[music]

0:00:02.4 Freddy: Welcome back, Culture by Design listeners. It's Freddy, one of the producers of the podcast. In today's episode, Tim and Junior will continue our series on emotional intelligence. This time, we're talking about EQ and the experience economy. If you joined us last week for our kickoff of this series, you'll know that we answered the question, what is emotional intelligence? And gave you a look inside our unique insights around EQ as your delivery system. And we shared our unique definition of emotional intelligence, which is the ability to interact effectively with other people. Today, we will continue the discussion by answering the question, why is emotional intelligence important today? Why is emotional intelligence central to competitive advantage? And why is emotional intelligence not just a nice thing to have, but a crucial requirement to stay viable as an organization? As always, this episode's show notes can be found at leaderfactor.com/podcast. That includes a link to all relevant resources related to this episode, including a link to learn about EQ Index, our proprietary EQ assessment that we will be making publicly available for individuals and teams early next year. Thanks again for listening, and thank you for your reviews. Enjoy today's episode on EQ and the experience economy.

[music]

0:01:34.2 Junior: Welcome back, everyone, to Culture by Design. My name's Junior. I'm here with Dr. Tim Clark, and today we'll be discussing EQ and the experience economy. Tim, how are you doing?

0:01:44.9 Tim: Doing great, Junior. Good to be with you. Really excited for this episode.

0:01:48.9 Junior: Yeah, me too. This has been a fun series so far. Last week, we answered the question, what is emotional intelligence? We defined EQ as the ability to interact effectively with other people, and we positioned it as the delivery system for our IQ and our technical skills. We pointed out a major flaw in the traditional EQ models, the lack of self and social regard as part of the model. So if you haven't listened to that episode yet, we'd recommend that you do. Today's discussion will build on that conversation, but today we want to talk about why EQ, now that we've answered the what. So why is emotional intelligence important today, specifically in the context of organizations?

0:02:35.6 Tim: Yeah, Junior, I'll do a little spoiler alert here. We're going to make the case in this episode that EQ is central to the success of the organization, your competitive advantage, and that organizations can't maintain competitive advantage without emotional intelligence. Now, just think about what I said. That's a pretty bold statement. You can't sustain competitive advantage without emotional intelligence. Who says that? But that's our thesis today. So I want to invite listeners to think about this and see if you can beat us to the punchline. Why is emotional intelligence central to competitive advantage? Why is emotional intelligence not just a nice-to-have thing, but a crucial requirement to stay viable as an organization? So keep those questions in the back of your mind. Hopefully, you'll come away from this discussion with an epiphany and sense of urgency about emotional intelligence. And you'll go back and you'll look at your organization with different eyes. I've created a little suspense, I hope. This is going to be a very important episode. So I just wanted to kind of set more context that way, Junior.

0:03:49.5 Junior: Yeah, it's not a thesis that you'll see a lot. EQ is central to competitive advantage, but we'll walk through it. So let's start on that journey with some setup. And the first assumption should be pretty straightforward. Organizations want competitive advantage, and all do, regardless of whether or not they're for-profit. And there are two ways an organization can gain competitive advantage. The first is price. We do the same thing cheaper. Or differentiation. We do a different thing or a more effective thing. Those are the two levers we have to pull when it comes to competitive advantage. It really boils down to that.

0:04:31.5 Tim: I want to spend a second on that, Junior, just a little bit more time. Go over that again. So, for example, you actually majored in business strategy in college. That was your primary field of study. So as a person that studied this as their specialty, I want to ask you a question. Is it true that a person, pretty much anyone, can learn the essence of strategy in five minutes?

0:05:01.2 Junior: Absolutely.

0:05:02.1 Tim: Is that true?

0:05:02.3 Junior: It's true.

0:05:05.8 Tim: [chuckle] It is true, isn't it? I think we need to go over this again so that it solidifies in the minds of all our listeners, the essence of business strategy.

0:05:15.5 Junior: Yeah.

0:05:15.6 Tim: So the entire field, the entire field is based on the concept of advantage. So, Junior, can you just go over those two levers again so that it crystallizes in the minds of our listeners?

