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.
Thursday, 15 May 2008
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.
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