A (2:52)

Yes, but he says that when you get it right, it can be a huge boost to long term performance. He has lots of case studies and he's going to explain exactly what it takes to succeed with this kind of transformation offering. Bea Joseph Pine II is co founder of Strategic Horizons and author of the book the Transformation Economy Guiding Customers to Achieve Their Aspirations. Here's our conversation. In your previous work, you've talked about the shift from products and services to to experience. And why is what you call the transformation economy the next evolution?

C (3:31)

Well, it's because of the basic framework I put in both books called the Progression of Economic Value. And it describes how value that companies create has changed over millennia from the agrarian economy based off commodities, through the industrial economy based off goods, to the service economy. And what happened in the latter half of the 20th century? We shifted into an experience economy where again, experiences are a distinct economic offer built atop services and goods. And now what's happening is while all five economic offerings have been around, the fifth one is coming more to the fore. And the fifth one is, as we say, transformations. Transformations where you use experiences as the raw material to guide customers to change, to help them achieve their aspirations, to help them become who they want to become.

A (4:18)

So what is the impetus for companies that are doing well at selling products, services, or experiences already to make this shift to guiding transformations?

C (4:29)

Every one of my books has had a boogeyman, right? What this is, the boogeyman, is commoditization. Commoditization is like the law of gravity. If you do nothing, then eventually your offerings will be commoditized. You can be successful at commoditization with generally only one or two industries that automate as much as possible. Get rid of as many people as possible and they can still succeed. But it's no fun, I'll put it that way. What you need to do is think about how do we then shift up this progression of economic value? How do we innovate where we are and create new offerings that aren't yet commodities and then shift up to create the next level of value? And we've already seen where some experiences are commoditized. I think the theme restaurant industry went into commoditization mode a long time ago. I and a colleague wrote an article for the HBR back in June of 24 about how Starbucks was commoditizing itself. Basically because it's focusing on efficiency rather than the coffee drinking experience. There's a huge opportunity that people increasingly are looking for help. Because change is hard, right? It's just fundamentally hard. It's hard to do on your own. And so companies are increasingly positioned to help people achieve their aspirations as well as businesses with B2B transformations so what.

A (5:45)

Are the key differences between offering experiences and they could be aspirational experiences and you know, making yourself better types of experiences. What are the key differences between that and transformation?

C (6:01)

As I said, transformations are built on top of experiences. And many experiences are already transformative. In fact, even without trying to make them transformative, we all have life changing experiences, right? Just one single experience that changes us. What transformations generally take is not that one life changing experience, but a series of experiences change over time that take you upwards and to the right from where you are today to achieving your aspirations. And so requires working with people over time to have a full transformation offering, as opposed to, I'll use the term merely, but it's much more than merely transformative experience.

A (6:40)

And what do you think is going on in culture or consumer psychology here that people are wanting to invest in transformation? Is it driven by social media? Because we're constantly bombarded by these ideas of life hacking and self improvement and also images of all these other people sort of who are skinnier, richer, happier than we are.

C (7:04)

Yes, and much more so. One thing to recognize again is that transformations have always been around. But what happens over time is we increasingly seek companies to help us. That's one of the factors with transformations. Knowing that we have more disposable income, which is a part of it, which allows us to spend it on things that are more value to us. In fact, people want goods and services to be commoditized, so they buy them at the lowest possible price and the greatest possible convenience, so they could spend their hard earned time and their hard earned money on experiences and transformations that they value much more highly. So part of it is how rich we have grown over time. What you say about social media is true. And comparing ourselves to others, it's also true that it's a fundamental need of a human being to sort of improve, to want to get better, to have aspirations. They come out of the relationships that we have. It may come out of the work that we do. It may be as simple as wanting to improve your golf or tennis game, that you look for coaches to be able to do that. And that's one of the indicators you see, in fact is think about the rise of coaching occupations over the last 20 or 30 years. It used to be just basically sports, right? Now you got life coaches and executive coaches and speech coaches. And that's that indicator of how much we want to improve ourselves, how much we want to become again who we want to become.

A (8:29)

Is this transformation economy for sort of a subsector of Consumers or do you see it sort of being more widespread? Is it just for the rich?

