Category Archives: Uncategorized

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.

Leave Those Resolutions Behind

As we enter the New Year, we all tend to embrace it as an opportunity for some new beginnings. New Year’s resolutions abound, all made with the best of intentions. Some resolutions are truly audacious while others focus on small improvements on the edges of our lives. Whether big or small, most of these resolutions soon fall by the wayside as the pressures of day to day living resume their relentless quest to consume every minute available.

Having had this experience myself many, many times, I’ve begun to realize that the key to lasting change and improvement is to embrace the paradox that small moves made now are the best way to set big things in motion. How is that possible? Well, the small moves must be smartly made, otherwise they just remain small moves and quickly become engulfed by the unfolding events of our lives.

What do I mean by “smartly made”? Well, this requires carefully knitting together three elements – focus, leverage and accelerate. Without all three of these elements, those small moves run a high risk of remaining just that – small moves with little impact on our lives or the lives of those around us.

Focus

Let’s take each of those elements and explore them in a bit more detail. First, start with focus, because that’s the foundation of everything else. Focus means that we must have a sense of direction and destination before we craft our small moves. We have to have some view of the bigger impact we are trying to achieve. What would it look like? Why would it be so important or valuable? What makes us think that it is achievable? We don’t need to have a detailed blueprint of the destination, but it has to have enough clarity so that we can make some more effective choices in the short-term regarding the small moves that have the greatest potential to move us in that direction. Otherwise, we’ll just randomly be pursuing small moves and spreading ourselves way too thinly across too many initiatives that consume time and energy with minimal results.

Leverage

If we can articulate that focus to ourselves and to others, it also can draw others to us who are inspired by that focus. That leads to the second key element of “smartly made” – leverage. We need to rid ourselves of the illusion that we alone can, or should, achieve the broader impact defined by our focus. No matter how smart and accomplished we are, we’ll accomplish a lot more if we can motivate and mobilize others to join us in our quest. Rather than applying all of our resources to achieving that impact, if we’re smart about it, we can get others to contribute resources of their own. By attracting a more diverse set of resources and participants, we’ll increase the potential for more creative and effective moves that will expand our potential for impact. Leverage therefore both reduces the investment of time and resources we need to make as well as increasing the quality and magnitude of our impact.

Accelerate

But there’s also a third element of “smartly made” – accelerate. Does that just mean moving faster? Well, it’s a little bit more complicated than that. It’s actually built on another paradox – we’ll in the end be able to move faster if we take the time along the way to reflect on the progress that we’re making. By taking that time, we’ll be able to continually refine our efforts based on the learning that we accumulate by assessing what elements of our moves are achieving greater impact than expected and what elements of our moves are achieving less impact than expect. If we just rush forward on a particular path, we might move faster in the early rounds, but we’ll never achieve the acceleration that comes from reflection, learning and refinement.

If we’re really serious about achieving very significant impact, we need to assess the trajectory of our progress. Are we achieving greater impact over time? Is our impact improving linearly or is our impact accelerating over time? The only way to set really big things in motion is to strive for acceleration of impact rather than settling for linear improvements. That becomes the context for the reflection, learning and refinement that we need to continually engage in along the way.

And when we engage in this reflection, learning and refinement, let’s not make the mistake of doing it in isolation. We need to reach out to others who are contributing resources and efforts to engage them in this process. We’ll benefit from having diverse backgrounds, perspectives and skill sets – it will help us to learn faster than we ever could on our own. In fact, we should also reach out to others who are in the domains that we’re trying to impact but not directly involved in our efforts to get an outside in perspective.

These three elements need to be pursued in parallel; they aren't sequential. For example, as we accelerate through learning, we’ll also refine our view of the direction that we’re pursuing and what’s required to achieve the even more of the potential that motivated us to choose that direction in the first place. We’ll also motivate others to join us as they see the kind of acceleration that we’re achieving along the way.

Let's begin the New Year right

If we get this right, the rewards will be great. Small moves, smartly made, will indeed set big things in motion. For those of you who are intrigued by this approach, you might want to check out The Power of Pull which lays out this approach in much greater detail.

And, who knows? In this New Year, we might for the first time have the potential to achieve something truly remarkable. But first we need to leave behind all those resolutions, large and small, and focus instead on smartly making small moves.

The Real Unemployment Innovation Challenge

While unemployment rates in certain parts of the world appear to be slowly improving, unemployment in many other parts of the world remain stubbornly high and, in some cases, are even increasing. More fundamentally, there’s a growing concern that rising unemployment may be one of the most significant economic, social and political issues that we will face in the decade ahead.

As we mobilize to address this issue, we need to avoid the temptation to rush too quickly into developing solutions until we’ve clearly understood and framed the problem. Otherwise, we may end up treating symptoms and, at best, providing temporary relief, rather than addressing the real issues in a more fundamental and permanent way.

So, what is the problem? Well, there are many problems – that’s one thing that makes it so complicated and challenging.

Matching supply and demand

One set of problems involves various gaps between labor supply and demand.  For example, there are many jobs out there that go unfilled, even though there are people who have the ability to do the work, simply because of information imperfections.  

At another level, there’s a mismatch between the jobs that are available and the skills that are required to do the jobs.  Some skills are in very high demand and yet the supply of workers with those skills is very limited.

There’s yet another challenge in matching supply and demand.  Many workers have the necessary skills, yet aren’t able to connect with the work requiring these skills because of powerful biases among potential employers – gender, ethnic and racial biases continue to make it difficult to connect the right workers with the right jobs.

