concrete examples fuels innovation.
  • Usually, a series of chained systems are required to convert capital from one form to another.

The capital creation matrix

Because there are six types of capital, there are 36 possible types of capital conversion, as shown in the following matrix. For this matrix to have practical relevance, each cell must have at least one example of how a chain of systems converts capital from one form to another. I’ll describe a few examples from my collection in this newsletter. Please contact me if you are interested in specific conversions or would like help building a family of examples appropriate to your business.   

Capital creation options

From\toEconomicHumanNaturalOrganisationalSocialSymbolic
Economic      
Human      
NaturalGoldcorp     
Organisational      
Social     Smart cars
Symbolic      

Goldcorp (natural capital → economic capital)

In 2000, Rob McEwan, CEO of Goldcorp, a gold miner with headquarters in Vancouver, Canada, assessed that the company’s underground mine in Ontario had untapped potential. It produced about 50,000 ounces (~1,400 kg) annually at the hefty cost of USD 360 per ounce (~ AUD 20 per gram). Company geologists were unsure of the precise location of the best gold seams. 

The CEO decided to share openly the mine’s 400 Mbytes of geological data and offered a prize of USD 575,000 (~ AUD 875,000) to the best solution revealing gold in the ore body. Launched in March 2000, the competition attracted over a thousand submissions in a few weeks.

The winners were a partnership of two Australian firms who developed a 3D map of the mine revealing more than 110 sites, with 80% indicating significant gold reserves. The competition reduced exploration time by two to three years, and the value of gold extracted by late 2009 exceeded USD 6 billion (~AUD 9 billion).

Goldcorp lacked an adequate system of inquiry, and often a firm discovers that the gold, literally in this case, is in its system of inquiry. Fortunately, in a networked economy, systems of engagement enable the rapid sharing of data sets to take advantage of experts with powerful systems of inquiry. Such access, however, is worthless without a detailed system of record to fuel the system of inquiry.

Geological surveys (systems of production) created a geological dataset (a system of record) that was shared electronically (a system of engagement) and processed by specialised mining software (a system of inquiry) to create a precise model of the gold seams in the mine (a system of framing) and extracted the newly identified gold (a system of production).

Production → Record → Engagement → Inquiry → Framing → Production

Smart car (social capital → symbolic capital)

Because of social media, brands are often co-invented with customers. Gone are the days when an organisation could precisely manage its message because it controlled communication with its customers (e.g., TV and magazine ads). Customers can now shape an organisation’s brand through their social media postings.

Many organisations have listening rooms to monitor and respond to comments on social media. Smart’s ad agency spotted a witty post: “Saw a bird had crapped on a Smart Car. Totaled it”.

Smart USA investigated the claim and published a clever infographic in response.

Smart's clever response

Social media followers are social capital. Organisations aspire to have many existing and potential customers read their posts. They also seek to attract positive comments that reinforce their branding efforts. The goal is to convert social capital into economic capital via orders for products and services. As a rough rule, an organisation’s social media strength, such as the number of followers and positive posts, will correlate with revenue.

Organisations also want to create symbolic capital by promoting their brand and reputation. They typically aim to convey the perception that their products are of the highest quality, more exclusive, or state-of-the-art. The goal is to get a premium price.

Social capital generates a customer, and symbolic capital generates a premium price.

Smart was very clever as it recognised an opportunity to use a witty response to transform social into symbolic capital. Its agency’s system of inquiry, the listening room that mines social postings in real-time, identified the opportunity. The folks at Smart were able to craft a clever retort, framed as an infographic, and post it to its social media followers (system of engagement). Smart created a memorable meme — a smart company markets Smart cars.

Inquiry → Framing → Engagement

Critical reflections

  • Do you have competency gaps in your portfolio of systems?
  • Do you have someone in your organisation responsible for scanning to identify relevant capital conversion opportunities?
  • Have you mapped your essential capital conversion processes as a series of connected systems?

Rick Watson

Research Director

Digital Frontier Partners

Regents Professor & J. Rex Fuqua

Distinguished Chair for Internet Strategy

Emeritus, University of Georgia

Email

Comments and conversations are welcome.

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