As part of Deloitte’s Building the Lucky Country series, the consulting firm had a briefing last week from John Hagel, co-chairman of Deloitte’s Silicon Valley Centre for the Edge, to discuss how industries are responding to shifts in the workplace and their markets.
John’s thesis is that businesses can be broadly split into into three groups; infrastructure, product innovation and customer relationship business which he covers in his Shift Index that looks at how industries are being affected by digital technologies.
Infrastructure businesses are high volume, transactional services like call centres, logistics and utilities companies.
The product innovators are those who develop new products, get them to market quickly and accelerating adoption of those goods.
Customer relationship businesses focus on understanding their clients and using that knowledge to add value.
Each of these business models require different mindsets and because most large companies try to do all three, they manage to do none well.
One of the results of this is a lousy Return On Assets, which Hagel says have fallen in the United States to one-third of the levels of 1965 and he doesn’t see this improving as the ‘competitive intensity’ of US markets increases.
A big feature of this decline in overall ROA is how the best performers have travelled compared to the laggards with the ‘winners’ barely maintaining their returns while the ‘losers’ are seeing their results declining dramatically.
How Hagel sees the solution to this poor performance is through rewarding creative and passionate workers better.
Firms have untapped opportunities to reverse their declining performance by embracing pull. To accomplish this, firms must develop and encourage passionate workers at every level of the organization.
Additionally, companies must tap into knowledge flows and expand the use of powerful tools, such as social software to solve operational/product problems more efficiently and effectively as well as to discover emerging opportunities.
If Hagel is right, it’s the businesses who want to micro-manage their workers while stifling innovation, initiative and creativity in their businesses who will be the great losers in this next decade as we move to the next phase of the ‘Big Shift’ where knowledge flows improve business performance.
Starting the process of dealing with these shifts involves understand what the DNA of your business really is; if it is a transactional infrastructure business then management needs to acknowledge this and not kid itself about being in customer relationships.
There are weakness in John Hagel’s proposition – one being that businesses can be easily pigeonholed into three categories.
Apple is a good example of this where a company that is clearly product focused has also shown it can be customer orientated with the success of the Apple Stores.
There’s also the question of why are there only three categories? In the breakdown the immediate thought is that there are businesses that don’t fit in any of these boxes. Legacy airlines or struggling motor manufacturers are good examples.
Despite the criticism, John and the Center For The Edge have some good points about the future of business and it’s something we’ll explore more over the next few weeks.