Global Executive Printout 111108

The Transformational Role of Emergent Internet Technologies on Business Innovation and Industry Structure

Dr. Tony O’DriscollFuqua School of Business

Duke University

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Tony’s Brief Bio• 18 Years of industry experience in Telecom and High-Tech Industries: HW, SW, Services, Research, Learning

• Founding member of IBM’s Strategy and Change Consulting Practice

• Professor of the Practice at Duke’s Fuqua School of Business

• Teach in the areas of Strategic Management, Management of Innovation and Technology, Management Consulting and Services Management.

• Research focuses on impact of technology on business strategy and operational efficiency

• Consult with clients around the world on how to leverage technology to drive sustainable competitive advantage.

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Topics We Will Explore

Technology – Definition, Diffusion, Adoption & Division

– Progression, Compression & Disruption

– Webvolution, Pervasion and Co-Creation

– Transformation & Distribution

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“Official” Definitions

Technology is a broad concept that deals with the usage and knowledge of tools and crafts, and how it affects the ability to control and adapt to the environment. In human society, it is a consequence of science and engineering, although several technological advances predate the two concepts.

The practical application of knowledge especially in a particular area" and "a capability given by the practical application of knowledge”.

http://en.wikipedia.org/wiki/Tool

http://en.wikipedia.org/wiki/Craft

http://en.wikipedia.org/wiki/Environment_(biophysical)

http://en.wikipedia.org/wiki/Science

http://en.wikipedia.org/wiki/Engineering

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Diffusion of Innovations

Source: IBM GIO 1.0

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Introducing the S-Curve Some patterns have been consistently identified in technology trajectories across Some patterns have been consistently identified in technology trajectories across

many industry contexts and over many periods. many industry contexts and over many periods. SchillingSchilling

AdoptionPerformance

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From Patterns to Predictions

Video Clip(Kurzweil, Anderson)

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Technology Diffusion Meets Innovation

Sources: Global Innovation Outlook 2.0, 2006

It is useful to think of different types of innovation being privileged at different It is useful to think of different types of innovation being privileged at different points in a market’s life. points in a market’s life. MooreMoore

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Explosion of information

Hyperinflation of time

Accelerated pace of change

Constancy in human cognitive ability

A Digital Divide of a Different Kind

DigitalDivide

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The Technology Cycle: From Discontinuity to Dominant Design

The dominant design establishes a stable architecture for the technology and enables The dominant design establishes a stable architecture for the technology and enables firms to focus their efforts on process innovations. firms to focus their efforts on process innovations. SchillingSchilling

A technological discontinuity is generally followed by a single standard and sales A technological discontinuity is generally followed by a single standard and sales always peek after a dominant design emerges. always peek after a dominant design emerges. Anderson and Tushman,Anderson and Tushman,

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Historical Boom, Bust, Adjust Patterns

Irruption

Innovation

The Industrial Revolution

Age of Steam and Railways

Age of Steel, Electricityand Heavy Engineering

Age of Oil, Automobilesand Mass Production

Age of Information and Telecommunications

Frenzy Synergy

DeploymentMaturity

Panic1797

Depression1893

Crash1929

Dot.comCollaps

e

• Formation of Mfg. industry• Repeal of Corn Laws opening

trade

• Joint stock companies • Industry exploits economies

of scale

Current period ofInstitutional Adjustment

• Separation of savings, investment banks

• FDIC, SEC

• Build-out of Interstate highways

• IMF, World Bank, BIS

1

2

3

4

5

Source: Perez

Panic1847

1771

1829

1875

1908

1971

1873

1920

1974

1829

Crash

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Economy/Technology Co-Evolution

Infrastructure

Business

Technology

Primary Asset

Main Output

Organization

Agrarian Age(??-1760)

Local Market

Family Farm

The Plow

Land

Food Products

Family Structure

Industrial Age(1760-1960)

Steel, Railroads

The Factory

The Machine

Capital Equipment

Mechanical Products

Bureaucracy

Information Age(1960-2020)

Computers, Internet

The Corporation

The Transistor

Intellectual Capital

Knowledge Products

?

?

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Shrinking Paradigmatic Eras

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Welcome to the Molecular Economy

Video Clip(Kurzweil and Venter)

Infrastructure

Business

Technology

Primary Asset

Main Output

Organization


Local Market

Family Farm

The Plow

Land

Food Products

Family Structure



Local Market

Family Farm

The Plow

Land

Food Products

Family Structure


Steel, Railroads

The Factory

The Machine

Capital Equipment

Mechanical Products

Bureaucracy



Steel, Railroads

The Factory

The Machine

Capital Equipment

Mechanical Products

Bureaucracy


Computers, Internet

The Corporation

The Transistor


Knowledge Products



Computers, Internet

The Corporation

The Transistor


Knowledge Products

?

