Cognitive rent, a strategic weapon to defeat uberization


Sébastien Bourbon

DBA from the Business Science Institute

IAE Lyon School of Management - Jean Moulin Lyon 3 University


Jean-Philippe Denis*

Professor

Paris-Saclay University


*Faculty member of the Business Science Institute.


 

Article originally published on The Conversation France.



Uberization remains synonymous with an existential fear for many economic players. It is like a sword of Damocles that would take the form of a disruptive start-up challenging the position of established players. The insurance against this risk of uberization is perhaps to be found in cognitive theories that could provide solutions to these strategic questions, through the concepts of knowledge asymmetry and cognitive rent.


This presupposes first of all an understanding of the nature of the disruptions caused by digital technology in the logics that structure the asymmetries in a market. And to examine in particular the situation of intermediaries, i.e. actors living with imbalances between supply and demand.


The loss of informational rent


The agency theory of Michael C. Jensen and William H. Meckling, which perceives the firm as a network of contracts between individuals, has long made it possible to understand what leads actors to solicit intermediaries. To summarize, the principal, the client, will call upon an intermediary (an agent) to perform a task on his behalf and/or to access goods or services in a given market. He must take such a step because of an asymmetry of information to his detriment, knowing that the mandate entrusted will itself be a source of new asymmetries of information for him.

Thus, agency theory explains the existence of intermediaries on a market by an asymmetry of information, following a configuration of imbalance between supply and demand. A real estate agent, for example, manages to build up an informational rent, which is the source of his legitimacy and added value. This rent can become considerable, allowing the actor to take root, as has been demonstrated in the case of the specific situation of managers vis-à-vis their agents, the shareholders.


Uberization can then be conceptualized as a capture and a detour of this informational rent from the intermediary. Indeed, the information previously monopolized by an agent becomes accessible to the greatest number of people through the platforms. The academic literature on the shareholder value discount of diversified groups has been very prolific on this subject, based on a well-known postulate: the financial markets (and therefore their operators, such as pension funds) are more efficient than the managers of (conglomerate and diversified) companies in allocating resources to the best projects.


Taking the example of real estate, this can be translated in two ways. First of all, C2C (consumer to consumer) is becoming more widespread in the old and partly in the new. Sites that put individuals in direct contact with each other provide information on the real estate market. Secondly, there is a cyber-mediation offer proposed by proptech start-ups, i.e. "real estate fintech".


These two types of attempts to uberate real estate intermediation, which also exist in other sectors, are gradually depriving the historical agent of his informational rent. The possibility of exploiting an asymmetry of information is then progressively reduced for an intermediary.


Transforming information into knowledge


Faced with platforms that make information available, an agent can no longer limit himself to a strategy of exclusively holding raw information. The added value of an intermediary in the face of players whose business model is largely based on data collection algorithms will therefore depend more and more on its ability to transform information into something else: knowledge.


Knowledge is always singular. In a context of analysis of market asymmetries, it is also appropriate to put this concept in the plural by integrating different dimensions (tacit, explicit, codified, non-codified, etc.). Thus, the intermediary can put forward know-how, but also interpersonal skills, even an ability to go beyond appearances and develop affinities and even intimacy.


This process of transforming information into knowledge then results in a change in the nature of the asymmetry. If we consider that an actor no longer exploits an asymmetry of information but rather an asymmetry of knowledge, then his position on the market, far from being diminished, can even be consolidated. It allows the agent to stand out from players seeking to uberize intermediation.


A mastery of procedures, an ability to exploit and combine simultaneously a variety of information and formal knowledge are all means for an agent to stand out from the platforms. It is also in the agent's interest to enhance his expertise and experience, i.e. to communicate his feelings and elements that are behind the scenes and to which de facto the platforms and the algorithms that underlie them will never have access. Because knowledge asymmetry does not only describe the situation of an agent who knows everything and a client who lives in complete ignorance: the intermediary also learns from his interlocutor, who may have useful and generally not very formal knowledge.


To take the example of the real estate agent, while discussing with a client, a salesperson may be aware of hearsay from someone who plans to sell a piece of land and on which he or she could then position himself or herself as a priority even before the publication of an ad on a website.


