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A great paradox of capitalism is emerging, and that is that its very success is leading to its own endgame. 

In a capitalist market, sellers seek to increase productivity to allow them to sell products cheaper than their competitors. Technological advancement allows for such efficiency gains, leading to lower marginal costs of production. What few people consider is that such marginal costs could actually fall to zero.

The consequences? Goods and services become priceless. ‘Stuff’ becomes free.

In the capitalistic mechanism’s pursuit of profit, businesses irreparably undermine their own margins. And this very trend is happening under our noses.

Capitalism is killing capitalism.

Sound far-fetched? It all comes down to technology. The information economy, fields such as the music industry and newspaper industry, have experienced this marginal cost shift over the last few years. It doesn’t cost anything to share a piece of music or a newspaper article over the internet. People are constantly producing and sharing content online, and the marginal cost of doing so is zero.

The assumption has always been that this zero marginal cost phenomenon would not be transferrable to actual tangible goods. In other words, it’s easy to see how to spread a piece of software for free, but how can we produce and distribute physical things for nothing?

The economist Jeremy Rifkin points to a third industrial revolution to explain this shift.

We are heading towards a society based on the pillars of renewable energy, internet communication and automated transportation systems. A new Internet of Things. Compare this with the capitalist-reliant model of oil, electricity and engines and you begin to see the vast implications of the new structure. According to IBM, we’ll have 100 trillion sensors by 2030 connected to appliances, warehouses, offices, logistical systems, all sending big data across the network, dramatically increasing productivity and driving marginal costs of both production and distribution towards zero.

Artificial intelligence will soon allow for self-replicating machines. They will be powered by alternative, near-infinite energy sources such as solar. They will require next to no human input. 3D-printing will allow complex products to be produced for next to nothing (aside from raw material inputs). Added to this is the growth of the sharing economy — people are collaborating in resource allocation (AirBnB, uber pool) and therefore bypassing the capitalist network — and you begin to see why our current profit-incentive model is breaking.

The implications are huge.

Technology will replace many human jobs (granted, some more will be created, but the net effect according to almost all theorists will be negative for employment). Yet population growth is rising. So we are looking at a huge pool of underutilised labour, but given efficiency gains, GDP likely on the increase. This will call for an increased role of the welfare state, and indeed, a rethink of the current work/leisure paradigm. 8 hour work days spread across 1 unit of labour could become 4 hour work days spread across 2 (assuming we’ll want to keep unemployment as low as possible). So we are looking at a situation of fewer working hours (per individual, as Sweden is already implementing) yet greater economic wealth. This will need to be redistributed, while the increase in leisure time will necessitate the introduction of a third branch to the equation. In my eyes, this will be community-based collaboration. A coming-together of people for nonfinancial societal enhancement.

Capitalism as we know it cannot continue in its current form, a demise begot not by the moral meanderings of the Left but by the inexorable push for productivity from the Right. It will still have its place, but at the fringes rather than the core of society. The overthrow of capitalism will ironically be a self-inflicted one.

Ideas For Organizing for Digital Change

1. Thinking in terms of ecosystems

Tomorrow's business environments will be much less structured around transactions and much more focused on the dynamism and value inherent in relationships. While both transactions and relationships will remain important to businesses, those with the strongest ties to their communities of workers, partners and customers will fare better than those with weaker ties. With the advent of social media, there are now lightweight and readily scaled ways to create networks of relatively closely held and productive business relationships. This will change how business gets done and who the leaders are.

2. Managing businesses as networks of people

People are moving back to the center of business, where technology and automation previously reigned. People will form the core, but so too will the new infrastructure that businesses operate in, which increasingly is all the elements of today's digital networks, including social media, new user experiences with mobile, touch, video and telepresence. For the first time, this infrastructure now also includes something known as social capital. This is the sum total of the formal and informal connections one has with people and organizations in the digital world and defines the reach and power of the modern business ecosystem.

