THE NEW ‘NEW DISCOVERY’?
In 1492, Christopher Columbus led a fleet of three ships and over 100 men sailed westwards to India, as opposed the conventional easterly route by land. Although he never reached India, he accidentally ‘discovered’ America and thought he reached India. So he reported to his King that the world is round, not flat. His discovery redefined the global economic, social and political patterns ever since.
Although there are no more new continents to be discovered on Planet Earth, we are probably on the verge of another round of ‘new discovery’. Through the so-called massively multi-player online role play games (MMORPGs), including both virtual social worlds and online fantasy games, numerous virtual worlds have been created in the cyber space, each attracting from thousands to millions of participants. Some of these new virtual worlds are direct reflections and extensions of our physical world (e.g. Second Life); while others are parallel virtual universes almost completely separated from our everyday reality in the physical world (e.g. World of Warcraft). In many cases, there are significant social and economic crossovers between our physical world and the virtual worlds.
This new round of spatial expansion could have far greater economic - as well as social and technological - implications than the discovery of America by Columbus. Columbus only discovered one new continent, but numerous new virtual worlds are being created in cyberspace. Columbus convinced his King and Queen that the world is round, not flat, but these virtual worlds are adding numerous new dimensions to our existing physical and electronic worlds, and these new extensions are only limited by technological constraints and by our imaginations.
Although these new worlds only exist ‘virtually’ and are often regarded as not ‘real’, for most players MMORPGs can be an extremely intense social and emotional experience, with direct actions and interactions amongst and between the players and with the virtual environment, which is perhaps more ‘real’ – and more engaging - than people sitting in their living rooms watching television or going to the cinema. Many players already spend as much as 40 hours per week interacting with other players and with the virtual environment, buying and owning virtual properties, developing electronic gadgets and virtual products and services for self consumption or selling to other players. Overall, billions of real dollars (US) are spent and made both on and within these games, and a growing volume of trading also takes place outside those games (e.g. on e-Bay).
The business – and more broadly, the economic, social and policy - implications are very profound. The most popular MMORPG by number of subscribers is World of Warcraft, an online fantasy game. In early 2007, its total world wide subscribers reached 8 million, with more than 2 million players in North America, 1.5 million in Europe, and 3.5 million in China. Most subscribers paid US$15 subscription fees per month to play the game, bringing in well over US$1billion revenue each year from this one income stream alone to Blizzard Entertainment, the owner of the game. By early 2008, subscribers have exceeded 10 million. In addition to monthly subscription fees, millions of real dollars are also spent by the players buying virtual gadgets and services from each other for their virtual characters (known as Avatars) – including buying fully developed avatars themselves. To feed these demands, some skilled players have given up their real life jobs and set up virtual businesses inside and outside the game. Many virtual games have their own game currencies, which can be easily converted into real world currencies.
Back in 2001, a study by Edward Castronova revealed that in Everquest, a fantasy MMORPG, the average gross domestic product (GDP) of each of the two million or so ‘residents’ was around US$2,000. He arrived at the figure by measuring the monetary value of the virtual ‘items’, such as magic weapons and trade goods that users produce during the 20 hours or so per week they typically spent in the online world (but ignored the subscription revenue that people paid to play the game). The real world nation with an equivalent GDP per capita and population was the African nation Namibia, which had about two million people and a gross national income of $1,790 per capita. In terms of productivity, the gamers in the virtual kingdom of Everquest were as productive as workers in Bulgaria, but more productive than workers in China or India.
In Second Life, a virtual social world, the number of players (residents) has been growing exponentially. On 17th January 2007, the total number of residents was around 2.67 million, and these residents spent US$805,096 in the preceding 24 hours. By 12 March 2007, this had grown to 4.56 million, and the residents spent US$1,771,418 in the preceding 24 hours, while by 15th May 2007, 6.24 million registered users but spending dropped slightly to US$1,598,803 in the preceding 24 hours. By July 2008, total residents exceeded 14 million (http://www/secondlife.com). It should be noted that the total number of people logged on at any given time in Second Life tended to be in tens of thousands rather than millions. This, however, did not stop between 150 – 200 in-world entrepreneurs each making over US$5000 per month (US$60,000 per year), with a small number of them making over US$200,000 per year.
The most successful in-world entrepreneur in Second Life has been a virtual property developer by the name of Anshe Chung (her real name is Ailin Graef, a Chinese born language teacher living in Germany) who sells and rents virtual land and buildings in Second Life. In 2006, she became the first online personality to achieve a net worth in exceeding of one million US dollars from profits earned entirely inside Second Life. Her virtual portfolio included virtual real estates that were equivalent to 36 square kilometres of land, ‘cash’ holdings of many million Linden Dollars (the currency used inside Second Life), numerous shopping malls, store chains, stocks in other Second Life companies and she even established her own brands. According to the Financial Times, her business produced US$2.5m worth of annual revenues in 2006. She also incorporated Anshe Chung Studios (http://www.anshechung.com/) as a real world business with offices in China, employing over 80 full time employees and a large network of freelance workers worldwide. Her story has been widely reported in newspapers and magazines.
