Visionaries

At times during the last several years, I have felt that the business world is being pounded by what seems like a succession of asteroids, in the form of competitive threats and new challenges. These asteroids, much like those that pummeled the earth in the distant past, have left behind a drastically changed landscape, making what seemed like a jungle before even more forbidding. Those companies that do not adapt to the major changes taking place will be left behind, their place taken by new companies born from the new competitive landscape. One such "asteroid" or disruptive force is globalization.

I just read a very good article on this theme—Are You Enjoying Globalization Yet?—in the Mercer Management Journal, which is published by Mercer Management Consulting. The basic premise of the authors—Adrian Slywotzky, Peter Baumgartner, Larry Alberts, and Hanna Moukanas—is that "Globalization is changing the nature of competition and value creation in ways more subtle and fundamental than simply cost. By incubating scores of new business models that can unseat established companies, globalization is creating opportunities for new value creation and highly profitable growth at the two ends of the value chain—new customer connections at one end and new models of innovation at the other."

Without a doubt, globalization is one of the most powerful forces driving business and society in these early years of the 21st century. But globalization is no longer just a matter of doing business around the world. Globalization, according to the authors, is all about value migration from old, obsolete business designs to new, more economically effective ones, "fueled by the spread of broadband communications, customer access to information and over $500 billion of direct investments in China and India alone." They add: "Globalization makes strong business designs stronger, and weak business designs weaker. That's true in part because new competitors from all corners of the globe are combining low cost and high technology to build market share very quickly."

While such disruptive changes come with all kinds of new opportunity for those with the appropriate business designs, the article makes an observation that really hits home: "The globalized economy feels more like a jungle than a country club. Managers will confront new risks, more risks, or a different combination of risks, including supply chain vulnerability, overcapacity, accelerated or more unpredictable price movements, and theft of intellectual capital. Effective risk management was always valuable; it has now become critical."

I very much like their prescription for the key areas a business must focus on for value creation: deep customer connections and high-impact innovation networks. In a world where customers have more and more choices from a vast array of increasingly commoditized products and services, highly personalized customer connections are a company's best opportunity for differentiation. Products and services might be commodities, but you never, ever want your customers to feel like they too are just commodities. A successful business will make each of its clients feel special by understanding and addressing their unique requirements.

This presents a seeming paradox: the more global and commoditized the economy, the more local and personal the customer relationship must become to ward off competition. This is not easy. It requires a deeper knowledge and more specific management of distinct customer types and segments, "a new game - call it the Cambrian explosion of new segments - with new rules," the article says. A business has to be very good at market segmentation and at serving those markets as efficiently as possible.

How do you do that? How can a business make customers feel as if its products and services have been customized especially for them without going broke creating many disparate custom offerings? First of all, the business needs very good market research, so it really understands what its customers value and can then spend its funds customizing precisely those features, as opposed to wasting money in areas that customers do not appreciate. Then you need highly flexible, efficient designs, using standard infrastructure and business components wherever possible while reserving the unique higher-priced customization for what really matters to the customer. Through the clever use of IT tools and processes, the business is able to design products and services based mostly on standard components, but personalize the offering to match the requirements and tastes of their customers.

The second major area for value creation on which the article focuses is innovation networks. Innovation is more important than ever in all aspects of the business, from R&D, product manufacturing and services delivery to marketing, sales channels and customer support. But, at the same time, businesses have to carefully manage their investments, given the competitive nature of the global marketplace. No company, no matter how rich, powerful and talented, can innovate in every important area by itself. Companies need to open up and "unbundle" their innovation, choose the key areas on which they will focus their internal investments, and leverage such investments by collaborating closely with universities, research labs, open communities, business partners, VC firms, customers and others. Only by embracing such new open, collaborative approaches to innovation can a business stay at the leading edge in today's highly networked, global world.

If doing business in a fast changing, competitive marketplace has always felt like a jungle, things have gotten a few notches more "interesting," in terms of both risks and opportunities, as the jungle has now been globalized. As Are You Enjoying Globalization Yet? so aptly concludes: "Because the global world is a riskier world, it will be harder to protect your business. In fact, globalization will turn established companies into start-ups again, with no cushion from yesterday’s success, just a focus on creating new success tomorrow."

