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?
The Logistics Internet
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 Energy Internet
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 autonomous vehicles. 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.
A New Economic Paradigm?
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?
Connected Health
In my continued look at disruptive scenarios, the focus shifts to Connected Health. In a recent White Paper, the term is used as an umbrella description that covers digital health, eHealth, mHealth, telecare, telehealth, and telemedicine. Analyst firm IDC defines it as “a broad spectrum of technologies that use telecommunications to facilitate the exchange of health information and delivery of care across a geographic distance as well as manage chronic conditions and promote health and wellness.”
There are several drivers that make this both a viable and desperately needed scenario. According to the IBM Institute for Business Value, inefficiency in the Healthcare ecosystem wastes over 2 trillion USD per year. According to the popular Internet Trends Study produced by Mary Meeker each year, healthcare costs have reached 17% of the U.S. GDP and 27% of health spending is wasted. The same study found that over 25% of family income is likely to go to health spending in 2015, and 50% of bankruptcies are driven by health costs.
3D Printing
In my continued look at disruptive scenarios, the focus shifts to 3D printing. Growth in this key innovation is expected to accelerate to $10.8 billion by 2021 according to Goldman Sachs. The economic implications are significant: Research by McKinsey Global Institute suggests a possible impact of $550 billion per year by 2025. Some believe that 3D printing will play a crucial role in launching a third industrial revolution at a personalized level.
Next Generation Automation
This next post in the analysis of disruptive scenarios focuses on next generation automation enabled by combinatorial innovation. By way of reminder, the visual below depicts a convergence of innovations that have historically been viewed in isolation. As the building blocks of innovation multiply, their combination drives disruptive scenarios. By analyzing these scenarios, future implications and potential responses are determined.
The Smart Home
This post continues a disruptive scenario analysis focused on assessing the transformative environment that faces companies, Industries, Governments, and society as a whole. Much attention is paid to several digital forces (e.g. Mobile, Social, Cloud, Big Data, The Internet of Things, AI, Robotics), but for the most part, the focus is isolated in nature. As described in The Second Machine Age, the combinatorial effect of these forces enables disruptive scenarios at an unprecedented pace. While some of these forces and their combinations are growing more visible, many are far off on the horizon, and countless scenarios are not yet visible. The visual below depicts this phenomenon, underscoring the difficulty of responding to the forces in our line of sight – and the near insurmountable task of responding to those further on the horizon. At its furthest point, lack of visibility to future combinatorial innovation drives a high degree of uncertainty.
Transforming Medicine
The last two posts focused on disruptive scenarios driven by the future introduction of autonomous vehicles. However, the context for viewing disruptive potential must be broad – not just one possible scenario. With that in mind, let’s take a look at the Healthcare industry with a broader lens. The authors (Chunka Mui and Paul Carroll) of The New Killer Apps do a masterful job of doing just that. They make a rather bold statement in a chapter dedicated to the Healthcare industry – specifically:
“Without a course correction, hospitals will lose their central place in medicine and many will disappear.”
Strong maybe, but not hype. The risk is real and not limited to Healthcare. The visual below is a great representation of the law of disruption. The progression of technology is riding an exponential curve. With this acceleration comes a progression of disruption where incremental business change can no longer keep pace. Disruption and the need for transformative actions occur when this scenario takes hold, and the enterprise has not taken steps to respond. A failure to respond in this fast paced, change oriented world is likely catastrophic, but the opening for killer apps depicted in the visual presents both risk and tremendous market opportunity.
The Law of Disruption (source: Unleashing the Killer App)
Autonomous Vehicles: The Automotive Ecosystem
This post continues the disruption scenario discussion initiated by my earlier Insurance Industry Case Study. I’ve been using the autonomous vehicle (AV) as an example of a disruptive scenario with potential societal, economical, and environmental impact. In this post, the focus shifts to the scenario’s possible effect on the automotive ecosystem.