The rapid development of MMORPGs is not only creating a wave of new opportunities for entrepreneurs and businesses, but also raising serious challenges for policy and law makers. For example, should such income be taxed? And if so, how can it be enforced? Should the tax be paid for in in-world (game) currencies or in real world currencies? There are many social, political, legal and ethical issues involved, too – such as addictions by some players and the associated social and health problems. Some real world businesses have already been set up in developing countries (such as India and China), employing players who spend long hours each day playing games in order to earn in-world currencies (known as ‘gold mining’) which are then converted into real world currencies. It is not inconceivable that a significant amount of future economic growth and new employment opportunities could come from the continued rapid developments of MMORPGs both in developed and developing countries.
I am going to present our findings at this year's Academy of Management (AoM) Annual Conference in Anaheim, California, on August 8-13, 2008.* We will argue that the rapid development of Massively Multiplayer Online Role Playing Games (MMORPG) is creating new virtual worlds and metaverses that significantly extend our business environment. Increasingly, organisations and individuals have to live in multiple spaces incorporating the physical, the electronic and the virtual spaces, which are creating numerous new business (as well as social and technological) opportunities and challenges. Today, MMORPGs – particularly virtual social worlds and online fantasy games - have evolved far beyond mere online computer games, and they are increasingly becoming the next generation user interface with the 3D internet, and are played by people of all ages and sexes, from all walks of lives, in both developed and developing countries. Some MMORPGs, such as the World of Warcraft, are not only generating billion dollar (US) plus revenues each year through subscription fees, but they are also creating numerous business opportunities for the players themselves, and for existing and new businesses to offer products and services to the players. The new business environment challenges existing management theories, creates new opportunities for businesses and entrepreneurs, and call for the development of new management theories and new research methods. Drawing on lessons from recent developments of e-Business and e-Commerce associated with the emergence of the electronic space, we will use identity management and marketing as examples to illustrate the unique business opportunities and challenges associated with virtual spaces.
* Li, Feng, Savvas Papagiannidis & Michael Bourlakis (2008) Living in Multiple Spaces: MMORPGs and their Business Implications. Academy of Management (AoM) Annual Conference, Anaheim, California, August 8-13, 2008. Paper Ref No.13448
Thursday, 7 August 2008
Thursday, 15 May 2008
MAKING A BUSINESS OF EMOTIONS
Back in 1983, the UK Cabinet Office Information Technology Advisory Panel called for increased attention to the possibilities of ‘Making a Business of Information’. Since then we have witnessed the rapid developments of the information economy. Although the process is continuing, the market is becoming increasingly more competitive and any innovations become commoditised very quickly. In many sectors, future growth will depend critically on an organisation’s ability to use internet and related technologies to enable the co-creation of unique experience by appealing to the emotions of their customers. Some leading organisations are already successfully exploiting such new opportunities, and perhaps it is time to re-orient our focus to the possibilities of ‘Making a Business of Emotions’.
The Secret of Management
A successful senior business executive once told me after a few drinks that there are only two things one can do to beat competition. One is through product innovation, that is, to come up with new products or services that nobody else can, or are allowed to provide. However, such opportunities are rare, so for most of us during most of the time, we compete with similar products or services, but with better features in some aspects than competitors – be they higher quality, lower cost, faster delivery or better customer service. The latter will require us to innovate in the way we do things – through new structures, new processes, new work organisation, and new inter-organisational relations. In fact, even for companies focusing on product innovations, implementing organisational innovations can significantly improve their margins. Therefore, organisational innovations are essential to the competitiveness and long term survival of all organisations.
Organisational Innovations through Internet Related Technologies
For several decades, we have been talking about the knowledge-based, information economy. On the one hand, the nature of the economy has changed as measured by the informational elements of our products, services and production processes; and the proportion of the workforce whose primary activities are informational rather than physical (often known as information workers or knowledge workers). Information (or knowledge if you prefer) has become the most critical resource upon which the efficiency and competitiveness of all organisations depend.
On the other hand, the so-called ‘Information and Communication Technologies (ICTs) Revolution’ continues to gather pace, providing us with increasingly more powerful, versatile, affordable, accessible and convenient tools in the forms of technologies, infrastructure and services. From the users’ perspective, the only purpose of ICTs is to capture, store, retrieve, manipulate, transmit and present information.
This is a profound combination, because we have increasingly more powerful yet affordable tools and techniques to deal with the most important resource of the economy, often in ways impossible, or not even conceivable, in the past. As such, organisational innovations that exploit Internet related technologies should become an explicit focus for senior executive attention.
Strategic Re-orientations: From Organisational Innovations to Customer Experience
Organisational innovations through internet related technologies are important in improving the competitiveness of organisations, but it is insufficient to take an organisation to the next level, mainly because everyone is doing them, and we are getting much better at getting them right. As Jonas Ridderstrale and Kjelle Norstrom vividly pointed out in their best seller Funky Busines’, ‘[t]he world is alive with knowledge, with products and services, with information. But more often simply means more of the same. The surplus society has a surplus of similar companies, employing similar people, with similar educational backgrounds, working in similar jobs, coming up with similar ideas, producing similar things, with similar prices, warranties, and qualities.’ This frustration was echoed by many others such as Jesper Kunde that ‘[c]ompanies have defined so much best practice that they are now more or less identical’; or as Paul Goldberger put it: ‘while everything may be better, it is also increasingly the same.’
