Flows, Fragility and Friction

I’ve long been a fan of flows but, in the spirit of paradox, I’ve also been a fan of friction. But, wait a minute, friction slows down flows – how could I possibly favor both flows and friction?

Until recently, I hadn’t even been really aware of the paradox in my perspective, much less thought systematically about ways to resolve the paradox. I’m not sure I can fully resolve the paradox, but I want to use this posting to reach out and ask for help in exploring both the paradox and its potential resolution.

Let me first provide some context.

From stocks to flows

I've written extensively about the Big Shift that’s transforming the global business landscape. One of the key frameworks that I’ve used in describing the Big Shift is that we’re moving from a world of stock to flows. What I’ve meant by that is that business for the past several centuries at least has been organized around stocks of knowledge as the basis for value creation. The key to creating economic value has been to acquire some proprietary knowledge stocks, aggressively protect those knowledge stocks and then efficiently extract the economic value from those knowledge stocks and deliver them to the market.

The challenge in a more rapidly changing world is that knowledge stocks depreciate at an accelerating rate. In this kind of world, the key source of economic value shifts from stocks to flows. The companies that will create the most economic value in the future will be the ones that find ways to participate more effectively in a broader range of more diverse knowledge flows that can refresh knowledge stocks at an accelerating rate.

So, knowledge flows become the key to creating economic value. The good news is that we're in a world where knowledge flows are expanding and accelerating at an exponential pace on a global scale. This is happening for many reasons. A key factor is the deployment of rapidly improving digital technology infrastructures. Another important factor is the rapid urbanization of the world’s population. As we move into more and more dense urban settlements, there’s a significant increase in knowledge flows shaped by the growing interactions of people in these urban areas.

More generally, I’ve been heavily influenced by the Constructal Law developed 20 years ago by Adrian Bejan, a Professor at Duke University, who expressed the law in the following way: “For a finite-size system to persist in time (to live), it must evolve in such a way that it provides easier access to the imposed currents that flow through it." In essence, he’s made the case that all kinds of systems ranging from our circulatory systems within our bodies to our cities to our planets evolve to enhance flow. In other words, flow is not only good, it’s essential to our survival and evolution. I wrote a review of Bejan's seminal book on this topic – Design in Nature – that can be accessed here.

The dark side of flows

So, then, what’s the problem? Well, too much flow could be a bad thing. Right now, we’re beginning to realize that all this connectivity enabling much richer flows on a global scale also has its downside. We’re all familiar with the flash crashes associated with high frequency trading on electronic markets. Stories of significant security breaches multiply as we become more connected. Extreme events cascade out of nowhere to disrupt activity on a large scale. It turns out that too much flow can make our systems more fragile.

There’s another indirect way that too much flow produces more fragility. As human beings, we have a natural tendency to seek out those who think and act like us.

We can see this play out in social media where we tend to hang out with people who are like us. As Bill Bishop, in his book The Big Sort so persuasively demonstrated, we have a growing tendency to settle in geographic neighborhoods where the people share our beliefs and values. The more we do this, the more our own beliefs and values are reinforced and the more resistant we become to the different beliefs and values of others. There’s growing flow because we really enjoy having the positive reinforcement that comes from frequent interaction with people who are like us and we are likely to more frequently engage with others from our community. It’s also efficient – we’re much more likely to come to agreement and act on something quickly if we all share the same basic perspective.

But, the problem is that the flow of interactions is more and more contained within the communities that think like us and we become less willing to engage with those who might challenge our beliefs. And, the more polarized we get, the more fragile we become as a society, vulnerable to falling into violence when faced with the slightest provocation.

More flow with less fragility

So, how do we get more flow with less fragility? My instinct is that requires friction – institutional arrangements and personal practices that tend to slow down flows and reduce the likelihood that these flows will cascade into the breakdown of systems.

What do I mean by friction? I’m not really sure, but I have an instinct that it can take many different forms. For example, in the case of trading markets, it might take the form of buffers that require some reflection or more analytics before acting upon information.

In the case of individuals interacting with each other, productive friction might come from welcoming others with diverse perspectives and experiences as an opportunity to challenge our own beliefs and evolve to much more creative approaches than would be likely if we just interact with others who have similar perspectives. Sure, it might take us longer to come to some agreement or resolution, but the outcome would much more innovative and help us to learn faster. The key to keeping friction productive is to foster mutual respect for all the participants even though we might disagree on the topics or challenges under discussion.

Find the right kind of friction by focusing on the highest impact flows

But clearly not all friction is good – too much friction and friction of the wrong kind can flatten flows. Perhaps the key to focusing on the right friction is to shift our framework for thinking about flows. Too often, especially in the technology world, flows get reduced to data flows and the emphasis is on the efficiency and speed of the flow – how quickly can it get from point A to point B?

If the goal of expanding flows within our society and economy is to accelerate learning rather than to simply expand data flows, we might create a more useful framework for optimizing both flows and friction. What kinds of flows are generative, meaning that they promulgate even more productive flows over time? What kind of friction gives us opportunity for reflection and productive debate so that we can learn faster and come up with even more creative ideas and approaches over time?

Perhaps the old adage that to go fast, you must first go slow, has some merit here. Rather than just focusing on accelerating existing flows, maybe the key is to find ways to nurture the flows that can be most productive in generating even more flows over time.

Bottom line

I’m not sure about all of this, but getting the balance right between flow and friction will be key to building societies and systems that can accelerate performance improvement without exposing us to excessive fragility that increases the risk of collapse. In other words, it will be key to human progress.

What do you think? Are all flows created equal? If not, what forms of flows can be most helpful in helping us to achieve more of our potential, getting us to higher and higher levels of performance as individuals, as institutions and as societies?

Is all friction the same? If not, what forms of friction will help to reduce fragility while increasing our ability to learn faster as individuals, as institutions and as societies.

I need your help. Let the flow begin and let’s hope that some friction emerges as we seek more insight into the most effective ways to balance flow and friction.

The Unmet Need for Trusted Talent Advisors

In a world that’s changing ever more rapidly, we all need trusted advisors. It’s a significant unmet need that creates a very attractive business opportunity. This has been a central part of my research and writing for almost 20 years since I published a book on the topic, Net Worth. Most recently, I returned to this subject in a blog post.

Today I want to make an important distinction between two major trusted advisor opportunities. So far, most of my writing has been about “trusted customer advisors” – businesses that will proactively help us to connect with the products and services that are most relevant to our needs and aspirations as we confront a growing array of options competing for our attention in the marketplace. Digital technology infrastructures are for the first time making it possible to take this business model and make it a mass market offering, rather than something that is only accessible to the very wealthy.

But there’s another trusted advisor opportunity – something that I call the “trusted talent advisor.” What’s that? It’s someone who proactively helps us to learn faster by developing a deep understanding of our individual context, capabilities and aspirations and connecting us with services and resources that will help us to achieve more of our potential.

Forces shaping the unmet need

Why is this becoming so important? Because we live in a world of mounting performance pressure where we can’t afford to stand still and rest on the certificates and accomplishments of the past. Unless we accelerate our ability to learn and achieve more and more of our potential, we are at increasing risk of experiencing growing stress, becoming more and more marginalized and ultimately dropping out.

And to add to the pressure, our educational systems are fundamentally broken. We’re paying more and more for diminishing value. Think about it. What’s the model of education?

You go to school for a specified number of years and receive a certificate verifying that you have mastered certain skills and then you leave education behind and go into the workforce to apply what you’ve learned. And, while you go to school, your key assignment is to “fit in” – to be successful, you need to adapt to the institution and listen carefully to the sage on the stage who will transmit to you the knowledge and skills required to be successful. This model worked very well in more stable environments where the key challenge was to learn a fixed set of skills and fit into institutions driven by scalable efficiency.

In a world that’s increasingly going exponential, shaped by digital technologies and a proliferation of knowledge flows on a global scale, the half lives of any given skills are shrinking at a rapid rate. Learning becomes a life long imperative, not something that we can compartmentalize into a certain number of years at the beginning of our lives. Learning becomes far less about absorbing existing knowledge from a sage on a stage and much more about developing a growing capacity to create new knowledge and skills in collaboration with others in our unique context.

