Welcome to the Experience Economy: How a Compelling Concept Formed the Basis for a New Type of Firm
According to Victor Hugo, "There is nothing more powerful than an idea whose time has come." For Joe Pine and Jim Gilmore, the time was 1996 and the idea was something called "the Experience Economy."
In the mid-1990s, Pine and Gilmore were respected business professionals with a proven track record. After a long, successful career with IBM, Pine had launched a solo consulting practice in the emerging area of Mass Customization, the topic on which he wrote his first book in 1993. Gilmore, whose pedigree included work at Procter & Gamble and management consulting experience with Cleveland Consulting Associates, was heading up the process innovation practice at IT services giant Computer Sciences Corporation. After reading Pine's book, Mass Customization: The New Frontier in Business Competition, Gilmore contacted Pine about doing some work together—because Gilmore was working with clients on mass customizing processes—which eventually led to Pine's signing on as an external "thought partner" for Gilmore's practice.
The two consultants had been working together for some time when they hit upon a novel idea: that some companies increasingly were wrapping their goods and services in unique experiences as a way to ward off commoditization and more effectively engage their customers. With the nascent yet inherently powerful concept that experiences were a distinct economic offering, Pine and Gilmore formed their own firm, Strategic Horizons LLP, in 1996, and followed with the publication of their first joint book, The Experience Economy: Work Is Theatre & Every Business a Stage, in 1999. An immediate hit, the book went on to be published in 12 different languages and sell more than 100,000 copies in English alone—and made Pine and Gilmore household names on the speaking circuit and in executive suites around the world.
Pine and Gilmore recently spoke with Bernie Thiel, a founding partner of The Bloom Group, about the genesis of their firm, how they were able to translate their concept into a best-selling business book, and why Strategic Horizons will never be as big as the firms they used to work for.
Bloom Group: How did the Experience Economy concept develop? Where and how did you first get the notion that more companies were beginning to compete on the basis of compelling experiences?
Joe Pine: It actually came out of my previous work on Mass Customization. I was teaching a group one day, and said something that I often did: that Mass Customization automatically turns a good into a service. If you look at the classic economic distinction between goods and services, goods are standardized and services customized; goods are inventoried after production, but services delivered on demand; and goods are tangible and services intangible—well, part and parcel of Mass Customization is the intangible service of helping people figure out what it is that they want. So if you customize goods, you're really in the service business. And there's this one guy in the back of the room, he was sort of a smart aleck, and he raised his hand and said, "You talk about service companies that mass customize. What does Mass Customization turn a service into?" And I shot back, "Mass Customization automatically turns a service into an experience." And then I thought, "Whoa, that sounds good!"
Jim Gilmore: I remember Joe calling me and saying, "Jim, guess what I said! Now let’s go figure out what it means." He really took the concept of the traditional Service Economy and extended that to the idea of an Experience Economy. So then we started talking about what's new in this box? What examples can we put there? Obviously we immediately thought of Disney and their whole language about guests, cast members, Imagineering, and so forth. But I also had this recollection of when I went to Chicago for the opening of the very first Niketown. When I got there, there was a line out the door. It was literally a rope line like a nightclub. And I got in line, I had to wait almost an hour to get into the place, and that line set an expectation of paying an admission fee. We then reflected: What if Niketown had charged admission? What might it have become as opposed to just another store?
And so Joe and I got to thinking about charging admission and different forms of admission fees. Then one of us said companies must "stage experiences"—and the notion of staging, particularly given my work on process innovation, led to the construct that "work is theatre." And the idea of theatre as a model for how workers in companies perform just sort of set us off in terms of our personal reading and study, and together Joe and I devoured an untold number of books about theatre and performance theory.
By the way, I think there's a big lesson to learn here for people looking for big ideas—and that's to go outside of business literature for insights and look to some other discipline. We looked to the principles of theatre to construct frameworks and models that can be applied to the staging of experiences in compelling ways. There's also an important point about listening to how audiences and clients react to your current thinking. This one individual smart—aleck, as Joe describes him, really provided the stepping stone to a whole new concept. There was Joe out there, an expert on Mass Customization, who could have comfortably stayed in that box. But he had the presence of mind and willingness to see an opportunity to shift to a new box, and that was really key for us.