What does this mean? For one thing, perhaps the age of the knowledge workers has come to maturity, and a new age is emerging. Daniel Pink called it the ‘conceptual age’, characterised by ‘high concept and high touch’. Joseph Pine and James Gilmore called it the ‘experience economy’, because increasingly work is theatre and every business is a stage. C K Prahalad and Venkat Ramaswamy further developed this concept and called it the experience innovation, because the future of competition depends on co-creating unique value with customers. Shoshana Zuboff called it the ‘support economy’, because neither goods nor services can adequately fulfil the needs of today’s market. Underlying all these ideas is a fundamental change that is rapidly taking hold in our society and economy: we are increasingly leaving the material and information age behind and entering a new, emotional age.
Back in 1973, Peter Drucker famously pointed out that ‘[w]hat the customer buys and considers value is never a product. It is always utility – that is, what a product does for him.’ When a woman buys a lipstick, she is not buying a lump of coloured fat. Rather she is buying something that will make her feel more attractive. Think about the movie Calendar Girls. A group of middle aged women managed to achieve fame and financial success beyond their wildest dream, by evoking emotional responses from the public. Selling high quality products are important, but if you can evoke emotional responses from customers, the potential rewards will expand exponentially.
Looking back in history, management innovations have led to profound changes in the way business is conducted. MLab have identified many such management innovations, and valuable lessons have been drawn from them. From a slightly different angle, we have witnessed the strategic re-orientations in leading organisations from product and service innovations, to organisational innovations, and in the last decade or so, to providing effective solutions to customers. All such innovations remain important today, but in a new age where ‘consumers have more choices that deliver less satisfaction, and management have more strategic options that create less value’, organisations need to shift their focus from functional efficiency and product and service excellence to the extended experience of their customers. In other words, organisations increasingly need find ways to appeal to the feelings and fantasies of their customers, and there is a lot of money to be made in doing so.
Making a Business of Emotions
The notion of ‘Making a Business of Emotions’ is not entirely new. Harley-Davison (and Nike), for example, have for a long time promoted the image of being in the ‘lifestyle’ business rather than manufacturing. This not only added billions of dollars to their market capitalisation, it also means that Harley-Davison does not need to compete with Honda or BMW for the technical performance of their motorbikes. To a large extent, the success of Starbucks can be attributed to its focus on being the ‘third place’ which is neither home nor office, instead of a Cafe. The shifting focus towards experiences and emotions can often create exponential expansion of business value for all stakeholders.
The transition to the emotional age requires organisations to re-assess the way they are organised and managed. Internet related technologies have a key role to play in enabling organisational innovations, information sharing and service delivery, in particular, in linking together the communities of users and suppliers cheaply, conveniently and globally. As new opportunities being opened up by new technologies and applications through web 2.0, open innovations, collective intelligence, user generated contents, MMORPGs and simulated virtual worlds, business leaders have to develop new skills and adopt new mindsets. The rational, analytical, logical and linear will need to be combined with the emotional, empathic, holistic and artistic. Those who can make the shift quickly will reap the greatest rewards in the new age, and those who can’t will be left behind.
The Secret of Management
A successful senior business executive once told me after a few drinks that there are only two things one can do to beat competition. One is through product innovation, that is, to come up with new products or services that nobody else can, or are allowed to provide. However, such opportunities are rare, so for most of us during most of the time, we compete with similar products or services, but with better features in some aspects than competitors – be they higher quality, lower cost, faster delivery or better customer service. The latter will require us to innovate in the way we do things – through new structures, new processes, new work organisation, and new inter-organisational relations. In fact, even for companies focusing on product innovations, implementing organisational innovations can significantly improve their margins. Therefore, organisational innovations are essential to the competitiveness and long term survival of all organisations.
Organisational Innovations through Internet Related Technologies
For several decades, we have been talking about the knowledge-based, information economy. On the one hand, the nature of the economy has changed as measured by the informational elements of our products, services and production processes; and the proportion of the workforce whose primary activities are informational rather than physical (often known as information workers or knowledge workers). Information (or knowledge if you prefer) has become the most critical resource upon which the efficiency and competitiveness of all organisations depend.
On the other hand, the so-called ‘Information and Communication Technologies (ICTs) Revolution’ continues to gather pace, providing us with increasingly more powerful, versatile, affordable, accessible and convenient tools in the forms of technologies, infrastructure and services. From the users’ perspective, the only purpose of ICTs is to capture, store, retrieve, manipulate, transmit and present information.
This is a profound combination, because we have increasingly more powerful yet affordable tools and techniques to deal with the most important resource of the economy, often in ways impossible, or not even conceivable, in the past. As such, organisational innovations that exploit Internet related technologies should become an explicit focus for senior executive attention.
