- Let's face it, the pace of change is accelerating.
The combination of automation and globalization
is transforming markets before our eyes.
The strategies that used to deliver deep market power
and long-term dominance
are no longer effective.
So how's this happening?
Let's run through the dynamics quickly
and if you want to delve more deeply into the mechanics
I'll point you to a few places where you can learn more.
Before the advent of the digital age,
market power often came from what's known as
vertical integration.
Organizational elements like, product research
and development, production, distribution,
customer service, and sales were
tightly bundled together
making it more difficult for challengers
to reach enough scale
to deliver competitive offerings.
Along comes technology and globalization
and suddenly, those elements are turned on their side,
they're unbundled.
That's a concept from John Hagel, the white center
from the edge.
Each functional layer of the organization
suddenly begins to operate separately
allowing new players to enter.
Companies can innovate independently
without necessarily needing to replicate
the other traditional functions.
That's unbundling.
Now how does unbundling affect entire industries?
Think of an industry as a market pyramid with
large multinational high end organizations at the top
and small niched focused organizations at the bottom.
And everything in between.
Healthy industries have a range of mid-sized organizations.
And even though there's always consolidation,
plenty of traditional industries have allowed
mid-sized players to survive, and to thrive.
But when industries become unbundled
three things happen.
At the bottom, barriers to entry are reduced.
So it's easier for new players to rapidly
enter the market, like start-ups.
At the top, power piles up in the hands of the winners
through what's known as increasing returns.
And in the middle, well,
mid-sized players tend to go away.
They're either consumed by the big fish
or they're unable to compete.
Now we create this dynamic with our own buying
and viewing behavior.
For example, we search on Google because of
its seemingly unlimited access to online information.
And we buy at Amazon because of
its seemingly unlimited inventory.
There's very little incentive to go somewhere else
for information or products you commonly need because
they're very likely to have what you're looking for.
Now that capability is fueled by software
and once you write a piece of code
it runs again and again
at pretty much zero cost.
Which tends to reward the market winner.
So there's only one Amazon, one Facebook,
one Google, one eBay and so on.
Now, the good news for start-ups
and for organizations trying to penetrate
these new markets, is that the friction at the bottom
is reduced dramatically.
Any of us can start a blog today
entering the media industry.
And new infrastructure like Cloud computing
and social media distribution
means that it's possible to reach scale quickly.
Now the other dynamic of unbundling is that
it dissolves the former functional categories
that drove investor perceptions.
If, for example, a hardware company tried to create
software in the past,
the market would inevitably whack that company stock
for climbing out of it's traditional box
and hopping into a different business.
But those traditional market categories
don't really exist anymore.
Even the line between hardware and software
starts to blur.
So, unbundling by automation and globalization
is in large part, why things are moving so fast today.
That pace of change is why our former approach
to strategy needs a complete rethink.
Industries are unbundling and once unbundled
organizations need to move far more rapidly
and independently.
Now, that was a pretty quick review.
So if you want to learn more
check out the course Hiring and Developing
Your Future Workforce
and read some of my articles on LinkedIn like
Unbundling Media and Unbundling Work.