IBM, as you would expect from a company of our size, has long conducted in-house forecasting to determine the emerging trends in technology and business that should shape our strategies. In 2004, as the focus on innovation started to take shape, we realized that our approach to forecasting and strategy itself had to change. Increasingly, innovation was occurring at the intersection of technology, business and society, so one had to step back and take a more holistic approach to discern emerging trends in these three dimensions instead of just looking at them individually.

Thus was born the Global Innovation Outlook (GIO). We made the decision to sit together with thought leaders from businesses of all sizes, academia, government, public interest groups, the venture capital community and other key constituencies to collectively peer into the future and to identify major trends, insights and opportunities. In order to focus the discussions, we picked three broad societal themes. In addition, we tried to surface insights that applied to all three focus areas and that spanned various disciplines and industries.

GIO 1.0 took place during 2004 with ten "deep dive" sessions held in New York, Shanghai, Washington and Zurich, involving 200+ participants from 24 different countries, with more than half of them IBM ecosystem partners from 96 different organizations. The focus areas for GIO 1.0 were healthcare, government and its citizens, and the business of work and life. The detailed findings in each focus area are described in the GIO 1.0 report, but let me just briefly mention the three broad themes that ran across them.

First was the need for standard ways of exchanging information within and across organizations, which was viewed by GIO participants on a par with speaking the same language. Standards were identified as requisite to unlocking new capabilities, and many cited a lack of standards as "a major reason for systemic inefficiencies, escalating costs and general industry incoherence and confusion." Next was the need for more open collaboration among ecosystem members, including parties not used to working with each other because they compete or come from different disciplines or industries. The final broad area identified in GIO 1.0 was the primacy of the individual as a focal point for innovation. The report said: "Where much innovation in the last century grew out of the adoption of mass production, innovation in the 21st century will primarily be built on the infrastructure of the individual."

The 15 "deep dives" of GIO 2.0 took place in 2005 and 2006. Its findings were released recently in New York. GIO 2.0 gathered 248 thought leaders from 33 countries representing 178 organizations, meeting in Beijing, New Delhi, Sao Paulo, Zurich and San Francisco. Discussions focused on three topics: the future of the enterprise, energy and the environment, and transportation and mobility.

As in the first GIO, we found some very interesting broad patterns. Let me talk about one in particular. While GIO 1.0 focused on the role of individuals in driving innovation, this time the discussions revealed that those individuals are not acting in isolation. "Their power comes largely from their ability to tap into and sometimes transform a larger network of people and ideas." This is something I have personally discovered in the last year with the rise of social networks, enabled by the internet and related tools and platforms which are making it possible for people to connect and work together in unprecedented ways within and outside the boundaries of organizations and countries. GIO participants observed that, increasingly, the organizing principle for work is no longer the enterprise, but rather the endeavor. It may soon be time to redefine what we mean by enterprise, employer and employee, as looser aggregations of collaborators form and disband, opportunity by opportunity. During GIO discussions, people kept coming back to the idea that in such a socially networked, collaborative world, reputation capital and trust are critical to the proper working of businesses and communities, something with which I wholeheartedly concur.

A highlight of the New York event last week was a panel on the challenges and opportunities of the 21st century enterprise. A major topic of discussion was the kinds of leadership qualities that will thrive in the highly distributed, virtual work environments we are already seeing in business – environments that everyone agrees will increasingly be the norm as our world becomes more open, global and collaborative and the underlying communications technologies, platforms and tools keep getting better.

There was a consensus that the classic hierarchical organizations of the Industrial Age will just not work in this new environment, and that universities need to adjust their curricula to better prepare students for the 21st century workplace. Really fascinating was a discussion of the world of multi-player, online games and the clues it provides to the kinds of skills and training tools one will need in dynamic virtual work environments, as well as the kinds of approaches that are working so effectively in self-organizing, open communities such as those collecting around open source software development and Wikipedia.

We live in an increasingly fast-changing, unpredictable world – a world in which forecasting and planning as practiced in the past will no longer work for businesses or nations. To understand what might be going on out there, you need to be constantly gathering and analyzing information. But even more important, you need more than ever to engage with people, so that from their collective wisdom, you can begin to discern insights as to what might be going on and what you should do about it. That is what makes the GIO conversations and findings so compelling.