Strategic Re-orientations: From Organisational Innovations to Customer Experience
Organisational innovations through internet related technologies are important in improving the competitiveness of organisations, but it is insufficient to take an organisation to the next level, mainly because everyone is doing them, and we are getting much better at getting them right. As Jonas Ridderstrale and Kjelle Norstrom vividly pointed out in their best seller Funky Busines’, ‘[t]he world is alive with knowledge, with products and services, with information. But more often simply means more of the same. The surplus society has a surplus of similar companies, employing similar people, with similar educational backgrounds, working in similar jobs, coming up with similar ideas, producing similar things, with similar prices, warranties, and qualities.’ This frustration was echoed by many others such as Jesper Kunde that ‘[c]ompanies have defined so much best practice that they are now more or less identical’; or as Paul Goldberger put it: ‘while everything may be better, it is also increasingly the same.’
What does this mean? For one thing, perhaps the age of the knowledge workers has come to maturity, and a new age is emerging. Daniel Pink called it the ‘conceptual age’, characterised by ‘high concept and high touch’. Joseph Pine and James Gilmore called it the ‘experience economy’, because increasingly work is theatre and every business is a stage. C K Prahalad and Venkat Ramaswamy further developed this concept and called it the experience innovation, because the future of competition depends on co-creating unique value with customers. Shoshana Zuboff called it the ‘support economy’, because neither goods nor services can adequately fulfil the needs of today’s market. Underlying all these ideas is a fundamental change that is rapidly taking hold in our society and economy: we are increasingly leaving the material and information age behind and entering a new, emotional age.
Back in 1973, Peter Drucker famously pointed out that ‘[w]hat the customer buys and considers value is never a product. It is always utility – that is, what a product does for him.’ When a woman buys a lipstick, she is not buying a lump of coloured fat. Rather she is buying something that will make her feel more attractive. Think about the movie Calendar Girls. A group of middle aged women managed to achieve fame and financial success beyond their wildest dream, by evoking emotional responses from the public. Selling high quality products are important, but if you can evoke emotional responses from customers, the potential rewards will expand exponentially.
Looking back in history, management innovations have led to profound changes in the way business is conducted. MLab have identified many such management innovations, and valuable lessons have been drawn from them. From a slightly different angle, we have witnessed the strategic re-orientations in leading organisations from product and service innovations, to organisational innovations, and in the last decade or so, to providing effective solutions to customers. All such innovations remain important today, but in a new age where ‘consumers have more choices that deliver less satisfaction, and management have more strategic options that create less value’, organisations need to shift their focus from functional efficiency and product and service excellence to the extended experience of their customers. In other words, organisations increasingly need find ways to appeal to the feelings and fantasies of their customers, and there is a lot of money to be made in doing so.
Making a Business of Emotions
The notion of ‘Making a Business of Emotions’ is not entirely new. Harley-Davison (and Nike), for example, have for a long time promoted the image of being in the ‘lifestyle’ business rather than manufacturing. This not only added billions of dollars to their market capitalisation, it also means that Harley-Davison does not need to compete with Honda or BMW for the technical performance of their motorbikes. To a large extent, the success of Starbucks can be attributed to its focus on being the ‘third place’ which is neither home nor office, instead of a Cafe. The shifting focus towards experiences and emotions can often create exponential expansion of business value for all stakeholders.
The transition to the emotional age requires organisations to re-assess the way they are organised and managed. Internet related technologies have a key role to play in enabling organisational innovations, information sharing and service delivery, in particular, in linking together the communities of users and suppliers cheaply, conveniently and globally. As new opportunities being opened up by new technologies and applications through web 2.0, open innovations, collective intelligence, user generated contents, MMORPGs and simulated virtual worlds, business leaders have to develop new skills and adopt new mindsets. The rational, analytical, logical and linear will need to be combined with the emotional, empathic, holistic and artistic. Those who can make the shift quickly will reap the greatest rewards in the new age, and those who can’t will be left behind.
The Second E-Business Boom: How the Internet Transforms Organisations
E-Business it is primarily about using information and communications technologies (ICTs) to enable new ways of doing business. This process has been going on for decades (if not longer), but the commercial exploitation of the internet and related technologies since the early 1990s has significantly accelerated and deepened the process. Today, the internet has already radically reshaped the way we work, play, learn, communicate and entertain, but more radical and more pervasive changes are yet to come. Available evidence suggests that we are probably on the verge of a ‘Second e-Business Boom’, which is more robust, more rational but by no means less radical than the first one. Business and IT Executives need to be adequately prepared for such changes, particularly in understanding how the internet and related technologies can be used innovatively to transform organisations.
Why Does e-Business Matter Today?
E-Business is based on two closely interrelated premises. One the one hand, the nature of the economy has changed from an industrial economy to an information economy, where information (or knowledge if you prefer) has become the most critical resource upon which the efficiency and competitiveness of all organisations depend. On the other hand, the continuous rapid developments of ICTs in general and internet related technologies and applications in particular have enabled individuals and organisations to manage information (i.e. the most critical resource of our economy) in ways that were not feasible – or not even conceivable - in the past. The effective combination of these two developments has resulted in the emergence of a wide range of radical and incremental innovations in the strategies, business models and organisational designs, as well as in the products and services, of both private and public sector organisations. These developments have not only challenged established management theories and practice that have been developed in the context of the industrial economy, but also called for the development of a new generation of organisation and management theory for the knowledge-based, increasingly networked, information economy.
