I came across a new word recently in my graduate studies that often takes you into the wonderful, if not at times perplexing, world of academic literature…generativity. Now besides being a sophisticated-sounding word that probably gets most of its practical use as a conversation starter, it actually is an interesting concept that got me thinking.
Now if you look up generativity on www.findeverythingyoueverwantedtoknow.com (not a real website), you find a psychological concept about different generations of our society that is actually pretty interesting. But that is not the generativity I am talking about. What I am referring to actually lives in the business literature (specifically entrepreneurship) and focuses on an intriguing concept – the ability for companies that create new innovations to open up new pathways for others to create and capture value. Think about the iPhone; when it came out as a platform, new marketplaces were created where others could build apps and go capture value.
To give some context, let’s take a look at another example that we are seeing right now: electric vehicles. So what happens when a new company like Tesla enters into and totally disrupts the market? Now, obviously, this has an effect on the incumbents. There are only so many people buying cars, and when someone buys an electric car they are not buying a gas car. So, the market share shifts. This tends to dominate the headlines. No surprise. Disruption and innovation is sexy. It is the stuff of legend. Probably a good reason why Elon gets to volley back and forth for the glory of the “most richest” title. The incumbents’ response: well, let’s build some electric cars, too. New pathways open up.
Also, when this new and exciting electric car market is built, other pathways are created, most of which aren’t considered in the beginning. This is the true generativity effect.
New Pathways to Value
For instance, there is an infrastructure that has to be created for electric cars, one that is able to support charging vehicles while not at home or charging when you are out there and need to stop and top off of your batteries. There are the many new parts that go into that infrastructure. The value of those parts and development of infrastructure can be captured by new companies. There are new parts for the vehicles themselves. That also represents a new pathway.
While many parts can probably be repurposed from mechanical brethren, the fact is new parts are created because the car no longer has so many moving parts. There is new hardware and software being created that will require support. Imagine a world where you download an app on your car; that’s a thought not outside of the realm of possibility. There are also parts and infrastructures that are displaced due to shifts in market and demand.
The generativity of the new electric car market is phenomenal. And each of these new pathways of value, and the pathways that are disrupted, have a few things in common: they need to come to market with prices and also manage those prices in a dynamic world.
Having the Right Pricing Tools in Place
The reality is that the generativity effect of new innovations, including ones that bring a whole new industry to market, is huge. The new companies formed in the wake of this phenomenon will still experience many of the pains of going to market as existing companies do, namely the ability to not only create or manage pricing, but to do so in arguably a more fluid way than ever before.
Simply put, these new markets are moving fast, and they need the pricing tools to set, manage, and execute commercially. And news flash? The same thing is needed for the companies that are being displaced. In fact, the need to react and capture as much value as possible in a dynamic way is paramount. The ripple effect of the creation of new markets and industries is huge, and the companies that fare the best will be the ones that have the tools in place to win in the marketplace.