Rather than trying to “fit in”, our key to success increasingly becomes the ability to “step out” – exploring challenges and opportunities that have never been encountered before. Most fundamentally, the imperative is to find, connect with and pursue a passion that will motivate us to learn faster and take the significant risks that entails – we need to cultivate the “passion of the explorer.”

What's required to address that unmet need?

So, who’s going to help us do this? It’s a growing unmet need that creates a significant business opportunity. What we all need is someone who knows us very deeply and better than anyone else and who will use that knowledge to proactively recommend actions that will help us to learn faster. We need someone whom we can trust to be on our side – aggressively helping us to achieve more of our potential, wherever that might take us. We need someone who will challenge us to get out of our comfort zone and to abandon beliefs that are becoming obstacles to success. And we need that person to be at our side, through thick and thin, regardless of where our journey might take us.

Now, at one level, we’ve all had exposure to people who help us in becoming better. Many of us have been fortunate enough to have mentors who have provided valuable advice at critical turning points in our lives. Most of us who have close friends who challenge us to become better and help us along the way to achieve more in our lives.

On a commercial level, there are lots of players emerging to address elements of this need. I’m struck by the growth of executive coaches, personal trainers and mindfulness advisors. At another level, we have the growth of incubators and shared workspace providers that offer some of the services I am describing in a business context.

But most of these providers are still targeting narrow slices of our needs in terms of talent development – they don’t seek to address all of our talent development needs in a more holistic way. The trusted talent advisors that I’m describing would connect their clients with these more specialized providers when the need arises, but they would be focused on becoming an overall orchestrator of specialized services, driven by a deep understanding of our overall needs and aspirations. By the way, one of the key services of a trusted talent advisor would be to connect us with a small community of people who are in a similar context and driven by similar passion so that we can learn faster by sharing our experiences, holding each other accountable and encouraging each other when unexpected obstacles arise.

And there’s a growing amount of technology, loosely grouped into the Internet of Things, artificial intelligence and data analytics categories, that provide an opportunity for trusted talent advisors to gain growing insight into who we are, what we’re doing and what we’re accomplishing. It’s this growing technology infrastructure that makes it feasible to take the trusted talent advisor business model to the mass market, rather than just restricting it to the very affluent.

Why is this such an interesting business opportunity?

There’s a big white space remaining to be targeted. This business is a particularly interesting opportunity because it’s likely to be driven by powerful economies of scope. What do I mean by that? Think about it. The more this business knows about you, the more helpful it can be to you. If the provider only knows a narrow slice of who you are, the provider can be helpful in a limited way, but it will never match the potential value of someone who knows much more about you. And the more clients this business serves, the more helpful it can be to each client, because it can start to see patterns in terms of what drives accelerated learning and performance improvement for people like you. In short, the broader the business, the more value it can deliver relative to more narrowly focused providers. These economies of scope are likely to drive  the emergence of very large businesses over time.

Of course, acquiring such deep and broad knowledge about you will require deep trust. You need to be convinced that this provider is on your side, representing your interests alone, and won’t use this data to your disadvantage. It’s for this reason that I’ve suggested that the winning business model for a trusted advisor will be one where the clients pay the advisor, rather than having an advisor who is dependent on advertising revenue or commissions received from vendors. If you’re paying the bills and retain ownership rights to the data you are providing to your advisor, the advisor is much more likely to be on your side of the table, representing your interests.

There’s certainly a significant opportunity for existing educational institutions to target this growing unmet need. One powerful way to begin that journey would be to focus on building sustained relationships with alumni, not as targets for fund-raising, but instead as people who have just started out on their learning journey and finding ways beyond more classes to become trusted advisors to these alumni. But making the transition to trusted talent advisor will be very challenging and painful for traditional educational institutions, requiring them to ultimately transform virtually everything they do. New entrants will have the advantage of taking a clean slate approach to building a trusted talent advisor business.

In my writing on the likely evolution of business models, I’ve proposed that there are three key dimensions for the evolution of business models in our exponential age. The trusted advisor represents the highest form of evolution across all three dimensions.

But what about scalable learning?

In my broader writing on the Big Shift, I’ve proposed that all of our institutions will need to transition from scalable efficiency models to scalable learning models. Would that eliminate the need for trusted talent advisors? Wouldn’t all of our institutions then help us to learn faster? Well, no – there’s a paradox here: the more important scalable learning becomes, the more valuable trusted talent advisors become.

Here’s the challenge – institutions by their very nature are driven by their specific institutional mission. They will help you to learn faster within the context of that mission. But what about your mission? Your passion? As long as there’s a close fit between the institutional mission and the individual passion, the institution will help you to learn faster in areas that matter. But I suspect that there will always be a significant role for someone who is completely committed to help you learn faster as an individual given your specific aspirations and passion, regardless of the institutional setting that you find myself in at any point in time.

Is there an even bigger opportunity?

One more point before I wrap up. There’s an open question on the table. I’ve now outlined two trusted advisor business opportunities – the trusted customer advisor and the trusted talent advisor. Could one provider address both of these opportunities in the consumer space? Are these inherently two separate business opportunities?

There’s a part of me that wants to believe that these are in fact two sides of the same coin. As I’ve argued elsewhere, I believe that part of the Big Shift is a movement away from consumption as a status symbol (e.g., the type of car we drive, the size of our home, etc.) to creation as the source of status – what have we created and how many people have adopted our creation? To the extent that this plays out, it might make more sense to build a trusted advisor business that bridges these two arenas and focuses on helping each of us to achieve more of our potential through all the goods and services we access.

Bottom line

There’s a very powerful new business opportunity emerging. So far, it hasn’t been effectively addressed. It represents a significant white space in terms of value creation and value capture at global scale. But, given the powerful economies of scope that will drive this kind of business, there’s an urgency in pursuing it if you find it interesting. This is not the kind of business that will welcome fast followers. The race is on. Have you left the starting gate?

Scaling Learning in an Exponential World

What does scalable learning really mean? I’ve been writing and talking about this for a while now including here, making the case that this will be a key driver of institutional success in the years ahead. In the course of conversations, I’ve discovered a lot of misunderstandings regarding what I really mean by scalable learning, so let me take this opportunity to clarify my perspective.

Why is scalable learning so important?

In the Big Shift, we’re rapidly moving from a more stable environment to a global landscape that is shaped by exponentially improving digital technology infrastructures. In the face of these exponential changes, if we’re not learning faster, we’ll rapidly fall behind. But what does learning really mean? In the context of a rapidly changing world, learning means developing new shared practices that can increase impact in a world of mounting performance pressure.

Free learning from the prison of the training room

First, let me emphasize that the learning I’m talking about doesn’t occur in a training room – it occurs in our day to day work and living environments. If we’re talking about developing new shared practices, it’s far more effective to do that in the environment where these practices are going to be applied, not in some artificial environment. Training rooms are fine for transmitting existing explicit knowledge, but not very effective for developing new shared practices.

Expand learning well beyond knowledge management platforms

Knowledge management platforms have largely been organized around sharing existing knowledge. While this may be marginally helpful, the key imperative in a rapidly changing environment is to find ways to develop new knowledge, rather than merely sharing existing knowledge.

Tacit knowledge is far more valuable than explicit knowledge

In rapidly changing environments, it’s important to realize that tacit knowledge trumps explicit knowledge. The latter can be articulated and written down and it usually takes time before it can be expressed clearly and coherently to others. Tacit knowledge is within our heads and we have a hard time even expressing it to ourselves, much less to anyone else. Because tacit knowledge is generally newer knowledge, emerging from new experiences that we’ve encountered, it’s often the most valuable knowledge, providing us with insight into how to act in a rapidly evolving environment.

Tacit knowledge becomes accessible through shared practice

Because it’s so hard to express, tacit knowledge is not easily accessible. The best way to access it is to work together and to observe the practices that emerge from this tacit knowledge. By working together, we also develop deeper, trust-based relationships that create a safer environment for us to explore new insights with others in our group that we have a hard time expressing to ourselves.