As the information economy matures, a new economic life cycle – As the information economy matures, a new economic life cycle – the molecular economythe molecular economy – is – is reaching puberty. The two primary drivers are our reaching puberty. The two primary drivers are our understanding of the molecules that control understanding of the molecules that control chemical and biological functionschemical and biological functions and the and the super-minitaurization of manufacturingsuper-minitaurization of manufacturing.. Meyer and Meyer and

DavisDavis

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Compression and the Structural Divide

Infrastructure

Business

Technology

Primary Asset

Main Output

Organization


Local Market

Family Farm

The Plow

Land

Food Products

Family Structure



Local Market

Family Farm

The Plow

Land

Food Products

Family Structure


Steel, Railroads

The Factory

The Machine

Capital Equipment

Mechanical Products

Bureaucracy



Steel, Railroads

The Factory

The Machine

Capital Equipment

Mechanical Products

Bureaucracy


Computers, Internet

The Corporation

The Transistor


Knowledge Products



Computers, Internet

The Corporation

The Transistor


Knowledge Products

?

Authority/Production Knowledge/Problem

Elements Authority/Production Knowledge/Problem

1) Levels of authority Many Few

2) Division of labor High Low

3) Links to others Few Manyin the organization

4) Sources of influence Position in hierarchy Ability to identify and solve problemand power

5) Use of rules and High Lowprocedures

6) Primary purpose Maximize output Analyze or invent knowledge to solve problems

Elements Authority/Production Knowledge/Problem

1) Levels of authority Many Few

2) Division of labor High Low

3) Links to others Few Manyin the organization

4) Sources of influence Position in hierarchy Ability to identify and solve problemand power

5) Use of rules and High Lowprocedures

6) Primary purpose Maximize output Analyze or invent knowledge to solve problems

America’s business problem is that it is entering the twenty-first century with companies America’s business problem is that it is entering the twenty-first century with companies designed during the nineteenth century to work well in the twentieth. designed during the nineteenth century to work well in the twentieth. HammerHammer

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From Factory to Corporation to ?

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Revisiting the S-CurveA basic progression governs the evolution of management in all market economies:

Fundamental properties of the universe are transformed into scientific understanding, then developed into new technologies which are applied

to create products and services for business, which ultimately define our models of organization. . Meyer and DavisMeyer and Davis

Eco

nom

ic V

alue

Add

Time

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Four Phases across Four Economies

Agrarian Economy

IndustrialEconomy

Information Economy

MolecularEconomy

ScienceLaws of Nature Newton’s

PhysicsQuantum Physics

Mollecular Science

NanoScience

TechnologySeed/Feed

Plow

SteamElectricity

ChipsSoftwareWWW

GenomicsNanotechnology

BusinessFamily Farm Factory Corporation TBD

OrganizationFamily

Structure Bureaucracy TBD TBD

Time Compression Between Ages

Acc

eler

ated

dis

rupt

ion

of e

xist

ing

busi

ness

/stru

ctur

e

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The Changing Role of the Organization

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3Di Web 2.0

Webvolution

Web 1.0

Access ParticipateValueProposition

PosterChildren

Find Share Collaborate Co-Create

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Web 2.0: Description and ApplicationWeb 2.0 is a Web 2.0 is a set of economic, social and technology trendsset of economic, social and technology trends that collectively form the basis that collectively form the basis for the for the next generation of the internetnext generation of the internet – a more mature, distinctive medium characterized by – a more mature, distinctive medium characterized by

user participation, openness, and networkuser participation, openness, and network effects effects O’ReillyO’Reilly

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Welcome to the Metaverse and MMORPGs

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Describing MMORPGs

Most MMORPGs offer players pre-fabricated or Most MMORPGs offer players pre-fabricated or themed fantasy world themed fantasy world The EconomistThe Economist

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MMORPG Economics

EverQuestEverQuest’s GDP made the EverQuest’s GDP made the

virtual currency of Norrath the virtual currency of Norrath the 77th largest country77th largest country in the in the worldworld – somewhere between – somewhere between

Bulgaria and RussiaBulgaria and Russia

World of WarCraft•8 Million WarCrafters8 Million WarCrafters

•Average = 20 Hours/WeekAverage = 20 Hours/Week•Total WoW hours= 160MillionTotal WoW hours= 160Million