0:05:29.1 Junior: Yeah, the whole purpose of business strategy is to not only gain, but maintain competitive advantage. And the reason that I'll make that addition is because we'll loop back to it through the episode. The maintenance of competitive advantage is very, very important. So in order to gain and maintain competitive advantage, we have two levers. We have price. We can do the same thing cheaper. Differentiation, you can do a different thing. Now, you can have a combination of those two things as well. You can have a differentiated product that creates massive value that is also much cheaper than any reasonable substitute. And in that category, you have a breakthrough product. And so that's what organizations are striving to do, is ratchet up the value and ratchet up the price. And more often than not, the most successful organizations do those two things very well. They control price very, very well. And they have meaningfully differentiated products. Now, meaningful differentiation is another qualifier if we want to go another level deeper.

0:06:37.8 Junior: So doing something different doesn't mean that it's inherently valuable. It has to be meaningfully differentiated. It has to be valuable to the customer. If you're not creating value and you're just doing something different for the sake of being different, chances are the market's not going to value that. And you're also not going to win. But when you boil it down, and I mean, you can get as complicated as you want, and we could do a five-year series, but it really boils down to those two things, price and differentiation.

0:07:08.9 Tim: That's it. So everybody understands the essence of strategy now. So that's our jumping off point, Junior, as we now dig into this.

0:07:17.6 Junior: Yeah. And if you're deep into strategy theory, don't yell at me for boiling it down that way, but that's what it really is at the end of the day. Okay.

0:07:27.1 Tim: Yeah.

0:07:28.0 Junior: So competitive advantage based on price is boring. Let me make that assertion. Now, it's not always boring, but speaking in generalities, as a strategist, competitive advantage on price is not nearly as exciting as competitive advantage that's based on differentiation. Unless what belies the price advantage is more than just economies of scale, right? There are systems efficiencies and materials innovation, all sorts of things that can lead to a price advantage. But underneath, it's really meaningful differentiation. And differentiation, to me, is exciting because it's a product of innovation. There is no meaningful differentiation without innovation. You need to change to do something in a more valuable way. So innovation requires divergent thinking, and divergent thinking requires an environment that's conducive to it. And we've talked a lot about this as it relates to culture. And we're going to dive into EQ today and the relationship that it has with innovation, differentiation, leading to competitive advantage.

0:08:37.5 Tim: Yeah. Thanks for spending a little bit of extra time on that, Junior. That's really helpful.

0:08:41.8 Junior: No, it's helpful groundwork. I mean, we're going to build on it. So we're going to take you down a road and do some setup that you may feel is more tangential than you would normally think or want. But just hang with us. Because this, to me, is some of the most meaningful groundwork that needs to be set up in order to understand the argument that we're going to make. And I'm going to take some liberties here, coming from the field of business strategy, and lay out a framework that I found to be really, really useful, even us as an organization here at LeaderFactor. So organizations have fought for that competitive advantage that we talk about under very different circumstances for thousands of years. And there have been several types of economies that have characterized different periods of history throughout which people are fighting for competitive advantage. And so I want to bring in a book that I love dearly called "The Experience Economy" written by Joseph Pine. Now, this book came out in 1999.

0:09:53.5 Junior: And if you're not familiar with Pine, many may not be, he also wrote "Authenticity," another good one, "Infinite Possibility" and "Mass Customization." So in '98, the year prior, he writes an article in HBR with James Gilmore. And I want to read the first paragraph, the introduction of that article. And it's going to tie in beautifully, I believe. It begins, "How do economies change? The entire history of economic progress can be recapitulated in the four-stage evolution of the birthday cake. As a vestige of the agrarian economy, mothers made birthday cakes from scratch, mixing farm commodities, flour, sugar, butter, and eggs that together cost mere dimes. As the goods-based industrial economy advanced, moms paid a dollar or two for Betty Crocker for premixed ingredients. Later, when the service economy took hold, busy parents ordered cakes from the bakery or grocery store, which at $10 or $15 cost 10 times as much as the packaged ingredients. Now, in the time-starved '90s," think about that, the time-starved '90s.

0:11:08.4 Tim: The '90s.

0:11:09.0 Junior: "Parents neither make the birthday cake nor even throw the party. Instead, they spend $100 or more," I wish it were still 100 bucks, "to outsource the entire event to Chuck E. Cheese's, the Discovery Zone, the mining company, or some other business that stages a memorable event for the kids and often throws in the cake for free. Welcome to the emerging experience economy." What a cool intro.