To use a terminology specific to agency theory, the principal-agent relationship would then be structured as a form of "cognitive coopetition" justified by an asymmetry of cross-knowledge, even if the overall imbalance may remain in favour of the intermediary. It would be more accurate to speak of asymmetrical knowledge relations, always in the process of being reconstructed and becoming, like a couple's situation, for example.


Overcoming uberization


Let us summarize. The agent thus benefited from an asymmetry of information on the basis of which he managed to constitute an informational rent. This was even his main business objective. And uberization would jeopardize this rent in precisely two ways: on the one hand, through a much wider and simpler access to a considerable mass of information; on the other hand, through the possibility offered by platforms to increase the principal's own information power, and thus to do without an agent altogether.


The conceptual shift proposed here invites us to consider that the intermediary in fact benefits from a cognitive rent, in a context of knowledge asymmetry. The notion could be defined as "intangible capital constituted thanks to the accumulation, transformation and creation of implicit and explicit knowledge giving a competitive advantage on a given market and/or a favorable position in a relationship with an interlocutor.


Even by sophisticated cross-referencing of information gathered by algorithms and exploited by deep learning devices, it is difficult to imagine that an intermediation platform would be able to achieve a significantly robust cognitive rent. This would indeed presuppose a capacity to access implicit knowledge; however, in the context of asymmetrical relationships that are by nature singular and in perpetual evolution, this seems unlikely.


The constitution and exploitation of a cognitive rent should therefore become an obsession for any company wishing not only to resist, but even to prevent the dynamics of uberization. This probably requires a transformation of the organizational design of the company itself. Far from being a simple node of employer-employee legal contracts as an alternative to potential commercial subcontracts (customers-suppliers), the conception of the company that is needed is that of a knowledge processor and a learning organization. The company is a place of knowledge creation that is by definition always singular and idiosyncratic, and therefore incomparable (as two couples are not comparable). And it is in the capacity to valorize the cognitive rent it creates over time with its interlocutors and stakeholders that its capacity to exist sustainably within an industry lies.


The implications of this conceptual renewal are not limited to the internal governance of the company. It is also necessary to consider a different relationship with the client, since the latter is an important actor in the process of building cognitive rent through the high added value of the knowledge he brings.


In the same way that researchers in corporate finance have been working for a long time on "cognitive governance" (see in particular the work of Gérard Charreaux), the concept of cognitive rent could here enrich the theoretical dialogue with the field of strategic management in a very concrete way.


For if cognitive rent has its clear side in allowing us to imagine how to rethink the meaning of their activities and their value, it also has its dark side. For example, the notion of conflict of interest could be radically rethought, both in managerial and legal terms, by basing the reasoning of professionals on the concept of cognitive rent rather than strictly informational rent. For example, for regulatory authorities whose mission is to ensure that the "rules of the game" are respected, this could lead them to consider the implications for the monitoring and regulation of actors operating on the markets. The conception of private information (at the origin of the characterization of insider trading) is not identical depending on whether one is thinking in terms of information asymmetry at a given moment, or cognitive rent built over the long term. Similarly, reasoning in terms of cognitive rather than informational rent could lead to a radical rethinking of a key concept of governance that is far too little examined at the theoretical level: independence.


Such reflections are embryonic. This is why, to conclude, we will choose to focus on the clear side of the strength of cognitive rent: it offers a major hope to actors installed in markets to be able to rely on tools deliberately aimed at exploiting knowledge asymmetry. In this sense, the concept of cognitive rent proves to be a strategic weapon that actors can seize to resist the dynamics of uberization and even, why not, to defeat them: it invites us to focus our attention on the invention of new organizational forms of creation, circulation and exploitation of knowledge, rather than on the fear that destabilizes strategic situations that are considered too hastily acquired.


This article is from Sebastien Bourbon's DBA thesis, completed as part of the Business Science Institute's Doctorate in Business Administration (DBA) program. It was defended during the international week organized in Wiltz, September 23-26, 2019. This DBA thesis was supervised by Professor Jean-Philippe Denis. It will be published in a book by EMS, Business Science Institute collection.



Article translated from French with https://www.deepl.com/translator

 

Read also...


Sébastien Bourbon's articles on The Conversation France.


Sébastien Bourbont's books & articles via CAIRN.info.



Jean-Philippe Denis' articles on The Conversation France.


Jean-Philippe Denis' books & articles via CAIRN.info.




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