From Analogue to Digital
You could quite easily claim that collaboration is at the heart of digital.
It was the simple idea of connecting things together that started it all. The idea was to allow people to share instead of compete, this idea created the first network, and the Internet was born. This first network spawned the motor that drives today’s digital transformation.
This simple idea has also germinated a radical seed which is transforming our economic engine and reshaping our world in the process. It shows that collaboration can be a force for change. This is the genesis of Digital Transformation.
However, before collaboration can occur, deconstruction or disruption of the dominant model and its associated paradigm of the value chain needs to happen. Value chains have been standard business strategies that have been deployed by organisations to keep competitors at bay and benefit from scale and mass.
Analog Business Strategy.
To understand this better, it may be helpful to quickly visit what Philip Evans points out in his TED Talk as the two business strategies that have dominated the edifice of business over the past half-century
In the early 1970’s, Bruce Henderson’s idea of competitive strategy became popular and propelled BCG (Boston Consulting Group) to be a leader in business consultancy. Henderson’s idea was that by concentrating mass, organisations can gain competitive advantage, thereby leveraging scale to dominate their market. Henderson’s theory also saw the entry of military strategy into the realm of business strategy and predicated the rise in popularity of Military theorists Like the Chinese general Sun Tzu whose Art of War quotes have dominated modern business literature and culture.
Michael Porter (1980) broke this model down further by saying that business cannot be seen as a whole, but rather is constructed by constituent components which may have differing strategies. He formed the concept of the value chain where the movement of resources, such as raw materials, are transactions. Porter’s premise is that an enterprise is the most efficient model for organising these transactions and wins by managing and controlling its transactional pipes efficiently.
Both Henderson and Porter were architects of modern competitive business strategy. Their concepts are that an organisation gains competitive advantage through its size and scale, and its ability to efficiently push products through its value chain or pipes. This model has been the dominant paradigm and we can see it everywhere from manufacturing, through to media, retail, services and education.
The Pipes are Broken.
Business models based on the pipes strategy are today being invalidated by digital collaboration which is causing disruption to fundamental business processes. For example, the value-chain has become fragmented as cost attributes have changed, especially in communications and technology. The pipes that control the transactional flows through organisations have become disrupted by these changes. This can be seen across many verticals and business categories. This disruption can also be seen as the hallmark of the first 10 years of the Internet or Web 1.0.
Also, the traditional analog strategy of competition posits a centralised command-and-control mentality and model that cannot manage the rich data and real-time feedback generated from smart connected products and customers. This requires a highly organised, but distributed and integrated model, which is decentralised and digital.
From Pipes to Customers.
Web 2.0 brought about the conversational Internet and the exponential rise and influence of social platforms. This phase of the Internet consisted of conversational collaborations across communities. Conversational collaborations have also propelling a massive business movement towards Customer Centricity, and a change of focus from pushing products down their pipes to winning and keeping customers.
Organisations are realising the value in establishing open, conversation-based collaborations between themselves and their customers. Business is finally learning how to understand and incorporate customer needs into all aspects of its operational framework. Customer Centricity is essentially a collaborative exercise, with both internal (team members) and external customers acting as agents and adding value to the entire organisation, which, as a result, enterprises are now in the process of becoming distributed themselves.
Customer Centricity and Open Source.
Collaboration is also at the heart of Open Source, another exponential digital movement that just keeps growing in authority, reach, and influence. Open Source is increasingly becoming the standard operation procedure in software, this is especially true in IoT (Internet of Things) development.
Let’s certainly not leave out API’s (Application Program Interfaces). API’s are a sets of requirements, or a governance framework that determine how one application can talk to another. API’s make available certain internal functions to external applications. API protocols create a governance framework for an ecosystem built specifically to enable external collaboration within a core platform. API’s are powering digital transformation for organisations and becoming a strategy for enterprise growth. For example, Salesforce.com generates 50% of its revenues through APIs. Expedia.com generates 90%, and eBay generates 60%.
I’ll post Part II – The rise of the Platform Business Model next week…
Tim Haynes is Chief Digital Officer of Human Capital Group Asia.