Something Economy: seems like a popular trend – stick a word in front of economy and use it to describe the next big thing. Some of these words are: Peer, Maker, Sharing, Gig, Collaborative, Green, Circular, Mesh, Digital, Innovation, and more. This combining of words speaks to the truly disruptive nature of the early 21st century. As part of my focus on business evolution and the inevitable move towards digital enterprises, I have analyzed a number of disruptive scenarios and their implications to traditional companies. This visual describes a combinatorial innovation dynamic that spawns disruptive scenarios:
In a recent Post, Geoffrey Moore expands his Systems of Engagement (SOE) vision to focus on disruption. Many by now are familiar with his views on SOE and next generation edge architecture. Mr. Moore describes a future dominated by Social and Mobile on the client side and Analytics and Cloud on the server side. In this recent piece, the focus broadens to include the inevitable disruption facing every industry. In doing so, he introduces a new Systems of Business (SOB) concept and provides some examples that highlight the differences between SOB and SOE. These examples help visualize a distinction that Mr. Moore is making between these two systems: systems of engagement instantiate new operating models, while systems of business instantiate new disruptive business models.
I’m encouraged by the increasing focus on the true disruptive and transformative period that lies ahead. I continue to believe that no industry or company will escape this emerging period unscathed, and every company must find a path to future viability. In this context, Mr. Moore paints a somewhat grim picture for traditional companies trying to find their path. He believes the challenges of systems of business make it virtually impossible to incubate them inside an established enterprise. We’ve seen evidence of this in previous disruptive periods, as new business models formed in entities separate and distinct from the traditional business. But these disruptive scenarios are and will emerge at an increasing pace. How does a Life Insurance company that wants to play in the Connected Health ecosystem handle this without being rejected by the antibodies that Mr. Moore describes? The revenue and growth implications of Life Insurers force them to look at emerging disruptive scenarios as growth platforms. In doing so, they create an ability to interact with customers on a much more frequent and impactful basis.
Another challenging area of focus in the post is the balance between realizing the societal benefits of innovations like autonomous vehicles, and the protectionism that Mr. Moore describes. Clearly, traditional companies will and must protect their current interests. But as we have seen in the media industry, it’s a failed strategy in the long term. Additionally, the societal benefits of disruptive scenarios (the smart home, connected health, smart cities, autonomous vehicles, etc.) can be delayed or completely derailed if Government and business make it their mission to block these innovations.
Geoffrey Moore provides a possible bridge between the world of traditional companies and disruptive scenarios. That bridge – Deploying Systems of Engagement that leverage legacy assets – still evades most executives. Mr. Moore provides another compelling reason to move towards Holistic systems of engagement: developing the foundation for emerging systems of business. The movement away from isolated digital initiatives towards systems of engagement must go from little understood vision to mission critical agenda.
A recent Report by John Hagel and others describes how the exponential improvement in technology is driving exponential innovation. The core technology building blocks (computing power, storage and bandwidth) continue unabated on a cost-performance improvement curve. These building blocks create a foundation for rapid advances in innovation, which in turn combine to create disruptive scenarios. A visual depiction of this phenomenon might look like this:
The notion of value creation and capture is a core component of business and the models that drive it. While historically viewed with a traditional product mindset, several emerging forces will alter this basic tenet of business. At its core, the way businesses create and capture value will change – the degree of change ranges from transformative to historical. The last several posts focused on the historical – namely Jeremy Rifkin’s view that we are heading towards A New Economic Paradigm. The foundation of Mr. Rifkin’s argument is a Third Industrial Revolution (TIR) platform that takes the marginal cost of production to near zero. Enabled by the Internet of Things, this General Purpose Technology (GPT) Platform could alter our landscape more dramatically than previous GPTs (steam-locomotive-printing press, electricity-auto-telephone). What happens to value creation and capture in a near zero marginal cost scenario?
