by Stan Davis, Capstone, 2001.
Stan Davis builds on his earlier predictions that business will operate generally in real time, will transcend space, run on no matter and mass customise. He examines the potential in the future of chips and knowledge converging to connect diverse actions in a coherent way, changing the whole way business will be done.
(Reviewed by Kevin Barham in August 2001)
(These book reviews aim to represent some of the key aspects of what the author has written. They do not necessarily represent the views of the reviewer or of Ashridge. Equally, the author of the book reviewed must not be held responsible for any misperceptions of the reviewer).
Have you ever eaten a 'knowledgeburger'? Probably not, although you might do one day if your local hamburger franchisee reads this book! This is the way futurist Stan Davis makes the point that any business, no matter how low-tech, can become a knowledge business, or even a wisdom business. In the information economy, he says, there is a four-step progression: from data to information to knowledge to wisdom. Data are ways of expressing things and information is the arrangement of data into meaningful patterns. Knowledge is the application and productive use of information and wisdom is the discerning use of knowledge. Every business that offers knowledge-based products and services becomes a learning business, continually learning how to provide that product or service in better ways. Customers become learners or, even better, lifelong learners through the use of knowledge-based products or services. The provider effectively says to the customer that they will not only get the product but they will learn to use it in a more powerful and enjoyable way. The product educates while it serves.
So how do you turn a hamburger business into a knowledge business? The first step is to establish and put into a meaningful pattern some basic hamburger data on its ingredients such as protein, fat and carbohydrates, and on their different functions such as nutrition, convenience, price and aesthetic pleasure. The next step is to learn from the information. In addition to getting tasty and nutritional food (this does, of course, depend on the fast food outlet that you choose), customers can make use of knowledge about their food. When they place orders for a meal, for example, the calorie and fat count could be calculated and printed as side items on the bill or even at the time of order. Where is the wisdom in the hamburger business? Perhaps, says Davis, in addition to taste and price, it is learning to eat the right food for you.
We might ask if the hamburger is really the best example he could have chosen to make his point but, nevertheless, Davis is one of the world's most influential commentators on the information economy and the future of business. He is, for example, the person who first coined the expression 'mass customisation' to describe the production and distribution of customised goods and services on a mass basis, now a familiar notion in the business world. His new book brings together selections from his various writings on the future of business which he reviews and deduces therefrom some 20 big lessons for managers. Although they are all part of a bigger picture, most of the chapters can be read as stand alone pieces so it's an excellent book for dipping into.
By way of introduction, Davis gives us some insights into the way that he develops his views of the future. One simple but powerful method (and the way that he developed the idea of mass customisation) is the use of paired opposites. Davis says that in times of rapid change, oxymorons (expressions which contain apparently incongruous terms) may not actually be self-contradictory. Find a paradox, he suggests. Think of a pair of opposites in business, define a larger concept that embraces both, and then look for examples that already exist. A typical business example is price and quality. Conventional wisdom says that the better the quality the higher the price. However, unlike most other businesses, computers operate with increasing returns where the better it is the cheaper it gets. The more intrinsic the computer to business, the more the paradox spreads.
Davis suggests that flexibility and order are another couplet to try it on. These particularly relate to the way we will organise ourselves for business in the future. Time, space, and mass are the basic dimensions of the universe - and of the economy and individual businesses. The basics of the universe get expressed in science, are translated into technologies, then find their ways into business and, ultimately, into how we manage our businesses. For instance, Newtonian physics gave rise to the Industrial Revolution which in turn eventually led to the hierarchical business organisation.
The problem is that changes in organisation lag well behind changes in the other domains. The information age is already half over but many firms are still operating with industrial-era structures that are inappropriate to the information age. Ten years ago, Davis was already writing about the need for 'any time, any place' organisations - information age organisations that would run in real time, transcend space, run on no-matter, and mass customise. He says that the corporate world now accepts the business implications of these ideas, although the organisation precepts are yet to come. Despite our uncertainty about new organisation design, one lesson from the future is that time, space and mass will remain the touchstones of business, what you can always come back to in order to understand - perhaps before others - what lies ahead.
Davis worries that many firms are still trying to use the matrix organisation. He suggests that a glimmer of more appropriate organisational forms is suggested by the trend to outsourcing. As companies outsource, they create a matrix outside rather than within the firm. He believes there is real wisdom in this approach. A matrix works much better between rather than within firms. Lesson: decide what parts of your organisation are absolutely essential. Outsource everything else. Ally yourself with people who do the activity as their full-time business passion rather than hiring internal staff who never test their skills in the external marketplace.
Whatever business you are in, says Davis, it will become driven by information during the next several decades. So, the better your grasp of information's forms and functions and the more of them you use, the greater your advantage. He provides a simple tool or 'roadmap' for thinking about the future of the information economy (or the second half of it). He suggests that the architecture of the economy consists of four forms and four functions. The fundamental forms are numbers, words, sounds, and images. (Another lesson from the future is that, as virtually infinite bandwidth at nominal cost becomes commonplace, sound and image will become as basic to daily business activity as numbers and words.) The basic functions of information are creating, processing, transmitting, and storing it. Doing one or more of these is what will make the information aspect of business become the most valuable part in the future. Davis plots the four forms against the four functions on a grid which you can use to think through an 'endless' variety of information-based tools, products, services, and businesses. Combining more forms and more functions equals more added value and more business as in, for example, adding the capacity to send documents and graphic designs along with voice mail, a concept that covers all information forms and functions.
