Leveraging The Matrix Digital Ecosystem Dynamics and Strategies

Transcription

1 Executive Summary Executive Summary Leveraging The Matrix Digital Ecosystem Dynamics and Strategies David Moschella Kirtland Mead April 2015

2 LEVERAGING THE MATRIX DIGITAL ECOSYSTEM DYNAMICS AND STRATEGIES Like roads, telephones and electricity in the 20th century, an ever-more capable digital ecosystem is becoming the underlying business infrastructure of our time. Whereas in the past each major industry sector had its own vertical stack of processes and systems, firms must now leverage powerful horizontal capabilities that are used across many industries. These new capabilities are radically transforming many aspects of business and society, and will only get stronger over time. In our research and in this Executive Summary, we refer to this emerging set of services as the Matrix. While we could have easily used existing terms such as the internet, the web, or the cloud, we believe that the metaphor of a matrix best captures the growing friction and synergies between the vertical and horizontal worlds, as depicted below. Cars Health Manufacturing Media Energy Education Banking Selfdriving Quantified self Robots/ MI Immersive/ 3D Smart grid Flipped classes Cryptocurrency Next-generation disruptors? Analytics, Google, Watson, sensors, IoT, AI, M2M Intelligence Uber ihealth 3DP Netflix Nest MOOCs Kickstarter Today s disruptors Facebook, Twitter, user content, open source Social/crowd Publishing, e-commerce, payment, encryption WWW Computing, storage, bandwidth, mobility, GPS Infrastructure The Matrix is the economic infrastructure of our time The Matrix also calls to mind the famous 1999 movie. As in the film, this Matrix is a world where computers talk directly to one another, often with little human involvement. While the cloud suggests something out there, like it or not, we are all part of the Matrix a place where our virtual identities increasingly have a life of their own. Of course, the creators of the movie imagined a deeply dystopian future, where humans are used merely to provide energy to the machines that are really in charge. But despite the recent warnings from no less than Stephen Hawking, Bill Gates, Steve Wozniak and Elon Musk regarding the rise of machine intelligence and the risk of human obsolescence, we are not worried about these darker possibilities at least, not within this report s five- to ten-year timeframe. In this summary, we will explain how the Matrix is now challenging huge swathes of the global economy. We will put particular emphasis on the need for firms and their management to understand and leverage these capabilities, and even to influence and contribute to them. Incumbent firms will discover many opportunities if they can embrace these changes and develop effective digital ecosystem strategies. But as the history of roads, telephones and electricity suggests, major shifts in societal infrastructure often result in new industry leaders. Not every firm will make the transition to the Matrix-based future.

3 From vertical stacks to horizontal services In the past, most company business models were based on their own functional and process stacks. For example, major banks would have their own branches, data centres, credit cards, ATMs, CRM systems, loan approval processes, investment advisors, and so on. But increasingly the most interesting new businesses come from leveraging the green horizontal layers of capability shown in the figure above. Consider the way that Uber has taken advantage of public infrastructure smart phones, cloud computing, global positioning services, mapping software, and internet payment mechanisms. These and other public infrastructure capabilities will continue to emerge, even though you didn t ask for them. They are not there waiting to be sourced as alternatives to in-house provision. They are primarily there as components that enable your firm to develop new products, services and business models, and they cost you nothing until they are used. These capabilities will continue to rapidly improve more bandwidth, improved security, new payment methods, more systematic crowd-sourcing, more reliable digital reputations, and so on. No layer is even close to mature today. But the biggest future impacts will likely come from new layers being built on top of today s capabilities. As suggested by the figure, these include smart sensors, the internet of things (IoT), and machine-to-machine (M2M) communications, often combined with algorithms, artificial intelligence and vast knowledge bases such as Google and Watson. It is this layer of awareness, intelligence and virtual identities that will make the Matrix metaphor increasingly apt, while also triggering many future disruptions. Value chains are becoming longer; profits are migrating Customer Customer? Value Customer? Cost Integrated companies Specialized value chains Smart, end-to-end ecosystems Value chains are becoming end-to-end, with shifting profitability Businesses have been becoming more specialized for more than a century. In the early days of the automobile industry, the Ford Motor company didn t just have factories for making cars. It owned steel companies, shipping firms and even rubber plantations. No-one does this anymore, and the global automobile industry now consists of hundreds of thousands of specialized firms. The computer industry once dominated by the vertically integrated IBM has followed a similar path.

