Communication in entrepreneurship: contextual analysis
Ya. Kaplan, the Consulting Company President, author of the research project “Business Intelligence IQ” Kaplan Research Company (Tallinn, Estonia) Email: jaroslavs.kaplans@gmail.com
DOI:10.24412/2500-1000-2024-4-2-185-193
Annotation. The article examines the main aspects of communication in entrepreneurship, and reveals the context-oriented approach to the interaction between business companies and consumers of goods and services. The new role of consumers on the basis of identification of their perceived customer value is defined, and the importance of CONTEXTUAL ANALYSIS as a method of realization of the principle of customer orientation and a method of solving business problems in conditions of high uncertainty and complexity is determined. It is shown how the context of activity connects and coordinates the entrepreneur with consumers.
We live in new market conditions. The computing power of a modern smartphone is many thousands of times more powerful than the computer that helped land a man on the moon in 1969. Today, smartphones have connected most of the world's population, yet the technology is only about thirty years old. But if we look at the principles and approaches used in entrepreneurship today, we see that they are not always different from those used ten or even twenty years ago. Meanwhile, there are many different approaches and methods of problem solving in the field of entrepreneurship. The method of contextual analysis is not the least among them. It is focused first of all on formulating a challenge related to the entrepreneur's problem and only then on searching for a solution.
In the course of long-term research, the author of the article managed to discover a systemic defect in entrepreneurship, which is the main reason for the high level of “mortality” in entrepreneurship (on average, seven or eight entrepreneurs out of ten fail in business and do not get to see their business’s fifth birthday). It turns out that this particular bug does not exist within the organization, but is located at the interface between the entrepreneur and consumers.
It refers to the persistent tendency of entrepreneurs to deny very significant factors related to understanding their consumers. “Economists can ignore human factors in their forecasts of market performance without any fear,” Milton Friedman [1], one of the main contributors to modern economic fashion, wrote 70 years ago in his famous essay ‘The Methodology of Positive Economic Science’. I think that this is a key misconception of many representatives of economic science of the past. Customer relations are a fundamental element of any business and it is impossible to develop such relationships if you “ignore human factors”, just as it is impossible to build a successful family if you ignore all your household members. In those modern business models and approaches that ignore the human being, his or her spiritual, creative or emotional component, a severe distortion of reality is inevitable.
Consumers are not as they are portrayed in “customer avatars”, but neither are the entrepreneurs themselves - they are not programmed coffee machines that deliver a cup of coffee after the consumer has put a coin in it!
The transition of the economy to the stage of innovation development requires modernization of the communication system of entrepreneurial structures [2, p. 134-137]. In these conditions, the methods of contextual analysis and value-oriented approach to building interaction between entrepreneurs and consumers as new methods and approaches to solving entrepreneurial problems are beginning to play an increasingly important role. Consequently, new scientific and methodological approaches in this area require development. The modern marketing concept is based on the following key statements: the company should have a clear understanding that its activities are aimed at satisfying the needs of consumers; competition exists and will only intensify; very often the market provides new opportunities for development and it is necessary to find them in time; the internal state of the firm largely determines its market position and competitiveness; investment activity of enterprises is rapidly accelerating; the consumer has the right to choose; it is necessary to find new opportunities for development.
At the moment when new methods of thinking, new forms of process organization, new systems of systematization and generalization of knowledge are formed, they will start to be replicated on a mass scale, and this new stage of development will enter the stage of scaling. The difference in performance between old and new entrepreneurs will be beyond comparison, and obsolete forms of entrepreneurial activity will quickly disappear from the economic landscape.
In his book “Business Incognita: how to expand the boundaries of entrepreneurial thinking” [4], the author of the article formulated the concept of the “entrepreneurial task”, emphasizing the description of the task itself, which has an effective solution only in a precisely defined context of activity.
A change in the context inevitably leads to a change in both the task itself and the way of its effective solution.
It is the contextual factor that most distinguishes the type of entrepreneurial tasks from all other tasks in business, such as management, finance, production or marketing. At the center of such an entrepreneurial task is the customer's perception of the value of the entrepreneur's products and services. In the contextual analysis method, “entrepreneurial tasks” are contrasted with all other tasks in entrepreneurship, such as: management, financial, production, etc. At the same time, the opposition here is understood not as a rejection of the importance of these tasks in themselves, but as an acknowledgment of the need to divide the entire field of activity into different “layers” or “floors” on which the existence of different forces, types of objects and tools for transforming these objects is postulated.
This is the key idea of contextual analysis - the need to divide a whole field of activity into different “layers” in order to see it as a whole - something that will create more value for consumers than simply summarizing the parts of that activity.
Albert Einstein wrote: “It is impossible to solve a problem at the same level at which it originated. One must rise above the problem to the next level” [5]. [5]. Entrepreneurial activity is a complex heterogeneous activity, which consists not of a single, but of a whole set of different “layers” of activity. Such “layers” of complex activity are “activity contexts”.