3. Shifting from static to dynamic notions of value

This is the concept that John Hagel has been discussing over the years about "knowledge stocks," the relatively stable inventory of classical corporate information that companies have been accumulating over the years. These are now being superceded by more valuable and faster moving "knowledge flows." Knowledge flows are richer, more up-to-date, are harder to disrupt and less likely to become out-dated and irrelevant than knowledge stocks. Enterprises that are not fluid in terms of cultivating, tapping into and controlling strong knowledge flows will have little future when their knowledge stocks age and become less and less relevant.

4. Designing businesses for radical change

The inability to overcome failure of imagination and find their way forward in a major dislocation (such as the present digital one) is often the cause of death of many well established companies. As thinkers like Dave Gray have recently observed, the life span of the modern enterprise has grown dramatically shorter in the last couple of decades because companies can't adapt fast enough. Not-invented here, cultural obstacles and inherent challenges in self-disrupting before the marketplace does it -- all weigh heavily on large organizations that are slow moving or not digitally savvy.

That said, a few leading organizations are clearly showing that they can change their colors, but it requires real commitment and investment from the top. I find that a limited number of enterprise leaders have the management support and/or the skill for making bold moves in today's trying economic climate. Instead, what we need to be doing is providing clear parameters and resources to our most innovative workers and setting them loose to experiment and pathfind the way forward. Distributing and scaling response to change is a key step in deliberately designing a business for a very different and unknown future.

 

5. Opening the culture of the organization

Companies that have stood the test of time are very good adapters. They listen to their market, watch it closely and match it move for move. They are also open to new ideas and willing to experiment. There are plenty of successful companies that don't have these traits, but they often come to unfortunately rapid "transition" (being acquired, going out of business, etc.). That said, I believe that the companies who have leaders that know how to lead through the network, as opposed to doing it in person or even over older technologies such as email and telephone, will be able to set the example, drive excellence in new digital business models and unleash the latent talent and information in their organization.

6. Tapping into collective intelligence

Making sense of the vast flows of knowledge in today's digital rivers using new business intelligence techniques and so-called "big data" tools will be a major differentiator. Knowing what your competitors don't and deeply understanding the marketplace in order to respond to change well is what companies are already starting to focus on these days.

Some of this might sound theoretical or high-level, but the challenge is that whatever you plan for today in terms adapting to specific technologies or trends will be ineffective by the time you get the response in place. That's the signature challenge of hyper-change. Instead, by moving up a level to changing the stance of the organization so that it naturally and constructively adapts on the ground to the changes around it, taking advantage of opportunities and repelling challenges is a much stronger, more systemic and effective way of managing a digital organization in the 21st century.

 

Dimensions of Business Ecosystems

We need to think about strategy, relationships and value exchange when considering digital ecosystems.

Your dynamic business ecosystems may sometimes create partners from competitors, at least for a little while. When BMW and Toyota need to develop key technologies, such as batteries, they may join together and then later go on to compete in the marketplace. Apple, Fitbit and Garmin created an ecosystem focused on fitness and apps. In a less-competitive ecosystem, groups such as a government, charity and a community group might collaborate on health or public policy because each entity has a shared interest and goal.

“Digital business drives dramatic changes in organizations’ business ecosystems, making them larger, more complex and essential to strategy,” says Betsy Burton

Ecosystems enable organizations to respond and exist in an increasingly digital world, assuming that leaders consider the eight dimensions when making strategic decisions about how to participate and when to change tactics.

Dimension 1: Ecosystem Strategy

Bottom line: Every organization exists in multiple business ecosystems. These business ecosystems are dynamic networks of entities interacting with each other to create and exchange sustainable value for participants. The challenge is deciding how your organization will survive and thrive in its ecosystem.

Know that ecosystems can emerge organically or deliberately.

Organic business ecosystems are created based on evolving industry, government and market trends.

