Technology-Enabled Trends
This article throws light upon the eight technology-enabled trends to shape business and economy. The trends are 1. Distributing Co-Creation 2. Using Consumers as Innovators 3. Tapping into a World of Talent 4. Extracting more Value from Interactions 5. Expanding the Frontiers of Automation 6. Unbundling Production from Delivery 7. Putting more Science into Management 8. Making Business from Information.
Technology-Enabled Trend # 1. Distributing Co-Creation:
The Internet and related technologies give companies radical new ways to harvest the talents of innovators working outside corporate boundaries. Today, in the high technology consumer product and automotive sectors, companies routinely involve customers, suppliers, small specialist businesses, and independent contractors in the creation of new products.
Outsiders offer insights that help shape product development, but companies typically control the innovation process. Technology now allows companies to delegate substantial control to outsiders—co-creation—by outsourcing innovation to business partners that work together in networks.
By distributing innovation through the value chain, companies reduce their costs and usher new products into the market faster by eliminating bottlenecks that come with total control.
Information goods such as software and editorial content are ripe for this kind of decentralized innovation. The Linux operating system, for example, was developed over the Internet by a network of specialists. But companies can also create physical goods in this way Loncin, a leading Chinese motorcycle manufacturer, sets broad specifications for products and then lets its suppliers work with one another to design the components, making sure everything fits together, and thereby reduce costs.
In the past, Loncin did not make extensive use of information technology to manage the supplier community—an approach reflecting business realities in China and in this specific industrial market. Recent advances in open standards-based computing (for example, computer- aided design programs that work well with other kinds of software) are making it easier to co-create physical goods for more complex value chains in competitive markets.
If this approach to innovation becomes broadly accepted, the impact on companies and industries could be substantial. MGD estimates, for instance, that in the US economy alone roughly 12 per cent of all labour activity could be transformed by more distributed and networked forms of innovation—from reducing the amount of legal and administrative activity that intellectual property involves, to restructuring or eliminating some traditional R&D work.
Companies pursuing this trend, however, will have less control over innovation and the intellectual property rights that go with it. They will also have to compete for the attention and time of the best and most capable contributors. By distributing innovation through the value chain, companies reduce their costs and usher new products into the market faster by eliminating bottlenecks that come with total control.
Companies that involve customers in the design, testing, marketing (such as viral marketing) and after-sales process get better insights into customer needs and behavior and may be able to cut the cost of acquiring customers, engender greater loyalty, and speed up development cycles. Software and Internet technologies are making it easier and more affordable for companies to integrate and manage the work of an expanding number of outsiders.
Technology-Enabled Trend # 2. Using Consumers as Innovators:
Consumers also co-create with companies. The online encyclopedia Wikipedia, for instance, could be viewed as a service or product created by its customers. The differences between the ways companies co-create with partners, on the one hand, and with customers, on the other, are so marked that the consumer aspect is really a separate trend.
These differences include the nature and range of interactions, the economics of making them work, and the management challenges associated with them. As the Internet has evolved—an evolution prompted in part by new Web 3.0 technologies—it has become a more widespread platform for interaction, communication, and activism.
Consumers increasingly want to engage online with one another and with organizations. Companies can tap this new mode of customer engagement for their economic benefit.
OhmyNews, for instance, is a popular South Korean online newspaper written by upwards of 60,000 contributing citizen reporters’. It has quickly become one of South Korea’s most influential media outlets, with around 7, 00,000 site visits a day. Another company that goes out of its way to engage customers is the online clothing store Threadless. It asks people to submit designs for T-shirts.
Each week, hundreds of participants propose ideas and the community at large votes for its favorites. The top four to six designs are printed on shirts and sold in store; the winners receive a combination of a cash prize and store credit. In September 2007 Thread-less opened its first physical retail operation in Chicago.
