4th December 2012Haydn Shaughnessy

Agenda

haydn@cogenuity.com

Who are you listening to?

HAYDN SHAUGHNESSY

Began tech career at EU RACE program managing satellite service pilots

Research Fellow Center for Digital Transformation, UC Irvine

Former editor Innovation Management, Writer at Forbes.com, GigaOm, Harvard Business Review

The Elastic Enterprise – new ways to scale businesses, new wealth creation model

Former partner at The Conversation Group, the first social agency

Future enterprise project 30 in-depth CIO/Chief Innovation Officer interviews

What’s The Big Idea?

The human interest model is replacing the traditional

business model

From your study – the low priority give to partnership innovations

What’s the problem?

WE UNDERESTIMATE THE ACHIEVEMENTS OF THE ENTERPRISE – HUGELY SUCCESSFUL WAY OF CREATING

WEALTH.

$36 trillion revenues$36 trillion revenues

Global 2000 companies 2012, Source: Forbes

$2.6 trillion profit

$2.6 trillion profit

$149 trillion assets$149 trillion assetsUp 8%Up 8%

Up 12%Up

12%

Up 11%Up

11%

BUT IT HAS HIT A LIMIT

Shareholder returns of larger firms were 70% below those of smaller firms over a 10-year period in USA

Source Gregory V. Milano, “Too Big to Succeed?” CFO Magazine, April 29, 2011

ON THE OTHER HAND WE SEEM TO HAVE INVENTED A NEW FORM OF

ORGANIZATION TOO

Low overhead high scale businesses

10,000 x Library of Congress photo library by 11.2012 – 14 billion images

Fastest growing social network, 50 m members 13 employees

The old input model. Adam Smith Nail Makers Inc.

Raw materials, capital, factory, labor….. management

Manager

Manager

R&D, New Ways to

Make Nails

Change management – new

culture of nail making

Innovation – the nail maker’s dilemma

Predictable scaling model

Built on well understood factor inputs:

1.Capital2.Labour3.Raw materials4.Education or IP

The old scaling model

What is the new enterprise operating model?

FIVE PILLARS

1. Platform

2. Ecosystem

3. Connectors

4. Cloud

5. Sapient leadership

ECOSYSTEM 1 The Forbes’ StoryFeb 2011 to Feb 2012

Acquisition of True/Slant

Tapped into 800 ecosystems

Opens potential for hundreds of new revenue streams

MONTHLY UNIQUE VISITORS

DOWNSIDE Declining ad impression prices, leading to real time ad management

highly disciplined continuum from hardware to software in standardized environment$54 billion in revenue15,000 employees in California alone

multiple supplier and licensee partners in fragmented marketsvs

Competing ecosystem models

The ecosystem as relationship building

Long term R&D partnership Uni MichiganCollaborates extensively via IP sharinge.g. with Synopsis,semi-conductor design tools, on low power chips2300 employeesP/e 6.95Turnover $780 millionProfit before tax $290 millionCEO salary $1.200,000

100 employees70th fastest growing company in North Americap/e 12.5About $300 million in revenueNet income around $50 million

A simple ecosystem model of business

88,000 articles on pebble watch in 48 hours

Android 48 member open handset alliance

Platform

Developer network

50,000 strong

Apps market

Information layer A new hardware layer drivenby data

Transaction engine

1. A software or content platform has rules of the road

6. New leadership role? ATTRACTION, attracting resources – managing the external world

7. Reinventing product around connections

2. A developer or production community

3. Ingest to a platform

4. Transaction engine

5. Information layer

ELEMENTS OF THE PLATFORM

1. They gather around a platform – like iTunes, Android, quirky

2. Represent highly scaled partnerships, a forum for millions or tens of thousands of developers, or producers and billions of calls via APIs

3. Take place in OPEN environments among peers, which has implications for leadership

4. Represent new power dynamics around the firm, especially in the information layer, which is now built by everyone

5. Seem to accelerate the pace of innovation

6. Are closely related to mass differentiation, they enable production for multiple global niches

Elements of the ecosystem

The Idea of Ecosystems

Scale via specialization and supervision

Scale via partnership and spontaneous peer activity

Scaling is a disproportionate cost

Scale is proportionally lower cost

Partnerships are formed by bilaterally negotiated contracts

Partnerships are friction free

The information layer is content pushThe information layer is self-forming

Internalized Externalized

Shifting from oligopoly to ecosystem-based business

CommandAttraction

Mass marketMass differentiation

Employed labour in decline

Why aren’t more companies doing ecosystems?