Deliberate business ecosystems might emerge in a more planned manner — for example, Amazon’s ecosystem of sellers, buyers, advertisers and collaborators.

Decide what role your organization will play in these ecosystems: Leader, disruptor, niche player, orchestrator, or something else.

Dimension 2: Degree of Openness

The degree of openness within ecosystems is driven by strategies, common goals and shared interest. An ecosystem may be public, private or a hybrid. Many organizations actually participate in a hybrid of public and private ecosystems.

The openness of an ecosystem has two implications. The degree of change is dependent upon the possibility of new entrants and disruption to relationships and value. It will also define the nature of the relationships in the ecosystems and how they are formed and maintained. It will define the nature of collaboration and competitions.

Dimension 3: Engagement of Diverse Participants

With increased connectivity, organizations will need to figure out how to integrate things like smart advisors and artificial intelligence into their ecosystems.

CIOs need to understand that the diversity of an ecosystem and the roles that people, businesses and things play will change and evolve depending on the situation. For example, the primary person in an ecosystem may be a business customer, and then, suddenly, a smart advisor will take over the roll. This constant situational change will determine how solutions are defined and supported.

Dimension 4: Types of “Relationships”

With 7 billion people and more than 30 billion devices connected to the internet by 2020, interconnection will create an ecosystem challenge. Digital platforms — wherein participants with different goals and objectives are connected on a commission basis — are how most companies are mediating relationships in ecosystems. The platform provides the core integration, application and management services for participants. For example, Outdoorsy connects camper owners with those looking to rent campers.

Dimension 5: Form of Value Exchange

In addition to monetary-based value exchange, ecosystems may dynamically leverage information, reputation, services, and other non-monetary forms of value. For example, Boeing collaborated with 50 vendors to create the 777 aircraft. Ecosystems enable companies to exchange products and services for information or analytics. It’s important to understand the changing definition of “value” that ecosystems create.

Dimension 6: Diversity of “Industries”

Ecosystem expansion can result in unexpected partnerships for organizations. Partners could include organizations within the primary industry, adjacent industries or, most unexpectedly, far-neighbor industries outside of the business’s industry (i.e., travel and healthcare).

Dimension 7: Complexity of Multiple Ecosystems

Large organizations will most likely be involved in multiple ecosystems. The key is to understand how these ecosystems interact, identify potential fractures and overlaps, and acknowledge constraints and implications. Keep in mind that some overlapping ecosystems will create a new ecosystem, while other overlaps will highlight redundancy.

Dimension 8: Technologies

Should keep in mind that they are responsible for the technology that will enable the business ecosystem strategy now and in the future. Leverage a digital business platform (i.e., open APIs, analytics, security capabilities, etc.) Success will require a strategic integration of technology, information and business processes.

Organizations that do not work toward understanding their business ecosystems risk falling into a participatory role only, enabling other competitors or partners to take the leadership role and thus define the rules for engagement in that ecosystem.

Specifically must:

  • Proactively reach out to collaborate with business counterparts on how and why to integrate ecosystems to improve the overall corporate strategy.
  • Ensure any customer-, partner-, employee- or supplier-focused applications or solutions being developed today are at least considering these future business ecosystems
  • Make sure to set aside development budget every year for the next five years for the most critical customer-, partner-, employee- or supplier-focused applications, solutions and supporting infrastructure to enable change to reflect evolving ecosystem strategies.

 

No matter the reason for the partnership, in the digital world, it’s important that CIOs understand the role of alliances in business ecosystems to turn economic connections into competitive advantages. CIOs must balance trust and control when creating a diversified engagement strategy. Building successful alliances in business ecosystems will position the CIO as orchestrator of the digital agenda

“Sustainable alliances require an artful approach that balances trust and control,” said Remi Gulzar, research director and agenda manager with Gartner’s Office of the CIO research team. “To deliver on business outcomes and drive innovation, CIOs must understand the forming of alliances in business ecosystems.”

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