‘The Second e-Business Boom’: What‘s Coming Next?
The dot.com bust at the turn of the century did cause considerable confusion and pessimism about the future of e-Business, even though e-Business is much more than dot.com and internet only companies. However, the recovery from the technological downturn since 2001 has been stronger and more robust than even the most optimistic forecasts. By 2005 there were already talks of a ‘Second e-Business Boom’, which has since become more firmly established. The new boom is not only reflected in the steady and rapid rise in both ‘old’ dot.com companies and new dot.com entrants, but also in the rapid development and proliferation of a wide range of new technologies and applications across different sectors. The latter includes social networking and user generated contents; mobile business and m-commerce; RFID, SOA (service oriented architecture), grid computing and web services, and the broadly defined Web2.0 and a wide range of other new technologies and applications. Amongst these new developments, perhaps one of the most significant is the rapid development of various virtual worlds and metaverses associated with the so-called MMORPGs (Massively Multi-Player Online Role Playing Games).
Today, MMORPGs have evolved far beyond mere online computer games, and they are played by people of all ages, genders and backgrounds, and are rapidly becoming alternative realities and the next generation user interface with the virtual worlds and the 3-D Internet. Some of the larger MMORPGs, such as World of Warcraft (http://www.worldofwarcraft.com/), are not only generating billion dollar revenues for their developers, but also creating numerous business – and social - opportunities for the players themselves, and for new and existing businesses (and other organisations) to promote their products and services within these virtual worlds. Furthermore, we have probably just reached the beginning of an exponential growth and the significance of this development could be as far reaching as the development of the internet itself. From a management perspective, MMORPGs and the virtual worlds and metaverses they create could perhaps be seen as direct extensions of our business and social environments. The interplays, and crossovers, between the physical, the electronic and the virtual spaces and places are creating a complex and rapidly expanding new business and social environment for individuals and organisations.
The combination of old and new old e-Business developments is creating a whole range of new opportunities and challenges for organisations and individuals, which are increasingly manifested in the ‘Second e-Business Boom’. The business management implications of these developments need to be systematically understood, and the technological and infrastructural challenges are immense. Furthermore, these development are also creating a whole series of social, political, economic, legal, ethical, psychological, cultural and policy challenges, and these issues need to be systematically investigated and their implications clearly articulated. Many of these issues have been explored in a recent book I edited: Social Implications and Challenges of e-Business.
Strategic Re-Orientations and Organisational Innovations
E-Business has facilitated radical changes at all levels of organisations. At the strategic level, e-Business has not only challenged the basic assumptions of several widely used strategic frameworks, but also enabled many organisations to explore new strategies and business models that are profoundly different from existing ones. Examples include using the internet to create disruptive innovations in a number of industries; the pursuit of the so-called web strategy (also known as cluster or platform strategy) where independent organisations cluster around a particular technological standard or customer segment to collectively deliver unique values to customers; and the strategic re-orientations from products and services, to integrated solutions, and more recently, to the co-creation of unique consumer experience through a network of independent product and service providers. This is not an exhaustive list, and their adoption in different sectors is increasingly reflected in emerging organisational forms, particularly through the deconstruction of traditional business processes.
At the organisational level, a wide range of organisational innovations have been introduced across different sectors, resulting in both incremental and radical changes in the structures, processes, work organisations and inter-organisational relations of many organisations. From a structural perspective, for example, despite repeated predictions about the demise of the hierarchy and the continued search for alternative organisational configurations, today almost every large organisation remains hierarchical. They have become flatter, more flexible, more responsive, and they increasingly deploy project-based or virtual teams to address traditional problems associated with the hierarchy, but so far nobody has been able to identify an organisation that is not a hierarchy. This is not to say, however, that the characteristics of the hierarchies and the way these hierarchies work have not changed. The widespread adoption of ICTs has significantly improved the transparency of the entire organisations to business leaders and managers. This on the one hand leads to further centralisation of power, but at the same time it enables senior managers to have the confidence to delegate responsibilities and activities to operational managers and frontline employees without worrying about losing central control. The shape of the organisation may have not changed beyond hierarchies, but the way the new hierarchies work is radically different. ICTs have enabled some organisations to resolve conventional problems inherent in the hierarchy, allowing radical structural changes to take place within the parameters of the hierarchy. These changes are increasingly reflected in the changing principles of organisational designs.
From a process perspective, many organisations have been using ICTs to facilitate the redesign of various business processes, from radical business process reengineering (BPR) to more incremental process improvements and operational innovations. In fact, many key business processes have been commoditised, some of which are based on industrial best practice that have been built into various information systems, which provided the basis for business process outsourcing. Changes in micro-level work organisations (from teleworking to virtual teams), and in inter-organisational relations (from strategic collaborations to lean production and consumption) are equally significant. Important lessons can be learnt from the pioneers who have introduced such organisational innovations, and in understanding the roles that ICTs played in the process.