0:11:37.9 Tim: Wow. Oh, it's great. The birthday cake, the evolution of the birthday cake.

0:11:42.4 Junior: The birthday cake. So it's 1998 in this article. How much has changed in the 15 years since? Have we become less busy? How much more are we willing to pay today for an experience? So you see the progression of economic value, and there are four stages. The first is extract commodities. They talked about an agrarian economy, low differentiation, low price.

0:12:08.8 Tim: Yeah. And Junior, that means, think about it, you go back to the agrarian economy. It was what people were extracting below the ground and what they were growing above the ground.

0:12:21.2 Junior: Yep.

0:12:22.8 Tim: That was it. And that was kind of the system of an agrarian economy. That was it.

0:12:27.7 Junior: Yeah.

0:12:28.8 Tim: And people did their own thing, right? They were self-sufficient. They tried to be.

0:12:31.2 Junior: And originally, those commodities were the final form of whatever they extracted. After that, we move into a goods economy. We make goods. So low to medium differentiation, low to medium price. We're combining these things to bake the loaf of bread, to bake the cake. Then we move into the delivery of services, a service economy. This is medium differentiation, medium price, and it lies on a spectrum, but medium is fair. And then we get into the fourth stage, the experience stage, where we have high differentiation, high price. And you might ask, why? Okay. Why all the talk about these different economic stages? What in the world does that have to do with emotional intelligence? Now, this leads into the big piece of our hypothesis, which is that the quality of an experience, which is the heart of the experience economy, almost invariably boils down to the human interface. What do you think about the hypothesis, Tim?

0:13:44.1 Tim: I think that's right, because there could be many aspects of that experience that are based on technology. That are automated, that are process-based, that are still goods-based, but it all comes together, Junior. These elements have to be mutually reinforcing. And inevitably, at some point, we get down to the human interface. It could be face-to-face, it could be voice-to-voice, whatever it is, but somewhere, somehow, at some time, there's going to be a human interface. And that ties it all together, and it kind of animates the entire experience. It just brings it all together. So, let's talk more about that. And by the way, Junior, that article that Pine and Gilmore wrote, that wasn't 15 years ago. That was 25 years ago.

0:14:37.9 Junior: 25. Bad math.

0:14:40.7 Tim: Yeah, 25. So, think about what's happened since then, right? As we've gone further and more affirmatively deeper into this fourth stage of the experience economy, their conceptualization was prophetic.

0:14:58.2 Junior: Yeah.

0:14:58.8 Tim: It truly has followed that trajectory, and that's happened. That's where we are. And so, now we're going to make the case that emotional intelligence lies at the center of the experience, as you say, the heart of the experience economy. This is amazing.

0:15:14.9 Junior: And one more thing that I want to pipe in on the strategy front that I think is relevant before we move on, what do we get to do with price as we become more meaningfully differentiated? We raise price. And so, you think about the example of the birthday cake, the commodities are dirt cheap. And what dictates the price of a commodity? The market. Now, if those commodities are ubiquitous, what happens to price? Price falls. And it's dictated exclusively by the supply-demand curve. Now, as you meaningfully differentiate, people's willingness to pay increases. Their willingness to pay to have something done for them in the goods or the service economy goes up. What happens to price when you move into the experience economy? It goes through the roof. Another great example is coffee. Coffee beans, dirt cheap. Pre-made coffee or coffee beans already roasted on the shelf, a little bit more expensive but still cheap.

0:16:23.2 Junior: McDonald's or a Dunkin' coffee, pretty inexpensive. A Starbucks coffee, six bucks, seven bucks.

0:16:32.8 Tim: Yeah. What happened?

0:16:32.9 Junior: Why all of a sudden are we willing to spend 700 times on a Starbucks coffee? You think it's for product alone? No, no. It's for the experience that they're generating.

0:16:47.2 Tim: It is. But let me add a point to it. So, you can say that you have the goods, and then we wrap the goods, right? So, we have commodities, and then we create goods out of that. And then we wrap those goods in services.

0:17:04.0 Junior: That's right.

0:17:04.1 Tim: We're still not quite getting to the experience economy, right? Wrapping goods in services, because we have to add the human interface. That's what brings it all together. So, we have the goods, we wrap them with services, but then we bring the human element, and we stage the experience, and it comes together.