Tacit knowledge emerges from productive friction

The key is to move beyond accessing existing tacit knowledge and to work together to develop new tacit knowledge. This involves addressing unexpected needs and opportunities through the development of new practices. While we each may have some ideas about the practices that would have greatest impact, we are far more likely to develop higher impact practices if we come together and challenge each other’s ideas to come up with new practices that none of us would likely have developed on our own. This requires productive friction: the willingness to challenge and debate each other’s ideas in an environment that encourages diversity and mutual respect.

Let theory emerge from practice

Rather than sitting around and debating for prolonged periods, it’s far better to move as quickly as possible to action to test various approaches and determine which practices can lead to the highest impact on a consistent basis. As we accumulate practice in new environments, we can then start to look for patterns that will generate theories about why these practices lead to such high impact. Given how rapidly our environments are changing, these theories will likely lag our practices. We need to be continually evolving our practices to refine our theories.

Encourage learning in all parts of the organization

We are under increasing performance pressure and we can’t afford to silo our learning in certain parts of our institutions. Everyone in the organization needs to be learning faster by evolving new shared practices, whether they are research scientists in a laboratory or janitors trying to maintain our facilities. The institutions that will succeed in the Big Shift are those that help everyone to accelerate learning, rather than restricting it to a privileged few.

Focus on results and let learning be a by-product

We need to flip our learning mental model on its head. Rather than focusing on learning as the primary goal, we should shift our focus to accelerating performance improvement and let learning be a by-product. The goal is to improve performance more rapidly – that’s why focusing on developing new shared practices is so powerful. It provides us with results that we can measure and learn from, rather than investing heavily in training programs and taking people out of their working environments. Performance improvement accompanies learning, rather than lagging behind it.

Create environments that accelerate this kind of learning

If we took scalable learning seriously, we would apply design thinking and design methodologies to systematically redesign our work environments with the primary design goal of accelerating learning and performance improvement. I have been unable to find a single company that has attempted this, although our research uncovered 75 examples of companies that had redesigned slices of work environments with the result of accelerating learning.

Create and find ecosystems that can scale learning

And, if we take scalable learning seriously, we won't stop at the four walls of our enterprises and narrowly focus only on our employees. Instead, we'll seek to participate in expanding ecosystems that will help us to build deep, trust-based relationships with a growing number of third party participants that are all driven by a desire to learn faster together. Our research has helped to identify the characteristics of these kinds of ecosystems here and here.

Cultivate passion as a key driver of learning

No matter how much we redesign our work environments and expand participation in learning ecosystems, we’ll never harness the full opportunity of these environments unless we catalyze and amplify a specific form of passion among all of our participants – the passion of the explorer. We discovered this form of passion in our research on environments that produce sustained extreme performance improvement. The bad news is that only about 12% of the US workforce has this form of passion today. That’s not an accident, since our existing institutions, built on a rationale of scalable efficiency, rather than scalable learning, find this form of passion deeply suspect and do everything they can to squash it or at least restrict it to after-hours activities.

Provide effective leadership to scale learning

Like most things in organizations, the leaders help to define the culture and values. If leaders don’t embrace scalable learning, it will never scale. Here’s the challenge. The mark of a strong leader in a scalable efficiency environment is someone who knows everything, who can be relied upon to provide answers no matter what the issue or question. In a scalable learning environment, the most effective leaders are those who have the most powerful questions and who invite others to come together to discover the answers. They help to focus others on the questions that really matter. Perhaps even more importantly, they express vulnerability by acknowledging that they don’t have the answers and want help in finding the answers. In sharp contrast to scalable efficiency environments where having questions is a sign of weakness (you’re supposed to know what needs to be done), this signals to others that it’s not only OK, but essential, to have questions and to ask for help in discovering the answers.

Focus on trajectory, not snapshots

Finally, let me add that performance in a scalable learning environment is continuously evolving. Rather than focusing on snapshots of performance at any specific point in time, scalable learning organizations are relentlessly focused on the trajectory of performance – not only whether performance is improving over time, but whether it is accelerating. If it’s not accelerating, it’s not good enough. In an exponential world, we need exponential improvements in performance.

Bottom line

Hopefully, this brief post has helped to clarify what I mean by scalable learning. It’s certainly not learning in the traditional sense. It’s a very different and very powerful form of learning that, if effectively harnessed, can help all of us to achieve much more of our potential while having a far greater impact on the world around us. But, if we take it seriously, we’ll need to re-think everything. The time is now.

What’s the Future of Jobs?

What better time to reflect on the future of work and jobs than Labor Day? I’ve written about this extensively with my latest foray on a recent blog post.

Is STEM our future?

Today, I want to be a contrarian. The conventional wisdom is that the best way to prepare students for the future of work is through a STEM education (science, technology, engineering and math), although a few might recommend STEAM (adding art as a token concession to the quantitative basket). Let me challenge this on several levels.

First, it maintains a disciplinary focus to education at a time when our disciplinary boundaries are becoming prisons that prevent us from fully understanding the rapidly changing world around us.

Second, it suggests kids should go into disciplines that are particularly vulnerable to automation, especially if we focus on the quantitative and systemic dimensions of these disciplines. Sure, data analysts are in hot demand now, but how long will it be before artificial intelligence automates much of this activity? Robots are already designing and building their compatriots.

Third, it seems to be driven by the sense that we’ll all need to become “techies” in order to survive in a world increasingly shaped by technology. Yet, the wonderful capabilities of these new generations of technologies are that they quickly blend into the background and can be used by anyone without a tech education. Think of the computing power embedded into our smart phones today – the equivalent of mainframe processing power just a few decades ago – that can now be applied with just a few taps in proliferating applications usable by anyone.

Fourth, if the children are not deeply passionate about these disciplines and simply going into them because they will provide a sustainable career, they will most likely fail as the mounting performance pressure leads to growing stress and ultimately burn out.

Alternatives to STEM

So, what’s the alternative? The only real alternative to prepare our kids for the new era unfolding around us is to radically redesign our educational systems. What we need are learning environments that will draw out and nurture capabilities that today are only in the background, if present at all – capabilities like creativity, imagination, curiosity, and emotional and social intelligence that transcend conventional disciplinary boundaries.

Until then, the best advice we can give our children is to search wherever they can (and certainly beyond the four walls of the classroom) for a sustaining passion that excites and engages them and to not stop until they have found it. Once discovered, they then need to do whatever is necessary to pursue that passion and find ways to turn it into a remunerative job.

Work versus jobs

Which leads me to my next contrarian position. I’ve just come back from a conference where the consensus appeared to be that we might continue to work in the age of machines but that few, if any, of us would be able to turn that work into jobs that provide us with income to support ourselves (much less our families). Frankly, this position baffles me.

I believe that we all have an insatiable desire and need to achieve more of our potential, even though for many of us that desire and need has been suppressed by an educational system designed to prepare us for jobs that offer very limited opportunity to achieve more of our potential. Moreover, I also believe that we will be willing to pay those who can play a material role in achieving more of our potential and in providing us with products and services tailored to our individual needs and interests.

The way I see it, there will be a flourishing of jobs that will leverage digital technology infrastructures but that can provide a healthy living to more and more people who discover that they have a passion for this kind of work. What are some examples? Let me just quickly roll through a list (and I couldn't resist having them all start with the same letter):

Craftspeople and artists – I believe we are headed back to the future, a world where more and more of the products we buy will be produced by talented craftspeople who can inspire our own creativity and imagination

Customizers – these are people who have a talent in taking more generic products and services and creatively tailoring them to the specific needs and interests of each person

Curators – people who develop a deep expertise in particular domains of products and services and can quickly and effectively help us to find the product or service that best meets our needs and interests – they don't have to be high tech products, but all forms of products including beds, gardening tools and surfboards

Coaches – these are people who help us to accelerate our learning and performance improvement in a broad range of domains that are meaningful to us, ranging from job skills to wellness and relationships. Once again, these skills don't have to be high tech skills – they could be cooking, pottery making or swimming

Counselors – people with a deep intuitive sense of the individual who can help us with motivational or lifestyle issues that are preventing us from achieving more of our potential, including drug abuse, fear or self-absorption

Compelling experience hosts – those who can help us to explore domains in ways that enhance our learning or spirit of adventure. This could cover a broad range of experiences from travel and exercise to learning about new tools that can help us express our own creativity and imagination

Community hosts/moderators – people who are talented in convening gatherings (both in physical space and virtual space) that bring together people and foster interactions that draw out new insight and motivate us to harness that insight so that we achieve more of our potential. By the way, these community moderators could emerge in many domains, ranging from specific crafts to helping neighbors achieve a greater sense of community

Captivating performers – these are people in a variety of domains including sports and entertainment who can engage and inspire us to achieve more of our potential by tapping into our imagination and showing us what is possible

I could go on, but let me suggest that ultimately the jobs of the future will focus on serving four basic human needs – exploration, connection and creation as well as the learning required to do the first three more effectively.

