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4th December 2012Haydn Shaughnessy
Agenda
Who are you listening to?
HAYDN SHAUGHNESSY
Began tech career at EU RACE program managing satellite service pilots
Research Fellow Center for Digital Transformation, UC Irvine
Former editor Innovation Management, Writer at Forbes.com, GigaOm, Harvard Business Review
The Elastic Enterprise – new ways to scale businesses, new wealth creation model
Former partner at The Conversation Group, the first social agency
Future enterprise project 30 in-depth CIO/Chief Innovation Officer interviews
What’s The Big Idea?
The human interest model is replacing the traditional
business model
From your study – the low priority give to partnership innovations
What’s the problem?
WE UNDERESTIMATE THE ACHIEVEMENTS OF THE ENTERPRISE – HUGELY SUCCESSFUL WAY OF CREATING
WEALTH.
$36 trillion revenues$36 trillion revenues
Global 2000 companies 2012, Source: Forbes
$2.6 trillion profit
$2.6 trillion profit
$149 trillion assets$149 trillion assetsUp 8%Up 8%
Up 12%Up
12%
Up 11%Up
11%
BUT IT HAS HIT A LIMIT
Shareholder returns of larger firms were 70% below those of smaller firms over a 10-year period in USA
Source Gregory V. Milano, “Too Big to Succeed?” CFO Magazine, April 29, 2011
ON THE OTHER HAND WE SEEM TO HAVE INVENTED A NEW FORM OF
ORGANIZATION TOO
Low overhead high scale businesses
10,000 x Library of Congress photo library by 11.2012 – 14 billion images
Fastest growing social network, 50 m members 13 employees
The old input model. Adam Smith Nail Makers Inc.
Raw materials, capital, factory, labor….. management
Manager
Manager
R&D, New Ways to
Make Nails
Change management – new
culture of nail making
Innovation – the nail maker’s dilemma
Predictable scaling model
Built on well understood factor inputs:
1.Capital2.Labour3.Raw materials4.Education or IP
The old scaling model
What is the new enterprise operating model?
FIVE PILLARS
1. Platform
2. Ecosystem
3. Connectors
4. Cloud
5. Sapient leadership
ECOSYSTEM 1 The Forbes’ StoryFeb 2011 to Feb 2012
Acquisition of True/Slant
Tapped into 800 ecosystems
Opens potential for hundreds of new revenue streams
MONTHLY UNIQUE VISITORS
DOWNSIDE Declining ad impression prices, leading to real time ad management
highly disciplined continuum from hardware to software in standardized environment$54 billion in revenue15,000 employees in California alone
multiple supplier and licensee partners in fragmented marketsvs
Competing ecosystem models
The ecosystem as relationship building
Long term R&D partnership Uni MichiganCollaborates extensively via IP sharinge.g. with Synopsis,semi-conductor design tools, on low power chips2300 employeesP/e 6.95Turnover $780 millionProfit before tax $290 millionCEO salary $1.200,000
100 employees70th fastest growing company in North Americap/e 12.5About $300 million in revenueNet income around $50 million
A simple ecosystem model of business
88,000 articles on pebble watch in 48 hours
Android 48 member open handset alliance
Platform
Developer network
50,000 strong
Apps market
Information layer A new hardware layer drivenby data
Transaction engine
1. A software or content platform has rules of the road
6. New leadership role? ATTRACTION, attracting resources – managing the external world
7. Reinventing product around connections
2. A developer or production community
3. Ingest to a platform
4. Transaction engine
5. Information layer
ELEMENTS OF THE PLATFORM
1. They gather around a platform – like iTunes, Android, quirky
2. Represent highly scaled partnerships, a forum for millions or tens of thousands of developers, or producers and billions of calls via APIs
3. Take place in OPEN environments among peers, which has implications for leadership
4. Represent new power dynamics around the firm, especially in the information layer, which is now built by everyone
5. Seem to accelerate the pace of innovation
6. Are closely related to mass differentiation, they enable production for multiple global niches
Elements of the ecosystem
The Idea of Ecosystems
Scale via specialization and supervision
Scale via partnership and spontaneous peer activity
Scaling is a disproportionate cost
Scale is proportionally lower cost
Partnerships are formed by bilaterally negotiated contracts
Partnerships are friction free
The information layer is content pushThe information layer is self-forming
Internalized Externalized
Shifting from oligopoly to ecosystem-based business
CommandAttraction
Mass marketMass differentiation
Employed labour in decline
Why aren’t more companies doing ecosystems?