0:17:28.5 Junior: Yeah.

0:17:28.7 Tim: That's going to Starbucks, all the way to Starbucks, where all the elements come together.

0:17:34.5 Junior: Yeah.

0:17:35.1 Tim: And then they can command a premium price like that, which on its face makes no sense, by the way. Isn't that interesting?

0:17:44.4 Junior: Yeah, on its face.

0:17:44.4 Tim: You kind of look at that and you think, "Why are people paying that much for a cup of coffee? I don't understand." But as we deconstruct the experience economy, then it makes sense.

0:17:56.4 Junior: Yeah. Well, you think about your own consumer behavior, and you think about those things for which you're willing to really pay. A lot of those come down to experience. And I hope that the listeners are paying attention, those that create value for the marketplace. I know we've got a lot of consultants out there. What's one of the things that you can do to ratchet price up? Experience. So we need to move away from this idea of just service and think about experience. We're going to talk about that, how you can meaningfully differentiate here in a little bit. But I would challenge all of our listeners to try and think of a differentiated, high-quality experience that doesn't involve people. It's hard to do. It's really hard to do.

0:18:46.1 Tim: It's hard to do.

0:18:47.3 Junior: So an example that comes to mind, near my home, there are two restaurants, and they both serve almost an identical product.

0:19:00.1 Tim: It's like the same menu, isn't it, Junior?

0:19:01.1 Junior: Almost exactly the same menu. One is an experience, one is not. One is almost completely automated, controlled by robots, if you will. And people don't like it. You drive down the road and you look at the lines, the drive-through lines and the pick-up lines for both of these places. One has an empty parking lot and one is backed up for like a half an hour. Why? The product really is very close. But on the one hand, you have this automation. It feels sterile. It feels low energy. And on the other side, we have people. People characterize the experience of this other place. It's high energy. And so why is it? If product were at parity, what is surrounding that product that meaningfully differentiates it? It's the humans. And the quality of the human interface, here's our next big hypothesis, is reliant upon emotional intelligence. There's the link. The quality of an experience boils down to the human interface and the human interface is reliant upon emotional intelligence.

0:20:12.0 Tim: The example that you're talking about, Junior, is it's almost like a laboratory experiment because these restaurants are literally across the street from each other with identical menus. And day after day after day, the one dominates the other. It's absolutely amazing. And it goes right back to what you're saying. It's the experience that they're creating based on the human interface.

0:20:40.4 Junior: Yeah. So if you think about this in the context of an organization, I wanna bring in another concept, which is brand promise. Now, brand promise is an interesting concept as it relates to emotional intelligence. So brand promise is the commitment that an organization makes to its customers about the overall experience that they'll have, the values, the qualities across all of the touchpoints. And those touchpoints are human-to-human touchpoints. And the quality of those touchpoints and interactions is based on emotional intelligence. So what do you think about this, Tim?

0:21:18.0 Tim: Well, Junior, I wanna say, so let's talk about the brand promise for a minute because some organizations have an explicit brand promise that they communicate, that they publish to the world, to customers. Other organizations, they don't do that explicitly. They do it implicitly. But in both cases, what happens is that customers form expectations about what the brand means and about what the promise includes. So whether the organization is explicit or implicit about its brand promise, it's going to form. And customers are going to create expectations around what they perceive as the brand promise. So the next time they go there, they have an expectation that they're going to have a certain kind of experience. And so the organization's ability to maintain competitive advantage will be based on its ability to consistently deliver that brand promise.

0:22:28.5 Tim: Now, let me say a little bit more. So many people who work for organizations are literally at the center of their organization's brand promise as employees, but they don't know that. They don't realize that. They're not thinking about that. And some people don't even care, obviously. But can you imagine the liability that this is? Some organizations apply a hiring principle that says, hire for attitude, train for skills. You've heard this. I'm sure you've heard this. Why? Why do they apply this principle? Because in many ways, this principle reflects an understanding of the experience economy and the central role of emotional intelligence. Once a person understands this, it transforms how they think and what they do, because they know that when a customer has their first touchpoint with your ecosystem, your brand, the experience has begun.