Autonomous vehicle technology can be viewed using a five-part continuum suggested by the National Highway Traffic Safety Administration (NHTSA), with different benefits realized at different levels of automation:
Last month, an IHS Automotive study predicted the world will have nearly 54 million self-driving cars by 2035. The study also predicts that nearly all vehicles in use are likely to be self-driving cars or self-driving commercial vehicles sometime after 2050. Meanwhile, automakers and others are unveiling both their plans for – and introduction of – automated features:
Why Focus on Disruption?
My post on the disruptive implications of the Autonomous Vehicle generated dialog that has been very insightful and provocative. Before posting additional analysis of the societal, economical, and environmental impact of emerging disruptive scenarios, I wanted to restate my reason for doing so, and share some great perspective from leaders that engaged in this recent dialog. I launched this last series to support the growing belief that: 1) we are entering what is likely the most transformative period in history, and 2) this should drive a sense of urgency for leaders everywhere. This coming period brings with it many possible disruptive scenarios, each with its own set of consequences. In my experience, leaders view these scenarios as too far off into the future to warrant their time – we’ve been conditioned to think short term. In their new book The Second Machine Age, Andrew McAfee and Erik Brynjolfsson provide their perspective on why the time to focus on the future is now. The three forces they describe (exponential, digital, and combinatorial) are perhaps the best description of the drivers behind the accelerating effect of disruption.
Autonomous Vehicles: A Disruption Case Study
At a recent news conference, U.S. federal transportation officials described Talking Cars and their ability to avoid deadly crashes by seeing it coming before you do. The U.S. government will likely require automakers to equip new vehicles with technology that lets cars warn each other if trouble lies ahead. A radio signal would continually transmit a vehicle’s position, heading, speed, and other information. Your vehicle would receive the same information back from other cars, and the on board computer would alert its driver to an impending collision. Alerts would come in varying forms: a flashing message, an audible warning, or a driver’s seat that rumbles. Some systems might even automatically brake to avoid an accident if that option is included. Examples of what the technology enables:
The Second Machine Age and Business Evolution
I just finished reading a new book titled The Second Machine Age written by Andrew McAfee and Erik Brynjolfsson – both from MIT. The book is a must read for leaders everywhere. Its journey offers a view into the potential societal, economic, and business impact of technological advancement in the digital age. Although I am fascinated by each of these, my interest in summarizing this book is to connect their perspective to the future of business. Consistent with my recent disruption theme, the question is: how does the world that the authors envision impact the future of business?
Large Companies and Innovation
“The pace of innovation is about to surge – and more powerfully than ever before”
That sentiment comes straight from a new book titled: The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups. As obvious as that statement seems, many leaders still act as if nothing is really changing – or any impact to their business is too far into the future to worry. This well written book focuses on the problem with this kind of thinking. Anyone that has worked in a corporate setting will resonate with the challenges identified in this book. Behavior at every level of an organization is the biggest obstacle to innovation and the identification of what the authors call “Doomsday Scenarios”. Most of us are familiar with traditional company politics and turf-driven behaviors. The authors conclude as I have, that most bias in an organization goes toward keeping the status quo.
Cognitive Computing and the Internet of Things
2014 has started with a bang! If this is indicative of things to come – it will be an interesting and exciting year. Two major events usher in our New Year: IBM announcing the formation of the IBM Watson Group and Google acquiring Nest. We’ve heard a lot about the Internet of Things and the growing adoption of Smart Home components. Perhaps not as widely discussed is the emergence of cognitive computing – a space that IBM just made a huge bet on.
In my transformation series last year, I discussed the automation of knowledge work as both an emerging enterprise disruptor, and future enterprise enabler. Cognitive Computing promises to be a major driver of both sides of this equation. In its simplest form, cognitive computing is technology that allows us to ask natural language-based questions and get answers that support action, smarter decision making, and optimal outcomes. Gartner is weighing in and focused their recent 2013 Hype Cycle on the relationship between humans and machines. The focus – driven by the increased hype around smart machines, cognitive computing and the Internet of Things – is rooted in the belief that the divide between humans and machines is narrowing. Gartner encourages enterprises to look beyond the narrow perspective that only sees a future in which machines and computers replace humans. They see three main scenarios: 1) Augmenting humans with technology 2) Machines replacing humans 3) humans and machines working alongside each other. This is a very reasonable perspective on the likely path. The future enterprise as described through this Blog will use a combination of these scenarios to drive outcomes and transform stakeholder experiences (i.e., customer, employee, citizen, partner, etc.)