If we go beyond the US to a global level, we see even more significant mismatches between labor supply and demand. There’s a powerful generational imbalance, with more developed economies dealing with rapidly aging populations while the younger generations are increasingly concentrated in developing economies where work is in shorter supply. Parts of the world are mired in conflict and corruption, limiting the availability of work for those who need it. The symptoms of this global imbalance are manifest in increasing concern over the influx of refugees and illegal immigration in certain countries.

As serious as these problems are, they’re only a small part of the real challenge that we’ll face in the decades ahead.  These are static problems – they reflect an existing mismatch between the supply and demand of labor. But that mismatch has the potential to become much more significant over the decades ahead, driven by dynamic forces that are rapidly changing the global business landscape, something that I’ve called the “Big Shift.”

The changing nature of supply and demand

As a growing number of commentators have warned, the pace of automation is accelerating, driven by exponential improvements in the price/performance of digital technology. Robotics is increasingly making inroads into manual labor while artificial intelligence and deep learning technologies are targeting a growing array of white collar, “knowledge worker” jobs.

And for the jobs that remain, the skills required to perform these jobs are rapidly evolving. The skills that we have today are becoming obsolete at an accelerating rate.  By some estimates, the half-life of a skill today is shrinking to about five years.

In the face of this accelerating pace of change, our educational system is not keeping up, so we have a growing imbalance between the output of our educational system and the jobs that are available. Rather than training students for a period of time and certifying that they then have a given set of skills, we increasingly need a learning system that will foster life-long learning and help all of us to rapidly evolve our skill sets on an ongoing basis.

As we look ahead, the changing nature of labor supply and demand will rapidly overshadow the existing mismatch between supply and demand. If we don’t address this more fundamental set of issues, we will at best be putting a Band-Aid on a wound that will continue to spread and become more painful.

Re-framing innovation

Many people have put their faith on innovation as a way to resolve the unemployment challenges that we face.  Yet, their focus is on how to create more jobs at a faster rate, rather than fundamentally changing the nature of the jobs that are created.

If we’re going to address the challenges ahead, we need to re-frame what we mean by innovation. Rather than focusing on product or service innovation, or even process and business model innovation, we need to focus on a form of innovation that isn’t yet on the agenda of our leaders – institutional innovation. What do I mean by that?  I mean that we need to innovate regarding the basic rationale for all of our institutions.

Today, the rationale for all of our institutions is scalable efficiency. We justify our institutions because it is easier and lower cost to coordinate activities across a large number of participants if they are within a single institution than if they are spread across many independent organizations.

The way we have implemented scalable efficiency is to tightly specify all activities, carefully standardize them so they are performed in the same efficient way anywhere in the organization and tightly integrate all activities to remove those inefficient buffers across activities.  What have we done as a result? We have defined a computer algorithm – work that can be done far more efficiently, predictably and reliably by a computer than by a human being.  We have put a bull’s eye target on the back of every worker, making it just a matter of time before a machine comes and takes their job.

This rationale defines a task centered view of the organization. It’s a view that expects people to fit into their precisely defined role within the organization.

There are many problems with this rationale. First of all, it’s less and less compelling as a rationale simply because powerful digital technology infrastructures now make it far easier and lower cost to coordinate activities across a very large number of independent entities. It's also shaped by the assumption that we live in more stable times, where the highest priority is to get to lower cost operations through predictable activities.

Even more fundamentally, it defines work in a way that makes it highly vulnerable to automation, thereby dramatically increasing the risk that more and more work will be taken by the machine.

So, is there an alternative? Our work on the Big Shift suggests that there is a powerful alternative rationale – scalable learning. In a world that is increasingly driven by exponential change and growing uncertainty shaped by exponential technologies, if we’re not learning faster and improving performance ever more rapidly, we increasingly risk being marginalized and ultimately pushed out of the market.

If we were to pursue this rationale seriously, we would finally create work environments that would encourage each of us to achieve more of our potential and deliver more and more value to our organizations and stakeholders.This is, in effect, the highest form of pull that I explored in The Power of Pull – pulling out of each of us more and more of our potential.

Rather than viewing workers as expense items to be squeezed and cut as much as possible, we would finally see workers as resources capable of creating and delivering growing value. And this wouldn't just be the case for "knowledge workers" – it would drive home that every worker is ultimately a knowledge worker, capable of driving accelerating performance improvement wherever they are in the organization by learning faster. The focus would shift to how to hire more people so that even more value could be created, rather than finding ways to fire them so that costs could be reduced.

Shifting our focus to scalable learning would also broaden our horizons. Rather than just focusing on the people within the four walls of our organizations, we would systematically seek to reach out and cultivate broader networks of participants.  Rather than viewing these outsiders as “contractors” to be squeezed, we would begin to view them as potential catalysts to help all of us learn faster by working together around challenging performance issues. Rather than focusing on narrowly defined transactions with outsiders, we would seek to build much deeper trust-based relationships that would enhance our ability to work together to learn faster. We would evolve towards much more networked institutional models that could scale very rapidly.

This scalable learning rationale fosters a people-centered view of the organization, one in which the challenge is for the organization to adapt to the needs of each individual as they seek to learn faster, rather than squeezing the individual into pre-defined roles in the organization.

In these work environments, employees would certainly benefit from the rapid improvements in digital technology that would help to give them more leverage in their work. But we would focus on the imagination, creativity and social and emotional intelligence that are uniquely human and that would help us to learn even faster as we work with the machines.

