Blurring the Boundaries

Webster’s dictionary defines the term “blurring” as something vaguely or indistinctly perceived. This term – a term I have heard often in the last couple of months, seems like a good way to describe the dynamics of our world today. The lines are blurring, the boundaries are blurring – pick your phrase – I find it really fits. For example, one of the key drivers of change is the blurring boundaries between industries:

• Insurance: Gartner predicted that at least one social network will become an insurance sales channel by the end of 2014. The rationale is linked to Facebook’s timeline feature, which documents all the crucial events in a person’s life from getting married to having a child to retiring. The personal information controlled by players like Facebook and Google could fuel their desire to take on today’s insurance giants
• CPG: manufacturers will increasingly encroach upon the Retail Industry as they pursue Direct-to-Consumer models. The number of companies selling products directly to consumers is expected to increase from 24 percent to 41 percent over the next 12 months.
• Publishing: By facilitating publishing, Amazon, Barnes & Noble and others are eroding the position of the publisher in the ecosystem in much the same way Apple eroded the gate-keeping role of the carriers when it introduced the app store.
• Entertainment: The borders between Entertainment, Communication, and Information are blurring, and service innovators like hulu and Sling are establishing their role in the ecosystem
• Telecommunications: Competition from content and “over-the-top” companies (Facebook, Google, Apple, Skype, Amazon, etc.) are taking market share and dismantling long-standing Industry value chains
• Financial Services: Companies like PayPal, Amazon, Zynga, Google, and Facebook are encroaching on their territory, and payment is the battlefield. Banks will need to experiment with new business models and digital disruptions of their own to fight back. The balance of power could shift from banks and credit card companies to innovative companies that provide the best digital wallets

I see this blurring phenomena continuing, as three primary current day disruptors provide the impetus for change – and the next decade promises to usher in the most profound change we’ve ever seen. The primary disruptors are:

1. Each major innovation: Social, Mobile, Big Data, Cloud
2. The rapid convergence of these innovations: (Mobile X Social X Big Data X Cloud) – or the blurring of the lines between these innovations. It is their intersection that represents the greatest opportunity for sustained innovation and next generation efficiency. But failing to manage these intersections could bring problem versus value.
3. A growing list of business disruptors: those business and market dynamics that are rapidly introducing change.

On the technology disruption side, although we like to talk about digital natives, the truth is there are far more digital immigrants. The senior management ranks are filled with people that do not understand the exploding digital space. In addition, the 2012 IBM CEO Study states that today’s CEOs are in a position few of their predecessors have faced. Although there have been many eras of technology disruption in the past, several factors make this period different. First, a number of new technologies are rippling through society at the same time (unprecedented), and they’re being adopted much faster. Previous cycles were driven by one primary disruptor:

• Mainframe era ran from 1959 to 1973
• Minicomputers and PC era ran from 1973 to 1995
• Internet and Web 1.0 era ran from 1995 to 2000
• Mobile devices and Web 2.0 era ran from 2000 to 2006

In addition, disruptive technologies of previous eras almost always originated in large business or government, and then spread to small businesses and consumers. But recent advances are flowing in the reverse direction and are being absorbed more rapidly by the consumer and the younger generation.

On the business side of disruption, the ecosystem is rapidly transforming. The role of the customer is changing, the employee is changing, and we are driven to create value with a growing and changing portfolio of relationships. The list of business-side disruptors could be overwhelming:

• Rapid growth in product and services alternatives
• Rapid commoditization
• Emerging markets
• Customers have real time access to information
• Eroding barriers to entry
• Technology savvy customers and employees
• Value creation increasingly involves partners
• New market entrants
• The speed and reach of business
• Emerging period of growth and innovation
• Higher customer expectations
• Rising demand for energy and the associated cost increases
• Price transparency
• Networked markets that are smarter and faster
• Hitting the efficiency wall
• Societal restructuring and shifts in behaviors
• A power shift to the individual
• Economic restructuring

Some of these business oriented disruptors are created by the technology disruptors themselves. Others are a function of our global economy, the recent economic crisis, and dramatic economic and societal restructuring. In fact, In The Great Reset, Richard Florida points to a shift from an Industrial Age economy based on production line thinking to one that is increasingly powered by knowledge, creativity, and ideas. He sees the recent economic crisis as the impetus for the next great reset, the last of which occurred after the Great Depression of the 1930s. What followed was a reset that ushered in a period of growth, prosperity and innovation. Mr. Florida believes that this latest crisis will lead to another such period. But with that comes a major reset that is evident by the blurring of our current reality.

