The Fourth Iteration of Business in the Industrial Age
The evolution of business in the industrial age has mirrored the progression of three industrial revolutions; moving us from its first iteration to our current form. The emerging Fourth Industrial revolution ushers in another shift, culminating in something that likely looks much different than its predecessors. A brief look at this journey shows us the linkage:
Iteration One: The first industrial revolution introduced mechanization and had significant impacts on business and the labor force. Business in this period was transformed, as the steam engine enabled us to replace human and animal-based muscle with machines.
Iteration Two: Several forces converged during the second revolution to elevate our standard of living. The post-war period that followed was defined by a high level of consumption that drove business in the mass production era. Henry Ford famously said: “Any customer can have a car painted any color that he wants so long as it is black.”
Iteration Three: The third industrial revolution revolved around information technology, electronics, and communications, ushering in a period of computerization and automation. Businesses were once again transformed through significant gains in productivity and a shift away from Henry Ford era standard products to more customization.
As we move into the fourth industrial revolution, we will likely witness a shift from mass production to mass customization. Business will be automated, intelligent, adaptable, and enabled to tap into abundance, leverage ecosystems, create exponential value, personalize at scale, and embrace risk. This transition to Business 4.0 is a transformation more profound than the first three iterations, likely driving change to long standing business and institutional structures like: management paradigms, policies, processes, procedures, legal frameworks, regulatory frameworks, laws, accounting principles, organization structure, business and operating models, governance mechanisms, and the core characteristics of our organizations. The critical organizational capabilities required to deal with this transition are:
SEEING THE FUTURE in ways that enable a minimum viable understanding of it. Seeing involves a continuous and iterative process that prepares us for a range of possibilities. Growing complexity in the business environment challenges our ability to see, making system thinking a critical competency.
REHEARSING THE FUTURE via a constant learning and probing with a bias towards action versus research. The key metric in this complex and uncertain future is Return on Learning (RoL). Organizations must have an expanded capacity to innovate, establishing an innovation portfolio that allows them to shift when shifts occur — and the likelihood of rapid shifts is a certainty in an otherwise uncertain world.
ADAPTING to a volatile and uncertain environment. The key future attribute is resilience. Environmental complexity is increasingly equivalent to that of biological systems. The key to complex adaptive systems like these is resilience. As our environment mimics these systems, so too must our organizations mimic their adaptive nature.
These organizational capabilities are difficult to attain in the current iteration of business. Combined with several macroeconomic forces, these drivers make the transition to Business 4.0 inescapable. This transformation therefore enables our strategic foundation. This foundation has three primary features: adaptive core, platforms, and ecosystem services:
ADAPTIVE CORE: The core of an organization must be adaptive; enabling resilience and relevance while forming the foundation for the frictionless experiences expected by all stakeholders in an ecosystem. Our networked, software-driven, and platform-oriented world has created a complex adaptive system. In such systems, a perfect understanding of the individual parts does not automatically convey a perfect understanding of the behavior of the whole system — elevating the importance of system thinking. Systems with lots of components behave and interact in a way that makes prediction impossible. With a high degree of uncertainty, and the speed at which shifts are likely to occur, adapting is the only way to survive. An adaptive core is therefore about resilience and relevance, driving the need for organizational character to transform, embracing a digital DNA that aligns with the operating environment we find ourselves in. Much like the human spine is our backbone, the heart of the adaptive core is a digital spine. It is the foundation upon which everything else is built.
PLATFORMS: Business 4.0 is increasingly forming around platforms; the dominant growth engine of the future. The network orchestration business model enabled by platforms is the fastest and cheapest path to growth. Network orchestrators outperform companies with other business models in several key areas. These advantages include higher valuations relative to their revenue, faster growth, and larger profit margins. This occurs because the value creation performed by the ecosystem reduces the company’s marginal cost. Increasingly, businesses will maintain a portfolio of business models, with network orchestration a growing piece of the portfolio.
ECOSYSTEM SERVICES: Part of the complexity in the environment is the emergent nature of value, where new forms of value arise rapidly and unexpectedly. This phenomenon grows more acute, as the exponential pace of science and technology accelerates. How then do we stay close to emergent behavior, uncertain situations, unpredictable, unexpressed, and unmet needs? More importantly, how do we convert emergent need to value? Agility is the key to exploiting opportunities resident in emergent need — and the path to agility is complex. Ecosystem services (core capabilities that are consumable in the markets we interact in) are perhaps the most critical piece of the Business 4.0 puzzle; enabling agility by allowing us to effectively operate in multi-stakeholder ecosystems. Increasingly, our core capabilities are combined with those of ecosystem stakeholders to create value — making ecosystem services the key to agility. Additionally, agility comes from leveraging the abundance of capability, capacity and ideas resident in the human cloud.
Our strategic foundation must support opportunity in current and future markets. Traditional markets require an accelerated capacity to automate and innovate, as new forms of value materialize, and traditional forms commoditize. Emerging markets require the same, with a push towards near zero marginal cost to support the cost base required to penetrate those markets. Ecosystems will eventually represent the largest growth market, with a finite set emerging in the distant future. The other piece of the ecosystem story is the human cloud — the abundance of ideas, capabilities and capacity that contribute to value creation and capture in the future.
The transition to Business 4.0 is a long journey. As this journey unfolds, a broader societal transition is occurring alongside. The automated businesses of our future may be the foundation of an automated society. Will this fourth iteration of business move us towards the Third Tipping Point in human history?
Originally published at frankdiana.net on March 27, 2018.