BG: So you started doing a little more reading and thinking about it. How did you further develop the idea to the point at which you could write about it? Was it a formal process or was it more of just talking and further analyzing?
JP: One of the first things I did was get out a pad of paper and start writing down all the words associated with each of the successive economic offerings: commodities, goods, services, and experiences… and the offering we identified as being after experiences—because in the same way that goods and services can be commoditized, experiences can be commoditized. The same way that customization takes you up a level, we asked, "What happens when you customize an experience?" We realized that's when it turns into an experience that changes us in some way, a life-transforming experience, which we now call a transformation. So I outlined these five economic offerings—commodities, goods, services, experiences and transformations—and came up with this table that…
JG: Joe developed this giant matrix. Remember, Joe? I looked at it and words just popped off the page. Joe had laid out in a very powerful way the relationships between different words that represent different concepts. Identifying such relationships between concepts is critical to developing frameworks that can help guide clients in light of developments their companies face.
JP: Jim and I have often joked that we should name our company "Frameworks 'R Us" because that’s what we do: We look at what"s going on in the world and then we create a framework that allows people to see it for themselves and apply it to their own business.
JG: And I think that's why The Experience Economy has had such legs. We didn't write a one-chapter book. There are multiple frameworks and models in the book that people can delve into and use in a practical way. I think a lot of business books today amount to little more than an article 'poofed up" to be 200 pages. We worked really hard to add a multiplicity of models and frameworks to help readers understand and succeed in the Experience Economy.
BG: At what point did you realize "We've got a book here?"
JP: Oh, right away!
[Laughter]
JG: The moment for me was when Joe and I had our first-ever joint speaking engagement in front of an association, and there was a Harvard Business Review editor in the audience. He rushed up afterwards and asked if we had thought about writing an article on the topic. We said we had been thinking about it, and that conversation ultimately led to our HBR article, "Welcome to the Experience Economy." And that article probably was as much responsible for the success of our new business, frankly, as the book. The reception that article received was just overwhelming.
JP: Yeah, we actually had to fight the book editor to get that article published in HBR eight months before the book was out because their view, at the time, was that unless a book's available for purchase, anything that comes out ahead of time is wasted publicity. Our view was just the opposite—that any advance writing actually helps create anticipation—
JG:—to let the idea gain currency.
JP:Right, so that the number of people who anticipate the book will be even bigger. And that's exactly what happened. Now [Harvard Business School Press] tries to do that with all of their key books.
BG: Anyone who has written a book can testify that it's not easy to produce even a decent book, let alone a best-seller. Can you talk a little about how you went about collecting and developing the ideas and concepts that ultimately formed the basis of The Experience Economy?
JP: There are a number of things to go into. One is that we are voracious readers. We each read three or four daily newspapers and together have subscriptions to some 40 or 50 different periodicals. We're constantly scanning what is going on and we save things and then look at how to organize them in ways that make sense. That's where, for example, you find some companies or places that are really doing a great job of theatre, like Best Buy's Geek Squad or the Pike Place Fish Market in Seattle. You see others that are doing a good job of "theming" like Joie de Vivre Hospitality in San Francisco. You start to use that to set your thinking and ask, "What is it that these companies are doing? What are the principles they’re applying to their business that other businesses could apply?" Once you know that basic principle, like "work is theatre" or "experiences should be themed," then you develop the models that help make sense of what you've read—which then goes from being descriptive to prescriptive with clients.
JG: One of the hardest things about initially writing the book was finding examples to illustrate what we're saying. Sometimes we had the idea but didn't have the example that would support the idea. But businesses need some kind of validation of an idea—which creates sort of a paradox: The whole world wants innovation and originality but they also want examples of someone already doing it! So we really struggled to find those companies that were exemplars we could point to. Today, though, we have quite a different problem. It's hard to even keep track of everything that's going on experientially. Given our speaking schedules, we constantly have people coming up to us with new examples of companies doing what we're talking about. And the great thing about this is that as we get more examples, we have more to talk about in our presentations, which gives us more examples, which leads to more talks—it's a great feedback loop.
BG:You launched your company, Strategic Horizons LLP, in 1996 basically on the back of Experience Economy idea. This is somewhat different from most professional services companies, which typically begin because the founder has a particular skill he or she wants to sell. Were you at all concerned that you might be basing a company on a concept that could prove to be short-lived?
