As we all know, the very nature of the enterprise is changing. This is the result of the rapid shifts that have been occurring in the business world over the last few years--the commoditization of goods and services, the individuation of value, the transformation of the workforce--which I discussed in my previous blog post . In order to keep up with these changes and to succeed, future enterprises will need to have three clear characteristics: They will be socially enabled; they will operate as digital business ecosystems, offering innovative services and products as rapidly and inexpensively as possible; and they will view innovation not as an optional advantage, but as the only advantage.
This is very different from the way large businesses have operated for decades. Originally, business consisted of neighbors exchanging the products of their labors, dedicated craftsmen travelling from town to town, and localized general stores. Eventually, businesses became department stores, specialty stores and malls, and finally, today's e-businesses and networked organizations that support them. Traditionally, they have been hierarchical, fixed, integrated, transaction-based and risk averse. Only a small percentage came up with anything that was truly innovative.
Tomorrow's businesses will have a very different make-up, and the CIO must lead the charge in the face of these changes. As Erik Brynjolfsson said, to succeed in the future, "We must reinvent our organizations and our whole economic system."
What does it mean to be a socially enabled enterprise?
Companies are comprised of business units, work groups, communities of practice, and alliances with suppliers, partners and customers. The role of management can be broadly thought of as the processes that tie these components together to produce value. Until now, the goal has been to standardize and optimize transactions among these components to reduce costs and achieve efficiency. Most of these benefits have been achieved.
Now, management needs focus on enabling and optimizing the connection, communication and collaboration between employees, customers, and partners. As those new dynamic business networks form (and dissolve) management moves from trying to plan and direct them towards preparing and mentoring them on the challenges the business faces; staff and control them to engaging their participants and framing their interactions; impose structure and authority to encouraging activity and direction to emerge.
This will lead to new business models, new processes, more meaningful business interactions, innovation, improved and faster decision making, and a more agile organization. Companies that fail to facilitate these interactions will stagnate with old processes and strategies, and eventually fail.
What does it mean to operate in a digital business ecosystem?
A digital ecosystem is a business community of organizations and individuals transacting across a distributed, adaptive, open, social, technical system with collaboration, transparency, constant evolution, self-organization, scalability and sustainability. This is not a new idea. Each participant focuses on its customers (including members of the ecosystem) and what it does best while distributing all other enterprise activities dynamically and fully to other participants, in order to deliver value to each other's customers with rapidity and agility. In the same way that markets have always outperformed command economies, the transactional efficiencies possibly lost are more than made up for by the ecosystems value effectiveness.
Digital business ecosystems dynamically create and operate value chains that extend their participants' markets. This allows the smallest of firms to compete globally with the largest of firms. The European Commission believes that digital business ecosystems are critical to Europe's future competitive ability, and the key to realizing "this promise of fostering the development of those technologies, systems, applications and services that are critical to achieving higher growth, more and better jobs, and greater social inclusion." Also, the concept of digital business ecosystems has drawn more academic business, economics, process, scientific, mathematic, systems theory, and engineering attention than any other business idea.
What does it mean to view innovation as the only competitive advantage?
The nature of competition is changing. With the evolution of cloud computing, even the smallest, least-funded organization in an out-of-the-way town can appear and deliver like the largest. Any need or demand can and will be met faster than ever. Traditional economic frictions and barriers to market entry are disappearing. The downplayed downside of this convenience is that there is usually no long-term profit from such ventures.
When enterprise value propositions are racing to the bottom, commodization, and the limits of efficiency driven margins, there is one form of profit left: monopoly profits. Those moments in time when you have an offering that no one else has — a unique value proposition. Such propositions come from innovation. This is why innovation is so important and takes up so much room in press and annual reports. Innovation is the key to the future — innovation in business models, business processes as well as products and services. Only innovation can break the chains of commoditization that a global and frictionless economy encourages. Innovation is the only insurance against irrelevance. It's the only antidote to margin-crushing competition, the only hope for out-performing the economy, and the only way to truly amaze and delight your customers.
The Rise of the CIO
CEOs don't think CIOs understand the business, and how to apply IT in new ways to benefit the business. CIOs must become aware of the changes in the business world and the enterprise and how these changes are affecting the roles in the C-suite and their own leadership role. They must then help lead the enterprise's evolution to a socially enabled environment and a digital business ecosystem, and provide the platform upon which innovation is encouraged, nurtured and manifested.
But CIOs also need to not get caught up in the technology trap. Changing technology alone will not cause the changes discussed here; changing management will. The CIO's role becomes one of helping management change by supplying vision, direction and supporting technology. Gary Hamel asserts that management innovation is the critical component and starting point for all innovation-in terms of operations, technology, product, strategy, etc. He also identifies many validating examples, including the history of consistent military competitive advantage: those able to break with the past and imagine new ways of motivating, staffing, training and deploying warriors. The key is not size, scale, technology, tactics or strategy — though each provides transient advantage for a short time. Adaptable, agile management above all sustains competitive advantage.
The contribution of CIOs to all this is to rise up and enable, facilitate and accelerate its uptake by their organization. It is the CIO who is the one person in the organization to best understand how it operates, since every transaction passed through his or her systems. It is the CIO who best understands where the technology is going and how it can be applied, both to develop new methods for generating existing value, and to old methods to generate new value. Therefore, it is the CIO who should guide and mentor the rest of the organization into its 21st century model. In the last post of this series, I will explore how exactly the CIO should begin this process.