Creative Destruction of Business
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My take on how technology, society and culture are dramatically changing the nature of business. Read the full blog post @ mrogers.london
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Creative Destruction of Business
- 2. We are in the installation phase of a new technological revolution As a result… ‘Industry 4.0’ / ‘The Second Machine Age’ – call it what you will; the nature of work, the firm, the economy is being reinvented. 2Source: Carlota Perez Perez Technological Surge Cycle Gestation B Big Bang B Collapse Recovery Big Bang C Time 1. Irruption 2. Frenzy Turning Point 3. Synergy 4. Maturity 1. Creative Destruction 2. New Paradigm vs. Old Paradigm 3. Financial Capital Leads 4. Bubble Creation 1. Creative Construction 2. Widespread Application of New Paradigm 3. Production Capital Leads Installation Deployment 20 – 30 years 20 – 30 yearsMaturity A Gestation Period C 2007 was not our turning point. We are still in the installation phase
- 3. 0 10 20 30 40 50 60 70 Average company lifespan (years) Projections based on current data The average lifespan of S&P 500 companies has fallen from 61 years to 17 3Source: Innosight / Richard N. Foster / Standard & Poor’s
- 4. New technology can be adopted faster than ever across the globe 4Source: singulairty.com Years until used by one quarter of American population 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 10 0 20 30 40 50 Electricity 1873 46 Telephone 1876 35 Radio 1897 31 Television 1926 26 PC 1975 16 Mobile Phone 1983 13 The Web 1983 7 iPod 2001 4 Facebook 2004 3 iPhone 2007 2.5
- 6. Organisations have built up a huge amount of organisational debt. This is inhibiting their ability to respond to change. 6 15% 23% 24% 34% 45% 34% 26% No attractive opportunities Missing capabilities Weak business plan Inability to focus Insufficient resources Culture (e.g. Risk aversion) Organizational complexity Source: Bain Insights “The worst place to develop a new business model is from within your existing business model.” Clayton Christensen Explanation from organisations as to why they failed to hit growth targets
- 10. The essence of a company is its product and brand Customer Marketing & Sales Product & Brand Analytics Customer Service IT Ops Finance Data Management Engineering HR 10 Traditional management departments can be delivered by a range of companies, requiring a smaller dedicated team. Allowing for greater focus. Source: CB Insights
- 12. Deflationary pressure of launching a start-up is unrivalled $5,000,000 $500,000 $50,000 $5,000 The cost of launching of start-up 2000 2005 2009 2011 12Source: UpFront Ventures
- 13. Organisational debt. Process trumps substance 13 89% of independent consultants left large organisations after growing frustrated with rules and bureaucracy 63% of business leaders think their company responds too slowly to technology enabled opportunities Source: Edem McCallum -13% -6% -11% -8% -10% -3% 66% 71% 73% 73% 74% 89% -20% 0% 20% 40% 60% 80% 100% Disagree or strongly disagree Agree or strongly Agree Focus on enjoyable work Being able to choose how hard to work Time for important non-work activities Freedom to take holiday or time off Greater variety of work 10% Independence from rules/bureaucracy
- 14. Computing is cheap. Software is eating the world. The world is programmable 14 “Six decades into the computer revolution, four decades since the invention of the microprocessor, and two decades into the rise of the modern Internet, all of the technology required to transform industries through software finally works and can be widely delivered at global scale.” -- Andreesen Jan ’80 Jan ’84 Jan ’88 Jan ’92 Jan ’96 Jan ’00 Jan ’04 Jan ’08 Jan ’12 Jan ’14 60.000 50.000 40.000 30.000 20.000 10.000 0 Release of IBM PC Release of first Macintosh IBM announce ThinkPad tablets 1 billion installed PCs Worldwid Source: Bloomberg Jan ’80 Dec ’83 Nov ’87 Oct ’91 Sep ’95 Aug ’99 Jul ’03 Jun ’07 May ’11 Dec ’14 1.000 0 2.000 3.000 4.000 5.000 6.000 7.000 8.000 9.000 The Price of PCs Personal computers are now 99.9% cheaper today than in 1980 Personal computers & peripheral equipment price index Computers software price index The Price of Software Computers software are now 0.7% of its price in 1980
- 15. Rise of Open Source 15Source: Black Duck Software 78% of companies run on open source. Less than 3% don’t use OSS in any way 67% of companies actively encourage developers to engage in and contribute to open source projects 90% of companies that use Open Source Software say it improves efficiency, interoperability and ability to innovate
- 16. Rise of cloud computing 8 12 16 21 26 32 37 42 46 50 53 55 25 38 61 83 106 126 142 153 161 166 170 173 0 20 40 60 80 100 120 140 160 180 200 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Public cloud spending forecasts ($bn) SaaS and PaaS Public cloud IaaS hardware and infrastructure software 16Source: Statista 2016 • Gartner, January 2016: The worldwide public cloud services market is projected to grow 16.5% in 2016 to $204bn. The highest growth coming from infrastructure services (infrastructure as a service). Projected to grow 38.4%. • Morgan Stanley predicts cloud products will be 30% of Microsoft’s revenue by 2018. • In 2015 AWS (Amazon Web Services) generated $7.88bn in revenue, up 69% from the previous year.