JG:Not at all. One of the things that attracted me to working with Joe was that I was convinced Mass Customization was not some fad. I became convinced because structurally there was this shift going on from Mass Production to Mass Customization, a shift that I thought Joe wonderfully articulated in his book. We became convinced of the same thing about experiences—that there was something different in kind between an experience and a service, and that we were latching ourselves on to something with decades remaining before it played out.
JP: I'm fully convinced that if we had never come up with the idea for the Experience Economy we still could be making hay with Mass Customization. We would have been investigating more, we would have been researching more, we would have come up with more frameworks because Mass Customization is also going on for decades; it is now happening all around us. It may not have been quite as lucrative as what we've done with the Experience Economy, but...
BG:In previous conversations we've had, you said Strategic Horizons LLP is not really a consulting firm. If it's not, what is it?
JG:It's somewhat awkward, but we call ourselves a thinking studio, which we like to view as a blend of a consulting firm and a think-tank. We didn't want to call ourselves a think-tank because it sounds too academic and detached, and like some sort of Washington DC-based lobbyist. Nor do we want the firm to be associated with project-based consultancies. I really view us as in the education business. A big piece of what we do is consulting, but it tends to be workshop-based, immersing people in our models and frameworks, helping them do the work and the thinking for themselves, asking provocative questions—not saying, "Here's the solution." I have found through the years that I'd rather work with clients who are capable of engaging with outside experts in that way. The last client I'd like to work with is someone who needs you to come up with the solution. That's no fun. But someone who values a different perspective, values your mind and the way you ask about their situation and takes it from there—that’s the best working relationship one can have.
BG: Strategic Horizons LLP is only four people, and so your growth is inherently limited by the amount of time you can spend working. Some might say you guys left a lot of money on the table by not creating the implementation end of the Experience Economynot building a larger consulting organization that could help companies create and sustain —compelling experiences. You create the demand for the concept and make people hungry for it, but then you walk away.
JG: That's true. But we're blessed, and have nice lives.
JP: And nice wives!
[Laughter]
JG: Yes, and most understanding wives. Anyway, I think the idea is big enough. There is no way anyone can monopolize on an idea like the Experience Economy. Joe and I simply gave voice and coined a term for what was already happening. We didn't invent this stuff. We discovered it and gave it a name. But Joe and I could rattle off hundreds and hundreds of firms and thousands of individuals doing great work in this area. Does that mean we would hire them all?
I once sat next to an owner of a successful small business on a transcontinental flight and had a very interesting conversation. He said he had a management metric that he called ROB—"return on bother." You know, we could have done a number of things differently with our firm. But I think we’ve had a handsome return on something with a lot less bother. Have we walked away from money as a result of that? No doubt. But for us, we just didn't want to build something bigger; we wanted to inspire many others to help change the face of business.
BG:Let's talk a little bit about how you're keeping your material fresh and what's coming down the pike. What are you planning for the near future?
JP: Well, we are finishing up our next book, which we hope will be out next spring. The topic is authenticity in business. More specifically, we think increasingly people no longer want to buy the fake from the phony; they want to buy the real from the genuine. So companies have to render their offerings to be perceived as authentic. And one of the things we hope to do differently this time instead of doing book tours in book stores is create a series of our own events to promote the book—going to particular cities, with limited participation, and charge people to hear about the ideas from us, ending with our annual thinkAbout event in September.
JG: This topic is a tougher one for us to wrap our minds around. We wrote The Experience Economy before the term gained currency. The word "authenticity" is already out there and so we have to carve out our own particular point of view regarding a term that’s already gained some prevalence. It's a little bit of a challenge. What's also a challenge is dealing with examples. We started writing The Experience Economy in 1996 and were really hurting for examples. Since then, with the dawn of the Web, there’s so much more information out there now and it's so much easier to find examples. This time we're trying to figure which examples to keep and which to throw away—to turn information into knowledge and wisdom. It's critical work, because a book is basically a filtering mechanism. It codifies, at a point in time, what a couple people think is significant. We trust people will find the value in that.
JP: That's very true. So much time and energy is being spent on producing those hundred-page books you see in the airport that you could read in an hour. I guess they have their place—they have some core ideas in there—but they aren’t going to change the world. We spend a lot of time and money developing our ideas because we want to change the world—and that's a pretty different attitude from what most business-book writers have.