An example of restructuring in the post-reset era is found in a very insightful article titled Everything is a Service authored by Dave Gray. The author makes a very compelling argument that the majority of business growth in the coming decades – new jobs and new businesses – will come from services. A fundamental shift from an economy based on making things to one that is increasingly powered by knowledge, creativity, and ideas. Mr. Gray uses examples to underscore the operating model shift that must occur for most companies to thrive in this type of economy. One particular example that resonates with me reflects on the service-orientation required by the future digital enterprise. He states that even though insurance is a service, it is sold like a product. In my work with Insurance companies, it is clear that product-centricity is indeed engrained in their culture (although I see many in the industry moving towards customer-centricity). Mr. Gray continues by saying that if a company can find a way to offer business partners insurance as a configurable service, they enable growth. This is very consistent with the continued movement from vertically oriented value chains to horizontally oriented ecosystems. These ecosystems bring a growing number of relationships together to create value – and a services mindset enables an ecosystem to package capabilities in this way.

He underscores his point with the example of Whipcar, a service that allows car owners to rent their cars to others when not in use. As part of the service, Whipcar bundles car insurance with the rental, requiring an insurance service to be available on demand in increments as small as one hour. These capabilities if packaged as services create considerable growth opportunities. The easier it is for a service to bundle with other ecosystem services, the greater the growth opportunity. The future is about ecosystem-led innovation, and companies must be positioned to view the world from the ecosystem in. Through that lens, a service-orientation will take value creation and growth to another level.

Another major business disruptor and driver of change in the coming decade is the shift of power to the individual. The company transition from a transactional mindset to an experiential one is directly tied to this shift. This disruptor alone will have tremendous impact on existing structures – and the emerging systems of engagement era can be linked in part back to this disruptor. A great example is provided in an article titled The Connected Customer also authored by Dave Gray. The example makes the implications of this disruptor very clear:

“In September of 2011, Bank of America announced it would start charging customers $5 per month to shop with their debit cards. In early October a 27-year-old gallery owner in Los Angeles named Kristen Christian set up a Facebook event page, inviting 500 of her Facebook friends to move their accounts to local credit unions by November 5, which she called “Bank Transfer Day.” Christian’s groundswell movement quickly snowballed. Within three days 8,000 people had signed up to attend the event. By November 4, the day before Bank transfer Day, at least 650,000 people had added $4.5 billion to credit union savings accounts. That same week, Bank of America dropped its plan to charge additional fees”. 

It is now fairly clear where the power lies.

When the blurring subsides in the coming decades, I believe we will have witnessed a dramatic change in long standing operating models. Organization structures and processes that worked well in an age of making things do not support an economy based on knowledge, creativity and ideas. Efficiencies that were gained using shared services models in the current functional organization structure have hit an efficiency wall – and efficiency is no longer the only game in town. Systems of engagement are about effectiveness in our critical moments of engagement. As one example of the coming change, we can point to the often discussed blurring of the lines between business and IT. In some compelling work by the Corporate Executive Board (CEB) titled The Future of Corporate IT they describe the shifts that will eventually change the structure of current IT organizations. They propose a new model that in effect shifts IT resources in four different directions:

1. IT resources shift to the business – in scenarios where differentiation is more important than standardization, this makes great sense to me. Line of business applications and systems of engagement fall into this category. As the systems of engagement technology portfolio rises – so does business involvement.
2. IT resources are externalized – the continued outsourcing and push to the cloud for commoditized components of the IT portfolio. With the growing focus on specialization to avoid commoditization, and the fact that differentiation will not come from systems of record, this also makes great sense to me.
3. IT resources shift to business services – I have long been a proponent of business services. Various CEB Reports describe business services quite well, using an employee relocation service as an example. Typically, relocation involves IT, HR, Travel, Finance, and maybe legal. An employee relocation business service (and there’s that service orientation again) in effect aligns resources with the service as opposed to the function. IT resources may well find themselves aligned to a portfolio of business services.
4. IT resources remain in shared services – the remaining IT resources are part of a shared service that handles architecture, integration and security. The CEB estimates that 25% of existing IT organizations remains here. I can see systems of record maintained here, along with an Enterprise Service Bus that handles security and integration for applications that reside in the business.

If the new model moves in this direction remains to be seen, but I don’t hear anyone arguing the fact that business and technology will converge at some level. Meanwhile, a Business Services approach integrates HR, Finance, IT, Travel and other long standing corporate functions – but is this just the tip of the iceberg? How long before the rest of the long standing functional model is replaced? We already see the customer blurring the lines between Marketing, Sales and Customer Service, while the employee blurs the boundaries of existing command and control structures. Could we finally see structural changes to models that date back to the dawn of the industrial age? What other forcing functions drive these changes? How fast does change come? I for one am fascinated by the possibilities.

Yes, blurring may be the order of the day now, but I believe with clarity comes significant change – and with change – an ability to remain relevant after a great reset