0:23:34.3 Tim: The first touchpoint initiates the experience. Now, it's often the case that the first touchpoint is with a non-human element, like maybe it's your website, that's fine. But at some point, a human will come into the picture, come into the interface. That's where EQ comes in. And it's amazing how the human interface, it becomes the centerpiece of the entire experience. It's at the center. It's at, as you said, Junior, it's at the heart of that experience. It brings everything together. All of those mutually reinforcing elements come together. So I just have to go back and say this again. Think about how many organizations have people that are at the center of their experience, and yet they don't really, they're not consciously thinking about their brand promise and about consistently delivering that, let alone thinking about the emotional intelligence that they are demonstrating.

0:24:36.7 Junior: It's so fascinating to think about emotional intelligence as it relates to strategy and business model. I've been thinking about this in context of this episode and in preparation for this episode. Think about how much better an organization could do if they have a winning model that they pair with a high-quality, predictable human interface. If you have a winning model, and let's say that you are barely successful, you could pour gas on the fire by putting in emotional intelligence. Now, there are some organizations that rely so heavily on the human interface that they will live or die by whether or not that is high or low quality. And many organizations have gone into the history books because that human interface was not high-quality and it was not predictable. My point in bringing this up is that it is never a bad thing. It is never a bad thing to develop this. So in order to create a high-quality and a predictable human interface, we need to hire for and further develop, once we have people, emotional intelligence.

0:25:53.7 Junior: That is the crux of the issue. And that is what will meaningfully differentiate us over the long term if you think about it from a roots level. So if you think about psychological safety and you think about emotional intelligence and these ingredients that have to be present in order for us to have effective collaboration, in order to have creative abrasion that creates the divergent thinking that leads to the innovation, when you boil all of these things all the way down, it becomes obvious. And what was so striking to me in preparation for this episode is as I thought back about to my formal training, this was never a conversation. And the longer we do what we do, the more surprising that is to me. And the more obviously absent that topic is. Why in the world is this not something that we emphasize in business generally, certainly in business education? And all of these other things are so important, but without this lubrication for collaboration and the human interface, we are not going to do as well as we could. And we may miss out on some really, really big inflection points if we're missing this element. You have any thoughts on that?

0:27:14.8 Tim: Yeah, I do, Junior. So for listeners out there, may I suggest that you ask yourselves two questions. As you're trying to make sense of this, as you're trying to bring all of this together in the context of your own organization. Question number one, what is your brand promise? What is your organization's brand promise that you communicate either explicitly or implicitly? What is it? Write it down. See if you can distill it out in very simple terms. So that's question number one. What is your organization's brand promise? Question number two is how crucial is emotional intelligence in consistently delivering your brand promise? That's the second question. Think about that very carefully. How crucial is emotional intelligence in consistently delivering your brand promise? Can you do it? Chances are, if you think through this very carefully, what's the brand promise?

0:28:22.3 Tim: And number two, how connected is it to emotional intelligence? You'll see that there's an interdependency and that it actually will not be possible to consistently deliver your brand promise without some threshold level of emotional intelligence. Once you establish that, once you come to that conclusion, that's a game changer. And you will forever be seeing your competitive advantage in a different light. And you will recognize that you need to invest consistently in the development of your emotional intelligence because it's crucial to deliver your brand promise. There's no way around it. As an example, go through this little exercise. Think about a brand that you have interacted with in the last week online. Well, it should be at least face-to-face or voice-to-voice. You've had a face-to-face experience or at least voice-to-voice with some brand over the last week. Now, think about your overall experience and rate that experience. Was the experience, did it meet your expectations? Did it not meet your expectations? Or did it exceed your expectations?

0:29:41.8 Tim: Does that make sense? So rate that experience. Met my expectations, did not meet my expectations or exceeded my expectations. Okay, once you have your rating for that experience interfacing with that brand, now here's the last question. To what extent was your overall rating connected to the emotional intelligence of the individual or the people that you interacted with? So we've done research on this with many, many, many consumers and customers. And guess what the rating is? The overall average is 80% of the time the experience is dependent, crucially dependent upon the emotional intelligence of the individual or the people that are representing the brand. So therefore, what do we learn? We learn that the employees are the brand ambassadors and that they will either keep or break the brand promise and they have so much power to do that at the human interface. It's not gonna be a neutral experience.