4 While industries such as banking, insurance, hospitals, pharmaceuticals and utilities have experienced less dramatic change, they too are becoming more focused. Our research shows that roughly two-thirds of large firms believe they are becoming more specialized over time, and only about 5 percent less specialized. The Matrix is driving this trend to increased specialization and affecting business models in two important ways. First, as shown in the figure, value chains are being lengthened from the customer experience at one end to Big Data analytics at the other, with all manner of specialized services in between. Many of these new end-to-end services are coming from the Matrix, and its major and more specialized players. Second, and less obvious, is the fact that profits are often migrating to those digital players who can provide unique value or establish a dominant business position think Intel and Microsoft in the traditional personal computer market. Today, this means (for example) that Apple makes most of the money in the mobile phone market where it sets the rules, as Uber increasingly does in taxis. The potential for large-scale profit migrations in cars, healthcare, financial services and other industries is a major issue for management, and an important focus of our ongoing research. The role of digital leaders Dealing with the opportunities, threats and risks of working with the Matrix presents new leadership challenges for most executives in traditional firms. While management is generally aware of the importance of digital technology, relatively few executives have had direct experience in this area. Conservatism in the management ranks is still seen as a major barrier to business innovation. With new capabilities appearing virtually every day, ignoring the Matrix is not an option. Today s leaders need to embrace the fact that the Matrix is a powerful, unruly force that they cannot control and whose movements cannot be predicted. The required management posture is more akin to journalism, war gaming and story-telling than traditional business planning and strategy development, which presumes more control than the Matrix allows. Executives should ask the big, simple questions: What is the do nothing future situation likely to be? Who are the new disruptors, and where will they seek to enter our markets? What are the major scenarios that might become reality? What are the emerging capabilities within the Matrix that should most interest or concern us? What sort of experimental experiences, learning and talent development do we need? Most of all, management needs to develop an intuitive feel for the Matrix, and this can only be done by getting out of the office and engaging with key Matrix players. Executives should be spending more time networking in digital circles and seeking to understand their industry outside-in. They should also be trying to hire digital leaders who have lived in and absorbed the Matrix culture.

5 LEVERAGING THE MATRIX DIGITAL ECOSYSTEM DYNAMICS AND STRATEGIES Conclusion The Matrix is improving and expanding on so many fronts that it is almost impossible for people to see the playing field fully while still doing their day jobs. Technology is clearly spreading into every corner of society, changing the world in uncertain ways. Yet many industries have still to feel the full impact. Sure, the music, bookselling and taxi businesses have been radically altered. But most of the banking industry today works much as it did five years ago, and the same can be said for many aspects of manufacturing, insurance, healthcare, schools, retail and government. The world isn t being suddenly and dramatically disrupted at least, not yet. In most sectors, the change process is not simply a matter of disrupted versus not disrupted. It s more about the integration of today s vast digital infrastructure with traditional industry stacks. As these two worlds increasingly rub against one another, frictions and synergies occur on many levels. These tensions and possibilities are the main strategic dynamics in digital business today. The 1920s and 30s were also a time of synergy, friction and disruption electrification, telephony, radio, automobiles, air travel, refrigeration and more. Information technology has not yet matched the transformative societal impact of that great wave of invention and change. But we are still early in the game. The ability of the Matrix to support advances such as robotics, 3D printing, human/ machine integration, autonomous vehicles, biotechnology, machine intelligence and all manner of virtual worlds suggests that change on a similar economic and social scale is likely. Just as it would have been folly for business leaders in the 1920s to dismiss the revolutionary inventions of that time, so it is unwise for today s business leaders to see the relative calm in many day-to-day operations as a reason to ignore the extraordinary digital progress that is now under way. The Matrix will only become more powerful and all-encompassing in the exciting years and decades ahead. Those firms that effectively leverage these emerging capabilities will likely experience the greatest future success.

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