The Biggest Ideas of 2014
In the latter months of 2012, LinkedIn launched a Blogging platform for some of the world’s best known thought leaders. As part of that series, posts were gathered to provide a perspective on the biggest ideas for 2013. LinkedIn has replicated that series for 2014. I have provided the links to each post below, along with some commentary on those that stood out to me.
But first, my Big Idea is that the convergence of a number of forces makes 2014 the year of the transformation agenda. Those companies that have already embarked on a transformation journey will accelerate their efforts. A good percentage of those that have yet to begin their journey will find compelling reasons to start. But sadly, many companies will fall further behind. I expect these transformation efforts to tackle much needed structural change – driven by the disruptive influence of technological, societal, and other factors. Transformation efforts that have merely scratched the surface will find another gear. The one common thread will be the realization that this transformative period is different than those of the past. Many of the Big Ideas described in the LinkedIn series underscore this point. For instance, it’s not your Father’s innovation process anymore, as Collaborative Innovation is Shaping and Changing Our World. No single company can master all the knowledge it needs; rather, innovation relies on a network of connected firms. In short, companies need to collaborate to compete.
Progress Towards Systems of Engagement
In my recently concluded transformation series, I identified Systems of Engagement as a key enabler of the future enterprise. A recent Survey conducted by Forrester suggests that systems of engagement will soon rearrange the landscape of IT organizations, technologies, architectures, budgeting, funding, and governance. It is not surprising that in this age of the customer, systems of engagement are finally getting attention – but as the survey reports, they require more than organizations are prepared to deliver.
The Flat Organization
As I described in my closer look at transformation, one of the key enablers of the future enterprise is Structural Change. This slide from a conference presentation I delivered this week speaks to some of the drivers of structural change. A key driver on this list is the ineffectiveness of command and control models in the future business environment.
As command and control slowly disappears, new models emerge and questions about effective ways to manage in flatter organizations arise. I recently fielded one such question during the above mentioned presentation on the future enterprise. The response focused on culture, the corporate value system, collaboration, communication, openness, transparency and trust. One great example of a flat company that exhibits many of these characteristics is not surprisingly an Internet company – Google. Google’s approach is outlined in a recent Article from the Harvard Business Review . Additional thoughts on moving towards an open and transparent culture can be found in this IBM CEO Study from 2012.
Examples of companies that are starting to create these new models are emerging – and I firmly believe that it’s only a matter of time before structures suited for the digital age take hold. There are still many skeptics out there – and no one has this all figured out. Leaders of the Industrial revolution era created the management structures that enabled business in that era. It’s time for leaders in this very different era to re-imagine these structures for the present day environment.
IBM Report on Analytics
In October, IBM released a report from their Institute for Business Value titled Analytics – A Blueprint for Value. IBM releases these reports on a periodic basis, and this one is focused on the growing importance of analytics to business success. Through their analysis, they came up with nine levers that represent the sets of capabilities that most differentiated leaders exhibit:
- Culture: Availability and use of data and analytics within an organization
- Data: Structure and formality of the organization’s data governance process and the security of its data
- Expertise: Development of and access to data management and analytic skills and capabilities
- Funding: Financial rigor in the analytics funding process
- Measurement: Evaluating the impact on business outcomes
- Platform: Integrated capabilities delivered by hardware and software
- Source of value: Actions and decisions that generate results
- Sponsorship: Executive support and involvement
- Trust: Organizational confidence
The Future of Business
This list of 99 Facts pulled together by SAP continues to build the case for inevitable change. The title of this SAP presentation is “The Future of Business”. Here are some of the key facts from various sources. There are embedded links in the content that take you to the source documents. Enjoy.
Reimagining the Future 