Re-framing our mindsets

At an even more fundamental level, all of us are going to need to re-frame our mindsets about what work really is. Today, the vast majority of workers around the world go to work to earn a paycheck – work is viewed as a means to support oneself and one’s family so that we can pursue the things that excite and interest us outside of work.

We need to change that view of work. We need to find ways to more effectively integrate our passion with our work.  Passion turns mounting performance pressure from a source of growing stress and burn-out to a source of excitement, driven by the potential to take our capabilities and impact to a new level. If we go to work simply to earn a paycheck, we will never learn as fast or improve our performance as rapidly as someone who is pursuing their passion.  

Here’s the challenge.  Based on research that I’ve led at the Center for the Edge, only 12% of the US workforce has what we call “the passion of the explorer” – the kind of passion that fosters rapid learning and performance improvement. That leaves 88% of us who have to find ways to more effectively integrate our passion with our work.

The opportunity ahead

There’s no doubt about it.  The dynamic forces that I described above are going to intensify the risk of significantly increasing unemployment and social turmoil around the world in the decades ahead. Without a doubt, they are going to lead to a painful and tumultuous transition phase as we begin to question some of our most fundamental assumptions about work and the institutions that provide us with that work.

But, I’m an optimist.  I believe these forces are going to be a significant catalyst in getting us to step back and re-think work at a fundamental level. The institutional innovation and mindset shifts that I’ve just described will come together in powerful ways to redefine our work environments.  Together, they will redefine work in ways that will help all of us to achieve more of our potential and, in the process, lead to new forms of economic growth that will create more opportunity for all of us.  

Here’s the thing, though.  This is not an opportunity. It’s an imperative.  If we don’t get to this more fundamental level of change, we’re going to become increasingly stressed and face more and more economic, social and political turmoil as the work that we had taken for granted slips away from all of us. We need to move beyond the static imbalances that frame a lot of our discussions of unemployment today and focus on the fundamental forces that are shaping the real challenges ahead.

Drawing Inspiration From Independence Day

Independence Day in the US is a time of celebration, recalling a historic milestone when a small group of fragmented colonies in a distant part of the world came together and bravely declared independence from a world power. Rather than simply celebrating an event in the distant past, maybe we can use the occasion to inspire ourselves to pursue a different kind of independence today.

The prison of conformity

What do I have in mind? I’m thinking this might be a good occasion for all of us to step back and assess how much we might still be prisoners of social pressures. We all face daily pressures to “fit in”, to carefully craft a façade that shows we are part of the “team” and to win the approval of others by presenting ourselves in ways that we perceive others want us to be. We resist the temptation to do what we want because we fear disappointing others. We downplay our own needs and desires because we put the needs and desires of others above our own.

Perhaps this a good time to reflect on what we have given up as we seek to accommodate the demands and needs of others. What would our lives look like if we resisted these pressures and expressed more of our own unique individuality? How much more might we enjoy every hour of the day? How much more might we accomplish? How much more could we contribute to others?

It’s easy to blame society and our institutions for pressuring us to become someone different from who we really are. But what if we drew inspiration from those colonists who dared to challenge a mighty power? What if we were to move beyond victimhood to rediscover our agency, our ability to take action on our own and to achieve greater impact from that action?

What if we stopped blaming others for pressuring us to be someone we’re not and instead took responsibility for making the choices and taking the actions that would enable us to express ourselves more fully? What might we become if we looked inside to discover who we were really meant to be? How much more could we accomplish?

Serving others by serving ourselves

Here’s a paradox: we often justify our conformity to social pressures in terms of our desire to please others, to make them happy. Yet, perhaps the most effective way ultimately to serve others is to discover and become who we were meant to be. By doing this, we’ll not only be able to make a unique contribution to others, but we’ll also serve as role models for others, inspiring them to strive to achieve more of their own unique potential and possibility as well.

We certainly won’t please all of those around us today, but maybe that’s OK.  Maybe it will help us to learn who really would draw inspiration and benefit from our actions. Maybe rather than pushing ourselves on others with carefully crafted presentations of ourselves, we should pull others to us by expressing who we really are and seeing who is drawn to us.

At the same time, we might learn who wants us to be someone we’re not, and distance ourselves from those people, so that we can focus more time and attention on those who would get the greatest benefit from who we really are. We might set into motion a powerful virtuous circle – drawing support and encouragement from those who embrace us for who we really are and who encourage our further growth to achieve more and more of our potential. That in turn would provide us with the opportunity to achieve even more impact and draw even more support and encouragement.

Responding to mounting performance pressure

Many of us justify our urge to conform in terms of growing performance pressure. We fear that if we don’t conform, we’ll lose the support of others and become increasingly marginalized. Well, here’s another paradox: if we’re trying to be someone that we’re not, we’re much more likely to under-perform on the dimensions that really matter – and become deeply stressed in the process.  The only way to effectively respond to growing performance pressure is to use it as a catalyst to discover who are really meant to be and to stay as true to that reality as possible.  The best way to respond to mounting performance pressure is to differentiate ourselves by finding our unique individuality so that we stand out from others and achieve impact that no one else could achieve.

One of the benefits of making this choice is that we’ll find it much easier to build trust-based relationships. If we’re pretending to be someone who we’re not, we’ll never win deep and lasting trust. Others will sense that we’re not who we say we are.  If we’re going to effectively respond to performance pressures, we won’t be able to do it alone. We’ll need to build rich personal networks shaped by deep, trust-based relationships where we can not only work together but learn more rapidly together.  Those who persist in pretending will end up in much more shallow and fragile relationships that will undermine the ability to take risk and learn more rapidly.