These changes require all organisations to re-assess the way they are organised and managed. Internet and related technologies have a key role to play in enabling strategic re-orientations and organisational innovations, and in linking together the communities of users and suppliers cheaply, conveniently and globally. Many of these issues have been explored in my books - What is E-Business? How the Internet Transforms Organisations, but new opportunities and challenges are emerging constantly. We need to understand how the Internet and related technologies can be innovatively used to transform organisations and change the way we do business. Those who can do so effectively and consistently will reap the greatest rewards.
Why Does e-Business Matter Today?
E-Business is based on two closely interrelated premises. One the one hand, the nature of the economy has changed from an industrial economy to an information economy, where information (or knowledge if you prefer) has become the most critical resource upon which the efficiency and competitiveness of all organisations depend. On the other hand, the continuous rapid developments of ICTs in general and internet related technologies and applications in particular have enabled individuals and organisations to manage information (i.e. the most critical resource of our economy) in ways that were not feasible – or not even conceivable - in the past. The effective combination of these two developments has resulted in the emergence of a wide range of radical and incremental innovations in the strategies, business models and organisational designs, as well as in the products and services, of both private and public sector organisations. These developments have not only challenged established management theories and practice that have been developed in the context of the industrial economy, but also called for the development of a new generation of organisation and management theory for the knowledge-based, increasingly networked, information economy.
‘The Second e-Business Boom’: What‘s Coming Next?
The dot.com bust at the turn of the century did cause considerable confusion and pessimism about the future of e-Business, even though e-Business is much more than dot.com and internet only companies. However, the recovery from the technological downturn since 2001 has been stronger and more robust than even the most optimistic forecasts. By 2005 there were already talks of a ‘Second e-Business Boom’, which has since become more firmly established. The new boom is not only reflected in the steady and rapid rise in both ‘old’ dot.com companies and new dot.com entrants, but also in the rapid development and proliferation of a wide range of new technologies and applications across different sectors. The latter includes social networking and user generated contents; mobile business and m-commerce; RFID, SOA (service oriented architecture), grid computing and web services, and the broadly defined Web2.0 and a wide range of other new technologies and applications. Amongst these new developments, perhaps one of the most significant is the rapid development of various virtual worlds and metaverses associated with the so-called MMORPGs (Massively Multi-Player Online Role Playing Games).
Today, MMORPGs have evolved far beyond mere online computer games, and they are played by people of all ages, genders and backgrounds, and are rapidly becoming alternative realities and the next generation user interface with the virtual worlds and the 3-D Internet. Some of the larger MMORPGs, such as World of Warcraft (http://www.worldofwarcraft.com/), are not only generating billion dollar revenues for their developers, but also creating numerous business – and social - opportunities for the players themselves, and for new and existing businesses (and other organisations) to promote their products and services within these virtual worlds. Furthermore, we have probably just reached the beginning of an exponential growth and the significance of this development could be as far reaching as the development of the internet itself. From a management perspective, MMORPGs and the virtual worlds and metaverses they create could perhaps be seen as direct extensions of our business and social environments. The interplays, and crossovers, between the physical, the electronic and the virtual spaces and places are creating a complex and rapidly expanding new business and social environment for individuals and organisations.
The combination of old and new old e-Business developments is creating a whole range of new opportunities and challenges for organisations and individuals, which are increasingly manifested in the ‘Second e-Business Boom’. The business management implications of these developments need to be systematically understood, and the technological and infrastructural challenges are immense. Furthermore, these development are also creating a whole series of social, political, economic, legal, ethical, psychological, cultural and policy challenges, and these issues need to be systematically investigated and their implications clearly articulated. Many of these issues have been explored in a recent book I edited: Social Implications and Challenges of e-Business.
Strategic Re-Orientations and Organisational Innovations
E-Business has facilitated radical changes at all levels of organisations. At the strategic level, e-Business has not only challenged the basic assumptions of several widely used strategic frameworks, but also enabled many organisations to explore new strategies and business models that are profoundly different from existing ones. Examples include using the internet to create disruptive innovations in a number of industries; the pursuit of the so-called web strategy (also known as cluster or platform strategy) where independent organisations cluster around a particular technological standard or customer segment to collectively deliver unique values to customers; and the strategic re-orientations from products and services, to integrated solutions, and more recently, to the co-creation of unique consumer experience through a network of independent product and service providers. This is not an exhaustive list, and their adoption in different sectors is increasingly reflected in emerging organisational forms, particularly through the deconstruction of traditional business processes.