•It would take IBM’s entire It would take IBM’s entire workforce 12 weeks to match workforce 12 weeks to match

one week of WoW activity one week of WoW activity

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MMORPG Statistics and Diffusion

• 73 million online gamers worldwide– 38% (27 million) are hard core users– 10 million in the US – Asia has highest subscription rates to

games

• Average Online Gamer Profile– 27 years old (Range is 11-68)– Only 25 % are teen-agers– 50% work full time– 20 Hours per week playing online

Already five out of every ten Americans – Already five out of every ten Americans – about 145 million consumers and about 145 million consumers and employeesemployees – – play video gamesplay video games. . Beck and WadeBeck and Wade

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Games and Gamers as they Relate to Business

Our research shows that this new generation is very different from the boomers in ways that matter to the business. Beck and Wade

• They desire systematically different goals in life

• They have systematically different ways of working

• How they compete, fit into teams, take risks are all different in statistically verifiable ways

• They choose systematically different ways to learn

Sources: Beck and Wade, Got Game, 2005

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3Di: Defining Virtual Worlds

Sources: Business Week April 2006, The Economist. Living a Second Life, Sept. 28, 2006

Second Life is some unholy offspring of the movie Second Life is some unholy offspring of the movie The MatrixThe Matrix, the social networking site , the social networking site MySpaceMySpace and the online marketplace and the online marketplace eBay eBay Business WeekBusiness Week

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Second Life Statistics

Source: Joe Miller. Linden Lab

All Data: (Industry, Job Level, Company Size, # Learners Impacted)

16 Million Members1.1 Million Active Residents350,000 Hours of Use Per Day87,500 Hours Development Time/Day$1.6 B worth of Free Work per Year200+ Virtual Square Miles (6X Boston)520,000 Unique Items traded/Month

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Virtual World Economics

Source: Joe Miller. Linden Lab

Clearly of social activity migrates to synthetic worlds, Clearly of social activity migrates to synthetic worlds, economic activity will go there as well.economic activity will go there as well. The volume of annual trade in synthetic worlds already The volume of annual trade in synthetic worlds already exceeds $2B exceeds $2B CastranovaCastranova

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Aidan and Liam: Tomorrow’s Virtual World Workers?

I confidently predict I confidently predict my children (4 and 6)my children (4 and 6) will end up will end up working in one of these worldsworking in one of these worlds. . HunterHunter

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VSWs and MMORPGs: Kin But Not Twins!

Sources: The Economist. Living a Second Life, Sept. 28, 2006; Nick Yee, Demographics of MMPRPGs

Unbounded Space

Social Interaction

Communities

User Created Content

Business

VSW MMORPGAvatar-Mediated

Persistent World

Reputation

Immersive

Interactive

Real-Time Communication

Virtual Economy

Assets

Bound by a Narrative

Defined Roles

NPCs

Rules

Tokens

Ranks and Levels

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Synthetic World Sensibilities

The Sense of Self

The Death of Distance

The Power of Presence

The Sense of Space

The Capability to Co-Create

The Pervasiveness of Practice

The Enrichment of Experience

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Virtual World Business ApplicationsVirtual worlds Virtual worlds could transform the way businesses operatecould transform the way businesses operate by by

providing a providing a new template for getting work donenew template for getting work done, from , from training and training and collaboration to product design and marketingcollaboration to product design and marketing Business Week Business Week

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Large Enterprise perspective on 3Di

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Application Focus on Learning, Simulation and Collaboration

Source: Cutter Benchmark Review 2007

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Analyst Advice

By the end of 2011, 80 percent of active Internet users (and Fortune 500 enterprises) will have a “second life”, but not necessarily in Second Life,

according to Gartner, Inc.

Gartner’s advice to enterprise clients is that this is a trend that they should investigate and

experiment with, but limit substantial financial investments until the environments stabilize and

mature.