C (8:39)

No, no, it is absolutely not just for the rich. It is for everybody. One of the things the rich do very nicely though is that they are able to buy offerings that have very high costs. Right. That have a high price. And then so that the people that provide those can figure out how to do it more efficiently by focusing on the rich and then bringing it down to the middle class and all socio economic classes. So that's always helpful at any one of these economic shifts. Just like the rich bought cars at thousands of dollars that people couldn't afford until Henry Ford figured how to mass produce them and give them to the masses. We see that sort of thing now in many different fields of transformation.

A (9:19)

Yeah, celebrity personal trainers sort of creating an online fitness plan.

C (9:24)

Right.

A (9:24)

So give me a good example of a company that switched from offering products, services or experiences to transformations.

C (9:31)

You can think about the fitness centers in general that sort of treat themselves as a service, but they're inexperienced because you're paying for the time that you spend there. Monthly, you know, monthly membership fees, you know, admission fees or membership fees put you in the experience business. But many have gone beyond that to provide a level of programmatic offerings. It's not just here's all the stuff that we will work with you personally understand what your individual aspirations are and so can go beyond that generally for extra fees, often on a personal trainer basis to be able to help people actually achieve what they say they want to do when they, when they join the fitness center. Give you another example, Medtronic, you know, which provides physical goods, pacemakers and other medical devices and they their CEO, former CEO. Now you had an interview with the Wall Street Journal a few years ago where he talked about how he was moving Medtronics and as is all of healthcare is moving towards outcome based pricing that, you know, we put a pacemaker in and it doesn't work for you. Why are you paying thousands of dollars for that? Right, it's, it's because outcomes matter, not inputs. So you see many companies that are shifting into that, that direction as well. Consulting companies and B2B have always been in the transformation business. Nobody hires a consulting company unless they want to change business as they're result. But they're, they are increasingly charging for that, charging for the outcome that they want through various different means of like success pricing and so forth. McKinsey just recently announced how particularly the rise of AI, they're increasingly moving to outcomes based pricing as well. Inputs don't matter, only the outcome. So when you sell the outcomes, then you're, you know, you're economically in the transformation business.

A (11:14)

So I can see how the transformation economy works in the health and wellness industry. I can see it working in beauty, education, financial services, any place where self improvement is really sort of at the forefront. Do you see lessons for other industries that might be less obvious?

C (11:34)

You just pointed out, like what I call the four spheres of transformation. I keying off of the old proverb about being healthy, wealthy and wise, right? So there's health and well being, there's wealth and prosperity, there's knowledge and wisdom. And then there's one more which, which the old proverb didn't include, which is purpose and meaning. There's a lot of transformations geared around those. If I think broadly, which is why it's not just healthcare, it's health and well being.

A (11:56)

Right?

C (11:57)

Well being encompasses just a whole lot of things that customers generally pay out of their own pocket versus insurance companies or third party payers that pay for for healthcare. Prosperity covers a lot more than just money. It's about how you live a good life. Right? Knowledge and wisdom is not just about paying for education, but things, but practical things that help you live your lives in a way, you know, that become prosperous. But the thing to do for, for any industry is really is to, you know, the old, the old Toyota production system method of asking five whys, right? Why are your customers buying from you? Why do they want that and why do they want that? And why they. Until however many it takes, you get down to a core aspiration. You can think for example, about accounting. Why do people want accountants? Right. Why? Well, it's because they want to have a better handle on their information. Why do they want to have a better handle and their information? Well, so they can use it in ways that improve their business. Right? And as you go down to a track until you recognize, okay, this is why they want us, it's actually to improve their business, to enhance them. Each one and maybe a general aspiration, each one will have a particular thing they're focusing on. Now. How can I turn my accounting services into a transformation that helps them actually achieve that core aspiration that goes beyond the tracking data and delivering reports.

A (13:16)

Okay, so let's talk about how a leader might shift their organization to this way of thinking. What is the first step in understanding what might resonate with customers, either existing ones or potential ones?