- 17. Robots are useful 17 1000 15000 30000 45000 0 10000 20000 30000 40000 50000 2013 2014 2015 2016 Source: Amazon Amazon’s Robot Boom The number of robots deployed in Amazon facilities has risen sharply
- 19. Corporate VCs – the new R&D 1.7 2.1 2.3 2.2 1.7 2.7 2.6 2.7 3.8 5.1 3.5 4.5 4.9 7.4 11.3 5.5 8 4.7 160 190 191 219 212 227 253 268 283 303 340 334 324 350 377 313 335 298 0 50 100 150 200 250 300 350 400 0 2 4 6 8 10 12 Quarterly Global CVC Financing Trend Investment ($B) Deals 85 98 95 112 104 111 124 125 147 140 157 164 171 166 191 177 188 176 0 50 100 150 200 250 Active Corporate VCs Unique CVC Investors 19 Globally, 53 new CVC units made their first investment in 2016 Corporates are now looking to start-ups to introduce innovation into the organisation Source: CB Insights
- 21. Competitive lines redrawn 21 Disruption requires an ecosystem of participants to come together. This is evident across industries, particularly in financial services and automotive. The notion of competition changes dramatically. No longer about creating moats but building bridges. Source: CB Insights & Bloomberg Start-ups with superior proprietary technology are ‘unbundling’ every industry, focusing on a niche. At the same time as every company becomes a ‘tech company’ platforms are leading to greater sector convergence Uber Tata Owner of Jaguar Land Rover Toyota Volvo Fiat Chrysler Microsoft Google Ford SAIPS Chariot Civil Maps Nirenberg Neuro- science Velodyne Lidar Lyft Didi Uber China Cruise Auto- mation Sidecar GM Apple VW BMW Nokia HERE Daimier Baidu Mobileye Intel DriveNow Scoop Car2Go Ride- Scout MyTaxy Hailo Black- lane Athion Car Lease Interna- tional Matter- net Gett DFKI Renault- Nissan Sylpheo Investment Partnership Failed Talks Personnel Move The merging world of technology and cars The move from pipeline to platform involves three key shifts: 1. From resource control to resource orchestration 2. From internal optimization to external interaction 3. From a focus on customer value to a focus on ecosystem value - Platform Labs
- 22. Nature of business Scale is no longer dependent on processes within the business, it's driven by network processes. Scale, by scaling these interactions. Value chain to ecosystem is no longer linear but networked. 22Source: Ocean Tomo, LLC 17% 32% 68% 80% 84% 83% 68% 32% 20% 16% 0% 25% 50% 75% 100% 1975 1985 1995 2005 2015 Components of S&P 500 Market Value Intangible Assets Tangible Assets Land Capital Labour Data Talent IP
- 23. The value of talent 23 239000 177000 53000 47000 9199 Number of employees at $200b market cap GE Verizon Google Apple Facebook Value per employee at £200b market cap Value per employee when Facebook acquired Instagram for $1b $77m$837k $1.1m $3.71m $4.29m $21.7m Source: Bloomberg
- 25. Operating Models. From Cathedral to Bazaar Organisatons become ecosystems not value chains. Platforms and ecosystems will not reach a steady state, but constantly morph. “Change is the only constant in life.“ - Heraclitus In 2001, Nokia described manufacturing as a core competency. 75% of Nokia phones were made in 8 Nokia factories. In 2016, The iPhone has 189 suppliers with 789 locations, none owned by Apple. Metcalfe's law: the value of a network as a whole is proportional to the square of the number of participants. This world requires a modular, plug-and-play infrastructure, and on which the focus is on integration and interoperability. Gartner’s 2016 CIO report articulates that “a platform provides the business with a foundation where resources can come together – sometimes quickly and temporarily, sometimes in a relatively fixed way – to create value. You don’t change things by fighting the existing model—you change things by making the existing model obsolete. 25 ‘Coopetition’ and symbiotic relationships - the challenge becomes how to align everyone’s efforts, even when competing.