Short-term risk for long-term reward

Now, I don’t want to under-estimate the challenges in doing this.  We're surrounded by institutions driven by scalable efficiency that pressure us to fit into pre-defined roles and to perform tightly specified tasks reliably and predictably. Our school system was explicitly designed to prepare us to play those roles. But that economy is increasingly challenged as we plunge deeper into the Big Shift. As performance pressures mount, every tendency of our institutions is to squeeze harder and demand even more conformity from all the participants. As a result, in the short-term we're likely to experience even more pressure to conform. As change and uncertainty increases, our institutions strive to create the illusion of stability through conformity.

We’ll certainly be taking significant short-term risk by expressing who we really are but, for the reasons outlined earlier, that risk will position us to be much more effective in turning pressure into potential.  It will be a catalyst to make some transitions in the short-term that can be quite uncomfortable and even painful, but essential if we’re going to shape our personal and professional networks to help us succeed in a more challenging world.

Women and other marginalized groups will find it particularly challenging to throw off this pressure to conform in the short-term because they're typically the first to suffer in environments experiencing mounting performance pressure.  And yet they are ultimately the ones who will benefit the most from taking this opportunity to connect with their unique individuality and bringing it forward.  The economy that will ultimately emerge from the Big Shift will be one driven by innovation and accelerating performance improvement. This in turn will lead to the evolution of institutions that not only respect diversity and individuality but that systematically create environments that help all of us to draw out more and more of our unique potential.

Let’s all draw inspiration from those who came before us and who stood up for the opportunity to create a freer society.  We have an opportunity to re-shape all of our institutions in ways that will make all of us as individuals and as institutions better able to turn pressure into potential.  But it begins with each of us, with the choices we will make and the actions we will take as we face growing pressure to conform.

The small moves that each of us take to express more of our unique individuality and to come together with others who respect and embrace us for who we really are can set some very big things in motion.

And, by the way, if we do this in all dimensions of our economy and society, we'll lay the foundation for a dramatic expansion of political freedom around the world.

Disruption by Trusted Advisors

What’s “the next big thing”?  Coming from Silicon Valley, I often get this question from executives around the world.  Usually, they frame the question in terms of the next wave of technology innovation. They want to know what’s the next big technology that could disrupt everything?

That’s an important question, but I often shift the question to disruptive business models. Too often we get distracted by the latest new technology, but we don’t spend enough time thinking about the profoundly new business models enabled by these technologies.  We fail to ask the Willie Sutton question: “where’s the money?”

In this context, I’m intrigued by the growing potential to scale a business model that’s been around for centuries, but only for the very wealthy and successful.  It’s what I call the “trusted advisor.” What’s that? It’s someone who, rather than sitting on the other side trying to push more and more products and services to me, crosses the table to sit next to me and gets to know me so well that he/she can proactively recommend things to me that I had not even asked about, but that turn out to be extremely relevant to my context, needs and aspirations.

From affluent niches to mass market

The very wealthy have had trusted advisors for ages, in the form of wealth managers, concierge doctors or personal shoppers.  This business model worked for them because the very wealthy could spend enough to justify the significant time and effort it required to get to know those people deeply enough to become trusted advisors. The rest of us simply could not access this kind of expertise and advice.

But that’s all changing now.  With the advent of Big Data, sophisticated analytics, social software, the Internet of Things and cloud computing, just to name a few of the enabling technologies, the “trusted advisor” business model now has the potential to expand from the niche of the very wealthy to become a mass market event. These technologies make it feasible to compile a detailed understanding of the social and economic context of the individual at much lower cost than previously imaginable. We don’t have to submit to detailed interviews or fill out endless questionnaires to provide this information. The trusted advisor, with our permission, can simply watch and analyze the “digital exhaust” from our activities to develop deep insight into who we are and what is important to us.

Not only is this opportunity emerging because of the untapped capabilities of a growing array of digital technology. It also addresses an unmet need that a growing number of us have given the long-term forces that are driving the Big Shift on a global scale.  The Big Shift is significantly expanding and rapidly evolving the array of options that are competing for our attention and money, and providing us with far more information about these options than we ever had before.

Yet, the truth of the matter is that, even with amazing technology advances, we still only have 24 hours in the day. One of our growing needs is to increase our ROA – in this case, return on attention.  If we had a trusted advisor or agent who knew us intimately and who could help us sift through all the options available to us, we’d get far more value per unit of attention than we ever could on our own.

Building trust

But, the key is we would need to deeply trust the business serving as our advisor or agent. How does that trust get built and preserved over time? This is especially challenging in a world where all the surveys indicate we are rapidly losing trust in all of the traditional institutions – businesses, governments, schools and all kinds of civic institutions.

Trust comes in part from the realization that the business knows us as an individual very broadly and deeply and is not just treating us as one more nameless consumer based on aggregated data that covers only a slice of our existence.  That’s the easy part, given the new technologies that are increasingly powerful and cost effective in capturing, compiling and analyzing large amounts of data related to our activities and interests.

The real challenge is in convincing us that the business will use all of this data to serve our interests, rather than the interests of others who are trying to “target” and “own” us. For a business to do this, it must reverse the trend of current online business models that have been moving from subscription based revenue models to advertising based business models.  

As long as the business depends upon advertisers or commissions from vendors for its revenue, can there be any doubt about where the loyalty of that business lies?  It will first and foremost be loyal to the advertisers that pay the bills. If I am truly going to trust my advisor or agent, I have to be willing to pay that business for its services and be confident that the business is not being paid by the product or service vendors trying to reach me.