Companies that involve customers in the design, testing, marketing (such as viral marketing) and after-sales process get better insights into customer needs and behavior and may be able to cut the cost of acquiring customers, engender greater loyalty, and eventually speed up development cycles.
But a company open to allowing customers to help it innovate must ensure that it isn’t unduly influenced by information gleaned from a vocal minority. It must also be wary of focusing on the immediate rather than longer-range needs of customers and of raising and then failing to meet their expectations.
Technology-Enabled Trend # 3. Tapping into a World of Talent:
As more and more sophisticated work takes place interactively and new collaboration and communications tools emerge, companies can outsource increasingly specialized aspects of their work and still maintain organizational coherence. As much as technology permits them to decentralize innovation through networks or customers, it also allows them to parcel out more work to specialists, free agents, and talent networks.
Talent for a range of activities—from finance to marketing and IT to operations—can be found anywhere. The choices are diverse. The best person for a task may be a free agent in India or an employee of a small company in Italy rather than someone who works for a global business services provider.
Software and Internet technologies are making it easier and more affordable for companies to integrate and manage the work of an expanding number of outsiders. This development opens up many contracting options for managers of corporate functions.
The implications of shifting more work to freelancers are interesting. For one thing, new talent deployment models could emerge. Top Coder, a company that has created a network of software developers, may represent one such model. Top Coder gives organizations that want to develop software access to its talent pool.
Customers explain the kind of software they want and offer prizes to the developers who do the best job—an approach that costs less than employing experienced engineers. Furthermore, changes in the nature of labour relationships could lead to new pricing models that would shift payment schemes from time and materials to compensation for results.
This trend should gather steam in sectors such as software, healthcare, professional services, and real estate, where companies can easily segment work into discrete tasks for independent contractors and then re- aggregate it.
As companies move in this direction, they will need to understand the value of their human capital more fully and manage different classes of contributors accordingly They will also have to build capabilities to globally engage talent or contract with talent aggregators that specialize in providing such services. A competitive advantage will naturally shift to companies that can master the art of breaking down and recomposing tasks.
Technology-Enabled Trend # 4. Extracting more Value from Interactions:
Companies have been automating or off-shoring an increasing proportion of their production and manufacturing (transformational) activities, as also their clerical or simple rule-based (transactional) activities. As a result, a growing proportion of the labor force in developed economies primarily engages in work that involves negotiations and conversations, knowledge, judgment, and ad hoc collaboration—tacit interactions, as we call them.
By 2015 MGI expects employment in jobs involving such interactions to account for about 44 per cent of the total US employment; up from 40 per cent today Europe and Japan will experience similar changes in the composition of their workforce.
The application of technology has reduced differences among the productivity of transformational and transactional employees, but huge inconsistencies persist in the productivity of high-value tacit ones. Improving this is more about increasing the employees’ effectiveness, for instance, by getting them to focus on interactions that create value and ensure that they have the right information and context.
It may not necessarily be about efficiency Technology tools that promote tacit interactions, such as wikis, virtual team environments, and Videoconferencing may become no less ubiquitous than computers are now. As companies learn to use these tools, they will develop managerial innovations- smarter and faster ways for individuals and teams to create value through interactions—that will be difficult for their rivals to replicate. Companies in sectors such as healthcare and banking are already moving down this road.
As companies improve the productivity of these workers, it will be necessary to couple investments in technologies with the right combination of incentives and organizational values to drive their adoption and use by employees.
There is still substantial room to automate transactional activities, and the payoff can typically be realized much more quickly and measured far more clearly than the payoff from investments, to make tacit work more effective. Creating the business case for investing in interactions will be challenging but critical for managers.
Technology-Enabled Trend # 5. Expanding the Frontiers of Automation:
Companies, governments, and other organizations have put in place systems to automate tasks and processes: forecasting and supply chain technologies; systems for ERP, CRM and HR, product and customer databases, and websites.
