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The value we currently capture is just the tip of the iceberg

" Thankonomics © "

Over the next few weeks, I will present the Thankonomics concept that challenges the fundamentals of business and economics. Thankonomics. We try to create value, money and quality every day, spending our lives in organisations trying to increase them. But what do these words really mean? This is not some academic exercise but something that profoundly affects us all every day. What is shocking is that most of us have no idea of the truth behind these simple words but crucial concepts. Thankonomics will deeply change our perceptions and assumptions. All organisations try to create value but only commercial ones get valued. What would happen if all organisations are measured on the same scale? The economy would grow dramatically (without inflation), poverty would essentially disappear, people would be paid fairly, they would be measurably happier, the demands on the environment an integral part of value assessment. Is this possible? If Thankonomics is carried to its full consequences it will result in the largest paradigm shift since the invention of the coin.

Value is currently described like, the six blind men defining an elephant

" Thankonomics © "

Thankonomics. We try to create value, money and quality every day, spending our lives in organizations trying to increase them. But what do these words really mean? This is not some academic exercise but something that profoundly affects us all every day. What is shocking is that most of us have no idea of the truth behind these simple words but crucial concepts. Thankonomics will deeply change our perceptions and assumptions. What is Value? A simple question for a simple word. However, the underlying consequences and repercussions of clearly defining this most basic expression are far-reaching and profound. Currently, when we attempt to define it, we are rather like the 6 Indian blind men touching an elephant. Each holds a diffident part of the animal and gives an accurate description, one holding the trunk describes how the elephant is flexible and spongy, the one holding the ear describes the elephants as being like a large sheet of leather, another holding a leg defines the animal rather like a tree trunk, each blind man is giving an accurate description but missing the overall picture. So it is with defining value, we can all describe lots of facets of value, but not the whole concept.

Accounting assesses value at the point of sale, mathematics defines value, as the value within a number, Economics defines value as approximately utility- perceived satisfaction, marketing can define value as the amount someone is willing to pay, the HR department, the value is the contribution someone makes to organizational output, an employee defines value as what does the organization do for me, in non-commercial organizations value, if measured, is crudely assessed in an approximate contribution to their society, The seller sees the value in the profit, the buyer may see the value not in price but in the quality (another simple word with a profound meaning) Then there is the list of personal and social values.

Hopefully, you see the point, the range of descriptions, we have over such a simple everyday word, each definition is more or less right in its context but we struggle to find an overall definition. I repeat this is not an idle academic exercise but one that will have that will really change your perception of society and how it operates. To continue So what is value what is the single thread going through all these definitions? To use an in fashion phrase “ What is the holistic view” of the elephant (value).

Two kinds of value

" Thankonomics © "

The revolutionary paradigm change for Value, Money and Appreciation.
Over the next few weeks, I will present some of the principal underlying Thankonomics concepts that challenge the fundamentals of business and economics

What is shocking is that most of us have no idea of the truth behind these simple words but crucial concepts. Thankonomics will deeply change our perceptions and assumptions.

Two kinds/methods of assessing or referring to value, the fact (non subjective) and the subjective assessment .
If you analyse all the forms of Value that we refer to we can categorise them in two forms. Value the number (Non Subjective) value and subjective value.
The first kind of value is a statement of fact. A number, an invariable statement, it requires no human assessment. The value of 9 will always represent 9 units unless a mathematical operation occurs to it. This is how the financial services largely see value. It is precise and irrevocable.
The second kind of value is subjective value, this is highly variable and reliant on our human perception, it changes according to an individual’s unique perspective. The cup is half empty or half full is totally subjective. A piece of art may have great value to one person and have no value to another
It is this second kind of value that is the core purpose of Business. If a business is not perceived as producing value it will inevitably go out of business. It is the sensation of value that makes us want to Take a purchase decision, Repeat and Recommend (TRR) it. The effect of TRR occurs when our expectations are exceeded.

Background Publications

" Thankonomics © "

The revolutionary paradigm changes for Value, Money and Appreciation Thankonomics.

We try to create value, money and quality every day, spending our lives in organizations trying to increase them. But what do these words really mean? This is not some academic exercise but something that profoundly affects us all every day.
What is shocking is that most of us have no idea of the truth behind these simple words but crucial concepts. Thankonomics will deeply change our perceptions and assumptions. Over the next few weeks, I will present some of the principal underlying Thankonomics concepts that challenge the fundamentals of business and economics.
In 1997 A team working at Cambridge University first discovered a basic motivation system present in most vertebrates that resulted in the Reward Prediction Error.
Designed to keep the animals focus on survival, the system motivates the vertebrates with a dose of dopamine into the Nucleus Accumbens (a reward centre in the base of the brain) each time it underestimated the result (the Reward for making a Prediction Error)i.e. or put the other way around, the reward for exceeding its own expectations.
To give a scale of power of this reward mechanism in 1954 a rat had its brain wired to a lever. Each time the rat hit the lever; a pulse was sent down the wires making the brain release a dose of Dopamine into the rat’s brain reward center. As soon as the system was activated, the rat ceased all other activity, including eating and drinking and concentrated on hitting the lever until it collapsed from exhaustion.

Further research has shown that the release of dopamine via this motivation mechanism to be directly proportional to the scale of the error or the excess over expectations.