C (13:29)

Well, the first step really is to understand their aspirations. You know, every economic offering has its own type of Customer or something that you should call it, right? Commodities have markets, goods have users, services have clients, experiences have guests. With transformations, it's aspirants, right? They're an aspirant. They aspire to become. So what are their aspirations? How do you figure that out? Again, you may have some sort of general aspiration for what you're doing as a business, but you have to get down, ideally to every individual person and recognize that their aspirations are unique to them and are going to differ in some ways. And so often that requires a dialogue, it requires a collaboration. I in fact call it. It's one of the phases of transformation. It's a diagnosis, to use a medical term. Who is this customer now? What is their identity? Recognizing that all transformation is identity change. So understanding who are they today, what their identity is, what do they want to become, right? And what I encourage companies to do in the book is to develop from two statements, right? From X to Y, where are they today? What do they want to become? And then through that diagnosis, you then design the set of experiences that take them from where they are today to what they want to become. Recognizing that there's often regress as well as progress. So you have to be willing to sense and respond what they are doing and be able to then keep them on track as they get off track.

A (14:57)

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B (15:36)

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A (16:14)

It's a bold idea that businesses and a lot of different types of businesses should get involved in personal identity change. And it's so high touch and involves a sort of really individualized perspective on Your customers. So it sort of wasn't possible before all the technological advances that we've had recently, including AI.

C (16:39)

I imagine what I recognize is that as commoditization drags you down, customization lifts you up. And so yes they are, because they happen inside of you, they are inherently individual. And you do want to customize as much as possible, you want to mass customize efficiently, customize as much as possible. And that of course is where things like AI can come in. And you think about AI's use in healthcare and therapy to be able to understand the individual and do the right things for them, ask the right questions to them. There are some dangers with that, of course, and that we've got to be cognizant of and be able to respond to and handle. But technology today, you know, just is so much more effective at being able to understand individuals, customize to them. One of the things we see, for example, is the rise of your first experience platforms, then transformation platforms. So for example, BetterUp is a coaching platform. Basically they do a diagnosis about what you're looking for, what sort of coach you want, what your personality style is. And they present three coaches to you and you view them, you swipe left or swipe right. If you don't like any of them, you can get another set of three until you find someone that seems right for you. And then the coaching is all done virtually. It's not by AI directly, but you're having this one on one conversations. But then the AI can help between those virtual conversations that's done over your phone or over a computer and can keep track of things, it can present what the next opportunities are and so forth that is done. Then through the to the individual personal coach.

A (18:16)

As companies are thinking about the different types of transformations or all of the elements of transformation they want to offer customers, what kinds of buckets should they be considering?

C (18:28)

Well, one of the things to do is to go is to use a jobs to be done theory, which, you know, was pioneered, you know, 30, 40 years ago and Clayton Christensen popularized 10, 20 years ago. My colleague Dave Norton has taught me a lot about that. He runs an insights consultancy called Stonemantle. And he keyed off of one thing that was one of Clayton Christensen's articles, which is he talked about there's functional, emotional and social jobs to be done. And then we then added the fact, well then there are aspirational jobs to be done that directly affect transformations. But you can't forget the functional, emotional and social. In fact, with any experience with any transformation, the need to handle people's emotions is incredibly important. There are always emotional things going on. There are social things like you talked about with social media, about wanting to. How I relate to other people, how I look to other people and appear to them and so forth, as well as there are functional things about, like doing my reps or eating the right food and tracking things and so forth. And so you have to do all of those. And Dave even added a fifth job to be done more recently called systemic jobs, where you develop a system that allows you to do all this, and that's something that's very important for transformation guiders as well, is to develop that system. I mentioned the first three phases of transformation, which is first diagnosis and then the set of experiences. But there's a third phase called follow through, and that's ensuring that the transformation takes hold, that it's sustained through time. You know, if I go through a smoking sensation program and after six or eight weeks I quit smoking, but then three months later I light up again, was I truly transformed? Right. And so often that takes us. That's a systemic job to be done. How do I integrate this into my life in a way that I ensure that I stay on track, ensure that I don't backslide again, ensure even that I'm actually continuing to uptick in whatever dimension of identity it is that I want to change?

A (20:24)

And are there any other practices that need to change or organizational restructures that need to happen to reorient around transformation?

C (20:35)

Yeah, there are. And frankly, I'm not sure of all that's going to take to be able to do that for many companies. But one thing is to recognize the economic function that you're doing, again is guiding. So you need to think of your people as guides. Now, you may not use that term. You may use coach, you may use counselor, you may use navigator and curator. But to recognize that their function changes from a much more to a much more external view. It's not just. It's not about what I do. It's not my input. It's not the service activities that I provide. It's about the outcomes that our customers get. And I'm guiding them through that process. So you very much always need to sense and respond what is going on. Right. As a coach or a counselor, you need to be attuned to them individually, what's happening, what's maybe happening in their lives. That's outside of your purview. But it is a function of guiding because you need to, because that's impacting what they're able to do to achieve their aspirations. So that's one of the key things that I think is needed to be able to truly get into the transformation business.