But, where's the money?

So, will we be able to earn a living from these activities? I believe so, for a variety of reasons.

First, our cost of living is likely to decline significantly in the years ahead as we reap the benefits of technology. This technology is already helping to significantly reduce the cost of producing and delivering the products and services we need to meet our basic needs, ranging from food and energy to the devices we use to connect to the rest of the world. There admittedly are certain domains (at least in the US) like education and healthcare that are experiencing rapidly rising costs, but I believe these domains will be significantly disrupted in ways that unleash the opportunity to make these services more accessible to a larger segment of the population (perhaps the focus of a future blog post).

There’s another factor likely to reduce our cost of living over time – the move from ownership to access. We’re shifting from the need or desire to own large physical assets like homes or cars to seeing the value of simply accessing these resources when and where we need them. Access will tend to reduce the amount we need to spend to get the benefit of these assets.

Second, we’ll likely have to move from being employees to becoming entrepreneurs in order to create these jobs for ourselves. I’ve written extensively about concentration and fragmentation trends in the economy elsewhere. While I’ve made the case that we will still see very large and concentrated businesses in a variety of domains that are driven by significant network effects or economies of scale and scope, these businesses will tend to be very capital intensive and actually require relatively few employees to prosper (the one exception being the “trusted advisor” business opportunity). As a result, most people will tend to make a living in the fragmenting parts of the economy, where most if not all of the job opportunities I outlined above will reside.

To harness these job opportunities, we’ll need to be prepared to leave the largely illusory security of working as an employee and instead build our own small business by seeing an untapped opportunity and being willing to take the risk of investing our time and effort in addressing that opportunity. In doing this, we'll be able to leverage new generations of technology like 3D printing that are making the means of production more affordable and accessible, as well as digital funding, talent and commercialization platforms that will help us to connect with the resources and customers we need to build a business.

Success will be modest, at least in the sense of not becoming the next unicorn. That’s the consequence of operating in a fragmenting part of our economy – small businesses will prosper, but find it increasingly challenging to become very big. But we will likely be able to create a comfortable living for ourselves, our families and perhaps a few other trusted collaborators.

If we’re targeting opportunities like the ones highlighted above, I believe that we can create jobs for ourselves. This work taps into basic human needs that we all have. Think of it in terms of Maslow’s hierarchy of needs. As the basic physical requirements for human survival become increasingly affordable, we will naturally move up the hierarchy to focus ultimately on self-actualization. And, if you believe, as I do, that our potential for self-actualization is ultimately unlimited, there will be an ever growing demand for products and services that can support us on this journey.

Bottom line

If it’s not already clear, I’m an optimist regarding the potential for jobs, while recognizing the challenges we will certainly face in making this transition as the future of work gets redefined. The jobs that are emerging are far more fulfilling than the jobs today that require us to leave our humanity at the door in order to take home a paycheck at the end of the month. These jobs are within the reach of all of us, provided that we discover and pursue our passion.

The Demise of Advertising Business Models

In a blog post earlier this year, I explored the emergence and evolution of new business models enabled by digital technology infrastructures. At the very end of that blog post, as a teaser, I mentioned in passing that advertising business models are unlikely to be sustainable as the Big Shift unfolds.

Now, that’s a pretty bold statement given that it’s one of the most widespread business models, especially in the media business and Internet businesses. This business model is also being aided by technology that helps advertisers to target their audiences more precisely and to follow people in physical space through their smartphones, rather than simply waiting for them to get in front of their TV or their computer. How could I possibly suggest that the advertising business model may not be sustainable?

Well, one big red flag is the spread of ad blocking technology. According to Fortune magazine, use of mobile and desktop ad blocking software grew by 41% worldwide and by 48% in the U.S. between Q2 2014 and Q2 2015. According to PageFair, use of this software quadrupled between 2013 and 2015 to 200 million monthly active users. If advertisements are so useful to consumers with all this wonderful targeting, why is the use of ad blocking software exploding globally?

A new metric – return on attention (ROA)

To understand the dynamics underlying these numbers, we need to explore a paradox about consumers – we are becoming more and more powerful at the very same time that we are experiencing more and more pressure. What do I mean?

Growing power is simple – as consumers, we have far more choice regarding products and vendors, more information about those choices and more ability to switch from one vendor to another if we don’t feel that our needs are being met. But, at the same time, we’re all experiencing increasing pressure in our work lives and our personal lives. Our jobs that we used to take for granted are becoming less and less dependable. We find ourselves working harder just to maintain our current positions, much less getting ahead, while our personal lives (including sleep) cannot be ignored. Time has become a very precious asset and we feel increasing pressure to get more and more value from each unit of time that we spend. We need to find ways to increase our impact in each minute and hour of the day.

In this kind of environment, we’re all on a quest to increase our return on attention – a new form of ROA that will increasingly determine success. What are the components of ROA? There are three:

• Achieve more of what is valuable and meaningful to me for each unit of time spent
• Make the time spent as engaging and enjoyable as possible
• Reduce the amount of time spent wherever possible unless it contributes significantly to value received

Now, I’ve written often about the growing importance of this form of ROA, including here and here. In the past, I’ve focused in particular on the challenge we all face in our personal lives with more and more vendors competing for our attention. This challenge will only intensify as we see growing fragmentation of product and service businesses.

But there’s another piece to this puzzle that deserves more attention and that’s our desire and need to learn more and faster. We want to make the best choices possible and that becomes more challenging when we not only have more choices, but those choices evolve at an ever accelerating pace. And, once those choices have been made, we want to get as much impact and value from those choices as possible. We’re moving away from a traditional consumer society where the value resided in ownership of the object itself to one where the value resides in the usage of the product and the impact that we can achieve from that usage. Now, we feel an increasing need to learn more about the ways we can use the product to get even more value.

New approaches to increase return on attention

In this changing environment, vendors of products and services will need to become more adept at accelerating learning of consumers, both in the pre-purchase and post-purchase phases. As I discussed in my earlier blog on business models, this will involve a profound shift in mindset from doing transactions to building rich and sustaining relationships that will enable the vendor to become more and more helpful to the consumer.

What are some of the implications of this shift? It will certainly vary by product or service, but there are some broad opportunities to be explored. For example, most vendors do not come close to leveraging their Internet presence given this growing need of consumers to learn and to increase their return on attention. One simple tool is to ask the visitor some short and quick questions that will help to personalize content and interactions to more directly meet their needs. The key here is to give value back to the visitor as quickly as possible. This will reinforce in their minds that you were able to be more helpful when they gave you some information and will increase their willingness to offer more information in return for even more value. In designing these interactions, it’s important to ask: what is the minimum information required to deliver maximum value back to the visitor?

A bigger stretch is for the vendor to resist the temptation to keep others out of the interaction with the visitor to the website. Remember, the key goal is to help the visitor learn faster. Often, that can be done by connecting them to third parties that could be particularly helpful in sorting through the choices they need to make or the approaches that will help them to get the most value from the product or service once they have bought it. It might even involve connecting them with other customers so that they can learn from each other. The key is to create a website with a rich set of experiences shaped by a broad range of resources mobilized from third parties as well as other customers.

And it’s not just about re-thinking websites. What about re-thinking the physical retail store experience? Today, the focus of more and more stores is on transactions – maximizing selection to increase the likelihood of a purchase. Salespeople have been steadily reduced as shelf space has been steadily expanded. As I’ve written in a major research report on the future of retailing, this is likely to be a losing proposition relative to the infinite shelf space that is available from online retailers. I would suggest that the future of physical retailing will increasingly lie in creating rich “experience bazaars” that help to amplify return on attention for the consumer.