As mentioned above, the good news is that new technology platforms are significantly reducing the cost of building and running such an agent business at scale.  The result is that the subscription services are likely to be increasingly affordable to a growing segment of the population.

There’s another key ingredient for trust.  We need to be confident that the business will not artificially constrain our choices but instead provide us with the full array of options that are available and relevant to us.  This will make it very difficult for the Internet-based businesses that are diligently trying to build “walled gardens” to keep us from venturing out and exploring broader options.

It also makes it very difficult for any established product or service vendor to build the trust necessary to play the trusted advisor role.  If you have some products or services that you’re trying to sell me, how can I trust you to present me the options offered by other competing product or service vendors? Would you really be willing to recommend a competitor’s products or services if they were in fact better suited to my needs?

Doc Searls, in his great book, The Intention Economy and its concept of “vendor relationship management,” came close to identifying the opportunity for a trusted advisor. My only reservation about his concept is that it tends to be very transaction focused and triggered by an explicit intention of the user.  The trusted advisor concept that I am outlining goes well beyond transactions to be helpful to the users in getting maximum value from the products and services they are using after purchase. It requires a deep relationship and understanding of the context and aspirations of each of us to be as helpful as possible in achieving our aspirations and adhering to our values.  The trusted advisor also doesn’t just wait for us to express an intention – it helps to shape intentions by proactively suggesting actions that we hadn’
t even thought about but that turn out to be enormously valuable.

The disruptive potential of trusted advisors

The trusted advisor business is likely to be disruptive to established businesses, both on the Internet and in the bricks and mortar space.  Internet businesses have become deeply addicted to advertising revenue models and will find it very challenging to shift to a subscription based model. Bricks and mortar businesses – whether product manufacturers or retailers – have their own products that they’re trying to sell and would be deeply averse to recommending products or services sold by competitors.

But this is also why the mass market trusted advisor business model is such an interesting opportunity. There’s a white space out there defined by untapped capabilities and unmet customer needs that existing players will find very challenging to address.

When trusted advisor businesses begin to establish themselves, they could begin to capture much of the economic value that today is held by traditional product and service businesses and retailers. These trusted advisor businesses will now have a much deeper and intimate relationship with the customer than any of these traditional companies have been able to establish and they will have a growing ability to shape customer purchasing behavior.

These trusted advisor businesses could ultimately become infomediaries – a business concept that I first explored in Net Worth.  Infomediaries have the potential to shift the ownership of customer data from the product and service vendors to the customers themselves.  In this case, the trusted advisor could become the custodian of customer data and, subject to the direction of the customers, manage it on their behalf and determine who can have access to the data and under what conditions.

As we’ll see below, the rise of trusted advisors could also undermine the scale advantages that have driven the growth of established businesses in the past, creating an interesting structural advantage over time that could marginalize large, established players.

Economies of scale and scope

The rewards will be significant for companies that target and successfully occupy the trusted advisor role. The economics driving this business model have powerful economies of scale and scope.  The more I know about you as an individual customer, the more helpful I can be to you in terms of recommending things that are truly relevant to you.

This, by the way, is a key obstacle for product and service vendors – they typically see only a slice of the activity of the customer. It’s the classic “share of wallet” problem – for example, if I’m a bank, am I handling 90% of your financial activity or only 10%?

Economies of scale and scope go one step further as well.  The more customers I serve as a trusted advisor, the more helpful I can be to each customer, since I am in a better position to look for patterns of needs and value across a larger number of more diverse customers.  This can often prompt valuable recommendations: “You haven’t expressed an interest in this, but I’ve noticed that many people like you are using and getting a lot of value from this product or service.  Would you be interested in more information about it?”  And the more customers I serve as a trusted advisor, the more insight I can gain from feedback loops in terms of responses to recommendations that I’ve made.  I’ll learn a lot faster than a business that is serving a narrower segment of customers.

As a result, the mass market trusted advisor business enabled by digital technology is likely to become very concentrated over time.  In the early stages, we are likely to see trusted advisors emerge in specific domains like financial services, wellness and healthcare, home ownership and travel. Over time, though, leaders in each of these individual domains are likely to extend out into adjacent domains, until the trusted advisor is helping customers across all domains of their activity.  Think about it. As an example, if I’m advising you about your financial needs and I know more about your health, wouldn’t I be more helpful to you on a variety of fronts, including issues like investment goals and insurance coverage?

Accelerating fragmentation

On a macro-economic front, the rise of trusted advisors is likely to accelerate fragmentation in other parts of the economy, especially in product and service businesses.  A niche product or service business is likely to have much more success in connecting with the most relevant customers if there are trusted advisors that are investing in getting to know the individual needs of customers. 

In contrast, the tendency of many consumer product businesses to consolidate in order to get preferred positioning in large “big box” retailers will likely diminish as trusted advisors become more active in shaping customer purchase activity and demonstrate their unwillingness to be influenced by product or service vendors.

And what about all those “big box” retailers? Will customers have as much need for their breadth of selection in a brick and mortar store if they are becoming more reliant on trusted advisors who can help them to quickly narrow the selection of what they might be looking for?

A path forward for existing companies

Does that mean that existing companies are precluded from addressing this emerging business opportunity? Not necessarily.  It will be challenging, but there are evolutionary paths that existing companies might pursue.  In particular, they might begin to develop a different approach to marketing, something that I have called “collaboration marketing.”