The different contexts can be interrelated and nested within each other. In real entrepreneurial activity, some “layers” are easy enough to see, while others will require additional knowledge and effort from the entrepreneur.
The legendary director of General Electric Jack Welch said: “If changes outside are faster than inside, the end is near” [6]. [6]. The fact that the entrepreneur often knows little about changes on the outside of the organization is his main problem. In this way, in the most general way, the problem with entrepreneurs is more suitable to describe the situation that Peter Drucker subtly summarized: “There is nothing more useless than to do productively what does not need to be done at all” [7]. [7].
Thus, contextual analysis is a method of solving business problems under conditions of high uncertainty and complexity. The essence of this method is to split the area of activity into different “layers” or “floors of activity”, on which it is possible to make various transformations. Obviously, different ways of “stratification” of activity will lead to the separation of different objects from the system, which then can be used to perform various operations and transformations.
The central idea of this method is the postulate that the source of the problem and the symptoms of its manifestation can be located in different “layers of activity”. Thus, finding the “layer of activity” where the source of the problem exists is a vital task for the entrepreneur.
For example, an entrepreneur may think that he has a sales problem, he may decide to change or discontinue the production in favor of another, when in fact the problem is that the perceived value of his product has decreased. Obviously, if the real source of the problem - the decline in customer perceived value - any organizational, financial, human resource or management solution will make a meaningful difference.
By context we mean: firstly, the circumstances under which something was created, including its function, purpose, use, time, creator and recipient; and, secondly, the totality of any external and private circumstances that may affect consumers' perception of the value of the entrepreneur's products and services.
The required quality of a product or service can only be determined when the context in which the product will be used is known. Outside the known context of use, the concept of “product quality” is abstract and has no meaning.
Consequently, any change in the context of an activity area will change the key evaluation criteria in that area, including the notion of product quality itself. Thus, it is the context of activity that links and coordinates the entrepreneur with his consumers.
Obviously, if the entrepreneur does not see and recognize the change of such evaluation criteria within the market, his products will no longer meet the new standards or quality requirements that have re-emerged in the market. The basic idea here is that product quality itself is a contextual indicator that only makes sense within certain boundaries of the product's use.
The following regularity starts to work here: when the level of uncertainty is low, explicit coordination prevails inside and outside the organization: rules, regulations, plans, schedules, etc. As uncertainty grows, there is an increase in uncertainty inside and outside the organization. As uncertainty increases inside and outside the organization, implicit coordination increases, which can change frequently and is determined mainly by the environment (context of activity).
It is the understanding of the context of action that largely determines how much something makes sense or does not make sense. For example, creating a family actualizes the roles of husband, wife, children, etc. Outside of the family context, all these roles would simply not make sense. A seemingly simple task - to plant a tree - may become insoluble if it turns out to be about planting a tree on the Moon. The problem of systematizing knowledge in different contexts was very well described by Norbert Wiener, American scientist and father of computer science: “If the difficulty of a physiological problem is essentially a mathematical one, then ten physiologists who are ignorant of mathematics will do no more than one physiologist who is ignorant of mathematics. It is also obvious that if a physiologist ignorant of mathematics works together with a mathematician ignorant of physiology, the physiologist will not be able to state the problem in terms understandable to the mathematician; the mathematician, in his turn, will not be able to give advice in a form understandable to the physiologist” [8].
In order for a person to be able to realize himself (and his activities) in a general context, he needs to draw a “boundary” in relation to which things “inside the meaning” are distinguishable from things “outside the meaning”.
Determining such a boundary for each individual domain of activity is the central task of contextual analysis. This is primarily due to the fact that such a “boundary” of activity is inextricably linked to another concept - “measure.”
In the most general sense, the presence or absence of boundaries is the main characteristic of an object. Boundaries allow one to look at a particular object or idea from very different perspectives. Multiple perspectives on the same object is one of the fundamental approaches of contextual analysis, for which the presence of a boundary is a prerequisite.
As far back as Galileo [9] proved that increasing something by a factor of one will not result in a proportional increase of the result. For example, a grasshopper magnified 100 times will not turn into a kangaroo, and a hut will not become a skyscraper. Instead, they will both collapse under their own weight. When the linear dimensions of structures or living organisms are increased by a factor of N, their volume and mass increase in proportion to the cube of N, while the strength, which depends on the cross-sectional area of the supporting structures (or the bones of living organisms), increases only in proportion to the square of N.
Such a mass increase inevitably leads to the destruction of the object.
One of the conclusions of Galileo’s discovery is that the relative (not absolute) space will be hierarchical (asymmetric), and thus in one “field of activity” there will be collected “more of everything valuable” than in the other.