0:30:54.5 Tim: They are either going to keep that brand promise and meet your expectations, or they're going to break that brand promise and deliver something below your expectations, or they're going to exceed your expectations and deliver something that was above your expectations. That's what happens. And that happens to us as we interact with brands on a daily basis, isn't that true, Junior?

0:31:18.7 Junior: Oh, there are so many examples that I could point out, even from just the last week. You know, I had LASIK this week and the human interface of that experience, so important. You're in such a vulnerable position and they can either put you at ease through the human interface or make you even more nervous, right? They're about to put a laser in your eye and how nervous you feel about that is likely dependent on the human interface and how they've treated you to that point. It also makes me think about restaurants, a great example. My wife and I like to go out and what I find is that as we leave the restaurant, almost without exception, we're going to be talking about the service. I've noticed that as a pattern. Oh, the service was fantastic, right? We're talking about the food, of course, we're talking about the service, almost just as much. So I want to bring in an element of strategy and this four stages of economy model to add something here.

0:32:23.8 Junior: Why have we moved from one economy to another? Why did we move from commodities to goods and then to services? Because the forces of commoditization move from the bottom up and eat away at margin. And this is true through any stage of any commodity. And so what happens is if we are selling coffee beans and supply is such that it's ubiquitous and there's no meaningful differentiation, the market is dictating the price and the only way for us to make more money is to do more volume. Now, it's going to be difficult at some point to do that. So what moved us to the good, the forces of commoditization, so we meaningfully differentiate away from commodity into good. But then what happens? Everyone starts making coffee and now it's commoditized.

0:33:30.8 Tim: Is the same thing.

0:33:32.6 Junior: It's is the same thing. So what do we do to differentiate? We move again and we move into service. And what happens? At first we have great margin and slowly the forces of commoditization work up again. It's commoditized, we move again. We meaningfully differentiate to experience. Now, this is what's happening. And the reason I bring this up is the forces of commoditization are eating away at the advantages of the service economy. Good service is no longer meaningful differentiation. Good service is par for the course. So now what must we do to gain or maintain our advantage? We move into the experience economy. So if we don't do that, what must be true? That what we offer the marketplace will inevitably become commoditized. Now, I think that this is a fascinating topic for conversation. And I wanna go into the difference between the service and the experience economy in a little bit more detail and show how that is linked to emotional intelligence.

0:34:50.8 Junior: There are different attributes about these economies, the service and the experience economy. The nature of the service economy is just intangible. The nature of the experience economy is memorable. I'm gonna be pulling from one of Pine's tables here. The key attribute of a service economy is that it's customized. The key attribute of the experience economy is that it's personal. And then Tim, you made a comment, you said that it has something to do with the combination of the tangible and the intangible. I thought that was interesting. Can you bring that up again?

0:35:22.2 Tim: Yeah. Well, you said that the nature of the service economy is intangible, that's true. But the nature of the experience economy is memorable, but it brings together the tangible and the intangible, brings them together so that you're having an experience.

0:35:41.0 Junior: Well, and that proves true to me. If I look back at my experience, that's certainly true. Now, the method of supply of the service economy is delivered on demand. The method of supply in the experience economy is that it is revealed over a duration. I thought that that's a very interesting point to me. So delivered on demand, here's your coffee, right? Think about revealed over a duration. Maybe you take your order and then what happens? Instead of a black box on the other side, maybe you have insight into the way that the product is created, right? Maybe you see the coffee beans being ground up. Maybe you see the drip. Maybe you see, and so on and so forth, and you have insight into the way that this experience is revealed. So the method of supply is pretty interesting. Next, the seller of the service economy. Tim, go ahead.

0:36:38.4 Tim: Yeah, I wanna give an example here that I think is absolutely fascinating that I have been so intrigued with lately. So one of the news outlets, in days past, we'd call it a publication, but it's not a publication anymore. Well, it kind of is, but it's more of a news outlet that I subscribe to is The Economist out of London. Now, The Economist has been known for years and years and years to provide the highest quality journalism, but Junior, here's what they do. This is so fascinating. It's such a great illustration of what you're talking about. Every week, so they come out with an issue of The Economist every week. It's still a news magazine, and they still print it, although, of course, most people just access the content digitally, but it's still a publication, and they put it together. So do you know what they're doing every week?