Rather than staying wedded to traditional push-based marketing approaches that focus on intercepting, isolating and insulating the “target” customer, collaboration marketing harnesses the power of pull to attract customers, motivating them to seek you out because you are becoming more and more helpful, assisting them to get more value from the products you’re selling.  One of the most effective way to be helpful to customers is by mobilizing a large number of third parties who have complementary products and services that can help the customer get more value from your own products and services.

Companies that master the techniques of collaboration marketing will start to build more trust with customers based on their increasing helpfulness in addressing the customer’s needs.  As I’ve suggested earlier though, companies traveling this path will ultimately need to make a very difficult choice if they are truly going to win the deep trust that they will need from the customer.  They will eventually need to shed their own product businesses to reinforce with customers that they are truly impartial in terms of evaluating the full array of products and services that might be relevant to their needs. I have explored the “unbundling” imperative for existing companies in a Harvard Business Review article here.

Bottom line

The mass market trusted advisor role is not here yet, but companies aspiring to target this role should not be complacent and sit on the sidelines.  This new type of business will be driven by powerful economies of scale and scope that will make it increasingly difficult to challenge early entrants once they build critical mass. This is a business that will not be kind to “fast followers.”

Given this, what should companies who are intrigued by this business opportunity do?  Here are some early steps you might want to consider taking:

• Assess the customer data you might already have and determine where and how you might be able to proactively help customers (and resist the temptation to use this data for narrow cross-sell and up-sell purposes)

• Determine how you might be able to harness the Internet of Things and other technology to gain even more insight into who your customers are, how they are actually using the products and services you have sold them and their broader context

• Seek out and mobilize third parties that can help add value to the customers you are serving and connect them to your customers in ways that help them and provide you with more data and insight regarding their needs

• Find ways to engage in short term value exchanges that will demonstrate to customers that you are using their data to increase the value that they derive from your products and services and that will motivate them to share even more data with you

Remember, it’s not about the data you capture but the value that you unleash from the data and deliver back to the customer. The data will ultimately migrate to the businesses that can create the most value for the customer from the data.

The Big Shift in Strategy – Part 2

In my last blog post, I suggested that we’re going through a big shift in strategy from strategies of terrain to strategies of trajectory.  In that blog post, I made the case that strategies of terrain are increasingly dangerous in times of accelerating change, but I left you hanging in terms of what strategies of trajectory might look like.

Most strategies (strategies of terrain) tend to look from the present out to the future. Strategies of trajectory start with a view of the future and work back to the implications for action in the present.  

Here’s the paradox: strategies of trajectory become more and more essential in times of rapid change and uncertainty, while at the same time becoming more and more difficult.  But that’s exactly what makes strategies of trajectory so valuable. Most of us tend to fall back into our comfort zone and just focus on the present, leaving us vulnerable to the changes just ahead.  Only a few will venture beyond their comfort zone. Those few who craft strategies to focus action today based on an anticipated future that’s quite different from today will be in the best position to reap the rewards of a rapidly changing environment. They will stand out from the rest of us who are scrambling to respond to the latest event and, in the process, spreading our limited time and resources more and more thinly.

So, what’s required to craft these strategies of trajectory? Five elements can help to make these strategies successful:

• Challenging
• Shaping
• Motivating
• Measuring
• Learning

Challenging

In a world of accelerating change, one of our greatest imperatives is to "unlearn" – to challenge and ultimately abandon some of our most basic beliefs about how the world works and what is required for success. But, how do we challenge ourselves when these beliefs are often so deeply held that they are often never even articulated, much less questioned?

I’m a proponent of scenario development as a tool to identify, assess and ultimately achieve alignment around potential futures. One of the great elements of scenario development is that it explicitly starts with the proposition of alternative futures. That in itself helps to pull us out of our comfort zones and challenges our preconceptions about where the future is headed. But, from my experience, this needs to be combined with two other elements to really challenge our most deeply held beliefs about the world around us and about the actions that will lead to success.

First, we need to find people who are deeply creative but from very different domains. Give them a deep dive into our current business and market arenas and then ask them to participate in the scenario development exercise with the specific task of imagining some potential futures that could disrupt our company’s business. It’s important that the scenario development includes people who will challenge the thinking of the leadership team.

Second, integrate the scenario development process with another key question: given the most likely future, what are the two or three business initiatives that we could take in the next 6 – 12 months that would have the greatest impact in accelerating our movement towards the kind of company we need to be successful in that future – and do these initiatives have a critical mass of resources and funding today?

One of the common traps of scenario exercises is that it’s often easy to get senior leadership to sit around a table and nod in agreement to a likely scenario when it is viewed as a theoretical construct with no implications for what one would do differently today.  By adding the question about near-term initiatives, it makes clear that this scenario will have significant near-term implications. In my experience, this surfaces all kinds of disagreements that would have been shoved under the rug if the participants believe it will make no real difference to what they do tomorrow. For more exploration of this FAST strategy approach, click here.

Strategies of trajectory can only succeed if the participants are aligned around a shared view of the future. In an exponentially changing world, that future is likely to be quite different from the present. The challenge is to ensure that the participants have escaped from the prison of the present and have a view of the future that is likely given the forces at work on the global business landscape. The good news is that view of the future doesn’t need to be (and, in fact, shouldn’t be) a detailed blueprint. It should be a high level view of key elements that can help us to focus and make difficult choices today.

Shaping

Here’s another potential problem with scenario exercises.  They tend to put us into a passive mindset – we can assign probabilities regarding alternative futures but, at the end of the day, we’re put into the position of analysts on the sideline, simply trying to assess how the future will play out.