Steve PrenticeGartner

Source: Virtual Worlds: Real Opportunities. Gartner IT Symposium, April 22, 2007

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Reputation Platform(Sales)

3Di Web 2.0

Emergence of New Economic Platforms

Web 1.0


PosterChildren

Platforms

Find

Access Platform(Transaction Fees)

Search Platform(Advertising Fees)

Commerce Platform(Sales) Participation Platform

(Membership Fees)

Referral Platform(Referral Fees) Alternate Currency

Platform(Exchange Fees)

Share Collaborate Co-Create

Creation Platform(In-World Sales)

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Web 2.0 Value Creation Platforms

In 2005, eBay conducted In 2005, eBay conducted 8 billion8 billion API-based API-based web services transactionsweb services transactions. . O’ReillyO’Reilly

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Wikinomics and Prosumption

Leaders must Leaders must think differently about how to compete and be profitablethink differently about how to compete and be profitable , and , and embrace and new art and science of collaboration we call embrace and new art and science of collaboration we call WikinomicsWikinomics. . TapscottTapscott

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Collaborative Value Co-Creation

Billions of connected individualsBillions of connected individuals can now actively participate in innovation, wealth can now actively participate in innovation, wealth creation, and social development in ways we once only dreamed of. creation, and social development in ways we once only dreamed of. TapscottTapscott

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The “Always On” Pervasive Web

There are more transistors produced per year than grains of rice and each rice There are more transistors produced per year than grains of rice and each rice grain can buy hundreds of transistorsgrain can buy hundreds of transistors. . Goodall (2002)Goodall (2002)

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From Physical Product to Information Services

53%

In the United States in 2003, services represented In the United States in 2003, services represented 81% of the GDP not 81% of the GDP not including services provided by manufacturing companiesincluding services provided by manufacturing companies

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Service Definitions• All economic activities whose All economic activities whose output is not a physical productoutput is not a physical product, is , is generally generally consumed at the time it is producedconsumed at the time it is produced and provides added and provides added value in forms that address intangible concerns of the clientvalue in forms that address intangible concerns of the client

• Services are Services are DEEDS, PROCESSES and PERFORMANCESDEEDS, PROCESSES and PERFORMANCES..

• An activity or series of activities of primarily intangible nature that take An activity or series of activities of primarily intangible nature that take place in place in interactions between customer and service provider.interactions between customer and service provider.

• A service is a A service is a time-perishable, intangible experience performed for time-perishable, intangible experience performed for a customer acting in the role of co producer.a customer acting in the role of co producer.

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Blurring the Lines Between Service and Product

Anytime ATM Machines

Real Time Intelligent Vending Machines

Online PCS health Systems

Interactive Sunbeam’s “Blanket with a Brain”

Anyplace GM Onstar Service

Learning Pandora

Anticipating Amazon.Com

Filtering Google Reader

Customizing Levi’s

Upgrading Software

Intangibles

Source: Blur

The difference between products and services blurs to the point that the distinction is a trap. Winners in the Information Age will provide an offer that is both

product and service simultaneously. Davis and Meyer

Speed

ConnectivityOFFER

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A Possible Pervasive Future

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The Value is in the Network

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Complimentarity enhances Value

In industries characterized by In industries characterized by network externalitiesnetwork externalities, the value of a technological , the value of a technological innovation to users will be a function not only of its stand-alone benefits and cost, innovation to users will be a function not only of its stand-alone benefits and cost, but but also the size of the installed base and the availability of complementary goods also the size of the installed base and the availability of complementary goods

Schilling.Schilling.

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The Power of Network ExternalitiesNetwork externalities occur when Network externalities occur when the benefit of a good increases with the number of the benefit of a good increases with the number of

other users of the same good. other users of the same good. Schilling Schilling

Network Externality advantages enabled Windows to lock several would-be contenders such Network Externality advantages enabled Windows to lock several would-be contenders such as Geoworks and NeXT out of the market.as Geoworks and NeXT out of the market. SchilllingSchillling

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The Value Network: Value Co-Creation in Action In the 1980’s industry value-chain analysis helped identify what marginal value In the 1980’s industry value-chain analysis helped identify what marginal value

the company provided within the industrythe company provided within the industry

…….. while today companies must also analyze the their “value net.. while today companies must also analyze the their “value network” to gain a more holistic understanding of how they can collaborate to creatmore holistic understanding of how they can collaborate to create and capture value in a networked economy.value in a networked economy.

Source: Naelbuff

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Complementors add value to what you offer

Suppliers

Customers

Competitors / Substitutes

ComplementorsHighway

Commission

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Competitors make whatever you offer seem less valuable

Suppliers

Customers

Competitors / Substitutes

ComplementorsHighway

Commission

Public

Transportation

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Practical Application Exercise

Web services such as Carpoint have increased the transparency of information regarding invoice prices for automobiles…

Consequently, automobile manufacturers such as Ford no longer enjoy the ability to increase revenues on unreasonable mark-ups…

Furthermore, many automobile manufacturers have recognized that they stand to generate more revenues through automobile financing rather than

through automobile sales….