ServicesServices EmployeesEmployees The CEOThe CEO RiskRisk
1990-92 2007 - 102000-03 2004-06
A Semantic Analysis of 20 years of business writing in The Harvard Business Review, source Haydn Shaughnessy
Transition point
Why aren’t more companies adopting this model?
Transition point
INTERNALITIES EXTERNALITIES
FinanceFinance
ChinaChinaGlobalGlobal
RandomRandom
Gravitating to externalities
What is Externalizable?
Consequence?
Most companies straddle the first two models and are simply not cognizant of the larger trend
Lab-based, driven by oligopolies that shape new markets
Attempts to interpret and adapt to the service economy
Externalization drives and leverages new strategies
CLOSE UP
Old fashioned double entry
Massive activity logging Data about “the
world”
The New Emotional Capitalism
– The Human Interest Model
features of externalization: PEERS not bosses, Social
Reputation, social network, sharing economyECOSYSTEMS, Unpredictability, BYOD, randomness,
social business, work-life integration, customer ecosystem
crowdCrowdfundingcrowdsourcing
Shift from the business model to the human interest model
Example: The peculiarities of crowdfunding
Crowd model – emotive captialism
1.Project based, no growth requirement
2.No assumption about failure
3.Self-imposed outcome burden, supports entrepreneurism
4.Culture-friendly and ideal for building emotional outcomes
5.Peer and social network based, potentially with a positive loop for resources
6.Emotional connections through “extras”
VC Model – Surplus Capital
1.Company based, must scale
2.Assumption of high failure rate
3.High stress for proposers, barrier to entrepreneurs
4.Antagonistic to cultural production or lifestyle
5.Extractive, the money is taken out
6.Utilitarian
As labour and capital is changing: What are We Trying to Produce
in the New Wealth Creation System?
The new global middle class creates massively differentiated needs for low cost, good enough
goods
The new global middle class
900 million – 2 billion people by 2030 = x 3 or x 7
1 single, global labor pool and converging incomes
The priorities that capital has driven:
Scale, customer acquisition, the 1%
Are now losing ground
•Trust on the brink of collapse•An unworkable surplus of capital driving up asset prices
So what are we trying to create?
New values – we are wrestling with a post capitalist value system
New human capabilities- This is a capability building era both on the input and output side
New experiences- That compensate for income insecurity
New shared emotions in work and at home- That give recognition to consumer-employee-home continuum
The new economic factors
Kickstarter projectNew online magazine for serious, emotive journalismCrowdfunded, build audience through buzzDelivering what its audience/funders already endorsed.
Summary:
NEW ENTERPRISE: Platforms and ecosystems give us a means to scale and to serve globally differentiated niches at low additional cost
NEW ECONOMY: They drive externalization of enterprise processes, in extreme cases leaving an enterprise with one role – relationship building
In all cases relationships are more important as our lives converge as customer, employee, home-maker
Even capital is becoming ecosystem-centric and people-dependent and possibly non-extractive, moving away from surplus capital model
NEW VALUES: We seek a new value system, the human interest model, to frame this new world and allow us to function within it.
In short:
Nordic culture is extremely well placed to benefit from this emerging economy
Partnership thinking is the missing link – in an externalized economy partnership is everything.
THE END
HAYDN SHAUGHNESSYFellow Centre for Digital Transformation, UCI Irvine
Blogs/forbes.com/haydnshaughnessy