Reward Prediction Error is the biological explanation of Value. The motivation to make a purchase decision comes down to a release of dopamine that occurs not for getting the answer right but for exceeding expectations.

The value in value occurs during the process of making a decision, an assessment is made as to what the animal is willing to relinquish (to price or appreciate (the word appreciation comes from the Latin ‘A preciar’ to price)). In the case of the wired rat, the dopamine release was such that pushing the lever was (priced/appreciated) above all other choices.

To conclude the sensation of value comes from the amount of dopamine released into the Nucleus Accumbens as a result of exceeding expectations. This amount has been found to be directly proportional to the excess over expectations.

Most people have no idea of this research and hence what is the definition of (subjective) value. The case for a major paradigm change is here. Welcome to the new concept ‘Thankonomics’.

If you don’t appreciate something it has no value

“A piece of art only holds the value you give it”

What the biologists have discovered is that all the types of subjective value are placed on the same relative scale and are evaluated or appreciated according to the individual’s unique preference.
Value is the act of appreciation. It is the appreciation of the excess over expectations that makes us want to constantly try something new, to innovate and its natures method to keep the species focused on its survival. If you take appreciation and or gratitude out of the action or decision, the action stops.

Satisfaction as defined by economics is an acceptance of the status quo, the reward for getting the answer right. If satisfaction was the driving force, we would constantly be rewarded for repeating the same action.
Taking these observations to the business world; accounting’s one-off assessment of value at the point of sale, or economics assessment of value as the highly variable definition of utility usually defined as satisfaction, we can see our recording system is missing most of the creation of value.

In the current system, value is monitored and assessed from the opposite perspective. It is based on Price, Cost and Profit, all of which are set by the seller, yet the perception of value comes from the buyer. If the buyer sees no value in the decision, whatever, the price, cost or profit, there is no perception of value. We need to change the business paradigm and the way we assess it to take account of these discrepancies.

The consequences of this new business paradigm is a significant growth in the recorded economy, because many more interactions/decisions than just the one off point of sale. From concept to creation, its useful life, through to its disposal, you obtain a much more accurate assessment of the value created or destroyed during the lifetime of the product/service.

The five principles characteristics of value:

Value is the core purpose of business; we have already seen that our current preconception of such a vital concept is misleading and distorts how we perceive just about every aspect of business and the economy. Just how far our preconceptions are distorted are confirmed when we clarify the five principles characteristics of value.

Subjective, By definition, Subjective value is Subjective, unique to the individual. It is the buyer that places the value on the productive output. Taking one price at the point of sale takes little account of how different people value productive output. Most of current pricing is a best guess at an average taken from the seller’s perspective.
Dynamic– the buyer’s perception of value is constantly changing according to the circumstances as they compare their expectations with reality. For example, a carpet might look good in the shop but if it exudes fluff or is difficult to clean it goes below expectations and the purchase is unlikely to repeated or recommended unlikely, however, this situation may change over time as the carpet appears hard wearing and retains its colors well.
Transient– As you are constantly changing expectations due to new experience, something new is on the market, you learn about new capabilities or failings. The carpet may be perceived as great value until it is discovered the carpet can be purchased much cheaper at a nearby shop. Currently, little of these changes are taken account of with our present system
Bi directional– As both parties in an interaction or a decision have expectations of output value is potentially created or destroyed on both sides of the interaction. In particular, people have expectations of how they are treated, if they are treated well (equal to or above their expectations) they will want to interact more, be willing to make concessions and be that much more likely to accommodate the other parties’ requests. Treat someone badly and the reverse is true.
Ubiquitos– Value is the excess over expectations, the directly proportional release of dopamine into the Nucleus accumbens (one of the brains reward centres). As we have expectations at just about every decision we make, we therefore have the potential to fulfil or exceed expectations That means value has the potential to be created every time we make a decision about our productive output. Value is being created everywhere yet our accounting and hence economics focuses on one small part of one small sector of our productive output.

If you agree with these characteristics of value, it is clear something needs to be done in the current assessment of value as most of its creation is being missed by then current system.

The size of the economy is based on the value created on just one moment in time, the point of sale. Open up the measurement of the creation of value to the key decisions made in the productive processed and there will be a massive increase in the size of the economy but as the expansion of the economy is directly in line with productive output effect.

However, in business, such as in life, all areas are creating value, whether it is the back office areas in a company, for example, the secretary who answered a phone call well, noticed its importance and is determined to inform with sense of urgency her line manager, creates value for the company; a delivery employee of electronics that in addition to delivering the merchandise, explains its operation or gives advice on its use, exceeds the expectations of a dispatch driver and, therefore, creates value for the company and whoever received the product.

Similarly, a teacher who encourages that child to develop her unique talents, creates value. Even more so considering that this student, now a pianist, doctor, engineer or writer, receives more remuneration than the one who trained him. Non-profit professions and activities, such as a Library, whose staff guided people by discovering exactly that book that inspired them, created great value for that reader and encouraged him to continue discovering literature.

If we apply the five value characteristics mentioned above, generating appreciation indicators for each worker, regardless of the area, not just front-line sales or management, could be rewarded according to their individual value generation, expanding the economy.

In this sense, imagine a world where all the medical personnel who have worked tirelessly to care for Covid patients, and who receive the same income with or without a pandemic, received an extra incentive for the great value created.

This is possible!!