What do I mean? What about focusing precious retail space on creating a broad range of experiences that are not just enjoyable but that help the consumer to learn faster about choices pre-purchase and about the most effective usage of the product post-purchase? In the future, some retailers may maintain a product focus to their store – for example, consumer electronics – but many retailers may end up adopting a customer segment focus like people who are about to have their first child or people who are about to retire. If the focus is on accelerating learning, having a clear understanding of customer context becomes much more central to designing the right learning experiences. In more and more cases, the business model for physical “retailers” may shift from making a margin on the product sale (since, more often than not, the actual purchase may be executed online) to actually charging for the value of the learning experience itself. The “showroom effect” dreaded today by most physical retailers may in fact define a very rewarding future – if they evolve their business model accordingly.

While these kinds of online and physical store experiences are quite different from the experiences that most vendors create for us today, they could be very rewarding for the vendors. Vendors also will be increasingly driven by a return on attention metric in their marketing. How much do they need to spend to get a unit of attention from a consumer and how much revenue can they ultimately generate from that unit of attention In this context, these learning experiences created for the consumer can also be significant learning experiences for the vendors. They will learn far more about their consumers and their unique contexts than they ever did with conventional transaction based business models. That learning can be used to become even more helpful to the consumer, in terms of designing more valuable experiences for the consumer and in terms of designing (or re-designing) products and services that deliver even more value to the consumer.

Some more metrics – return on information (ROI) and return on skills (ROS)

If we take this logic to the next step, two other metrics become more and more important for both consumers and vendors – ROI and ROS. In this case, ROI stands for return on information. From a consumer perspective, how much value do I receive in return for whatever information I provide to a vendor about myself? From a vendor perspective, how much revenue can the vendor generate from the information they receive from their consumers?

And ROS? Here, it means return on skills. As mentioned earlier, we in consumers are under increasing pressure to develop greater skills both in terms of picking the right products or services and, equally importantly, in getting as much value from the products and services once we have bought them. The key question for us as consumers is how much time and effort must we spend to develop the skills that are most important to us? On the other side, vendors need to rapidly improve their skills in serving evolving consumer needs more effectively – how much time and effort are they investing to evolve these skills and how much value are they generating for themselves from these skills?

It turns out that all of the emerging business models that I outlined in my earlier post are focused on accelerating learning for both the customer and the vendor. As these business models gain traction, we will also need to re-think our approach to marketing and that in turn will challenge the business models that today rely on advertising as a primary revenue source.

Bottom line

Here’s the thing. As vendors become more adept at increasing return on attention for their customers, their need to advertise is likely to diminish. If they are more and more helpful to their customers, word of mouth will spread among customers and they will flock to the vendors who can improve their return on attention. And, it won’t be just word of mouth among customers. On the product side, curators are likely to emerge to help customers sort through the ever expanding variety of products and services given deep expertise in certain categories of product and services. On the customer side, I have written about the emergence of trusted advisors who will invest in deeply understanding us as individual customers and become more and more helpful to us in recommending products or services we may not even have asked about.

With all of these resources to draw on, what is the value of conventional product advertising to the customer or to the vendor? It’s likely to diminish in importance. As I’ve written elsewhere, the power of pull will replace the diminishing power of push. We will see much more helpful forms of marketing evolve – an approach that I’ve called collaboration marketing. In this rapidly evolving world, companies that continue to rely on advertising as a business model are likely to experience growing pressure. Customers will gladly pay for the opportunity to increase return on attention and find ever more sophisticated ways to evade the classic push model of advertising.

This isn’t going to happen overnight. Companies have both the blessing of time and the curse of time. The blessing is that there is time to evolve and develop new business models. The curse is that, because this will not happen overnight, there is an understandable but very dangerous tendency to become complacent and not move aggressively enough to avoid the cliff ahead.

Robots Can Restore Our Humanity

Red alert! Robots are getting more versatile and artificial intelligence (AI) is getting exponentially smarter! Our jobs are in jeopardy and no one is safe! We’ve all seen the headlines. Anxiety and fear are steadily mounting that we are on the edge of a profound transition (some might even call it a Big Shift) that will put us out of work and on the streets.

Some respond that this is simply a resurfacing of a Luddite fear of new technology that has erupted every time new technology breakthroughs occur. The ultimate result in each of those historical eras was to destroy certain jobs, but also ultimately to create even more jobs in other domains. Job destruction was transitional.

But this time there’s a difference. Previous technology breakthroughs – think of the steam engine, the railroad or the telephone – all had a dramatic impact on certain jobs, but not all jobs. What’s different about this new wave of technology is its potential ability to replace virtually every job known to humanity.

Robots are targeting a growing array of manual jobs while artificial intelligence embedded in ever more powerful computers is going after the desk-bound knowledge worker. Even the most highly educated and trained workers – doctors, for example – aren’t exempt. Artificial intelligence is becoming more accurate in diagnosing diseases while precision robots are beginning to make inroads into surgery rooms. Even some of those headlines about the robots coming are written by AI programs.

So, what should we do about this? Resign ourselves to becoming servants or slaves of our robotic overlords (but what would we do as servants, since the technology could do it far more reliably than we could)? Go to the beach and let robots do all of the work (but who would pay us so that we could afford those mai-tai’s and tacos)? Mobilize to pass laws now to prohibit the further development of the technology?

No, we need to do something quite different – rather than view this new wave of technology as a threat, we need to view it as an opportunity to redefine work at a very fundamental level. If we do it right, we might actually be able to evolve a form of work that taps into our uniquely human capabilities and restores our humanity. The ultimate paradox is that this technology may become the powerful catalyst that we need to reclaim our humanity.

What is work today?

What do I mean? Well, let me step back and provide some context in terms of the work we do today. What is work? While there are certainly some exceptions, most work today in developed economies is the product of an industrial era that emerged over centuries, shaped in part by the machinery and tools that enabled us to move from an agricultural economy to an industrial economy. As we moved into the industrial economy, business leaders evolved a compelling institutional model that allowed them to scale operations and create employment opportunities for a rapidly growing workforce.

That institutional model can be described as scalable efficiency. What are its core components? First, tightly specify all activities required to generate output. Second, highly standardize all of those activities so that they are done in exactly the same efficient way anywhere in the organization. Finally, tightly integrate all of those activities so that we remove all of those inefficient buffers that often separated activities required to yield a specific output.

This scalable efficiency model was developed initially in the factory, but over the past century it has spilled out into every domain of human activity within large institutions. Think of call center operations, logistics operations, performance reviews, sales and marketing campaigns – they’ve all been molded into the scalable efficiency model, driven in no small part by the business process re-engineering wave that reshaped business processes in the last few decades of the twentieth century. Even hospitals and schools weren’t exempt from this scalable efficiency model – one by one, all of our major institutions succumbed to the seductive appeal of efficiency at scale.

But here’s the problem: if that’s what work is, if it’s just about executing tightly specified and tightly integrated tasks in a standardized way, guess what? What we’ve just described is a computer algorithm. Robots and AI programs can do this kind of work far more efficiently than we ever will. As humans, we get distracted, we make mistakes, we get sick – we’re not all that reliable and predictable. If that’s what work is, we’ll all be replaced by robots and AI eventually. It’s just a matter of time. And with exponential improvements in performance, it won’t take that much time.

What could work be?

But, is that all work could be? What if we used this as an opportunity to step back and reassess what work might be if we were really intent on harnessing our distinctively human capabilities? What if we focused on creating work that focused on systematically tapping into our creativity, imagination, and emotional and social intelligence? What would work look like? It would certainly look fundamentally different from the work that most of us do today.

And, here's the thing: it's exactly the kind of work that is required to accelerate performance improvement in a rapidly changing and uncertain world. The irony is that, as we move from a more stable to a more rapidly changing world, the scalable efficiency model that served us so well in the past becomes increasingly dysfunctional.

I can hear the skeptic saying, wait a minute, some of us are capable of creativity and imagination but that’s really a very small portion of the population. What about the rest of us?