0:37:33.8 Tim: They send out, they show us the mark covers, and they'll usually show us three potential covers for the new addition that's coming out. And why these three potential covers, why they are considering number one and number two and number three. And they have a theme. They have a cover story, the big headline, but they're taking us into the inter workings of the journalism and the graphic design, and the layout and their thinking process, they're bringing us in and they're giving us an experience. They're not just sending us that week's publication and saying, "Here it is. Here's the cover story. Here are the leading stories for the week." No. They're bringing us in to see how they do it. It's incredible.

0:38:32.7 Junior: I love that.

0:38:33.5 Tim: Think about it. So we're all having a journalistic experience with The Economist.

0:38:37.5 Junior: It's a great example.

0:38:39.2 Tim: Who ever thought that we would be interested in the way that that comes together? Well, actually, it's quite fascinating. That's just a perfect illustration of what you're talking about.

0:38:50.3 Junior: I love that, revealed over a duration. Now, Pine calls the sellers of the service economy, providers, and he calls the sellers of the experience economy, stagers. This makes me think of Disney. In their parks, what do they call their people? Cast members. You think that's not intentional? Cast members, we're putting on a show. We're giving an experience. Now, the buyer of the service economy, a client, the buyer of the experience economy is different. So if you think about the factors of demand for a service economy, they're based on benefits, if you think about the factors of demand in experience is based on sensations. So here's an illustration that I think is another great example, Jim Loeks, he was at the time a part-owner of the Star Theater complex, I don't even know if it is around anymore in Southfield, Michigan. So he told Forbes Magazine that, "It should be worth the price of the movie, just to go into the theater." Think about that for a minute.

0:39:56.7 Tim: I love that.

0:39:58.4 Junior: What does Mr. Loeks understand? He understands that the movie itself is commoditized. He understands that even the theater going experience itself, just the act of going to a theater and watching a movie, commoditized. So what is he trying to do? Move from service to the experience economy. He knows that if he does that well, what can he do with price? Increase it. It should be worth the price of the movie just to go into the theater. Oh, what a cool example.

0:40:31.4 Tim: That's amazing. So Junior, I think what we're saying is that, and you've laid it out, that for centuries, we've been running from the forces of commoditization, they've been chasing us, and they have chased us from one era to another, and finally we're in the experience economy, which may be the culminating stage. I don't know where you go from here. I think this is it. You just continue to make it better, but that's where we are.

0:40:58.1 Junior: Yeah. So, here's an example. Recently for me, I had the opportunity to go and golf at Black Desert. Now, Black Desert will be on the 2024 PGA Tour. It's as if Mordor had a golf course. Okay, you're playing through black lava rock. It's a stunning landscape. But the reason I bring this up is because every single memorable experience that I had from that course was created through a human interface. Now, the course could have been immaculate, the weather could have been perfect, which it was, everything could have been an A plus, but if the human element would have been average or less than average, I would have likely had a pretty average experience. Now, what Black Desert did so well was service. As soon as I parked the car, the second I parked the car, there was someone there. "Good morning, welcome to Black Desert. Can I open the trunk for you? Can I take the bag? How are you today?" And then this conversation starts, this human interface, and it wasn't rote, it was not scripted, this person is picking up on these cues, "Oh, I see that you have a bag tag from Utah, you from around here?"

0:42:16.0 Junior: "Oh, yeah." "Oh, I see that you're playing with this today, what do you think about this?" And your group and just observing, seeing all of these things, the social awareness component, and then the self-awareness, they see, oh, you're on a phone call, I'm gonna back up for a few steps. All of these things are so tuned in to providing that experience. Then we get into the club house and they tell us so graciously, "We're so grateful that you're here, here's what you can expect today, this and this and this," and that type of experience continued throughout the entire day. And it was such a wonderful example to me of the fact that as far as differentiated product goes, it's up there. It's not a commodity course, but if it were, then all I would have to go on would be that human element. Assuming the product is commoditized, the actual thing that I'm getting, what am I paying for? Service. The human element, the experience, and I think the nature of the experience was memorable. That's what I paid for. I paid for an experience that I'm going to remember, and it was, as you said, the tangible and the intangible coming together. It was the golf, but it was the feeling that I had throughout the day as I was playing with people that I cared about in a situation that was so encouraging and comfortable, it was amazing, it was the factor of demand sensation. These people were definitely staging an experience. The method of supply was revealed over a duration.