ServicesServices EmployeesEmployees The CEOThe CEO RiskRisk

1990-92 2007 - 102000-03 2004-06

A Semantic Analysis of 20 years of business writing in The Harvard Business Review, source Haydn Shaughnessy

Transition point

Why aren’t more companies adopting this model?

Transition point

INTERNALITIES EXTERNALITIES

FinanceFinance

ChinaChinaGlobalGlobal

RandomRandom

Gravitating to externalities

What is Externalizable?

Consequence?

Most companies straddle the first two models and are simply not cognizant of the larger trend

Lab-based, driven by oligopolies that shape new markets

Attempts to interpret and adapt to the service economy

Externalization drives and leverages new strategies

CLOSE UP

Old fashioned double entry

Massive activity logging Data about “the

world”

The New Emotional Capitalism

– The Human Interest Model

features of externalization: PEERS not bosses, Social

Reputation, social network, sharing economyECOSYSTEMS, Unpredictability, BYOD, randomness,

social business, work-life integration, customer ecosystem

crowdCrowdfundingcrowdsourcing

Shift from the business model to the human interest model

Example: The peculiarities of crowdfunding

Crowd model – emotive captialism

1.Project based, no growth requirement

2.No assumption about failure

3.Self-imposed outcome burden, supports entrepreneurism

4.Culture-friendly and ideal for building emotional outcomes

5.Peer and social network based, potentially with a positive loop for resources

6.Emotional connections through “extras”

VC Model – Surplus Capital

1.Company based, must scale

2.Assumption of high failure rate

3.High stress for proposers, barrier to entrepreneurs

4.Antagonistic to cultural production or lifestyle

5.Extractive, the money is taken out

6.Utilitarian

As labour and capital is changing: What are We Trying to Produce

in the New Wealth Creation System?

The new global middle class creates massively differentiated needs for low cost, good enough

goods

The new global middle class

900 million – 2 billion people by 2030 = x 3 or x 7

1 single, global labor pool and converging incomes

The priorities that capital has driven:

Scale, customer acquisition, the 1%

Are now losing ground

•Trust on the brink of collapse•An unworkable surplus of capital driving up asset prices

So what are we trying to create?

New values – we are wrestling with a post capitalist value system

New human capabilities- This is a capability building era both on the input and output side

New experiences- That compensate for income insecurity

New shared emotions in work and at home- That give recognition to consumer-employee-home continuum

The new economic factors

Kickstarter projectNew online magazine for serious, emotive journalismCrowdfunded, build audience through buzzDelivering what its audience/funders already endorsed.

Summary:

NEW ENTERPRISE: Platforms and ecosystems give us a means to scale and to serve globally differentiated niches at low additional cost

NEW ECONOMY: They drive externalization of enterprise processes, in extreme cases leaving an enterprise with one role – relationship building

In all cases relationships are more important as our lives converge as customer, employee, home-maker

Even capital is becoming ecosystem-centric and people-dependent and possibly non-extractive, moving away from surplus capital model

NEW VALUES: We seek a new value system, the human interest model, to frame this new world and allow us to function within it.

In short:

Nordic culture is extremely well placed to benefit from this emerging economy

Partnership thinking is the missing link – in an externalized economy partnership is everything.

THE END

HAYDN SHAUGHNESSYFellow Centre for Digital Transformation, UCI Irvine

Blogs/forbes.com/haydnshaughnessy

haydn@cogenuity.com