My response is: go check out a children’s playground and show me a child that doesn’t have creativity and imagination. We all have that potential and a strong desire to express that potential. The challenge is that we have been processed by a series of institutions, starting with our school systems, that were designed to squeeze out these attributes in the name of scalable efficiency.

Even if we are all capable of this kind of work, the next objection might be whether there would be enough demand for that kind of work to keep us all productively employed. Perhaps I’m an optimist on this front, but I believe that we, as humans, have an insatiable demand for products and services that will help us to achieve even more of our potential. Rather than gaining status from consumption (the hallmark of the industrial society), we will increasingly gain status from what we create and how widely our creations are used by others. As our creativity and imagination unfold, we’ll find more and more demand for new approaches that will help all of us to have even more impact.

What would be required to evolve work?

If that’s what work could be, we would need to pursue institutional innovation aggressively – re-thinking at a fundamental level the most basic rationale for our institutions. Is it really scalable efficiency? While that may have served us well in centuries past, is that still the rationale that will drive the growth of the next wave of institutions? As I have written elsewhere, I believe we will need to redesign our institutions driven by a new rationale – scalable learning. That rationale would require us to re-think work and evolve the kind of work that I have just described.

Don’t get me wrong. This form of institutional innovation won’t be easy, especially within our large, existing institutions where all kinds of institutional barriers will resist this transition. Perhaps the biggest barrier of all, though, will be our mindsets – our beliefs and assumptions, often unstated, about what is required for success.

How do we overcome these obstacles?

What will be the catalyst to make this happen? It certainly won’t be the threat of job elimination on its own. Under increasing pressure to become more efficient, our institutional leaders will line up to find ways to cut employment rolls, especially as the cost of the technology required to replace jobs rapidly declines.

No, something else will be necessary. There are two forces that will ultimately catalyze and drive this shift. First, large existing institutions will experience such mounting performance pressure that cost cutting alone will not be sufficient. Large institutions will be forced to shift their focus from cost cutting to increasing value creation and, given the ability of new forms of work to rapidly increase value creation, institutional leaders will become more open to reassessing the nature of work.

Second, we as individuals are all experiencing mounting performance pressure and finding that our existing institutions are constraining our ability to develop faster, so we'll be motivated to jump ship so that we can develop more rapidly on our own. We'll begin to realize that, unless we can more effectively integrate our passion with our profession, we will never develop as rapidly as our rapidly changing environment requires. As the means of production become more affordable and our ability to commercialize our work through platforms increases, we will find this a more attractive and sustainable option, especially in the growing arena of specialized and tailored products and services. I explored this trend in our work on fragmentation and concentration trends in the economy.

Bottom line

Robots and AI may be the catalyst we need to finally jettison the increasingly outdated industrial model of scalable efficiency. In its place, we’ll evolve fundamentally new forms of work that tap into more our distinctively human capabilities and potential. Not only will we as individuals develop opportunities to learn faster by working together in very different ways, but our institutions will move from a world of diminishing returns to a world of increasing returns, where the more of us who join together, the faster we will all learn. Performance improvement will begin to accelerate in ways that previously would have seemed unimaginable. The technology that seems so threatening now may actually become our ally, amplifying our performance improvement by freeing us from the tasks that today keep us tightly locked into the routines of the past and providing us with the data we need to spark even more imagination and creativity.

Please note: "Robots Can Restore Our Humanity" is the proposed topic for my talk at next year's SXSW where I hope to delve much deeper into this opportunity. But, to do that, I need your support.  Please go here to vote for this topic http://panelpicker.sxsw.com/vote/63726 

Harnessing the True Potential of Internet of Things Technology

Despite all the hype, businesses are still significantly under-estimating the business impact of Internet of Things (IoT) technology. In my last blog post, I explored at a high level the likely evolution of business models in the Big Shift. Now, I'll use IoT technologies to illustrate how just one of many technologies will enable the evolution of business models.

The Internet of Things space

For those who aren't familiar with IoT, it refers to a set of technologies that help to connect physical objects like buildings, machines and even human bodies into networks so that they can communicate with each other and so that we as humans can connect with these physical objects as well. The technologies to do this include sensors that can monitor the condition and context of physical objects, networking technology that can help these physical objects send and receive data, and actuators embedded in physical objects that can receive instructions and act to change the attributes of the physical objects. These technologies are also known by such labels as “Internet of Everything” or “Industrial Internet”, but for the purpose of this posting I'll refer to them under the more conventional label of Internet of Things (IoT).

Like all digital technologies, the price/performance of IoT technologies is evolving at an exponential rate. The result is to make “the invisible visible at scale.” We can now track our physical context with increasing granularity at ever-expanding levels, ranging from our immediate surroundings to our buildings, to our cities, to our countries, and ultimately to our globe (not to mention Mars and beyond). Increasingly, the technologies make it possible not only to “see” the invisible, but to help it evolve in ways that can dramatically improve the performance of these physical objects as well as our own performance.

Current applications for this technology

So, what have companies done with this technology? So far, the applications have been very limited. Perhaps understandably, the dominant application of this technology has been to reduce expenses in business operations. True to form, just as with the application of most digital technologies, companies have tended to focus on applying the technology to do what they already do, just faster and cheaper.

What are some examples? Perhaps the most common application is to use IoT technology to monitor the performance of machinery and signal when a malfunction might be imminent. Preventive maintenance can definitely increase machinery utilization rates and reduce costs associated with unexpected failures. An increasing amount of IoT technology is being deployed to monitor utilization of key inputs (for example, fuel or electricity) into large scale facilities like manufacturing plants or office buildings and adjusting these inputs in real-time to enhance efficiency. Another popular early application involves using IoT technology to monitor the movement of parts and products in logistics chains.

These applications all have important economic benefits. It’s understandable why companies are targeting these applications to reap near-term cost savings. But, there’s so much more potential that remains to be tapped. How about using this technology to evolve to new and more profitable business models, focusing on enhancing value delivered to the customer rather than simply seeking to reduce the company’s own operating expense?

Transaction to relationship

It used to be that, if you were in the product business, your goal was to sell the product, get the transaction done and book the revenue. In part, this was because once the product left your store or warehouse, you had very little visibility into how it was being used. That’s all changing now as IoT technologies become more affordable and available. These technologies now provide an opportunity to monitor the use of the product throughout the lifetime of the product.

Of course, the customers have to be willing to share this information with you. Why would they do that?

Well, what if you offered to charge the customer based on usage of the product, rather than requiring them to make large upfront payments for the product regardless of usage patterns down the road?

Here’s an even more intriguing option. What if customers could use IoT technologies not just to monitor usage of the product but also to track the impact that the product has in generating value for them? What if, for example, we could track the impact of a machine on the cycle time of a manufacturing process?

By making the invisible visible at scale, we open up a wide range of new options in terms of pricing of products, moving from upfront purchase payments to usage based pricing and, in certain cases, even moving to performance-based pricing – you pay for the performance improvement, rather than just usage. Now we’re moving from an episodic, transaction-based business model where we see the customer only when they order a product to a much richer, relationship-based model where we “see” the customer throughout the product life cycle and can work together to enhance the value that the customer derives from the product.

As we’ve discussed in our patterns of disruption work, one of the patterns of disruption that is likely to unseat incumbent leaders in a diverse group of industries is aligning price with use – look at what's already happening in cloud computing as we move to infrastructure as a service and software as a service business models. So, this is not just an attractive new business model, but has the potential to create significant competitive advantage relative to vendors who remain wedded to the upfront purchase pricing model.

Data to advice

IoT technologies generate a torrent of data. Who typically has the data? Each individual customer – as a result, it’s fragmented and has limited value.

As just mentioned above, customers might be motivated to share that data with the vendor if the vendor moved to a usage-based or performance-based pricing business model. But there are some other ways that customers might be motivated to share this data.

If the product vendor could provide tangible value in return for access to the data, customers would be much more likely to share their data. How might this happen? Vendors have an opportunity to aggregate data from the use of their products across all customers and can spot usage patterns that would not be visible to any individual customer.

