The Economy of Choice
The economy of scale changed how companies were organized and how they competed. They became significantly larger in order to take advantage of standardization and new demands in emerging markets. With higher investments in larger production facilities, organizations had to ask new questions and create new frameworks and methods to ensure the expected returns. These included the pursuit of new ways to manage money, predict markets, identify competition, and operations. Henry Ford’s dealer network and John McKinsey ‘s budget planning framework are two lasting examples.
Overtime, a set of standard questions has evolved, and became readily recognized by any manager who works for any mid- to large-sized company. Higher competition over similar offerings led to faster and cheaper operations designed to produce greater variation in offerings as a mechanism to attract and retain as many customers as it was possible.
Indeed, providing more variety allows companies to come closer to meeting the particular needs of each consumer. But it also leads to fragmented, overly complicated production systems, and to an overconsumption of natural resources due to inefficiency in dispersed operations and excessive number of stock keeping units.
Inventories grow not only increase management complexity in companies, but consumers also become confused by too many choices and confounded by too many functions and features. The 20th century questions that led companies to higher than average profits through greater variety of offerings can no longer guide them in knowing what to make in the 21st century. Notice the questions presented on the diagram set limit to innovation at modest extensions of what currently exists. This leads us to a dilemma called the Innovation Gap.
Innovation Gap
When so many had so little, it was not difficult to know their needs and aspirations and know what to make. However, current production systems, business models, and consumer living patterns are more complex than in the second half of the 20th century. At that time, companies defined themselves by the tight fit among their product mix, use of media and distribution channels. All of these elements were very stable compared to the volatility of today.
Once focused on manufacturing and their customers, companies are now driven by overproduction, with too many offerings for people to understand and organizations to manage. The foggy nature of this leaves them suffering from organizational schizophrenia, as they are not only confused about their users, but often not knowing themselves. Additionally, overabundance of consumer choice creates a new risk: it has become increasingly difficult for producers to know what consumers want and need.
This divergence between greater knowledge of how to produce almost anything and less knowledge of the patterns in users’ daily lives is called the innovation gap.
Awareness of this gap is one of the main reasons that companies are increasingly adopting design. Without proper frameworks to understand what platform to use and which ecosystem join, organizations seek design know-how to reframe what they once thought of as the original problem. They find in design new processes that can lead to better offerings than those currently available. The speed and breadth of Whole View can be useful in this context, as it provides more rigor to innovation processes.
“We know how to make anything, we just don’t know what to make”
COO of one of the three largest mobile phone manufacturers
The increase in knowledge of how to produce things and frameworks for conducting business evolved into overwhelming consumer choice, more complexity in daily life and a decrease in the ability to predict people’s lives. In the 1980s the Innovation Gap was one of the main catalysts of Human Centered Design and Strategic Design.