Now these systems are becoming interconnected through common standards to exchange data and represent business processes in bits and bytes. What’s more, this information can be combined in new ways to automate an increasing array of broader activities, from inventory management to customer service.
During the late 1990s, FedEx and UPS linked data flowing through their internal tracking systems to the Internet—no trivial task at the time—to let customers track packages from the websites with no human intervention required on the part of either company. By leveraging and linking systems to automate processes for answering customer inquiries, both companies dramatically reduced their costs while increasing customer satisfaction and loyalty.
More recently, Carrefour, Metro, Walmart and other large retailers have adopted (and asked suppliers to adopt) digital-tagging technologies such as radio frequency identification (RFID) and have integrated them with other supply chain systems in order to further automate the supply chain and inventory management.
The rate of adoption disappoints the advocates of these technologies, but as the price of digital tags falls they could very well reduce the costs of managing distribution and increase revenues by helping companies to manage supply more effectively.
Companies still have substantial headroom to automate many repetitive tasks that aren’t yet mediated by computers, particularly in sectors and regions where IT marches at a slower pace. Interlinking these ‘islands of automation’ would give managers and customers the ability to do new things.
That said, automation is a good investment only if it lowers costs and also helps users get what they want more quickly and easily, not if it leads to unpleasant experiences. The trick is to strike the balance between raising margins and making customers happy,
Technology-Enabled Trend # 6. Unbundling Production from Delivery:
Technology helps companies utilize their fixed assets more efficiently by disaggregating monolithic systems into reusable components, measuring and metering the use of each, and billing for that use in ever-smaller increments in a cost effective manner.
Information and communication technologies handle the tracking and metering critical to the new models and make it possible to have effective allocation and capacity-planning systems. Amazon.com, for example, has expanded its business model to let other retailers use its logistics and distribution services.
It also gives independent software developers opportunities to buy processing power on its IT infrastructure so that they don’t have to buy their own. Mobile virtual network operators, another example of this trend, provide wireless services without investing in a network infrastructure. At the most basic level of unbundled production, companies responding to an MGI survey on Web trends said they were investing in Web services and related technologies.
Although the applications vary, many use these technologies to offer other companies—suppliers, customers, and other ecosystem participants— access to parts of their IT architectures through standard protocols.
Unbundling works in the physical world too. Today one can buy fractional time on a jet, in a high-end sports car, or even for a designer handbag. Unbundling is attractive from the supply side because it lets asset-intensive businesses like factories, warehouses, truck fleets, office buildings, data centers, and networks, to raise their utilization rates and therefore their returns on invested capital.
On the demand side, unbundling offers access to resources and assets that might otherwise require a large fixed investment or a significant scale to achieve competitive marginal costs. For companies and entrepreneurs seeking capacity (or variable additional capacity), unbundling makes it possible to gain access to assets quickly, to scale up businesses and yet keep the assets on the balance sheets light, and to use attractive consumption and contracting models that are easier on the income statements.
Companies that make their assets available for internal and external users will need to manage conflicts if demand exceeds supply. A competitive advantage through scale may be hard to maintain when many players, large and small, have equal access to resources at low marginal costs. The best example is ‘cloud’ computing.
Technology-Enabled Trend # 7. Putting more Science into Management:
Just as the Internet and productivity tools extend the reach of and provide leverage to desk-based workers, technology helps managers exploit ever-greater amounts of data to make smarter decisions and develop the insights that create competitive advantages and new business models.
From ‘ideagoras’ (ebay-like marketplaces for ideas) to predictive markets to performance-management approaches, ubiquitous standards-based technologies promote aggregation, processing, and decision-making based on the use of growing pools of rich data.
Leading players are exploiting this information explosion with a diverse set of management techniques. Google fosters innovation through an internal market: employees submit ideas and other employees decide if the ideas are worth pursuing or if they would be willing to work on it full-time.