What about the opportunity to materially alter the probabilities regarding potential future outcomes? Rather than just focusing on which future is most probable, ask which future is most attractive to the company in terms of positioning it to capture a disproportionate share of economic value. Then ask what actions the company might take to increase the likelihood of that future and to ensure that it is positioned in the most attractive part of the market.

In times of rapid change and growing uncertainty, we actually have far more degrees of freedom to restructure entire markets and industries than in more stable times. Yet, senior executives often fall into a passive, reactive posture in these kinds of environments, rather than exploring how they might proactively shape the future. Shaping strategies are classic strategies of trajectory – they begin by defining a desired market or industry structure and then focus on mobilizing third parties to invest to support the shaping strategy.  

I’ve written extensively about the opportunity to pursue a shaping strategy and the three key elements that are key for the success of these strategies, including a Harvard Business Review article summarized here.

These shaping strategies are particularly powerful because they’re highly leveraged on two levels – they mobilize the resources of a large and growing number of participants and they create a rich opportunity for distributed innovation so that everyone learns faster as more participants join.

Motivating

People tend to magnify risk and discount reward when faced with rapid change and high uncertainty, prompting them to delay action or, at best, to make very modest and tentative moves.  Successful strategies of trajectory need to find ways to motivate people to overcome risk averseness and to take bolder action.  

Scenarios can be helpful in this regard, but they’re unlikely to be sufficient.  Scenario planners tend to emphasize the value of framing scenarios as stories that can emotionally engage participants. I would take it one step further. There’s an opportunity to craft a powerful narrative, one that highlights a compelling opportunity out in the future and that provides a call to action for others to help achieve that opportunity. (For those who aren’t familiar with the key distinctions that I make between story and narrative, check them out here).

Narratives are tailor-made for strategies of trajectory.  They focus on defining a future opportunity and then work back to the present by making clear what choices and actions today will help to achieve that longer-term opportunity. Some of these choices and actions are clearly specified, but most are left open to the people we’re trying to reach so that they have room to experiment, improvise and innovate in terms of approaches to achieving that longer-term opportunity.

These narratives become particularly powerful if they’re framed as an opportunity for many others beyond an individual company.  They can become a significant source of leverage by motivating others to invest to support and amplify the efforts of a single company.

Measuring

As the name suggests, strategies of trajectory are ultimately about measuring movement in a particular direction.  Any strategy of trajectory must therefore be explicit about the metrics that will indicate whether we’re on track to establishing the desired position in the future.  

Two important points about metrics.  First, resist the temptation to focus on financial metrics.  These are lagging indicators telling us how we have done. Wherever possible, identify operating metrics that are effective leading indicators of the kind of performance you are seeking to achieve. And focus on operating metrics that are specific to the desired position in the future even if these operating metrics are marginal to your current business performance. For example, if your strategy is to become a “trusted advisor” to customers in a particular domain, focus on the number of proactive recommendations you provide to relevant customers and the response rate of these customers.

Here’s the second point. Forget about performance snapshots that focus on your performance at any specific point in time.  Strategies of trajectory focus on acceleration – they’re about performance over time. Is your performance stable, increasing linearly or accelerating? If it’s not accelerating in an exponential world, something is wrong.  So, strategies of trajectory are relentlessly focused on patterns of movement over time.

Learning

In a time of accelerating change, learning is essential to success. Whatever we know today is depreciating in value at an increasing rate. Strategies of trajectory are ultimately about how to accelerate learning at scale. In fact, the four elements explored above each contain a strong learning component.

No matter how fast things are moving, there’s a paradox: the more time we take to reflect on our experiences, the faster we’ll be able to move. But this only works if we have a destination in mind. Without a destination in mind, we will surely learn from our experiences but the learning will be random. If we have an idea of where we’re headed, then we can profit much more from reflecting on our near-term initiatives and assessing how effective they are in accelerating our movement towards our destination.

And, by the way, we’ll also learn a lot more about the destination we’re striving to reach. Part of the learning process is to continually step back and ask how we might refine our view of the destination to help us make even more progress.  That’s the power of the “zoom in, zoom out” approach in the FAST strategies discussed earlier – we’re constantly striving to learn more about the nature of the destination and about the approaches that will accelerate our progress. The key is to carve out the time to reflect on what can be learned from the progress (or lack of it) that we’ve achieved and to adjust our actions accordingly.

Bottom line

Forget about the path in front of you, no matter how familiar or well paved it might be.  First, figure out where you want to be, then craft the path that will be most likely to get you there quickly. The terrain around you today is important, but only to the extent that it provides resources to support you in the journey to the terrain that’s already taking shape under the surface.

If you’re not continuously operating on two horizons simultaneously – a five-ten year horizon and a six-twelve month horizon – and rapidly iterating back and forth between these two horizons, you’ll quickly get sidelined. But just remember, there’s a very big upside: in an exponential world, small moves, smartly made, can set very big things in motion.

Some additional resources

In my quest to craft strategies of trajectory, I’ve been influenced by the following books, many of them ironically written over a decade ago:

Hugh Courtney, 20/20 Foresight
Gary Hamel and C. K. Prahalad, Competing for the Future
Bob Johansen, Get There Early
Peter Schwartz, The Art of the Long View

The Big Shift in Strategy – Part 1

In an exponential world, it stands to reason that our traditional, linear approaches to strategy will need to be re-thought from the ground up. One way to characterize the big shift in strategy is that we are moving from strategies shaped by terrain to strategies shaped by trajectory. What do I mean by this?