A (21:40)

And how do pricing and business models shift in this new transformation economy?

C (21:46)

Well, one of the things I love to say is that you are what you charge for, right? If you charge for undifferentiated stuff, you're in the commodities business. If you charge for tangible things, you're in the goods business. If you charge for the activities your people perform, you're in the services business. And economically, you're in the experience business if and only if you charge for tide, right, the time your customers spend with you, an admission fee, membership fee, or other way of doing that. With transformations, what's important is that you charge for the demonstrated outcomes that your customers achieve, because inputs don't matter again, only outcomes. So you just switch that around and charge for what they get out of it. And they're. There's several ways I've encountered to do that among the hundreds of companies I know that do that today. One key way is to charge a transformation guarantee. Often it is. It can be a hundred percent guarantee. Often the most number I've seen Most frequently is 25% guarantee that if we didn't do what we said we'd do, if you didn't get out of it the outcome you wanted, then we'll give you money back, right? And that's what a lot of consulting companies do now is do that guarantee or do another way, which is success fee that you pay us accordingly to how much success you get to how much outcomes you actually receive. One of my favorite examples there is Texas State Technical University. A number of years ago, the state government which funds all of these technical universities went to all of them and said, look, we pay you based on credit hours. That's an input, right? And basically it's when a student signs up for a course and, and they pay their part of the tuition, then we pay you a certain amount, whether the student actually goes to the course, whether the student learns anything from it, whether they're able to gain any gainful employment out of it or whatever. And so they said, what we want is. They may not use the word outcome, but we want is you to actually provide the outcomes that we're looking for, which is basically successful citizens. And one way to measure that is they pay taxes. So they went to all the technical colleges and said, how much would you be willing to pay put at risk var funding for you based on the Actual outcomes you achieve. Most said zero. Some said five, 10%. Texas state said 100%. Right. Think about this. So 100% of their funding and one of the things that charges for outcomes does, or in this case being funded for outcomes is it's a catalytic mechanism. If your income is dependent on your customers, outcomes, students, in this case, that it's a catalytic mechanism for we got to do everything right. So they actually. They did get rid of some of the classes or courses that they had. They did get rid of some of the teachers. They added new ones. They changed the way they matriculated students into it and introduced them to them. They changed the way they kept track of what they're doing. And even what happened after they left college, the success was tremendous. They actually get a lot more funding from the state because they improve their outcomes. And it became so much that they then are able to offer a tuition guarantee to their students that if they don't get a job within their major, within, I think it's six months of graduation, they get their entire tuition money back 100%.

A (25:05)

That's an amazing story. I can imagine every CFO saying that's way too risky. We cannot charge based on something that's out of our control, because ultimately, transformations rely on the consumers doing what they need to do.

C (25:25)

It's really a paradox that you cannot guarantee a transformation, and yet it's the best way to make that transformation is, in fact, to guarantee it.

A (25:33)

Okay.

C (25:34)

And one of the reasons you see 25% as a frequent number is because that's basically all profit, that we've covered our costs, at least in general, most companies. So it's not. We're going to lose money. And most companies, every company I know of, rarely pays it out because of that catalytic mechanism. But it's also the case that you don't have to charge everything at the transformation level. You can charge some things at the service level. You can charge some things at the experience level, like create a membership fee for it and then have a portion of it that's guaranteed at that transformation level. And you may be able to do 100% transformation. You know, I know companies that do it purely qualitatively. Right. You just say, did we do what we said we do? Did you get outcome you want and mo? And most customers do not shaft you, particularly because of that emotional connection that you need with those emotional jobs to be done.

A (26:21)

So it's like your premium offering is the transformation.

C (26:25)

Right? Right.

A (26:26)

Presumably, the people who are willing to engage in it and invest in it are really committed.