The challenge for Ford and the other big three automobile manufacturers is to continue to focus on reducing costs, while finding a way to increase their

range and reach and migrating towards a service based business model.

The Situation: Circa Early 2000

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Ecosystem based Value Co-Creation

McKenna

This is more than open source, social networking, crowdsourcing, smart mobs, or the This is more than open source, social networking, crowdsourcing, smart mobs, or the wisdom of crowds. We are talking about wisdom of crowds. We are talking about deep changes in the structure and modus deep changes in the structure and modus

operandi of the corporation and our economyoperandi of the corporation and our economy based on based on new competitive principles new competitive principles such as openness, peering, sharing and acting globallysuch as openness, peering, sharing and acting globally TapscottTapscott

Video Clip(Leadbeater Platforms and Rheingold)

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The Future of Enterprise?Soon it may be time to Soon it may be time to redefine what we in the business world think redefine what we in the business world think of as “the enterprise.”of as “the enterprise.” Further, notions of “employer” and “employee” Further, notions of “employer” and “employee”

might become more and more antiquated as might become more and more antiquated as looser aggregations of looser aggregations of collaborators form and disbandcollaborators form and disband on an opportunity-by opportunity on an opportunity-by opportunity

basis. The future might consist of basis. The future might consist of a billion one-person “enterprises” a billion one-person “enterprises” people who move frequently from project to project as their skills people who move frequently from project to project as their skills

and focus shift.and focus shift.

Sources: Global Innovation Outlook 2.0, 2006

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3Di Web 2.0

The Era of Entrepreneurial Capitalism

Web 1.0


PosterChildren

Find Share Collaborate Co-Create

EntrepreneurialCapitalism

Enterprise Endeavor

Employee Entrepreneur

Control Resources Orchestrate Value Transfer

Provide Productsand Services

Provide Value Transfer Platforms

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Individual Example

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Enterprise ExamplesIn such a In such a collaborative, contribution based environmentcollaborative, contribution based environment, the role of , the role of the traditional enterprise would the traditional enterprise would shift to orchestration and facilitation shift to orchestration and facilitation

of the endeavors between these individuals or groupsof the endeavors between these individuals or groups IBM GIO 2.0IBM GIO 2.0

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Distributing and Gamifying WorkAll this has some companies mulling a wild idea: All this has some companies mulling a wild idea: Why not use Why not use

gaming’s psychology, incentive systems and social appeal to gaming’s psychology, incentive systems and social appeal to get real jobs done better and faster.get real jobs done better and faster. Business WeekBusiness Week

Video Clip(Crater Recognition)

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Leading in the Services Ecosystem

Source: GIO 2.0, p. 21, 22

RESEARCH QUESTION:RESEARCH QUESTION: As business becomes increasingly distributed and virtual in As business becomes increasingly distributed and virtual in nature, nature, what kinds of leaders will emerge and what attributes will they have?what kinds of leaders will emerge and what attributes will they have?

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Research Approach

50 Hours of video capture in 5 different titles

(11 Vignettes)

10 One-Hour Interviews with prominent Guild Leaders

173 Online Surveys coveringLeadership in Guilds

Sloan Model

Visioning

Inventing

Sense-making Relating

Framework Analysis Report

Source: Seriosity Report, p. 3.

RESEARCH GOAL: The goal of the games and leadership project was simple RESEARCH GOAL: The goal of the games and leadership project was simple – armed with a representative model of leadership, examine individual and – armed with a representative model of leadership, examine individual and

group behavior in complex multiplayer games to group behavior in complex multiplayer games to determine what aspects of a determine what aspects of a traditional model, if any, should be reconsidered.traditional model, if any, should be reconsidered.

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Leader Behaviors Analyzed

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Corporate and MMORPG Relevance

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of survey respondents believe that MMORPG leadership approaches can be used to improve leadership effectiveness within the enterprise

of survey respondents state that game-playing has improved their real-world leadership capabilities

of respondents believe that the environmental factors within MMORPGs can be applied to enhance leadership effectiveness for the globally integrated enterprise

39%49%75%

Research Findings

““The trick for today’s business leadership is to get away from The trick for today’s business leadership is to get away from thinking about traditional work and incentive models -- i.e. What thinking about traditional work and incentive models -- i.e. What

has been done -- and get thinking about MMORPG parallels”has been done -- and get thinking about MMORPG parallels”Survey RespondentSurvey Respondent

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Lets do the Web 2.0 Thing

wadatripp.wordpress.com

[email protected]

Global Executive Printout 111108

Technology

Transcript of Global Executive Printout 111108