Strategies of terrain

If you think about traditional approaches to strategy, they were profoundly shaped by the current landscape. The job of the strategist was to look across the surrounding terrain from the vantage point of the company and determine what were the most favorable positions to occupy – where could the company build positions of sustainable competitive advantage? Sure, there was a dynamic component to the strategy – your actions could alter the landscape and any good strategist would need to anticipate the likely actions of existing competitors and potential new entrants. But the starting point was always your current position and the current landscape surrounding your existing position.

But as the world changed, so did strategy.  As the terrain become more unstable, evolving at a faster and faster rate with increasing uncertainty as to potential outcomes, the horizon of the strategist began to shrink in two ways.  First, strategists shifted from a view of the external terrain to a view of the internal terrain.  Rather than looking at the structure of markets or industries, the strategist began to focus on “core competencies.”  Strategists started to look inward, at the terrain within the company, in a systematic effort to identify the existing capabilities that were world-class and focus on approaches to strengthen those core competencies even more.

In parallel, there was a move to strategy as “hustle”.  Since the external terrain was evolving more and more rapidly with increasing uncertainty about outcomes, this school of strategy argued that those who could sense and respond most quickly to the near-term events would be the ultimate winners.  The only terrain that mattered was the terrain immediately surrounding the company and the relevant time frame was today, not tomorrow.

But here’s the problem. In a world that’s more rapidly changing, there’s a significant risk involved in focusing on a narrowing terrain today.  The core competency approach can be easily blind-sided if it turns out that the capabilities that are creating great economic value today suddenly become obsolete. We may be focusing on making better and better buggy whips while missing the fact that the market is shifting from horse drawn carriages to cars.  

The hustle approach has a different problem.  First, it runs the risk of spreading the resources of the company way too thinly across too many fronts as the company races to respond to all incoming actions without any ability to prioritize which of these events are really enduring versus one-off distractions. Second, day to day hustling as a hard time dealing with fundamental disruptions that require more than an incremental, short-term response.  If we are moving from horse drawn carriages to cars, we may need to respond with more than hustle.

I would suggest that our efforts to evolve terrain-based strategies to cope with an exponential world are yielding rapidly diminishing returns. If you want evidence of this, check out our analysis of the collapse of return on assets for all public companies in the US since 1965. 

Strategies of trajectory

What we need to do at this point is to step back and reassess at a more basic level our approach to strategy.  Rather than focusing on terrain, however narrowly or broadly defined, perhaps we should shift our attention to trajectory.

Here’s the paradox. At precisely the time that change is accelerating and uncertainty increasing, we need more than ever to have a clear view of the trajectory of change and how it will reshape the business landscape in the decades ahead. We also need to assess carefully what degrees of freedom we might have in shaping these outcomes through our actions, rather than simply taking them as a given. We then need to develop strategies that will put our companies on a trajectory to compete more effectively on a rapidly changing terrain.

Rather than looking from the present out to the future, we need to look from the future back to the present to determine which actions will have the greatest impact and create the most economic value over time. As Yogi Berra famously observed, "You've got to be very careful if you don't know where you're going, because you might not get there." The winners in a more intensely competitive world will be those who know where they are going and accelerate their movement in the most promising direction.

Position in the future, not the present

As I indicated in a couple of earlier blog posts here and here, strategies of position still matter, but I didn’t sufficiently emphasize that these new strategies need to focus on the most attractive and advantaged positions in future landscapes, not the current landscape. If we just focus on position in the current landscape, we risk being blindsided as the landscape rapidly evolves into something quite different.  What looks like solid high ground today can quickly become quicksand, dragging us under.

Perhaps even more importantly, the most advantaged locations in the future landscape often are not even part of today’s landscape and they will tend to emerge and be shaped by significant economies of scale and network effects that will play out very quickly once critical mass has been achieved. Playing a wait and see game in the hope that things will become clearer over time can be very dangerous. By the time you see what’s happening, it may be too late to do anything about it. Fast followers in an exponential world will increasingly find that they are on a path to the grave.

Anticipating the future

But I can already hear the pushback. “John, the future’s just too uncertain. We can’t possibly know what the landscape is going to look like a decade from now.” There’s no question that there’s a lot of uncertainty, but part of the problem when we shrink our time horizons is that we get more and more buffeted about by surface events and lose our ability to distinguish what is lasting versus momentary change. As a result, the more we shrink our time horizons, the more uncertain the world looks. It’s easy to get overwhelmed and fall into a vicious cycle where the more we shrink our time horizons, the more uncertain the world looks and then we shrink our time horizons even more.

It helps to know that we don’t need a detailed blueprint of that future landscape – all we need is enough detail to give us a sense of direction and to help us make some difficult choices in the near-term.  In fact, by moving away from a perceived need for a detailed blueprint and focusing instead on the broad outlines of the future, we now have greater incentive to identify and understand the fundamental forces that are shaping the business landscape, rather than getting lost in the details. This greatly simplifies our task since the long-term forces shaping the business landscape are more predictable in terms of their broad direction than the swirling surface events that emerge unpredictably and just as quickly disappear.

So, what are the winning strategies of trajectory to replace the strategies of terrain that are getting us into more and more trouble? I’m afraid I’ll have to leave that to my next post because this one is already reaching a length that will prove challenging for those of you who are struggling to keep up with the surface events that are competing for our attention on a daily basis.  I assure you, there is more to come so be sure to carve out the time to explore this with me.