“more of everything of value” than in other areas. This fact is key to understanding the real reasons for category leadership - one “category of meaning” will have significantly more value for consumers than other “categories of meaning”. However insignificant these differences in “categories of meaning” between the market leaders and everyone else may seem, it is these leadership “areas of meaning” that represent the “value concentrations” for the entire selected segment of consumers.
Category leadership is a special case of asymmetry in the space of entrepreneurial activity. In one part of such a “space of activity” there will be a significant concentration of “more value of everything” than in other parts of the ‘adjoining’ space of other market participants, non-category leaders.
If we compare two “grades” of value - the value of the category leader and the value of all other market participants - we can say that such a comparison is similar to the comparison of the value of gasoline and crude oil.
The capitalization of the value of a category leader is in many cases assessed by different criteria than the capitalization of an average, ordinary company. In the former case, it is determined by the market capitalization of the entire category (part of the market), while in the latter case it is based on the assets and cash flows of the individual company. This is almost always a valuation difference of several orders of magnitude. Such gaps in value capitalization form a whole gulf between category leaders and all other market participants. This means that even a relatively small company that is a leader in a growing category may have a higher market capitalization than some old-fashioned “dinosaur".
For the modern entrepreneur, the integrity of his communication system entrepreneur-product-consumer is of vital importance, first of all, because integrity is the main thing that determines the possibility of an algorithmic description of this business system. Without this, there is no possibility to “digitize” this business system in any way and “place” it in the virtual (digital) space [10].
From the point of view of activity as such, any activity can be divided into three “layers”:
1) the layer of activity (the direct activity of creating a product or service).
2) the layer of management of this activity.
3) the layer of management over the management of the activity.
The last layer is system-forming both for the activity itself and for the management of this activity, so I often call it the “development layer”. Thus, the “development layer” is the “layer” of the entrepreneur's activity where problems often arise and are rarely solved. However, it is in this layer that the real management of consumer perceptions takes place.
Growth means an increase in quantity or size. Development is an increase in quality, ability or competence. For example, the level of material wealth is an indicator of growth. The level of material well-being means more money, a variety of goods, larger apartments, cars, closets, refrigerators, etc. At the same time, the quality of human life is an indicator of development. Growth and development do not necessarily occur together. For example, piles of garbage can grow, but they cannot develop. The growth of financial indicators in the context of inflation will not tell us anything about whether the business system is actually developing or degrading.
In case of entrepreneurial activity, development should be understood as non-quantitative indicators such as growth in sales, customer service calls and other transactions (these are all growth indicators), but a qualitative indicator related to the meaning of the whole enterprise - increasing the value of products for consumers (from the point of view of consumers themselves). Development and context are connected by the fact that development always takes place in a specific environment and under specific circumstances, which determine the available resources of the entrepreneur, his opportunities and limitations. To say that something has been “taken out of context” is to suggest that it is wrong. This is what entrepreneurs often do - they view their field of activity too “narrowly”, out of touch with the rest of the market environment. This causes them to shorten their planning horizon (often as short as two years) and use simplified business models to understand what is happening. It is this inability to manage their sense of purpose (which is itself similar to managing customer perceptions) that causes the entrepreneur to lose his right to a place in the minds of customers and slowly (or quickly) fade and then disappear from the market space altogether. They are no longer able to attract the interest and attention of their consumers, which means degradation and death for the whole activity [11].
“It is obvious that you cannot use the same weapon to hunt an elephant, a mouse or a bacterium. In the same way, different tools and approaches are needed to solve problems at different levels...” - wrote G.S. Altshuller [12].
Thus, in the contextual analysis the conditions and circumstances in which the entrepreneur's activity takes place become the object of study. It is obvious that in different contexts there will be different evaluation criteria and, accordingly, different ways of solving the “same” problem. Contextual analysis also implies a comprehensive analysis of a state, phenomenon or fact.
The essence of contextual analysis, in brief, is to find and categorize what might be called “categories of meaning” in any field of activity. Such a “category of meaning” does not arise by itself, but as a result of the interaction between the entrepreneur, the product and the consumer. If the entrepreneur has a sufficiently good grasp of the “category of meaning” of his activities, he acquires a direction for the development of his business, within which the central principle of such activities can be found and then a development policy can be developed. These three factors alone are the foundation for any long-term competitive advantage, as an entrepreneur is only willing to act if he is hopeful about the future and confident that he has some time to spare. These three key factors are the main elements of the development “layer” and the objects of research in contextual analysis.
Entrepreneurs often do not understand the principle of relativity in the perception of the value of their products. In fact, the perception of value depends to a large extent on the context in which it is perceived. The same product can have a very different value in different contexts. The value of the same bottle of water may be perceived differently in a supermarket, a restaurant, an airplane or the desert. From this point of view, the entrepreneur's main challenge is to find the area where the perceived value of his products is maximized.
