What is a shared economic framework?
First, it is needed for “economic” decisions – any exchange of time, materials, goods, or services that requires a supplier and a demander to agree upon a shared understanding of value. In microeconomics, we discuss this about goods. Through exchange using currency, they attain to an equilibrium price.
The further we get from material goods with well-understood pricing in a stable currency, the less likely we are to use a shared economic framework. We see this frequently in information products. From insuring events of dubious probability to bundling free mobile apps with existing operations, an inability of the consumer to properly evaluate… value. That, in turn means they can only establish willingness-to-pay based upon conformity with previously paid prices.
This allows entire industries to mature into homogeneous – nothing but plain vanilla – product offerings. This is increasingly dangerous as additional information products and services are bundled, compound information asymmetry.
Occasionally, it becomes doubtful if anyone can make a rational economic decision. The consumer doesn’t understand the complex product or the value stream necessary to produce it. With no understanding of US-China relations, microprocessors, operating systems, coding, or information economics, millions with a high school education are expected to make rational decisions about a pocket supercomputer that is nearly sorcery.
However, this problem begins much earlier. In digital and tech products, this problem starts within the organizations that create them, long before being exposed to the market.
Information asymmetry – the possibility of one side to know much more than the other in an exchange – begins early and within each value stream creeps in very often. It happens on multiple fronts. Between the business model planning and funding mechanism and its market there is an inability to properly signal for proper valuation. Moreover, neither the business-side product designer or the marketplace consumers are likely to be fully equipped for rational exchange of complex, sophisticated, new technology.
In fact, it is safe to say that such a market is imperfect. Information and competition cannot work effectively to establish equilibrium price.
Even deeper within the value stream, the problem continues. The product marketer suffers from business-to-technical information asymmetry with the development vendor or IT organization, and vice versa.
Neither is speaking the same language.
A shared economic framework attempts to extend beyond money to actual value. It creates a shared understanding of how centimeters translate to miles and how yards translates to millimeters.
A shared economic framework is an “exchange rate” for ideas that cannot otherwise be understood.
Between SWOT analysis and Git branching, between lifecycle profits and architectural runway, we can find exchange values for ideas. Sometimes we can look at strong proxy signals like completion rates and canary metrics to find a balanced understanding of value creation. Other times, we can use relative estimation and workshop-based collaboration to ensure that even if we lack numbers, we at least take time for conversation.
So here are the steps:
- Have the conversations to find out what you don’t know and how to translate “value”
- Establish product-oriented metrics that represent whether or not decisions are on the right track.
- Start from the assumption you are wrong and imperfect, then prove this assumption incorrect.