0:43:56.4 Junior: And so I think about some of these experiences I've had recently, and they point back to that human interface and the ability to interact effectively with other people, EQ as the delivery system.

0:44:07.2 Tim: Well, Junior, let's think about what we remember. So for example, you said it was memorable. In other words, the experience created a memory. What do humans remember? We remember things that are remarkable, that are not normal, that are beyond what we expected. So, either really good or really bad. But if it's what we expected, if it's unremarkable, then it usually doesn't create a memory, it just, it's gone, you don't think about it again. But if it's really good or really bad, it creates what psychologists call vivid memory. So is it fair to say, Junior, that your experience at Black Desert was memorable, that it will stay with you because of that?

0:45:01.8 Junior: Absolutely, and not least the back nine, so if you ever have a chance to go golf Black Desert, do it, 'cause it's beautiful. But yes, it was a memorable experience for sure.

0:45:10.4 Tim: Yeah.

0:45:10.9 Junior: So what we're saying is that you can have a great product, you can have great systems, great hard skills, good infrastructure, good pricing, but you will never be able to move from service to experience without developing high EQ in yourself and in other people to effectively deliver the brand promise. And if you can't do that, the forces of commoditization will eat away at your organization until it goes the way of history, unless you are able to meaningfully differentiate through experience. So that brand promise, think about your industry, think about healthcare and the patient experience, think about education, non-profit, for-profit, the brand promise across all of these industries, regardless of where you are and what you do, the brand promise will be tested daily and not even at the customer interface, internally, your brand promise is tested, perhaps hundreds or thousands of times a day. Isn't this true Tim across industry?

0:46:16.1 Tim: That's absolutely true. Think about large organizations that have hundreds, maybe thousands of employees, and think about those employees who are having interactions every day with all stakeholders, not just even customers, but other stakeholders, it could be internal stakeholders, it could be partners, it includes governments, it includes anyone that you're working with, educational institutions, voluntary associations, non-profits, whatever it is, whatever those... The stakeholders are included. You're having literally thousands of human interfaces every day. So think about how consistent you want to be in order to deliver your brand promise. If even a small percentage of those employees are breaking the brand promise every day through poor emotional intelligence, then think about the liability that is to the organization over time. That's how central this becomes.

0:47:22.5 Junior: The stakes are high. So, let's summarize where we've been today. I've really enjoyed today's conversation. Organizations need competitive advantage, that's assumption number one. Competitive advantage is based mostly on differentiation. And differentiation, especially in 2023, relies heavily on our ability to create predictable high quality experiences. Here's the next node in the logic, high quality experiences boil down to high emotional intelligence. So all said and done, if we wanna compete in today's day and age, we have to hire for and continually develop our own and others' emotional intelligence. Tim, any final thoughts?

0:48:05.6 Tim: Well, I just really loved the episode today, and let's go back to the thesis that we started with, Junior, at the very beginning. What did we say? We said that we're gonna make the case that emotional intelligence is central to competitive advantage, and that organizations can't maintain it without emotional intelligence. So I think we've made the case that emotional intelligence is central to not only creating but maintaining competitive advantage.

0:48:35.8 Junior: We've got more EQ content coming. I'm really excited about the upcoming episode, so thank you everyone for your time and attention today. We realize that you could be spending those two things elsewhere. We really appreciate your listenership, we're grateful for the work that you do in the world. And we are here to support you. You can always reach out to us at leaderfactor.com. We appreciate your likes, your reviews and your shares. If you found value in today's episode, please leave us a review, that helps other people see the content and the world needs it. Take care, everyone. We will see you next time. Bye-bye.

[music]

0:49:15.0 Freddy: Hey, Culture by Design listeners, this is the end of today's episode. You can find all the important links from today's episode at leaderfactor.com/podcast, and if you found today's episode helpful and useful in any way, please share it with a friend and leave a review. If you'd like to learn more about LeaderFactor and what we do, then please visit us at leaderfactor.com. Lastly, if you'd like to give any feedback to the Culture by Design podcast or even request a topic from Tim and Junior, then reach out to us at info@leaderfactor.com or find and tag us on LinkedIn. Thanks again for listening and making culture something you do by design, not by default.

[music]