The main entrepreneur's fundamental dilemma is that no value can exist without the product, but the mere existence of the product does not guarantee its high perceived value among consumers.
Here is the data of a study conducted by Bain & Company. In a survey of 362 large companies, it was found that 80% of their employees believe they are providing a “superior experience” to their customers. But when the researchers asked the same question directly to the customers of these companies, they got completely different results: the answer coincided with only 8% [13].
Why is there such a tenfold gap in the perception of value between companies and consumers?
There are many possible answers to this question, but the key one is probably that companies operate on the basis of incorrect assumptions (misconceptions) about both the context of their interactions with consumers and the value they actually create for their consumers (from the consumers' perspective). This may be partly due to the fact that producers of goods and services are locked in so-called “information filter bubbles”, while the consumers they target may belong to other “information bubbles” [14].
The perception of value itself exists only within a specific communication system of entrepreneur-product-consumer and is an abstract concept outside such a communication system.
This is another central idea of contextual analysis (after the need to draw a boundary in the field of activity), because the “space” where consumers “place” their attention and perceive the potential value of products and services is of vital importance for the entrepreneur.
The movement of products from entrepreneur to consumers is always a communication system that ensures interaction between its central elements: entrepreneur, product and consumers. When we say that the value of products or services can be perceived by consumers only within a specific communication system, we are saying that such a communication system (in which the value of products actually exists) is a business system with the properties of integrity, when the whole becomes greater than the sum of its parts.
A watch has the power to tell the time, but no single part of the watch, taken in isolation, will do the job. No one part of an airplane by itself can make flight. If the clock keeps time and the airplane flies, it is proof that the component systems are complete. If they are not, they can be taken apart without losing their basic properties. It is the same with consumer value: either it is there or it is not. An airplane flies or it does not. A watch either tells the time or it doesn't. No gray areas, just yes or no. The practical importance of the indivisibility of the perception of customer value into parts is so great, and its underestimation is so common, that it is reasonable to emphasize it separately.
It is impossible to consider consumers or entrepreneurs on their own, in isolation, apart from each other, outside the context of their interaction. In this model, it is necessary to consider these three key components of the communication system - entrepreneur, product and consumers - only together, only in the context of their interaction.
When we talk about the context of interaction between entrepreneur, product and consumer, we are also talking about the fact that any product must be embedded in a specific existing structure of activity. The further development of this product will take place in this particular structure. Thus, when forecasting the development of a product, it is necessary to take into account the development prospects of the infrastructure in which the product is embedded. The consumer understands the meaning of a particular product not directly, but through the objects surrounding this product (the context in which this product exists), including the very interaction between the entrepreneur and the consumer.
That is why, in any business system, we consider at least five different aspects of the entrepreneur's activity:
1) the entrepreneur in the role of product creator;
2) the consumer as a user of the product created by the entrepreneur;
3) the entrepreneur and the consumer in interaction with each other;
4) the entrepreneur in the role of “ himself” (for example, in terms of available resources in the form of time, money, connections and other “combinations of resources”, as well as his level of awareness, willingness and readiness to use the resources available to him in order to turn them into real market achievements);
5) the consumer in the role of “himself” (for example, in terms of his culture/worldview, goals, intentions, assessments, etc.).
As a result of consumers' interaction with the product and the entrepreneur, a certain meaning is formed, which the consumer then puts into the product and evaluates it with this meaning in mind. In the most general sense, the concept of “meaning” could be described here as “significance”, “purpose”, “importance”, “decision”, “idea”, ‘concept’, ‘notion’.
In the most general sense, any business system is a communication system with a critical mass of users who have a common reality regarding this system of activities and its products. It is important to note that in such a business system the role of the product changes fundamentally. The product here no longer appears as an “independent” unit, but only as a
a “bundle” - a means through which the entrepreneur interacts with the consumer. In this business system, the product is a kind of “quantum” of interaction, the main purpose of which is to help build relationships between the entrepreneur and consumers. The product acts here only as a reason to communicate with consumers.
It can be stated that each particular business system creates its own unique context of interaction between the entrepreneur, the product and the consumer, and determines all possible actions available to the participants of such an interaction, as well as all possible actions available to the participants of such an interaction.
Conclusion
In context-oriented business management the importance of the following three main components of the whole communication business system increases: entrepreneur-product-consumer. In this regard, a special role is given to communication processes. All communications with their diverse tools, first of all, should be aimed at the creation of perceived value, which does not fully correspond to modern realities.
The formation of market interaction between a company and its micro- and macro-environment within the framework of realization of the value-oriented approach should be considered more relevant today. In this respect, the role of the consumer increases, as the author's research has shown. Consumers participate in the joint creation of value. Thus, customer loyalty becomes a system-forming factor of market success of an entrepreneurial organization.
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