ConvergenomicsGower [2010]

Sang M. LeeDavid L. Olson

• Synergistic combination of ideas or objects for new contexts

• Enabled by digital convergence, ubiquitous computing

TRENDS

• Networked global economy– Open– Wal-Mart; IBM; Nike

• Digitization– Moore’s Law

• computing power doubles every 18 months

– Metcalfe’s Law• Value of a network increases with square of number of users

– Coase’s Law• As transaction costs decrease, firm complexity diminishes• Firms tend to expand until marginal cost of internal transactions = external marginal cost

Friedman (The World is Flat)

• THREE CONVERGENCES– New players (through global access)• BRIC

– New playing field (Web economy)• Global warming• Green emphasis• Cultural conflicts

– Ability to develop new ways

Megatrends• Energy supply

– Peak Oil– Global warming

• Complexity– Unintended consequences

• Globalization– Japan; Asian Tigers; BRIC

• Digitization– Enterprise systems

• Paradox: More Integrated Systems ˃˃ Fewer Systems People

• DEREGULATION/PRIVATIZATION– Home mortgage crisis

• COMMODITIZATION OF PROCESSES– Software as a service

Convergence Revolution1st Wave 2nd Wave 3rd Wave

Industry Agriculture Industrial Knowledge Service

Economic Regional National Global

Competitive Advantage

Economy of Scale

Economy of Scope

Economy of Expertise

Economy of Convergence

Primary Focus

EXPLOITATION EXPLORATION

Convergence Components/Products

Functions Organizations Technology Industries Bio-artificial systems

Economies

Evolution & Organizational Innovation

LEVEL CONVERGENCE LEVEL PURPOSE1 Component/Product Product/Service innovation2 Functional Process innovation3 Organizational Value chain innovation4 Technology Technology value innovation5 Industry New industries

Customer value innovation6 Bio-Artificial Molecular economy

New Products/Processes

• Component/Product convergence– iPad, Smartphone

• Functional convergence– BPR– Matrix organization– Temporary supply chain linkages

E-Globalization

• Develop Corporate Global Mindset• Build Global Competitive Advantage– AGGREGATION

• Seek economies of scale & scope• McDonalds, IBM, Microsoft

– ADAPTATION• Maximize local relevance

– Mini-IBMs by country, Google China

– ARBITRAGE• Exploit differences in national, regional markets

– US Headquarters-Chinese factories-Indian call centers-US retail– Organizational convergence

Technology Convergence

• BIOTECHNOLOGY– Drugs – convergence of pharmaceuticals, agriculture, chemical– Neural technology – convergence of biology, computer

technology– MRI/PET scanning – convergence of engineering, biology

• NEURAL SCIENCE• NANOTECHNOLOGY• Evidence:

– Cell phones – convergence of internet access, music, photography, telecommunications

– Microelectromechanical systems (MEMS)

Industry Convergence

• Two or more previously distinct industries become direct competitors or cooperators

• Apple vs. music distributes• Walt Disney – travel convention

– FUNCTIONAL• Products of 2 industries linked

– PCs & TV

– COMPLEMENTARY• Multiple objects of value from 1 location

– Travel & lodging (air tickets & hotel rooms, rental cars)– Commercial & Investment banking (post-Glass-Steagall)

Industry Convergence Examples

• News– Newspapers – disappearing• Network TV swamped by Cable Networks

– CNN, ESPN, directTV

– Telecom• AT&T breakup

– EDUTAINMENT• Education & entertainment

– INFOTAINMENT• Information & entertainment

Biological & Artificial System Convergence

• Application of microtechnology to business• MINIATURIZAATION = computer chips, health care, gene splicing• VISUALIZATION – X-ray, material chemistry• MANIPULATION – virtual reality & tactical feedback• EVALUATION – partition test medium (genome project)

– Biotechnology• Genetic modification – US/European debate

– Nanotechnology• The science of the very small

• SINGULARITY– Ray Kurzweil (2005)– Computers surpass human knowledge

Information Technology Support

• Technology enables globalization– The Web– Cell phones– Enterprise information systems• Supply chain support systems

• Competitive advantage from:– Creating & selling new knowledge & ideas

Supply Chain Coordination SystemsSystem Description Applications Problems

Traditional Independent inventoriesCommunication by purchase

order

All types of business Bullwhip

ECR Independent inventory management, sharing information electronically

Grocery

Distorted data can be counterproductive

Fast orders but slow replenishment

VMI Vendor-managed inventory downstream (channel coordination)

Procter & Gamble, Wal-MartGroceries

Need good data visibility, predictability

Need compatible systems, trust

Doesn’t work as well if substitutes readily available

CR Automatic replenishment based on real-time data

Forecasting

Wal-MartImproved customer

service levels with better inventory turnover

Manufacturer can’t predict special retail events, excess inventory shifted from retail to upstream

CPFR More complete data sharing, enabling vendor forecasting of downstream demand

Joint planning

Drug, grocery, apparelWarner-Lambert, Wal-Mart, SAP, ManugisticsNabisco/Wegman FoodsBoeing/Alcoa

Need compatible systemsDifficult to keep up in

dynamic market-driven demand

Innovation Through Open Systems

• Web 2.0– Openness, participation, collaboration

• Service oriented architecture– Strategy to turn applications & information

sources from different organizations into SERVICES accessible via Web• IBM: On Demand Business• Hewlett-Packard: Adaptive Enterprise• Dell: Blade computing

SOA & New Products

• iPod• Banking – Salesforce– Automate forecasting processes in CRM– Provide open but secure system

• Bank of the West– Enabled access to software to better identify

seasonal traffic• Wal-Mart– RFID linkage

Open Source Development

Red Hat [2009]: Can save by:1. Enabling use of commodity hardware rather

than proprietary machines2. Avoids maintenance contracts3. Greater functionality, reliability, performance4. Faster learning curve, available support tools5. Avoid vendor lock-in6. Reduce need for security consultants & tools

CONFENIS 2010 Natal

Open Source ERP/EIS

• Jaisingh et al. [2008]: OSS ERPs can be customized to modify code, gain competitive advantage

• Serrano & Sarriegi [2006]: OSS ERP benefits:– Increased adaptability– Decreased reliance on single supplier– Reduced costs

CONFENIS 2010 Natal

Open Source ERP Products

• Compiere• OpenMFG• Open for Business Project• Tiny ERP• Web ERP• Open Office• OpenBravo• OpenProSourceforge.net listed over 1,000 ERP projects May 2009OPTION FOR SMEs

CONFENIS 2010 Natal

Strategic Innovation

• Applying new convergence developments to business opportunities

• TYPES OF INNOVATION– Improve products or services

• Speed, customization, aesthetics

– Improve value chain processes• Lower cost, improved quality

– Continuous improvement• Participation by customers, producers

– Strategic• New ways of doing old tasks• SOUTHWEST AIRLINES• IKEA

Convergence Evolution• Component/Product Convergence

– Clock radios, cell phones, Amazon’s Kindle• Functional Convergence

– BPR – Dell’s value chain, McDonalds’ food delivery• Organizational Convergence

– Supply chains – Wal-Mart, Nike, Dell• Technology Convergence

– Nanotechnology, biotechnology• Industry Convergence

– Combining industries – Apple iTunes, Health Tourism• Open-source Convergence

– Web 2.0, open source ERP• Biological & Artificial Systems Convergence

– Miniaturization – gene splicing, molecular biology, MRI

CONCLUSION

• The world is flatter• Widening economic & digital divides• Convergenomics brings new business models

& opportunities• Strategic innovation required to survive