If vendors were providing ancillary services that deliver value to the customer driven by this data, customers would now have more reason to provide access to this data. What if the vendor aggregated usage data from all of its customers and applied the data to develop much more accurate predictive models regarding events like product failure? Customers would likely be willing not only to contribute their data, but also pay the vendor for these predictive services, generating a new data-driven source of revenue for the vendor and enhanced value for the customer.

Vendors might even take this one step further and develop insight from the data that would enable them to offer prescriptive advice for the customer. They would not just help customers anticipate certain events, but give them advice on what they should do to enhance the value of the product given these circumstances. Depending on the value created from this advice, these prescriptive services could become a significant additional source of revenue. As these business models evolve, one might even imagine that the “sale” of the product would diminish in importance relative to the revenue generated from data-driven services enabled by the product purchase. In some cases, this could help companies evolve into a trusted advisor business model.

One to many

IoT technologies also have the potential to help vendors evolve into platform-based business models, where the value to the customer increasingly comes from being connected to a much broader range of more diverse resources. By enhancing visibility not only into the context of specific customers but also into the context of a growing range of other product and service providers, IoT technology could give vendors the ability to more effectively match emerging customer needs with the relevant expertise or capability required to address that need. As this visibility increases, vendors will be richly rewarded if they can address a broader range of customer needs that extend well beyond their individual capabilities. Platform business models will ultimately create far more value than conventional one-to-one product vendor business models.

As the deployment of IoT technology expands and as the connectivity across this technology increases, it may not even be necessary to operate a platform in order to connect the customer with the relevant expertise. The vendor could simply query the communications network to find the most appropriate resources to address the customer need, regardless of what platform, if any, that those resources happen to be using.

The evolution of business models from one-to-one to many-to-many opens up a very attractive opportunity for leveraged growth. Today, when companies think about growth, they typically focus on make versus buy as the two drivers of growth. Increasingly, there will be a third path to growth – connecting with relevant resources wherever they are and mobilizing them to add value to customers. This is economically a far more attractive path to growth since it reduces upfront investment and shrinks the lead-time before new revenue is generated.

Tying it all together – creating pull platforms and shaping strategies

So, IoT technology creates an opportunity to re-think business models at a fundamental level and to harness new ways to create, deliver and capture value. What are product vendors doing on this front? So far, very little. As indicated earlier, companies have been focusing on near-term efficiency improvements in their own operations but, by and large, their business models remain untouched.

There’s a significant white space here. And there’s an even bigger opportunity that so far has gone largely unnoticed.

This is not just about evolving business models to create and deliver more value. Two of the dimensions of business model evolution discussed above, “data to advice” and “one to many” have powerful network effects that are likely to drive significant concentration of value capture over time within a market or industry. The companies that understand this potential have an opportunity not just to evolve their business models, but to pursue “shaping strategies” that could restructure entire markets or industries and create privileged positions for value capture by the shaper.

The evolution of business models enabled by IoT is ultimately about the ability to harness the power of pull, moving from conventional push based business models that suffer from diminishing returns to scalable pull based business models that for the first time offer the potential to harness increasing returns. Yes, squeezing an additional percent or two out of operating expense is important, but it pales in comparison to the opportunity to change the game in more fundamental ways.

While opportunistic deployments of IoT are beginning to generate attention, the real potential of this technology will only be realized when executives embark on a more systematic assessment of the economic and strategic value of this technology. Harnessing this potential will require re-thinking at a more fundamental level what business the company is really in and what is required for sustained value capture. The good news is that frameworks to help in this analysis are available and can significantly accelerate and amplify the impact that this technology will have on business performance.

The Big Shift in Business Models

In the Big Shift, we are all experiencing mounting performance pressure. Our response to that pressure so far has been failing, as revealed by our analysis of the collapse in return on assets for all public companies in the US since 1965. If we are going to turn that pressure into opportunity, we need to re-think everything, including the business models that have driven success in the past.

So, what is a business model? Everyone has their own definition, so let me offer mine. Business models focus on the specific form of value delivered to customers and the economics (revenue, expenses and assets) required to deliver that value to the marketplace so that customers feel they are paying a fair price and the owner of the business earns a decent return. It’s ultimately all about money. How much are customers willing to pay for value received and how much does the business have to spend/invest in order to deliver that value?

Our ROA analysis suggests that traditional business models, the ones that created so much value for the enterprise in the early to mid-20th century, are broken. So, what are the options? Are there new business models that can turn the pressure into profit?

As an optimist, I believe that the same forces that are generating mounting performance pressure are also providing the foundation for more attractive, but very different, business models. These new business models can create unparalleled value for customers and for the firm. But to harness these business models we need to step back and question some basic assumptions about the economics of the businesses we are in.

I see business models evolving on three fronts: payment, data and participants.

Payment

This dimension focuses on what we are asking customers to pay for. It is evolving both because customers are becoming more powerful and because digital technologies are making the invisible visible, creating new pricing possibilities that would have been unimaginable just a decade or two ago.

The traditional business model involved payment for a product or service upfront, regardless of whether or not it was ever used. Customers are less and less willing to tolerate this form of payment and are increasingly expecting to pay for actual usage – look at everything from software as a service to automobiles (e.g., the rapid growth of ride-sharing services) for early examples of this. Of course, without the technology to monitor usage, these kinds of pricing options would be unthinkable.

But, that’s just the beginning. As customers gain more power, they won’t be satisfied with paying for usage. They’ll want to pay based on value created, rather than simple usage. What if I use a product or service and create very little value from that usage – should I really have to pay for simple usage? We are already seeing value based billing emerge in certain parts of the professional services world.

This is obviously a far more challenging expectation because it requires the ability to measure and monitor value creation for the customer, rather than simple usage. But technology is rapidly evolving to give us a much richer view of the context of usage and the impact created by that usage. And, if we can quantify the value created for the customer from usage of the product, that customer would be much more willing to pay for value received.

Data

Unless you are directly in the data business (e.g., credit scores or audience measurement), chances are data is not part of your business model, at least in terms of value received by the customer or revenue generated from the customer. Companies use data to optimize their own operations, but they rarely share any of that data with the customer.

That’s going to change, big time. As data generation and capture becomes both cheaper and more pervasive, new business models will emerge where more and more of the value delivered to the customer resides in the data rather than the product or service. Rather than remaining a by-product, data will become more central to the value received by the customer.

The type of data delivered to the customer will evolve. Today, the data is largely descriptive. For example, in my car, I get real-time updates on my speed, my gasoline usage and the amount of gasoline remaining in my fuel tank.

Over time, we will see more and more harnessing of predictive data, helping customers to anticipate future events. For example, some industrial machinery is starting to anticipate the increasing probability of a breakdown, helping users of the machinery to increase utilization by undertaking preventative maintenance as a result of the ability to better anticipate potential breakdowns.

Even more value can be created by harnessing prescriptive capabilities of the data. Rather than just anticipating likely future events, we increasingly have the ability to advise customers on what action to take in response to those future events in order to create the most value for themselves.

Back to my automobile example, what if my auto started to advise me on driving techniques that could help me to improve my fuel efficiency? This prescriptive capability comes from not just seeing an individual customer’s data, but the data of many customers and beginning to identify and analyze patterns of usage relative to value created.

Here’s the paradox. We, as customers are becoming more and more powerful, but we also are experiencing mounting performance pressure on multiple fronts, as individuals and as institutions. If there is someone who can provide us with insight on how to act in ways that create even more value for ourselves, we not only would welcome that insight, but we would likely be willing to pay for that kind of help.

Participants

Business models in the past have been pretty simple. There was me, the vendor, and you, the customer. I provide you with products and services and you pay me for those products and services.

That’s all changing. Increasingly, we are seeing the opportunity to mobilize others to deliver value to our customers. We are even finding ways to connect our customers with each other so that they can offer information and advice to each other. Platforms are becoming more and more central to value creation and value delivery.

Platforms are great for customers. They offer customers far more choice and flexibility in moving from one product or service to another. As customers become more and more powerful and experience pressure to increase their own performance, they will see more value in accessing platforms that expand their array of choices.

But, from a platform provider viewpoint, platforms definitely require an evolution of the business model. We need to be clear up front who will be paid for what. We also need to be clear about what services we will be providing to third party providers on the platform as well as to our customers directly. The economics certainly become more complicated.

