competition and social value

This week, as we reflect on the future of social innovation, I find myself synthesizing ideas from both our class and my corporate strategy class. I want to share some of that course material, because it has interesting implications for how social innovators view sustainability.

CMU professor Jeffrey Williams’ Renewable Advantage defines three laws of competition:
1. convergence - a firm initially captures value through innovation, and the market converges as competitors imitate the new product
2. alignment - the degree of company-customer fit determines how profitable a firm can be at any given point on the convergence curve, and
3. renewal - a firm must restore its competitive advantage through asset recapitalization and further innovation

The premise is that nothing lasts; value itself is continually being extracted and depleted. So, while the sidebar formula in “New Business Models in Emerging Markets” looks helpful, it is at best a short-term approach. A human-centered design outlook that searches for “jobs being done poorly” is inherently reactive, unconcerned with creating demand. On the other hand, a long-term strategy is proactive and anticipatory, even visionary.

When you are meeting basic needs, perhaps you can afford to be reactive, but only to a point. Eventually, a competitor will surprise you with a solution that changes basic needs and satisfies new ones. If a business model “works,” the market should converge around it until something better emerges.

Compared to the private sector, the social sector often lacks convergent best practices. We think of ourselves as on the same side, which can lead to complacency and mediocrity. Of course, not every worthy endeavor can be profitable or self-sustaining, but we do ourselves a disservice if we aren’t hard-nosed about creating marketable value and competitive advantage. In the future, as social innovation becomes a more crowded multi-sector field, we will need to think in dynamic market terms.

Where does intrinsic value fit into this framework? My opinion is that it doesn’t.* Mulgan defines social value as “the product of the dynamic interaction between supply and demand in the evolution of markets for social value.” In other words, social value is what “someone” is willing to pay for, and the critical job for social market-makers is to match need with willingness to pay. This seems potentially consistent with Williams' framework, where innovation is the mechanism of renewal.

How do you reconcile intrinsic value, dynamic value, and the laws of competition?


*I say this as a former philosophy major who worked at a religiously affiliated, philanthropic nonprofit before coming to business school. Personal value systems are motivating and important. However, they resist quantification for metrics or exchange rates.