Venture capital investor, Fred Wilson, is a keen and deep-thinking observer of enterprise software trends. During a talk at the LeWeb conference, in Paris, Wilson presented his framework for evaluating startup investments.
[We discussed Wilson's presentation on CxOTalk with JP Rangaswami, the Chief Scientist of salesforce.com. Here is my summary:.]
His ideas offer an interesting view for CIOs and CMOs who want to drive beneficial organizational change by innovating with technology.
Hierarchies vs. networks. Wilson presents the idea that "technology-driven networks of individuals" can replace bureaucratic hierarchies in some situations. Management in traditional organizations use a pyramid style, command and control communication structure to execute directives and receive feedback. However, when communication and transaction costs are sufficiently low, technology can enable information to flow without hierarchical intermediaries, creating a more rapid and efficient exchange of information than would otherwise be possible. This shift, from command-oriented to peer-oriented information flows, is having a profound impact in certain industries.
For example, Twitter has replaced the newspaper as source of news for many people. Instead of editors specifying stories and dispatching armies of reporters and photographers into the field, Twitter users gather and share news spontaneously, creating a broader network of sources than would be possible for any newspaper. In a refinement of this concept, Timeline Labs, led by entrepreneur Malcolm CasSelle, analyzes social media data to surface real-time stories for television news; Timeline relies on peer sharing and data analytics to disrupt the traditional news room. Other examples can be found in industries as diverse as hotels (Airbnb) and music distribution (SoundCloud).
By replacing centralized hierarchies with distributed networks of individuals, technology can lower costs and dramatically increase operational efficiencies, compared to what is possible with top-down information flows.
Unbundling. Wilson continues his talk with the notion that product and service design usually assume the existence of high development costs, which drives suppliers to bundle multiple products into a single package. For example, when banks open retail branches they combine counter service (tellers), commercial lending, personal mortgages, and other products into a bundled group, which maximize the large investment associated with opening a branch. Given the high cost, banks bundle diverse products and services they hope will attract a broad swath of customers.
Wilson argues that technology today makes packaging and delivering services more efficient than in the past, so companies can deliver best of breed services à la carte, in ways that historically were unrealistic or impossible.
- In the past, newspapers were sold exclusively in a bundle that includes a sports section, classifieds, and so on. Today, you can buy individual sections of a newspaper or even just a single article.
- Retail branch banking now has competition in the form of companies like Lending Club and Funding Circle, which offer peer-to-peer lending
- In entertainment, unbundled cable is no longer a requirement to watch shows from many sources. NetFlix, Amazon, Hulu, and others offer television content on a standalone basis.
Mobile. It's no secret that mobile is growing fast, a trend affecting a large range of technology businesses including chip makers, desktop computer manufacturers, and software developers. More important, the growth in mobile represents significant shifts in how society consumes technology.
Financial analyst turned VC, Mary Meeker, describes these impacts in an amazing presentation, which includes this graph of mobile growth:
As millions of individuals increasingly become "nodes on the network," to use Wilson's phrase, new business models will emerge. Companies such as Uber (transportation) and Square (payments), to name but two examples, offer the potential to disrupt well-established industries.
Implications for the CIO and CMO
In the face of business model disruption from startups and others, the CIO and CMO enter a world of fresh obstacles and opportunities.
On the challenge side, senior executives must recognize the likelihood that new companies may bring viable challenges to even large businesses. However, smart leaders should learn from the upstarts and experiment with ideas that exploit innovations such as those that Wilson describes.
A CIO who drives business innovation creates far greater value than one who just manages computing infrastructure. Similarly, CMO value emerges when the marketing organization looks beyond today's horizon by asking questions about the course of business tomorrow. Established companies fortunate enough to employ a visionary CMO or CIO should listen to these folks and learn the lessons of disruptive innovation.