On informal networks and established businesses

Informal networks are competing with established business structures

The cost of informal networks getting together, creating something and then splitting apart again has gone down considerably because of the internet and the collaborative and co-creation tools it now offers to these organizations. The economies of scale which once heralded the birth of corporations no longer holds for most services.

Customer requirements, the appropriate solutions to these requirements and the dynamics of their creation are changing

As coined by Seth Godin, the consumer tribes ask for more and more individualized services. Their needs in terms of solutions are different, as the needs of more and more fragmented markets become dramatically different from the one size fits all of prior periods. Malcom Gladwell has a well-known talk on TED, on spaghetti sauce. He states there is no market, there are multiple markets. Tribes are the new markets, in which tribe members communicate with each other, with other tribes, with non-affiliated consumers, and ideally, with the corporations catering to the markets. These tribes are vocal, they are driven, and they are aware. The most essential mistake to make here is to underestimate the tribes and their inherent market powers.

Business as usual?

Therefore, in order to provide for these markets, business will need to adapt and change. They will need to become more agile, probably smaller or at least adopt a structure that allows for quick reaction to opportunities and to tribal needs. Whereas the shareholder stays very important, the needs of the myriad of stakeholders will become more and more important.

The end of the IPO and market money making?

This does not necessarily spell the end of the IPO and of market money making. However, make no mistake about it, large funding for development will still be needed, but growth for growth’s sake is unlikely to remain acceptable. High performance will be required, and the structures will be determined by the performance requirements, whereas currently performance is mainly determined by the existing structures.
There appears to be building an anti-reaction, in which the corporatization trap is a trap te be avoided at all costs, because this trap results in a corporation looking inward and losing touch with reality, instead of looking outward and being in tune with the world of their customers, their tribes. Let’s make sure we don’t lose all good elements and lessons the corporation has brought us.

Customers are redefining value

Quality was for a long time the only thing an organization appeared to care about. Not necessarily high quality, but good enough quality. Now, quality is no longer a distinguishing factor. I can buy a high quality car pretty much anywhere in the world, my laptop and my mobile come from the other side of the world … therefore, the average corporation’s peak performance is becoming the bare minimum condition to play in the new markets. Note that this peak performance has been influenced by reengineering, by cost reductions, by right sizing, by process optimizations, by producing for an acceptable average quality. The customer experience has been anonymized. The new reality is a reality in which customers are understanding their power of purchase, and are exercising this power on a daily basis. Ask Dell, ask RIM, ask Toyota …

A case in point, the professional services industry

Large professional services organizations are the first to promote innovation but I believe they will only survive if:
* They become enablers of linchpins in their organizations: Read Seth Godin’s excellent book on Linchpins if you have not already;
* They value experience: Instead of trying to leverage on every project, large service corporations will need to put more experience and especially more client centric experience in the line, and less young people learning the trade. There is no issue with young people learning the trade, but not at the fees easily asked in the past;
* They become cost effective in the new reality: They will need to compete with lower cost, high value providers, with less overhead. Large service organizations will need to restructure and reinvent themselves.