Intel integrates a ‘prediction market’ with regular short-term forecasting processes to build more accurate and less volatile estimates of demand. The cement manufacturer Cemex optimises loads and routes by combining complex analytics with a wireless tracking and communications network for its trucks.
The amount of information and a manager’s ability to use it has increased explosively, not only for internal processes but also for the engagement of customers. The more a company knows about them, the better it is able to create offerings they want, target them with messages that get a response, and to extract the value that an offering gives them.
The holy grail of deep customer insight—more granular segmentation, low cost experimentation, and mass customization—becomes increasingly accessible through technological innovations in data collection and processing and in manufacturing.
Examples range across a wide spectrum of industries. Amazon.com stands at the forefront of advanced customer segmentation. Its recommendation engine correlates the purchase histories of each individual customer with those of others who made similar purchases to come up with suggestions for things that the customer might buy.
Although the jury is still out on the true value of recommendation engines, the techniques seem to be paying off. Clever Set, a pure-play recommendation- engine provider, claims that the 75 online retailers using the engine are averaging a 22 per cent increase in revenue per visitor. Meanwhile, toll road operators in USA are beginning to segment drivers and charge them differential prices based on static conditions (such as time of day) and dynamic factors (traffic).
Technology is also dramatically bringing down the costs of experimentation and giving creative leaders opportunities to think like scientists by constructing and analyzing alternatives. The financial- services concern Capital One conduct hundreds of experiments daily to determine the appropriate mix of products it should direct to specific customer profiles. Similarly, Harrah’s casinos mine customer data to target promotions and provide exemplary customer service.
Given the vast resources going into storing and processing information today, it’s hard to believe that we are only at an early stage in this trend. The quality and quantity of information available to any business is set to grow explosively as the costs of monitoring and managing processes fall. Analytics is the science which analyses the data and supports decision-makers with the right type of insight into their customers.
Leaders should get ahead of this trend to ensure that information makes organizations more rather than less effective. Information is power. Broadening access and increasing transparency will inevitably influence organizational politics and power structures. However, environments that celebrate making choices on a factual basis must watch out for analysis paralysis.
Technology-Enabled Trend # 8. Making Business from Information:
Accumulated pools of data captured in a number of systems within large organizations or pulled together from many points of origin on the Web are the raw material for new information-based business opportunities.
Frequent contributors to what economists call market imperfections include information asymmetries and the frequent inability of decision-makers to get all the relevant data about new market opportunities, potential acquisitions, pricing differences among suppliers, and other business situations.
These imperfections often allow middlemen and players with more and better information to extract higher rents by aggregating and creating businesses around it. The Internet has brought greater transparency to many markets, from airline tickets to stocks, but many other sectors need similar rejuvenation.
Real estate is one of them. In a sector where agencies have thrived by keeping buyers and sellers partly in the dark, new sites have popped up to shine a light up into the dark reaches of the supply curve’, as Rich Barton, the founder of Zillow (a portal for real estate information), puts it.
Barton, the former leader of the e-travel site Expedia, has been down this road before. Sanjay Bickchandani, the founder of www.naukri.com also set up www.99Acres.com for real estate buying and selling in India.
The aggregation of data through the digitization of processes and activities may create by-products, or ‘exhaust data’ that companies can exploit for profit. A retailer with digital cameras to prevent shoplifting, for example, could also analyze the shopping patterns and traffic flows of customers through his stores and use these insights to improve shop layout or the placement of promotional displays. He might also sell the data to vendors so that they could use real observation of consumer behavior to reshape their merchandising approaches.
Another kind of information business plays a pure aggregation and visualization role: scouring the Web to assemble data on particular topics. Many business-to-consumer shopping sites and business-to-business product directories operate in this fashion.
But that sword can cut both ways; today’s aggregators, for instance, may themselves be aggregated tomorrow. Companies relying on information-based market imperfections need to assess the impact of the new transparency levels that are continually opening up in today’s information economy.
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