But there’s yet another stage in the evolution of participants in the business model. What if we extend the range of participants beyond those who are on any single platform to anyone anywhere? If customers want more choice to ensure that they are getting the best value, why would we restrict their choice to those who are on a specific platform, no matter how big that platform might be?

Now, of course, platforms help to organize choices and make them more accessible but we are increasingly able to use digital infrastructures and the Internet to search for potential providers wherever they might be. Even pre-Internet there were business models that involved this kind of broad reach. For example, think of executive recruiters who offer to find the best candidates for a position regardless of where they are currently. I suspect that, over time, we will see more and more of this kind of business model to expand choice for customers.

Tying it all together

Am I saying that all business models will evolve to the extreme position outlined on each of these dimensions? No, we will see a healthy diversity of business models and the specific choice of where to be on each of these three dimensions will depend in part on the specific market/industry context as well as on the aspirations and capabilities of the business leaders. By my count, we are likely to see at least 26 different business models. Ultimately, the success of any of these emerging business models will hinge on the ability to deliver differentiated and superior value to the target market.

What I am suggesting is that our existing business models are generally much too limited. Over time, we will need to evolve those business models along one or more of the dimensions that I have outlined. Business leaders need to systematically assess how their particular market or industry is likely to evolve and then determine what new business model will be most effective in creating and delivering value.

I'll point out that if you choose the extreme position outlined on the right hand side of each of these dimensions, you end up with a business model that maps to a significant business opportunity that I’ve discussed before – the trusted advisor. There will certainly be companies that embrace this business model as a way to become trusted advisors and address an increasingly powerful unmet need among customers.

I'll also suggest that these emerging business models give hope that not everything will (d)evolve towards “free” because they focus on the opportunity to provide great value to the customer in highly differentiated ways.

The careful reader will note that I have not referenced advertising-based business models. This is a big topic in its own right (and I’ll try to cover it another blog post), but just to end with a provocation: I don’t believe advertising based business models will be sustainable in the Big Shift. Advertising is going to prove to be a less and less effective way to reach and engage with ever more powerful customers. As a result, we are ultimately going to have to figure out how to offer something of value that the customers will pay for themselves rather than continue to look to advertisers to foot the bill. This makes the search for new business models even more urgent.

Finally, as a more general note, let me caution that business models cannot be considered in isolation. Business models are generally focused on how to create and deliver value to customers while generating enough revenue to earn a return on the resources required to support the business. They are very useful as a snapshot of how value might be created and captured but they rarely explore in any systematic way the dynamics that could radically re-shape the market arena over time. In more stable times, this might have been OK but, in environments that are evolving at exponential rates, this potentially becomes a serious blind spot. In this kind of environment, it becomes important to understand the longer-term dynamics that are playing out on the broader business terrain and how that terrain is likely to evolve to determine whether the company has the capabilities and position in the marketplace to capture value over time relative to other players.

Where’s the Money? The Future of the Mobility Ecosystem

I just returned from the Consumer Electronics Show in Las Vegas and it was striking how much the automobile has become a center of attention at this gathering. It was timely because I just published a new report on the future of mobility – Navigating a Shifting Landscape – and I had an opportunity to present my perspectives at CES.

My key message was that we need to avoid getting distracted. It’s easy and understandable to get consumed by the amazing technology that is reshaping the automobile industry and the mobility ecosystem more broadly. But, at the end of the day, from a business perspective, the key question remains: where’s the money?

That question focuses us on value creation and value capture and how it is likely to evolve in the mobility ecosystem. There will be profound shifts in both value creation and value capture in the years ahead.

Value creation
In thinking about value creation, I suggested that we need to pay much more attention to understanding “return on mobility” – how much value do individuals receive as they move around in their daily lives?

The automotive industry has traditionally focused more on the denominator of that equation – ensuring that we get from Point A to Point B as efficiently, safely and comfortably as possible. I suggest that the winners in terms of value creation in the future will be those who focus on the numerator of the equation – what value are we experiencing once we get to Point B? And is Point B the highest value destination for us, given our unique context and aspirations? The value for us is much more in the destination than in the movement itself – for most of us, most of the time, mobility is simply a means to an end, it isn’t the end itself.

Here’s the thing. More and more of us live in dense urban areas, where more and more options are competing for our time and attention – and those options are evolving more and more rapidly, so even if we could spend the time required to know all the options available today, they will be different tomorrow. And, at the same time, we’re all under increasing pressure in terms of the time we have available.

So, in terms of thinking about the potential for value creation, think about the businesses that can be most helpful in increasing our return on mobility. Those are the businesses that will create the most value as the mobility ecosystem evolves.

Value capture
But creating value is only the beginning. In an increasingly competitive business landscape, we increasingly find that businesses creating value are often not able to capture the value. Instead, it gets competed away and captured either by customers or by other participants in the marketplace who occupy more advantaged positions.

In this context, we need to focus on fragmentation and concentration trends. Those in the best position to capture the most value will be those who can leverage economies of scale and scope to build very large businesses with significant bargaining power relative to other participants in the ecosystem.

I ended up identifying four especially interesting opportunities for value capture in the mobility ecosystem. Not surprisingly they all involve building platforms that can benefit from significant network effects.

Trusted mobility advisor – this is a business that gets to know you as an individual customer better than anyone else and who can be trusted to proactively suggest where I should go to increase my return on mobility, as well as advising me on the best way to get to these destinations given my other commitments and needs. These businesses will have significant economies of scope – the more they know about you as an individual, the more helpful they can be. And the more other people they know, the more helpful they can be to you because they can start to see patterns of movement among people like you.

Mobility data aggregators – today we live in a technology world bridging three domains – automotive, smartphone devices and a growing Internet of Things infrastructure. Within each of these domains, relevant data is siloed and we lose much of the value because of the inability to aggregate the data and mobilize a growing range of analytic tools to generate insight from the data.

Mobility fleet operators – as we move from automotive ownership models to access models where we want a car on demand, when we need it and where we need it, we’re likely to see the growth of highly concentrated mobility fleet operators that will leverage network effects to provide us with more tailored access to meet our individual needs.

Horizontal operating systems – this is perhaps the most speculative of the four value creation opportunities but one with enormous potential if some business can pull it off. The issue here is that the three domains discussed earlier – automotive, smartphone and Internet of Things – are largely dominated by vendors jealously protecting proprietary technology stacks. The technology silos that result are a significant inhibitor to broader innovation in the devices and software, as well as making it much more challenging to aggregate data generated from these devices and software. We are already starting to see the emergence of a horizontal operating system layer in the smartphone business with the deployment of Android. Here’s an even more ambitious opportunity – what about developing a de facto operating system standard that spans across all three domains and facilitates interaction across the three domains as well as within each domain?

The need for speed
I go into a lot more detail on each of these four opportunities in the report that I mentioned earlier. As diverse as they are, they all share one common element. They are platforms driven by powerful network effects. Once a critical mass of participants have been assembled on a platform, these businesses are very hard to challenge.

So, there’s an urgency here. Those who make it to critical mass first will be the likely winners in value capture. These are not arenas where you can be a fast follower or stay on the sidelines and wait until someone proves out the concept.

The existing players in the mobility ecosystem have enormous assets that could be deployed to target these value capture opportunities. But they are also vulnerable because there is a strong tendency in times of mounting performance pressure to shorten time horizons and just focus on the challenges that exist today.

Speed requires alignment around a shared view of the future mobility business landscape and agreement on where the most promising value capture opportunities are. This requires “zooming out” to explore a much longer term time horizon. It then requires “zooming in” to identify a very limited number of business initiatives that can be aggressively pursued in the short-term to accelerated movement towards that longer term opportunity. Those who adopt this "zoom out, zoom in" approach are the most likely to occupy these white spaces before others can get their act together.

Bottom line
The mobility ecosystem is rapidly evolving, driven by new generations of digital technology. There are some significant white spaces for value capture that are emerging within this ecosystem, but they will not be white spaces for long. The winners will be those who can anticipate opportunities for value capture and move quickly enough to preempt others.

There’s a lot more to be said about this and, for those who are interested, the next level of detail can be found in the “Navigating a Shifting Landscape” report.