At the organisational level, a wide range of organisational innovations have been introduced across different sectors, resulting in both incremental and radical changes in the structures, processes, work organisations and inter-organisational relations of many organisations. From a structural perspective, for example, despite repeated predictions about the demise of the hierarchy and the continued search for alternative organisational configurations, today almost every large organisation remains hierarchical. They have become flatter, more flexible, more responsive, and they increasingly deploy project-based or virtual teams to address traditional problems associated with the hierarchy, but so far nobody has been able to identify an organisation that is not a hierarchy. This is not to say, however, that the characteristics of the hierarchies and the way these hierarchies work have not changed. The widespread adoption of ICTs has significantly improved the transparency of the entire organisations to business leaders and managers. This on the one hand leads to further centralisation of power, but at the same time it enables senior managers to have the confidence to delegate responsibilities and activities to operational managers and frontline employees without worrying about losing central control. The shape of the organisation may have not changed beyond hierarchies, but the way the new hierarchies work is radically different. ICTs have enabled some organisations to resolve conventional problems inherent in the hierarchy, allowing radical structural changes to take place within the parameters of the hierarchy. These changes are increasingly reflected in the changing principles of organisational designs.
From a process perspective, many organisations have been using ICTs to facilitate the redesign of various business processes, from radical business process reengineering (BPR) to more incremental process improvements and operational innovations. In fact, many key business processes have been commoditised, some of which are based on industrial best practice that have been built into various information systems, which provided the basis for business process outsourcing. Changes in micro-level work organisations (from teleworking to virtual teams), and in inter-organisational relations (from strategic collaborations to lean production and consumption) are equally significant. Important lessons can be learnt from the pioneers who have introduced such organisational innovations, and in understanding the roles that ICTs played in the process.
These changes require all organisations to re-assess the way they are organised and managed. Internet and related technologies have a key role to play in enabling strategic re-orientations and organisational innovations, and in linking together the communities of users and suppliers cheaply, conveniently and globally. Many of these issues have been explored in my books - What is E-Business? How the Internet Transforms Organisations, but new opportunities and challenges are emerging constantly. We need to understand how the Internet and related technologies can be innovatively used to transform organisations and change the way we do business. Those who can do so effectively and consistently will reap the greatest rewards.
Thursday, 17 April 2008
Michael Porter, Charles Handy and Other Important Matters in Business Management
[This is a short article originally written for the magzine of my business school]
In the past few months, I had the rare pleasure of attending two separate events, by arguably two of the greatest management gurus of our time – Michael Porter and Charles Handy. Two completely different events but it was interesting to hear those famous ideas directly from ‘the horse’s mouth’, so to speak. More importantly, these events made me reflect on the value of my own research and executive education.
The Michael Porter event was a full day workshop in London by the great man himself – well, perhaps not quite a full day event, because it started at 9:20 am and finished at 4:35 pm, with long breaks in the morning and afternoon and a proper three course sit-down lunch. Nor was it entirely by the man himself, because he was joined during questions by one of his ex-students and currently a City high flyer; the Director of Ashridge Business School; and Robin Oakley, formerly BBC and now CNN European Political Commentator (and a few others to introduce him but whose names or affiliations I could not remember). The workshop was held at the QE2 conference centre in London, and to my surprise, attended by a good 500 people! The ticket price of the event was almost £1,000 per person; and even taking into account of group bookings and multi-events discounts etc, this workshop should easily bring in an income of between £300,000 to half a million pounds from the registration fees alone! There were also quite a few corporate sponsors of the event and I am sure the price tags would not be modest either.
Given the high ticket price, the event was mainly attended by management practitioners and people from large public sector organisations, with a few token academics (I was only able to attend this event because the Business School managed to secure a two for one deal from the Association of Business Schools ABS –my colleagues have chosen Henry Mintzberg). There is no doubt that Michael Porter is a great, inspiring speaker, but even so I was astonished to see 500 successful, ambitious executives (or aspiring executives) of private and public institutions eagerly taking notes when the great man talked about what is – and isn’t – strategy, and the famous five forces of competitive analyses. I am sure many people in the audience have MBAs (in fact, I bumped into one of my ex-MBA students from Strathclyde currently working in a big bank in London). They should be familiar with all those theories and ideas Porter talked about. I for one am familiar with not only everything he eloquently talked about during the workshop (ok perhaps not some bits on corporate philanthropy he rushed through at the very end because we run out of time), but also perhaps every criticisms of his theories and frameworks. So why so many bright, successful management practitioners and civil servants are prepared to spend a day (and maybe two if travel is considered for many from outside London) and pay so much money for something they should have studied in University, or could have easily read about by picking up any airport book on strategy?
Ok, Michael Porter is one of very few people in the world who can confidently say that he trains 25 new CEOs of billion dollar businesses each year through his executive development programme at Harvard. He has been repeated voted one of the most influential management gurus of our time. His theories and frameworks have been taught at different levels throughout the world. However, much of what he talked about was first published in the 1980s (and 1990s), including even some of the examples he used. If we believe the business environment has gone through some radical changes in recent years, are those theories and frameworks developed for a different era still valid? How do you carry out the five forces of competitive analyses today when the boundaries between industries, sectors, channels, products and services are all becoming blurred, radically redefined or even completely eroded? Of course you can always adapt and stretch those theories and framework for the new situation, but at the end of the day they were developed for a different era and such adaptations might not be the most effective way to make sense of the new world and come up with new solutions. So wouldn’t the money and time be better spent on exploring new theories and ideas that have emerged in recent years – ideas that have been developed specifically for the new era – for the networked, knowledge-based, information economy?