C (26:33)

Correct. And that so. And that's the second thing is you want a commitment, right? You, before you offer that guarantee, you get them to commit to it. And then that then is an emotional thing that you can come back to time and time again and you can have milestones on the way versus just that, that capstone achievement of the aspiration, right. To ensure that everything's on track. And so there's many, many different ways to do it. And to the CFOs, I can say, yeah, this also is a big scary thing. But it's the way to truly get in the transformations. It's the way to take advantage of this opportunity. It's the way to ensure that you do as a company the right job for your customers.

A (27:14)

What's the most surprising success story that you've seen in the transformation economy as it's emerging?

C (27:21)

There are so many examples of companies, I think that one I'll mention is, is basically is healthcare industry itself, which really recognized the value of experiences like 10 or 20 years ago. Because research shows that the better the patient experience, the better the outcomes. And healthcare companies understand that there is an outcome here. I think there was a lot of backtracking during COVID and everything that was going on, but they recognize that outcomes are important. And so for example, colleagues that I worked with one company, heartland health in St. Joseph, Missouri and we helped them develop their own meaningful purpose of why do they exist in the world. Right. Which came the theme of all the experience they create, which was live life well. And the idea was that they wanted their patients to live life well. They wanted their patients families to live life well. They wanted the communities to live life well. And they wanted their employees to live life well. So out of that abundance, they could then take care of the patients, their families and the community. So they actually decided to change the whole name of the company from Heartland Health to Mosaic Life Care. Right. So healthcare, they said, is a small part of life care that we want to be with you for your life. We understand that everyone has dreams and aspirations and how do we make that happen? And so they completely redesigned their new buildings. Everything they came up with to be much more consumer friendly. It's like walking into a very well architecturally done retail store, more than a hospital hospital. And. And they work effectively to make that happen, understand and develop, for example, a life plan for each one of their patients. Again, so it's not just about the health. They're focused on that health and well being into their life. I'll cite A startup, a financial company called Simplany. And they're a B2B2C company based here in the Minneapolis area where I live. They basically designed a system for financial advisors to work with their customers on. And the key is that the system doesn't just look at what are your financial goals, right? Because your financial goals should be subservient to your life goals. And they call it life and legacy. Right? Recognizing that many people wealthy enough, they're going to leave a legacy behind, whether to their kids, their grandkids, or to other organizations that are out there that support the ideals that they have. So the conversation completely changes when they use a system around those factors, which then yields itself to financial goals. And then they do this. The founder, Alex Garner, is like a math whiz. And they do all this math to be able to help you understand exactly what you're going to be able to contribute to your life and to your legacy, how that changes. If you have a thing, hey, we want to get a retirement home someplace, right? We just plug that into the thing and says, this is what it does, this is what it leaves left. You still have a 97% chance of achieving your life and legacy goals. And because that change in conversation, it very much becomes transformational because it gets the customers focus on their life and legacy goals as opposed to just how much money is there, right? Going from wealth to prosperity. Wealth is the means to which prosperity is the end and life and legacy are the elements of that. And it's a startup, hasn't gone public yet, but. But their growth numbers are fantastic and making great progress on getting that into various financial advisors offices.

A (30:50)

Wonderful. Well, Joe, it's been a pleasure talking to you. Thank you so much for being with me.

C (30:54)

Thank you, Alison. I appreciate the opportunity.

A (30:58)

That's Joe Pyne, co founder of Strategic Horizons and author of the book the Transformation Economy, guiding customers to achieve their aspirations. If you found this episode helpful, share it with a colleague and be sure to subscribe and rate IdeaCast in Apple Podcasts, Spotify or wherever you listen. If you want to help leaders move the world forward, please consider subscribing to Harvard Business Review. You'll get access to the HBR mobile app, the weekly exclusive insider newsletter, and unlimited access to HBR Online. Just head to hbr.org subscribe. Thanks to our team, Senior producer Mary Du, Audio Product manager Ian Fox, and senior Production specialist Rob Eckhart. And thanks to you for listening to the HBR IdeaCast. We'll be back with a new episode on Tuesday. I'm Alison Beard. These days, it seems like AI Agents are just about everywhere. You turn every field and every function. But without identity, you can't trust they'll serve your business instead of jeopardizing it. Fortunately, Okta helps you get identity right by securing your AI Agents identities, giving you a single layer of control, a single standard of trust. So whether an AI Agent supports a single user or your entire enterprise, with Okta, you'll turn risk into opportunity. Secure every agent. Secure any agent. Okta secures AI.