“Lord, here comes the flood
We’ll say goodbye to flesh and blood
If again the seas are silent
In any still alive
It’ll be those who gave their island to survive
Drink up, dreamers, you’re running dry”
Everyone is talking about it, but no one knows how to spot it until it is usually too late: disruptive innovation. The innovation that started as something big companies didn’t took seriously; the new service that – according to big old traditional companies – would never scale. The service that didn’t have a solid business model but suddenly created a new market, took you out of business through disrupting the existing market and value network. I am talking about Spotify, Netflix, Uber, Tesla and all the other digital companies that are changing the logics of traditional business.
The advent of digital technologies has cast the world into an era of accelerating change. In recent years the most advanced organizations have left behind the industrial age of mass production and entered into an era we call the Networked Society.
“A company like GM is a finance-driven company who always has to live up to financial expectations. Here we look at it the other way around—the product is successful when it’s great, and the company becomes great because of that.”
Franz von Holzhausen, Chief Designer, Tesla
Our world has changed, especially since the global financial crisis. Our reality is complex, which means it’s dense with interconnections and interdependencies that we cannot ignore. We can’t just think about what goes on inside our organizations (complicated enough) but must also think about how they interact with and impact stakeholders and entire supply chains. It’s hardly surprising so many managers feel they are losing their grip. Old mindsets and methods no longer apply.
So what can we do? Transform.
An unpredictable future belongs to the most responsive organizations. Traditional companies now have an opportunity to evolve from strategies of command and control to self-learning teams that sense and respond, and beyond into a state of greater market awareness. To do so, they will need to develop a range of fundamentally new digital capabilities.
It’s easy to make digital business transformation a question of technology, whether that means implementing new technologies or converting existing products, services and business processes into digital versions. However, this is not the case. More than just providing new tools, digital technologies have set in motion powerful forces that transform the fundamental operating models of a company. The most responsive organizations will be those that leverage these forces to their advantage – using distributed assets and information to eliminate transaction costs and dramatically increase their tolerance for risk.
Like the pre-industrial and industrial worlds that preceded it, the Networked Society represents a fundamental paradigm shift for people, business and society. In this shift, new resources are continuously discovered, new forms of value are unleashed, and the most basic logics of life and business are transformed as a result.
However, in tomorrow’s networked economy the key enablers of growth and innovation come not from physical assets and infrastructures, but from the people, platforms and insights that are leveraged to reinvent them. This represents a shift from static objects to dynamic services, from physical communities to digital networks and from centralized production to distributed knowledge. The physical world, in short, behaves more like a digital one – enabled by a fundamentally new set of building blocks for value creation:
Users – participating and active
We are moving away from a world defined by hierarchy and linear thinking into a paradigm centered on individual context with a culture defined by collaboration and participation. At the heart of any organization are its users – the students, patients, customers and citizens whose engagement and contributions are vital in maximizing the network’s value. As users become actively involved contributors of knowledge and enthusiasm to the networks in which they participate, products and services will improve their relevance, benefit from new development insights and result in co-created experiences. As a result, users are an increasingly vital asset for any public or private organization.
Things – connected and intelligent
A product, once designed, is no longer limited to performing its original function. We are entering a reality in which billions of physical objects are embedded with online intelligence and layer upon layer of digital interactivity. These connections, whether between wearable devices, cars and home-automation systems, or among networked urban infrastructure and sensor-equipped industrial machinery, will serve as enablers for more dynamic products enhanced with a wealth of new services that improve product performance and achieve new levels of object network efficiency.
Data – own, shared and open
Thanks to new analytic and algorithmic tools, the rising amounts of data created by practically every person, thing and interaction can now be combined across object networks to enable new forms of collective reasoning for improved decision-making and automated tasks. Organizations will harness and synthesize this data – whether their own, shared or open data – dynamically and in real time as a new resource to deliver insights that were never before possible. However, without trust in the privacy and security of data used in these applications, the potential benefits in these areas will be severely limited.
Capabilities – available and on-demand
For an increasing number of entrepreneurs, starting a global business today requires little more than an idea, a user base and a network of collaborators. Funding can be crowdsourced. Factories can be rented. And specialized skills, work spaces and digital infrastructures can be acquired or downsized on-demand. Many previous barriers to market entry and global scale will be lowered or eliminated as a result.
Digitization – exponential and ubiquitous
Physical products are either becoming digital services or are significantly enhanced with new digital service capabilities. An organization’s digital assets rise in importance, becoming some of the primary sources of business value, and physical processes become real-time data flows. Wherever possible, business practices are digitized to become faster, more relevant and more cost-efficient.
Platforms – economics and scale
Most business offerings today consist of a product or service. A technology platform, by contrast, makes it possible to provide a function, a network of relationships or a completely new marketplace for one’s own products and services, and those of others. By opening up entire business processes to other stakeholders, the platform serves as the technological base upon which customers, developers, businesses and their partners can build added value through increased participation. Wherever a platform emerges as a business-critical infrastructure for a wide range of other businesses, it not only reduces transaction costs for various business and peer-to-peer functions to nearly zero, but also becomes an economic force with a logic of its own.
By leveraging new digital operating models, some have already risen among the ranks of the world’s most successful companies – empowered not just by technology, but by new forms of distributed knowledge, flows of real-time data, massive user bases and a mode of permanent innovation. By designing their operations specifically for networks, these organizations are overturning decades of business orthodoxy, one industry at a time.