Since I was familiar with the ideas, I quickly turned restless and became one of the ‘smart Alec’ students and spent considerable time observing the audience and how they reacted. I could visibly see that some people in the audience were inspired by his talk. From my conversation with other attendees during coffee breaks, some of them were genuinely excited about what they could do when they get back to work the next day (without realizing any potential limitations of his theories and frameworks). This made me reflect on the value of my own research, executive education and consultancy. When I conducted executive short courses especially during the early days of my career, some of the less diplomatic participants had on occasions challenged me– diplomatically of course - on why he (always a he, usually a rapidly rising star in the corporate world with growing responsibilities) should pay thousands of pounds to listen to someone (i.e. little me) who had never managed a business? I am sure many of my MBA students would have wanted to ask the same question – only held back by the fact that if they wanted their MBA Certificates they would have to pass my module. So for quite a few years now I always answered this question at the beginning of an executive programme or a MBA class before they even had the chance to ask me.
It is true that many academics do not have the kind of practical management experiences and domain knowledge as many of the participants. However, what academics possess are the unique ability, skills, methods and techniques – the theoretical and methodological underpinning – to identify, analyse, and conceptualise emerging trends under uncertainty and chaos and long before the situation becomes obvious. This skill set, together with the knowledge they acquire by applying such skills in different contexts, enable academics to develop deep understanding of complex situations in a coherent and consistent manner. If through executive courses, MBA classes and consultancy, academics could help management practitioners acquire some such knowledge and skills, and combine them with their own practical experience and domain knowledge, the practitioners are then in a position to do things that the academics could not do! Information (or knowledge if you prefer) is a unique commodity: its value depends on the context of its use – by whom and for what. That value can vary enormously.
Charles Handy is arguably the biggest management guru on this side of the Atlantic. However, ‘Breakfast with Charles Handy’ in a Quayside hotel in Newcastle was a very different event. It was organised by AMBA so the price tag was much lower, only £25 (I have to say my own ‘Breakfast with CEOs’ events in the past have charged much higher ticket prices, either in the UK, Singapore or even China). The event was only attended by about 25 people, mainly ex-MBAs.
Different from the Michael Porter event in London, this was really a book launch to publicise Charles Handy’s new book in the North East: Charles Handy – Myself and Other More Important Matters. After a full English Breakfast and some small talks, Professor Handy went on stage and talked for about 40 minutes. This was then followed by a live interview with a FT (Financial Times) journalist, and then book signings. Realising I was a Business Professor, he quickly wrote ‘Feng, Good Luck!’ before signing his name and handing the book to me. I still don’t quite understand what exactly he meant by that – perhaps I will need it as an academic!
At the age of 75, Charles Handy is as sharp and inspiring as ever, and he is actively involved in book writing and corporate speaking. During the event, he reflected on his own life and how his thinking about business management has evolved over the years. Of all the things he said, two points stuck in my mind. One is that it is relatively easy to advise people, and organisations, to make changes and bravely embrace changes, but to actually implement and live through those changes is not easy. However, in order to reach new heights sometimes we have to take the plunge during certain critical points in our lives – and in the lives of organisations. He does not regret making several such plunges during his own life time despite the various problems he and his family experienced during those changes. For organisations, it is often not even a choice.
The second point, which he said was a summary of his life time’s thinking about business management and about life itself, is expressed as a series of S Curves (see Figure).
He believed that everything in life can be expressed as an S Curve. It will go through different stages. To start something it usually dives below the starting point because of the initial investments required and the delay for returns to come in; and then it will climb the slope of growth until it reaches maturity at the very top of the curve before taking a nose dive again. For organisations – and individuals – it is critical to start investing in the next S Curve renew before the previous one reaches maturity and starts nose diving – i.e. from Point A and A’ instead of B and B’. However, identifying the starting point of the next S Curve (A, A’) is never easy because it is when things are better than ever and still getting better – and convincing others, and oneself – to abandon something that is successful and still growing for something uncertain is never easy. However, if you wait until the S Curve starts to decline (B, B’), then it is the worst time to start a new S Curve – because by then you will have diminishing resources to start something new. This applies to an organisation as well as the careers of individuals.
I was suitably encouraged and inspired by both Michael Porter and Charles Handy, for different reasons perhaps. On the one hand I am glad to see the gurus of our time are still so active after so many years - and impressed by the respect they command. However, I am also concerned with the speed of progress and the time it takes for an idea to become widely accepted and adopted; and for people and organisations to abandon the familiar and bravely embrace new challenges and opportunities. For many years we have argued – and have convincingly proved - that the world has changed and the business environment is not what it used to be. It calls for radical changes in business theories and practice – and perhaps a new generation of organisation and management theories. The transition to the knowledge-based economy, combined with continual rapid development and proliferation of ICTs in every aspects of our work and every day life, have enabled organisations large and small to do many things in ways that were not possible in the past. As such, the study of e-Business might provide the basis for a new generation of organisation and management theory. I hope many of the new ideas in e-Business will become widely adopted long before I reach the age of our two gurus!
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