One result of the information economy is that every aspect of business and organisation will have to operate and change in real time. At the same time, everything is becoming electronically connected to everything else: products, people, companies, countries. This will continue and accelerate. Also, while every product or service has both tangible and intangible economic value, the intangibles are growing faster. Lesson: speed, connectivity, and intangibles will continue to be the most important forces around which to build businesses and the economy.
For every chip that is in a computer, says Davis, there are nine or ten out there that are in more mundane things like toasters and door knobs. Computer chips have connected up with each other, now other microprocessors are doing the same. When you connect a lot of dumb things together and let them communicate with each other, then you get a revolution. This process has barely begun. Imagine the dirty clothes, the detergent, and the washing machine communicating with each other and adjusting their efforts in real time. Lesson: purposefully increase the electronic systems connecting lots of things and people. Pick an object. What other object would it benefit from by communicating together? Keep expanding the connections.
Before long, most of the products we buy will be equipped with embedded processors. Up to now, they have worked in isolation. Over the next few years, they are going to integrate their activity. The darker side of connecting embedded processors is the huge potential it will create for stepping up surveillance. The upside of surveillance, however, is increased safety and accountability. The ultimate application of connected embedded processors will be collective system-wide control which will bring the benefits of transparency and adaptability. When UPS puts its package-tracking software online, for example, it suddenly made its operations transparent to customers worldwide, inspiring greater overall confidence in its services. Think, asks Davis, how this could shed light into some really opaque systems such as health care or public policy making.
To go back to the knowledgeburger, every business has information buried in it or in its customers that could be used to transform it and give it an entirely new life. The new information activity may become more profitable than the original core business that produced it. In an information-age variant of the 80/20 Rule (see the recent review of Robert Koch's book The 80/20 Principle), Davis predicts that, within two decades, 80 percent of business profits and market values will come from that part of the enterprise that is built around info-businesses. If the greater economic value is in the secondary, information parts of the business, why not shift resources and management attention to those activities? When they reach around 30 percent of the total corporate profits, they will start to produce a qualitative transformation. As management focus shifts to these new businesses, new principles and perspectives will signal a profound transformation in the way that business operates and the way it sees itself. Lessons:
Another expression coined by Davis is 'emotional bandwidth'. As information becomes cheaper, attention span becomes dearer. How do you get people's attention in the internet age? One answer is to engage them emotionally and experientially, to get their attention through stimulating high emotions. Emotions never had a very legitimate place in industrial age business which emphasised rationality and where machines, including computers, never had emotions. Information technologies, however, are going to make emotions a regular feature. If computer applications are based on four basic forms of information: numbers, words, sounds, and images, the latter two have a much higher emotional impact. The only two major PC applications so far are spreadsheets and word processing. There are currently no killer applications for voice, music, photos and videos because conventional telephone lines cannot handle multimedia with acceptable speed. But as the internet evolves and the price of bandwidth falls, computerised sounds and images will become as important to every business as numbers and words are now. Davis forecasts that this will change the way that businesses and people communicate as radically as the telephone and modem did. Lesson: using information technologies, you can 'engineer emotion without being manipulative' and you can experience feelings in all business communications.
Davis believes that, as one economy reaches maturity, the forces creating the next economy are already at work. Advantage goes to those who can identify and work with those forces. Where does he think the next economy will come from? The next great wave after information technologies will be biotechnology, he says. It will begin in areas like pharmaceuticals, healthcare, agriculture and food, and will ultimately spread throughout every economic sector, just as computers did before. Beyond 2025, when the mature bio-economy emerges, the effects and applications of biotechnology will spread into sectors seemingly unrelated to biology. In the 1950s and 60s it was difficult to comprehend that computers would change every industry. It is now tough to see how biotechnology will alter non-biological businesses. But it will happen. The important lesson is that biotechnology today is where computer technology was in the 1960s. Its impact will be enormous. Unless you plan to retire within the next decade, understand it now.
So how do we make sure that our firm is equipped for the future? Davis contends that while business wins, organisation kills. Draw a circle in your mind; he suggests. Inside it is your business and outside is your market. What is outside the circle changes faster than what is inside. The result is that most businesses do not keep up and, in the not-so-long run, fall behind. Lesson: if you have an organisation problem, solve it by focusing on the business out there in the marketplace; focusing on the internal problem will only put you further behind.
Davis criticises in particular the attention that has been given to corporate culture in recent years. Despite the fact that culture exists and has a powerful impact on the way business is done, it is difficult, he concludes, to identify any substantial and enduring changes that have resulted from the attention. Workplaces with great cultures have them because of the healthy way the people focus on their business, not the way they focus on their culture. Most culture work has been about how to manage, not about how to compete. It should be the other way round. Lesson: the best corporate cultures are the ones that are built around the purpose of the enterprise rather than around the management of the organisation. Solve problems by creating business opportunities rather than by focusing on organisation cultures. (Davis' views on corporate culture contrast somewhat with those of Rosabeth Moss Kanter who believes that a corporate culture emphasising values of community will mark out the successful dotcoms of the future - see the review of her book E-volve).
These are just some of the ideas that Stan Davis presents. Other chapters consider, for example, such varied topics as basic changes in the foundations of wealth, the impact of the growth of retail capital markets and how managers should handle mid-life crises. All in all, we can definitely say that the book contains plenty of food for thought (including the knowledgeburger, of course.)