At the heart of this value discussion is the Internet of Things (IoT). While determining the future impact of this emerging platform is highly speculative, many are providing a point of view. Some say that the Internet of Things is just another over-hyped innovation. Others believe that The Internet of Things will transform our lives, and still others like Jeremy Rifkin believe it creates the aforementioned TIR platform that spells the end of Capitalism as we know it. We lack clarity as it relates to the final disposition of the Internet of Things – but I believe we do have clarity in terms of impact in the next decade, and it goes back to value creation and capture. In this recent post on the IoT and business models, author Gordon Hui presents a visual that captures the differences between a traditional product mindset, and an Internet of Things mindset:
A mindset shift is an appropriate description for what’s required at a macro-level, across business, society, government, and the economy. The visual captures aspects of this shift, none more important than capability development in an Internet of Things world. Why? Because what that cell in the above matrix represents is a shift to ecosystem thinking. Although the context is the IoT, I’d argue that ecosystem thinking is a broader more comprehensive shift. Value creation and capture in the broadest sense is becoming a collaborative affair that increasingly involves multiple stakeholders within a value ecosystem. Managing in this world is more complex, requiring a collaborative competence that few companies have exhibited.
The distributed nature of this emerging General Purpose Technology platform shifts us from a vertical orientation to a horizontal or lateral one. This shift disrupts traditional mindsets in a profound way, as companies move from a firm-level focus to an ecosystem focus. A recent article looks at this scenario from a Business Model Design perspective. The authors point to a shift in focus from technology platform to business ecosystems and the corresponding shift from the business model of the firm, to ecosystem business models. They define an ecosystem business model as a model composed of value pillars anchored in ecosystems and focused on both the firm’s method of creating and capturing value as well as those of any part of the ecosystem. Ecosystem thinking therefore requires a company to think both about their own monetization strategy, and how their value creation allows others to generate and collect value as well. Drivers for shared value are therefore explicit components, as we move to a value design paradigm.
Is the Internet of Things an over-hyped innovation with modest impact – or a Third Industrial Revolution platform that drives the historical shift described by Jeremy Rifkin? No crystal ball here, but I feel very comfortable with this prediction: value ecosystems will be the new battleground and ecosystem thinking will determine winners and losers. The mindset shift MUST happen.
For more insight into the possibilities of a Third Industrial Revolution platform, see my previous posts.
The next post in this continued look at disruptive scenarios focuses on the Logistics Internet. In his recent book titled The Zero Marginal Cost Society, Jeremy Rifkin describes an Economic Paradigm Shift driven by a Third Industrial Revolution (TIR) platform. The Logistics Internet is one of three components that make up this TIR platform (communications and energy are the other two). As the three components converge, they create a general purpose technology platform that drives a third revolution. Mr. Rifkin believes we are in the early stages of an automated transport and logistics Internet, and he describes his thinking in this short Video.
In his new book, Rifkin describes the process by which suppliers and buyers connect and conduct business (Logistics) as the driver of the whole economic system. Yet, he maintains that the means by which goods and services are stored and delivered is grossly inefficient and unproductive. Rifkin suggests that a rethinking of the way we store and ship materials and goods is in order. Several supporting facts are provided in the book:
The focus on disruptive scenarios continues in the next several posts with a look at the work of Jeremy Rifkin and his recent book titled The Zero Marginal Cost Society. In his book, he describes the economic paradigm shifts of the past, and points to three elements that converge to create a general purpose technology platform to drive the shift: new forms of communication, new forms of energy, and new mechanisms for transport and logistics. Rifkin believes a powerful Third Industrial Revolution platform (The Internet of Things) is emerging to drive an economic paradigm shift in the next 40 years. The new form of communications in this context is the Internet, while renewable energy represents the new form of energy. The new mechanisms for logistics and transport involve sensors, coordinated logistic networks, renewable energy, and driverless cars. Mr. Rifkin describes this Third Industrial Revolution platform as three Internets (Communication, Energy, and Logistics) converging to operate as one. He sees the Internet of things bringing these three elements together to manage (Communications), power (Energy), and move (Logistics) economic activity.
Does the combination of emerging disruptive scenarios create a new economic paradigm? In The Zero Marginal Cost Society, Jeremy Rifkin describes a world where nearly free goods and services are enabled by the Internet of Things to drive a new paradigm that eclipses capitalism – the Collaborative Commons. It seems the exponential curve of technology is pushing the operating logic of Capitalism – which focuses on driving ever increasing levels of productivity – towards an extreme level of productivity. Its success could therefore be its undoing. I am a firm believer that this emerging period will ultimately be viewed as the most transformative of all time – but I must admit – I did not make this leap. While reading, I found myself focused on business model questions facing every industry – and through that lens, the story resonated with me. It prompted me to revise the anchor visual that I have used throughout this look at disruptive scenarios. I posed this simple question: does combinatorial innovation create a third curve?