- 26. Culture. Control what you must not what you can 26Source: Patrick Cheesman A study from Gensler found that the most important factor in determining whether a company was innovative was trust. “Innovative companies exercise trust with employees”. Gillian Tett, in her book ‘The Silo Effect’, looks at how organisations must create a social structure that influences the way people think, organise and integrate. The norms, values, symbols, measures and processes within a firm all inhibit or support a culture of innovation. Culture must not only not resist change but encourage it. Employees see how the problem is changing and the opportunities presented, and feel empowered to act rather than protect their silo or profit and loss statements within the organisation. Every value statement, process, structure, reward system, metric, symbol, etc. manifest themselves into a company’s culture. Culture is a unique complex system. Be aware of how the decisions and actions you take will impact it. Artefacts Behaviours Norms Beliefs Assumptions Values Hard to see Easy to see
- 27. Data. The fuel of business 27 80% of CEOs were worried about their data quality. “Smart data structures and dumb code works a lot better than the other way around.” Data will drive investment decisions, front line decision making, and create a single view of the customer across the organisation. • Storage: Data warehouse to data lakes • Insight: Data scientists use large data sets and machine learning to give a more forward looking view • Decisions: Many leaders and managers still fail to drive decisions based on data. Companies must understand what data they need and how to govern it, introducing an enterprise wide MDM (master data model) will create efficient feedback loops to ‘learn fast’ Entrepreneurs start with a passion to solve a problem, but as they scale, the conversation changes. No longer are they using passive data to observe the world, but active data to evaluate their products and performance. Then, as they scale and establish themselves as an incumbent, the conversation turns to efficiency, costs, etc. Firms lose what made them great; they lose that connection to the value they are creating. Source: Patrick Cheesman “Data is the new oil. It’s valuable, but if unrefined it cannot really be used. It has to be changed to create a valuable entity that drives profitable activity; so, must data be broken down and analysed for it to have value.” -- Clive Humby
- 29. Controlling an ecosystem requires more capital expenditure than in the past 29 0 100 200 300 400 500 1990/2005 1995/2010 2000/2015 Annual revenue ($bn, real terms) Wintel 1990-2000 GAFA 2005-2015 0 5 10 15 20 25 30 35 40 Annual capex ($bn, real) Microsoft Google Apple Facebook Amazon GAFA has 10x the scale Fundamental change in what it means to be a leading tech company That scale means much more investment Annual capex has increased from $1bn to $34bn since 2000 Source: Bloomberg, a16z
- 30. Breakthrough innovation requires greater applied effort 30Source: Bloomberg, a16z Sustaining Mastery Over a Technology: Building of firm foundations; improving, augmenting, applying Pioneering Engineering & Science: Prospecting for new possibilities; exploring, evaluating, inventing THE BRAKTHROUGH NEW TECHNOLOGY CURVE Deminshing Returns EXISTING TECHNOLOGY CURVE MEASURE OF ADVANCEMENT Disruptive Innovation – Clayton ChristensenIn 2004 DARPA held its first grand challenge for driverless cars. A 150 mile course through California’s Mojave Desert. Two vehicles didn’t make it to the starting area, one flipped over in the starting area and three hours into the race only four cars were still operational. The winner covered 7.4 miles. In 2010 Google announced it has completed 100,000 of miles of autonomous driving. S-curve theory demonstrates progress is gradual and then sudden. Innovation is compounded. This leads to exponential growth.